Registration Statement of a Foreign Private Issuer for Securities Issued in a Business-Combination Transaction — Form F-4
Filing Table of Contents
Document/Exhibit Description Pages Size
1: F-4 Registration Statement of a Foreign Private Issuer 251 1.21M
for Securities Issued in a
Business-Combination Transaction
2: EX-2.1 Plan of Acquisition, Reorganization, Arrangement, 41 134K
Liquidation or Succession
11: EX-2.10 Plan of Acquisition, Reorganization, Arrangement, 6 19K
Liquidation or Succession
12: EX-2.11 Plan of Acquisition, Reorganization, Arrangement, 148 423K
Liquidation or Succession
13: EX-2.12 Plan of Acquisition, Reorganization, Arrangement, 71 176K
Liquidation or Succession
3: EX-2.2 Plan of Acquisition, Reorganization, Arrangement, 50 127K
Liquidation or Succession
4: EX-2.3 Plan of Acquisition, Reorganization, Arrangement, 66 158K
Liquidation or Succession
5: EX-2.4 Plan of Acquisition, Reorganization, Arrangement, 66 161K
Liquidation or Succession
6: EX-2.5 Plan of Acquisition, Reorganization, Arrangement, 35 60K
Liquidation or Succession
7: EX-2.6 Plan of Acquisition, Reorganization, Arrangement, 12 25K
Liquidation or Succession
8: EX-2.7 Plan of Acquisition, Reorganization, Arrangement, 9 25K
Liquidation or Succession
9: EX-2.8 Plan of Acquisition, Reorganization, Arrangement, 10 23K
Liquidation or Succession
10: EX-2.9 Plan of Acquisition, Reorganization, Arrangement, 9 25K
Liquidation or Succession
14: EX-3.1 Articles of Incorporation/Organization or By-Laws 39 106K
15: EX-3.2 Articles of Incorporation/Organization or By-Laws 26 85K
16: EX-3.3 Articles of Incorporation/Organization or By-Laws 14 56K
17: EX-3.4 Articles of Incorporation/Organization or By-Laws 26 70K
18: EX-4.1 Instrument Defining the Rights of Security Holders 129 533K
19: EX-4.3 Instrument Defining the Rights of Security Holders 20 91K
20: EX-5.1 Opinion re: Legality 4 21K
21: EX-10.1 Material Contract 28 123K
30: EX-10.10 Material Contract 1 15K
31: EX-10.11 Material Contract 1 15K
32: EX-10.12 Material Contract 8 33K
22: EX-10.2 Material Contract 107 523K
23: EX-10.3 Material Contract 34 120K
24: EX-10.4 Material Contract 23 62K
25: EX-10.5 Material Contract 54 144K
26: EX-10.6 Material Contract 29 56K
27: EX-10.7 Material Contract 28 54K
28: EX-10.8 Material Contract 10 46K
29: EX-10.9 Material Contract 1 15K
33: EX-12.1 Statement re: Computation of Ratios 3± 24K
34: EX-21.1 Subsidiaries of the Registrant 14 47K
35: EX-23.2 Consent of Experts or Counsel 1 14K
36: EX-24.1 Power of Attorney 9 45K
37: EX-25.1 Form T-1 5 29K
38: EX-99.1 Miscellaneous Exhibit 15 78K
39: EX-99.2 Miscellaneous Exhibit 3 21K
F-4 — Registration Statement of a Foreign Private Issuer for Securities Issued in a Business-Combination Transaction
Document Table of Contents
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 16, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM F-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------------
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WILLIS CORROON GROUP WILLIS CORROON PARTNERS WILLIS CORROON
LIMITED CORPORATION
(Exact Name of Registrant (Exact Name of Registrant (Exact Name of Registrant
Parent Guarantor as Guarantor as Specified in Issuer as Specified in
Specified in its Charter) its Charter) its Charter)
ENGLAND AND WALES DELAWARE DELAWARE
(State or other (State or other (State or other
jurisdiction of jurisdiction of jurisdiction of
incorporation or incorporation or incorporation or
organization) organization) organization)
6411 6411 6411
(Primary Standard (Primary Standard (Primary Standard
Industrial Industrial Industrial
Classification Code Classification Code Classification Code
Number) Number) Number)
NONE 62-1761909 13-5654526
(I.R.S. Employer (I.R.S. Employer (I.R.S. Employer
Identification Number) Identification Number) Identification Number)
--------------------------
TEN TRINITY SQUARE
LONDON EC3P 3AX
ENGLAND
(011) 44-171-488-8111
(Address, including zip code, and telephone number,
including area code, of registrant parent guarantor's principal executive
offices)
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26 CENTURY BOULEVARD
P.O. BOX 305026
NASHVILLE, TN 37214
(615) 872-3000
(Address, including zip code, and telephone number,
including area code, of registrant issuer's principal executive offices)
(Name, address, including zip code,
and telephone number, including area code, of agent for service)
------------------------------
WITH A COPY TO:
EDWARD P. TOLLEY III, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 455-2000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act Registration number of the earlier effective
Registration Statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities
Registration Statement number of the earlier effective Registration Statement
for the same offering. / /
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER NOTE OFFERING PRICE(1) REGISTRATION FEE
9% Senior Subordinated Notes due 2009 of
Wills Corroon Corporation................. $550,000,000 100% $550,000,000 $152,900.00
Guarantees of 9% Senior Subordinated Notes
due 2009 by Willis Corroon Group Limited
and Willis Corroon Partners............... $550,000,000 100% $550,000,000 --(2)
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Pursuant to Rule 457(n) under the Securities Act of 1933, as amended, no
separate fee for the Guarantees is payable.
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THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED MARCH 16, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Prospectus
$550,000,000
[LOGO]
WILLIS CORROON CORPORATION
OFFER TO EXCHANGE ALL OUTSTANDING 9% SENIOR SUBORDINATED
NOTES DUE 2009 FOR 9% SENIOR SUBORDINATED NOTES DUE 2009,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
UNCONDITIONALLY GUARANTEED ON A SENIOR SUBORDINATED BASIS BY WILLIS CORROON
GROUP LIMITED AND WILLIS CORROON PARTNERS
THE EXCHANGE OFFER
- Willis Corroon Corporation will exchange all outstanding Notes that are
validly tendered and not validly withdrawn for an equal principal amount of
exchange Notes that are freely tradeable.
- You may withdraw tenders of outstanding Notes at any time prior to the
expiration of the exchange offer.
- The exchange offer expires at 5:00 p.m., New York City time, on ,
1999, unless extended. We do not currently intend to extend the expiration
date.
- The exchange of outstanding Notes for exchange Notes in the exchange offer
will not be a taxable event for U.S. federal income tax purposes.
- We will not receive any proceeds from the exchange offer.
THE EXCHANGE NOTES
- The exchange Notes are being offered in order to satisfy certain of our
obligations under the exchange and registration rights agreement entered into
in connection with the placement of the outstanding Notes.
- The terms of the exchange Notes to be issued in the exchange offer are
substantially identical to the outstanding Notes, except that the exchange
Notes will be freely tradeable.
RESALES OF EXCHANGE NOTES
- The exchange Notes may be sold in the over-the-counter market, in negotiated
transactions or through a combination of such methods. We have applied for
listing of the exchange Notes on the Luxembourg Stock Exchange.
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If you are a broker-dealer and you receive exchange Notes for your own
account, you must acknowledge that you will deliver a prospectus in connection
with any resale of such exchange Notes. By making such acknowledgment, you will
not be deemed to admit that you are an "underwriter" under the Securities Act of
1933.
Broker-dealers may use this prospectus in connection with any resale
of exchange Notes received in exchange for outstanding Notes where such
outstanding Notes were acquired by the broker-dealer as a result of market-
making activities or trading activities.
We will make this prospectus available to any broker-dealer for use in
any such resale for a period of up to 90 days after the date of this prospectus.
A broker-dealer may not participate in the exchange offer with respect
to outstanding Notes acquired other than as a result of market-making activities
or trading activities.
If you are an affiliate of Willis Corroon or are engaged in, or intend
to engage in, or have an agreement or understanding to participate in, a
distribution of the exchange Notes, you cannot rely on the applicable
interpretations of the Securities and Exchange Commission and you must comply
with the registration requirements of the Securities Act of 1933 in connection
with any resale transaction.
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 16 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this prospectus is , 1999.
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................... 1
Risk Factors.......................... 16
Forward Looking Statements............ 30
Presentation of Currency and Financial
Information; Exchange Rates......... 31
The Tender Offer and Related
Financings.......................... 32
Use of Proceeds....................... 35
Capitalization........................ 36
Unaudited Condensed Pro Forma
Consolidated Financial
Information......................... 37
Selected Historical Consolidated
Financial Data...................... 43
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 44
Supplemental Constant Currency
Financial Data...................... 62
Business.............................. 67
Management............................ 86
Shareholders.......................... 91
PAGE
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Certain Relationships and Related
Transactions........................ 95
Description of the Senior Credit
Facilities.......................... 96
Description of Preference Shares...... 99
The Exchange Offer.................... 100
Description of the Notes.............. 111
Registration Rights Agreement......... 169
Certain United States Federal Income
Tax Consequences of the Exchange
Offer............................... 173
Certain United States Federal Income
Tax Consequences to Non-U.S.
Holders............................. 173
Certain United Kingdom Tax
Consequences........................ 175
Book-Entry; Delivery and Form......... 177
Plan of Distribution.................. 181
Legal Matters......................... 182
Experts............................... 182
Where You Can Find More Information... 182
Listing and General Information....... 183
Index to Financial Statements......... F-1
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The exchange Notes are not being offered in the United Kingdom to
persons who are not persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their business and neither this prospectus nor any other document
issued in connection with the offering may be passed on to any person in the
United Kingdom unless that person is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996
(as amended) or is a person to whom the document may otherwise lawfully be
issued or passed on. All applicable provisions of the Financial Services Act
1986 must be complied with in respect of anything done in relation to the
exchange Notes in, from or otherwise involving the United Kingdom.
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PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS CERTAIN INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. IT IS NOT COMPLETE AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT
IS IMPORTANT TO YOU. WE ENCOURAGE YOU TO READ THIS PROSPECTUS IN ITS ENTIRETY.
IN THIS PROSPECTUS, "WILLIS CORROON," "WE," "US" OR "OUR" REFERS TO WILLIS
CORROON GROUP LIMITED AND ITS CONSOLIDATED SUBSIDIARIES (EXCLUDING OUR
"ASSOCIATES," ENTITIES IN WHICH WILLIS CORROON MAINTAINS AN OWNERSHIP INTEREST
OF AT LEAST 20% BUT NO MORE THAN 50%). UNLESS OTHERWISE SPECIFICALLY INDICATED,
ALL MARKET INFORMATION OR OTHER STATEMENTS PRESENTED IN THIS PROSPECTUS
REGARDING WILLIS CORROON'S POSITION RELATIVE TO ITS COMPETITION ARE BASED UPON
STATISTICAL DATA OR INFORMATION, INCLUDING BROKERAGE REVENUES, PUBLISHED IN
BUSINESS INSURANCE (JULY 20, 1998). FOR PURPOSES OF THE BUSINESS INSURANCE
RANKINGS, BROKERAGE REVENUES ARE DEFINED AS GROSS REVENUES GENERATED BY
INSURANCE BROKERAGE, CONSULTING AND RELATED SERVICES.
THE COMPANY
We are the third largest insurance broker in the world. We provide a
broad range of value-added risk management consulting and insurance brokering
services to some 50,000 clients worldwide. We trace our history to 1828 and we
are a leading insurance broker in the U.K., the U.S. and, directly and through
our associates, in many other countries. We are a recognized leader in providing
specialized risk management advisory and other services on a global basis to
clients in various industries, including the construction, aerospace, marine and
energy industries. In our capacity as an advisor and insurance broker, we act as
an intermediary between our clients and insurance carriers by:
- advising our clients on their risk management requirements (many of
which are highly complex);
- helping clients determine the best means of managing their risks; and
- ultimately negotiating and placing insurance policies with insurance
carriers through our global distribution network.
We also provide other value-added services, including employee benefits
consulting, claims administration, captive insurance company management and
self-insurance consulting. We do not underwrite insurance risks for our own
account.
We and our associates serve a diverse base of clients located in more
than 125 countries. Such clients include major multinational and middle-market
companies in a variety of industries, as well as public institutions. Many of
our client relationships span decades. With approximately 12,000 employees
around the world and a network of more than 250 offices in 69 countries, in each
case including our associates, we believe we are one of only three insurance
brokers in the world possessing the global operating presence, broad product
expertise and extensive distribution network necessary to effectively meet the
global risk management needs of many of our clients. For the twelve months ended
December 31, 1998, our Reported Revenues were L718.2 million ($1,192.2 million)
and our Reported EBITDA was L113.5 million ($188.4 million). For the same
period, our Adjusted Operating Revenues (adjusted for acquisitions and
dispositions) were L735.2 million ($1,220.4 million) and our Adjusted EBITDA
(adjusted for acquisitions, dispositions, and non-recurring expenses) was L142.6
million ($236.7 million), in each case after giving pro forma effect to the
following recent acquisitions:
- the 50% interest in Gruppo Ital Brokers, which was acquired in July
1998 and its merger with our existing Italian operation;
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- the 30% interest in Assurandrgruppen A/S, which was acquired in
September 1998; and
- the increased investment in our Spanish associate from 48% to 60% and
the reorganization of the existing Spanish and Portuguese operations in
July 1998
(referred to collectively as the "recent acquisitions"). See "--Summary
Historical Consolidated Financial Information of Willis Corroon" and "--Summary
Unaudited Pro Forma Consolidated Financial Information of Willis Corroon."
INDUSTRY OVERVIEW
Insurance brokers, such as Willis Corroon, provide essential services
to users of insurance and reinsurance products. Such users include corporations,
public institutions and insurance carriers. Brokers distribute insurance
products and provide highly specialized (and often highly technical) value-added
risk management consulting services. Through its knowledge of the insurance
market and risk management techniques, the broker provides value to its clients
and the insurance carriers with whom the broker deals by:
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VALUE TO CLIENTS VALUE TO INSURANCE CARRIERS
-------------------------------------------------------- --------------------------------------------------------
- assisting clients in their analysis of risk; - assessing a potential insurance user's risk management
- helping clients formulate appropriate strategies to needs, structuring an appropriate insurance program to
manage those risks; meet those needs and placing risks to be insured with
- negotiating insurance policy terms and conditions; an insurance carrier;
- placing risks to be insured with insurance carriers - acting as a principal distribution channel for
through its distribution network and taking advantage insurance products; and
of its ability to place insurance at rates often lower - providing access to insurance buyers that most
than the client could achieve on its own; and insurance companies are not equipped to reach on their
- providing specialized self-insurance consulting and own.
other risk management consulting services apart from
its traditional intermediary role.
There are three main subsectors of the brokerage industry:
- retail brokering, which involves business and services transacted
between brokers and commercial or individual customers;
- wholesale brokering, which involves business and services transacted
between two brokers (or agents) when one broker uses the services or
products of another broker; and
- reinsurance brokering, which involves placing reinsurance coverage for
primary insurance and reinsurance carriers.
Industry revenue has been relatively stable in recent years and,
according to BUSINESS INSURANCE, the 192 largest commercial insurance brokers
globally reported brokerage revenues totaling $16.7 billion in 1997. Recent
consolidation among the largest insurance brokers, however, has
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significantly altered the industry's competitive dynamics. Significant factors
in broker consolidation include:
- the increased need by clients for products and services with a global
scope; and
- better economies of scale available to larger firms.
As a result, the insurance brokerage industry is now led by its three global
participants: Marsh & McLennan Companies, Inc. (with approximately 35% of the
worldwide market comprised of the 192 brokers in 1997 referred to above, 9% of
which is attributable to Sedgwick Group plc, a company acquired by Marsh &
McLennan in 1998), Aon Corporation (with approximately 24%) and Willis Corroon
(with approximately 7%). The industry is highly fragmented beyond these three
brokers with the next largest broker having less than a 3% share of the $16.7
billion market.
RECENT MANAGEMENT INITIATIVES
In 1996, we developed and launched a series of initiatives referred to
as the "change program." The change program was designed to enhance revenues,
improve efficiency and transition us from a traditional commission-based
insurance broker to a more comprehensive professional advisory services firm. As
part of the change program, we established certain key initiatives to:
- enhance operating efficiencies;
- intensify efforts to develop existing and new accounts;
- increase cross-selling of both existing and new products and services
to our existing clients; and
- maximize leverage in placing insurance with insurance carriers.
In addition, we developed initiatives focused on maximizing the talent and
expertise of our brokers and consultants. Accordingly, we:
- developed improved techniques for recruitment and assessment;
- instituted a new incentive structure for brokers in the U.S.;
- implemented a new and more frequent appraisal process, including peer
review;
- created new training and development programs;
- invested in technology to enhance communication among employees; and
- formed practice groups to share knowledge on specific industry or
product areas.
For a complete discussion of our recent management initiatives, see
"Business--Recent Management Initiatives."
COMPETITIVE STRENGTHS
We believe that the following will enable us to develop our business in
that we have:
- a strong franchise with leading market positions;
- a strong global presence;
- an extensive and diverse client base;
- a broad array of client-oriented services and products;
- experienced and incentivized management; and
- strong sponsorship.
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For a complete discussion of our competitive strengths, see
"Business--Competitive Strengths."
BUSINESS STRATEGY
Our strategic objectives are to continue to grow revenues and cash flow
and to enhance our position as a leading global provider of risk management
services. The key elements of this strategy are to:
- capitalize on our strong global franchise;
- emphasize value-added services;
- increase operating efficiencies; and
- pursue strategic growth opportunities.
For a complete discussion of our business strategy, see
"Business--Business Strategy."
THE ISSUER
Willis Corroon Corporation was incorporated in Delaware on December 20,
1928 and is an indirect, wholly-owned subsidiary of Willis Corroon Group
Limited. Willis Corroon Corporation is a holding company for the operations of
Willis Corroon's subsidiaries in North America. Willis Corroon Corporation's
principal executive offices are located at 26 Century Boulevard, P.O. Box
305026, Nashville, TN 37214, and its telephone number is (615) 872-3000.
THE GUARANTORS
Willis Corroon Group Limited is a company with limited liability
organized under the laws of England and Wales. Its principal executive offices
are located at Ten Trinity Square, London EC3P 3AX, England, and its telephone
number is (011) 44-171-488-8111. Willis Corroon Partners is a Delaware general
partnership, the 99.9% general partner of which is Willis Corroon Group Limited
and the 0.1% general partner of which is Willis Faber UK Group Limited, a
wholly-owned subsidiary of Willis Corroon Group Limited. Willis Corroon
Partners, formed on November 11, 1998, has no independent operations, and its
sole activity is to hold the capital stock of Willis Corroon Corporation. Each
of Willis Corroon Group and Willis Corroon Partners have jointly and severally,
fully and unconditionally, guaranteed the outstanding Notes and will jointly and
severally, fully and unconditionally, guarantee the exchange Notes.
THE TENDER OFFER AND RELATED FINANCINGS
The outstanding Notes were offered in connection with the tender offer
on behalf of Trinity Acquisition plc, a public limited company organized under
the laws of England and Wales, for the then-outstanding securities of Willis
Corroon Group in order to refinance certain interim financings. See "The Tender
Offer and Related Financings." Where pro forma financial data is presented after
giving effect to the "Transactions," such reference is a collective reference to
the following:
- the offering of the outstanding Notes and the application of the
proceeds therefrom; and
- the recent acquisitions.
RISK FACTORS
You should carefully consider the information under the caption "Risk
Factors" and all other information in this prospectus before tendering your
outstanding Notes.
4
SUMMARY OF TERMS OF THE EXCHANGE OFFER
On February 2, 1999, the Issuer completed the private offering of the
outstanding Notes. References to "Notes" in this prospectus are references to
both the outstanding Notes and the exchange Notes.
The Issuer and the Guarantors entered into an exchange and registration
rights agreement with the initial purchasers in the private offering in which
the Issuer and the Guarantors agreed to deliver to you this prospectus and the
Issuer agreed to complete the exchange offer within 270 days after the date of
original issuance of the outstanding Notes. You are entitled to exchange in the
exchange offer your outstanding Notes for exchange Notes which are identical in
all material respects to the outstanding Notes except that:
- the exchange Notes have been registered under the Securities Act;
- the exchange Notes are not entitled to certain registration rights
which are applicable to the outstanding Notes under the exchange and
registration rights agreement; and
- certain contingent interest rate provisions are no longer applicable.
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The Exchange Offer................ The Issuer is offering to exchange up to $550 million
aggregate principal amount of exchange Notes for up to
$550 million aggregate principal amount of outstanding
Notes. Outstanding Notes may be exchanged only in
integral multiples of $1,000.
Resales........................... Based on an interpretation by the staff of the
Securities and Exchange Commission (the "Commission")
set forth in no-action letters issued to third parties,
we believe that the exchange Notes issued pursuant to
the exchange offer in exchange for outstanding Notes may
be offered for resale, resold and otherwise transferred
by you (unless you are an "affiliate" of Willis Corroon
within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that
you are acquiring the exchange Notes in the ordinary
course of your business and that you have not engaged
in, do not intend to engage in, and have no arrangement
or understanding with any person to participate in, a
distribution of the exchange notes.
Each participating broker-dealer that receives exchange
Notes for its own account pursuant to the exchange offer
in exchange for outstanding Notes that were acquired as
a result of market-making or other trading activity must
acknowledge that it will deliver a prospectus in
connection with any resale of the exchange Notes. See
"Plan of Distribution."
Any holder of outstanding Notes who
- is an affiliate of Willis Corroon,
- does not acquire exchange Notes in the ordinary course
of its business, or
- tenders in the exchange offer with the intention to
participate, or for the purpose of participating, in a
distribution of exchange Notes,
cannot rely on the position of the staff of the
Commission enunciated in Exxon Capital Holdings
Corporation, Morgan
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Stanley & Co. Incorporated or similar no-action letters
and, in the absence of an exemption therefrom, must
comply with the registration and prospectus delivery
requirements of the Securities Act in connection with
the resale of the exchange Notes.
Expiration Date; Withdrawal
of Tenders...................... The exchange offer will expire at 5:00 p.m., New York
City time, on , 1999, or such later date and
time to which the Issuer extends it (the "expiration
date"). The Issuer does not currently intend to extend
the expiration date. A tender of outstanding Notes
pursuant to the exchange offer may be withdrawn at any
time prior to the expiration date. The expiration date
for the exchange offer will not in any event be extended
to a date later than , 1999. Any outstanding
Notes not accepted for exchange for any reason will be
returned without expense to the tendering holder
promptly after the expiration or termination of the
exchange offer.
Certain Conditions to the
Exchange Offer.................. The exchange offer is subject to customary conditions,
which the Issuer may waive. Please read the section
captioned "The Exchange Offer--Certain Conditions to the
Exchange Offer" of this prospectus for more information
regarding the conditions to the exchange offer.
Procedures for Tendering
Outstanding Notes............... If you wish to accept the exchange offer, you must
complete, sign and date the accompanying letter of
transmittal, or a facsimile of the letter of
transmittal, according to the instructions contained in
this prospectus and the letter of transmittal. You must
also mail or otherwise deliver the letter of
transmittal, or a facsimile of the letter of
transmittal, together with the outstanding Notes and any
other required documents, to the exchange agent at the
address set forth on the cover page of the letter of
transmittal. If you hold outstanding Notes through The
Depository Trust Company ("DTC") and wish to participate
in the exchange offer, you must comply with the
Automated Tender Offer Program procedures of DTC, by
which you will agree to be bound by the letter of
transmittal. By signing, or agreeing to be bound by, the
letter of transmittal, you will represent to us that,
among other things:
- any exchange Notes that you receive will be acquired
in the ordinary course of your business;
- you have no arrangement or understanding with any
person or entity to participate in a distribution of the
exchange Notes;
- if you are a broker-dealer that will receive exchange
Notes for your own account in exchange for outstanding
Notes that were acquired as a result of market-making
activities, that you will deliver a prospectus, as
required by law, in connection with any resale of such
exchange Notes;
- you are not an "affiliate," as defined in Rule 405 of
the Securities Act, of Willis Corroon or, if you are an
affiliate, you
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will comply with any applicable registration and
prospectus delivery requirements of the Securities
Act; and
- if you are a person in the United Kingdom, that your
ordinary activities involve you in acquiring, holding,
managing or disposing of investments, as principal or
agent, for the purposes of your business.
Special Procedures for
Beneficial Owners............... If you are a beneficial owner of outstanding Notes which
are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee, and you
wish to tender such outstanding Notes in the exchange
offer, you should contact such registered holder
promptly and instruct such registered holder to tender
on your behalf. If you wish to tender on your own
behalf, you must, prior to completing and executing the
letter of transmittal and delivering your outstanding
Notes, either make appropriate arrangements to register
ownership of the outstanding Notes in your name or
obtain a properly completed bond power from the
registered holder. The transfer of registered ownership
may take considerable time and may not be able to be
completed prior to the expiration date.
Guaranteed Delivery
Procedures...................... If you wish to tender your outstanding Notes and your
outstanding Notes are not immediately available or you
cannot deliver your outstanding Notes, the letter of
transmittal or any other documents required by the
letter of transmittal or comply with the applicable
procedures under DTC's Automated Tender Offer Program
prior to the expiration date, you must tender your
outstanding Notes according to the guaranteed delivery
procedures set forth in this prospectus under "The
Exchange Offer--Guaranteed Delivery Procedures."
Effect on Holders of Outstanding
Notes........................... As a result of the making of, and upon acceptance for
exchange of all validly tendered outstanding Notes
pursuant to the terms of the exchange offer, we will
have fulfilled a covenant contained in the registration
rights agreement and, accordingly, there will be no
increase in the interest rate on the outstanding Notes
under the circumstances described in the registration
rights agreement. If you are a holder of outstanding
Notes and you do not tender your outstanding Notes in
the exchange offer, you will continue to hold such
outstanding Notes and you will be entitled to all the
rights and limitations applicable to the outstanding
Notes in the indenture, except for any rights under the
registration rights agreement that by their terms
terminate upon the consummation of the exchange offer.
To the extent that outstanding Notes are tendered and
accepted in the exchange offer, the trading market for
outstanding Notes could be adversely affected.
Consequences of Failure to
Exchange........................ All untendered outstanding Notes will continue to be
subject to the restrictions on transfer provided for in
the outstanding Notes and in the indenture. In general,
the outstanding Notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to
an exemption from, or in a
7
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transaction not subject to, the Securities Act and
applicable state securities laws. Other than in
connection with the exchange offer, the Issuer does not
currently anticipate that it will register the
outstanding Notes under the Securities Act.
Certain U.S. Federal Income
Tax Considerations.............. The exchange of outstanding Notes for exchange Notes in
the exchange offer will not be a taxable event for U.S.
federal income tax purposes. See "Certain United States
Federal Income Tax Consequences of the Exchange Offer."
Use of Proceeds................... We will not receive any cash proceeds from the issuance
of exchange Notes pursuant to the exchange offer.
Exchange Agent.................... The Bank of New York is the exchange agent for the
exchange offer. The address and telephone number of the
exchange agent are set forth in the section captioned
"Exchange Offer-- Exchange Agent" of this prospectus.
SUMMARY OF TERMS OF THE EXCHANGE NOTES
Issuer............................ Willis Corroon Corporation
Securities Offered................ $550,000,000 in principal amount of 9% Senior
Subordinated Notes due 2009.
Maturity Date..................... February 1, 2009.
Interest.......................... Annual rate: 9%
Payment frequency: every six months on February 1 and
August 1.
First payment: August 1, 1999.
Optional Redemption............... On or after February 1, 2004, the Issuer may redeem some
or all of the Notes at the redemption prices listed in
the section entitled "Description of the Notes--Optional
Redemption."
At any time on or prior to February 1, 2002, the Issuer
may redeem up to $192,500,000 of the Notes with the
proceeds of certain public or private offerings of
equity at the price listed in the section entitled
"Description of the Notes--Optional Redemption."
Change of Control................. Upon the occurrence of a change of control, you will
have the right to require the Issuer to repurchase your
Notes at a price equal to 101% of the principal amount
together with accrued and unpaid interest, if any, to
the date of repurchase. See "Description of the
Notes--Repurchase at the Option of Holders--Change of
Control."
Ranking and Guarantees............ The outstanding Notes are, and the exchange Notes when
issued will be, guaranteed by Willis Corroon Group
Limited and Willis Corroon Partners. The Notes and the
guarantees are unsecured senior subordinated debts.
The Notes and the guarantees rank behind all of the
Issuer's and the Guarantors' current and future
indebtedness (other than trade payables), except
indebtedness that expressly provides that it is not
senior to the Notes or the guarantees and certain other
types of indebtedness. See "Description of the
Notes--Subordination."
8
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Assuming the Issuer had completed the offering of the
Notes on December 31, 1998 and applied the proceeds as
intended, the Issuer:
- would have had $460.1 million (L277.2 million) of
senior secured debt to which the Notes would be
subordinated; and
- would have had no senior subordinated debt with which
the Notes would rank equally.
Certain Covenants................. The Issuer issued the outstanding Notes and will issue
the exchange Notes under an indenture with The Bank of
New York, the trustee. The indenture, among other
things, restricts our ability and the ability of our
subsidiaries to:
- borrow money;
- pay dividends on stock, purchase stock or issue
certain types of stock;
- make investments;
- use assets as security in other transactions;
- sell certain assets or merge with or into other
companies; and
- guarantee other indebtedness.
For more details, see "Description of the Notes--Certain
Covenants."
Absence of a Public Market for the
Exchange Notes.................. The exchange Notes generally will be freely transferable
but will also be new securities for which there will not
initially be a market. Accordingly, there can be no
assurance as to the development or liquidity of any
market for the exchange Notes. We have applied for
listing of the exchange Notes on the Luxembourg Stock
Exchange. The initial purchasers in the private offering
of the outstanding Notes have advised us that they
currently intend to make a market in the exchange Notes.
However, they are not obligated to do so, and any market
making with respect to the exchange Notes may be
discontinued without notice.
9
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF WILLIS CORROON
The summary consolidated financial data presented below for the three
years ended December 31, 1997 and the periods January 1 to September 1, 1998 and
September 2 to December 31, 1998 and as of the end of the four years in the
period ended December 31, 1998 have been derived from, and should be read in
conjunction with, the audited consolidated financial statements of Willis
Corroon and the notes thereto included elsewhere in this prospectus. Willis
Corroon prepares its consolidated financial statements in accordance with U.K.
GAAP, which differs in certain respects from U.S. GAAP. Under U.K. GAAP, the
acquisition of Willis Corroon by Trinity Acquisition has no impact on the
historical amounts reported subsequently by Willis Corroon and, accordingly,
combined amounts for the year ended December 31, 1998 are presented. Under U.S.
GAAP, the purchase of Willis Corroon by Trinity Acquisition established a new
basis of accounting from September 2, 1998 for the purchased assets and
liabilities. Accordingly, under U.S. GAAP, it is not appropriate to present
combined amounts for the year December 31, 1998. Reconciliations of net income
and shareholders' equity reflecting the significant differences between U.K.
GAAP and U.S. GAAP are set forth in such financial statements.
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JANUARY 1 TO SEPTEMBER 2 TO
YEAR ENDED DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
------------------------------- ------------- ---------------
1995 1996 1997 1998 1998
--------- --------- --------- ------------- ---------------
(IN MILLIONS)
STATEMENT OF INCOME DATA:
Amounts in accordance with
U.K. GAAP:
Continuing operations
Operating revenues....... L 706.4 L 725.0 L 692.0 L 468.8 L 249.2
Operating income before
exceptional items(b)... 79.4 87.8 92.1 56.8 26.0
Share of profit of
associates............. 6.8 3.5 1.9 7.7 (1.4)
Interest expense......... (7.2) (2.2) (0.7) (2.0) (1.2)
Income / (loss) before
tax.................... 62.4 91.6 95.5 (1.3) 17.1
Total operations
Net income / (loss)...... 29.0 54.2 56.9 (15.6) (25.7)
Amounts in accordance with
U.S. GAAP:
Continuing operations
Operating revenues....... 706.4 725.0 692.0 468.8 249.2
Operating income before
exceptional items(b)... 60.6 70.9 63.1 43.4 14.1
Share of profit of
associates(c).......... 6.8 3.5 1.9 7.7 (1.4)
Interest expense......... (7.2) (2.2) (0.7) (2.0) (1.2)
Income / (loss) before
tax.................... 1.5 74.7 66.5 (5.1) 5.2
Total operations
Net income / (loss)...... (18.0) 37.7 36.2 (19.0) (35.9)
YEAR ENDED
DECEMBER 31,
-------------
1998 1998
-- ---------
STATEMENT OF INCOME DATA:
Amounts in accordance with
U.K. GAAP:
Continuing operations
Operating revenues.......L 718.0 $ 1,191.9(a)
Operating income before
exceptional items(b)...82.8 137.4
Share of profit of
associates.............6.3 10.5
Interest expense.........(3.2) (5.3)
Income / (loss) before
tax....................15.8 26.2
Total operations
Net income / (loss)......(41.3) (68.6)
Amounts in accordance with
U.S. GAAP:
Continuing operations
Operating revenues.......
