<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 14a-11(c) or Section 14a-12
WATSON WYATT & COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $1.00 per share
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(2) Aggregate number of securities to which transaction applies:
16,980,977.12
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
N/A
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(4) Proposed maximum aggregate value of transaction:
N/A
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(5) Total fee paid:
None
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[_] Fee paid previously with preliminary materials. N/A
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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[LETTERHEAD OF WATSON WYATT & COMPANY APPEARS HERE]
______________, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of stockholders (the
"Special Meeting") of Watson Wyatt & Company, a Delaware corporation (the
"Company"), to be held on May 5, 1998 at 10:00 a.m. (E.S.T.) at the headquarters
of the Company, located at 6707 Democracy Boulevard, Suite 800, Bethesda,
Maryland 20817, for the following purposes:
1. To consider and act upon a proposal to amend Article 9 of the
Restated Bylaws of the Company (the "Bylaws") to modify certain aspects of the
method of calculating the share price of the Company's common stock, par value
$1.00 per share (the "Bylaw Amendment Proposal").
2. To consider and transact such other business as may properly come
before the meeting.
Details of the Bylaw Amendment Proposal to be considered at the Special
Meeting are set forth in the accompanying Proxy Statement and should be
considered carefully.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE BYLAW AMENDMENT
PROPOSAL DESCRIBED ABOVE AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE YOUR SHARES IN
FAVOR OF ADOPTION OF THE BYLAW AMENDMENT PROPOSAL.
Whether or not you expect to attend the Special Meeting, it is important
that your shares be represented. Please complete, sign and date the enclosed
proxy card and return it promptly in the accompanying envelope. If you attend
the Special Meeting, you may vote in person even though you have returned your
proxy card.
Sincerely,
A.W. Smith, Jr.
President and Chief Executive Officer
<PAGE>
WATSON WYATT & COMPANY
6707 Democracy Boulevard
Suite 800
Bethesda Maryland 20817
-----------------------
NOTICE OF SPECIAL MEETING
To Be Held On May 5, 1998.
-----------------------
To the Stockholders of
WATSON WYATT & COMPANY,
NOTICE IS HEREBY GIVEN that a Special Meeting of stockholders (the "Special
Meeting") of Watson Wyatt & Company, a Delaware corporation (the "Company"),
will be held on May 5, 1998 at 10:00 a.m. (E.S.T.) at the headquarters of the
Company, located at 6707 Democracy Boulevard, Suite 800, Bethesda, Maryland
20817 for the following purposes:
1. To consider and act upon a proposal to amend Article 9 of the Bylaws of
the Company (the "Bylaws") to modify certain aspects of the method of
calculating the share price of the Company's common stock, par value
$1.00 per share (the "Bylaw Amendment Proposal").
2. To consider and transact such other business as may properly come
before the meeting.
Details of the Bylaw Amendment Proposal to be considered at the Special
Meeting are set forth in the accompanying Proxy Statement and should be
considered carefully.
The Board of Directors has fixed the close of business on _________ , 1998
as the record date (the "Record Date") for the determination of stockholders
entitled to notice of, and to vote at, the Special Meeting or any adjournment(s)
or postponement(s) thereof. Only stockholders of record at the close of business
on the Record Date are entitled to notice of, and to vote at, the Special
Meeting and any adjournment(s) or postponement(s) thereof. A list of
stockholders will be available for inspection at the office of the Company
located at the address above at least 10 days prior to the Special Meeting.
WE STRONGLY URGE YOU TO REVIEW THIS PROXY STATEMENT AND TO COMPLETE AND
RETURN THE ENCLOSED PROXY BALLOT AS SOON AS POSSIBLE. YOUR VOTE IS IMPORTANT NO
MATTER HOW MANY SHARES YOU OWN. VOTING YOUR SHARES PROMPTLY WILL HELP TO AVOID
COSTLY FOLLOW-UP E-MAIL AND TELEPHONE SOLICITATION.
TO ASSURE THAT YOUR SHARES WILL BE VOTED AT THE MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY BALLOT PROMPTLY AND DELIVER IT TO YOUR OFFICE
ADMINISTRATOR IN THE ENCLOSED ENVELOPE. OFFICE ADMINISTRATORS WILL FORWARD THE
SEALED ENVELOPES TO THE OFFICE OF THE CORPORATE SECRETARY, BETHESDA, MARYLAND.
By Order of the Board of Directors of
WATSON WYATT & COMPANY
Walter W. Bardenwerper
Vice President, General Counsel and Secretary
Bethesda, Maryland
______________, 1998
<PAGE>
Preliminary Proxy Statement
Subject to Completion, Dated February 23, 1998
WATSON WYATT & COMPANY
6707 Democracy Boulevard
Suite 800
Bethesda, Maryland 20817
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PROXY STATEMENT
FOR THE SPECIAL
MEETING OF
STOCKHOLDERS
---------------
This Proxy Statement (the "Proxy Statement") is furnished in connection
with the solicitation of proxies by the Board of Directors (the "Board of
Directors") of Watson Wyatt & Company, a Delaware corporation (the "Company"),
for use at a Special Meeting of stockholders of the Company to be held at 10:00
a.m. (E.S.T.) on May 5, 1998, at the headquarters of the Company, located at
6707 Democracy Boulevard, Suite 800, Bethesda, Maryland 20817 and at any
adjournment(s) or postponement(s) thereof (the "Special Meeting").
At the Special Meeting, holders of the Company's outstanding common stock,
par value $1.00 per share (the "Common Stock"), will be asked to consider and to
vote upon the following proposal:
To adopt an amendment to Article 9 of the Company's Bylaws (the "Bylaws")
to modify certain aspects of the method of calculating the share price of the
Common Stock (the "Bylaw Amendment Proposal").
The Company's stockholders will also be asked to consider and transact such
other business as may properly come before the meeting.
A detailed description of the Bylaw Amendment Proposal is set forth in this
Proxy Statement and should be considered carefully.
The Board of Directors has unanimously approved the Bylaw Amendment
Proposal and unanimously recommends that the stockholders vote FOR adoption of
the Bylaw Amendment Proposal.
The close of business on ______ , 1998 has been fixed as the record date
(the "Record Date") for determination of holders of the Common Stock entitled to
notice of, and to vote at, the Special Meeting. The presence, either in person
or by proxy, of holders of Common Stock representing a majority of the votes
entitled to be cast at the Special Meeting constitutes a quorum for the
transaction of business at the Special Meeting. A list of stockholders will be
available for inspection at least ten days prior to the Special Meeting at the
Office of the Secretary, 6707 Democracy Boulevard, Suite 800, Bethesda, Maryland
20817.
Under the Delaware General Corporation Law (the "DGCL"), the Company's
Restated Certificate of Incorporation, as amended, and the Bylaws, approval of
the Bylaw Amendment Proposal requires the affirmative vote of at least 80% of
the votes of the outstanding shares of Common Stock entitled to be cast at the
Special Meeting in respect of the Bylaw Amendment Proposal. Based upon
16,980,977.12 shares of Common Stock outstanding as of February 19, 1998, the
affirmative vote of 13,584,782 shares of Common Stock would be required for
adoption of the Bylaw Amendment Proposal.
All shares of Common Stock that are represented at the Special Meeting by
properly executed proxies received prior to or at the Special Meeting, and not
revoked, will be voted at the Special Meeting in accordance with the
instructions indicated in such proxies. In the absence of contrary direction,
management will vote the proxies FOR adoption of the Bylaw Amendment Proposal.
This proxy statement and accompanying materials are first being mailed to
the stockholders of the Company on or about March 2, 1998.
The date of this proxy statement is __________, 1998.
<PAGE>
INTRODUCTION
For most of the Company's history, the price at which the Common Stock has
been purchased and sold among the Company's employees and the Company itself has
been determined pursuant to a formula specified in Article 9 of the Bylaws,
which is based on net book value of the Common Stock determined on an accrual
basis, under generally accepted accounting principles ("GAAP"), modified from
time to time for specific factors relating to the Company's business (the
"Formula Book Value"). See "The Bylaw Amendment Proposal - Current Definition of
Formula Book Value." In November 1996, stockholders approved a Bylaw amendment
that changed the description and the calculation of that formula. At that time,
86.9% of the then outstanding shares voted to calculate the price of the Common
Stock using Formula Book Value, a method that eliminates temporary variations
in stock value arising from certain non-operating transactions by spreading the
economic effect of losses on real estate subleases over their terms and by
eliminating certain other adjustments.
Recent developments in the Company's outsourced benefits administration
business operated by Wellspring Resources, LLC ("Wellspring"), including the
financial impact of the decision to discontinue the Company's outsourcing
business, discussed below, caused the Board of Directors to consider again the
method used to value the Common Stock. While efforts were underway to address
the business issues presented by Wellspring, alternative methods of valuing the
Common Stock were examined by certain working groups appointed by Mr. A.W.
Smith, Jr., President and Chief Executive Officer and by the Finance Committee
and the Compensation and Stock Committee (the "Committees") of the Board of
Directors. From three alternatives that were initially considered, the
Committees focused primarily on two: (1) a method based on an opinion of an
investment banking firm and (2) an adjustment to the Formula Book Value that
eliminates the effect on share value of the discontinuation of the Outsourcing
Business, as defined below. After approximately two months of consideration, the
Committees recommended to the Board of Directors on February 18, 1998, and the
Board of Directors unanimously determined to recommend to the stockholders, a
proposal to amend the Bylaws to adopt the second method, an adjustment to the
method of calculating the Formula Book Value. The Board of Directors believes
that the Bylaw Amendment Proposal is a reasonable and conservative method based
on the historic formula pursuant to which all the purchases and sales of the
Common Stock have been made, that it better comports with the Company's business
and culture, and that it is more consistent with the approach that is commonly
used among professional service firms, including companies in the same industry
as the Company.
BACKGROUND
THE COMPANY
General
The Company, together with its affiliates and consolidated subsidiaries,
provides employee benefits and human resources consulting services, including
advice relating to retirement plans and other human resources issues, as well as
administrative/recordkeeping services. The Company also provides services in
investment consulting, risk management and general insurance consulting and
derives fees from sales of surveys and from implementing and licensing employee
benefits software. The Company works with a diverse mix of organizations, from
the largest multinationals to public employers and nonprofit institutions.
Although the Company groups services into functional categories, management
believes one of the Company's primary strengths is the ability to deliver its
services without boundaries to meet the requirements of its clients.