Operating income before
exceptional items(b)...
Share of profit of
associates(c)..........
Interest expense.........
Income / (loss) before
tax....................
Total operations
Net income / (loss)......
10
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JANUARY 1 TO SEPTEMBER 2 TO
YEAR ENDED DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
------------------------------- ------------- ---------------
1995 1996 1997 1998 1998
--------- --------- --------- ------------- ---------------
(IN MILLIONS)
OTHER FINANCIAL DATA:
Amounts in accordance with
U.K. GAAP:
Adjusted operating
revenues(d)............ 640.9 665.0 683.4 468.7 249.2
EBITDA(e)................ 110.6 115.8 116.7 80.0 33.5
Adjusted EBITDA(f)....... 106.2 127.0 130.5 92.0 47.0
Adjusted EBITDA
margin(g).............. 15.5% 18.6% 18.8% 18.0% 19.4%
Depreciation and
amortization........... L 24.4 L 24.5 L 22.7 L 15.5 L 8.9
Capital expenditures..... 21.6 28.9 26.5 20.1 9.8
Ratio of earnings to
fixed charges(h)....... 4.3x 7.6x 10.5x -- 10.9x
Amounts in accordance with
U.S. GAAP:
Adjusted operating
revenues(d)............ L 640.9 L 665.0 L 683.4 L 468.7 L 249.2
EBITDA(e)................ 110.6 115.8 116.7 80.0 33.5
Adjusted EBITDA(f)....... 106.2 127.0 130.5 92.0 47.0
Adjusted EBITDA
margin(g).............. 15.5% 18.6% 18.8% 18.0% 19.4%
Depreciation and
amortization........... L 42.9 L 42.4 L 40.4 L 27.5 L 15.4
Capital expenditures..... 21.6 28.9 26.5 20.1 9.8
Ratio of earnings to
fixed charges(h)....... 1.0x 6.4x 7.6x -- 4.8x
BALANCE SHEET DATA (AT END
OF PERIOD):
Amounts in accordance with
U.K. GAAP:
Total assets(i)............ L3,703.7 L3,377.2 L3,304.3 L4,589.0
Total long-term debt(j).... 61.9 17.9 34.0 276.4
Total shareholders'
equity................... 120.6 151.9 124.6 89.0
Amounts in accordance with
U.S. GAAP:
Total assets(i)............ 4,376.0 3,953.5 3,763.4 5,369.9
Total long-term debt(j).... 61.9 17.9 34.0 276.4
Total shareholders'
equity................... 587.3 560.2 583.6 875.4
YEAR ENDED
DECEMBER 31,
-------------
1998 1998
-- ---------
OTHER FINANCIAL DATA:
Amounts in accordance with
U.K. GAAP:
Adjusted operating
revenues(d)............717.9 1,191.7
EBITDA(e)................113.5 188.4
Adjusted EBITDA(f).......139.0 230.7
Adjusted EBITDA
margin(g)..............18.5% 18.5%
Depreciation and
amortization...........L 24.4 $ 40.5
Capital expenditures.....29.9 49.6
Ratio of earnings to
fixed charges(h).......2.9x 2.9x
Amounts in accordance with
U.S. GAAP:
Adjusted operating
revenues(d)............
EBITDA(e)................
Adjusted EBITDA(f).......
Adjusted EBITDA
margin(g)..............
Depreciation and
amortization...........
Capital expenditures.....
Ratio of earnings to
fixed charges(h).......
BALANCE SHEET DATA (AT END
OF PERIOD):
Amounts in accordance with
U.K. GAAP:
Total assets(i)............L4,589.0 $ 7,617.7
Total long-term debt(j)....276.4 458.8
Total shareholders'
equity...................89.0 147.7
Amounts in accordance with
U.S. GAAP:
Total assets(i)............5,369.9 8,914.0
Total long-term debt(j)....276.4 458.8
Total shareholders'
equity...................875.4 1,453.2
See Notes to Summary Historical and Unaudited Pro Forma Consolidated Financial
Information
11
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF WILLIS CORROON
The following table sets forth summary pro forma statement of income
data, supplemental financial data and balance sheet data for Willis Corroon. The
pro forma consolidated financial information is derived from, and should be read
in conjunction with, the "Unaudited Condensed Pro Forma Consolidated Financial
Information" and the notes thereto included elsewhere in this prospectus. The
pro forma adjustments are based upon available information and certain
assumptions that management believes are reasonable. The pro forma statement of
income data give effect to the Transactions as if they had occurred as of
January 1, 1998. The pro forma balance sheet data give effect to the
Transactions as if they had occurred as of December 31, 1998. The pro forma
financial data do not purport to represent what the financial position or
results of operations of Willis Corroon would actually have been had such
transactions in fact occurred on the assumed dates or to project the financial
position or results of operations of Willis Corroon for any future period or
date.
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YEAR ENDED
DECEMBER 31,
--------------------
1998 1998
--------- ---------
(IN MILLIONS)
STATEMENT OF INCOME DATA:
Amounts in accordance with U.K. GAAP:
Continuing operations
Operating revenues...................................................................... L735.3 $ 1,220.6
Operating income before exceptional items(b)............................................ 86.0 142.8
Share of profit of associates........................................................... 6.7 11.1
Interest expense........................................................................ (53.4) (88.6)
Income / (loss) before tax.............................................................. (30.8) (51.1)
Total operations
Net income / (loss)..................................................................... L(74.9) $ (124.3)
Amounts in accordance with U.S. GAAP:
Continuing operations
Operating revenues...................................................................... L735.3 $ 1,220.6
Operating income before exceptional items(b)............................................ 56.7 94.1
Share of profit of associates(c)........................................................ 6.7 11.1
Interest expense........................................................................ (53.4) (88.6)
Income / (loss) before tax.............................................................. (50.5) (83.8)
Total operations
Net income / (loss)..................................................................... L(91.9) $ (152.5)
OTHER FINANCIAL DATA:
Amounts in accordance with U.K. GAAP:
Adjusted operating revenues(d).......................................................... L735.2 $ 1,220.4
EBITDA(e)............................................................................... 117.1 194.4
Adjusted EBITDA(f)...................................................................... 142.6 236.7
Adjusted EBITDA margin(g)............................................................... 18.5% 18.5%
Depreciation and amortization........................................................... L24.4 $ 40.5
Capital expenditures.................................................................... 29.9 49.6
Ratio of EBITDA to interest expense..................................................... 2.2x 2.2x
Ratio of Adjusted EBITDA to interest expense............................................ 2.7x 2.7x
Ratio of earnings to fixed charges(h)................................................... -- --
Amounts in accordance with U.S. GAAP:
Adjusted operating revenues(d).......................................................... L735.2 $ 1,220.4
EBITDA(e)............................................................................... 117.1 194.4
Adjusted EBITDA(f)...................................................................... 142.6 236.7
Adjusted EBITDA margin(g)............................................................... 18.5% 18.5%
Depreciation and amortization........................................................... L45.2 75.0
Capital expenditures.................................................................... 29.9 49.6
Ratio of EBITDA to interest expense..................................................... 2.2x 2.2x
Ratio of Adjusted EBITDA to interest expense............................................ 2.7x 2.7x
Ratio of earnings to fixed charges(h)................................................... -- --
BALANCE SHEET DATA (AT END OF PERIOD):
Amounts in accordance with U.K. GAAP:
Total assets(i)......................................................................... L4,589.0 $ 7,617.7
Total long-term debt(j)................................................................. 598.3 993.2
Total shareholders' equity.............................................................. 89.0 147.7
Amount in accordance with U.S. GAAP:
Total assets(i)......................................................................... L5,379.3 $ 8,929.6
Total long-term debt(j)................................................................. 607.7 1,008.8
Total shareholders' equity.............................................................. 875.4 1,453.2
See Notes to Summary Historical and Unaudited Pro Forma Consolidated Financial
Information
12
NOTES TO SUMMARY HISTORICAL AND UNAUDITED
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(a) U.S. dollar amounts have been translated at the Noon Buying Rate on December
31, 1998 of $1.66 = L1.00 solely for your convenience.
(b) Exceptional items charged against operating income from continuing
operations for the year ended December 31, 1995 consisted of losses of L16.6
million relating to properties that were surplus to operational
requirements. For the period January 1 to September 1, 1998, exceptional
items charged against operating income totalled L35.8 million and consisted
of provisions of L25.0 million for claims and costs associated with the
review of personal pension plans sold between 1988 and 1994 and costs of
L10.8 million incurred in connection with the acquisition of Willis Corroon
by Trinity Acquisition. For the period September 2 to December 31, 1998
exceptional items charged against operating income totalled L5.0 million and
consisted of debt issuance costs incurred in connection with the acquisition
of Willis Corroon by Trinity Acquisition. See Note 4 of the Notes to the
Consolidated Financial Statements. Under U.S. GAAP, such items would not be
described as exceptional items.
(c) Under U.S. GAAP, Willis Corroon's share of profits of associated companies
would normally be presented on an after tax basis. The presentation adopted
conforms to U.K. GAAP where Willis Corroon's share of profits of associated
companies is shown on a before tax basis.
(d) As set forth in the following table, Adjusted Operating Revenues represent
actual operating revenues from continuing operations, adjusted to give
effect to all significant dispositions since January 1, 1995 as if they had
occurred on January 1, 1995. Such dispositions consisted of: (1) Willis
Faber & Dumas (Agencies) Limited, a Lloyd's members' agent that was sold in
October 1997; (2) Professional Liability Underwriting Management, part of
the U.S. Wholesale operation, that was closed in the second quarter of 1998;
(3) IRPC and PPC, two consulting companies part of U.K. Retail that were
sold in 1996; (4) WF Corroon, a wholly-owned employee benefits consulting
operation that was sold in 1996; and (5) Consumer Benefit Life Insurance
Company, a wholly owned subsidiary, and two other U.S. business operations,
that were sold in 1996. The table also presents Adjusted Operating Revenues
on a pro forma basis for the year ended December 31, 1998 after giving
effect to the following acquisitions since January 1, 1998 as if they had
occurred on January 1, 1998: (1) the 50% interest in Gruppo Ital Brokers
which was acquired in July 1998 and (2) the increased investment in our
Spanish associate from 48% to 60% and the reorganization of the existing
Spanish and Portuguese operations in July 1998. See "Unaudited Condensed Pro
Forma Consolidated Financial Information" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
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HISTORICAL
--------------------------------------------------------------------------------
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
PRO FORMA
---------------
YEAR ENDED
DECEMBER 31, SEPTEMBER 1, DECEMBER 31, DECEMBER 31,
------------------------------- ----------------- ----------------- --------------------------
1995 1996 1997 1998 1998 1998 1998
--------- --------- --------- ----------------- ----------------- --------- ---------------
(IN MILLIONS)
Continuing operations
operating revenues.......... L706.4 L725.0 L692.0 L468.8 L249.2 L718.0 L735.3
Adjustments for
dispositions................ (65.5) (60.0) (8.6) (0.1) 0 (0.1) (0.1)
--------- --------- --------- ------- ------- --------- -------
Adjusted operating revenues... L640.9 L665.0 L683.4 L468.7 L249.2 L717.9 L735.2
--------- --------- --------- ------- ------- --------- -------
--------- --------- --------- ------- ------- --------- -------
(e) EBITDA is defined as operating income from continuing operations before
exceptional items and depreciation and amortization, plus share of profit of
associates. Willis Corroon's share of profit of associates was L6.8 million,
L3.5 million, L1.9 million and L6.3 million ($10.4 million) for 1995, 1996,
1997 and 1998 respectively. EBITDA is presented because management believes
that it is a useful indicator of a company's ability to incur and service
debt. EBITDA should not be considered by investors as an alternative to
operating income or net income (as determined in accordance with either U.K.
GAAP or U.S. GAAP) as an indicator of Willis Corroon's performance, nor as
an alternative to cash flows from operating activities, investing activities
or financing activities (as
13
determined in accordance with either U.K. GAAP or U.S. GAAP) as a measure of
liquidity. Because all companies do not calculate EBITDA identically, the
presentation of EBITDA contained herein may not be comparable to other
similarly entitled measures of other companies. For U.S. GAAP purposes,
EBITDA has been defined so as to exclude (1) non-cash adjustments for
pension costs of L1.7 million, L(12.1) million and L(7.6) million ($(12.9)
million) for 1995, 1996 and 1997, respectively, and L(1.6) million and
L(1.7) million for the periods January 1 to September 1, 1998 and September
2 to December 31, 1998 respectively and L(5.0) million for the year ended
December 31, 1998 on a pro forma basis, and (2) non-cash adjustments for
revaluation of forward exchange contracts of L(2.0) million, L10.9 million
and L(5.6) million ($(9.5) million) for 1995, 1996 and 1997, respectively,
and L0.2 million and L(3.7) million for the periods January 1 to September
1, 1998, and September 2 to December 31, 1998 respectively and L(3.5)
million for the year ended December 31, 1998 on a pro forma basis. The
EBITDA data presented is, therefore, the same under U.S. GAAP as under U.K.
GAAP.
(f) As set forth in the following table, Adjusted EBITDA represents actual
EBITDA, adjusted to give effect to (A) the dispositions described in note
(d) above, together with the 50% interest in Heddington Brokers Limited, an
associate based in Bermuda that was sold in December 1995, as if they had
occurred on January 1, 1995, and (B) the following non-recurring items: (1)
pension review claims and costs relating to the review of personal pension
plans sold between 1988 and 1994; (2) costs relating to Willis Corroon's
brokers' contribution to the Lloyd's Reconstruction and Renewal Plan; (3)
severance costs incurred in connection with the change program; (4) other
expenses relating to consulting costs incurred in connection with the change
program, costs relating to acquisitions of broker teams and costs in
connection with Willis Corroon's investment in the World Insurance Network;
and (5) costs relating to the 1998 Projects described under "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview." The table also presents Adjusted EBITDA on a pro forma basis for
the year ended December 31, 1998 after giving effect to the following
acquisitions as if they had occurred on January 1, 1998: (1) the 50%
interest in Gruppo Ital Brokers which was acquired in July 1998; (2) the 30%
interest in Assurand /orgruppen which was acquired in September 1998; and
(3) the increased investment in our Spanish associate from 48% to 60% and
the reorganization of the existing Spanish and Portuguese operations in July
1998. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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HISTORICAL
--------------------------------------------------------------------------------
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
PRO FORMA
-------------
YEAR ENDED
DECEMBER 31, SEPTEMBER 1, DECEMBER 31, DECEMBER 31,
------------------------------- ----------------- ----------------- ------------------------
1995 1996 1997 1998 1998 1998 1998
--------- --------- --------- ----------------- ----------------- --------- -------------
(IN MILLIONS)
Operating income from continuing
operations before exceptional
items.......................... L 79.4 L 87.8 L 92.1 L56.8 L26.0 L 82.8 L 86.0
Share of profit of associates.... 6.8 3.5 1.9 7.7 (1.4) 6.3 6.7
Depreciation and amortization.... 24.4 24.5 22.7 15.5 8.9 24.4 24.4
--------- --------- --------- ----- ----- --------- -------------
EBITDA........................... L110.6 L115.8 L116.7 L80.0 L33.5 L113.5 L117.1
Adjustments for dispositions..... (6.1) (9.8) (4.1) 0.6 -- 0.6 0.6
Other adjustments before
exceptional items:
Pension Review................. 1.0 0.2 2.3 -- -- -- --
Lloyd's Reconstruction and
Renewal Plan................. -- 2.6 2.2 1.3 0.7 2.0 2.0
Severance...................... -- 11.3 3.4 4.6 5.0 9.6 9.6
Other expenses................. 0.7 6.9 10.0 4.4 6.1 10.5 10.5
1998 Projects.................. -- -- -- 1.1 1.7 2.8 2.8
--------- --------- --------- ----- ----- --------- -------------
Adjusted EBITDA.................. L106.2 L127.0 L130.5 L92.0 L47.0 L139.0 L142.6
--------- --------- --------- ----- ----- --------- -------------
--------- --------- --------- ----- ----- --------- -------------
Adjusted EBITDA margin........... 15.5% 18.6% 18.8% 18.0% 19.4% 18.5% 18.5%
14
Adjusted EBITDA should not be considered by investors as an alternative to
operating income or net income (as determined in accordance with either U.K.
GAAP or U.S. GAAP) as an indicator of Willis Corroon's performance, nor as
an alternative to cash flows from operating activities, investing activities
or financing activities (as determined in accordance with either U.K. GAAP
or U.S. GAAP) as a measure of liquidity. Because all companies do not
calculate EBITDA identically, the presentation of Adjusted EBITDA contained
herein may not be comparable to EBITDA, Adjusted EBITDA or other similarly
entitled measures of other companies. Investors should not conclude from the
presentation of Adjusted EBITDA that additional costs arising from the same
or similar items will not be incurred in the future. The Pension Review,
Lloyd's Reconstruction and Renewal Plan and the change program are on-going
and could result in additional costs being incurred in the future.
(g) Adjusted EBITDA margin represents Adjusted EBITDA (less share of profit of
associates) as a percentage of Adjusted Operating Revenues.
(h) The ratio of earnings to fixed charges is computed by dividing earnings from
continuing operations by fixed charges. For these purposes, "earnings"
consists of income before taxation less the retained equity in share of
profits of associates and fixed charges. "Fixed charges" consists of
interest expense (including amortization of debt issuance costs) and the
interest element of operating lease rentals. After taking an exceptional
charge of L25 million in the period from January 1 to September 1, 1998 for
the estimated cost in connection with the pension review (see "--U.K.
Pension Review"), a L10.8 million exceptional charge for payment of fees and
expenses relating to the Transactions and a non-cash exceptional charge of
L29.6 million on the closure of Professional Liability Underwriting
Management, earnings under U.K. GAAP and U.S. GAAP for the period January 1
to September 1, 1998 and the year ended December 31, 1998 on a pro forma
basis were inadequate to cover fixed charges. The amounts of the
deficiencies were L7.1 million and L35.1 million ($58.3 million),
respectively, on a U.K. GAAP basis and L10.9 million and L54.8 million
($91.0 million), respectively, on a U.S. GAAP basis.
(i) As an intermediary, Willis Corroon holds funds on a fiduciary basis for the
account of third parties, typically as a result of premiums received from
clients that are in transit to insurance carriers and claims due to clients
that are in transit from insurance carriers. These fiduciary amounts are
included in total assets but are not generally available to service Willis
Corroon's indebtedness or for other general corporate purposes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(j) Under U.K. GAAP, debt issuance costs of L9.4 million ($15.6 million) are
netted from the calculation of total debt and amortized over the life of the
debt. Under U.S. GAAP, such costs are recorded as an asset and amortized
over the life of the debt. Total long term debt does not give effect to
dollar denominated intercompany debt owed to Trinity Acquisition pursuant to
group intercompany notes (as defined), which are subordinated in right of
payment to the Notes, and which are offset by note receivables in the form
of corresponding pound sterling denominated Trinity intercompany notes (as
defined). In addition, total long term debt does not give effect to a L92.9
million interest free convertible loan owed to Trinity Acquisition, which
was converted into equity of Willis Corroon Group Limited on February 3,
1999.
15
RISK FACTORS
BEFORE YOU PARTICIPATE IN THE EXCHANGE OFFER, YOU SHOULD BE AWARE THAT
THERE ARE VARIOUS RISKS, INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CAREFULLY
CONSIDER THESE RISK FACTORS, TOGETHER WITH THE OTHER INFORMATION IN THIS
PROSPECTUS, BEFORE DECIDING TO PARTICIPATE IN THE EXCHANGE OFFER.
FAILURE TO EXCHANGE--THERE MAY BE ADVERSE CONSEQUENCES IF YOU DO NOT EXCHANGE
YOUR OUTSTANDING NOTES.
If you do not exchange your outstanding Notes for exchange Notes under
the exchange offer, then you will continue to be subject to the transfer
restrictions on the outstanding Notes as set forth in the offering memorandum
distributed in connection with the offering of the outstanding Notes. In
general, the outstanding Notes may not be offered or sold unless they are
registered or exempt from registration under the Securities Act and applicable
state securities laws. Except as required by the registration rights agreement,
we do not intend to register resales of the outstanding Notes under the
Securities Act. You should refer to "Prospectus Summary--Summary of the Terms of
Exchange Offer" and "The Exchange Offer" for information about how to tender
your outstanding Notes.
The tender of outstanding Notes under the exchange offer will reduce
the principal amount of the outstanding Notes outstanding, which may have an
adverse effect upon, and increase the volatility of, the market price of the
outstanding Notes due to a reduction in liquidity.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE--WE HAVE SUBSTANTIAL INDEBTEDNESS AND HAVE
SIGNIFICANT INTEREST PAYMENT REQUIREMENTS.
As a result of the Transactions, Willis Corroon has a substantial
amount of debt. Assuming that the Transactions had taken place on December 31,
1998, we would have had total long-term debt of L598.3 million (net of L9.4
million of issuance costs and not including unused commitments) and
shareholders' equity of L89.0 million, giving us a total debt to equity ratio of
6.7 to 1.0 calculated on a U.K. GAAP basis and 0.7 to 1.0 calculated on a U.S.
GAAP basis. In addition, subject to restrictions in our senior credit facilities
and in the indenture governing the Notes, we may borrow more money for working
capital, capital expenditures, acquisitions or for other purposes.
Our high level of debt could have important consequences for you,
including the following:
- we may have difficulty borrowing money in the future for working
capital, capital expenditures, acquisitions or other purposes;
- we will need to use a large portion of the money earned by our
subsidiaries to pay principal and interest on the senior credit
facilities, the Notes and on other debt, which will reduce the amount
of money available to us to finance our operations and other business
activities;
- some of our debt has a variable rate of interest, which exposes us to
the risk of increased interest rates;
- debt under the senior credit facilities will be secured and will mature
prior to the Notes;
- we may have a much higher level of debt than our competitors, which may
put us at a competitive disadvantage;
16
- our debt level makes us more vulnerable to economic downturns and
adverse developments in our business;
- our debt level reduces our flexibility in responding to changing
business and economic conditions, including increased competition in
the insurance brokerage industry; and
- our debt level limits our ability to pursue other business
opportunities, borrow more money for operations or capital in the
future and implement our business strategies.
After taking an exceptional charge of L25 million in the period from
January 1 to September 1, 1998 for the estimated cost in connection with the
pension review (see "--U.K. Pension Review"), a L10.8 million exceptional charge
for payment of fees and expenses relating to the Transactions and a non-cash
exceptional charge of L29.6 million on the closure of Professional Liability
Underwriting Management, earnings under U.K. GAAP and U.S. GAAP for the period
from January 1 to September 1, 1998 were inadequate to cover fixed charges. The
amounts of the deficiencies were L7.1 million under U.K. GAAP and L10.9 million
under U.S. GAAP. After giving pro forma effect to the Transactions, our interest
expense for the year ended December 31, 1998 would have been L53.4 million. Pro
forma earnings under U.K. GAAP and U.S. GAAP for the year ended December 31,
1998 were inadequate to cover fixed charges. The amounts of the deficiencies
were L35.1 million under U.K. GAAP and L54.8 million under U.S. GAAP.
We expect to obtain the money to pay our expenses and to pay the
principal and interest on the Notes, the senior credit facilities and other debt
(and expect TA II Limited, a company with limited liability, organized under the
laws of England and Wales, and an indirect parent of Willis Corroon, to obtain
the money to pay dividends on its preference shares) from the operations of our
subsidiaries and associates and from additional loans under the senior credit
facilities. Our ability to meet our expenses thus depends on the future
performance of our subsidiaries and associates, which will be affected by
financial, business, economic and other factors. We will not be able to control
many of these factors, such as economic conditions in the markets where our
subsidiaries operate and pressure from competitors. We cannot be certain that
the money earned by our subsidiaries will be sufficient to allow us to pay
principal and interest on our debt (including the Notes) and meet our other
obligations. If we do not have enough money, we may be required to refinance all
or part of our existing debt, including the Notes, sell assets or borrow more
money. We cannot guarantee that we will be able to refinance our debt, sell
assets or borrow more money on terms acceptable to us. In addition, the terms of
existing or future debt agreements, including the senior credit facilities and
the indenture, may restrict us from adopting any of these alternatives.
Under the senior credit facilities, we must also comply with certain
specified financial ratios and tests. If we do not comply with these or other
covenants and restrictions contained in the senior credit facilities, we could
default under the senior credit facilities. Such debt, together with accrued
interest, could then be declared immediately due and payable. Our ability to
comply with such provisions may be affected by events beyond our control.
CONTRACTUAL SUBORDINATION--THE NOTES AND THE GUARANTEES ARE CONTRACTUALLY
SUBORDINATED TO OUR
SENIOR DEBT.
The Notes are contractually subordinated in right of payment to all
senior indebtedness of the Issuer and the Guarantees are contractually
subordinated in right of payment to all senior indebtedness of the Guarantors.
Assuming the Transactions had occurred on December 31, 1998, the Issuer would
have had approximately $460.1 million (L277.2 million) of senior indebtedness
(excluding unused commitments), all of which would have been secured, and the
Guarantors would have had no senior
17
indebtedness (excluding their guarantees of the Permanent Facility Agreement).
The indenture permits the Issuer and the Guarantors to borrow certain additional
debt, which may be senior indebtedness.
If the Issuer or the Guarantors are declared bankrupt or insolvent, or
if there is a payment default under any senior indebtedness, we are required to
pay the lenders under the senior credit facilities and any other creditors who
are holders of senior indebtedness in full before we pay you. Accordingly, we
may not have enough assets remaining after payments to holders of such senior
indebtedness to pay you. In addition, under certain circumstances, the Issuer
may not pay any amount on the Notes if certain senior indebtedness (including
debt under the senior credit facilities) is not paid when due or any other
default on such senior indebtedness exists. See "Description of the Notes--
Subordination."
Further, the senior credit facilities prohibit the Issuer from
repurchasing any Notes prior to maturity, even though the indenture requires us
to offer to repurchase Notes in certain circumstances. If the Issuer or the
Guarantors make certain asset sales or if a change of control occurs when the
Issuer is prohibited from repurchasing Notes, the Issuer could ask its lenders
under the senior credit facilities if it may repurchase the Notes or it could
attempt to refinance the borrowings that contain such prohibitions. If the
Issuer does not obtain such a consent or repay such borrowings, the Issuer would
be unable to repurchase the Notes. The Issuer's failure to repurchase tendered
Notes at a time when such repurchase is required by the indenture would
constitute an event of default under the indenture which, in turn, would
constitute a default under the senior credit facilities. In such circumstances,
the subordination provisions in the indenture would restrict payments to you.
See "Description of the Senior Credit Facilities" and "Description of the
Notes--Subordination."
ASSET ENCUMBRANCES--OUR ASSETS ARE PLEDGED TO SECURE PAYMENT OF THE SENIOR
CREDIT FACILITIES.
In addition to being contractually subordinated to all existing and
future senior indebtedness, our obligations under the Notes are unsecured while
our obligations under the senior credit facilities are secured by the pledge of
all of the capital stock of the Issuer, Willis Corroon Group and certain direct
subsidiaries of the Issuer and Willis Corroon Group and a pledge of all the
partnership interests of Willis Corroon Partners; the pledge of stock owned by
Willis Corroon Group is supported by a general lien (known as a floating charge
in the U.K.) filed in the U.K. against Willis Corroon Group's assets. If we
default under the senior credit facilities, the lenders could declare all of the
funds borrowed thereunder,
together with accrued interest, immediately due and payable. If we were unable
to repay such indebtedness, the lenders could foreclose on the pledged stock of
our subsidiaries to your exclusion, even if an event of default exists under the
indenture at such time. Furthermore, under the Guarantees, if all shares of
Willis Corroon Group or partnership interests of Willis Corroon Partners are
sold to persons pursuant to an enforcement of the pledge of shares in Willis
Corroon Group or the pledge of the partnership interests in Willis Corroon
Partners for the benefit of the senior lenders, then the applicable Guarantor
will be released from its Guarantee automatically and immediately upon the sale.
See "Description of the Notes--Guarantee."
STRUCTURAL SUBORDINATION--THE NOTES ARE SUBORDINATED TO THE DEBT OF THE ISSUER'S
SUBSIDIARIES AND THE DEBT OF THE GUARANTORS' SUBSIDIARIES.
The Issuer is a holding company with assets at December 31, 1998 with a
book value of $255 million, excluding the stock of its subsidiaries and
intercompany receivables. In addition, Willis Corroon Group is a holding company
with no significant assets other than (1) its 99.9% general partnership interest
in Willis Corroon Partners and the stock of Willis Corroon Partners'
subsidiaries (including the Issuer and the Issuer's subsidiaries) and (2) the
stock of Willis Corroon Group's U.K. and
18
other subsidiaries. Willis Corroon Partners is also a holding company with no
significant assets other than the stock of the Issuer and the Issuer's
subsidiaries. As a holding company, each of the Issuer, Willis Corroon Group and
Willis Corroon Partners is dependent upon dividends or other intercompany
transfers of funds from its respective subsidiaries to meet its debt service and
other obligations. Generally, creditors of a subsidiary will have a superior
claim to the assets and earnings of such subsidiary than the claims of creditors
of its parent company, except to the extent the claims of the parent's creditors
are guaranteed by the subsidiary. The Notes therefore will be effectively
subordinated to creditors of the direct and indirect subsidiaries of the Issuer
and the Guarantees will be effectively subordinated to creditors of all of the
direct and indirect subsidiaries of the Guarantors (other than the Issuer).
As of December 31, 1998:
- the Issuer's subsidiaries had total liabilities (including payables in
respect of insurance broking transactions but excluding their
guarantees under the Permanent Facility Agreement) of L1,103.3 million;
and
- Willis Corroon Group's subsidiaries (other than Willis Corroon
Partners, the Issuer and the Issuer's subsidiaries) had total
liabilities (including payables in respect of insurance broking
transactions but excluding their guarantees under the Permanent
Facility Agreement) of L2,345.0 million.
Although the indenture limits the ability of the Issuer's and
Guarantors' subsidiaries to incur indebtedness and preferred stock, there are
certain significant qualifications and exceptions. The indenture does not limit
such subsidiaries from incurring liabilities that are excluded from the
definitions of indebtedness or preferred stock under the indenture. See
"Description of the Notes--Certain Covenants--Limitations on Incurrence of
Indebtedness and Issuance of Disqualified Stock."
In addition, the ability of the Issuer's and Guarantors' subsidiaries
to pay dividends and make other payments to them may be restricted by, among
other things, applicable corporate and other laws and regulations and agreements
of the subsidiaries. Although the indenture limits the ability of such
subsidiaries to enter into consensual restrictions on their ability to pay
dividends and make other payments, such limitations are subject to a number of
significant qualifications and exceptions. See "Description of the
Notes--Certain Covenants--Dividend and Other Payment Restrictions Affecting
Subsidiaries."
U.K. INSOLVENCY LAW AND FINANCIAL ASSISTANCE--U.K. INSOLVENCY LAW IS FAVORABLE
TO SECURED CREDITORS AND U.K. LAWS PROHIBIT CERTAIN FINANCIAL ASSISTANCE.
The procedural and substantive provisions of U.K. insolvency and
administrative laws generally are more favorable to secured creditors than
comparable provisions of U.S. laws and afford debtors only limited protection
from such creditors. As a result, your ability to realize upon your claims
against Willis Corroon Group may be more limited than with a U.S. guarantor. In
addition, under U.K. insolvency law, the liabilities of Willis Corroon Group
under its Guarantee will be paid in the event of a bankruptcy or similar
proceeding only after repayment of certain debts of Willis Corroon Group which
are entitled to priority under U.K. law. Such debts may include:
- amounts owed to U.K. Inland Revenue;
- amounts owed to U.K. Customs and Excise;
- amounts owed under U.K. Social Security contributions;
- amounts owed in respect of occupational pension schemes;
19
- amounts owed to employees; and
- liquidation expenses.
Under U.K. insolvency law, the liquidator or administrator of a company
may apply to the court to rescind or vary a transaction entered into by such
company at less than fair value, if such company was insolvent at the time of,
or as a consequence of, the transaction and enters into a formal insolvency
process within two years of the completion of the transaction. A transaction
might be challenged if it involved a gift by the company or the company received
consideration of significantly less value than the benefit given by such
company. A court generally will not intervene if the company entered the
transaction in good faith for the purposes of carrying on its business and there
were reasonable grounds for believing the transaction would benefit the company.
We believe that the Guarantee by Willis Corroon Group was not issued at less
than fair value and that the Guarantee was issued in good faith for the purposes
of carrying on Willis Corroon Group's business. Furthermore, we believe that
there are reasonable grounds for believing that the Transactions would benefit
Willis Corroon Group. We cannot provide any assurance, however, that the
issuance of the Guarantee by Willis Corroon Group will not be challenged by a
liquidator or administrator or that a court would support our analysis.