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Wellspring Resources, LLC
As a strategic extension of its longstanding employee benefits
administration businesses, in 1991 the Company entered into a joint marketing
agreement with American Transtech, Inc. ("ATI"), a subsidiary of AT&T Corp. in
Jacksonville, Florida, to jointly sell outsourced employee benefits
administration services to large U.S. corporations that sponsor defined benefit,
defined contribution and health and welfare plans for their employees. The
arrangement between the Company and ATI combined the employee benefits expertise
of the Company and the call center and data management operations of ATI. In
1992, the Company and ATI entered into negotiations that led to their retention
by their first joint outsourcing client, Nynex Corporation. By mid 1994, the
Company and ATI had been retained by two additional corporate clients, Rockwell
International Corporation and Westinghouse Electric Corporation, and together
were developing systems, software and an operational infrastructure to deliver
services to these three clients (the "Retained Clients"). Recognizing that the
business dynamics of outsourcing are significantly different from consulting,
the Company in 1994 formed a wholly owned subsidiary, Wyatt Preferred Choice,
L.L.C., to focus solely on the outsourcing business. Due to the active demand at
the time for outsourcing services, as well as the Company's and the industry's
expectations that outsourcing provided a major growth opportunity, the Board of
Directors reviewed the capital requirements for the outsourcing business in
November 1994, and decided to explore the possibility of securing a partner to
provide additional capital and complementary expertise to support anticipated
growth. After preliminary discussions with several major firms during 1995, the
Company entered into detailed negotiations with State Street Bank & Trust
Company ("State Street"). In March 1996, the Company and State Street formed
Wellspring as a successor to the business of Wyatt Preferred Choice. Wellspring
is a limited liability company with Watson Wyatt and State Street each having a
50% beneficial ownership interest.
In light of systems and implementation issues with the Retained Clients
that began to emerge in 1995 and 1996, as well as the continued dependence by
those clients upon ATI systems and operations and the estimated expenses of
servicing their contracts, State Street was unwilling to include the Retained
Clients as part of the initial business of Wellspring. The Company therefore
retained responsibility for profits and losses associated with the Retained
Clients and contracted with Wellspring to service those clients. The business
transferred to, and developed by, Wellspring and the performance of the
contracts for the Retained Clients are collectively referred to as the
"Outsourcing Business."
Recent Developments Relating to the Outsourcing Business
Wellspring is a development stage business. To provide sophisticated
benefits administration services to its clients, Wellspring requires both
substantial expertise and operational know-how in the benefits business, as well
as complex systems and software through which its services are implemented.
During the two years since Wellspring's formation, the Company and State Street
have been investing cash in both the development of core technology needed to
operate the outsourced benefits administration business and in funding
the operating losses occasioned by implementing and servicing Wellspring's
initial clients. In accordance with Wellspring's limited liability company
agreement, the Company and State Street have each funded 50% of Wellspring's
cash needs. In recognition of the significant commitment of cash that Wellspring
has required, the Company and State Street have closely monitored Wellspring's
operational and financial results since its formation.
By the end of the fiscal year ended June 30, 1997 ("Fiscal Year 1997"),
Wellspring had been retained by five clients: AT&T Corp., Federal Express
Corporation, Sears, Roebuck and Co., US West, Inc., and Allegheny Teledyne,
Inc., in addition to the Retained Clients. Although Wellspring's revenues for
Fiscal Year 1997 totaled $45 million, including revenue from the Retained
Clients, during Fiscal Year 1997 Wellspring experienced software development
and systems implementation delays. The combination of delayed revenues arising
from late systems implementations for clients, as well as unanticipated
operating expenses, caused a significantly higher investment in the Outsourcing
Business than had been anticipated. During Fiscal Year 1997, the Company and
State Street each invested $17.0 million in Wellspring and made certain
guarantees on behalf of Wellspring for leases of office space and equipment. The
$17.0 million invested in Fiscal Year 1997
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brought the Company's total capital contribution at the end of Fiscal Year 1997
to $36.75 million (State Street's cumulative investment being at an equal level)
or $6.75 million in excess of the capital to which State Street and the Company
had each committed when Wellspring was formed.
Although Wellspring did not achieve its budget in Fiscal Year 1997, it did
make progress in operations, systems development and management. In the summer
of 1997, Wellspring's management presented to Wellspring's Board of Managers a
budget for the fiscal year ending on June 30, 1998 ("Fiscal Year 1998").
Although Wellspring's operating results were substantially on budget for the
first two months of Fiscal Year 1998, the Company's on-going investments in
Wellspring were projected to continue at a higher level than the Company had
expected when Wellspring was formed. Consequently, the Company began evaluating
potential alternatives with respect to its investment in Wellspring. The
alternatives included the addition of another member to the Wellspring limited
liability company, a change to the equal participation of the Company and State
Street in funding the cash needs of Wellspring, the sale of Wellspring or the
Company's interest in Wellspring to a third party or to State Street, and the
termination of the Company's participation in the Outsourcing Business. In
August 1997, the Company retained Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") to assist in its evaluation of Wellspring's prospects as
well as potential alternatives to reduce the Company's funding obligations.
From August 1997 to January 1998, the Company continued to evaluate its
investment in the Outsourcing Business. The evaluation included the allocation
of common costs with State Street concerning the Retained Clients. To fund
Wellspring's operations during that period, the Company invested $4.8 million
in Wellspring for the first quarter of Fiscal Year 1998 and $5.0 million for the
second quarter of Fiscal Year 1998. For the six months ended December 31, 1997,
the Company's share of Wellspring's reported after tax loss was $1.4 million.
The difference between the after tax losses and the Company's and State Street's
cash investments is largely attributable to the deferral of software development
and net implementation costs. With respect to the Retained Clients, the amount
of cash losses the Company incurred was $1.5 million for the first quarter of
Fiscal Year 1998 and $3.7 million for the second quarter of Fiscal Year 1998.
For the six months ended December 31, 1997, the operating loss for the Retained
Clients was $7.5 million.
In November 1997, management of Wellspring informed the Company and State
Street that, contrary to Wellspring's prior budget estimates, Wellspring
projected, on a preliminary basis, continued operating losses and the need for
substantial cash infusions from the Company and State Street for the foreseeable
future. The Company and State Street promptly began an analysis of the revised,
preliminary projections developed by Wellspring. The Company continued to
consider strategic alternatives regarding Wellspring, which included the
possible reduction or cessation of its investment in Wellspring through the sale
or termination of its interest. The Company requested DLJ to commence
discussions with parties that might be interested in purchasing the Company's
interests in Wellspring or the entire Outsourcing Business. In December 1997 and
January 1998, DLJ, the Company and State Street contacted prospective purchasers
of Wellspring. After preliminary discussions with two prospective purchasers,
the Company and State Street determined in January 1998 that a sale of
Wellspring was not feasible. The Company and State Street then considered
alternative methods to restructure the Outsourcing Business, including
termination of the Company's funding obligation with respect to Wellspring.
In February 1998, the Company and State Street concluded that,
notwithstanding significant additional funding by the parties, Wellspring, as
presently constituted, would require unacceptably high infusions of cash and
would experience unacceptable operating losses for the foreseeable future. After
further discussion with State Street, on February 18, 1998, the Board of
Directors determined that it would be in the best interests of the Company to
terminate the Company's funding obligations and approved a plan to discontinue
the Company's involvement in the Outsourcing Business and terminate its interest
in Wellspring (the "Discontinuation Plan") as soon as possible. The
Discontinuation Plan contemplates that the Company will serve two of the
Retained Clients through the expiration of their contracts during fiscal years
1998 and 1999 and will find a resolution acceptable to the client of the third
contract as soon as commercially practicable. As a result of such determination,
the Company expects to record a write-off of
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$58.7 million in the third quarter of Fiscal Year 1998, which will be recorded
as a reduction in investment in affiliates and deferred software and development
costs. The $58.7 million consists of $44.7 million attributable to the Company's
investment in Wellspring and $14.0 million attributable to the Company's
investment in the Retained Clients. The Company also expects to record a reserve
in the third quarter of Fiscal Year 1998 for approximately $60 million for
liabilities from contract termination expenses, lease guarantees, potential
estimated severance payments, stay bonuses and other expenses relating to the
discontinuation of the Outsourcing Business. The expected after-tax cash effect
of this reserve is approximately $33 million. Following implementation of the
Discontinuation Plan, the Company will cease to hold any interest in Wellspring.
Wellspring is expected to continue business on a more limited basis with State
Street owning 100% of Wellspring.
Effect of the Discontinuation Plan on the Common Stock
In the course of evaluating the Outsourcing Business in general and Well-
spring in particular, the Board of Directors considered the potential negative
impact of discontinuing investment in the Outsourcing Business on the value of
the Common Stock as computed under Article 9 of the Bylaws using the Formula
Book Value. Since the Company is owned by its employees, there is no public
trading market for the Common Stock. Stock ownership is limited to full-time and
certain part-time associates of the Company, its directors and certain
subsidiaries and affiliates. The Board of Directors recognized that the
potentially substantial write-down and cash costs required to discontinue
operations of the Outsourcing Business would significantly reduce the price of a
share of Common Stock, as computed under Article 9 of the Bylaws using the
Formula Book Value, below the $5.30 per share price determined at June 30, 1997
and below the price per share that was otherwise anticipated under that formula
on June 30, 1998. As a result, the Board of Directors considered whether the
Formula Book Value continued to appropriately reflect the value of the Common
Stock, or whether an alternative methodology should be adopted.
In December 1997, several working groups were formed to evaluate both the
operational and financial issues associated with the Outsourcing Business as
well as the impact of potential write-downs and exit costs from Wellspring on
the price per share of the Common Stock. These working groups evaluated three
potential alternatives to the Formula Book Value Method set forth in Article 9
of the Bylaws: (i) modifying the Formula Book Value Method to eliminate the
effect of discontinuing the operations of the Outsourcing Business (the
"Modified Formula Book Value Method"); (ii) basing the value of the Common Stock
on an annual opinion obtained from an independent investment banking firm, which
would include appropriate adjustments to reflect the absence of an external
trading market for the Common Stock and the Company's employee-owned status (the
"Opinion Method"); and (iii) adopting a modified cash flow valuation method.
After several meetings to review these potential alternatives, the working
groups concentrated their attention on alternatives (i) and (ii), and reported
the outcome of their analyses to the Committees. As part of the consideration of
the Opinion Method, DLJ was requested to provide an opinion of the range of
aggregate value of the Common Stock. A copy of such opinion, dated February 6,
1998 (the "DLJ Opinion"), is attached as Exhibit A to this Proxy Statement and
includes the assumptions made, methodologies followed, other matters considered
and limits of review by DLJ.
The Committees determined to recommend the Modified Formula Book Value
Method to the Board of Directors as the most appropriate alternative for the
Company. On February 18, 1998, the Committees made a presentation to the Board
of Directors which unanimously voted to adopt the Modified Formula Book Value
Method and to recommend that stockholders approve the Bylaw Amendment Proposal
at the Special Meeting. The decision by the Board of Directors was based upon
the following reasons, which were also the bases for the Committees'
recommendation:
1. The Modified Formula Book Value Method results in a continuation of the
fundamental valuation approach used by the Company throughout most of
its history;
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2. The Modified Formula Book Value Method is a relatively conservative
valuation method, more consistent than the Opinion Method with the stock
ownership philosophy adopted by the Board of Directors and previously
communicated to the stockholders;
3. The Modified Formula Book Value Method more closely approximates the
capitalization methodologies generally used by professional service
firms like the Company;
4. Although the Modified Formula Book Value Method is not as effective as
the Opinion Method in producing an appropriate result upon the
occurrence of extraordinary events, it produces potentially less
volatile results than would be expected to result from the Opinion
Method over the long term; and
5. The Modified Formula Book Value Method provides the Board of Directors
with the flexibility needed in a professional service firm to strike
appropriate balances between compensation rewards to employees in their
employment capacity and returns on capital investment in their
stockholder capacity based on the business conditions prevailing in
different years.
In reaching its decision, the Board of Directors placed no greater weight
on any single factor than on any other factor. Given the history of employee
ownership of the Common Stock, the valuation criteria for equity securities used
by other consulting firms and the Company's culture, the Board of Directors did
not request DLJ's view concerning the valuation alternatives being considered by
the Board of Directors.
The Board of Directors recognized that the adjustment to eliminate the
effects of discontinued operations regarding the Outsourcing Business will
result in a substantial improvement in the price at which shares of the Common
Stock are purchased and sold above the price that would have resulted for Fiscal
Year 1998 if the Bylaw Amendment Proposal were not adopted, but an amount not
much higher than that which has prevailed in the recent past. The Board of
Directors believes that the resolution of the Outsourcing Business through the
Discontinuation Plan will have positive effects on the financial condition,
results of operation and liquidity of the Company.
The DLJ Opinion, which among other things, assumes the shutdown of
Wellspring, provides a range of aggregate Common Stock valuation of $120 million
to $130 million on the basis of a "private market discount", as defined in the
DLJ Opinion. Such a range of values would be in excess on a per share basis of
the price derived using the Formula Book Value currently in effect and the price
derived using the Modified Formula Book Value. Because it was prepared on the
basis of a private market discount, the DLJ Opinion does not reflect a market
valuation of the Common Stock nor does it necessarily reflect a range of values
of Common Stock that would prevail in the event of a sale of the Company.
In performing its analyses, DLJ assumed the accuracy of the following
Company estimates relating to the shutdown of Wellspring: (i) a $58.7 million
write-off of its Wellspring investment, (ii) additional cash outlays of
approximately $71.3 million and (iii) a one-time tax benefit of $56.2 million
related to the shutdown. DLJ treated the additional cash outlays of $71.3
million as indebtedness of the Company and accordingly, deducted it from the
Company's estimated value to determine the valuation of the Common Stock.
Subsequent to the date of the DLJ Opinion, the Company has continued to refine
the amounts attributable to the accrual resulting from the Discontinuation Plan
from $71 million to approximately $60 million. Therefore, the aggregate value of
the Common Stock under the Opinion Method may be different than the range of
value set forth in the DLJ Opinion. The Board of Directors does not believe that
any such difference would affect its determination to adopt the Bylaw Amendment
Proposal, even if the amount of such difference is material.
Pursuant to the terms of an engagement letter, the Company has paid DLJ
$500,000 for services relating to the valuation and has agreed to pay an
additional $150,000 for any update of the valuation prior to December 31, 2000,
if the Company so requests. The Company has also agreed to reimburse DLJ
promptly for all out-of-pocket expenses (including the reasonable fees and
out-of-pocket expenses of counsel) which DLJ incurs in connection with its
engagement, and to indemnify DLJ and certain related persons against certain
liabilities in connection with its engagement, including liabilities under the
federal securities law. The Company previously engaged DLJ to act as the
Company's exclusive financial advisor through March 31, 1998 and paid DLJ
$450,000 in connection with this assignment. In that role DLJ analyzed various
strategic alternatives available to the Company, in particular, focused on the
operations of Wellspring.
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After a detailed evaluation of the alternatives, the Board of Directors
believes that the Bylaw Amendment Proposal is a reasonable and appropriate
method for determining the price for purchases and sales of the Common Stock
among the Company and its employees and affiliates.
Other Matters
In January 1998, the Company deferred the annual sale of Common Stock
until the resolution of important issues of business strategy and financial
investments. In light of the time required to conduct the Special
Meeting, the Board of Directors has determined not to conduct an annual stock
sale before the end of Fiscal Year 1998.
THE BYLAW AMENDMENT PROPOSAL
The Board of Directors seeks the stockholders' approval of a proposal to
amend Article 9 of the Bylaws to modify the method of calculating the share
price of the Common Stock through the changes described below. The Board of
Directors unanimously approved the Bylaw Amendment Proposal on February 18, 1998
and recommends that the stockholders adopt the Bylaw Amendment Proposal.
Current Definition Of Formula Book Value
The Common Stock is valued according to a formula set forth in the Bylaws.
Under that formula, the value of the Common Stock is equal to the Formula Book
Value (as defined in the Bylaws), subject to certain adjustments. Section 9.9(b)
of the Bylaws currently defines Formula Book Value as follows:
"Net Book Value of Common Stock as used herein shall mean the consolidated
net book value of the Common Stock of the Corporation determined, on an
accrual basis, by generally accepted accounting principles except that in
computing such Net Book Value as of June 30, 1984, or any subsequent fiscal
year end, consolidated assets of the Corporation consisting of subscriber
lists, computer software and data banks used principally in compensation
survey or related businesses carried on by the Corporation or any
subsidiary shall be valued at 50% of the Consolidated income received by
the Corporation in respect of such business during the fiscal year then
ended. Formula Book Value as used herein shall mean the Net Book Value of
the Corporation's Common Stock as of June 30, 1996, increased or decreased
by net income or losses, and all other 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; and (ii) eliminate annual changes in the Currency
Translation Adjustment ("CTA") occurring after June 30, 1996."
Proposed Amendment
The Bylaw Amendment Proposal would modify the formula for determining the
price of the Common Stock contained in Section 9.9(b) of the Bylaws to eliminate
the effect of the discontinuation of the Outstanding Business under the
Discontinuation Plan.
The relevant text of Section 9.9(b) of the Bylaws as it would read upon
approval of the Bylaw Amendment Proposal is set forth below with the new text
set forth in bold print:
Net Book Value of Common Stock as used herein shall mean the consolidated
net book value (defined as the sum of Redeemable Common Stock and Permanent
Shareholders' Equity on the Corporation's Consolidated Balance Sheet as of
the fiscal year end) of the Common Stock of the Corporation determined, on
an accrual basis, by generally accepted accounting principles ("GAAP")
except that in computing such Net Book Value as of June 30, 1984, or any
subsequent fiscal year end, consolidated assets of the Corporation
consisting of subscriber lists, computer software and data banks used
7
<PAGE>
principally in compensation survey or related businesses carried on by
the Corporation or any subsidiary shall be valued at 50% of the
Consolidated income received by the Corporation in respect of such
business during the fiscal year then ended. Formula Book Value as used
herein shall mean the Net Book Value of the Corporation's Common Stock
as of June 30, 1996, increased or decreased by net income or losses, and
all other GAAP basis increases or decreases to Net Book Value occurring
after June 30, 1996, and 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 ("CTA") 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
Outsourcing Business. The Discontinuation of the Outsourcing Business as
used herein means the discontinuation of the outsourcing business of the
Corporation and Wellspring Resources, LLC pursuant to the
Discontinuation Plan adopted by the Board of Directors of the
Corporation on February 18, 1998, as set forth in the minutes of the
meeting of the Board of Directors of the Corporation held on February
18, 1998."
The per share price of the Common Stock for Fiscal Year 1997 and Fiscal
Year 1998 was calculated using the Formula Book Value, as in effect before
giving effect to the Bylaw Amendment Proposal. If adopted, the Bylaw Amendment
Proposal would be effective on June 30, 1998 and would continue to be used to
determine the share price for periods subsequent to Fiscal Year 1998.
The full text of Article 9 of the Bylaws, as in effect on the date
hereof before giving effect to the Bylaw Amendment Proposal, is set forth as
Exhibit B to this Proxy Statement. The full text of Article 9 of the Bylaws, as
will be in effect on June 30, 1998 if the Bylaw Amendment Proposal is adopted,
is set forth as Exhibit C to this Proxy Statement. The Company will provide a
copy of the complete Bylaws without charge upon written request by any
stockholder. Requests should be directed to Walter W. Bardenwerper, Vice
President, General Counsel & Secretary, Watson Wyatt & Company, 6707 Democracy
Blvd., Suite 800, Bethesda, Maryland 20817-1129.
Impact On Stock Price
The impact on the stock price from changing the valuation method in the
manner described above cannot be predicted in any particular year. The following
table represents the Company's estimates of the value per share of Common Stock
at June 30, 1998 under the Bylaws using the Formula Book Value, as in effect on
the date hereof, and under the Bylaws using the Formula Book Value as modified
by the Bylaw Amendment Proposal. The "Per Share Formula Book Value" calculation
as presented in the following table is based on estimates concerning charges for
the discontinuation of the Outsourcing Business and the results of continuing
operations and other factors. The actual Formula Book Value will vary from that
set forth in the following table to the extent actual results vary from such
estimates. Therefore, the "Per Share Formula Book Value" calculated in the table
is for illustrative purposes only and may or may not be the value at June 30,
1998.
8
<PAGE>
Estimated Formula Book Value Per Share
(in millions except per share data)
<TABLE>
<CAPTION>
Estimated Formula Book
Estimated Formula Book Value as of June 30, 1998,
Value as of June 30, 1998, after giving effect to
before giving effect to Bylaw Amendment
Bylaw Amendment Proposal Pro Forma Change Proposal
INCOME STATEMENT
<S> <C> <C> <C>
Estimated income from continuing operations $ 17.8 $-- $ 17.8
Income Taxes on continuing operations (9.3) (9.3)
Compensation charge -- (73.8) A (73.8)
----------------- ------------------ ------------------
Income from continuing operations 8.5 (73.8) (65.3)
Discontinued Operations:
After tax loss from Discontinued Operations (7.9) (7.9)
After tax loss on disposal of Discontinued Operations (65.9) -- (65.9)
------------------ ----------------- ------------------
(73.8) -- (73.8)
----------------- ------------------ ------------------
Estimated net loss $ (65.3) $ (73.8) $ (139.1)
================== ================== ==================
FORMULA BOOK VALUE
Shareholders' equity, beginning of period $ 83.9 $ -- $ 83.9
Estimated net loss (65.3) (73.8) (139.1)
Net stock activity (11.1) 73.8 B 62.7
Cumulative translation adjustment (3.1) -- (3.1)
------------------ ----------------- ------------------
Shareholders' equity, end of period 4.4 -- 4.4
Adjustments required to arrive at Formula Book Value
(before amendment)
Cumulative translation adjustment since 6/30/96 3.3 -- 3.3
Surveys adjustment 5.9 -- 5.9
Real estate sublease loss adjustment 4.7 -- 4.7
Proposed Adjustment to Formula Book Value:
Discontinued operations, net of tax -- 73.8 C 73.8
------------------ ----------------- ------------------
Estimated Formula Book Value, after amendment $ 18.3 $ 73.8 $ 92.1
================= ================= =================
Estimated shares outstanding at June 30, 1998 16,112 -- 16,112
Estimated Formula Book Value, per share $ 1.14* $ -- $ 5.72*
</TABLE>
A Additional compensation expense required to be recorded in the Income
Statement due to the Bylaw change to eliminate the effect of the discontinued
operations from the Formula Book Value calculation.
B Increase in equity corresponding to A.
C Increase in Formula Book Value as a result of the Bylaw Amendment Proposal
* Estimated Formula Book Values per share are based on estimates.