The provision of the Guarantee by Willis Corroon Group and certain
provisions of the exchange and registration rights agreement and the purchase
agreement relating to the issuance of the outstanding Notes (the "Other
Prohibited Matters") may have constituted unlawful financial assistance under
U.K. law. However, the Companies Act 1985 of Great Britain provides an exemption
procedure which can be used in certain circumstances to approve actions which
may otherwise constitute unlawful financial assistance. Willis Corroon Group has
complied with this procedure. The procedure requires that each of the directors
of Willis Corroon Group swear certain statutory declarations relating to the
solvency of Willis Corroon Group and that the auditors of Willis Corroon Group
provide a report confirming they are not aware of anything to indicate the
opinion of the directors in such statutory declarations is unreasonable in the
circumstances. Furthermore, in connection with the issuance of the Guarantee and
the Other Prohibited Matters, it is necessary that Willis Corroon Group had net
assets which were not reduced as a result of giving the financial assistance or,
to the extent that they are reduced, the assistance is provided out of
distributable profits only. Willis Corroon Group has implemented the exemption
procedure on the basis that the Guarantee and the Other Prohibited Matters did
not reduce the net assets of Willis Corroon Group. If any of the requirements of
the exemption procedure are not satisfied, and in particular if the giving of
the Guarantee or the Other Prohibited Matters reduced the net assets of Willis
Corroon Group, then such Guarantee or the Other Prohibited Matters, as the case
may be, would be invalid. We have taken steps to ensure that the requirements of
the exemption procedure have been complied with and believe that the issue of
the Guarantee and the Other Prohibited Matters did not result in a reduction of
the net assets of Willis Corroon Group, because we believe that the liabilities
under the Guarantee and the Other Prohibited Matters were not likely to be or
not certain to be incurred. However, we can provide no assurance that a court or
a liquidator would concur with our view.
U.S. FRAUDULENT TRANSFER CONSIDERATIONS--U.S. BANKRUPTCY OR FRAUDULENT
CONVEYANCE LAW MAY INTERFERE WITH THE PAYMENT OF THE NOTES.
The incurrence of indebtedness by the Issuer, such as the outstanding
Notes, may be subject to review under U.S. federal bankruptcy law or relevant
state fraudulent conveyance laws if a bankruptcy case or lawsuit is commenced by
or on behalf of unpaid creditors of the Issuer. Under these laws, if in such a
case or lawsuit a court were to find that, at the time the Issuer incurred
indebtedness (including indebtedness under the Notes),
20
(1) the Issuer incurred such indebtedness with the intent of hindering,
delaying or defrauding current or future creditors; or
(2) (a) the Issuer received less than reasonably equivalent value or
fair consideration for incurring such indebtedness; and
(b) the Issuer
- was insolvent or was rendered insolvent by reason of any of
the transactions;
- was engaged, or about to engage, in a business or transaction
for which our assets remaining with the Issuer constituted
unreasonably small capital to carry on our business;
- intended to incur, or believed that it would incur, debts
beyond our ability to pay as such debts matured (as all of the
foregoing terms are defined in or interpreted under the
relevant fraudulent transfer or conveyance statutes); or
- was a defendant in an action for money damages, or had a
judgment for money damages docketed against it (if, in either
case, after final judgment the judgment is unsatisfied),
then such court could avoid or subordinate the amounts owing under the Notes to
presently existing and future indebtedness of the Issuer and take other actions
detrimental to you.
The measure of insolvency for purposes of the foregoing considerations
will vary depending upon the law of the jurisdiction that is being applied in
any such proceeding. Generally, however, the Issuer would be considered
insolvent if, at the time it incurred the indebtedness, either (1) the sum of
its debts (including contingent liabilities) is greater than its assets, at fair
valuation, or (2) the present fair saleable value of its assets is less than the
amount required to pay the probable liability on its total existing debts and
liabilities (including contingent liabilities) as they become absolute and
matured. There can be no assurance as to what standards a court would use to
determine whether the Issuer was solvent at the relevant time, or whether,
whatever standard was used, the Notes would not be avoided or further
subordinated on another of the grounds set forth above. In rendering their
opinions in connection with the Transactions, counsel for the Issuer will not
express any opinion as to the applicability of federal or state fraudulent
transfer and conveyance laws.
We believe that at the time the Issuer initially incurred indebtedness
represented by the outstanding Notes, the Issuer was:
(1) (a) neither insolvent nor rendered insolvent thereby,
(b) in possession of sufficient capital to run its businesses
effectively and
(c) incurring debts within its ability to pay as the same mature or
become due; and
(2) had sufficient assets to satisfy any probable money judgment
against it in any pending action.
21
In reaching the foregoing conclusions, we have relied upon our analyses
of internal cash flow projections and estimated values of assets and liabilities
of the Issuer. There can be no assurance, however, that a court passing on such
questions would reach the same conclusions.
In addition, Willis Corroon Partners' Guarantee may be subject to
review under relevant federal and state fraudulent conveyance and similar
statutes in a bankruptcy or reorganization case or a lawsuit by or on behalf of
creditors of Willis Corroon Partners. In such a case, the analysis set forth
above would generally apply, except that Willis Corroon Partners could also be
subject to the claim that, since its Guarantee was incurred for the benefit of
the Issuer, the obligations of Willis Corroon Partners thereunder were incurred
for less than reasonably equivalent value or fair consideration. A court could
avoid Willis Corroon Partners' obligation under its Guarantee, subordinate the
Guarantee to other indebtedness of Willis Corroon Partners or take other action
detrimental to the holders of the Notes.
CONTROL BY KKR--WE ARE CONTROLLED BY KOHLBERG KRAVIS ROBERTS & CO. L.P.
The KKR 1996 Fund (Overseas), Limited Partnership, an Alberta, Canada
limited partnership, the general partner of Profit Sharing (Overseas), Limited
Partnership, an Alberta, Canada limited partnership, beneficially owns
approximately 77% of the share capital of TA I Limited, a company with limited
liability organized under the laws of England and Wales, the ultimate parent of
Willis Corroon Group and the Issuer. The board of directors of TA I Limited
consists of six designees of the KKR 1996 Fund (Overseas), Limited, one member
of the management group and one independent director. As a result, the KKR 1996
Fund (Overseas), Limited controls our policies and operations and has the power
to approve any action requiring stockholder approval (including adopting
amendments to Willis Corroon Group's articles of association and approving
mergers or sales of all or substantially all of our assets). There can be no
assurance that the interests of the KKR 1996 Fund (Overseas), Limited will not
conflict with your interests. See "Management" and "Shareholders."
LACK OF PUBLIC MARKET--YOU MAY NOT BE ABLE TO SELL YOUR EXCHANGE NOTES.
There is no existing market for the exchange Notes, and there can be no
assurance as to the liquidity of any markets that may develop for the exchange
Notes, your ability to sell your exchange Notes or the prices at which you would
be able to sell your exchange Notes. Future trading prices of the exchange Notes
will depend on many factors, including, among other things, prevailing interest
rates, our operating results and the market for similar securities. The initial
purchasers of the outstanding Notes have advised us that they currently intend
to make a market in the exchange Notes. However, they are not obligated to do so
and any market making may be discontinued at any time without notice. The
outstanding Notes are eligible for trading in Nasdaq's PORTAL Market and are
listed on the Luxembourg Stock Exchange. We have applied for listing of the
exchange Notes on the Luxembourg Stock Exchange.
Historically, the market for non-investment grade debt has been subject
to disruptions that have caused volatility in prices. It is possible that the
market for the exchange Notes will be subject to disruptions. Any such
disruptions may have a negative effect on you (as a holder of the exchange
Notes) regardless of our prospects and financial performance.
LIMITATION ON CHANGE OF CONTROL--WE MAY NOT BE ABLE TO FINANCE A CHANGE OF
CONTROL OFFER REQUIRED BY THE INDENTURE.
Upon a change of control under the indenture, the Issuer will be
required to offer to purchase all of the Notes then outstanding at 101% of their
principal amount, plus accrued interest to the date of repurchase. If a change
of control were to occur, we can provide no assurance that the Issuer would
22
have sufficient funds to pay the purchase price (as defined in the indenture)
for the Notes then outstanding, and we expect that the Issuer would require
third party financing; however, we can provide no assurance that the Issuer
would be able to obtain such financing on favorable terms, if at all. In
addition, the senior credit facilities restrict the Issuer's ability to
repurchase the Notes, including pursuant to an offer in connection with a change
of control. A change of control under the indenture will result in an event of
default under the senior credit facilities and may cause the acceleration of
other senior indebtedness, if any, in which case the subordination provisions of
the Notes would require payment in full of the senior credit facilities and any
other senior indebtedness before repurchase of the Notes. See "Description of
the Notes--Repurchase at the Option of Holders--Change of Control" and
"Description of the Senior Credit Facilities." The inability to repay senior
indebtedness, if accelerated, and to purchase all of the tendered Notes, would
constitute an event of default under the indenture.
PREMIUMS AND COMMISSIONS--WE DO NOT CONTROL THE PREMIUMS ON WHICH OUR
COMMISSIONS ARE BASED.
Willis Corroon is primarily engaged in insurance brokerage activities,
and derives most of its revenues from commissions and fees for brokering and
consulting services. Willis Corroon does not determine insurance premiums on
which commissions are generally based. Historically, premiums have been cyclical
in nature and have varied widely based on market conditions. Since the late
1980s, general premium levels have been depressed as a result of a number of
factors, including:
- the expanded underwriting capacity of insurance carriers;
- consolidation of both insurance intermediaries and insurance carriers;
and
- increased competition.
In addition, as traditional risk-bearing insurance carriers continue to
outsource the production of premium revenue to non-affiliated agents or brokers
such as Willis Corroon, such insurance carriers may seek to further reduce their
expenses by reducing the commission rates payable to such insurance agents or
brokers. We cannot predict the timing or extent of future changes in commission
rates or premiums and therefore cannot predict the effect, if any, that such
changes would have on our operations. See "Business--Industry Overview."
SOVEREIGN/WFUM--THERE IS UNCERTAINTY ABOUT THE RUN-OFF OF THE BUSINESS OF ONE OF
OUR SUBSIDIARIES (SOVEREIGN/WILLIS FABER (UNDERWRITING MANAGEMENT)).
Sovereign Marine & General Insurance Company Limited (in provisional
liquidation), a wholly owned subsidiary of Willis Corroon Group, operated as an
insurance company in the U.K. and from 1972 Sovereign's underwriting activities
were managed by another wholly owned subsidiary of Willis Corroon Group, Willis
Faber (Underwriting Management) Limited. Willis Faber (Underwriting Management)
also provided underwriting agency and other services to the third-party
insurance companies (the "Stamp Companies"), some of which are long-standing
clients of Willis Corroon. As an underwriting agent, Willis Faber (Underwriting
Management) did not retain any underwriting risks for its own account. As part
of its services as agent, Willis Faber (Underwriting Management) arranged
insurance and reinsurance business on behalf of Sovereign and the Stamp
Companies in the following main classes of insurance: marine, non-marine,
casualty and aviation. Willis Faber (Underwriting Management) also arranged for
reinsurance for Sovereign and the Stamp Companies through third party brokers,
as well as through brokers within Willis Corroon. In 1991, Sovereign ceased
underwriting new business and Willis Faber (Underwriting Management) ceased
arranging new business on behalf of Sovereign and the Stamp Companies. Since
that time, Willis Faber (Underwriting Management) has been administering the
23
business it arranged on behalf of Sovereign and the other Stamp Companies
(referred to as handling the "run-off" of the business).
In July 1997, an unexpected adverse arbitration award was rendered
against Sovereign in respect of a dispute between Sovereign and one of its
reinsurers regarding the enforceability of certain reinsurance that Willis Faber
(Underwriting Management) had arranged. The award is confidential and
non-binding as to third parties. As a result of the award, the directors of
Sovereign determined that Sovereign could not continue to trade unless Willis
Corroon Group provided unlimited financial support. The directors of Willis
Corroon Group decided that, in the interests of Willis Corroon Group's
shareholders, such support for Sovereign could not be justified. Accordingly,
Sovereign was placed into Provisional Liquidation on July 11, 1997. It is
expected that the Provisional Liquidators and Sovereign's creditors will
ultimately enter into an arrangement that will resolve Sovereign's liabilities
and its creditors' claims and provide for the orderly winding up of Sovereign's
business, although there can be no assurance that this will be the case. Willis
Corroon and the Provisional Liquidators have agreed to certain arrangements,
including the new structure to replace Willis Faber (Underwriting Management)
described below, for the future run-off of the Sovereign business. Willis
Corroon has similar agreements with certain of the Stamp Companies regarding
arrangements for, and funding the costs of, the ongoing run-off of Sovereign.
Willis Faber (Underwriting Management) made provisions in 1991 and
Willis Corroon made provisions in 1995, in each case to cover the estimated
expenses for administering the run-off by Willis Faber (Underwriting Management)
which, based on the knowledge at that time, was expected to cover the handling
of the run-off to 2025. At December 31, 1998, the remaining provisions for these
costs were L20.8 million. Although the run-off of this business is expected to
be conducted in an orderly manner, it may ultimately prove to be a lengthy and
expensive process. As indicated above, Willis Corroon, the Provisional
Liquidators and certain of the Stamp Companies have entered into arrangements
pursuant to which a new subsidiary of Willis Corroon now provides run-off
services. Those services have in turn been sub-contracted to a third party with
experience in running off pools with an insolvent member. In the case of the
Provisional Liquidators, the services are provided directly by such third party
to Sovereign. The arrangement with the Provisional Liquidators and the
arrangements with certain of the Stamp Companies include the agreement by Willis
Corroon to fund, subject to certain agreed guidelines as to timing and amount,
certain costs of the ongoing run-off. The amounts to be funded under the
arrangements are currently within the aggregate of the provisions as of December
31, 1998. However, there can be no assurance that the provisions will be
adequate to cover the actual run-off costs over time.
Following the publication of the adverse arbitration award, Sovereign
and certain of the Stamp Companies have expressed concern about the
enforceability of other reinsurance put in place by Willis Faber (Underwriting
Management) on behalf of Sovereign and the Stamp Companies. In addition, a
reinsurer which participates on numerous reinsurance contracts has advised
Sovereign, the Stamp Companies and Willis Faber (Underwriting Management) that
it is in the process of adopting a number of legal positions, similar to those
taken in the Sovereign arbitration, with the intended effect of having its
contractual obligations under the reinsurance contracts reassessed with respect
to enforceability and amount. Accordingly, there can be no assurance that there
will be no further arbitration or litigation with respect to reinsurance
arranged by Willis Faber (Underwriting Management). The Provisional Liquidators
and the Stamp Companies have generally reserved their rights in respect of
potential claims, and Willis Faber (Underwriting Management), Willis Corroon
Group and certain broking subsidiaries of Willis Corroon Group are in the
process of negotiating standstill agreements which will preserve the rights of
such potential claimants with respect to their possible claims while
circumstances are being investigated. Although the Sovereign arbitration award
is non-binding as to third parties, other arbitrations may arise in the future.
Further, if the Provisional Liquidators or the Stamp Companies
24
determine that they have valid claims against Willis Corroon Group, they may
seek to bring claims directly against Willis Corroon Group and hold it
responsible for the liabilities of its subsidiaries. Although such claims are
generally difficult to successfully maintain under English law, there can be no
assurance that claims will not be made or, if made, that such claims could not
succeed. Claims could also be made against Willis Faber (Underwriting
Management) and broking subsidiaries that arranged reinsurance on behalf of
Sovereign and the Stamp Companies. Those Willis Corroon companies with insurance
protection have notified their insurance providers of certain potential claims.
Willis Corroon Group and its subsidiaries have not made any financial provisions
in respect of possible future claims in respect of reinsurance placed by Willis
Faber (Underwriting Management). Willis Corroon Group does not know whether any
such claims will be made, and the validity and amount of such claims and the
extent, if any, to which they will be covered by insurance (after giving effect
to the applicable deductibles, exclusions and limits) can be assessed only when
and if such claims are made.
Willis Corroon Group and its subsidiaries plan to continue to deal with
the foregoing matters in a manner designed to assist an orderly run-off of the
obligations of Sovereign and of the other Stamp Companies while limiting the
costs of resolution. It is possible that the foregoing matters or other
circumstances may lead Willis Corroon Group to place Willis Faber (Underwriting
Management) in Provisional Liquidation. Willis Corroon Group does not believe
the resolution of these matters, including any possible Provisional Liquidation
of Willis Faber (Underwriting Management), will have a material adverse impact
on its consolidated results of operation or financial condition, although there
can be no assurance this will be the case.
U.K. PENSION REVIEW--WE MUST MAKE CERTAIN PAYMENTS AS THE RESULT OF THE U.K.
PENSION REVIEW.
As is the case for many companies involved in selling personal pension
plans to individuals in the United Kingdom from 1988 to 1994, we face
liabilities as a result of the "pension transfers and opt-outs review" initiated
by the U.K. government. Sellers of personal pension plans have since been
subject to liabilities based on claims that they allegedly "mis-sold" pension
products or gave improper advice. In particular, companies that engaged in this
business, such as our independent financial advisory business, Willis Corroon
Financial Planning Limited, are required to compensate individuals who withdrew
from their previous or existing company pension plans or who were otherwise
advised to set up personal pension plans, to the extent that following
withdrawal, and the consequent loss of the employer contribution, such
individual's personal pension plan did not produce returns equal to those that
would have been achievable with an employer's company-sponsored plan. Whether
compensation is due to a particular individual, and the amount thereof, is
dependent on the subsequent performance of the pension plan sold and the
relative cost to reinstate such individual into his or her prior company pension
plan.
We initially allocated L5.0 million for Phase I "priority" cases
(individuals who were nearing retirement, had retired or died). Following
proposals by the U.K. regulator with respect to Phase II, or non-priority cases,
we reserved a further L25.0 million to cover both the estimated costs of
approximately 8,000 Phase II cases, which are now subject to review, and the
estimated additional cost of completing the Phase I reviews. However, there is
uncertainty as to the number of Phase II cases which may require compensation
and the amount of that compensation, which is dependent upon U.K. interest rates
prevailing at the time it is offered. Although we believe our provisions are
reasonable, with the uncertainties of the Phase II review and the suggestions of
further retrospective reviews of other business transacted by the life assurance
industry and independent financial advisors, there remains a possibility that
the provisions made will be insufficient. We expect to pay out these established
provisions over the next three years.
25
REGULATION--WE ARE SUBJECT TO INSURANCE INDUSTRY REGULATION WORLDWIDE.
Our operations worldwide are subject to numerous governmental and
quasi-governmental regulations. Although we believe that we are substantially in
compliance with such regulations, changes in legislation or regulations and
actions by regulators, including changes in administration and enforcement
policies, may from time to time require operational improvements or
modifications at various locations or the payment of fines and penalties, or
both. See "Business--Regulation."
The U.K. government's Department of Customs & Excise has issued its
proposals to change the way in which value added tax (VAT) can be received by
partially exempt groups (which includes Willis Corroon and other companies in
the insurance industry). We have made representations against the proposals, in
common with professional advisors and others in the industry. If the proposals
were implemented as drafted, the cost to us could be approximately L4 million
before taxes per year although there would be various steps which could be taken
to mitigate this cost.
PUT AND CALL ARRANGEMENTS--WE HAVE ENTERED INTO SIGNIFICANT PUT AND CALL
ARRANGEMENTS.
In connection with many of our investments in our associates, we retain
rights to increase our ownership percentage of such associates over time and, in
certain cases, the existing owners also have a right to put their shares to us
at prices based on formulae related to earnings and, in certain cases, revenue
at the date of exercise.
Between 2001 and 2012, we are subject to a put arrangement whereby, if
fully exercised, we would have the obligation to buy shares of Gras Savoye
(other than those held by management), possibly bringing our ownership interest
from 33% to 90%. Management shareholders of Gras Savoye (approximately 10%
thereof) do not have general put rights between 2001 and 2012, but have certain
put rights on their death, disability or retirement pursuant to which payments
are not expected to exceed L15 million (if the full 10% is exercised). From 2001
to 2005, the incremental 57% of Gras Savoye may be put to Willis Corroon at a
price equal to the greater of approximately 800 million French francs (L86.1
million at December 31, 1998 exchange rates) (for the full 57%) or a price
determined by a contractual formula based on earnings and revenue. After 2005,
the put price is determined solely by the formula. The shareholders may put
their shares individually at any time during the put period. We can provide no
assurance that such amounts will not be greater. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
COMPETITION--WE OPERATE IN A VERY COMPETITIVE BUSINESS ENVIRONMENT.
Willis Corroon faces competition in all fields in which it operates.
Competition in the insurance brokering and risk management businesses is based
on global capability, product breadth, innovation, quality of service and price.
We compete with the two other providers of global risk management services as
well as with numerous regional and local firms. Insurance companies also compete
with our brokers by directly soliciting insureds without the assistance of an
independent broker or agent. Competition for premiums is intense in all our
business lines and in every insurance market. Competition on premium rates has
also exacerbated the pressures caused by a continuing reduction in demand in
some classes of business. For example, insureds are currently retaining a
greater proportion of their risk portfolios than previously. Industrial and
commercial companies are increasingly relying upon captive insurance companies,
self-insurance pools, risk retention groups, mutual insurance companies and
other mechanisms for funding their risks, rather than buying insurance. Willis
Corroon provides management and similar services for such alternative risk
transfer programs. Additional competitive pressures arise from the entry of new
market participants, such as banks, accounting firms and insurance carriers
themselves, offering risk management or transfer services. We can offer no
assurance
26
that we can successfully respond to these competitive pressures or that we will
be successful in otherwise realizing or maintaining any of our competitive
advantages. See "Business--Competition."
KEY PERSONNEL--OUR SUCCESS DEPENDS ON OUR PERSONNEL.
Our success depends to a substantial extent not only on the ability and
experience of our senior management, but also on the individual brokers and
teams that service our clients and maintain client relationships. The insurance
brokerage industry has in the past experienced intense competition for the
services of leading individual brokers and brokerage teams, and we have lost key
individuals and teams to competitors in the past. While we maintain
non-competition agreements with substantially all our senior managers and
brokers and have 361 of our key employees invested in the shares of TA I
Limited, we will continue to be subject to the risk that such individuals or
teams may leave Willis Corroon. The loss of the services of one or more such
persons or teams could have a negative impact on our business.
YEAR 2000--WE MAY BE ADVERSELY AFFECTED BY THE YEAR 2000 PROBLEM.
The "year 2000 problem" relates to computer systems that are designed
using two digits, rather than four, to represent a given year. Therefore, such
systems may recognize "00" as the year 1900 rather than 2000, possibly resulting
in major system failures or miscalculations and causing disruptions in our
operations. Also, our operations could be disrupted by reason of any failure by
our clients, insurance carriers or other third parties with whom we conduct
business to achieve their own year 2000 compliance in a timely fashion.
We have conducted a review of our computer systems to identify the
systems that could be affected by the year 2000 problem and are nearing
completion of our plan to be year 2000 compliant prior to December 31, 1999. As
part of the program, we retained outside consultants, who, working with our
information technology staff, have tested computer systems and identified
problem areas. We do not expect to exceed the L4.2 million we budgeted for
expenditures related to our year 2000 compliance program.
While we believe that we will be taking appropriate steps to achieve
our year 2000 compliance in a timely fashion, there can be no assurance that our
computers (or those of third parties with whom we conduct business) will be year
2000 compliant prior to December 31, 1999, or that the costs incurred will not
materially exceed amounts budgeted. We have received inquiries from our clients
regarding our year 2000 compliance efforts and it is likely that our clients
will require us to confirm that we are year 2000 compliant substantially in
advance of December 31, 1999.
INTERNATIONAL OPERATIONS--OUR SIGNIFICANT INTERNATIONAL OPERATIONS EXPOSE US TO
EXCHANGE RATE FLUCTUATIONS.
A significant portion of our operations is conducted outside the United
Kingdom. Accordingly, we are subject to legal, economic and market risks
associated with operating in foreign countries, including:
- devaluations and fluctuations in currency exchange rates;
- imposition of limitations on conversion of foreign currencies into
pounds or dollars or remittance of dividends and other payments by
foreign subsidiaries;
27
- imposition or increase of withholding and other taxes on remittances
and other payments by subsidiaries;
- hyperinflation in certain foreign countries;
- imposition or increase of investment and other restrictions by foreign
governments;
- longer payment cycles;
- greater difficulties in accounts receivable collection; and
- the requirement of complying with a wide variety of foreign laws.
In particular we transact business in more than 125 countries and in
more than 100 currencies. Historically, we have reported our operating results
in pounds sterling. Outside the U.K., we predominantly generate revenues and
expenses in the local currency. Thus the exchange exposure (excluding economic
exposure) is restricted to translation exposure on the profits of the
operations. In the U.K., however, we earn revenue in a number of different
currencies but expenses are almost entirely incurred in sterling. This mismatch
creates an exchange exposure and arises mainly from Global Specialties and
Global Reinsurance which serve their clients world-wide primarily from a U.K.
base of operations. In 1998, approximately 22% of our total operating revenues
were earned in sterling, 63% in U.S. dollars and 15% in other currencies.
However, in 1998, 44% of Willis Corroon's total operating expenses were incurred
in sterling, 47% in U.S. dollars and 9% in other currencies. As such, when
sterling appreciates, which it has in recent years, the revenue associated with
non-sterling business is translated into fewer pounds, while expenses, incurred
in sterling, are not impacted. As a result, if sterling appreciates, all other
things being equal, revenues, profits and margins decline.
Given these facts, the strength of sterling in recent years has had a
material negative impact on our reported results and we can provide no assurance
that such risks will not have a material adverse effect on Willis Corroon in the
future.
INTRODUCTION OF THE EURO--WE MAY BE ADVERSELY AFFECTED BY THE INTRODUCTION OF
THE EURO.
On January 1, 1999, the euro replaced the currencies of eleven member
states of the European Union, including countries in which we operate. There can
be no assurance that the introduction of the euro will not increase the
volatility of sterling exchange rates or result in the future appreciation of
sterling. The United Kingdom government has stated that it will not participate
in the European Economic and Monetary Union at its commencement, although it is
possible that under certain circumstances it may participate at a later date. If
the United Kingdom were to participate in the single currency, the pound
sterling would be replaced by the euro. It is not clear on what terms the United
Kingdom would participate in the European Economic and Monetary Union.
We have made certain amendments to our systems software necessary for
us to be able to place, settle and account for business in euros, while
retaining the flexibility to continue to transact business in the existing
national currency units if necessary. We have incurred approximately L0.9
million in connection with our efforts to be euro compliant and believe that all
necessary steps have been taken and tested, and staff trained in the changes to
working practices.
While we believe that we have taken appropriate steps to become euro
compliant in a timely fashion, we can provide no assurance that our efforts to
do so have been completed or that the costs we may still incur will not
materially exceed amounts budgeted.
28
IMPLEMENTATION OF BUSINESS STRATEGY--OUR ABILITY TO MAKE INTEREST PAYMENTS ON
THE NOTES DEPENDS ON OUR IMPLEMENTATION OF OUR BUSINESS STRATEGY.
Willis Corroon's strategic objectives are to grow revenues and cash
flow and enhance its position as a leading provider of risk management services.
To achieve these objectives, we implemented the change program and seek to:
- capitalize on our strong global franchise by cross-selling existing and
new products and services to our existing clients;
- capitalize on our strong global franchise by targeting new clients in
need of Willis Corroon's global reach and specialized services;
- emphasize our value-added, fee-based risk management services;
- increase operating efficiencies through specific cost reduction
measures; and
- strengthen our global franchise through selective acquisitions and
strategic investments.
If the change program and other initiatives do not produce improved
results as and when expected, there will be less cash available to support the
business after paying interest expense on the indebtedness. In addition, there
can be no assurance that further implementation of the change program across our
business units or any other strategies that we have described in this prospectus
will be successful or will improve operating results. Other conditions may
exist, such as unforeseen costs and expenses or an economic downturn, that may
offset any improved operating results that are attributable to such business
strategies. Further, any growth through acquisitions and investments will be
dependent upon identifying suitable acquisition or investment candidates and
successfully consummating such transactions at reasonable costs. See
"--Competition" and "Prospectus Summary--Business Strategy."
29
FORWARD LOOKING STATEMENTS
This prospectus includes "forward-looking statements" within the
meaning of Section 27a of the Securities Act and Section 21e of the Securities
Exchange Act of 1934. All statements other than statements of historical facts
included in this prospectus, including, without limitation, statements regarding
Willis Corroon's future financial position, strategy, projected costs and plans
and objectives of management for future operations, including the benefits
expected to be derived from the implementation of the change program, may be
deemed to be forward-looking statements. Although Willis Corroon believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from
Willis Corroon's expectations ("cautionary statements") are disclosed under
"Risk Factors" and elsewhere in this prospectus, including, without limitation,
in conjunction with the forward-looking statements included in this prospectus.
All forward-looking statements attributable to Willis Corroon or persons acting
on its behalf are expressly qualified in their entirety by the cautionary
statements.
30
PRESENTATION OF CURRENCY AND FINANCIAL INFORMATION; EXCHANGE RATES
In this prospectus, unless otherwise specified or unless the context
otherwise requires, all references to "pounds sterling", "sterling", "pound",
"L" and "pence" are to the lawful currency of the United Kingdom of Great
Britain and Northern Ireland (the "United Kingdom" or the "U.K."). In this
prospectus, unless otherwise specified or unless the context otherwise requires,
all references to "dollars" or "$" are to United States dollars. The
consolidated financial statements of Willis Corroon are prepared in pounds
sterling. Amounts stated in dollars, unless otherwise indicated, have been
translated from pounds sterling at an assumed rate solely for the convenience of
the reader, and should not be construed as representations that amounts in
pounds sterling actually represent such dollar amounts or could be converted
into dollars at the rate indicated. Except as otherwise indicated, such dollar
amounts have been translated from pounds sterling at the rate of L1.00 = $1.66,
the noon buying rate in the City of New York for cable transfers in pounds
sterling as announced by the Federal Reserve Bank of New York for customs
purposes (the "Noon Buying Rate") on December 31, 1998.
The following table sets forth, for the periods and dates indicated,
certain information concerning the Noon Buying Rate for pounds sterling
expressed in dollars per L1.00. No representation is made that the pounds
sterling or dollar amounts referred to herein could have been or could in the
future be converted into dollars or pounds sterling, as the case may be, at any
particular rate or at all. On - 1999, the Noon Buying Rate was L1.00 =
$ - .
[Enlarge/Download Table]
YEAR ENDED
DECEMBER 31, PERIOD END AVERAGE(A) HIGH LOW
------------------------------------------------------------------------- --------------- --------------- ----------- ---------
1993..................................................................... 1.48 1.50 1.59 1.42
1994..................................................................... 1.57 1.54 1.64 1.46
1995..................................................................... 1.55 1.58 1.62 1.53
1996..................................................................... 1.71 1.56 1.71 1.51
1997..................................................................... 1.64 1.64 1.69 1.60
1998..................................................................... 1.66 1.66 1.72 1.61
1999 (through -, 1999)................................................... - - - -
------------------------
(a) The average of the Noon Buying Rates on the last day of each month during
relevant period.
Unless otherwise indicated, financial information in this prospectus
has been prepared in accordance with accounting principles generally accepted in
the U.K. ("U.K. GAAP"). U.K. GAAP differs in certain respects from U.S.
generally accepted accounting principles ("U.S. GAAP"). For a discussion of the
most significant differences between U.K. GAAP and U.S. GAAP relevant to the
Issuer and Willis Corroon Group, see Note 31 of the Notes to the Consolidated
Financial Statements of Willis Corroon included elsewhere in this prospectus.
Unless otherwise specifically stated in this document, none of the
accounts or financial information in this document constitutes statutory
accounts of Willis Corroon Group within the meaning of section 240(5) of the
Companies Act 1985 of Great Britain. Statutory accounts of Willis Corroon Group
relating to each completed financial period up to December 31, 1997 to which the
financial information in this document relates have been delivered to the
Registrar of Companies in England and Wales. The auditors of Willis Corroon
Group at the relevant time have made a report of the kind required by Section
235 of the Companies Act 1985 with respect to such statutory accounts and each
such report was an unqualified report and contained no statement under section
237(2) or (3) of the Companies Act 1985 (accounting records or returns
inadequate, accounts not agreeing with records or returns or failure to obtain
necessary information or explanations).
Certain amounts and percentages included in this prospectus have been
rounded and accordingly may not total.
Apart from the consolidated financial statements of Willis Corroon
Group, we do not publish separate financial statements for the Issuer or Willis
Corroon Partners.
31
THE TENDER OFFER AND RELATED FINANCINGS
THE TENDER OFFER
On July 27, 1998, Warburg Dillon Read (a division of UBS AG), Chase
Manhattan plc and HSBC Investment Bank plc commenced an offer on behalf of
Trinity Acquisition (the "Tender Offer"), upon the terms and subject to the
conditions set forth in the offer to purchase dated July 27, 1998 and the
related acceptance forms, for (i) all of the outstanding ordinary shares of 12.5
pence each ("Willis Corroon Ordinary Shares") of Willis Corroon Group for 200
pence per Willis Corroon Ordinary Share in cash without interest and (ii) all of
the American Depositary Shares ("Willis Corroon ADSs"), each representing five
Willis Corroon Ordinary Shares and evidenced by American Depositary Receipts, of
Willis Corroon Group for L10.00 per Willis Corroon ADS in cash without interest.