<PAGE>
Cautionary Statement Regarding Forward-Looking Statements
Certain statements contained in this Proxy Statement, including without
limitation statements containing the words "believes," "estimates,"
"anticipates," "intends," "expects" and words of similar import, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions, both
nationally, internationally and in the regions in which the Company operates;
industry capacity; demographic changes; existing government regulations and
changes in, or the failure to comply with, governmental regulations; liability
and other claims asserted against the Company; competition; the loss of any
significant customers; changes in business strategy or development plans; the
ability to attract and retain qualified personnel; and other factors referenced
in this Proxy Statement. Any estimates and projections referenced herein have
been developed solely by the management of the Company and are based on the
Company's best judgements together with the Company's knowledge and experience
and awareness of trends in the industry in which the Company operates. These
forward-looking statements are necessarily based upon numerous assumptions and
are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the control of the
Company, and upon assumptions with respect to future business decisions that are
subject to change. GIVEN THESE UNCERTAINTIES, THE STOCKHOLDERS OF THE COMPANY
ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS.
All subsequent written and oral forward-looking statements attributable to the
Company or persons acting on behalf are expressly qualified in their entirety by
the cautionary statements set forth or referred to above in this paragraph. The
Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
Recommendation of the Board of Directors
The Board of Directors believes that the Bylaw Amendment Proposal is
beneficial to the Company for the reasons set forth above. The Board of
Directors recommends that stockholders vote FOR the adoption of the Bylaw
Amendment Proposal. Approval of the Bylaw Amendment Proposal requires the
affirmative vote of the holders of shares representing at least 80% of the
outstanding voting rights of the Common Stock, entitled to be cast in respect of
the Bylaw Amendment Proposal at the Special Meeting. Based upon 16,980,977.12
shares of Common Stock outstanding at February 19, 1998, the affirmative vote of
13,584,782 shares would be required to approve the Bylaw Amendment Proposal.
MANNER IN WHICH THE PROXIES WILL BE SOLICITED AND VOTED
The shares represented by each properly executed proxy not subsequently
revoked will be voted at the Special Meeting in accordance with the instructions
contained therein. If no specification is made, the proxy will be voted FOR
adoption of the Bylaw Amendment Proposal.
A stockholder giving a proxy in the form accompanying this Proxy Statement
has the power to revoke the proxy prior to its exercise by (i) filing a written
notice of revocation bearing a later date with Walter W. Bardenwerper,
Secretary, Watson Wyatt & Company, 6707 Democracy Boulevard, Bethesda, Maryland
20817 prior to the Special Meeting; (ii) delivering to the Company a duly
executed proxy bearing a later date; or (iii) attending the Special Meeting and
voting in person.
If necessary, the holders of the proxies may vote in favor of a proposal to
adjourn the Special Meeting, to permit further solicitation of proxies, to
obtain sufficient votes to adopt any matter considered at the Special Meeting.
If the Special Meeting is adjourned for any reason, at any subsequent
reconvening
10
<PAGE>
of the Special Meeting all proxies may be voted in the same manner as such
proxies would have been voted at the original convening of the Special Meeting
(except for any proxies that have herefore effectively been revoked or
withdrawn). The cost of soliciting proxies will be borne by the Company. In
addition to the use of the mails, proxies may be solicited personally, by
telephone, electronically or by facsimile transmission by officers, directors
and employees of the Company, who will not be specifically compensated for such
solicitation activities.
The Board of Directors has fixed the close of business on _______, 1998 as
the Record Date for determination of holders of the Common Stock entitled to
notice, of and to vote at, the Special Meeting. The Bylaws provide that the
presence, either in person or by proxy, of persons holding a majority of the
shares of Common Stock outstanding on the Record Date constitutes a quorum for
the transaction of business at the Special Meeting. A list of stockholders will
be available for inspection at least ten days prior to the Special Meeting at
the Office of the Secretary of the Company, 6707 Democracy Boulevard, Suite 800,
Bethesda, Maryland 20817.
Management knows of no other matter that may come up for action at the
meeting. If, however, any other matter properly comes before the meeting, the
proxies named on the proxy form (the "Proxy") enclosed will vote in accordance
with their judgement upon such matter. Individual proxies will be counted by the
Company's Corporate Secretary. Whether or not you expect to be present at the
meeting, you are urged to date, sign and promptly return the enclosed Proxy to
[ by , 1998] for forwarding to the Office of the Secretary of the
Company. Please return your Proxy in accordance with the directions on the
bottom of the Proxy.
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF WATSON WYATT & COMPANY
Beneficial Ownership of Common Stock
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of February 19, 1998, by; (i) each person known
to the Company to beneficially own more than five percent of the Common Stock;
(ii) each executive officer and director of the Company; and (iii) all directors
and executive officers of the Company as a group. To the Company's knowledge, no
person beneficially owns more than 2.1% of the outstanding shares of Common
Stock. The figures below include shares owned through the Company's Stock
Purchase Plan and Stock Ownership Plan. Except as indicated in the footnotes to
this table, the business address of each person named in this table is the
address of the Company and each such person has sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned by such
person subject to community property laws where applicable.
Number of Outstanding Shares
Director, Executive Officer of Common Stock Beneficially Percentage of
or Stockholder Owned on February 19, 1998 Total Shares
--------------------------- ---------------------------- --------------
Walter W. Bardenwerper 106,936 *
Vice President, General
Counsel and Secretary
Thomas W. Barratt 71,600 *
Vice President and
Central Regional Manager
Charles A. Clemens 7,500 *
Director, Acting
Practice Director for
HealthCare Practice
Paul R. Daoust 301,318 1.8%
Executive Vice President and
Chief Operating Officer
Paula A. DeLisle 44,900 *
Vice President and
Managing Consultant, Hong Kong
11
<PAGE>
<TABLE>
<CAPTION>
Number of Outstanding Shares
of Common Stock Beneficially
Director, Executive Officer, Shareholder Owned on February 19, 1998 Percentage of Total Shares
--------------------------------------- -------------------------- --------------------------
<S> <C> <C>
Robert J. Ellis 97,776 *
Vice President and Director of Marketing
David B. Friend, M.D. 46,000 *
Vice President and Regional Manager for Eastern Region
John J. Gabarro/A/ 7,500 *
Director
John J. Haley 227,749 1.3%
Vice President and Retirement Practice Director
Gary T. Hallenbeck 122,500 *
Vice President of Corporate Strategy and Development
Ira T. Kay 60,900 *
Vice President and Compensation Practice Director
Brian E. Kennedy 35,000 *
Vice President, Managing Director, Canada and Managing
Consultant, Toronto
Barbara L. Landes 60,000 *
Vice President, Finance and Chief Financial Officer
Robert D. Masding/B/ 0
Senior Partner, Watson Wyatt Partners
Carl D. Mautz 2,200 *
Controller
R. Michael McCullough/C/ 7,500 *
Director
Gail E. McKee 4,500 *
Vice President and Director of
Account Management, Western Region
Paul V. Mee 88,600 *
Vice President, Western Regional Manager and
Managing Consultant, Southern California
Sylvester J. Schieber 133,338 *
Vice President and Director of Research and Information
Center
A.W. Smith, Jr. 276,342 1.6%
President and Chief Executive Officer
Eric B. Schweizer 19,000 *
Treasurer
John A. Steinbrunner 103,191 *
Vice President and Central Region Retirement Practice
Leader
A. Grahame Stott 129,000 *
Vice President and Managing Director, Asia-Pacific Region
Watson Wyatt Partners 359,000 2.1%
Robert J. Webb 295,800 1.7%
Vice President and Managing Consultant-Dallas
All current directors and executive officers as a group (24) 2,249,150 13.2%
</TABLE>
* Beneficial ownership of 1% or less of all of the outstanding Common Stock is
indicated with an asterisk.
- -----------------------------------
/A/ The address of Mr. Gabarro is Harvard Business School, Morgan Hall-399,
Soldier's Field, Boston, MA 02163.
/B/ Watson Wyatt Holdings Limited, which is wholly owned by Watson Wyatt
Partners, in which Mr. Masding is a senior partner, owns 359,000 shares of
the Common Stock. Mr. Masding's address is Watson Wyatt Partners, Watson
House, London Road, Reigate Surrey RH2 9PQ, England.
/C/ The address of Mr. McCullough is Booz Allen & Hamilton, 8283 Greensboro
Drive, McLean VA 22102.
12
<PAGE>
SHAREHOLDER PROPOSALS
Any shareholder wishing to present a proposal at the 1998 Annual Meeting of
the Company, currently expected to be held on November 19, 1998, may submit such
proposal in writing to Watson Wyatt & Company, Office of the Secretary, 6707
Democracy Boulevard, Suite 800, Bethesda, Maryland 20817. Such proposals must
be received no later than June 30, 1998.
By Order of the Board of Directors
----------------------------------------
Walter W. Bardenwerper, Secretary
Bethesda, Maryland
____________________, 1998
13
<PAGE>
EXHIBIT A
February 6, 1998
Board of Directors
Watson Wyatt & Company
6707 Democracy Boulevard, Suite 800
Bethesda, MD 20817-1129
Ladies and Gentlemen:
You have requested our opinion as to the range of valuation of the
common stock (the "Common Stock") of Watson Wyatt & Company (the "Company"). For
the purposes of this letter, we have assumed that the Common Stock would not
have been readily transferable to third parties and it therefore would have been
valued at a discount to publicly-traded common stock. In our analysis, we
assumed such "private market discount" is the amount by which the fair value of
the Common Stock would be discounted to reflect the value at which a large
minority interest block of common stock could be sold to third party
institutional investors in the absence of any public market for the shares and
assuming such institutional investors would be subject to the then current
restrictions on the Common Stock. For purposes of determining the value of the
Common Stock, we have:
(i) analyzed certain publicly available financial statements
and other financial and operating data concerning the
Company, and certain financial projections prepared by
the management of the Company;
(ii) compared the financial performance of the Company with
that of certain other comparable publicly-traded
companies and their securities;
(iii) reviewed the financial terms, to the extent publicly
available, of certain comparable acquisition
transactions;
(iv) reviewed the operating and shutdown assumptions related
to the Company's interest in Wellspring Resources, LLC
("Wellspring");
(v) held discussions with members of management of the
Company with respect to past results, current operations,
and future prospects of the Company;
(vi) performed such other analyses as we have deemed
appropriate.
In rendering our opinion, we have relied upon and assumed the accuracy
and completeness of all of the financial and other information that was
available to us from public sources, that was provided to us by the Company or
its representatives, or that was otherwise reviewed by us. With respect to both
the Company's financial projections and the assumptions relating to Wellspring
that were supplied to us, we have assumed that they have been reasonably
prepared on the basis reflecting the best currently available estimates and
judgments of the management of the Company as to the future operating and
financial performance of the Company and shutdown of Wellspring. We have not
assumed any responsibility for making an independent evaluation of any assets or
liabilities or for making any independent verification of any of the information
reviewed by us.
Our opinion is necessarily based on economic, market, financial and
other conditions as they exist on, and on the information made available to us
as of, the date of this letter. It should be understood that, although
subsequent developments may affect this opinion, we do not have any obligation
to update, revise or reaffirm this opinion, unless otherwise requested by the
Company in accordance with the terms of the
<PAGE>
letter agreement between the Company and Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") dated August 19, 1997, as amended by the letter agreement
dated January 30, 1998.