The directors of Willis Corroon Group who were not connected with the
Tender Offer unanimously recommended that all holders of Willis Corroon Ordinary
Shares and Willis Corroon ADSs accept the Tender Offer.
Under the Tender Offer, certain holders of Willis Corroon Ordinary
Shares who validly accepted the Tender Offer were entitled to elect to receive
loan notes instead of some or all of the cash consideration to which they would
otherwise have been entitled. The loan notes are unsecured, and are guaranteed
as to principal and interest by The Chase Manhattan Bank, and such guarantees
are supported by letters of credit issued under the Permanent Facility
Agreement. As of the completion of the Tender Offer, loan notes in an aggregate
principal amount of L3,176,384 were outstanding.
Prior to the announcement of the Tender Offer, Trinity Acquisition
agreed to purchase 9.9% of Willis Corroon Group's issued share capital from
Philips & Drew Fund Management Limited, conditional on the expiration of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
On September 2, 1998, having received valid acceptances from, or acquired Willis
Corroon Ordinary Shares from, holders of approximately 54% of Willis Corroon
Group's issued share capital, Trinity Acquisition determined that all the other
conditions to the Tender Offer had been satisfied or waived and declared the
Tender Offer "unconditional" as to acceptances. On September 25, 1998, Trinity
Acquisition announced it had received acceptances from holders of more than 90%
of Willis Corroon Group's issued share capital subject to the Tender Offer, and
commenced the compulsory acquisition procedure under the United Kingdom
Companies Act 1985 to acquire the remaining issued and outstanding share capital
of Willis Corroon Group. The compulsory acquisition procedure was completed on
November 10, 1998.
THE OUTSTANDING NOTES AND THE REFINANCINGS
The net proceeds from the issuance and sale of the outstanding Notes,
which were approximately $534.4 million (approximately L321.9 million) after
deduction of underwriting discounts and other expenses, were applied towards the
repayment of amounts outstanding under a $575 million subordinated bridge
facility, entered into on November 19, 1998, and provided by The Chase Manhattan
Bank. The proceeds of borrowings under the subordinated bridge facility and the
Permanent Facility Agreement on November 19, 1998 were applied: (i) to refinance
amounts outstanding under a tender offer facility agreement, (ii) to refinance a
$575 million senior subordinated promissory note loaned by the KKR 1996 Fund
(Overseas), Limited to Trinity Acquisition to finance in part the Tender Offer
and for other corporate purposes, (iii) to refinance other existing indebtedness
and (iv) to pay related fees and expenses.
32
The subordinated bridge facility had a final maturity on November 19,
2008, with no interim amortization. The loans thereunder accrued interest on the
date repaid at a rate of 9.375% per annum, which rate was due to increase over
time.
The tender offer facility consisted of a $475 million, nine month
delayed draw term loan, which was entered into on July 22, 1998. The term loan
was used by Trinity Acquisition to purchase the shares tendered in the Tender
Offer. In addition, a portion of the revolving credit facility, which is part of
the Permanent Facility Agreement, was available to the Issuer after Trinity had
purchased more than 50% of the shares of Willis Corroon Group and was used to
fund its working capital requirements and to refinance a portion of Willis
Corroon's existing indebtedness. Amounts outstanding under the tender offer
facility agreement were incurred periodically from September to October 1998,
accrued interest on the date repaid at a rate equal to 7.8% per annum and had a
final maturity on April 22, 1999.
Amounts outstanding under the senior subordinated promissory note were
periodically incurred from September to November 1998, accrued interest on the
date repaid at a rate equal to 9.375% per annum and had a final maturity on
September 14, 2009.
The indebtedness that was refinanced in connection with the
Transactions consisted of an estimated L87.6 million under short-term revolving
credit facilities used for working capital, which accrued interest at a rate per
annum equal to, at the borrower's election, the cost of funds for U.S. dollar
deposits at LIBOR for one, two, three or six months, plus a margin ranging from
0.18% to 0.35%, and matured in October and November 1998.
33
The following chart illustrates the final corporate structure of Willis
Corroon:
[LOGO]
(1) 361 key employees invested an aggregate of L13.1 million directly in the
non-voting equity of TA I Limited. The amounts presented include 1,815,593
TA I ordinary shares that are held in trust on behalf of management, subject
to vesting, but exclude the effect of options issued under the 1998 Share
Purchase and Option Plan for Key Employees of the Company. See
"Shareholders."
(2) Indirect, wholly-owned subsidiary of TA II Limited.
(3) Trinity Acquisition, Willis Corroon Group Limited, Willis Corroon Partners,
the U.S. subsidiaries and certain U.K. subsidiaries are guarantors of the
senior credit facilities.
(4) Guarantor of the Notes.
(5) Willis Corroon Partners is a Delaware general partnership that has no
independent operations and no assets other than the capital stock of Willis
Corroon Corporation.
(6) Upon receipt of the proceeds of a $575 million subordinated bridge facility
and the term loan facilities, Willis Corroon Corporation made intercompany
loans to Trinity Acquisition in an aggregate amount sufficient to repay
amounts outstanding under the tender offer facility agreement and a $575
million senior subordinated promissory note. Willis Corroon Corporation
repaid the subordinated bridge facility with the proceeds from the
outstanding Notes.
34
USE OF PROCEEDS
Willis Corroon will not receive any cash proceeds from the issuance of
the exchange Notes. In consideration for issuing the exchange Notes as
contemplated in this prospectus, Willis Corroon will receive in exchange a like
principal amount of outstanding Notes, the terms of which are identical in all
material respects to the exchange Notes. The outstanding Notes surrendered in
exchange for the exchange Notes will be retired and canceled and cannot be
reissued. Accordingly, issuance of the exchange Notes will not result in any
change in the capitalization of Willis Corroon.
35
CAPITALIZATION
The following table sets forth the unaudited consolidated
capitalization of Willis Corroon as of December 31, 1998, calculated in
accordance with U.K. GAAP and U.S. GAAP on a historical basis and as of December
31, 1998, calculated in accordance with U.K. GAAP and U.S. GAAP on a pro forma
basis after giving effect to the Transactions as if they had been consummated on
such date. This table should be read in conjunction with "Unaudited Condensed
Pro Forma Consolidated Financial Information," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements of Willis Corroon and the notes thereto included elsewhere
herein.
Other than as a result of the Transactions, there has been no material
change in the capitalization of Willis Corroon since December 31, 1998, other
than as described in note (e) below.
[Enlarge/Download Table]
DECEMBER 31, 1998
-------------------------------------------------------------------
HISTORICAL PRO FORMA
-------------------------------------------- ---------------------
U.K. GAAP U.S. GAAP U.K. GAAP
-------------------- ---------------------- ---------------------
(IN MILLIONS)
DEBT(A):
Revolving credit
facility(c)......... L 6.1 $ 10.1(b) L 6.1 $ 10.1(b) L 6.1 $ 10.1(b)
Term loan
facilities(d)....... 270.3 448.7 270.3 448.7 270.3 448.7
Notes................. -- -- -- -- 321.9 534.4
--------- --------- ---------- ---------- --------- ----------
Total debt(e)......... L276.4 $ 458.8 L276.4 $ 458.8 L598.3 $ 993.2
--------- --------- ---------- ---------- --------- ----------
SHAREHOLDERS' EQUITY:
Share capital......... 53.6 89.0 53.6 89.0 53.6 89.0
Share premium / paid
in capital.......... 28.5 47.3 850.4 1,411.7 28.5 47.3
Revaluation
reserve(f).......... 14.9 24.7 -- -- 14.9 24.7
Retained earnings
(deficit)........... (8.0) (13.3) (28.6) (47.5) (8.0) (13.3)
--------- --------- ---------- ---------- --------- ----------
Total shareholders'
equity.............. 89.0 147.7 875.4 1,453.2 89.0 147.7
--------- --------- ---------- ---------- --------- ----------
TOTAL
CAPITALIZATION...... L365.4 $ 606.5 L1,151.8 $ 1,912.0 L687.3 $ 1,140.9
--------- --------- ---------- ---------- --------- ----------
--------- --------- ---------- ---------- --------- ----------
U.S. GAAP
--------------
DEBT(A):
Revolving credit
facility(c).........L 6.1 $ 10.1(b)
Term loan
facilities(d).......270.3 448.7
Notes.................331.3 550.0
-- ----------
Total debt(e).........L 607.7 $ 1,008.8
-- ----------
SHAREHOLDERS' EQUITY:
Share capital.........53.6 89.0
Share premium / paid
in capital..........821.8 1,364.2
Revaluation
reserve(f)..........-- --
Retained earnings
(deficit)...........-- --
-- ----------
Total shareholders'
equity..............875.4 1,453.2
-- ----------
TOTAL
CAPITALIZATION......L1,483.1 $ 2,462.0
-- ----------
-- ----------
------------------------
(a) Under U.K. GAAP, debt issuance costs are netted from the calculation of
total debt and amortized over the life of the debt. Under U.S. GAAP, such
costs are recorded as an asset and amortized over the life of the debt. As
of December 31, 1998, there was $575 million outstanding under the
subordinated bridge facility which was accounted for as a current liability.
The proceeds of the issuance of the outstanding Notes were used to repay a
portion of the subordinated bridge facility.
(b) U.S. dollar amounts have been translated at the Noon Buying Rate on December
31, 1998 of $1.66 = L1.00 solely for your convenience.
(c) The revolving credit facility provides for revolving loans of up to $150
million for working capital and general corporate purposes. The balance
outstanding on the revolving credit facility was repaid on February 11,
1999. See "Description of the Senior Credit Facilities."
(d) The term loan facilities were borrowed by the Issuer on November 19, 1998
and consisted of (i) a $50 million tranche A facility, (ii) a $150 million
tranche B facility, (iii) a $150 million tranche C facility and (iv) a $100
million tranche D facility. The Issuer has amended the amounts allocated to
the various tranches. See "Description of the Senior Credit Facilities."
(e) Total debt does not give effect to dollar denominated intercompany debt owed
to Trinity Acquisition pursuant to group intercompany notes, which are
subordinated in right of payment to the Notes, and which are offset by note
receivables in the form of corresponding pound sterling denominated Trinity
Acquisition intercompany notes. In addition, total debt does not give effect
to a L92.9 million interest free convertible loan owed to Trinity
Acquisition, which was converted into equity of Willis Corroon on February
3, 1999. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
(f) Under U.K. GAAP, it is permissible to revalue fixed assets to market value
and to credit the gain to the revaluation reserve. Willis Corroon has
revalued properties in this manner. Revaluations are not permitted under
U.S. GAAP.
36
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited condensed pro forma consolidated financial
statements of Willis Corroon are based on the consolidated financial statements
of the Company, which are prepared in accordance with U.K. GAAP, included
elsewhere in this prospectus. The Unaudited Condensed Pro Forma Consolidated
Statement of Income for the year ended December 31, 1998 gives pro forma effect
to the Transactions as if they had occurred on January 1, 1998 and the Unaudited
Condensed Pro Forma Consolidated Balance Sheet at December 31, 1998 gives pro
forma effect to the Transactions as if they had occurred on December 31, 1998.
The pro forma adjustments are based upon available information and certain
assumptions that management believes are reasonable. The pro forma consolidated
financial statements do not purport to represent what Willis Corroon's results
of operations or financial condition would actually have been had the
Transactions in fact occurred on such date or to project the results of
operations of Willis Corroon for any future period or the financial condition of
Willis Corroon for any future date.
The Pro Forma Consolidated Financial Statements should be read in
conjunction with Willis Corroon's consolidated financial statements included
elsewhere in this prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
37
WILLIS CORROON GROUP LIMITED
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET
AT DECEMBER 31, 1998
[Enlarge/Download Table]
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ------------- ---------------------
(IN MILLIONS)
AMOUNTS IN ACCORDANCE WITH U.K. GAAP:
ASSETS
CURRENT ASSETS
Cash and short-term deposits............................. L 317.1 L 331.3(b) L 317.1 $ 526.4(a)
(9.4)(b)
(321.9)(c)
Investments.............................................. 281.6 -- 281.6 467.5
Receivables.............................................. 2,559.2 -- 2,559.2 4,248.3
Loan to parent company................................... 1,235.4 -- 1,235.4 2,050.7
---------- ------------- ---------- ---------
Total current assets................................... 4,393.3 -- 4,393.3 7,292.9
FIXED ASSETS
Tangible assets.......................................... 141.6 -- 141.6 235.1
Intangible assets--Goodwill.............................. 19.7 -- 19.7 32.7
Investments.............................................. 34.4 -- 34.4 57.0
---------- ------------- ---------- ---------
Total fixed assets..................................... 195.7 -- 195.7 324.8
---------- ------------- ---------- ---------
TOTAL ASSETS............................................. 4,589.0 -- 4,589.0 7,617.7
---------- ------------- ---------- ---------
---------- ------------- ---------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade payables........................................... 2,860.3 -- 2,860.3 4,748.1
Due to parent company.................................... 714.1 22.1(c) 736.2 1,222.1
Corporate tax............................................ 17.7 -- 17.7 29.4
Accruals and deferred income............................. 67.6 -- 67.6 112.2
Existing bank overdrafts................................. 6.3 -- 6.3 10.5
Subordinated bridge facility............................. 344.0 (344.0)(c) 0.0 0.0
Term loans............................................... 2.4 -- 2.4 4.0
Other.................................................... 103.3 -- 103.3 171.4
---------- ------------- ---------- ---------
Total current liabilities.............................. 4,115.7 (321.9) 3,793.8 6,297.7
NONCURRENT LIABILITIES
Term loans............................................... 270.3 -- 270.3 448.7
Revolving credit facility................................ 6.1 -- 6.1 10.1
Senior subordinated notes................................ -- 321.9(d) 321.9 534.4
---------- ------------- ---------- ---------
Total long-term debt................................... 276.4 321.9 598.3 993.2
Other.................................................... 5.0 -- 5.0 8.3
---------- ------------- ---------- ---------
Total noncurrent liabilities........................... 281.4 321.9 603.3 1,001.5
PROVISIONS FOR LIABILITIES AND CHARGES................... 94.8 -- 94.8 157.4
MINORITY INTERESTS....................................... 8.1 -- 8.1 13.4
---------- ------------- ---------- ---------
Total liabilities and minority interests............... 4,500.0 -- 4,500.0 7,470.0
SHAREHOLDERS' EQUITY
Share capital............................................ 53.6 -- 53.6 89.0
Share premium............................................ 28.5 -- 28.5 47.3
Revaluation reserve...................................... 14.9 -- 14.9 24.7
Retained earnings (deficit).............................. (8.0) -- (8.0) (13.3)
---------- ------------- ---------- ---------
Total shareholders' equity............................. 89.0 -- 89.0 147.7
---------- ------------- ---------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... L 4,589.0 -- L 4,589.0 $ 7,617.7
---------- ------------- ---------- ---------
---------- ------------- ---------- ---------
AMOUNTS IN ACCORDANCE WITH U.S. GAAP (f):
Total assets............................................. L 5,369.9 L 9.4(g) L 5,379.3 $ 8,929.6
Total long-term debt..................................... 276.4 331.3 607.7 1,008.8
Total shareholders' equity............................... 875.4 -- 875.4 1,453.2
---------- ------------- ---------- ---------
---------- ------------- ---------- ---------
See Notes to the Unaudited Condensed Pro Forma Consolidated Balance Sheet
38
NOTES TO UNAUDITED CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET
(a) U.S. dollar amounts have been translated at the Noon Buying Rate on December
31, 1998 of $1.66 = L1.00 solely for your convenience.
(b) Represents cash proceeds from the Notes offering made in connection with the
Transactions as described in the table below. Under U.K. GAAP, debt issuance
costs are netted against the related debt and amortized over the life of the
debt.
[Enlarge/Download Table]
DEBT COSTS NET DEBT
--------- --------- ------------------------
(IN MILLIONS)
NEW DEBT:
Notes offering.................................... L331.3 L 9.4 L 321.9 $ 534.4
--------- --------- ----------- -----------
--------- --------- ----------- -----------
(c) Represents the net proceeds from the Notes that were used to refinance a
portion of the subordinated bridge facility. See "The Transactions."
[Enlarge/Download Table]
AMOUNT
--------------------
(IN MILLIONS)
USE OF PROCEEDS:
Repayment of subordinated bridge facility.............................. L321.9 $ 534.4
--------- ---------
--------- ---------
The balance of the total outstanding amount of the subordinated bridge
facility of L344.0 million ($571.0 million) was repaid by borrowing a
further L22.1 million ($36.7 million) from Trinity Acquisition.
(d) Represents the net new debt incurred in connection with the Notes offering.
See note (b) above.
(e) Total long-term debt does not give effect to dollar denominated intercompany
debt owed to Trinity Acquisition pursuant to group intercompany notes, which
are subordinated in right of payment to the Notes, and which are offset by
note receivables in the form of corresponding pound sterling denominated
Trinity intercompany notes. In addition, total long-term debt does not give
effect to a L92.9 million interest free convertible loan owed to Trinity
Acquisition, which was converted into equity of Willis Corroon Group Limited
on February 3, 1999.
(f) U.K. GAAP differs in certain respects from U.S. GAAP. Summaries of the
significant differences as they apply to the historical financial statements
of Willis Corroon are set forth in Note 31 of the Notes to the Consolidated
Financial Statements included elsewhere herein. Following the Transactions,
under U.S. GAAP, the effects of the purchase accounting adjustments made in
the financial statements of Trinity Acquisition are required to be pushed
down into the financial statements of Willis Corroon. These pushed down
adjustments are already included in the historical numbers at December 31,
1998 in the table below.
[Enlarge/Download Table]
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ------------ ---------------------
(IN MILLIONS)
Shareholders' equity under U.K. GAAP................ L 89.0 L -- L 89.0 $ 147.7
U.S. GAAP adjustments:
Fixed assets
Intangible assets-goodwill........................ 793.7 -- 793.7 1,317.5
Current assets
Current asset investments......................... 0.8 -- 0.8 1.3
Revaluation of forward exchange contracts......... 2.7 -- 2.7 4.5
Pension costs..................................... (16.3) -- (16.3) (26.9)
Debt issuance costs............................... -- 9.4 9.4 15.6
Noncurrent liabilities
Senior subordinated notes......................... -- (9.4) (9.4) (15.6)
Provisions for liabilities and charges
Deferred tax on above adjustments................. 5.5 -- 5.5 9.1
----------- ------------ --------- ----------
Shareholders' equity under U.S. GAAP................ L875.4 L -- L875.4 $ 1,453.2
----------- ------------ --------- ----------
----------- ------------ --------- ----------
(g) The pro forma adjustment to the total assets under U.S. GAAP is the debt
issuance costs (L9.4 million--see note (b)).
39
WILLIS CORROON GROUP LIMITED
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1998
[Enlarge/Download Table]
PRO FORMA ACQUISITION
HISTORICAL ADJUSTMENTS ADJUSTMENTS PRO FORMA
----------- ------------- ------------- ----------------------
(IN MILLIONS)
AMOUNTS IN ACCORDANCE WITH U.K. GAAP:
CONTINUING OPERATIONS
Commissions and fees......................... L677.7 L -- L17.3(d) L695.0 $1,153.7(a)
Interest and investment income............... 40.3 -- -- 40.3 66.9
----------- ------------- ------ --------- -----------
TOTAL OPERATING REVENUES..................... 718.0 -- 17.3 735.3 1,220.6
Operating expenses........................... (635.2) -- (14.1)(d) (649.3) (1077.8)
----------- ------------- ------ --------- -----------
OPERATING INCOME
Continuing operations before exceptional
items...................................... 82.8 -- 3.2 86.0 142.8
Exceptional items............................ (40.8) -- -- (40.8) (67.8)
----------- ------------- ------ --------- -----------
Continuing operations........................ 42.0 -- 3.2 45.2 75.0
Discontinued operations...................... -- -- -- -- --
Gain on disposal of operations............... (29.3) -- -- (29.3) (48.6)
Share of profit of associates................ 6.3 -- 0.4(e) 6.7 11.1
Interest expense............................. (3.2) (50.2)(b) -- (53.4) (88.6)
----------- ------------- ------ --------- -----------
INCOME/(LOSS) BEFORE TAXATION................ 15.8 (50.2) 3.6 (30.8) (51.1)
Taxation..................................... (54.4) 15.6(c) (1.1)(c) (39.9) (66.3)
----------- ------------- ------ --------- -----------
INCOME/(LOSS) AFTER TAXATION................. (38.6) (34.6) 2.5 (70.7) (117.4)
Minority interests........................... (2.7) -- (1.5) (4.2) (6.9)
----------- ------------- ------ --------- -----------
NET INCOME/(LOSS)............................ L(41.3) L(34.6) L 1.0 L(74.9) $(124.3)
----------- ------------- ------ --------- -----------
----------- ------------- ------ --------- -----------
AMOUNTS IN ACCORDANCE WITH U.S. GAAP (f):
Net income/(loss).......................... L(54.9) L(37.8) L 0.8 L(91.9) $(152.5)
----------- ------------- ------ --------- -----------
----------- ------------- ------ --------- -----------
See Notes to the Unaudited Condensed Pro Forma Consolidated Statements of Income
40
NOTES TO UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED STATEMENTS OF INCOME
(a) U.S. dollar amounts have been translated at the Noon Buying Rate on December
31, 1998 of $1.66 = L1.00 solely for your convenience.
(b) The pro forma adjustment for interest expense reflects (i) the elimination
of the historical interest expense and (ii) the interest expense that would
have been incurred on the Notes, the term loans and borrowings under the
revolving credit facility as follows:
[Enlarge/Download Table]
YEAR ENDED
DECEMBER 31, 1998
--------------------
(IN MILLIONS)
Elimination of historical interest expense.......................................... L 3.2 $ 5.3
Interest expense on $1,000 million of new debt using the actual blended interest
rate at December 31, 1998 of 8.6% (including the actual 9% per annum rate on the
Notes)............................................................................ (51.5) (85.5)
Amortization of deferred financing costs on new debt................................ (1.9) (3.2)
--------- ---------
Total interest adjustment........................................................... L(50.2) $ (83.4)
--------- ---------
--------- ---------
(c) Taxation expense is adjusted to reflect the tax provision effect of the pro
forma interest adjustments at the U.K. statutory rate of corporation tax of
31%.
(d) This adjustment adds the results of (i) the 50% interest in Gruppo Ital
Brokers, which was acquired in July 1998, and (ii) the increased investment
in our Spanish associate from 48% to 60% and the reorganization of the
existing Spanish and Portuguese operations in July 1998 as if the
acquisitions and reorganization had occurred on January 1, 1998.
(e) This adjustment adds the result of the 30% interest in Assurandrgruppen,
which was acquired in September 1998, as if the acquisition had occurred on
January 1, 1998.
41
NOTES TO UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
(f) U.K. GAAP differs in certain respects from U.S. GAAP. Summaries of the
significant differences as they apply to the historical financial statements
of Willis Corroon are set forth in Note 31 of the Notes to the Consolidated
Financial Statements included elsewhere herein. Following the Transactions,
under U.S. GAAP, the effects of the purchase accounting adjustments made in
the financial statements of Trinity Acquisition are required to be pushed
down into the financial statements of Willis Corroon.
[Enlarge/Download Table]
PRO FORMA ACQUISITION
HISTORICAL ADJUSTMENTS ADJUSTMENTS PRO FORMA
----------- ------------- --------------- --------------------
(IN MILLIONS)
Net income/(loss) under U.K. GAAP............. L(41.3) L (34.6) L 1.0 L(74.9) $ (124.3)
U.S. GAAP adjustments:
Goodwill amortization....................... (18.5) 18.5(i) (0.2) (20.8) (34.5)
(20.6)(ii)
Goodwill amortization adjustment on
disposal.................................. 9.6 -- -- 9.6 15.9
Revaluation of forward exchange contracts... (3.5) -- -- (3.5) (5.8)
Pension costs............................... (3.3) (1.7)( ii) -- (5.0) (8.3)
Deferred tax on above adjustments........... 2.1 0.6 -- 2.7 4.5
----------- ------ ----- --------- ---------
Net income/(loss) under U.S. GAAP............. L(54.9) L(37.8) L0.8 L(91.9) $ (152.5)
----------- ------ ----- --------- ---------
----------- ------ ----- --------- ---------
----------------------------
(i) Reversal of historical amortization of goodwill and expirations.
(ii) Full year amortization of pushed down goodwill over 40 years.
(iii) Revised full year pension cost pushed down.
42
SELECTED HISTORICAL
CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for and as of
the end of the five years in the period ended December 31, 1998 have been
derived from, and should be read in conjunction with, the audited consolidated
financial statements of Willis Corroon and the notes thereto that are included
elsewhere in this prospectus. Willis Corroon prepares its consolidated financial
statements in accordance with U.K. GAAP, which differs in certain respects from
U.S. GAAP. Reconciliations of net income and shareholders' equity reflecting the
significant differences between U.K. GAAP and U.S. GAAP are set forth in those
financial statements. Under U.K. GAAP, the acquisition of Willis Corroon by
Trinity Acquisition has no impact on the historical amounts reported
subsequently by Willis Corroon and, accordingly, combined amounts for the years
ended December 31, 1998 are presented. Under U.S. GAAP, the purchase of Willis
Corroon by Trinity Acquisition established a new basis of accounting for the
purchased assets and liabilities from September 2, 1998. Accordingly, under U.S.
GAAP, it is not appropriate to present combined amounts for the year ended
December 31, 1998.
[Enlarge/Download Table]
YEAR
ENDED
JANUARY 1 TO SEPTEMBER 2 TO DECEMBER
YEAR ENDED DECEMBER 31, SEPTEMBER 1, DECEMBER 31, 31,
------------------------------------------ --------------- --------------- ---------
1994 1995 1996 1997 1998 1998 1998
--------- --------- --------- --------- --------------- --------------- ---------
(IN MILLIONS)
STATEMENT OF INCOME DATA:
Amounts in accordance with U.K. GAAP:
Continuing operations
Operating revenues.................... L 709.7 L 706.4 L 725.0 L 692.0 L468.8 L 249.2 L 718.0
Operating income before exceptional
items(b)............................ 57.9 79.4 87.8 92.1 56.8 26.0 82.8
Share of profit of associates......... 5.9 6.8 3.5 1.9 7.7 (1.4) 6.3
Interest expense...................... (6.4) (7.2) (2.2) (0.7) (2.0) (1.2) (3.2)
Income / (loss) before tax............ 8.3 62.4 91.6 95.5 (1.3) 17.1 15.8
Total operations
Net income / (loss)................... 0.1 29.0 54.2 56.9 (15.6) (25.7) (41.3)
Amounts in accordance with U.S. GAAP:
Continuing operations
Operating revenues.................... 709.7 706.4 725.0 692.0 468.8 249.2
Operating income before exceptional
items(b)............................ 49.1 60.6 70.9 63.1 43.4 14.1
Share of profit of associates(c)...... 5.9 6.8 3.5 1.9 7.7 (1.4)
Interest expense...................... (6.4) (7.2) (2.2) (0.7) (2.0) (1.2)
Income / (loss) before tax............ 43.1 1.5 74.7 66.5 (5.1) 5.2
Total operations
Net income / (loss)................... 16.2 (18.0) 37.7 36.2 (19.0) (35.9)
OTHER FINANCIAL DATA:
Amounts in accordance with U.K. GAAP:
Depreciation and amortization......... 28.8 24.4 24.5 22.7 15.5 8.9 24.4
Capital expenditures.................. 35.3 21.6 28.9 26.5 20.1 9.8 29.9
Ratio of earnings to fixed
charges(d).......................... 1.4x 4.3x 7.6x 10.5x -- 10.9x 2.9x
Amounts in accordance with U.S. GAAP:
Depreciation and amortization......... L 47.6 L 42.9 L 42.4 L 40.4 L 27.5 L 15.4
Capital expenditures.................. 35.3 21.6 28.9 26.5 20.1 9.8
Ratio of earnings to fixed
charges(d).......................... 3.4x 1.0x 6.4x 7.6x -- 4.8x
BALANCE SHEET DATA (AT PERIOD END):
Amounts in accordance with U.K. GAAP:
Total assets............................ L2,253.3 L3,703.7 L3,377.2 L3,304.3 L 4,589.0 L4,589.0
Total long-term debt.................... 115.1 61.9 17.9 34.0 276.4 276.4
Total shareholders' equity.............. 150.2 120.6 151.9 124.6 89.0 89.0
Amounts in accordance with U.S. GAAP:
Total assets............................ 2,915.2 4,376.0 3,953.5 3,763.4 5,369.9 5,369.9
Total long-term debt.................... 115.1 61.9 17.9 34.0 276.4 276.4
Total shareholders' equity.............. 629.1 587.3 560.2 583.6 875.4 875.4
1998
---------
STATEMENT OF INCOME DATA:
Amounts in accordance with U.K. GAAP:
Continuing operations
Operating revenues.................... $ 1,191.9(a)
Operating income before exceptional
items(b)............................ 137.4
Share of profit of associates......... 10.5
Interest expense...................... (5.3)
Income / (loss) before tax............ 26.2
Total operations
Net income / (loss)................... (68.6)
Amounts in accordance with U.S. GAAP:
Continuing operations
Operating revenues....................
Operating income before exceptional
items(b)............................
Share of profit of associates(c)......
Interest expense......................
Income / (loss) before tax............
Total operations
Net income / (loss)...................
OTHER FINANCIAL DATA:
Amounts in accordance with U.K. GAAP:
Depreciation and amortization......... 40.5
Capital expenditures.................. 49.6
Ratio of earnings to fixed
charges(d).......................... 2.9x
Amounts in accordance with U.S. GAAP:
Depreciation and amortization.........
Capital expenditures..................
Ratio of earnings to fixed
charges(d)..........................
BALANCE SHEET DATA (AT PERIOD END):
Amounts in accordance with U.K. GAAP:
Total assets............................ $ 7,617.7
Total long-term debt.................... 458.8
Total shareholders' equity.............. 147.7
Amounts in accordance with U.S. GAAP:
Total assets............................ 8,914.0
Total long-term debt.................... 458.8
Total shareholders' equity.............. 1,453.2
----------------------------------
(a) U.S. dollar amounts have been translated at the Noon Buying Rate on December
31, 1998 of $1.66 = L1.00 solely for your convenience.
(b) Exceptional items charged against continuing operations' operating income
for the year ended December 31, 1995 consisted of losses of L16.6 million
relating to properties that were surplus to operational requirements. For
the period January 1 to September 1, 1998, exceptional items charged against
operating income totalled L35.8 million and consisted of provisions of L25.0
million for claims and costs associated with the review of personal pensions
plans sold between 1988 and 1994 and costs of L10.8 million incurred in
connection with the acquisition of Willis Corroon by Trinity Acquisition.
For the period September 2 to December 31, 1998 exceptional items charged
against operating income totalled L5.0 million and consisted of debt
issuance costs incurred in connection with the acquisition of Willis Corroon
by Trinity Acquisition. See Note 4 of the Notes to the Consolidated
Financial Statements.
(c) Under U.S. GAAP, Willis Corroon's share of profits of associates would
normally be presented on an after tax basis. The presentation adopted
conforms to U.K. GAAP where Willis Corroon's share of profits of associates
is shown on a before tax basis.
(d) The ratio of earnings to fixed charges is computed by dividing earnings from
continuing operations by fixed charges. For these purposes, "earnings"
consists of income before taxation less the retained equity in share of
profits of associates and fixed charges. "Fixed charges" consists of
interest expense (including amortization of debt issuance costs) and the
interest element of operating lease rentals. Due to the exceptional charges
referred to in (b) above, the earnings under U.K. GAAP and U.S. GAAP for the
period January 1 to September 1, 1998 were inadequate to cover fixed
charges. The amount of the deficiencies were L7.1 million under U.K. GAAP
and L10.9 million under U.S. GAAP.
43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION GENERALLY RELATES TO THE HISTORICAL
CONSOLIDATED RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF WILLIS CORROON AND
SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS OF
WILLIS CORROON INCLUDED ELSEWHERE HEREIN. FOR INFORMATION REGARDING THE PRO
FORMA FINANCIAL CONDITION OF WILLIS CORROON, SEE "UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION" AND "--LIQUIDITY AND CAPITAL RESOURCES." THE
FOLLOWING DISCUSSION AND ANALYSIS IS BASED ON THE CONSOLIDATED FINANCIAL
STATEMENTS OF WILLIS CORROON, WHICH ARE PREPARED IN ACCORDANCE WITH U.K. GAAP.
THE PRINCIPAL DIFFERENCES BETWEEN U.K. GAAP AND U.S. GAAP AS THEY RELATE TO
WILLIS CORROON ARE DISCUSSED IN NOTE 31 OF THE NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS OF WILLIS CORROON INCLUDED ELSEWHERE HEREIN.
OVERVIEW
Willis Corroon generates revenue from:
- commissions and fees on insurance placements;
- fees from consulting and other services; and
- interest earned on premiums held prior to remission to the insurer and
on claims held prior to payment to the insured.