DLJ, as part of its investment banking services, is regularly engaged in
the valuation of businesses and securities in connection with mergers,
acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
DLJ has performed investment banking and advisory services for the Company in
the past and has received customary compensation for such services.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the aggregate value of the Common Stock is within the range
of $120 million to $130 million.
This letter is provided to the Board of Directors of the Company solely for
its use and is not to be provided to or relied upon by anyone other than the
Company without our express written consent.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Peter B. Pond
----------------------------
Peter B. Pond
Managing Director
<PAGE>
EXHIBIT B
RESTRICTION ON TRANSFERS OF STOCK
(CURRENT VERSION)
Section 9.1 Restriction on Stock. Except for (i) transfers to the
Corporation or to trusts, personal holding companies or other entities
satisfying the terms and conditions of Section 9.2 or 9.3 below, (ii) reversions
from trusts described in Section 9.2 to the grantors thereof or their estates,
or (iii) transfers from personal holding companies or similar entities described
in Section 9.2 to the sole shareholders thereof, no present or future
shareholder shall transfer, whether by way of sale, gift, hypothecation, trust
distribution, will, intestacy or any other disposition, any shares of any class
of capital stock ("Stock") in the Corporation now owned or hereafter acquired by
such shareholder (including, without limitation, shares of Stock acquired upon
conversion or exchange of other shares of Stock), without first giving the
Corporation prior written notice of his intention to so dispose of such Stock.
Said notice to the Corporation ("Disposition Notice") shall state the terms and
conditions of the proposed disposition, including the names of the transferees,
the purchase price and payment terms, if any, the type of disposition, and the
number of shares to be transferred ("Offered Shares"). A shareholder giving a
Disposition Notice is herein sometimes called an "Offering Stockholder".
(a) The Corporation shall have the option for a period of thirty days following
the receipt of a Disposition Notice from an Offering Stockholder to buy on
such Closing Date, as is determined by the President or Secretary, part or
all of the Offered Shares at the price per share determined in accordance
with Section 9.5 of this Section 9, provided that the Corporation may buy
less than all of the Offered Shares if the balance of the Offered Shares is
contemporaneously purchased by Eligible Purchasers (or otherwise disposed
of in accordance with these Bylaws) or if the Offering Stockholder elects
to accept offers by the Corporation and/or Eligible Purchasers to purchase
less than all of the Offered Shares and to retain the balance of the
Offered Shares. If the Corporation does not elect to purchase all Offered
Shares, within thirty days after receipt of the Offering Stockholder's
Disposition Notice, it shall forward to the Offering Stockholder a list of
the names and addresses of all Eligible Purchasers together with a
description of their respective rights to purchase Offered Shares not
initially purchased by the Corporation.
The Offering Stockholder shall within fifteen days after receipt of such
list of Eligible Purchasers offer to sell the balance of the Offered Shares
to such Eligible Purchasers in accordance with their respective rights to
purchase set forth in such list.
(b) Elections by Eligible Purchasers to purchase Offered Shares under
subsection (a) hereof shall be by written notice delivered both to the
Corporation and to the Offering Stockholder within thirty days following
the receipt of the offer to sell from the Offering Stockholder as provided
in Section 9.1(a) hereof.
(c) The Corporation shall have the further option to buy or furnish Eligible
Purchasers for any Offered Shares not initially to be purchased by the
Corporation or by Eligible Purchasers under subsections (a) or (b) hereof
within 120 days following receipt by the Corporation of the Disposition
Notice.
(d) The Offered Shares, if any, not purchased under subsections (a), (b), or
(c) of this Section 9.1 may be disposed of within 150 days after receipt by
the Corporation of the Disposition Notice, but only to persons and only on
the terms and conditions set forth in the Disposition Notice. Any Offered
Shares not so transferred within such 150-day period may not thereafter be
transferred, except upon compliance with the terms of this Section 9 of the
Bylaws and as if they had not been previously offered hereunder. Any
attempt to transfer any Stock of the Corporation in contravention of the
provisions of this Section 9 shall be null and void and without legal
effect,
<PAGE>
except that such attempted transfer shall constitute a continuing offer
to sell all such Stock under Section 9.1 (a) hereof. The price at which
such Stock may be purchased by the Corporation or Eligible Purchasers
shall be determined pursuant to Section 9.5 of this Section 9; such
Stock will be deemed to have been offered at the date of the attempted
transfer; and, for purposes hereof, such attempted transfer shall be
deemed to constitute the giving of a Disposition Notice under Section
9.1, but there shall be no limitations on the time periods within which
the Corporation and/or Eligible Purchasers shall be required to
exercise their rights hereunder.
Section 9.2 Revocable Trusts; Personal Holding Corporations.
(a) Anything in this Section 9 to the contrary notwithstanding, any
shareholder may, with the approval of the Board of Directors or such
officer(s) as may be designated by the Board of Directors for such
purpose, transfer any or all Stock of the Corporation now owned or
hereafter acquired by him to a revocable trust for the sole benefit of
himself during his lifetime, provided that:
(i) the trust instrument acknowledges that the Stock is held subject
to the terms and conditions of these Bylaws;
(ii) the trust, by its terms, provides that on the first to occur of:
(A) the termination of the trust,
(B) the ceasing of the shareholder to act as sole trustee of the
trust, or
(C) any event described in Section 9.4 with respect to the
settlor, all stock of the Corporation then held by the trust
will either revert to the shareholder or be offered for sale
by the same procedure as set forth in Section 9.1 hereof.
(iii) the shareholder is the sole trustee of said trust and the trust
grants to the shareholder and to no other person, corporation or
other entity full powers as trustee with respect to all Stock of
the Corporation at any time held by the trust, including powers
to attend all meetings of shareholders, vote such shares and give
proxies with respect thereto, make all decisions with respect to
the trust's sale or purchase thereof, including the power to
direct the sale of some or all of the Stock of the Corporation at
any time for any reason deemed valid by said shareholder;
(iv) a copy of the trust, as from time to time amended, is at all
times kept on file by the Trustee thereof with the Secretary of
the Corporation; and
(v) the trust, by its terms, provides that any amendment that in any
way affects the Stock of the Corporation held by the trust or any
of the provisions relating to such Stock set forth in
subparagraphs [(a)](i) through [d](iv) above, must be approved in
advance by the President, Treasurer or Secretary of the
Corporation or shall be null and void and of no effect with
respect to such Stock.
(b) Personal Holding Corporations. Anything in this Section 9 to the
contrary notwithstanding, any non-U.S. resident shareholder of the
Corporation's stock (for purposes of this paragraph, the "Shareholder")
may, with the approval of the Board of Directors or such officer(s) as
may be designated by the Board of Directors for such purpose, transfer
any or all Stock of the Corporation now issued or hereafter acquired by
him (or direct the Corporation to issue stock allocated by the
Corporation to him) to a personal holding corporation incorporated
under the laws of a jurisdiction outside of the United States which
corporation is wholly-owned by such Shareholder (or such similar entity
under the laws of the jurisdiction in which such Shareholder is
domiciled
<PAGE>
which is wholly-owned by such Shareholder and which is approved by the General
Counsel of the Corporation in his discretion), provided that:
(i) One hundred percent (100%) of the stock of such personal holding
corporation is owned solely by the Shareholder (or the ownership of such
other similar approved entity is one hundred percent (100%) vested in the
Shareholder) and no person, corporation or other entity other than the
Shareholder shall have any rights or powers with respect to the ownership,
control or direction of any stock of such personal holding corporation or
other similar approved entity or any stock of the Corporation at any time
held by such personal holding corporation or other similar approved
entity, including, without limitation, any right to attend meetings of
shareholders, vote such shares or give proxies with respect thereto;
(ii) the Articles of Incorporation, Bylaws and any other charter or governing
documents of such personal holding corporation or other similar approved
entity contain restrictions on the transfer of its stock which have
substantially the same effect as the stock transfer restrictions contained
in these Bylaws, and are approved in writing by the General Counsel of the
Corporation, are not amended without such approval, and certified or
notarized copies thereof are at all times kept on file with the Secretary
of the Corporation;
(iii) all stock certificates of the personal holding corporation (or similar
documents evidencing ownership of such other similar approved entity)
contain a legend identifying the existence of such transfer restrictions;
(iv) such personal holding corporation or similar approved entity shall agree
in writing with the Corporation not to issue or allot any additional stock
of any class to anyone other than the Shareholder;
(v) the Shareholder and the personal holding corporation or other similar
approved entity agree with the Corporation in writing, in a form approved
by the General Counsel of the Corporation, that they will abide by all
of the terms restricting the transfer of the Corporation's stock as set
forth in these Bylaws (as they may be amended from time to time) and that
they will take or cause to be taken all steps which may be required in
order to assure compliance with the stock transfer restrictions contained
in these Bylaws, including an agreement not to transfer the stock of the
personal holding corporation (or other evidence of ownership of a similar
approved entity); and
(vi) the personal holding corporation (or similar approved entity) and the
Shareholder shall agree in writing with each other and the Corporation
that, upon the first to occur of:
(A) any event described in Section 9.4 with respect to the Shareholder;
(B) the bankruptcy, insolvency, dissolution (either voluntary or
involuntary), sale or merger of the personal holding corporation or
other similar approved entity, or the sale or attempted sale of any
of its stock, other than in accordance with these Bylaws, or its
assets, or the imposition of any lien upon the stock of the
Corporation or other assets owned by the personal holding corporation
or other similar approved entity; or
(C) the amendment of the Articles of Incorporation, Bylaws, or other
charter or governing documents of such personal holding corporation
or other similar approved entity, which amendment is not approved in
writing by the General
<PAGE>
Counsel of the Corporation, or any breach of any of the
provisions of subparagraphs (i) through (v) of this subsection;
all stock of the Corporation then owned by the personal holding
corporation or other similar approved entity will be deemed to be
offered for sale by the same procedures as set forth in Section 9.1
hereof.
Section 9.3 Employee Trusts. Anything in this Section 9 to the contrary
notwithstanding, Stock of the Corporation may be owned by one or more trusts
maintained exclusively for the benefit of employees of the Corporation and/or
any of its present or future subsidiaries and either qualified under Section
401(a) or 501(a) of the Internal Revenue Code of 1986 (or any successor
statute), or approved by the Board of Directors of the Corporation, provided
that:
(a) upon the occurrence of any event specified in Section 9.4 with respect to
any employee who is then a beneficiary of such trust, the trust shall offer
for sale in accordance with the terms and provisions of Section 9.4 hereof:
(i) all Stock of the Corporation, if any, allocated to the separate
account of such employee under the trust's terms; and
(ii) a pro rata portion of all Stock of the Corporation held by such trust
and not allocated to the separate accounts of beneficiaries, such pro
rata portion to be based upon such actuarial and other considerations
as the trustees of the trust and the Board of Directors of the
Corporation shall, in their absolute discretion, deem appropriate.