Although commissions and interest have traditionally been the greatest sources
of revenues, fee income (from both insurance placements and consulting and other
services) has been increasing as a percentage of total revenues in recent years,
while commission income has been declining largely because of (1) increased
demand by clients for fee-generating risk management consulting services and (2)
pressure on insurance premium rates (and therefore brokerage commissions) due to
competitive factors impacting the insurance industry. Willis Corroon expects
this trend toward increasing fee income to continue. See "Business--Industry
Overview."
Willis Corroon is a holding company, with two groups of subsidiary
companies, one based in North America and one based in the U.K. From an
operating standpoint, Willis Corroon conducts its activities through five
business units:
- North American Operations;
- U.K. Retail;
- Global Specialties;
- Global Reinsurance; and
- International.
See "Business."
During fiscal 1998, 41% of Willis Corroon's total revenues were derived
from North American Operations, 22% were from Global Specialties, 18% were from
U.K. Retail, 10% were from Global Reinsurance and 9% were from International
operations. In terms of 1998 EBITDA (defined as operating income from continuing
operations before exceptional items and depreciation and amortization, plus
share of profit of associates), Global Specialties and U.K. Retail produced a
higher percentage of EBITDA than revenues and North American Operations produced
a lower percentage.
In December 1995, John Reeve became Executive Chairman and the changes
started in 1994 (cost controls and disposals of non-core businesses) were
refocused and expanded with the
44
development of the change program. The initiatives under the change program were
launched in 1996 and are designed to enhance revenues, improve efficiency and
change Willis Corroon from a traditional commission-based insurance broker to a
more comprehensive professional advisory services firm. As part of the change
program, Willis Corroon has established certain key initiatives to:
- enhance operating efficiencies;
- intensify its efforts to develop existing and new accounts and
- increase cross-selling of both existing and new products and services
to its existing clients, thereby creating direct economic benefits for
clients, carriers and Willis Corroon.
Willis Corroon also intends to streamline administrative processes with a
selected number of insurance carriers and also work closely with certain
insurance carriers to generate new product and service ideas. In addition,
Willis Corroon has developed initiatives focused on maximizing the talent and
expertise of its brokers and consultants in order to more efficiently manage
these resources. Accordingly, Willis Corroon has developed improved techniques
for recruitment and assessment; implemented a new and more frequent appraisal
process, including peer review; created new training and development programs;
implemented a new incentive structure for producers in the U.S.; invested in
technology to enhance communication and knowledge sharing among employees; and
formed practice groups to share knowledge on specific industry or product areas.
Since 1995, Willis Corroon has incurred a number of non-recurring
expenses in its continuing operations, a portion of which relate to the change
program. These expenses include the following:
- PENSION REVIEW PROVISIONS--the provisions made for claims and costs
associated with the review of personal pension plans sold between 1988
and 1994. Willis Corroon recorded provisions of L1.0 million, L0.2
million and L2.3 million for such claims and costs in 1995, 1996 and
1997, respectively and in 1998 recorded, as an exceptional item, a
further L25.0 million provision for such claims. See "Business--Legal
Proceedings."
- LLOYD'S RECONSTRUCTION AND RENEWAL PLAN EXPENSES--the cost of Willis
Corroon's brokers' contribution to the Lloyd's Reconstruction and
Renewal Plan. See "Results of Operations-- Fiscal 1997 compared with
Fiscal 1996" for a discussion of the Lloyd's Reconstruction and Renewal
Plan. Willis Corroon incurred L2.6 million, L2.2 million and L2.0
million of such expenses in 1996, 1997 and 1998, respectively. There
were no such expenses in 1995. Willis Corroon expects to continue to
incur such expenses in 1999 and 2000.
- SEVERANCE PROVISIONS--the provisions recorded for severance costs
incurred as part of the change program. Willis Corroon incurred L11.3
million, L3.4 million and L9.6 million of such severance costs in 1996,
1997 and 1998, respectively. There were no provisions for severance
costs connected with the change program recorded in 1995.
- OTHER EXPENSES--consulting expenses primarily incurred in connection
with the change program and costs incurred in connection with Willis
Corroon's investment in World Insurance Network, a project set up by
the then six largest brokers in the world to establish a secure and
reliable medium for electronic commerce between insurance and
reinsurance carriers, brokers and clients. Additionally, the 1997 and
1998 expenses included costs related to the acquisition of broker
teams. Willis Corroon incurred L0.7 million, L6.9 million, L10.0
million and L10.5 million of such expenses in 1995, 1996, 1997 and
1998,
45
respectively. Expenses for 1998 also included, as an exceptional item,
L15.8 million in expenses arising out of the acquisition of Willis
Corroon by Trinity Acquisition.
- 1998 PROJECTS--costs incurred in connection with (1) the European
Economic and Monetary Union project to convert Willis Corroon's
operating systems and procedures to be able to handle business
denominated, accounted or settled in the euro, which was introduced as
a trading currency on January 1, 1999; (2) the Peoplesoft project,
which aims to provide replacement year 2000 and European Economic and
Monetary Union compliant computer systems for the finance and human
resources functions; (3) the Strategic Insurer Relations project in
connection with Willis Corroon's efforts to enhance strategic relations
with certain insurers; and (4) the Knowledge Management project, which
provides an Intranet site containing information such as market and
competitor news. Willis Corroon incurred L2.8 million of expenses in
connection with such 1998 Projects in the year ended December 31, 1998.
These non-recurring expenses affected Willis Corroon's actual reported
results, offsetting the benefits in both margin and EBITDA improvement. While
Willis Corroon will continue to incur additional severance and other costs
relating to the change program in the future, these expenses are expected to
decline as the remainder of the change program is implemented.
In addition to these non-recurring expenses, in recent years Willis
Corroon has completed a number of dispositions and acquisitions as part of its
efforts to focus its operations out of non-core or non-profitable businesses and
to expand its global capabilities. The following identifies the operations sold
or closed from 1995 through 1998:
- HEDDINGTON BROKERS LIMITED--an associate based in Bermuda in which
Willis Corroon had a 50% interest, that was sold in 1995;
- IRPC/PPC--two consulting companies, previously part of U.K. Retail,
that were sold in 1996;
- WF CORROON--a benefits consulting operation, previously part of North
American Retail and U.K. Retail, that was sold in 1996;
- CONSUMER BENEFIT LIFE INSURANCE COMPANY/MANAGEMENT SCIENCE ASSOCIATES
--two North American retail business operations that were sold in 1996;
- WILLIS FABER & DUMAS (AGENCIES) LIMITED--a Lloyd's members' agent that
was sold in October 1997; and
- PROFESSIONAL LIABILITY UNDERWRITING MANAGEMENT--part of North American
Operations that was closed in the second quarter of 1998.
In addition, in 1995 Willis Corroon sold its remaining interest in
Gryphon Holdings, Inc., a discontinued operation which had been accounted for as
an associate.
During the same period, Willis Corroon has continued to expand its
global presence through the following acquisitions and strategic investments:
- GRAS SAVOYE--Willis Corroon acquired a 33% interest in Gras Savoye &
Cie, France's leading insurance broker, in December 1997;
46
- JASPERS WUPPESAHL--Willis Corroon's then existing German associate, C.
Wuppesahl & Co. Assekuranzmakler, merged with Jaspers Industrie
Assekuranz GmbH & Co., KG in January 1998 to create the third largest
insurance broker in Germany, in which Willis Corroon now has a 44.6%
interest;
- YORK WILLIS CORROON--Willis Corroon increased its investment in its
Brazilian associate from 30% to 100% in April 1997;
- WILLIS CORROON SCHEUER--Willis Corroon increased its investment in its
Netherlands associate from 40% to 100% in January 1997;
- WILLIS CORROON RICHARD OLIVER PTY LTD--Willis Corroon increased its
investment in its Australian associate from 49.75% to 100% in January
1997;
- WILLIS NATIONAL--in August 1997 Willis Corroon combined the operations
of Willis Corroon Financial Planning Limited, its U.K. financial
advisory business, with the independent financial advisory business of
Abbey National plc to form a joint venture 51% owned by Willis Corroon
within U.K. Retail;
- GRUPPO ITAL BROKERS--Willis Corroon acquired a 50% interest in an
Italian subsidiary in July 1998; and
- ASSURANDRGRUPPEN--Willis Corroon acquired a 30% interest in a Danish
associate in September 1998.
- S&C WILLIS CORROON--Willis Corroon increased its investment in its
Spanish associate from 48% to 60% and reorganized its existing Spanish
and Portuguese operations in July 1998.
In addition, Willis Corroon is in the process of combining all of its
existing Spanish and Portuguese operations. Willis Corroon has also announced
arrangements which are expected to result in Willis Corroon having a 45%
interest in a Venezuelan retail broker and an estimated 75% interest in a
Venezuelan reinsurance broker.
These acquisitions and dispositions also affect the actual trends in
operating revenues and EBITDA on a continuing operations basis. Because the
impact of the dispositions has exceeded the impact of the acquisitions since
1995, the growth rates in the businesses currently operated by Willis Corroon
are not apparent from Willis Corroon's financial statements. For a presentation
of Willis Corroon's results after adjusting for dispositions, acquisitions and
certain non-recurring items, see "Prospectus Summary--Summary Historical and
Unaudited Pro Forma Consolidated Financial Information."
In connection with many of its investments in associates, Willis
Corroon retains rights to increase its ownership percentage of such associates
over time and, in certain cases, the existing owners also have a right to put
their shares to Willis Corroon. See "--Liquidity and Capital Resources." Willis
Corroon typically obtains representation on the boards of directors which allows
it to exercise influence over the associates' businesses. Willis Corroon's
Consolidated Statement of Income includes an item captioned "Share of Profit of
Associates." This item reflects Willis Corroon's share of the pre-tax profits of
its associates (entities in which it owns more than 20% but no more than 50%).
This amount on the income statement, however, does not reflect the cash flow
from the associates. Willis Corroon typically receives a cash dividend
(generally based on a percentage of net income, if positive). Willis Corroon's
Consolidated Statement of Cash Flows includes the line entitled "Dividends from
Associates".
47
Like many insurance brokers, Willis Corroon earns revenue in an uneven
fashion during the year, primarily due to the timing of insurance policy
renewals. Although the majority of revenue and profit has historically been
earned in the first quarter and substantially all of such revenue and profit has
historically been earned in the first half of the year, in recent years Willis
Corroon's revenues and profits have been spread more equally throughout the
year. For example, in 1994, Willis Corroon earned 72% of its annual operating
income in the first quarter and 95% in the first half, as compared to 45% in the
first quarter and 62% in the first half of 1998. The trend of declining premiums
has contributed to the shifting of revenue into later in the year ("re-phasing")
as clients delay purchasing long-term policies in order to benefit from
declining rates. In addition, contingent commissions, which are generally based
on volume placements or on the profitability of a risk class, have increased in
recent years and are typically paid at the end of the year, further adding to
revenue and profit in the fourth quarter. Expenses are incurred on a relatively
even basis throughout the year. As a result of these re-phasing differences,
period to period comparisons that are based on less than full year periods may
not be valid.
In recent years, operating revenues have not been significantly
influenced by inflation. However, with Willis Corroon's staff and related costs
generally accounting for approximately 65% of Willis Corroon's total operating
expenses, Willis Corroon is affected by general inflationary pressures in each
of the countries in which it operates.
As an intermediary, Willis Corroon holds funds in a fiduciary capacity
for the account of third parties, typically as the result of premiums received
from clients that are in transit to insurance carriers and claims due to clients
that are in transit from insurance carriers. Premiums which are held on account
of or due from policyholders are reported as assets of Willis Corroon with a
corresponding liability due to the insurance carriers. Claims held by or due to
Willis Corroon which are due to clients are also shown as both assets and
liabilities of Willis Corroon. All such balances due or payable are included in
"receivables" and "trade payables" on the balance sheet. Willis Corroon earns
interest on such funds during the time between the receipt of the cash and the
time the cash is paid out. Fiduciary cash must be kept in certain regulated bank
accounts subject to guidelines, which generally emphasize capital preservation
and liquidity, and is not generally available to service Willis Corroon's debt
or for other corporate purposes. Therefore, despite short-term deposits and cash
of L317.1 million and investments of L281.6 million at December 31, 1998, Willis
Corroon had minimal excess cash which it could access at such date. See
"--Liquidity and Capital Resources."
Although Willis Corroon discontinued its U.K. underwriting operations
in 1991, it is still required to handle the administration of claims arising
from insurance business previously written by Willis Faber (Underwriting
Management) on behalf of Sovereign and third party insurance carriers. Sovereign
was placed into provisional liquidation on July 11, 1997. See "Risk
Factors--Sovereign/ WFUM" and "Business--Legal Proceedings."
The strength of sterling in recent years has had a material impact on
Willis Corroon's reported results, both by reducing revenues and reducing
margins due to Willis Corroon's large sterling expense base. The discussion set
forth below under "--Results of Operations" discusses both actual results of
Willis Corroon's operating units and results on a "constant currency" basis,
assuming, for the TWO applicable periods being compared, that the currency
exchange rates used in the later period for (1) recording the non-sterling
transactions of U.K. based subsidiaries at achieved rates of exchange and (2)
translating the results of non-U.K. based subsidiaries at average rates of
exchange, were also in effect in the earlier period. Willis Corroon believes
that when comparing results of two periods, it is relevant to consider changes
on the basis of constant currency exchange rates. See "Supplemental Constant
Currency Financial Data" for an analysis of historical results from 1995 through
1998 adjusted for acquisitions, dispositions and non-recurring items and
assuming constant currency rates in ALL periods presented. Willis Corroon Group
is considering changing its reporting currency from pounds sterling to U.S.
dollars. No decision has been made as to this matter.
48
RESULTS OF OPERATIONS
FISCAL 1998 COMPARED WITH FISCAL 1997
The consolidated statement of income of Willis Corroon included
elsewhere in this prospectus has been presented separately for the period from
January 1, 1998 to September 1, 1998, the effective date of the acquisition by
Trinity Acquisition of Willis Corroon, and for the period from September 2, 1998
to December 31, 1998 in accordance with the requirements of the U.S. Securities
and Exchange Commission. Management believes that it is more appropriate to
present financial data on a combined basis because, under U.K. GAAP, the
acquisition does not change the basis of accounting for Willis Corroon. The
discussion set forth below of Willis Corroon's performance is based on the
combined period ended December 31, 1998 compared with the year ended December
31, 1997 which management believes is more meaningful for investors.
The following table summarizes the combined results for the year ended
December 31, 1998:
[Enlarge/Download Table]
JANUARY 1 TO SEPTEMBER 2 TO YEAR ENDED
SEPTEMBER 1, DECEMBER 31, DECEMBER 31,
1998 1998 1998
----------------- ---------------- --------------
(IN MILLIONS)
Continuing Operations
Commissions and fees......................................... L441.9 L235.8 L677.7
Interest and investment income............................... 26.9 13.4 40.3
------- ------- -------
468.8 249.2 718.0
Discontinued Operations...................................... -- 0.2 0.2
------- ------- -------
Total operating revenues..................................... 468.8 249.4 718.2
Net operating expenses....................................... (412.0) (223.4) (635.4)
------- ------- -------
Operating income before exceptional items.................... 56.8 26.0 82.8
Exceptional items............................................ (35.8) (5.0) (40.8)
------- ------- -------
Operating income............................................. 21.0 21.0 42.0
Share of profit of associates................................ 7.7 (1.4) 6.3
Loss on closure/disposal of operations....................... (28.0) (1.3) (29.3)
Interest expense............................................. (2.0) (1.2) (3.2)
------- ------- -------
Income/(loss) before taxation................................ (1.3) 17.1 15.8
Taxation..................................................... (13.5) (40.9) (54.4)
------- ------- -------
Income/(loss) after taxation................................. (14.8) (23.8) (38.6)
Minority interests........................................... (0.8) (1.9) (2.7)
------- ------- -------
Net income/(loss)............................................ (15.6) (25.7) (41.3)
------- ------- -------
------- ------- -------
SUMMARY
Operating revenues increased by L24.2 million (3.5%) from L694.0
million in fiscal 1997 to L718.2 million in fiscal 1998. In constant currency
terms, operating revenues increased by 6%. Excluding the adverse effects of
foreign currency exchange rate movements (L12.8 million), the loss of operating
revenues from businesses sold (L8.5 million) and the operating revenues gained
from acquisitions (L23.8 million), operating revenues were 3.2% higher in fiscal
1998 than in fiscal 1997.
49
Income before taxation and exceptional items decreased by L7.4 million
(8%) from L93.3 million in fiscal 1997 to L85.9 million in fiscal 1998. In
constant currency terms, income before taxation and exceptional items decreased
by 4%. Excluding the adverse effects of foreign currency exchange rate movements
(L4.1 million), the loss of income from businesses sold (L4.7 million), the
income gained from acquisitions (L13.8 million) and also excluding the adverse
effects of higher non-recurring expenses (L7.0 million), income before interest,
taxation and exceptional items decreased by 1%. Three exceptional charges were
made in fiscal 1998. A further provision amounting to L25.0 million was made as
an exceptional item for costs expected to be incurred in connection with the
pension review; L15.8 million was incurred by Willis Corroon in connection with
the offer by Trinity Acquisition for all of the issued share capital of Willis
Corroon Group; and a L29.3 million loss on disposal (which included a goodwill
write-off of L29.6 million) was incurred almost entirely upon the closure of
Professional Liability Underwriting Management, Willis Corroon's professional
liability wholesale operation in the U.S. After these exceptional charges,
income before taxation decreased by L79.7 million (83%) from L95.5 million in
fiscal 1997 to L15.8 million in fiscal 1998.
Net income decreased by L98.2 million (173%) from L56.9 million in
fiscal 1997 to a loss of L41.3 million in fiscal 1998, partly as the result of
the exceptional charges referred to above. In addition, the tax charge for
fiscal 1998 included L33.1 million written off in respect of U.K. advance
corporation tax and deferred tax balances (see "--Taxation.")
COMMISSIONS AND FEES--CONTINUING OPERATIONS
Commissions and fees earned from Willis Corroon's continuing operations
increased by L25.7 million (3.9%) from L652.0 million in fiscal 1997 to L677.7
million in fiscal 1998. In constant currency terms, commissions and fees
increased by 5.9%. Excluding the effects of businesses sold (L8.0 million) and
businesses acquired (L24.3 million), commissions and fees increased by 3.4% in
constant currency terms predominantly from improved results in North American
Retail and Global Broking Services.
NORTH AMERICAN OPERATIONS: Commissions and fees earned by Willis
Corroon's North American Retail operations increased by L13.8 million (5.5%)
from L249.7 million in fiscal 1997 to L263.5 million in fiscal 1998. In constant
currency terms, commissions and fees increased by 7.2%, due in part to various
initiatives implemented as part of the change program, which significantly
enhanced new business gains and improved performance in obtaining renewed
business. Commissions and fees earned by the Willis Corroon's U.S. Wholesale
operations decreased by L2.0 (6.5%) million from L30.6 million in fiscal 1997 to
L28.6 million in fiscal 1998. In constant currency terms, such commissions and
fees decreased by 5.3%. Of this reduction, L1.2 million was attributable to
Professional Liability Underwriting Management, Willis Corroon's professional
liability wholesale operation, which was closed in the second quarter of 1998.
Excluding the effect of this closure, commissions and fees of Willis Corroon's
U.S. Wholesale operations decreased by 1.4% in constant currency terms,
primarily due to a continuing decline in the public entity and schools
businesses.
U.K. RETAIL: Commission and fees earned by Willis Corroon's U.K.
Retail operations increased by L5.0 million (4.4%) from L113.8 million in fiscal
1997 to L118.8 million in fiscal 1998. In constant currency terms, commissions
and fees increased by 4.5%. Of this increase, L7.4 million was attributable to
the Willis National joint venture, which was formed in August 1997. Excluding
the effects of the formation of Willis National, commissions and fees decreased
by 1.9% in constant currency terms due to competition in soft markets and delay
or cancellation of construction contracts.
GLOBAL SPECIALTIES: Commissions and fees earned by the business units
of Global Specialties increased by L5.7 million (4.2%) from L134.5 million in
fiscal 1997 to L140.2 million in fiscal 1998. In constant currency terms,
commissions and fees increased by 4.9%. Premium rate reductions continued to
affect most business areas. Global Broking Services, however, reported a 15.7%
increase
50
in constant currency terms in commissions and fees as a result of strong new
business gains and improved focus on renewals.
GLOBAL REINSURANCE: Commissions and fees earned by Willis Corroon's
Global Reinsurance business unit decreased by L2.3 million (3.3%) from L68.7
million in fiscal 1997 to L66.4 million in fiscal 1998. In constant currency
terms, commissions and fees decreased by 0.7%. Expansion in the U.S. and Europe
was offset by a disposal of part of the French portfolio to Gras Savoye
following Willis Corroon Group's investment in Gras Savoye.
INTERNATIONAL: Commission and fees earned by Willis Corroon's
International operations increased by L12.4 million (25.9%) from L47.8 million
in fiscal 1997 to L60.2 million in fiscal 1998. In constant currency terms,
commissions and fees increased by 39.4%. Excluding the effect of the acquisition
of Gruppo Ital Brokers, which was acquired in July 1998 and other acquisitions,
commissions and fees increased by 0.3% in constant currency terms.
WILLIS FABER & DUMAS (AGENCIES) LIMITED): Willis Faber & Dumas Agencies
was sold in October 1997 to a company owned by its management. Commissions and
fees earned during fiscal 1997 totalled L6.7 million.
INTEREST AND INVESTMENT INCOME
Interest and investment income from continuing operations was L40.0
million in fiscal 1997 and L40.3 million in fiscal 1998. In constant currency
terms, interest and investment income increased by 4%.
OPERATING EXPENSES
Operating expenses for Willis Corroon's continuing operations before
exceptional items increased by L35.5 million (5.9%) from L599.9 million in
fiscal 1997 to L635.4 million in fiscal 1998, due to the increase in expenses
from businesses acquired (L18.3 million) exceeding the reduction in expenses
from businesses sold (L3.7 million). Excluding favorable foreign exchange rate
movements (L8.9 million), the effects of acquisitions and dispositions and
higher non-recurring costs (L8.2 million), operating expenses increased by 3.9%
in constant currency terms. During fiscal 1998, a further contribution of L2.0
million was made to the Lloyd's Reconstruction and Renewal Plan.
In common with most other U.K. independent financial advisors, Willis
Corroon Financial Planning has been carrying out a review, in accordance with
guidelines issued by its regulator, of pension advice previously given. In this
connection, a further provision of L25.0 million was made as an exceptional item
during fiscal 1998. At December 31, 1998, the remaining balance of such
provision amounted to L20.6 million.
ASSOCIATES
Willis Corroon's share of income before taxation from associates
increased by L4.4 million (232%) from L1.9 million in fiscal 1997 to L6.3
million in fiscal 1998. Adjusting for the increase (L5.1 million) due to
investments in Gras Savoye and Jaspers Wuppesahl, which were acquired in
December 1997 and January 1998, respectively, and, increased investments in some
of the associates creating subsidiaries Willis Corroon's share of income from
associates was in line with 1997.
INTEREST PAYABLE
Interest payable increased by L2.5 million from L0.7 million in fiscal
1997 to L3.2 million in fiscal 1998 as a consequence of new debt incurred to
finance investments made in December 1997 in Gras Savoye and in January 1998 in
Jaspers Wuppesahl.
51
DISPOSALS
During fiscal 1998, the loss on disposals amounted to L29.3 million,
consisting mainly of goodwill written of on the closure of Professional
Liability Underwriting Management.
DISCONTINUED OPERATIONS--UNDERWRITING
Willis Corroon's U.K. underwriting operations, which consisted of
Sovereign, an insurance company, and Willis Faber (Underwriting Management), an
underwriting agent, were discontinued in 1991. Sovereign was placed into
provisional liquidation in July 1997. Following the provisional liquidation of
Sovereign, the net assets of Sovereign and its subsidiaries, amounting to L5.9
million and attributable goodwill of L4.1 million, were written off in fiscal
1997 against provisions previously established.
TAXATION
The tax charge for fiscal 1998 amounted to L54.4 million after writing
off U.K. advance corporation tax of L9.7 million and deferred tax asset balances
of L23.4 million. The timing of the recoverability of these assets was uncertain
and, accordingly, it was judged appropriate under U.K. GAAP to write off the
amounts. Excluding these write-offs and the Professional Liability Underwriting
Management goodwill write-off of L29.6 million and costs of L15.8 million
incurred in connection with the offer by Trinity Acquisition for Willis Corroon
Group, for which no tax relief is available and, the further provisions
amounting to L25.0 million in respect of costs expected to be incurred in
connection with the pension review, the effective tax rate for fiscal 1998 was
36.0% compared with an effective tax rate of 39.9% in fiscal 1997.
FISCAL 1997 COMPARED WITH FISCAL 1996
SUMMARY
Total operating revenues decreased by L36.7 million (5.0%) from L730.7
million in fiscal 1996 to L694.0 million in fiscal 1997. In constant currency
terms, operating revenues decreased by 1%. The decrease in operating revenues
was due to the adverse impact of foreign exchange rate movements (L26.9 million)
and the loss of operating revenue from businesses sold (L39.8 million), which
revenue was not wholly replaced by operating revenue from businesses acquired
and subsidiaries previously accounted for as associates (L21.4 million).
Further, commissions earned by Willis Faber & Dumas Agencies, which was sold in
October 1997, were L10.0 million lower in fiscal 1997 than in fiscal 1996.
Operating revenues of discontinued operations decreased by L3.7 million from
L5.7 million in fiscal 1996 to L2.0 million in fiscal 1997. Adjusting for each
of these factors, operating revenues of continuing operations were 3% higher in
constant currency terms in fiscal 1997 than in fiscal 1996.
Income before taxation increased by L3.9 million (4%) from L91.6
million in fiscal 1996 to L95.5 million in fiscal 1997. In constant currency
terms, income before taxation increased by 14%. Excluding the adverse effects of
foreign currency exchange rate movements (L8.0 million), the loss of income from
businesses sold (L5.7 million), income gained from acquisitions (L1.7 million)
and also excluding the effects of lower non-recurring expenses (L3.1 million),
income before tax increased by 14% in constant currency terms, primarily due to
the impact of the change program. Willis Corroon's share of profit of associates
was L1.6 million lower in fiscal 1997 than in fiscal 1996 mainly because two
associates, Richard Oliver in Australia and Scheuer in the Netherlands, became
subsidiaries on January 1, 1997 whereas they had been accounted for as
associates during all of fiscal 1996. Willis Corroon reported a gain from the
disposal of continuing operations of L2.2 million in fiscal 1997 as the result
of the sale of Willis Corroon's interest in Willis Faber & Dumas Agencies, which
was sold in October 1997, and Willis Corroon France SA, which was sold in
December 1997 to Gras Savoye at the time Willis Corroon acquired its 33%
interest in Gras Savoye. The gain on disposal also gives effect to a
52
write-off of goodwill of L2.5 million. Net income increased by L2.7 million (5%)
from L54.2 million in fiscal 1996 to L56.9 million in fiscal 1997.
LLOYD'S RECONSTRUCTION AND RENEWAL PLAN
During fiscal 1996, an agreement was reached with the individuals who
comprise the various Lloyd's underwriting syndicates for the reconstruction and
renewal of the Lloyd's insurance market. As part of this plan, Lloyd's members'
agencies and Lloyd's brokers, among others, agreed to contribute financially to
the establishment of Equitas Reinsurance Limited which would reinsure the
outstanding liabilities of such individuals for the 1992 and earlier
underwriting years of account. In return, most of such individuals agreed to
cease litigation against Lloyd's.
Willis Corroon's subsidiary, Willis Faber & Dumas Agencies, a Lloyd's
members agent, agreed to make a one-time contribution to the settlement of L3.4
million and Willis Corroon's broking operations agreed to contribute an annual
levy for five years beginning in 1996 based on the volume of business transacted
with Lloyd's. For fiscal 1996, this levy amounted to L2.6 million. In connection
therewith, L14.5 million of commissions, which were based on the underlying
profits of those individuals managed by Willis Faber & Dumas Agencies and which
was due to Willis Faber & Dumas Agencies but had been delayed pending the
settlement, was released. As a consequence of this settlement, Willis Corroon's
operating revenue in fiscal 1996 benefitted by L14.5 million and Willis
Corroon's income before taxation for fiscal 1996 benefitted by L8.2 million,
after deducting related provisions of L0.3 million.
COMMISSIONS AND FEES--CONTINUING OPERATIONS
Commissions and fees earned by Willis Corroon's continuing operations
decreased by L31.2 million (4.6%) from L683.2 million earned in fiscal 1996 to
L652.0 million in fiscal 1997. In constant currency terms, commissions and fees
decreased by 1.0%. Excluding the effects of businesses sold (L48.5 million) and
businesses acquired (L18.3 million), commissions and fees increased by 4% in
constant currency terms.
NORTH AMERICAN OPERATIONS: Commissions and fees earned by Willis
Corroon's North American Retail operations decreased by L28.9 million (10.4%)
from L278.6 million in fiscal 1996 to L249.7 million in fiscal 1997. In constant
currency terms, commissions and fees decreased by 6%. Excluding the effect of
businesses sold in 1996 (L24.5 million), commissions and fees increased by 3% in
constant currency terms. Competition among brokers for the business of middle
market companies was intense, exacerbating the consequences of progressively
reducing premium rates which have been on a downward trend for well over a
decade. Commissions and fees earned by Willis Corroon's U.S. Wholesale
operations decreased by L6.5 million (17.5%) from L37.1 million in fiscal 1996
to L30.6 million in fiscal 1997. In constant currency terms, U.S. Wholesale
commissions and fees decreased by 14%, principally due to the competitiveness of
the U.S. insurance market place.
U.K. RETAIL: Commissions and fees earned by Willis Corroon's U.K.
Retail operations decreased by L1.9 million (1.6%) from L115.7 million in fiscal
1996 to L113.8 million in fiscal 1997. In constant currency terms, commissions
and fees decreased by 2%. Excluding the effects of disposals (L13.4 million) and
the acquisition of a 51% interest in Willis National in August 1997 (L5.4
million), commissions and fees increased by 6% in constant currency terms,
mainly arising from strong growth achieved by Willis Corroon's principal U.K.
direct brokering company, reflecting the benefit of the change program
initiatives.
GLOBAL SPECIALTIES: Commissions and fees earned by the business units
of Global Specialties increased by L3.0 million (2.3%) from L131.5 million in
fiscal 1996 to L134.5 million in fiscal 1997. In constant currency terms,
commissions and fees increased by 5%. Despite falling insurance premium rates
across most business areas, increased new business gains, particularly from a
53
strengthened space risks team in Aerospace, as well as the Energy and Global
Broking Services business units, contributed to this growth.
GLOBAL REINSURANCE: Commissions and fees earned by Willis Corroon's
Global Reinsurance business unit increased by L5.6 million (8.9%) from L63.1
million in fiscal 1996 to L68.7 million in fiscal 1997. In constant currency
terms, commissions and fees increased by 7% against a background of reduced
reinsurance premium rates and increased risk retention by clients, predominantly
from the U.S. portfolio supported by new business in Europe and Australia.
INTERNATIONAL: Commissions and fees earned by Willis Corroon's
International operations increased by L9.2 million (23.8%) from L38.6 million in
fiscal 1996 to L47.8 million in fiscal 1997. In constant currency terms,
commissions and fees increased by 35%. Of this increase, L12.9 million was
attributable to Willis Corroon increasing its holdings in both Richard Oliver
and Scheuer to 100% on January 1, 1997. Excluding this effect, commissions and
fees increased by 18% in constant currency terms, particularly from business
growth in Eastern Europe.
WILLIS FABER & DUMAS (AGENCIES) LIMITED: Willis Faber & Dumas Agencies
was sold in October 1997 to a company owned by its management. Commissions and
fees earned during fiscal 1997 totalled L6.9 million compared with L18.6 million
in fiscal 1996 which included L14.5 million following implementation of the
Lloyd's Reconstruction and Renewal Plan.
INTEREST AND INVESTMENT INCOME
Interest and investment income from continuing operations decreased by
L1.8 million (4.5%) from L41.8 million in fiscal 1996 to L40.0 million in fiscal
1997.
OPERATING EXPENSES
Operating expenses from continuing operations decreased by L37.3
million (5.9%) from L637.2 million in fiscal 1996 to L599.9 million in fiscal
1997, largely due to the favorable impact of currency exchange rate movements
(L18.7 million), the reduction in expenses from businesses sold (L45.7 million)
being greater than the increase in expenses arising from businesses acquired and
associates becoming subsidiaries (a total of L20.0 million). Severance costs in
fiscal 1997 were L7.9 million lower than in fiscal 1996, the total contribution
to the Lloyd's Reconstruction and Renewal Plan was L0.4 million lower and other
non-recurring costs were L3.1 million lower in fiscal 1997 than in fiscal 1996.
Adjusting for each of these factors, operating expenses were 2% higher in
constant currency terms.
In common with most other U.K. independent financial advisors, Willis
Corroon Financial Planning has been carrying out a review, in accordance with
guidelines issued by its regulator, of pension advice previously given and, in
connection therewith, a charge of L2.3 million was taken during fiscal 1997. See
"Business--Legal Proceedings." In October 1997, Willis Corroon Financial
Planning merged with Abbey National Independent Financial Advisers Limited to
form Willis National in which Willis Corroon holds a 51% interest.
ASSOCIATES
Willis Corroon's share of income before taxation from associates
decreased by L1.6 million (45.7%) from L3.5 million in fiscal 1996 to L1.9
million in fiscal 1997. Excluding the reduction (L1.5 million) due to Richard
Oliver and Scheuer, both of which ceased to be accounted for as associates from
the beginning of January 1, 1997 when they became consolidated subsidiaries,
Willis Corroon's share of income before taxation from associates decreased by
L0.1 million.
54
INTEREST PAYABLE
Interest payable decreased by L1.5 million from L2.2 million in fiscal
1996 to L0.7 million in fiscal 1997. Willis Corroon operated throughout most of
fiscal 1997 without any material borrowings until the acquisition of Gras Savoye
on December 30, 1997.
DISPOSALS
During fiscal 1997, the gain on disposals amounted to L2.2 million
after writing off goodwill of L2.5 million. The principal business disposed of
was Willis Faber & Dumas Agencies.
DISCONTINUED OPERATIONS--UNDERWRITING
Willis Corroon's U.K. underwriting operations, consisting of Sovereign,
an insurance company, and Willis Faber (Underwriting Management), an agent, were
discontinued in 1991. On July 11, 1997, Sovereign was placed into provisional
liquidation. Following the provisional liquidation of Sovereign, the net assets
of Sovereign and its subsidiaries, amounting to L5.9 million and attributable
goodwill of L4.1 million, were written off against provisions previously
established.
TAXATION
The tax charge of L38.1 million in fiscal 1997 produced an effective
tax rate of 39.9%, the same as in fiscal 1996. The benefit arising from the
reduction in the rate of U.K. corporation tax from 33% to 31% during fiscal 1997
was more than offset by the related write down of deferred tax assets
established in prior periods. The provisional liquidation of Sovereign resulted
in a write off of a deferred tax asset amounting to L2.7 million which was no
longer considered recoverable. Adjusting for these items, the effective tax rate
in fiscal 1997 would have been 36.5%.
FINANCIAL RISK MANAGEMENT
FOREIGN EXCHANGE RISK MANAGEMENT
Approximately 50% of Willis Corroon's operating revenues earned in the
United Kingdom arise in currencies other than sterling. Willis Corroon manages
this exchange exposure to foreign currency revenues by entering into forward
foreign currency exchange contracts and options, principally in U.S. dollars
with lesser amounts in Japanese, German, French and Italian currencies. In
fiscal 1998, Willis Corroon achieved a rate of $1.59 = L1.00 from the sale of
U.S. dollar-denominated revenues earned in the United Kingdom compared with a
rate of $1.59 achieved in fiscal 1997 and $1.54 in fiscal 1996. Together with
the rates achieved in other hedged currencies, there was an adverse impact of
L2.7 million on total operating revenues in fiscal 1998 and an adverse impact of
L5.6 million in fiscal 1997, when compared with the exchange rates achieved in
the preceding year.
Willis Corroon is also exposed to the exchange effects of translating
the net income of non-U.K.-based subsidiaries into sterling. Willis Corroon does
not hedge this exposure. The average rate of exchange for the U.S. dollar
against sterling moved from $1.56 in fiscal 1996 to $1.64 in fiscal 1997 and to
$1.66 in fiscal 1998. Together with movements in other currencies, the effect of
translating the income before taxation of non-U.K.-based subsidiaries into
pounds sterling reduced Willis Corroon's net income before taxation in fiscal
1998 by L1.4 million and by L2.4 million in fiscal 1997, when compared with the
exchange rates prevailing in the preceding year.
The table below provides information about Willis Corroon's foreign
currency forward exchange contracts which are sensitive to exchange rate risk.
The table summarizes at December 31,
55
1998 the sterling equivalent amounts of each currency bought and sold forward
and the weighted average contractual exchange rates. All forward exchange
contracts mature within two years.
[Enlarge/Download Table]
SETTLEMENT DATE BEFORE DECEMBER 31,
------------------------------------------------------------------------
1999 2000
---------------------------------- ------------------------------------
AVERAGE AVERAGE
CONTRACT CONTRACTUAL CONTRACT CONTRACTUAL
AMOUNT EXCHANGE RATE AMOUNT EXCHANGE RATE
----------- --------------------- ------------- ---------------------
(L
MILLIONS) (DENOMINATION PER L) (L MILLIONS) (DENOMINATION PER L)
FOREIGN CURRENCY SOLD
US Dollars............................. 41.5 1.58 21.4 1.59
Japanese Yen........................... 5.6 191.51 4.3 84.37
Deutschemarks.......................... 2.3 2.75 5.1 2.70
French Francs.......................... 1.6 8.33 -- --
Italian Lire........................... 1.4 2,537.25 -- --
FOREIGN CURRENCY BOUGHT
Deutschemarks.......................... (10.4) 2.80 -- --
----------- -----
Total.................................. 42.0 30.8
----------- -----
----------- -----
Fair Value (1)......................... 2.2 0.5
----------- -----
----------- -----
------------------------
(1) Represents the difference between the contract amount and the cash flow in
sterling which would have been receivable had the foreign currency forward
exchange contracts been entered into on December 31, 1998 at the forward
exchange rates prevailing at that date.
INTEREST RATE RISK MANAGEMENT
Willis Corroon manages its exposure to declines in interest rates,
which can have an adverse effect on interest and investment income, through the
use of fixed interest deposits and borrowings, swaps, forward rate agreements
and other financial instruments. The maximum hedging period is normally three
years. Interest rate exposure is managed within parameters agreed by Willis
Corroon Group's directors, which stipulate that at least 25% of the forecast
interest income for each of the next three years is hedged. Average interest
rates of 7.5% on sterling funds and 6.1% on U.S. dollar funds were achieved in
fiscal 1998, compared with 7.0% and 6.2% respectively in fiscal 1997 and 7.3%
and 5.9% respectively in fiscal 1996. When compared with average interest rates
prevailing during the year, Willis Corroon's hedging activities added L2.6
million to Willis Corroon's income before taxation in fiscal 1998 and L2.5
million in fiscal 1997.
The table below provides information about Willis Corroon's derivative
instruments which are sensitive to changes in interest rates, including interest
rate swaps and forward rate agreements. For interest rate swaps, the table
presents notional principal amounts and average interest rates analyzed by
expected maturity dates. Notional principal amounts are used to calculate the
contractual payments to be exchanged under the contracts. The duration of
interest rate swaps varies between one and five years, with an average re-fixing
period of three months. Average variable rates are based on interest rates set
at December 31, 1998 or, in the case of interest rate swaps not yet started, at
the rates prevailing at December 31, 1998. The information is presented in
sterling, which is Willis Corroon's reporting currency; the actual currencies of
the instruments are indicated in parentheses.
56
[Enlarge/Download Table]
EXPECTED TO MATURE BEFORE DECEMBER 31,
-----------------------------------------------------
1999 2000 2001 2002 2006 TOTAL FAIR VALUE(1)
--------- --------- --------- --------- --------- --------- ---------------
(L MILLION, EXCEPT PERCENTAGES)
INTEREST RATE SWAPS
Principal ($)................................ 97 170 119 16 -- 402 5.1
Fixed rate receivable.................... 6.45% 6.43% 5.73% 5.78% -- 6.20%
Variable rate payable.................... 5.28% 5.20% 5.06% 5.06% -- 5.17%
Principal ($)................................ -- -- -- -- 273 273 0.8
Fixed rate payable....................... -- -- -- -- 5.10% 5.10%
Variable rate receivable................. -- -- -- -- 5.06% 5.06%
Principal (L)................................ 55 62 35 14 -- 166 4.4
Fixed rate receivable.................... 7.92% 7.22% 6.52% 6.88% -- 7.27%
Variable rate payable.................... 6.75% 6.55% 6.13% 6.13% -- 6.49%
Principal (Deutschemarks).................... 4 7 7 -- -- 18 0.3
Fixed rate receivable.................... 4.55% 4.65% 4.23% -- -- 4.48%
Variable rate payable.................... 3.65% 3.48% 3.36% -- -- 3.48%
Principal (Deutschemarks).................... -- 4 -- -- -- 4 (0.1)
Fixed rate payable....................... -- 4.61% -- -- -- 4.61%
Variable rate receivable................. -- 3.56% -- -- -- 3.56%
Principal (Italian Lire)..................... 2 -- 3 -- -- 5 0.1
Fixed rate receivable.................... 7.11% -- 4.69% -- -- 5.77%
Variable rate payable.................... 4.59% -- 3.25% -- -- 3.85%
Principal (Japanese Yen)..................... 7 -- 4 -- -- 11 0.1
Fixed rate receivable.................... 1.45% -- 1.70 -- -- 1.54%
Variable rate payable.................... 0.40% -- 0.22% -- -- 0.33%
FORWARD RATE AGREEMENTS
Principal (L)................................ 56 -- -- -- -- 56 0.2
Fixed rate receivable.................... 7.02% -- -- -- -- 7.02%
Variable rate payable.................... 6.13% -- -- -- -- 6.13%
------------------------
(1) Represents the net present value of the expected cash flows discounted at
current market rates of interest.
LIQUIDITY AND CAPITAL RESOURCES
Willis Corroon's Statement of Consolidated Cash Flows is presented on
the basis of total funds as opposed to "own funds." As discussed under
"--Overview" above, Willis Corroon holds funds for the account of third parties,
typically premiums received from clients and claims received from insurance
carriers that are in transit to insurance carriers or clients, respectively.
These amounts of fiduciary cash must be kept in certain regulated bank accounts
and are not generally available to service Willis Corroon's debt or for other
corporate purposes. Insurance broking transactions typically generate large cash
flows and the timing of such cash flows can affect significantly the net cash
balances held at the year-end.
Willis Corroon's net cash inflow on a total funds basis before
management of liquid resources and financing was L14.8 million in fiscal 1996
with a net cash outflow of L6.2 million in fiscal 1997 and net cash outflow of
L95.4 million in fiscal 1998. See "Consolidated Financial
Statements--Consolidated Statements of Cash Flows."
Cash and liquid resources, net of overdrafts, decreased from L663.0
million at December 31, 1996 to L616.7 million at December 31, 1997 and
decreased to L596.4 million at December 31, 1998. Of the decrease in fiscal
1996, liquid resources of L25.6 million were transferred with businesses sold
and exchange adjustments, principally relating to the increasing strength of
sterling, accounted for L47.7 million.
In assessing Willis Corroon's "own funds" (as opposed to fiduciary
funds) and working capital, Willis Corroon takes into account differing
regulations in different countries and states. The
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following table shows net working capital of L30.9 million at December 31, 1997
and L32.2 million at December 31, 1998, in each case on the assumption that
uncollected brokerage (commissions owing to Willis Corroon included within
premiums due from clients) is treated as an element of "own funds" working
capital. On this basis, Willis Corroon's "own funds" working capital has
consistently been between approximately L30 million to L60 million since 1995.
[Enlarge/Download Table]
CONSOLIDATED "OWN FUNDS"(A)
------------------------------ ------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1997 1998
-------------- -------------- -------------- --------------
(IN MILLIONS)
Fixed assets..................................... L154.0 L195.7 L154.0 L195.7
Trade receivables (excluding uncollected
brokerage)..................................... 2,431.6 2453.0 84.7 111.2
Uncollected brokerage............................ 101.6 106.2 101.6 106.2
Investments, deposits and cash (b)............... 617.1 598.7 69.4 71.8
-------------- -------------- ------- -------
Total assets..................................... 3,304.3 3353.6 409.7 484.9
Trade payables................................... (3,050.0) (3053.9) (155.4) (185.2)
Net debt......................................... (34.5) (107.8) (34.5) (107.8)
Provisions (c)................................... (90.0) (94.8) (90.0) (94.8)
-------------- -------------- ------- -------
Net assets....................................... 129.8 97.1 129.8 97.1
-------------- -------------- ------- -------
-------------- -------------- ------- -------
Net working capital (d).......................... L(516.8) L(494.7) L30.9 L32.2
-------------- -------------- ------- -------
-------------- -------------- ------- -------
------------------------
(a) "Own Funds" are based on management's estimates and assumes that uncollected
brokerage is treated as an element of "Own Funds" working capital.
(b) Investments, deposits and cash in own funds is to a large extent matched by
liabilities within Willis Corroon's captive insurance companies. The
remainder was used to service local working capital requirements and
therefore Willis Corroon had minimal excess cash in each of the periods
reflected above.
(c) For an analysis of provisions, see Note 21 of the Notes to the Consolidated
Financial Statements of Willis Corroon included elsewhere herein.
(d) Trade receivables and uncollected brokerage, less trade payables.
During fiscal 1996, Willis Corroon disposed of the following non-core
operations and proceeds from these disposals, less acquisitions, contributed
L16.2 million to Willis Corroon's net cash inflow:
- L20.7 million from the sale of Consumer Benefit Life Insurance Company;
- L6.1 million from the sale of WF Corroon with further consideration and
payments for work in progress due in subsequent years;
- L5.0 million from the sale of Management Science Associates;
- L3.8 million in respect of other businesses sold;
- less L19.4 million of cash held within businesses sold, net of
businesses acquired.
During fiscal 1997, the net cash outflow for acquisitions and disposals
amounted to L63.0 million and consisted of:
- L48.3 million for Willis Corroon's 33% interest in Gras Savoye, of
which L15.2 million was deferred until July 1998;
- L8.2 million, L4.3 million and L2.1 million for the increased
investment in Richard Oliver, Scheuer and York Willis Corroon
respectively;
58
- L4.9 million inflow in respect of further consideration from the sale
in fiscal 1996 of WF Corroon, net of L1.0 million in respect of other
businesses acquired and sold;
- less L5.0 million of cash held within businesses sold.
During fiscal 1998, the net cash outflow for acquisitions less proceeds
from disposals amounted to L32.3 million and consisted of L13.9 million for the
30% interest in Jaspers Wuppesahl, L5.0 million for the 30% interest in
Assurandrgruppen, L12.4 million for the 50% interest in Gruppo Ital Brokers and
L1.0 million for other acquisitions, net of disposal proceeds.
In connection with many of its investments in associates, Willis
Corroon retains rights to increase its ownership percentage of such associates
over time, typically to a majority or 100% ownership position. Willis Corroon
increased its ownership in Jaspers Wuppesahl from 30% to 44.6% on January 4,
1999 for L10.4 million and has additional call rights whereby it may increase
its ownership to over 50% by 2012. In addition, in certain instances, the other
owners of the associates have a right, typically at a price calculated pursuant
to a formula based on revenues or earnings, to put some or all of their shares
in the associates to Willis Corroon.
Willis Corroon has a put obligation in connection with its stake in
Gras Savoye, the largest broker in France and the ninth largest broker in the
world, in which Willis Corroon has a 33% interest. As part of the Gras Savoye
transaction, Willis Corroon entered into a put arrangement, whereby the other
shareholders in Gras Savoye (primarily two families, two insurance companies and
Gras Savoye's executive management team) could put their shares to Willis
Corroon. From 2001 to 2012, Willis Corroon would be obligated to buy the shares
of such shareholders to the extent that such shareholders put their shares
(potentially increasing its ownership from 33% to 90% if all shareholders put
their shares) at a price determined by a contractual formula based on earnings
and revenue. Management shareholders of Gras Savoye (approximately 10% thereof)
do not have general put rights between 2001 and 2012, but have certain put
rights on their death, disability or retirement pursuant to which payments are
not expected to exceed L15 million. From 2001 to 2005, the incremental 57% of
Gras Savoye may be put to Willis Corroon at a price equal to the greater of
approximately 800 million French francs (L86.1 million at December 31, 1998
exchange rates) (for the full 57%) or a price based on the formula. After 2005,
the put price is determined solely by the formula. The shareholders may put
their shares individually at any time during the put period.
While the management of neither Willis Corroon nor Gras Savoye expects
significant exercises of the puts, on a separate or aggregate basis, in the near
to medium term, nevertheless, management believes that, should the aggregate
amount of shares be put to Willis Corroon, sufficient funds would be available
to satisfy this obligation. Also, Willis Corroon believes that the price to be
paid under the put options is reasonable in light of its valuation of Gras
Savoye. The minimum price of approximately 800 million French francs from 2001
to 2005 (for the full 57%) represents a multiple of 1.2 times Gras Savoye's L113
million of 1997 revenues and 8.4 times Gras Savoye's L16.4 million of 1997
operating income. In addition Willis Corroon has a call option to move to
majority ownership under certain circumstances and in any event by 2009. Upon
exercising this call option, the remaining Gras Savoye shareholders have a put.
In connection with the Willis National joint venture, the holder of 49%
of the shares in Willis National Holdings Limited has an option to purchase
Willis Corroon's 51% interest in that company at any time between June and
September 1999 based on a profitability formula as set out in the shareholders'
agreement between the two companies.
During fiscal 1998, cash payments in connection with the renegotiated
arrangements for administering the Sovereign run-off amounted to L12.0 million,
which included pre-funding of estimated administrative costs through 2001.
Accordingly, no significant additional cash payments for administrative costs
are expected in fiscal 1999. Cash payments in connection with Willis Corroon's
on-
59
going pension review amounted to L8.0 million in fiscal 1998 with further
payments expected to total approximately L20.5 million over the next three
fiscal years. There are also a number of legal proceedings against Willis
Corroon, which together are not expected to have a material effect on Willis
Corroon's financial position. See "Business--Legal Proceedings."
Capital expenditures for fiscal years 1996, 1997 and 1998 were L28.9
million, L26.5 million, and L29.9 million, respectively. Willis Corroon has
funded its requirements for capital expenditures by cash generated internally
from operations and from external financing and expects to continue to do so in
the future. Willis Corroon intends to evaluate acquisition opportunities from
time to time.
Willis Corroon has conducted a review of its computer systems to
identify the systems that could be affected by the year 2000 problem and is
nearing completion of its plan to be year 2000 compliant prior to December 31,
1999. The cost of undertaking this work is not expected to exceed L4.2 million,
most of which has already been incurred. The cost of upgrading computer systems
to deal with the single currency requirement of European Economic and Monetary
Union was L0.9 million. Willis Corroon does not expect either the year 2000
issues or European Economic and Monetary Union will have a material adverse
impact on its financial position or results of operations.
Willis Corroon entered into the Permanent Facility Agreement on July
22, 1998. The Permanent Facility Agreement, as amended, is comprised of:
- the $125 million tranche A facility;
- the $125 million tranche B facility;
- the $100 million tranche C facility;
- the $100 million tranche D facility; and
- the $150 million revolving credit facility.
Borrowings under the term loan portions of the Permanent Facility Agreement were
borrowed in full on November 19, 1998
- to refinance outstandings under the tender offer facility agreement,
- to finance the repayment of certain existing indebtedness of Willis
Corroon,
- to make an intercompany loan to Trinity Acquisition, and
- to finance the payment of fees and expenses incurred in connection with
the Tender Offer.
The revolving credit portion is available for working capital requirements and
general corporate purposes, subject to certain limitations. The revolving credit
facility will be available on a revolving basis for loans denominated in U.S.
dollars, pounds sterling and certain other currencies and for letters of credit
(including to support loan note guarantees). For a further description of the
Permanent Facility Agreement, see "Description of the Senior Credit Facilities."
The Issuer has entered into an interest rate swap agreement pursuant to
which its LIBOR-based floating rate interest payment obligations on the full
amount of the term loans under the Permanent Facility Agreement have been
swapped for fixed rate interest payment obligations, resulting in an effective
base rate of 5.099% per annum, plus the applicable margin, until the final
maturity of such term loans. The swap agreement provides for a reduction of the
notional amount of the swap obligation on a semi-annual basis and, to the extent
the actual amount outstanding under the term loans exceeds the notional amount
at any time, the Issuer would then become exposed to the risk of increased
interest rates on such excess.
60
In connection with the refinancing of the tender offer facility and the
senior subordinated promissory note on November 19, 1998, the Issuer made (i) a
loan to Trinity Acquisition of the net proceeds from borrowings under the
subordinated bridge facility (the "intercompany subordinated note") and (ii) a
loan to Trinity Acquisition of the net proceeds from borrowings under the term
loans under the Permanent Facility Agreement (the "intercompany bank note"), the
proceeds of which loans were used by Trinity Acquisition to repay the senior
subordinated promissory note, the tender offer facility and certain existing
debt of Willis Corroon. Such loans to Trinity Acquisition generally mirror the
terms and maturity dates of the applicable underlying loans. The intercompany
subordinated note currently bears interest at a rate equal to the interest rate
on the notes, plus 70 basis points, and the intercompany bank note bears
interest at a rate equal to the interest rate for the Permanent Facility
Agreement, plus 25 basis points. In addition, the indenture permits Willis
Corroon Group and its subsidiaries to (i) make loans to Trinity Acquisition in
exchange for notes issued by Trinity Acquisition ("Trinity intercompany notes"),
so long as the proceeds of such loans are immediately used to make a loan to
Willis Corroon Group or its subsidiaries, and (ii) issue notes in favor of
Trinity Acquisition ("group intercompany notes") in consideration of a loan
from, or the issuance of a note by, Trinity Acquisition. Willis Corroon Group
and its subsidiaries may pay interest on any group intercompany note, and may
make loans or pay dividends to Trinity Acquisition in an amount sufficient to
enable Trinity Acquisition to pay interest and principal then due on any Trinity
intercompany note, intercompany subordinated note or intercompany bank note, in
each case so long as such amounts are immediately repaid to Willis Corroon Group
or its subsidiaries. The aggregate amount of group intercompany notes
outstanding is currently approximately $1,025 million, the aggregate amount of
Trinity intercompany notes outstanding is currently approximately L614 million
($1,043 million).
TA II Limited will be relying wholly on Willis Corroon to provide funds
sufficient for TA II Limited to pay dividends on the Preference Shares. The
Preference Shares (with an aggregate liquidation preference of approximately
$270 million) carry the right to a cumulative dividend of 8.5% per annum
(excluding the amount of any associated tax credits) on a fixed amount of $25
per Preference Share. TA II Limited has the option to satisfy 1% per annum of
this cumulative dividend by the issuance of additional Preference Shares. The
dividend is payable in dollars semi-annually on June 30 and December 31 of each
year with the first dividend being payable on June 30, 1999. If the cash
dividend has not been paid on three or more consecutive dividend payment dates,
the holders of the Preference Shares have the right to appoint two directors to
the board of TA II Limited. The Preference Shares may be redeemed at any time by
TA II Limited by payment of a fixed amount of $25 per share plus any accrued and
unpaid dividends. The Preference Shares are required to be redeemed in full by
payment of a fixed amount of $25 per share plus any accrued and unpaid dividends
on the earlier of (i) the thirteenth anniversary of the first date on which the
Preference Shares were issued and (ii) the date that is six months after the
scheduled maturity date of the Notes, or on the sale of all or substantially all
of the business of Willis Corroon, including, without limitation, whether in a
single transaction or series of transactions and whether by sale of shares, sale
of assets or otherwise. Holders of Preference Shares have a preferential right
to receive out of surplus assets arrears and accruals of dividends and $25 per
share, but do not have any further right to participate in surplus assets. For a
further description of the Preference Shares, see "Description of Preference
Shares."
The Notes will mature on February 1, 2009 and interest will be payable
thereon semiannually on February 1 and August 1 of each year, commencing August
1, 1999.
61
SUPPLEMENTAL CONSTANT CURRENCY FINANCIAL DATA
THIS PRESENTATION AND ANALYSIS IS INTENDED TO DEMONSTRATE THE IMPACT OF
EXCHANGE RATES AND THE CHANGE PROGRAM ON DESIGNATED FINANCIAL LINE ITEMS ON A
HISTORICAL BASIS. THIS PRESENTATION AND ANALYSIS IS INTENDED TO SUPPLEMENT THE
PRESENTATION AND ANALYSIS OF OUR ACTUAL HISTORICAL RESULTS SET FORTH ELSEWHERE
IN THIS PROSPECTUS. SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS." OUR BUSINESS AND OUR ABILITY TO GENERATE
CASH FLOW SUFFICIENT TO MEET OUR FIXED CHARGE OBLIGATIONS WILL CONTINUE TO BE
AFFECTED BY EXCHANGE RATES AND THE FUTURE INCURRENCE OF CERTAIN COSTS WHICH HAVE
BEEN ELIMINATED IN THE PRESENTATION AND ANALYSIS OF ADJUSTED OPERATING REVENUES,
ADJUSTED EBITDA AND ALL ITEMS ON A CONSTANT CURRENCY BASIS.
We and our associates transact business with some 50,000 clients in
more than 125 countries and in over 100 currencies. Historically, we have
reported our operating results in pounds sterling. Sterling, however, accounted
for only approximately 22% of our revenues in 1998 and thus our reported
revenues are directly impacted by movements in world currencies in relation to
the pound. As the pound has appreciated in value relative to most major
currencies in recent years, our revenues have been negatively impacted. In
addition, while only approximately 22% of our revenues in 1998 were in sterling,
approximately 44% of our expenses in 1998 were in pounds sterling. This is due
to the fact that a number of our units, especially Global Specialties and Global
Reinsurance, serve their clients worldwide primarily from their U.K. base of
operations. Accordingly, when the pound appreciates, which it has in recent
years, the revenues associated with non-sterling business are translated into
fewer pounds, while expenses, incurred in sterling, are not impacted. As a
result, as the pound appreciates, both revenues and margins decline on a
reported basis. Accordingly, we have implemented a comprehensive hedging
strategy to manage our exposure to currency movements. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Financial Risk Management." Because we derive a significant portion
of our revenues and cash flow in U.S. dollars and other currencies and a
disproportionate amount of our expenses in sterling, we are financing the
Transactions in U.S. dollars.
All historical reported results, including Operating Revenues and
EBITDA and, accordingly, Adjusted Operating Revenues and Adjusted EBITDA, were
derived by translating the financial statements of our non-U.K.-based
subsidiaries into sterling using the average rates of exchange for the relevant
period. Foreign currency transactions entered into by the U.K.-based
subsidiaries have been translated at the achieved rates of exchange in the
relevant period, which include the effects of our hedging program. The average
rates of exchange and achieved rates of exchange are shown in footnote (a) to
the table below. The "Adjusted Operating Revenues--Constant Currency" and
"Adjusted EBITDA--Constant Currency" set forth in the table below represent
Adjusted Operating Revenues and Adjusted EBITDA for each period re-translated
using the same methodologies in all material respects for deriving reported
results, but applying constant rates of exchange, thus allowing for a comparison
that excludes the impact of exchange rate changes over all the periods
presented. The constant rates of exchange used are set forth below. As indicated
below, two groups of constant rates are assumed, one representing average rates
and one representing achieved rates. The assumed constant rates are those
currently used by us for internal budgeting and reporting purposes. Although
there can be no assurance that if the exchange rates used in this analysis had
actually prevailed over all the periods presented that the results would have
been comparable to those presented, we believe that the trends indicated would
have been comparable. We believe that combining the constant currency analysis
detailed below with the Adjusted Operating Revenues and Adjusted EBITDA
presentation illustrates the improvements in operating results achieved by us in
recent years.
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HISTORICAL
----------------------------------------------------------------------------
YEAR ENDED JANUARY 1- SEPTEMBER 2-
DECEMBER 31, SEPTEMBER 1, DECEMBER 31, TOTAL
------------------------------- --------------- --------------- ---------
1995 1996 1997 1998 1998 1998
--------- --------- --------- --------------- --------------- ---------
(IN MILLIONS)
Reported Operating Revenues.............. L706.4 L725.0 L692.0 L468.8 L249.2 L718.0
Adjusted Operating Revenues.............. 640.9 665.0 683.4 468.7 249.2 717.9
Adjustments to Constant Exchange Rates... (35.3) (37.0) (10.9) 0.3 1.8 2.1
--------- --------- --------- ------- ------- ---------
Adjusted Operating Revenues--Constant
Currency............................... 605.6 628.0 672.5 469.0 251.0 720.0
Reported EBITDA.......................... 110.6 115.8 116.7 79.9 33.4 113.3
Reported EBITDA Margin................... 14.7% 15.5% 16.6% 15.4% 14.0% 14.9%
Adjusted EBITDA.......................... L106.2 L127.0 L130.5 L91.9 L46.9 L138.8
Adjusted EBITDA Margin................... 15.5% 18.6% 18.8% 18.0% 19.4% 18.5%
Adjustments to Constant Exchange Rates... L(14.8) L(12.4) L(3.7) L0.9 L(0.1) L0.8
Adjusted EBITDA--Constant Currency....... 91.4 114.6 126.8 92.8 46.8 139.6
Adjusted EBITDA Margin--Constant
Currency............................... 14.0% 17.7% 18.6% 18.2% 19.2% 18.5%
PRO FORMA
---------------
YEAR ENDED
DECEMBER 31,
---------------
1998
---------------
Reported Operating Revenues.............. L735.3
Adjusted Operating Revenues.............. 735.2
Adjustments to Constant Exchange Rates... 2.5
-------
Adjusted Operating Revenues--Constant
Currency............................... 737.7
Reported EBITDA.......................... 116.9
Reported EBITDA Margin................... 15.0%
Adjusted EBITDA.......................... L142.4
Adjusted EBITDA Margin................... 18.5%
Adjustments to Constant Exchange Rates... L0.9
Adjusted EBITDA--Constant Currency....... 143.3
Adjusted EBITDA Margin--Constant
Currency............................... 18.5%
------------------------
(a) The average rates of exchange and achieved rates of exchange for the five
major currencies are shown in the following table. The constant exchange
rates used in the constant currency analysis are also shown below:
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YEAR ENDED DECEMBER 31,
------------------------------------------ CONSTANT
1995 1996 1997 1998 RATES
--------- --------- --------- --------- -----------
(DENOMINATION PER POUND STERLING)
AVERAGE RATES:
Deutschemark................................................ 2.26 2.35 2.84 2.91 2.84
French Franc................................................ 7.87 7.99 9.56 9.77 9.50
Italian Lire................................................ 2,570.80 2,408.64 2,789.09 2,875.71 2,820.72
Japanese Yen................................................ 148.29 170.03 198.38 216.55 197.55
U.S. Dollar................................................. 1.58 1.56 1.64 1.66 1.67
ACHIEVED RATES:
Deutschemark................................................ 2.31 2.44 2.28 2.60 2.66
French Franc................................................ 8.15 7.99 8.38 8.92 8.85
Italian Lire................................................ 2,537.01 2,474.20 2,724.97 2,771.21 2,759.19
Japanese Yen................................................ 156.53 163.83 169.64 190.51 184.50
U.S. Dollar................................................. 1.51 1.54 1.59 1.59 1.60
------------------------
(b) Reported EBITDA margin is defined as Reported EBITDA (less share of profit
of associates) divided by Reported Operating Revenues.
(c) Adjusted EBITDA margin is defined as Adjusted EBITDA (less share of profit
of associates) divided by Adjusted Operating Revenues.
(d) Adjusted EBITDA margin--Constant Currency is defined as Adjusted
EBITDA--Constant Currency (less share of profit of associates) divided by
Adjusted Operating Revenues--Constant Currency.
As detailed above, Adjusted Operating Revenues--Constant Currency have
grown from L605.6 million in 1995 to L720.0 million in 1998, a 5.9% annual
growth rate since 1995 (3.8% excluding the impact of acquisitions completed from
1995 to 1998) (in an environment of significantly declining primary insurance
and reinsurance premium rates), which compares to a 3.9% annual growth rate for
Adjusted Operating Revenues and a 0.5% annual growth rate for Operating Revenues
from continuing operations on a reported basis. Adjusted EBITDA--Constant
Currency has grown from L91.4 million in 1995 to L139.6 million in 1998, a 15.2%
annual growth rate (10.5% excluding the impact of acquisitions completed from
1995 to 1998), which compares to a 9.3% annual growth rate for Adjusted EBITDA
and a 0.8% annual growth rate for EBITDA on a reported basis. We have improved
our Adjusted EBITDA
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margins--Constant Currency by 450 basis points, from 14.0% in 1995 to 18.5% in
1998 (also in an environment of declining premium rates and intense industry
competition), which compares to 20 basis points, from 14.7% in 1995 to 14.9% in
1998, for EBITDA margins on a reported basis.
These improvements in operating results on an adjusted constant
currency basis since 1995 can be seen throughout most of our units, with the
improvements most marked at those units at which the change program and other
earlier initiatives were first implemented, such as U.K. Retail. The following
is a brief discussion of the improvements in operating results by business unit
and the specific initiatives implemented at each of our units, in each case on
the adjusted constant currency basis described above.