Section 9.4 Death, Termination of Employment, Bankruptcy, Liens. On the
death of a shareholder, or upon the termination of a shareholder's employment
with the Corporation or any subsidiary of the Corporation, whether said
termination be by retirement, voluntary or involuntary termination, or for any
other reason, or upon the Corporation receiving actual knowledge that a
shareholder or any personal holding corporation or similar approved entity as
described in Section 9.2 has become bankrupt or suffered or permitted the
imposition of any lien or attachment on any Stock of the Corporation owned by
such shareholder or any trust, personal holding company or other similar
approved entity holding Stock for his benefit, whichever first occurs
("Determination Date"), all Stock of the Corporation then owned by such
shareholder or his representative or held for his benefit in any trust, personal
holding company or other entity permitted hereunder shall be deemed offered
for sale and to constitute Offered Shares subject to purchase by the same
procedure as set forth in Section 9.1 of this Section 9, excepting that,
purchase of such shares shall occur on such Closing Date (not more than 245 days
after the Determination Date), as the President or Secretary shall determine
with payment to be made in accordance with Section 9.6 hereof. Any of such
shares of Stock not elected to be purchased by the Corporation or by Eligible
Purchasers within 245 days after the Determination Date shall be purchased by
the Corporation unless and to the extent that the Corporation is prohibited from
doing so by the DGCL. For purposes of this Section 9.4, notwithstanding any
other provision of this Bylaw, a shareholder shall be deemed to own all Stock
transferred by him to a trust satisfying the terms and conditions of Section 9.2
hereof and such trust shall have the same obligations with respect to the sale
of such Stock hereunder as the shareholder would have had if the Stock had not
been transferred to said trust.
Section 9.5 Purchase Price
(a) The Purchase Price for any Stock of the Corporation shall be determined in
accordance with this Section 9.5, excepting that if a Disposition Notice
given under Section 9.1 indicates an intention to make a bona fide sale of
Stock for value, then the Purchase Price for any Stock which is the subject
of such notice (including Stock which is being offered pursuant to the
terms of Section 9.2 or 9.3) shall equal the price set forth in such
notice, if such price is lower than the Purchase Price determined
hereunder.
<PAGE>
(b) Except as provided in subparagraph (a) hereof and subject to subparagraph
(e) hereof, the Purchase Price for any Stock purchased by an Eligible
Purchaser on or after July 1, 1996 shall be the Formula Book Value of such
Stock as of the last day of the Corporation's fiscal year coincident with
or next preceding the Closing Date with respect to such purchase.
(c) Except as provided in subparagraph (a) hereof, the Purchase Price for any
Stock purchased by the Corporation hereunder shall be determined as follows
(subject to appropriate adjustment to reflect stock splits, stock
dividends, combinations of shares and similar recapitalizations):
The Purchase Price (P) per share for purchases by the Corporation
with a date of Disposition Notice or a Determination Date on or after
July 1, 1990 shall be determined by the following formula:
P=[Bx(1+(rxn/12))]+(dxn/12)
B= Formula Book Value of such Stock as of the last day of the
Corporation's fiscal year coincident with or next preceding the date
of Disposition Notice under Section 9.1 or a Determination Date under
Section 9.4, whichever is applicable;
r= the actual percentage increase, if any, in the Formula Book Value
of such Stock as of the last day of the Corporation's fiscal year
during which such Disposition Notice or Determination Date occurs
over the Formula Book Value as of the last day of the Corporation's
prior fiscal year;
n= the number of completed months between (1) the last day of the
Corporation's fiscal year coincident with or next preceding such
Disposition Notice or Determination Date, and (2) the date of such
Disposition Notice or such Determination Date, whichever is
applicable; and
d= the dividend, if any, per share declared for such Stock for the
fiscal year during which such Disposition Notice or Determination
Date occurs (unless the shareholder actually receives the dividend
for such year, in which case d=0).
(d) If, and only if, the Closing Date for the purchase by the Corporation or an
Eligible Purchaser of any Stock under Section 9.4 hereof is more than
thirty (30) days after the Determination Date, the Corporation will pay the
selling shareholder interest on the amount of the Net Book Value denoted as
"B" in the formula set forth in subparagraph (c) hereof at the Loan Rate
(as described in Section 9.6(b)(iii) hereof) from the Determination Date to
the Closing Date.
(e) Except as provided in subparagraph (a) hereof, with respect to any
purchases of Stock by an Eligible Purchaser from a shareholder other than the
Corporation, the Corporation will pay the selling shareholder an amount which is
equal to "P" minus "B" in the formula set forth in subparagraph (c) hereof.
Section 9.6 Payment
(a) The Purchase Price for the Stock of the Corporation purchased hereunder by
an Eligible Purchaser shall be paid in cash on the Closing Date, subject to
Section 9.5(e) hereof, except as the purchaser and seller may otherwise agree.
(b.i) Payments by the Corporation of the portion of the Purchase Price
representing the pro rata increase, if any, the Net Book Value of the
Stock and the pro rata dividend may be made in multiple installments
as may be determined by the President or Secretary from time-to-time,
but no such installment shall be made later than eighteen (18) months
after the Closing Date except as provided in subparagraph (b)(ii)
hereof.
<PAGE>
(b.ii) Notwithstanding the provisions of subparagraph (b)(i) hereof,
the Purchase Price for Stock of the Corporation purchased
hereunder by the Corporation may be paid, at the option of the
Corporation, (i) all in cash, or (ii) twenty-five percent (25%)
in cash and the balance in a non-negotiable promissory note of
the Corporation payable over a period of not more than three
(3) years following the Closing Date, no part of such note to
be paid in the same calendar year in which the stock is
purchased unless such note is paid in full within such calendar
year, such note to bear interest on the unpaid balance thereof
at the Loan Rate (as hereinafter defined), or (iii) on such
other terms as seller and the Corporation may agree in writing.
(b.iii) "Loan Rate" shall mean the interest rate for Wyatt shareholder
loans in effect at such bank or banks as the Board of
Directors, the President or the President's designee shall have
approved for such loans on the date of issue of a note pursuant
to subparagraph (b)(ii) hereof, or the Determination Date
pursuant to Section 9.5(d) hereof, or 10% per annum, whichever
is lower.
Section 9.7 Endorsement on Stock Certificates. All certificates
representing Stock of the Corporation shall be conspicuously endorsed with a
legend substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT UNDER THE CIRCUMSTANCES
SPECIFIED IN SECTION 9. OF THE BYLAWS OF THE CORPORATION, A COPY OF
WHICH MAY BE OBTAINED FROM THE SECRETARY OF WATSON WYATT & COMPANY WHO
WILL MAIL A COPY THEREOF WITHOUT CHARGE TO THE HOLDER HEREOF WITHIN 5
DAYS OF A WRITTEN REQUEST THEREFOR."
Section 9.8 [Reserved]
Section 9.9 Definitions.
(a) The term "Eligible Purchasers", as used herein, shall mean any
of the following persons or entities:
(i) full-time employees or regular part-time employees of
the Corporation or its subsidiaries who satisfy criteria
approved from time-to-time by the Board of Directors;
(ii) a partner engaged full-time in a partnership practice of
any affiliate or subsidiary, if applicable, of the
Corporation;
(iii) a director of the Corporation or any subsidiary of the
Corporation;
(iv) a corporation, partnership, association, or other entity
with which the Corporation has an affiliated business
relationship, as designated from time to time by the
Board of Directors; or
(v) full-time employees or regular part-time employees of
any corporation, partnership, association, or other
entity with which the Corporation has an affiliated
business relationship as designated from time to time by
the Board of Directors and who satisfy criteria approved
from time to time by the Board of Directors.
<PAGE>
The Board of Directors shall designate which persons in the categories of
persons set forth above shall be deemed to be Eligible Purchasers with
respect to any particular transaction. Designation as an Eligible Purchaser
in connection with any offer and sale shall not create or imply any right
to be so designated in connection with any other offer or sale or, if so
designated, to be designated on the same terms and conditions.
(b) Net Book Value of Common Stock as used herein shall mean the consolidated
net book value of the Common Stock of the Corporation determined, on
an accrual basis, by generally accepted accounting principles except that
in computing such Net Book Value as of June 30, 1984, or any subsequent
fiscal year end, consolidated assets of the Corporation consisting of
subscriber lists, computer software and data banks used principally in
compensation survey or related businesses carried on by the Corporation or
any subsidiary shall be valued at 50% of the Consolidated income received
by the Corporation in respect of such business during the fiscal year then
ended. Formula Book Value as used herein shall mean the Net Book Value of
the Corporation's Common Stock as of June 30, 1996, increased or decreased
by net income or losses, and all other 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; and (ii) eliminate annual changes in the Currency
Translation Adjustment ("CTA") occurring after June 30, 1996. Formula Book
Value shall be determined by the independent certified public accountants
of the Corporation from the Corporation's consolidated financial statement
prepared on an accrual basis in accordance with generally accepted
accounting principles as certified by such accountants, except as described
above. Such determinations shall be conclusive and binding upon the
Corporation and all holders of stock.
(c) The term "Closing Date" hereunder shall mean the time established by the
President or Secretary pursuant to Section 9.1, 9.4 or 9.5 hereof.
(d) The term "Corporation" as used herein in Section 9 shall mean the
Corporation, a Subsidiary, or an Affiliate as defined in ARTICLE FOURTEENTH
of the Restated Certificate of Incorporation.
Section 9.10 Benefit. The rights and restrictions contained herein shall be
binding upon and inure to the benefit of all present and future shareholders of
the Corporation, their heirs, executors, administrators, successors and assigns.
Section 9.11 Amendment. Except as provided below, this Section 9 of the
Bylaws of the Corporation may be altered, amended or repealed only upon the
affirmative vote of the holders of Stock possessing at least 80% of the
outstanding voting rights of the capital stock of the Corporation, voting as one
aggregate class. If any such alteration, amendment or repeal affects any class
or classes adversely, then, in addition to the affirmative vote required above,
the affirmative vote of holders of at least a majority of the outstanding shares
of each class so affected, voting separately as a class, shall be required,
unless the effect of such alteration, amendment or repeal is adverse to all
classes on a substantially equivalent basis. Notwithstanding the foregoing, any
amendment to this Section 9 of the Bylaws of the Corporation describing the
Purchase Price of any class of Stock hereafter authorized shall require only
such affirmative vote of shareholders as Section 242 of the DGCL, as then in
effect, requires to amend the Corporation's Restated Certificate of
Incorporation to authorize the issuance of such class.
<PAGE>
EXHIBIT C
RESTRICTION ON TRANSFERS OF STOCK
(AS PROPOSED)
Section 9.1 Restriction on Stock. Except for (i) transfers to the
Corporation or to trusts, personal holding companies or other entities
satisfying the terms and conditions of Section 9.2 or 9.3 below, (ii) reversions
from trusts described in Section 9.2 to the grantors thereof or their estates,
or (iii) transfers from personal holding companies or similar entities described
in Section 9.2 to the sole shareholders thereof, no present or future
shareholder shall transfer, whether by way of sale, gift, hypothecation, trust
distribution, will, intestacy or any other disposition, any shares of any class
of capital stock ("Stock") in the Corporation now owned or hereafter acquired by
such shareholder (including, without limitation, shares of Stock acquired upon
conversion or exchange of other shares of Stock), without first giving the
Corporation prior written notice of his intention to so dispose of such Stock.