U.K. RETAIL--From 1995 to 1998, U.K. Retail has grown its Adjusted
Operating Revenues-- Constant Currency at an annual compounded rate of 7.1% and
has improved its Adjusted EBITDA margins--Constant Currency 580 basis points,
despite significant competitive pressures in the U.K. market and declining
premium rates. In conjunction with the change program, which was commenced in
late 1996, the unit has
- reorganized from a regional to client focus, allowing for better focus
on cross-selling and new client prospecting,
- closed five offices reducing headcount by 250 people (13%) and
- centralized many back-office functions,
significantly reducing costs. For the twelve months ended December 31, 1998,
Adjusted Operating Revenues--Constant Currency grew by 3.9%, largely due to the
formation of Willis National in 1997. Adjusted Operating Revenues--Constant
Currency (after giving pro forma effect to the formation of Willis National as
if it ocurred on January 1, 1997) decreased 2.2%, due to competitive pressures
and account losses due to merger and acquisition activity. However, for the
twelve months ended December 31, 1998, adjusted EBITDA margin--Constant Currency
increased 110 basis points, and the pro forma Adjusted EBITDA margin--Constant
Currency shows an increase of 210 basis points largely due to the effects of the
change program.
NORTH AMERICAN OPERATIONS--North American operations have two primary
divisions: North American Retail and U.S. Wholesale. North American Retail's
financial performance has improved since 1994. After disappointing results were
sustained in the first quarter of 1994, the present management of Willis Corroon
Corporation began re-engineering its operations and imposed stringent cost
controls, embarked on a successful national program to reduce corporate overhead
and real estate costs, and eliminated low value-added functions and redundant
staff. As a result of this initial effort in 1994 and 1995, North American
Retail improved its profitability, rebounding from approximately L2 million in
operating income in 1994 to nearly L26 million in 1995, boosted by only an
approximately L8 million increase in operating revenues over the same period.
Since 1995, operating revenues and expenses both have increased by approximately
3% per annum. However, improvements in expense control have been offset by the
opportunistic hiring of experienced teams and producers who came to us as a
direct result of broker consolidation in the U.S. As a result, costs were
incurred in 1997 to bring this expertise to us that did not translate into
revenue growth until 1998. From 1995 to 1998, North American Retail has grown
its Adjusted Operating Revenues--Constant Currency at an annual compounded rate
of 4.5% and has improved its Adjusted EBITDA--Constant Currency margins by 140
basis points, for the reasons described above. In conjunction with the change
program, which was commenced at the North American operations in 1997, following
the cost reductions of 1994 and 1995, North American operations have
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- eliminated the three divisional groupings in North American Retail and
reduced the number of regional units from 14 to 7 to maximize potential
for efficiencies and focus more intensely on client needs and
cross-selling,
- reduced real estate costs by disciplined use of space and quality
standards,
- reduced travel and entertainment expenses,
- reduced purchasing costs by implementing national vendor programs,
- reduced headcount by 156 people (5%),
- streamlined and consolidated back-office functions and regionalized
accounting centers, significantly reducing costs,
- developed and implemented a new incentivization program for North
American Retail and
- invested in new development and training programs.
These initiatives have begun to translate into improved results, as sales of new
products as well as sales of existing products to new customers increased 17%
($12.6 million) in the year ended December 31, 1998 as compared to the year
ended December 31, 1997, while EBITDA margins increased approximately 100 basis
points. The business at U.S. Wholesale has been more difficult due to
competitive pressures and other outside factors. We have moved out of
unprofitable businesses (such as Professional Liability Underwriting Management)
and have worked to reposition the remaining U.S. Wholesale businesses for
greater future profitability. For the twelve months ended December 31, 1998,
North American Retail's Adjusted Operating Revenues--Constant Currency grew by
7.4% and its Adjusted EBITDA margins--Constant Currency increased by 240 basis
points for the reasons described above.
GLOBAL SPECIALTIES--From 1995 to 1998, Global Specialties has grown its
Adjusted Operating Revenues Constant--Currency at an annual compounded rate of
4.8% and has improved its Adjusted EBITDA margins--Constant Currency 790 basis
points, despite premium rates that have declined at an annual rate of 10% or
more. In conjunction with the implementation of the change program, which has
only focused on the Global Broking Services segment of Global Specialties thus
far, together with other initiatives begun in 1994, the unit has
- undergone a comprehensive staff assessment planned to reduce back
office costs by 20-30% and has already eliminated 113 people (10% of
staff),
- expanded the accounting office operations in Bombay to reduce the cost
of insurance accounting and claims processing and
- re-focused the operation on cross-selling and new client prospecting.
Given the very recent implementation of the change program at Global
Specialties, very limited benefits from the change program are reflected in the
unit's historical results. For the twelve months ended December 31, 1998, Global
Specialties increased its Adjusted Operating Revenues--Constant Currency by 5.0%
and has improved its Adjusted EBITDA margins--Constant Currency by 60 basis
points. The majority of this growth occurred in Global Broking Services due to
strong performance in both revenue and profit in several specialist product
lines.
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GLOBAL REINSURANCE--From 1995 to 1998, Global Reinsurance has grown its
Adjusted Operating Revenues--Constant Currency at an annual compounded rate of
4.0% and has improved its Adjusted EBITDA margins--Constant Currency by 180
basis points, despite significantly (more than 20% annually) declining premium
rates. The unit has
- merged eight business units,
- reduced UK headcount by 113 people (25% of staff), eliminating
redundant tasks and reducing costs,
- created new business units with Cordis Consulting Limited and Willis
Corroon Catastrophe Management Limited (See "Business") and
- established three new key production offices.
The change program has not yet been fully developed for Global Reinsurance, the
implementation of which is expected to bring additional benefits to operating
results. For the twelve months ended December 31, 1998, Global Reinsurance's
Adjusted Operating Revenues--Constant Currency fell by 0.5%. Expansion in the
U.S. and Europe was offset by a disposal of part of the French portfolio to Gras
Savoye following Willis Corroon Group's investment in Gras Savoye. Adjusted
EBITDA margins-- Constant Currency decreased by 10 basis points due to planned
staff cost increases, predominantly in the U.S.
INTERNATIONAL--From 1995 to 1998, International has grown through a
number of acquisitions, the most significant being the increased investment in
Willis Corroon Richard Oliver Pty Ltd in Australia and Willis Corroon Scheuer in
the Netherlands, the acquisition of 33% of Gras Savoye in France, in January
1998, the acquisition of 30% of Jaspers Wuppesahl in Germany, the 50% interest
in Gruppo Ital Brokers in July 1998, the 30% interest in Assurandrgruppen in
September 1998, and the additional investment in Spain. Excluding these
acquisitions, International has grown its Adjusted Operating Revenues--Constant
Currency at an annual compounded rate of 2.3% and has grown its Adjusted EBITDA
from a loss of L(0.8) million in 1995 to a gain of L1.7 million in 1998. The
unit continues to make investments, including its recent strategic investments
in Italy and Denmark and has announced planned transactions in Venezuela. The
unit is now focused on exploiting the efficiencies of scale available by merging
its Spanish operations with those of Gras Savoye. For the twelve months ended
December 31, 1998, International increased its Adjusted Operating
Revenues--Constant Currency by 5.2% and its Adjusted EBITDA--Constant Currency
by 7.6 basis points largely due to growth in Western Europe after giving pro
forma effect to the recent acquisitions.
While significant improvements have been made thus far, we are
implementing the change program in a series of stages and believe that
significant future operating improvement will be generated as a result of change
program initiatives. There can be no assurance, however, that such will be the
case.
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BUSINESS
GENERAL
We are the third largest insurance broker in the world. We provide a
broad range of value-added risk management consulting and insurance brokering
services to some 50,000 clients worldwide. We trace our history to 1828 and we
are a leading insurance broker in the U.K., the U.S. and, directly and through
our associates, in many countries. We are a recognized leader in providing
specialized risk management advisory and other services on a global basis to
clients in various industries, including the construction, aerospace, marine and
energy industries. In our capacity as an advisor and insurance broker, we act as
an intermediary between our clients and insurance carriers by:
- advising our clients on their risk management requirements (many of
which are highly complex);
- helping clients determine the best means of managing their risks; and
- ultimately negotiating and placing insurance risks with insurance
carriers through our global distribution network.
We also provide other value-added services, including employee benefits
consulting, claims administration, captive insurance company management and
self-insurance consulting. We do not underwrite insurance risks for our own
account.
We and our associates serve a diverse base of clients located in more
than 125 countries. Such clients include major multinational and middle-market
companies in a variety of industries, as well as public institutions. Many of
our client relationships span decades. With approximately 12,000 employees
around the world and a network of more than 250 offices in 69 countries, in each
case including our associates, we believe we are one of only three insurance
brokers in the world possessing the global operating presence, broad product
expertise and extensive distribution network necessary to effectively meet the
global risk management needs of many of our clients. For the twelve months ended
December 31, 1998, our Reported Revenues were L718.2 million ($1,192.2 million)
and our Reported EBITDA was L113.5 million ($188.4 million). For the same
period, our Adjusted Operating Revenues were L735.2 million ($1,220.4 million)
and our adjusted EBITDA was L142.6 million ($236.7 million), in each case after
giving pro forma effect to the recent acquisitions. See "Prospectus Summary--
Summary Historical Consolidated Financial Information of Willis Corroon" and
"Prospectus Summary-- Summary Unaudited Pro Forma Consolidated Financial
Information of Willis Corroon."
INDUSTRY OVERVIEW
Insurance brokers, such as Willis Corroon, provide essential services
to users of insurance and reinsurance products. Such users include corporations,
public institutions and insurance carriers. Brokers distribute insurance
products and provide highly specialized (and often highly technical) value-added
risk management consulting services. Through its knowledge of the insurance
market and risk management techniques, the broker provides value to its clients
and the insurance carriers with whom the broker deals by:
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VALUE TO CLIENTS VALUE TO INSURANCE CARRIERS
-------------------------------------------------------- --------------------------------------------------------
- assisting clients in their analysis of risk; - assessing a potential insurance user's risk management
- helping clients formulate appropriate strategies to needs, structuring an appropriate insurance program to
manage those risks; meet those needs and placing the insurance risks to be
- negotiating insurance policy terms and conditions; insured with an insurance carrier;
- placing insurance risks to be insured with insurance - acting as a principal distribution channel for
carriers through its distribution network and taking insurance products; and
advantage of its ability to place insurance at rates - providing access to insurance buyers that most
often lower than the client could achieve on its own; insurance companies are not equipped to reach on their
and own.
- providing specialized self-insurance consulting and
other risk management consulting services apart from
its traditional intermediary role.
The broker serves an important role in the distribution of insurance
products. Willis Corroon believes that the percentage of insurance policies
underwritten worldwide that are placed through insurance brokers has been
relatively stable in recent years. According to the Independent Insurance Agents
of America, Inc., in 1997 approximately 77% of commercial insurance in the U.S.
was sold through insurance brokers.
There are three main subsectors of the brokerage industry:
- retail brokering, which involves business and services transacted
between brokers and commercial or individual customers,
- wholesale brokering, which involves business and services transacted
between two brokers (or agents) when one broker uses the services or
products of another broker and
- reinsurance brokering, which involves placing reinsurance coverage for
primary insurance and reinsurance carriers.
Insurance brokers generate revenue from
- commissions and fees on insurance placements,
- fees from consulting and other services and
- interest earned on premiums held prior to payment to the insurer and on
claims held prior to payment to the insured.
Commissions and interest have historically been the greatest sources of revenues
for insurance brokers. However, in recent years, fee income (from both insurance
placements and consulting and other services) has been increasing as a
percentage of total revenues while commission income has been declining largely
because of declining insurance premium rates due to competition among insurance
carriers. Willis Corroon expects this trend toward increased fee income to
continue.
Industry revenue has been relatively stable in recent years and,
according to BUSINESS INSURANCE, the 192 largest commercial insurance brokers
globally reported brokerage revenues totalling
68
$16.7 billion in 1997. Recent consolidation among the largest insurance brokers,
however, has significantly altered the industry competitive dynamics.
Significant factors in broker consolidation include:
- the increased need by clients for products and services on a global
scope; and
- better economies of scale available to larger firms.
As a result, the insurance brokerage industry is now led by its three global
participants: Marsh & McLennan Companies, Inc. (with approximately 35% of the
worldwide market comprised of the 192 brokers in 1997 referred to above, 9% of
which is attributable to Sedgwick Group plc, a company acquired by Marsh &
McLennan in 1998), Aon Corporation (with approximately 24%), and Willis Corroon
(with approximately 7%). The industry is highly fragmented beyond these three
brokers with the next largest broker having less than a 3% share of the $16.7
billion market.
Another trend in the industry is the increasing diversification of
products and services offered by major insurance brokerage companies. In recent
years, the largest brokers have added a variety of new products and services in
order to meet the increasingly complex risk management needs of its clients.
Some of these new products and services represent the unbundling of the
traditional brokerage package, such as employee benefits consulting, captive
insurance company management, self-insurance consulting and alternative risk
financing solutions. This diversification is in response to
- clients' increasing focus on the complex risks faced in the operation
of their increasingly global businesses and
- clients' desire to retain more of the risks themselves.
As a result, the complexity of the risks managed has increased, while the
proportion insured by traditional underwriters has decreased. This has led to an
increased need for, and the development by brokerage firms of the capability to
provide, services (in addition to their traditional role as an intermediary)
that deliver expert solutions to clients with complex risk problems.
RECENT MANAGEMENT INITIATIVES
In 1996, Willis Corroon developed and launched a series of initiatives
referred to as the "change program." The change program was designed to enhance
revenues, improve efficiency and transition Willis Corroon from a traditional
commission-based insurance broker to a more comprehensive professional advisory
services firm. As part of the change program, Willis Corroon established certain
key initiatives to:
- enhance operating efficiencies;
- intensify efforts to develop existing and new accounts;
- increase cross-selling of both existing and new products and services
to its existing clients; and
- maximize leverage in placing insurance with insurance carriers.
In addition, Willis Corroon developed initiatives focused on maximizing the
talent and expertise of its brokers and consultants. Accordingly, Willis
Corroon:
69
- developed improved techniques for recruitment and assessment;
- instituted a new incentive structure for brokers in the U.S.;
- implemented a new and more frequent appraisal process, including peer
review;
- created new training and development programs;
- invested in technology to enhance communication among employees; and
- formed practice groups to share knowledge on specific industry or
product areas.
Willis Corroon believes that the change program is primarily responsible for:
- the 5.9% annual growth in constant currency Adjusted Operating Revenues
from 1995 to 1998 (3.9% including the impact of currency movements;
3.8% on a constant currency basis excluding the impact of the recent
acquisitions and the incremental investment in Willis Corroon Richard
Oliver Pty Ltd and Willis Corroon Scheuer) and
- the improvement in constant currency Adjusted EBITDA margins from 14.0%
in 1995 to 18.5% in 1998, resulting in 15.2% annual growth in constant
currency Adjusted EBITDA over such period (9.4% including the impact of
currency movements; 10.5% on a constant currency basis excluding the
impact of the Recent Acquisitions and the incremental investment in
Willis Corroon Richard Oliver Pty Ltd and Willis Corroon Scheuer)
despite the downward trend of insurance premium rates in recent years. See
"Supplemental Constant Currency Financial Data" for an explanation of the
adjustments and the presentation of constant currency data and EBITDA generally
and for a discussion of trends in Constant Currency--EBITDA margins. Willis
Corroon estimates that in 1997, the change program initiatives increased its
profit before tax by L27 million with more than half of this improvement
generated from revenue enhancements. Willis Corroon has implemented the change
program in varying stages across its business units and expects the change
program to generate significant additional benefits in the future, although
there can be no assurance that this will be the case.
COMPETITIVE STRENGTHS
STRONG FRANCHISE WITH LEADING MARKET POSITIONS. Willis Corroon is the
third largest insurance broker in the world and has leading market positions in
the U.K., the U.S. and, directly and through its associates, in many other
European countries. Willis Corroon is a recognized leader in providing
specialized risk management advisory and other services on a global basis to
clients in a variety of industries. For example, Willis Corroon believes that it
is the leading insurance broker to the construction industry in the United
States, one of the largest surety brokers in North America and a market leader
in providing risk management services to the aerospace, marine and energy
industries. Willis Corroon is also the largest reinsurance broker serving Japan.
Willis Corroon's strong global franchise and leading market positions:
- provide an extensive platform for selling new and existing products and
services to its existing clients;
- allow Willis Corroon to meet better the risk management needs of its
existing clients and help attract new clients;
70
- create economies of scale and other efficiencies; and
- attract talented professionals.
STRONG GLOBAL PRESENCE. Willis Corroon believes it is one of only
three insurance brokers in the world with the global operating platform, broad
product expertise and insurance brokering distribution capabilities necessary to
effectively meet the global risk management needs of large multinational and
certain other clients. Willis Corroon has approximately 12,000 employees around
the world and a network of more than 250 offices in 69 countries, in each case
including associates. This strong global franchise enables Willis Corroon and
its associates to serve over 50,000 clients located in more than 125 countries
worldwide. Management estimates that, together with its associates, Willis
Corroon enjoys leading market positions in the U.K., the U.S., France, Denmark,
Greece, Germany, Italy, Poland, Spain and Sweden. In 1997 Willis Corroon placed
insurance with over 4,000 insurance carriers, none of which individually
accounted for more than 7% of the total premiums placed by Willis Corroon on
behalf of its clients. Willis Corroon's worldwide franchise enables it to
provide high quality services on a local basis with the resources of a global
firm.
EXTENSIVE AND DIVERSE CLIENT BASE. Willis Corroon's clients operate in
many businesses and industries throughout the world and generally range in size
from major multinational corporations to middle market companies. Many of Willis
Corroon's client relationships span decades, such as its 20-year relationship
with Allied Signal Inc. and its relationship with The Tokio Marine and Fire
Insurance Co., Limited (the largest non-life insurance company in Japan), which
dates back 100 years. In the United States, Willis Corroon serves approximately
10% of the Fortune 1,000 companies, with an average relationship of more than
ten years. Willis Corroon's largest client accounted for less than 2% of Willis
Corroon's total revenues in 1998, and Willis Corroon's 80 largest clients
accounted for less than 10% of such revenues. This diversified client base
provides a stable source of revenue and also offers significant additional
revenue opportunities as Willis Corroon provides these clients with additional
products and services and cross-sells existing products and services across its
many areas of expertise.
BROAD ARRAY OF CLIENT-ORIENTED SERVICES AND PRODUCTS. In order to
serve its extensive client base, Willis Corroon offers a broad range of services
and products designed to address their specific risk management needs. With its
specialized product and industry teams around the world, Willis Corroon helps
its clients assess the risks they encounter in their operations worldwide, from
employee benefits and healthcare to the specialized risks of the aerospace
industry. If the client desires to insure against these risks, Willis Corroon
negotiates policy terms and places an appropriate insurance policy with an
insurance underwriter using its significant placing power. If the client,
however, wishes to retain some portion of the risk, Willis Corroon can help the
client establish and maintain its own self-insurance or captive insurance
program. As a result of Willis Corroon's ability to meet its clients' risk
management needs, management believes that Willis Corroon enjoys a reputation
for exceptional customer service throughout its product offerings. In an
independent 1998 survey covering 143 U.S. insurance brokers, Willis Corroon's
North American operations received the highest overall customer satisfaction
rating.
EXPERIENCED AND INCENTIVIZED MANAGEMENT. Willis Corroon's Executive
Chairman, John Reeve, joined Willis Corroon in late 1995 and is responsible for
instituting significant strategic and operating changes which have improved
operating results and positioned Willis Corroon for further growth. Willis
Corroon's top seven executives have an average of 27 years of experience in the
insurance brokerage and insurance industries and an average of 20 years of
experience with Willis Corroon itself. 361 key employees invested directly in
the equity of Willis Corroon's ultimate parent company, TA I Limited. The
investment by these employees, together with options granted to them at the time
of investment and options expected to be granted in the future, is expected to
represent between 14% and 20% of TA I Limited's ordinary share capital on a
fully diluted basis. Additional equity-based
71
incentive plans, partly tied to performance (including the 1998 Share Purchase
and Option Plan for Key Employees of TA I Limited), are expected to be put in
place in the future. This broad distribution of equity throughout the
organization should help Willis Corroon to retain and attract highly qualified
managers, brokers and consultants.
STRONG SPONSORSHIP. Kohlberg Kravis Roberts & Co. L.P. is a leading
investment firm with significant investment experience in the insurance
industry. In addition to the KKR 1996 Fund (Overseas), Limited, six major
insurance companies, Guardian Royal Exchange, Royal & SunAlliance Insurance
Group, The Chubb Corporation, The Hartford Financial Services Group, Inc.,
Travelers Property Casualty Corp. and The Tokio Marine and Fire Insurance Co.,
Limited, collectively invested approximately L203 million (approximately $346
million) in the common and preferred equity of Willis Corroon's parent
corporations. The investment by these major insurance carriers represents a
significant expression of confidence in Willis Corroon's future business
prospects. In addition, Willis Corroon believes that such investment highlights
(1) the importance of the role played by the global insurance broker to the
insurance industry generally and (2) the importance of Willis Corroon
individually as an independent alternative in a rapidly consolidating industry.
BUSINESS STRATEGY
Willis Corroon's strategic objectives are to continue to grow revenues
and cash flow and to enhance its position as a leading global provider of risk
management services. The key elements of this strategy are:
CAPITALIZE ON STRONG GLOBAL FRANCHISE. As one of only three insurance
brokers providing risk management services on a global basis, Willis Corroon is
well positioned to take advantage of the increased demand for global risk
management expertise. Willis Corroon intends to capitalize on its strong global
franchise by: (1) cross-selling both existing and new products and services to
its existing clients and (2) targeting new clients in need of Willis Corroon's
global reach and specialized expertise and knowledge. To implement these
objectives, Willis Corroon is improving the quality of its risk management
consultants by:
- investing in the training and development of its staff;
- recruiting teams of risk management professionals with particular
geographical or product expertise and client relationships;
- implementing a new incentive structure which has a greater emphasis on
business development and profitability; and
- implementing programs and upgrading information systems to share
product and client knowledge throughout the organization.
Willis Corroon also seeks to work more closely with selected insurance
carriers to develop new products and services for its clients. While these
initiatives continue to be developed and implemented, Willis Corroon has begun
to see improvements. For example, revenues from North American Retail's sale of
new business increased 17% ($12.6 million) in 1998 compared to 1997.
EMPHASIZE VALUE-ADDED SERVICES. Willis Corroon seeks to offer
value-added, fee-based risk management services, such as risk management
consulting advice, including captive insurance company management and
self-insurance consulting, employee benefits consulting, and claims
administration to complement its existing insurance brokerage business. These
fee-based services have
72
increased as a percentage of Willis Corroon's total revenues and, unlike typical
insurance brokerage commissions, are not directly tied to insurance premium
rates, which have been declining in recent years. For fiscal 1997, the
percentage of Willis Corroon's total revenues from fees (including from both
insurance placements and consulting and other services) was approximately 26%,
as compared to approximately 13% in 1993. Willis Corroon believes that by
emphasizing these value-added risk management consulting services it can
- increase the quality and scope of services it offers to its clients
worldwide,
- reduce Willis Corroon's exposure to fluctuations in insurance premium
rates and
- continue to enhance revenue growth and operating profit margins despite
recent trends toward decreasing insurance premiums and brokerage
commissions.
INCREASE OPERATING EFFICIENCIES. In addition to its revenue growth and
improved client service initiatives, Willis Corroon's change program includes a
number of cost reduction measures designed to streamline work processes to
increase efficiency without impacting client service. Thus far, these
initiatives have reduced headcount in continuing operations by over 1,100
employees, or more than 10% of the workforce. Also, Willis Corroon reorganized
its U.K. Retail operations from a regional focus to a market segment focus and
reduced the number of U.K. Retail offices from 33 to 28 since January 1, 1996.
Other on-going initiatives include
- reducing real estate, travel, entertainment and other operating
expenses,
- further streamlining back-office functions and consolidating offices
and
- reducing purchasing costs by implementing vendor programs.
Additionally, Willis Corroon intends to reduce the number of insurance carriers
with which it does business in order to create direct economic benefits for
clients, carriers and Willis Corroon. Willis Corroon also intends to streamline
administrative processes with a selected number of insurance carriers and work
closely with certain insurance carriers to generate new product and service
ideas. Willis Corroon reduced expenses from continuing operations by
approximately L10 million in 1997 due to the change program and believes that
the change program is responsible in large part for the 15.2% annual growth in
constant currency Adjusted EBITDA (9.4% including the impact of currency
movements; 10.5% on a constant currency basis excluding the impact of the recent
acquisitions and the additional investments in Willis Corroon Richard Oliver Pty
Ltd and Willis Corroon Scheuer) from 1995 to 1998, despite the downward trend of
insurance premium rates. Willis Corroon seeks to continue to increase operating
efficiencies and reduce operating costs in the future.
PURSUE STRATEGIC GROWTH OPPORTUNITIES. Willis Corroon intends to
strengthen its global franchise through selective acquisitions and strategic
investments. Willis Corroon believes that the consolidation in the brokerage and
risk management consulting industry, coupled with the importance of a global
presence, will provide Willis Corroon opportunities to acquire smaller brokers
that have a strong regional or local market position or possess specialized
product expertise which complements Willis Corroon's existing products. In
addition to acquiring controlling interests in smaller brokers, Willis Corroon
has also expanded internationally through strategic minority investments in, and
developing a close working relationship with, other brokers. For example, in
1997, Willis Corroon acquired a one-third stake in Gras Savoye, the largest
broker in France and the ninth largest broker in the world, and early in 1998 a
30% interest in Jaspers Wuppesahl, which Willis Corroon believes is the third
largest broker in Germany. This interest increased to approximately 45% in
January 1999. Willis Corroon also acquired a
73
50% interest in 1998 in a leading Italian broker, Gruppo Ital Brokers, a 30%
interest in Assurandrgruppen, the leading broker in Denmark, a reinsurance
brokering, and consulting operation in Germany, and has announced planned
acquisitions in Venezuela. In 1997 and 1998, Willis Corroon increased its
existing investments in Brazil, Sweden, Spain, Australia and Holland. In
connection with these investments, Willis Corroon assumes an active role in
management and generally retains the right to obtain ownership interests in
excess of 50% over time. These and future strategic investments should
significantly enhance Willis Corroon's global presence and enable it to better
leverage its global platform.
BUSINESS UNITS
Willis Corroon conducts its activities through five units:
- North American operations;
- U.K. Retail;
- Global Specialties;
- Global Reinsurance; and
- International,
the operations of each of which are detailed below.
NORTH AMERICAN OPERATIONS
(41% OF 1998 OPERATING REVENUES)
Willis Corroon's North American operations, which consist of North
American Retail and U.S. Wholesale, provide risk management, insurance brokerage
and related services to a wide variety of clients in the United States and
Canada. Headquartered in Nashville, Tennessee, North American operations operate
through a network of more than 100 offices located in 38 states in the U.S. and
six offices in Canada. In addition, two other U.K.-based units, Global
Specialties and Global Reinsurance also have operations in the U.S.
NORTH AMERICAN RETAIL
(90% OF NORTH AMERICAN OPERATIONS 1998 OPERATING REVENUES)
North American Retail provides risk management, insurance brokerage and
related services directly to corporations through 77 local offices in the U.S.
and six offices in Canada. North American Retail's clients include both
middle-market and major multinational companies. Approximately 45% of North
American Retail's revenues are generated by providing property/casualty
brokerage services to middle-market companies. The balance of the unit's
revenues come from serving the complex risk management needs of multinational
corporations and from its other consulting and brokerage services.
Other consulting brokerage services are supplied to certain clients
through four divisions:
- construction;
- employee benefits;
74
- healthcare; and
- advanced risk management services.
North American Retail's construction division specializes in providing risk
management, insurance and surety bonding services to the construction industry.
This division provides services to approximately 20% of the Engineering New
Record Top 400 contractors (a listing of the largest 400 North American
contractors based on revenue). Willis Corroon believes it is the largest
construction insurance and surety broker (obtaining surety bonds, which
guarantee the performance of a contractor's obligations under construction and
other contracts) in North America. North American Retail's employee benefits
division helps clients with the design and implementation of benefits and
compensation plans. Its healthcare division provides insurance and consulting
services to local healthcare professionals. Willis Corroon believes it is the
fourth largest healthcare insurance broker/consultant in the United States.
North American Retail's advanced risk management services division provides
actuarial consulting, captive management services and a wide range of other risk
consulting activities to large clients.
Many of North American Retail's client relationships have existed for
decades, such as its relationships with AT&T, Texaco and GE Capital. In
addition, Willis Corroon serves approximately 10% of the Fortune 1000 companies
in the United States. In an independent 1998 survey covering 143 U.S. insurance
brokers, Willis Corroon received the highest overall customer satisfaction
rating.
During 1997, as part of the change program, North American Retail
introduced a new regional structure, with six regions in the United States and
one region for Canada, designed to streamline the existing management structure,
focus more decision making closer to the customer, and reduce back office costs
by concentrating administrative resources at the national and regional level.
Additionally, North American Retail implemented specific programs designed to
enhance revenues, such as increased cross-selling of products to its existing
clients.
U.S. WHOLESALE
(10% OF NORTH AMERICAN OPERATIONS 1998 OPERATING REVENUES)
The second, and much smaller, component of Willis Corroon's North
American operations is U.S. Wholesale. Wholesale brokering is typically
transacted between two brokers or agents and occurs when a broker has a client
with a risk coverage need that falls outside its area of expertise. In these
cases, a broker may call in a wholesale broker with such specific expertise to
place the business and then receive a fee.
U.S. Wholesale primarily serves its clients through three operating
entities. As a wholesale broker and program manager, Public Entities National
Company provides access to specialized coverage for governmental entities,
schools and other municipality and public entities. Willis Corroon believes that
the Stewart Smith Group is the fourth largest excess and surplus lines broker in
the United States, providing specialist advice and market expertise in property
and casualty insurance placement in a variety of industries, including
manufacturing, real estate/habitational, transportation, financial services,
utilities, entertainment, aerospace and construction. Special Program
Management, a unit of the Stewart Smith Group, is an industry leader for placing
specialty directors & officers coverage and related products to the
high-technology industry. U.S. Wholesale's professional liability wholesale
operation, Professional Liability Underwriting Management, was closed in the
second quarter of 1998.
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U.K. RETAIL
(18% OF 1998 OPERATING REVENUES)
Willis Corroon's U.K. Retail operation provides risk management and
insurance brokerage services to clients in the U.K. through 28 offices located
in the United Kingdom to industrial and individual clients. U.K. Retail arranges
similar risk management and insurance brokerage services for U.K.-based clients
outside the United Kingdom through North American Retail, overseas subsidiaries
and associates. U.K. Retail has numerous long-standing relationships with both
middle-sized and larger companies throughout the U.K., such as BAT Industries,
British Steel and Cadbury Schweppes.
In 1997, U.K. Retail established three new divisions (Willis Corroon
Corporate, Willis Risk Solutions and Willis Corroon Commercial) to provide
differentiated services according to client needs and buying preferences.
Willis Corroon Corporate provides a wide range of integrated risk
transfer and risk and loss management services to larger U.K.-based corporate
clients. The division assists clients in reducing the cost of managing their
risks by providing comprehensive risk management services, elements of which are
available on an "unbundled" basis if required.
Willis Risk Solutions is a professional services business delivering
expert solutions to major, typically multinational, corporate and professional
clients with complex risk problems. Willis Risk Solutions service is tailored to
individual client needs and ranges from strategic risk assessment to
transactional risk transfer and alternative risk financing solutions. The
service includes the development and management of captive insurance companies,
specialist insurance services, due diligence on mergers and acquisitions and
project finance, and evaluating risks associated with new business ventures.
Willis Risk Solutions is increasingly focused on providing more advisory and
consulting services. Through Willis Risk Solutions, Willis Corroon is one of the
largest managers of captive insurance companies in Europe.
Willis Corroon Commercial provides traditional insurance brokerage
services primarily to smaller companies. In a new venture announced in February
1998, Willis Corroon Commercial stated that it would be entering into franchise
partnerships with local U.K. insurance brokers to handle the insurance
requirements of small companies and individuals, utilizing specialized
electronic systems linking the franchised brokers directly to the commercial
panel of insurance carriers. These small companies and individuals represent a
very large market in the U.K. (more than 60% of commercial insurance premiums in
the U.K. are paid by companies with less than L10 million in revenue).
Accordingly, Willis Corroon Commercial believes that the franchise program
provides a significant opportunity for growth, and had ten franchise agreements
in place at December 31, 1998. It expects to have 26 in place by the end of
1999.
In addition to these services, U.K. Retail provides advice and services
to corporate and individual clients on personal finance matters such as pension
planning and investment products through Willis National Limited (a joint
venture in which Willis Corroon has a 51% interest and Abbey National has the
remaining 49%), the second largest independent financial advisor in the United
Kingdom, according to information published in MONEY MARKETING (August 7, 1997).
U.K. Retail also has teams which provide services in numerous specialty
areas, such as construction, freight, credit insurance, transport, hotel and
leisure, and professional indemnity through its other three divisions (Willis
Construction Risk Specialists, Willis Corroon Cargo and Scotland/ Ireland).
76
During 1997, U.K. Retail completed the implementation of certain
structural changes initiated towards the end of 1996 under the change program,
and reorganized into seven major divisions from its prior regional focus. In
connection with the reorganization, U.K. Retail centralized most of its
back-office functions, closed five offices and reduced headcount by
approximately 13%. The change program continued in 1998 with rationalization.
GLOBAL SPECIALTIES
(22% OF 1998 OPERATING REVENUES)
The Global Specialties unit provides specialist brokerage and
consulting services to clients throughout the world for the risks of specific
industrial and commercial activities. In these operations, Willis Corroon has
extensive specialized experience handling diverse lines of coverage, including
the complex insurance programs for insurance companies and Lloyd's syndicates,
and acting as an intermediary between retail brokers and insurers. Global
Specialties increasingly provides consulting services on risk management with
the objective of assisting clients to reduce the overall cost of risk. Global
Specialties serves clients in more than 100 countries, primarily from its U.K.
offices, although the unit also serves clients from offices in the U.S.
The Global Specialties unit is organized into three distinct business
areas:
- Global Broking Services;
- Willis Corroon Aerospace; and
- Willis Faber Marine.
Global Broking Services provides solutions to problems in the
industrial, financial and professional sectors for large, complex, unusual and
niche risks around the world. Global Broking Services operates through five
business sub-units. The Global Property and Casualty unit designs and obtains
innovative property coverage solutions for large or unusual exposures in a
variety of industries, including mining and metals, chemicals and
pharmaceuticals, telecommunications, offshore energy and construction, refining,
power stations and other utilities, transport authorities and motor
manufacturers and also handles the design, implementation and servicing of
reinsurance protections for captive insurance companies. The Global Property and
Casualty unit also provides comprehensive liability programs for coverage
against environmental liability, libel and slander, and medical malpractice. The
Global Financial Risks unit obtains directors and officers insurance, as well as
errors and omissions insurance for professional firms and other insurance
brokers. The Global Financial Risks unit is also a leader in designing and
obtaining insurance coverage for political risk (including confiscation and
expropriation). Crime, computer fraud and unauthorized trading risks are also
covered on a worldwide basis. The Fine Art, Jewelry, and Specie unit provides
specialist risk management and insurance services to fine art, diamond and
jewelry businesses and operators of armored cars. Coverage is also obtained for
the physical risks of financial institutions and similar operations, including
vault and bullion risks. The Contingency Risks unit specializes in producing
packages to protect corporations, groups and individuals against special
contingencies such as kidnap and ransom, extortion, detention, political
repatriation and product contamination. The Bloodstock unit services the
insurance needs of the bloodstock and livestock industry and also arranges the
reinsurance of bloodstock and livestock related business of insurance companies
worldwide.
Willis Corroon Aerospace is a market leader in the provision of
insurance brokerage and risk management services to clients in the aerospace
industry, including aircraft manufacturers, air cargo handlers and shippers,
airport managers and other general aviation companies. Advisory services
77
provided by Aerospace include claims recovery and collections, contract and
leasing risk management, safety services and markets information. Aerospace is a
leading provider of risk transfer and advisory services for space vehicle
launches and is also a leading reinsurance broker of aerospace risks.
Aerospace's clients are spread throughout the world and include 250 airlines and
more than 45% of the world's 30 leading non-American airports by passenger
movement. Other clients include those introduced from other intermediaries as
well as insurers seeking reinsurance.
Willis Faber Marine provides marine insurance brokerage services,
including hull, cargo and general marine liabilities. Marine's clients include
direct buyers, other insurance intermediaries and insurance and reinsurance
companies. Marine insurance brokerage is Willis Corroon's oldest line of
business. Other services of Marine include claims collection and recoveries.
Global Specialties is diversified from a geographical perspective. The
unit's 1998 revenues were generated in the following geographical regions: 27%
in the U.K.; 22% in North America and the Caribbean; 26% in continental Europe;
12% in Japan and the Far East; 5% in South America; 4% in the Middle East; and
4% in the rest of the world. In addition, this unit is diversified from a
customer perspective, with no client accounting for more than 2% of its revenues
in 1998.
Under the change program, in 1998 Global Specialties has, among other
things, reduced headcount by approximately 9%, merged its energy sub-unit into
Global Broking Services to better focus its sales efforts and focused on
cross-selling with Willis Corroon's other business lines.
GLOBAL REINSURANCE
(10% OF 1998 OPERATING REVENUES)
The Global Reinsurance unit, operating under the trade name Willis
Faber Re, provides international reinsurance brokerage services. These services
are provided to insurance underwriters to reinsure all or a portion of the risks
insured by them and to reinsurance underwriters to further reinsure their risks.
Willis Corroon is one of the world's largest intermediaries for international
reinsurance and has a significant market share in a number of major reinsurance
markets. It is the largest reinsurance broker serving Japan.
Global Reinsurance provides its clients, both insurance and reinsurance
companies, with reinsurance transaction services as well as ancillary services
such as risk analysis, modeling and consulting. The unit also provides
reinsurance brokerage services to healthcare professionals and institutions. The
U.K. operation represents clients in more than 90 countries and has
long-standing relationships with leading insurers in Asia, Middle East, Latin
America and in Western Europe. One such relationship, with The Tokio Marine and
Fire Insurance Co., Limited, has existed for 100 years.
Willis Corroon believes that from 1996 to 1998 premium rates in the
global reinsurance market have decreased annually by approximately 20%. Global
Reinsurance is developing new sources of revenue in addition to its traditional
reinsurance brokerage services, investing in new capabilities and expanding its
global reach. For example, in 1998 Global Reinsurance established Cordis
Consulting Limited to market its capabilities in actuarial and catastrophe
modeling as consulting products rather than as a part of its reinsurance
package, and acquired Mansfeld, Hubener & Partner GmbH to provide a local
presence in Germany (the largest European reinsurance market). In 1997 Willis
Corroon launched Willis Corroon Asset Management Limited which manages funds
invested in a new class of financial instruments linked to insurance and
reinsurance risks.
Additionally, under the change program, Willis Corroon has been
integrating various reinsurance business units globally (eight business units
have merged between 1995 and 1998 to
78
culminate in the creation of Willis Faber Re) and has gained more synergy,
teamwork, and sharing of knowledge among top professionals around the world.
Additionally, the headcount in the Global Reinsurance's U.K. operations has been
reduced by approximately 25% since 1995.
INTERNATIONAL
(9% OF 1998 OPERATING REVENUES)
Willis Corroon's International unit consists of a network of
subsidiaries and associates other than those in the U.S. or U.K. controlled by
the other business units. These operations are located in 59 countries
worldwide, consisting of 21 countries in Europe, 13 in the Asia/Pacific region
and 25 elsewhere in the world. The services provided are generally focused
according to the characteristics of each market and are not identical in every
office, but generally include direct risk management and insurance brokerage,
specialist and reinsurance brokerage and employee benefits consulting.
As part of its on-going strategy, Willis Corroon has significantly
strengthened International's market share and operations through a number of
acquisitions and strategic investments in recent years. The most significant of
these was the acquisition of a 33% interest in Gras Savoye, France's leading
insurance broker and the ninth largest broker in the world. In addition, in
January 1998, Willis Corroon's associate in Germany, C. Wuppesahl & Co.
Assekuranzmakler, merged with Jaspers Industries Assekuranz GmbH & Co. KG to
create Jaspers Wuppesahl, the third largest insurance broker in Germany in which
Willis Corroon now has an interest of approximately 45%.
In July 1998, Willis Corroon acquired 50% of Gruppo Ital Brokers, which
will be merged with UTA Willis Corroon SpA (in which Willis Corroon has a 50%
interest), creating the third largest broker in Italy. Willis Corroon also
acquired a 30% interest in Assurandrgruppen the leading broker in Denmark. Also,
Willis Corroon has announced planned acquisitions in Venezuela. In addition, in
1997 and 1998 Willis Corroon entered into a joint venture in Indonesia and
increased its existing investments in Brazil, Sweden, Spain, Australia and
Holland. Finally, Willis Corroon is the first non-Japanese broker to be awarded
a domestic license in Japan. The investments in 1997 and 1998 have improved the
market positions of Willis Corroon and its associates worldwide.
The following is a list of the associate investments currently held by
Willis Corroon:
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COMPANY COUNTRY % OWNERSHIP
----------------------------------------------------------- ----------- -------------------
EUROPE
Gras Savoye & Cie France 33%
Jaspers Wuppesahl Industrie
Assekuranz GmbH & Co., KG Germany 45%
Willis Corroon Assurandrgruppen A/S Denmark 30%
ASIA/PACIFIC
Multi-Risk Consultants (Thailand) Limited Thailand 25%
Willis Faber (Malaysia) Sdn Bhd Malaysia 30%
Willis Faber Insurance Brokers (B) Sdn Bhd Brunei 38%
REST OF WORLD
Al-Futtaim Willis Faber (Private) Limited Dubai 49%
Willis Faber EC Bahrain 49%
In connection with many of its investments in associates, Willis
Corroon retains rights to increase its ownership percentage of such associates
over time, typically to a majority or 100%
79
ownership position. In addition, in certain instances, the other owners of the
associates have a right, typically pursuant to some price formula of revenues or
earnings, to put some or all of their shares in the associates to Willis
Corroon. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
In addition to its strategic investments in associates, Willis Corroon
has acquired a controlling interest in a variety of smaller brokers. The
following is a list of International subsidiaries in which Willis Corroon has a
controlling interest:
[Enlarge/Download Table]
COMPANY COUNTRY % OWNERSHIP
---------------------------------------------------- ------------------ -----------------
EUROPE
Mansfeld, Hubener & Partner GmbH Germany 100%
Willis Corroon AB Sweden 74%
Willis Corroon Gothia AB Sweden 63%
Willis Corroon Global Financial Risks AB Sweden 72%
OY Willis Corroon AB Finland 74%
Willis Corroon Italia SpA Italy 50%
S&C Willis Corroon Correduria de Seguros y
Reaseguros SA Spain 60%
Surplus Corredores de Reaseguros SA Spain 100%
Willis Corroon Corretores de Seguros Limitada Portugal 100%
Willis Corroon (Management) Luxembourg SA Luxembourg 100%
Willis Corroon Belgium SA Belgium 80%
Willis Corroon Nederlands BV Netherlands 100%
Willis Corroon Hellas (Insurance Brokers) SA Greece 100%
Willis Corroon Kendriki SA Greece 100%
Willis Corroon CIS Russia 100%
Willis Corroon Polska Poland 70%
Willis Corroon sro Czech Republic 100%
Willis Corroon Hungary Kft Hungary 80%
ASIA/PACIFIC
Willis Corroon China (Hong Kong) Ltd. Hong Kong 100%
Willis Corroon (Taiwan) Ltd. Taiwan 100%
Willis Corroon (Pte) Limited Singapore 100%
REST OF THE WORLD
Willis Faber & Dumas (Mexico) Intermediario
de Reaseguro SA de CV Mexico 100%
Willis Faber Corretaje de Reaseguros Venezuela 100%
Willis Faber (Middle East) SAL Lebanon 51%
Willis Faber do Brasil Consultoria e Participacoes Brazil 100%
SA
York Willis Corroon Corretores de Seguros SA Brazil 100%
Willis Faber Chile Limitada Chile 100%
Richard Oliver International Pty Ltd (formerly Australia 100%
Willis Corroon Richard Oliver Pty Ltd)
Willis Corroon Limited New Zealand 99%
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SIGNIFICANT SUBSIDIARIES
Solely for purposes of compliance with Luxembourg Stock Exchange
listing requirements, the following sets forth certain information pertaining to
the significant subsidiaries (as defined by such exchange) of Willis Corroon
(other than Willis Corroon Partners and the Issuer):
[Enlarge/Download Table]
COUNTRY OF
COMPANY REGISTRATION ACTIVITY % OWNERSHIP
---------------------------------------------- ----------------------- ------------------------- ---------------
Willis Corroon Europe B.V. Netherlands Holding Company 100%
Willis Faber & Dumas Limited(1) England and Wales Lloyd's Broker 100%
Willis Corroon Limited(2) England and Wales Lloyd's Broker 100%
Willis Corroon Group Services Limited(3) England and Wales Service Company 100%
Willis National Limited(4) England and Wales Financial Intermediary 51%
Friars Street Insurance Limited Guernsey Captive Insurer 100%
------------------------------
(1) Profit arising out of ordinary activities, after tax, for the financial year
ended December 31, 1997 amounted to L14.9 million and the amount of
dividends received from Willis Faber & Dumas Limited in the course of that
financial year was L14.0 million.
(2) Profit arising out of ordinary activities, after tax, for the financial year
ended December 31, 1997 amounted to L6.0 million and the amount of dividends
received from Willis Corroon Limited in the course of that financial year
was L5.3 million.
(3) Profit arising out of ordinary activities, after tax, for the financial year
ended December 31, 1997 amounted to L1.3 million. No dividends were received
from Willis Corroon Group Services Limited in the course of that financial
year.
(4) Willis National Limited did not trade during the financial year ended
December 31, 1997.
Willis Corroon Europe B.V. and Friars Street Insurance Limited do not
publish separate financial statements.
The Issuer's shareholders' equity at December 31, 1998 consisted of
10,000 authorized shares of common stock, par value $0.01 per share, of which
3,339 shares were issued and outstanding. Other than
- the senior credit facilities,
- the Notes and
- intercompany notes,
all as disclosed in this prospectus, the Issuer has no other long-term debt.
Willis Corroon Partners's capital at December 31, 1998 consisted of
partnership interests of which Willis Corroon Group has a 99.9% interest and
Willis Faber UK Group Limited has a 0.1% interest. Other than
- the guarantee of the senior credit facilities,
- the guarantee of the Notes and
- intercompany notes,
all as disclosed in this prospectus, Willis Corroon Partners has no other
long-term debt.
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SEGMENT INFORMATION
The following tables show total operating revenues of Willis Corroon by
category of activity and geographical location for each of the three years ended
December 31, 1998. The information has been prepared in accordance with U.K.
GAAP.
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31,
-------------------------------
TOTAL OPERATING REVENUES 1996 1997 1998
----------------------------------------------------------------------------------- --------- --------- ---------
(L MILLIONS)
BY ACTIVITY
Continuing operations -- Insurance brokering and risk management................... L725.0 L692.0 L718.0
Discontinued operations -- Underwriting (Sovereign/Willis Faber (Underwriting
Management))..................................................................... 5.7 2.0 0.2
--------- --------- ---------
730.7 694.0 718.2
--------- --------- ---------
--------- --------- ---------
BY GEOGRAPHICAL AREA(1)
United Kingdom..................................................................... 319.5 305.1 305.3
North America...................................................................... 371.3 336.6 351.4
Rest of the World.................................................................. 39.9 52.3 61.5
--------- --------- ---------
730.7 694.0 718.2
--------- --------- ---------
--------- --------- ---------
------------------------------
(1) The geographical analysis is based on the location of the operating
subsidiaries which does not necessarily reflect the original source of the
business.
CUSTOMERS
Willis Corroon's clients operate on a global and local scale in a
multitude of businesses and industries throughout the world and generally range
in size from major multinational corporations to middle market companies.
Further, many of Willis Corroon's client relationships span decades, such as its
20-year relationship with Allied Signal Inc. and its relationship with The Tokio
Marine and Fire Insurance Co., Limited which dates back 100 years. In the United
States, Willis Corroon serves approximately 10% of the Fortune 1,000 companies,
with an average relationship of more than ten years. No one client accounted for
more than 2% of revenues for fiscal year 1998 and Willis Corroon's 80 largest
clients accounted for less than 10% of 1998 revenues. Additionally, Willis
Corroon places insurance with over 4,000 insurance carriers, none of which
individually accounted for more than 8% of the total premiums placed by Willis
Corroon on behalf of its clients in 1998.
EMPLOYEES
At December 31, 1998, Willis Corroon had approximately 9,400 employees,
including approximately 3,900 in the U.K., 4,400 in the U.S. and 1,100 in the
rest of the world and its associates had approximately 2,600 employees. Willis
Corroon is not involved in any material dispute with employees and management
believes that relations with employees are good.
COMPETITION
Willis Corroon faces competition in all fields in which it operates.
Competition in the insurance brokering and risk management businesses is based
on global capability, product breadth, innovation, quality of service and price.
Willis Corroon competes with the two other providers of global risk management
services as well as with numerous regional and local firms. Insurance companies
also compete with Willis Corroon's brokers by directly soliciting insureds
without the assistance of an independent broker or agent. Competition for
premiums is intense in all Willis Corroon's business lines and in every
insurance market. Competition on premium rates has also exacerbated the
pressures caused by a continuing reduction in demand in some classes of
business. For example, insurers are
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currently retaining a greater proportion of their risk portfolios than
previously. Industrial and commercial companies are increasingly relying upon
captive insurance companies, self-insurance pools, risk retention groups, mutual
insurance companies and other mechanisms for funding their risks, rather than
buying insurance. Willis Corroon provides management and similar services for
such alternative risk transfer programs. Additional competitive pressures arise
from the entry of new market participants, such as banks, accounting firms and
insurance carriers themselves, offering risk management or transfer services.
Willis Corroon believes that it is well-positioned to compete across the breadth
of the products and services Willis Corroon offers.
REGULATION
Many of Willis Corroon's activities are subject to regulatory
supervision in the various countries and jurisdictions in which they are based
or undertaken. In the United Kingdom, many Company entities are subject to
regulatory supervision. For example, Lloyd's brokers are regulated by the
Council of Lloyd's and, together with the insurance broking subsidiaries, are
regulated pursuant to the Insurance Brokers (Registration) Act 1977. In
addition, Willis National and Willis Corroon Asset Management Limited are
regulated by the Financial Services Authority pursuant to the provisions of the
Financial Services Act 1986. Finally, the insurance companies which are in
run-off are regulated by HM Treasury.
The Society of Lloyd's and Financial Services Authority generally
regulate the conduct of business and financial position of their respective
members through the establishment of required levels of net worth and other
financial criteria; Lloyd's by-laws and Financial Services Authority rules
describe the methods by which Lloyd's brokers, independent financial advisors
and investment managers, respectively, shall conduct business. The Insurance
Brokers (Registration) Act requires, among other things, that insurance brokers
be enrolled with a central professional body and comply with its rules in the
conduct of their business. The Insurance Brokers (Registration) Act and Lloyd's
generally requires that Willis Corroon maintain amounts of fiduciary cash in
regulated bank accounts subject to guidelines which generally emphasize capital
preservation and liquidity.
Willis Corroon's activities in connection with insurance brokering
services and third party administration within the United States are subject to
regulation and supervision by state authorities. Although the scope of
regulation and form of supervision may vary from jurisdiction to jurisdiction,
insurance laws in the United States are often complex and generally grant broad
discretion to supervisory authorities in adopting regulations and supervising
regulated activities. Such supervision generally includes the licensing of
insurance brokers and agents and third party administrators and the regulation
of the handling and investment of client funds held in a fiduciary capacity.
Willis Corroon's continuing ability to provide insurance brokering and third
party administration in the jurisdictions in which it currently operates is
dependent upon its compliance with the rules and regulations promulgated from
time to time by the regulatory authorities in each of these jurisdictions.
All companies carrying on similar activities in a given jurisdiction
are subject to such regulation, and Willis Corroon does not consider that such
controls adversely affect its competitive position.
PROPERTIES
Willis Corroon owns and leases a number of properties for use as
offices throughout the world and believes that its properties are generally
suitable and adequate for the purposes for which they are used. The principal
properties are located in the United Kingdom and the United States. Willis
Corroon's headquarters at Ten Trinity Square in London is a landmark building
owned by Willis Corroon . The Issuer's principal office in the United States is
at 26 Century Boulevard, Nashville, Tennessee, a leasehold property.
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LEGAL PROCEEDINGS
GENERAL. Willis Corroon has extensive operations and Willis Corroon
and its subsidiaries are subject to claims and litigation in the ordinary course
of business resulting principally from alleged errors and omissions in
connection with their businesses. Most of the claims are covered by professional
indemnity insurance and many of the defenses to these claims are being conducted
by Willis Corroon's insurers. In respect of any self-insured deductibles
applicable to such claims, Willis Corroon has established provisions which are
believed to be adequate in the light of current information and legal advice.
These provisions may be adjusted from time to time according to developments.
Willis Corroon does not expect the outcome of such claims, either individually
or in the aggregate, to have a material effect on Willis Corroon's operations or
financial position.
SOVEREIGN/WILLIS FABER (UNDERWRITING MANAGEMENT). For a description of
the implications of the provisional liquidation of Sovereign Marine & General
Insurance Company Limited and the associated run-off of Willis Faber
(Underwriting Management) Limited and related matters, see "Risk
Factors--Sovereign/WFUM."
PENSION REVIEW. For a description of the implications of the "pension
transfers and opt-outs review" initiated by the U.K. government, see "Risk
Factors--U.K. Pension Review."
HUGHES LITIGATION. In September 1990, Hughes Aircraft Co. filed suit
in Los Angeles County Superior Court against certain London insurance companies,
seeking coverage for environmental liabilities associated with groundwater
contamination at its Tucson, Arizona facility. Also named as a defendant was
Stewart Smith West, Inc., which is a subsidiary of Willis Corroon Group and the
successor to Haidinger Hayes, Inc., a surplus line broker that assisted in the
acquisition by Hughes Aircraft of various excess liability policies from 1952 to
1965. In addition, Willis Faber Property Holdings Limited, the successor to a
London broker which assisted in the acquisition of the excess policies and which
is an indirect subsidiary of Willis Corroon Group, has been brought into the
suit. The claims against Stewart Smith and Willis Faber alleged that Stewart
Smith and Willis Faber failed to preserve the identity of insurers participating
in excess general liability insurance placed on Hughes Aircraft's behalf during
the period from 1952 to 1965. Hughes Aircraft alleged that Stewart Smith and
Willis Faber should "stand in the shoes" of the insurers whose identity is
unknown due to the alleged breach of duty by the two subsidiaries of Willis
Corroon Group in failing to retain the identity of the insurers. In addition,
Hughes Aircraft has asserted a claim for $6 million, alleging that Stewart Smith
should pay for the costs it has incurred in attempting to reconstruct the
missing policies.
In May 1998, the judge ordered a bifurcation of the case under which
the claim against Willis Faber was tried separately from the claims against
Stewart Smith. On June 4, 1998, a jury found in favor of Hughes Aircraft in its
case against Willis Faber, finding that Willis Faber failed to retain the
identity of the excess general liability insurers. Judgment was entered on this
verdict, subject to appeal. The judgment, while requiring Willis Faber to "stand
in the shoes" of Hughes Aircraft, does not address the issue of causation, i.e.,
whether the conduct of Willis Faber actually caused injury to Hughes Aircraft.
This issue will turn on a number of factors, including, without limitation,
whether Hughes' Aircraft ultimate exposure in relation to underlying claims made
against it implicates the "missing" coverage. While the claim against Stewart
Smith is dependent upon different facts than the claim against Willis Faber,
evidence presented in the Willis Faber case has already established that Stewart
Smith did receive the currently missing information as to the identity of the
excess general liability insurers from Willis Faber. On October 16 and 20, 1998,
the trial judge heard and subsequently granted two motions on behalf of Hughes
Aircraft in relation to the Stewart Smith action. The judge granted Hughes
Aircraft's motion for the summary adjudication that Stewart Smith had breached a
duty to retain in perpetuity the identity and percentages of excess insurance
procured by Stewart Smith for Hughes Aircraft. The judge also granted a motion
in limine to preclude any evidence or argument that Hughes Aircraft is
comparatively negligent.
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On October 30, 1998, a settlement in principle was reached with Hughes
Aircraft, with the involvement and prior approval of Willis Corroon's errors and
omissions insurer. Under the settlement in principle: (a) a final,
non-appealable judgment has been entered against Willis Faber; (b) a declaratory
judgment, which Willis Corroon will explicitly have the right to appeal, has
been entered against Stewart Smith; (c) payment of $3.5 million has been made,
L1 million of which has been funded by the Company in respect of the deductible
applicable under the pertinent errors and omissions insurance policy described
below, and the balance of which has been funded by Willis Corroon's errors and
omissions insurer; and (d) Hughes Aircraft has agreed that it may recover no
more than L13 million against both Willis Faber and Stewart Smith for toxic tort
claims, known or unknown, relating to any of the Hughes Aircraft sites.
Willis Corroon expects a final, definitive settlement agreement to be
executed in the near future. Willis Corroon has an errors and omissions
insurance policy with limits of L20 million (which have been eroded to some
extent by the expenses of defending this litigation to date) and a L1 million
deductible. Willis Corroon believes that its errors and omissions insurer, into
which this risk has been reinsured and which has assumed and controlled the
defense of this litigation, is obligated to pay under this policy in response to
any claims submitted and properly established by Hughes Aircraft, up to the
agreed-upon L13 million cap described above.
BACCALA & SHOOP. Prior to 1984, Baccala and Shoop Insurance Services,
a subsidiary of Willis Corroon Group, acted as managing general agent for
certain insurance issuing companies, including three subsidiaries of The
Hartford Financial Services Group, Inc. Since Baccala and Shoop ceased active
operations in 1983, issuing companies (including Hartford) have notified Baccala
and Shoop of potential errors and omissions claims against Baccala and Shoop. In
August 1987, Baccala and Shoop, the Issuer and Hartford entered into a
Standstill Agreement, amended in 1994, pursuant to which the statutes of
limitations on Hartford's claims against Baccala and Shoop were tolled
indefinitely in exchange for Hartford's agreement to forbear filing complaints
against Baccala and Shoop based on such potential claims. Since 1983, Willis
Corroon has paid approximately $7.9 million in settlement of errors and
omissions claims brought by certain other issuing companies, including issuing
companies that went into liquidation. There has been no notification of
additional potential claims from Hartford or other issuing companies since 1992.
Hartford has not stated what it believes to be its total aggregate losses
potentially attributable to Baccala and Shoop. For accounting purposes, the
Issuer has established provisions in connection with the Baccala and
Shoop-related claims, and believes such provisions to be adequate. However,
there can be no assurance that the provisions will be adequate to cover claims
over time.
ENFORCEABILITY OF CIVIL LIABILITIES
Willis Corroon Group is a company with limited liability organized
under the laws of England and Wales. Certain of the directors and executive
officers of Willis Corroon Group and its subsidiaries (and certain of the
independent auditors named in this prospectus) are non-residents of the United
States and all or a substantial portion of the assets of Willis Corroon Group
and such persons are located outside the United States. As a result, it may not
be possible for investors to effect service of process within the United States
upon Willis Corroon Group or such persons, or to enforce against any of them
judgments of U.S. courts predicated upon civil liabilities under U.S. federal
securities laws. Willis Corroon Group has been advised by its English
solicitors, Clifford Chance, that there is also doubt as to the enforceability
in England in original actions, or in actions for the enforcement of judgments
of U.S. courts, of liabilities that are predicated upon the civil liabilities
provisions of the federal securities laws of the United States.
85
MANAGEMENT
DIRECTORS OF TA I LIMITED, TA II LIMITED, TA III PLC AND TRINITY ACQUISITION
The following table sets forth certain information regarding the
directors of TA I Limited, the ultimate parent of Willis Corroon Group, as well
as TA II Limited, TA III plc and Trinity Acquisition (ages as of December 31,
1998).
[Enlarge/Download Table]
NAME AGE POSITION
------------------------------------------------------ ------------------ ------------------------------------
Henry R. Kravis 55 Director
George R. Roberts 55 Director
Perry Golkin 45 Director
Todd A. Fisher 33 Director
Scott C. Nuttall 26 Director
John Reeve 54 Director
James R. Fisher 43 Director
Raymond G. Viault 54 Director
Henry R. Kravis is a founding partner of KKR and, since January 1,
1996, has been a managing member of KKR & Co. L.L.C., the limited liability
company which is the general partner of Kohlberg Kravis Roberts & Co. L.P. Mr.
Kravis is also a general partner of KKR Associates, L.P. and a director of
Accuride Corporation, Amphenol Corporation, Borden, Inc., The Boyds Collection,
Ltd., BRW Acquisition, Inc., Evenflo Company, Inc., The Gillette Company, IDEX
Corporation, KinderCare Learning Centers, Inc., KSL Golf Holdings, Inc., KSL
Land Corporation, KSL Recreation Corporation, MedCath Incorporated, Newsquest
plc, Owens-Illinois Group, Inc., Owens-Illinois, Inc., Neway Anchorlok
International Inc., PRIMEDIA, Inc., Randalls Food Markets, Inc., Regal Cinemas,
Inc., RELTEC Corporation, Safeway Inc., Sotheby's Holdings, Inc., Spalding
Holdings Corporation and U.S. Natural Resources, Inc.
George R. Roberts is a founding partner of Kohlberg Kravis Roberts &
Co. L.P. and, since January 1, 1996, has been a managing member of KKR & Co.
L.L.C. Mr. Roberts is also a general partner of KKR Associates, L.P. and a
director of Accuride Corporation, Amphenol Corporation, Borden, Inc., The Boyds
Collection, Ltd., BRW Acquisition, Inc., Evenflo Company, Inc., IDEX
Corporation, KinderCare Learning Centers, Inc., KSL Land Corporation, KSL
Recreation Corporation, MedCath Incorporated, Neway Anchorlok International
Inc., Owens-Illinois Group, Inc., Owens-Illinois, Inc., PRIMEDIA, Inc., Randalls
Food Markets, Inc., Regal Cinemas, Inc., RELTEC Corporation, Safeway, Inc.,
Spalding Holdings Corporation and U.S. Natural Resources, Inc.
Perry Golkin has been a member of KKR & Co. L.L.C. since January 1,
1996. Mr. Golkin was a general partner of Kohlberg Kravis Roberts & Co. L.P.
from 1995 to January 1996. Prior to 1995, he was an executive of Kohlberg Kravis
Roberts & Co. L.P. He is a general partner of KKR Associates, L.P. He is a
member of the board of directors of BRW Acquisition, Inc., PRIMEDIA, Inc., RR
Holding Company Ltd. and Walter Industries, Inc.
Todd A. Fisher has been an executive of Kohlberg Kravis Roberts & Co.
L.P. since June 1993. Mr. Fisher was an associate at Goldman Sachs & Co. from
July 1992 to June 1993. He is a member of the board of directors of Accuride
Corporation, Layne Christensen Company and BRW Acquisition, Inc.
Scott C. Nuttall has been an executive of Kohlberg Kravis Roberts & Co.
L.P. since November 1996. Mr. Nuttall was an executive at The Blackstone Group
from January 1995 to November 1996. Prior to 1995, he attended the Wharton
School of Business at the University of Pennsylvania.
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John Reeve joined the board of directors of Willis Corroon Group on
September 19, 1995 and became Executive Chairman of Willis Corroon Group on
December 1, 1995. He was managing director of Sun Life Corporation plc between
April 1989 and October 1995. He is also a non-executive director of Temple Bar
Investment Trust plc and a member of the executive committee and board of
directors of the International Insurance Society, Inc..
James R. Fisher heads Fisher Capital Corp. LLC. From 1986 through March
1997, Mr. Fisher was a senior executive of American Re Corporation and served
most recently as Senior Vice President and Chief Financial Officer of American
Re-Insurance Company and America Re Corporation, President of American Re
Financial Products, and President and Chief Executive Officer of American Re
Asset Management.
Raymond G. Viault joined the board of directors of Willis Corroon Group
on January 1, 1997 and resigned on October 30, 1998. He has been vice chairman
and a director of General Mills, Inc., since January 1996. He was formerly the
president and chief executive officer of Kraft Jacobs Suchard.
TA I Limited, TA II Limited, TA III plc and Trinity Acquisition have no
executive officers. Mr. Kravis and Mr. Roberts are first cousins.
DIRECTORS AND EXECUTIVE OFFICERS OF WILLIS CORROON GROUP
The following table sets forth certain information regarding the
directors and executive officers of Willis Corroon Group (ages as of December
31, 1998).
[Enlarge/Download Table]
NAME AGE POSITION
----------------------------------- ----------- ----------------------------------------------------------------------
John Reeve 54 Executive Chairman; Director
Richard J. S. Bucknall 50 Chief Executive of Global Specialties (excluding
Willis Faber Re), also Executive responsible for discontinued U.K.
underwriting activities; Director
Michael P. Chitty 47 Company Secretary
Thomas Colraine 40 Group Finance Director; Director
Brian D. Johnson 56 Executive responsible for North American Retail;
Director
Patrick Lucas 59 Managing Partner of Gras Savoye; Non-executive Director
George F. Nixon 58 Chairman of U.K. Retail and Executive
responsible for Willis Corroon International
Holdings-Europe; Director
John M. Pelly 45 Chairman of Willis Faber Re; Director
Kenneth H. Pinkston 56 Group Executive Director responsible for
North American Retail, U.S. Wholesale, Asia-Pacific
and rest of the world; Director
Richard J.S. Bucknall joined the board of directors of Willis Corroon
Group on November 1, 1998. He has been chief executive of Willis Corroon's
Global Specialties unit since 1998 and has also been the executive responsible
for discontinued U.K. underwriting since 1998. Mr. Bucknall has 32 years of
experience in the insurance brokerage industry, of which 13 years have been at
Willis Corroon.
Michael P. Chitty has been Company Secretary since January 1, 1995.
From April 1983 to October 1990 he was