Said notice to the Corporation ("Disposition Notice") shall state the terms and
conditions of the proposed disposition, including the names of the transferees,
the purchase price and payment terms, if any, the type of disposition, and the
number of shares to be transferred ("Offered Shares"). A shareholder giving a
Disposition Notice is herein sometimes called an "Offering Stockholder".
(a) The Corporation shall have the option for a period of thirty days following
the receipt of a Disposition Notice from an Offering Stockholder to buy on
such Closing Date, as is determined by the President or Secretary, part or
all of the Offered Shares at the price per share determined in accordance
with Section 9.5 of this Section 9, provided that the Corporation may buy
less than all of the Offered Shares if the balance of the Offered Shares is
contemporaneously purchased by Eligible Purchasers (or otherwise disposed
of in accordance with these Bylaws) or if the Offering Stockholder elects
to accept offers by the Corporation and/or Eligible Purchasers to purchase
less than all of the Offered Shares and to retain the balance of the
Offered Shares. If the Corporation does not elect to purchase all Offered
Shares, within thirty days after receipt of the Offering Stockholder's
Disposition Notice, it shall forward to the Offering Stockholder a list of
the names and addresses of all Eligible Purchasers together with a
description of their respective rights to purchase Offered Shares not
initially purchased by the Corporation.
The Offering Stockholder shall within fifteen days after receipt of such
list of Eligible Purchasers offer to sell the balance of the Offered Shares
to such Eligible Purchasers in accordance with their respective rights to
purchase set forth in such list.
(b) Elections by Eligible Purchasers to purchase Offered Shares under
subsection (a) hereof shall be by written notice delivered both to the
Corporation and to the Offering Stockholder within thirty days following
the receipt of the offer to sell from the Offering Stockholder as provided
in Section 9.1(a) hereof.
(c) The Corporation shall have the further option to buy or furnish Eligible
Purchasers for any Offered Shares not initially to be purchased by the
Corporation or by Eligible Purchasers under subsections (a) or (b) hereof
within 120 days following receipt by the Corporation of the Disposition
Notice.
(d) The Offered Shares, if any, not purchased under subsections (a), (b), or
(c) of this Section 9.1 may be disposed of within 150 days after receipt by
the Corporation of the Disposition Notice, but only to persons and only on
the terms and conditions set forth in the Disposition Notice. Any Offered
Shares not so transferred within such 150-day period may not thereafter be
transferred, except upon compliance with the terms of this Section 9 of the
Bylaws and as if they had not been previously offered hereunder. Any
attempt to transfer any Stock of the Corporation in contravention of the
provisions of this Section 9 shall be null and void and without legal
effect,
<PAGE>
except that such attempted transfer shall constitute a continuing offer to
sell all such Stock under Section 9.1 (a) hereof. The price at which such
Stock may be purchased by the Corporation or Eligible Purchasers shall be
determined pursuant to Section 9.5 of this Section 9; such Stock will be
deemed to have been offered at the date of the attempted transfer; and, for
purposes hereof, such attempted transfer shall be deemed to constitute the
giving of a Disposition Notice under Section 9.1, but there shall be no
limitations on the time periods within which the Corporation and/or
Eligible Purchasers shall be required to exercise their rights hereunder.
Section 9.2 Revocable Trusts; Personal Holding Corporations.
(a) Anything in this Section 9 to the contrary notwithstanding, any shareholder
may, with the approval of the Board of Directors or such officer(s) as may
be designated by the Board of Directors for such purpose, transfer any or
all Stock of the Corporation now owned or hereafter acquired by him to a
revocable trust for the sole benefit of himself during his lifetime,
provided that:
(i) the trust instrument acknowledges that the Stock is held subject to
the terms and conditions of these Bylaws;
(ii) the trust, by its terms, provides that on the first to occur of:
(A) the termination of the trust,
(B) the ceasing of the shareholder to act as sole trustee of the
trust, or
(C) any event described in Section 9.4 with respect to the settlor,
all stock of the Corporation then held by the trust will either
revert to the shareholder or be offered for sale by the same
procedure as set forth in Section 9.1 hereof.
(iii) the shareholder is the sole trustee of said trust and the trust
grants to the shareholder and to no other person, corporation or
other entity full powers as trustee with respect to all Stock of the
Corporation at any time held by the Trust, including powers to attend
all meetings of shareholders, vote such shares and give proxies with
respect thereto, make all decisions with respect to the trust's sale
or purchase thereof, including the power to direct the sale of some
or all of the Stock of the Corporation at any time for any reason
deemed valid by said shareholder;
(iv) a copy of the trust, as from time to time amended, is at all times
kept on file by the Trustee thereof with the Secretary of the
Corporation; and
(v) the trust, by its terms, provides that any amendment that in any way
affects the Stock of the Corporation held by the trust or any of the
provisions relating to such Stock set forth in subparagraphs [(a)](i)
through [d](iv) above, must be approved in advance by the President,
Treasurer or Secretary of the Corporation or shall be null and void
and of no effect with respect to such Stock.
(b) Personal Holding Corporations. Anything in this Section 9 to the contrary
notwithstanding, any non-U.S. resident shareholder of the Corporation's
stock (for purposes of this paragraph, the "Shareholder") may, with the
approval of the Board of Directors or such officer(s) as may be designated
by the Board of Directors for such purpose, transfer any or all Stock of
the Corporation now issued or hereafter acquired by him (or direct the
Corporation to issue stock allocated by the Corporation to him) to a
personal holding corporation incorporated under the laws of a jurisdiction
outside of the United States which corporation is wholly-owned by such
Shareholder (or such similar entity under the laws of the jurisdiction in
which such Shareholder is domiciled
<PAGE>
which is wholly-owned by such Shareholder and which is approved by the General
Counsel of the Corporation in his discretion), provided that:
(i) One hundred percent (100%) of the stock of such personal holding
corporation is owned solely by the Shareholder (or the ownership of such
other similar approved entity is one hundred percent (100%) vested in the
Shareholder) and no person, corporation or other entity other than the
Shareholder shall have any rights or powers with respect to the ownership,
control or direction of any stock of such personal holding corporation or
other similar approved entity or any stock of the Corporation at any time
held by such personal holding corporation or other similar approved
entity, including, without limitation, any right to attend meetings of
shareholders, vote such shares or give proxies with respect thereto;
(ii) the Articles of Incorporation, Bylaws and any other charter or governing
documents of such personal holding corporation or other similar approved
entity contain restrictions on the transfer of its stock which have
substantially the same effect as the stock transfer restrictions contained
in these Bylaws, and are approved in writing by the General Counsel of the
Corporation, are not amended without such approval, and certified or
notarized copies thereof are at all times kept on file with the Secretary
of the Corporation;
(iii) all stock certificates of the personal holding corporation (or similar
documents evidencing ownership of such other similar approved entity)
contain a legend identifying the existence of such transfer restrictions;
(iv) such personal holding corporation or similar approved entity shall agree
in writing with the Corporation not to issue or allot any additional stock
of any class to anyone other than the Shareholder;
(v) the Shareholder and the personal holding corporation or other similar
approved entity agree with the Corporation in writing, in a form approved
by the General Counsel of the Corporation, that they will abide by all
of the terms restricting the transfer of the Corporation's stock as set
forth in these Bylaws (as they may be amended from time to time) and that
they will take or cause to be taken all steps which may be required in
order to assure compliance with the stock transfer restrictions contained
in these Bylaws, including an agreement not to transfer the stock of the
personal holding corporation (or other evidence of ownership of a similar
approved entity); and
(vi) the personal holding corporation (or similar approved entity) and the
Shareholder shall agree in writing with each other and the Corporation
that, upon the first to occur of:
(A) any event described in Section 9.4 with respect to the Shareholder;
(B) the bankruptcy, insolvency, dissolution (either voluntary or
involuntary), sale or merger of the personal holding corporation or
other similar approved entity, or the sale or attempted sale of any
of its stock, other than in accordance with these Bylaws, or its
assets, or the imposition of any lien upon the stock of the
Corporation or other assets owned by the personal holding corporation
or other similar approved entity; or
(C) the amendment of the Articles of Incorporation, Bylaws, or other
charter or governing documents of such personal holding corporation
or other similar approved entity, which amendment is not approved in
writing by the General
<PAGE>
Counsel of the Corporation, or any breach of any of the
provisions of subparagraphs (i) through (v) of this
subsection;
all stock of the Corporation then owned by the personal holding
corporation or other similar approved entity will be deemed to be
offered for sale by the same procedures as set forth in Section
9.1 hereof.
Section 9.3 Employee Trusts. Anything in this Section 9 to the contrary
notwithstanding, Stock of the Corporation may be owned by one or more trusts
maintained exclusively for the benefit of employees of the Corporation and/or
any of its present or future subsidiaries and either qualified under Section
401(a) or 501(a) of the Internal Revenue Code of 1986 (or any successor
statute), or approved by the Board of Directors of the Corporation, provided
that:
(a) upon the occurrence of any event specified in Section 9.4 with respect
to any employee who is then a beneficiary of such trust, the trust shall
offer for sale in accordance with the terms and provisions of Section
9.4 hereof:
(i) all Stock of the Corporation, if any, allocated to the separate
account of such employee under the trust's terms; and
(ii) a pro rata portion of all Stock of the Corporation held by such
trust and not allocated to the separate accounts of beneficiaries,
such pro rata portion to be based upon such actuarial and other
considerations as the trustees of the trust and the Board of
Directors of the Corporation shall, in their absolute discretion,
deem appropriate.
Section 9.4 Death, Termination of Employment, Bankruptcy, Liens. On
the death of a shareholder, or upon the termination of a shareholder's
employment with the Corporation or any subsidiary of the Corporation, whether
said termination be by retirement, voluntary or involuntary termination, or for
any other reason, or upon the Corporation receiving actual knowledge that a
shareholder or any personal holding corporation or similar approved entity as
described in Section 9.2 has become bankrupt or suffered or permitted the
imposition of any lien or attachment on any Stock of the Corporation owned by
such shareholder or any trust, personal holding company or other similar
approved entity holding Stock for his benefit, whichever first occurs
("Determination Date"), all Stock of the Corporation then owned by such
shareholder or his representative or held for his benefit in any trust, personal
holding company or other entity permitted hereunder shall be deemed offered for
sale and to constitute Offered Shares subject to purchase by the same procedure
as set forth in Section 9.1 of this Section 9, excepting that, purchase of such
shares shall occur on such Closing Date (not more than 245 days after the
Determination Date), as the President or Secretary shall determine with payment
to be made in accordance with Section 9.6 hereof. Any of such shares of Stock
not elected to be purchased by the Corporation or by Eligible Purchasers within
245 days after the Determination Date shall be purchased by the Corporation
unless and to the extent that the Corporation is prohibited from doing so by the
DGCL. For purposes of this Section 9.4, notwithstanding any other provision of
this Bylaw, a shareholder shall be deemed to own all Stock transferred by him to
a trust satisfying the terms and conditions of Section 9.2 hereof and such trust
shall have the same obligations with respect to the sale of such Stock hereunder
as the shareholder would have had if the Stock had not been transferred to said
trust.
Section 9.5 Purchase Price
(a) The Purchase Price for any Stock of the Corporation shall be determined
in accordance with this Section 9.5, excepting that if a Disposition
Notice given under Section 9.1 indicates an intention to make a bona
fide sale of Stock for value, then the Purchase Price for any Stock
which is the subject of such notice (including Stock which is being
offered pursuant to the terms of Section 9.2 or 9.3) shall equal the
price set forth in such notice, if such price is lower than the Purchase
Price determined hereunder.
<PAGE>
(b) Except as provided in subparagraph (a) hereof and subject to subparagraph
(e) hereof, the Purchase Price for any Stock purchased by an Eligible
Purchaser on or after July 1, 1996 shall be the Formula Book Value of such
Stock as of the last day of the Corporation's fiscal year coincident with
or next preceding the Closing Date with respect to such purchase.
(c) Except as provided in subparagraph (a) hereof, the Purchase Price for any
Stock purchased by the Corporation hereunder shall be determined as follows
(subject to appropriate adjustment to reflect stock splits, stock
dividends, combinations of shares and similar recapitalizations):
The Purchase Price (P) per share for purchases by the Corporation
with a date of Disposition Notice or a Determination Date on or after
July 1, 1990 shall be determined by the following formula:
P=[Bx(1+(rxn/12))]+(dxn/12)
B= Formula Book Value of such Stock as of the last day of the
Corporation's fiscal year coincident with or next preceding the date
of Disposition Notice under Section 9.1 or a Determination Date under
Section 9.4, whichever is applicable;
r= the actual percentage increase, if any, in the Formula Book Value
of such Stock as of the last day of the Corporation's fiscal year
during which such Disposition Notice or Determination Date occurs
over the Formula Book Value as of the last day of the Corporation's
prior fiscal year;
n= the number of completed months between (1) the last day of the
Corporation's fiscal year coincident with or next preceding such
Disposition Notice or Determination Date, and (2) the date of such
Disposition Notice or such Determination Date, whichever is
applicable; and
d= the dividend, if any, per share declared for such Stock for the
fiscal year during which such Disposition Notice or Determination
Date occurs (unless the shareholder actually receives the dividend
for such year, in which case d=0).
(d) If, and only if, the Closing Date for the purchase by the Corporation or an
Eligible Purchaser of any Stock under Section 9.4 hereof is more than
thirty (30) days after the Determination Date, the Corporation will pay the
selling shareholder interest on the amount of the Net Book Value denoted as
"B" in the formula set forth in subparagraph (c) hereof at the Loan Rate
(as described in Section 9.6(b)(iii) hereof) from the Determination Date to
the Closing Date.
(e) Except as provided in subparagraph (a) hereof, with respect to any
purchases of Stock by an Eligible Purchaser from a shareholder other than the
Corporation, the Corporation will pay the selling shareholder an amount which is
equal to "P" minus "B" in the formula set forth in subparagraph (c) hereof.
Section 9.6 Payment
(a) The Purchase Price for the Stock of the Corporation purchased hereunder by
an Eligible Purchaser shall be paid in cash on the Closing Date, subject to
Section 9.5(e) hereof, except as the purchaser and seller may otherwise agree.
(b.i) Payments by the Corporation of the portion of the Purchase Price
representing the pro rata increase, if any, the Net Book Value of the
Stock and the pro rata dividend may be made in multiple installments
as may be determined by the President or Secretary from time-to-time,
but no such installment shall be made later than eighteen (18) months
after the Closing Date except as provided in subparagraph (b)(ii)
hereof.
<PAGE>
(b.ii) Notwithstanding the provisions of subparagraph (b)(i) hereof,
the Purchase Price for Stock of the Corporation purchased
hereunder by the Corporation may be paid, at the option of the
Corporation, (i) all in cash, or (ii) twenty-five percent (25%)
in cash and the balance in a non-negotiable promissory note of
the Corporation payable over a period of not more than three
(3) years following the Closing Date, no part of such note to
be paid in the same calendar year in which the stock is
purchased unless such note is paid in full within such calendar
year, such note to bear interest on the unpaid balance thereof
at the Loan Rate (as hereinafter defined), or (iii) on such
other terms as seller and the Corporation may agree in writing.
(b.iii) "Loan Rate" shall mean the interest rate for Wyatt shareholder
loans in effect as such bank or banks as the Board of
Directors, the President or the President's designee shall have
approved for such loans on the date of issue of a note pursuant
to subparagraph (b)(ii) hereof, or the Determination Date
pursuant to Section 9.5(d) hereof, or 10% per annum, which ever
is lower.
Section 9.7 Endorsement on Stock Certificates. All certificates
representing Stock of the Corporation shall be conspicuously endorsed with a
legend substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT UNDER THE CIRCUMSTANCES
SPECIFIED IN SECTION 9. OF THE BYLAWS OF THE CORPORATION, A COPY OF
WHICH MAY BE OBTAINED FROM THE SECRETARY OF WATSON WYATT & COMPANY WHO
WILL MAIL A COPY THEREOF WITHOUT CHARGE TO THE HOLDER HEREOF WITHIN 5
DAYS OF A WRITTEN REQUEST THEREFOR."
Section 9.8 [Reserved]
Section 9.9 Definitions.
(a) The term "Eligible Purchasers", as used herein, shall mean any
of the following persons or entities:
(i) full-time employees or regular part-time employees of
the Corporation or its subsidiaries who satisfy criteria
approved from time-to-time by the Board of Directors;
(ii) a partner engaged full-time in a partnership practice of
any affiliate or subsidiary, if applicable, of the
Corporation;
(iii) a director of the Corporation or any subsidiary of the
Corporation;
(iv) a corporation, partnership, association, or other entity
with which the Corporation has an affiliated business
relationship, as designated from time to time by the
Board of Directors; or
(v) full-time employees or regular part-time employees of
any corporation, partnership, association, or other
entity with which the Corporation has an affiliated
business relationship as designated from time to time by
the Board of Directors and who satisfy criteria approved
from time to time by the Board of Directors.
<PAGE>
The Board of Directors shall designate which persons in the categories of
persons set forth above shall be deemed to be Eligible Purchasers with
respect to any particular transaction. Designation as an Eligible Purchaser
in connection with any offer and sale shall not create or imply any right
to be so designated in connection with any other offer or sale or, if so
designated, to be designated on the same terms and conditions.
(b) Net Book Value of Common Stock as used herein shall mean the
consolidated net book value (defined as the sum of Redeemable Common Stock
and Permanent Shareholders' Equity on the Corporation's Consolidated
Balance Sheet as of the fiscal year end) of the Common Stock of the
Corporation determined, on an accrual basis, by generally accepted
accounting principles ("GAAP") except that in computing such Net Book Value
as of June 30, 1984, or any subsequent fiscal year end, consolidated assets
of the Corporation consisting of subscriber lists, computer software and
data banks used principally in compensation survey or related businesses
carried on by the Corporation or any subsidiary shall be valued at 50% of
the Consolidated income received by the Corporation in respect of such
business during the fiscal year then ended. Formula Book Value as used
herein shall mean the Net Book Value of the Corporation's Common Stock as
of June 30, 1996, increased or decreased by net income or losses, and all
other GAAP basis increases or decreases to Net Book Value occurring after
June 30, 1996, and 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 ("CTA")
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 Outsourcing Business. The Discontinuation of
the Outsourcing Business as used herein means the discontinuation of the
outsourcing business of the Corporation and Wellspring Resources, LLC
pursuant to the Discontinuation Plan adopted by the Board of Directors of
the Corporation on February 18, 1998, as set forth in the minutes of the
meeting of the Board of Directors of the Corporation held on February 18,
1998. Formula Book Value shall be determined by the independent certified
public accountants of the Corporation from the Corporation's consolidated
financial statement prepared on an accrual basis in accordance with
generally accepted accounting principles as certified by such accountants,
except as described above. Such determinations shall be conclusive and
binding upon the Corporation and all holders of stock.
(c) The term "Closing Date" hereunder shall mean the time established by the
President or Secretary pursuant to Section 9.1, 9.4 or 9.5 hereof.
(d) The term "Corporation" as used herein in Section 9 shall mean the
Corporation, a Subsidiary, or an Affiliate as defined in ARTICLE FOURTEENTH
of the Restated Certificate of Incorporation.
Section 9.10 Benefit. The rights and restrictions contained herein shall be
binding upon and inure to the benefit of all present and future shareholders of
the Corporation, their heirs, executors, administrators, successors and assigns.
Section 9.11 Amendment. Except as provided below, this Section 9 of the
Bylaws of the Corporation may be altered, amended or repealed only upon the
affirmative vote of the holders of Stock possessing at least 80% of the
outstanding voting rights of the capital stock of the Corporation, voting as one
aggregate class. If any such alteration, amendment or repeal affects any class
or classes adversely, then, in addition to the affirmative vote required above,
the affirmative vote of holders of at least a majority of the outstanding shares
of each class so affected, voting separately as a class, shall be required,
unless the effect of such alteration, amendment or repeal is adverse to all
classes on a substantially equivalent basis. Notwithstanding the foregoing, any
amendment to this Section 9 of the Bylaws of the Corporation describing the
Purchase Price of any class of Stock hereafter authorized shall require only
such affirmative vote of shareholders as Section 242 of the DGCL as then in
effect, requires to amend the Corporation's Restated Certificate of
Incorporation to authorize the issuance of such class.
<PAGE>
PRELIMINARY COPIES
MANAGEMENT PROXY WATSON WYATT & COMPANY
The undersigned hereby appoints A. W. Smith, Jr. and Walter W. Bardenwerper, and
each of them, as his or her proxies, each with full power of substitution, to
vote all of the undersigned's shares of capital stock of Watson Wyatt & Company
(the "Company") at the Special Meeting of Stockholders of the Company to be held
on May 5, 1998, and at any adjournments thereof, with the same authority as if
the undersigned were personally present, as specified below:
THE DIRECTORS OF THE COMPANY RECOMMEND A VOTE "FOR" THE FOLLOWING PROPOSAL:
I. [_] FOR [_] AGAINST [_] ABSTAIN regarding the proposed amendments to
Article 9 of the Company's Bylaws to modify certain aspects of the
method of calculating the share price of the Company's common stock.
II. In their discretion, the proxies are authorized to consider and act
upon all other matters that may properly come before the meeting or
any and all postponements or adjournments thereof.
UNLESS A CONTRARY SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE
PROPOSED AMENDMENTS TO ARTICLE 9 OF THE COMPANY'S BYLAWS TO MODIFY CERTAIN
ASPECTS OF THE METHOD OF CALCULATING THE SHARE PRICE OF THE COMPANY'S COMMON
STOCK. THE UNDERSIGNED HEREBY REVOKES ANY PROXY HERETOFORE GIVEN AND
ACKNOWLEDGES RECEIPT OF THE NOTICE AND PROXY STATEMENT FOR THE SPECIAL MEETING.
When signing in any representative capacity, please insert your title and attach
papers showing your authority unless already on file with the Company.
- ----------------------------- ---------------------------
Signature of Shareholder Watson Wyatt Office
- ----------------------------- ---------------------------
Please Print Shareholder Name Date Signed
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. Shareholders must
deliver their signed Proxy (in the envelope provided) to their Office
Administrator for forwarding to the Corporate Secretary. Please mark, sign, date
and return this Proxy to your Office Administrator on or before ____________,
1998.
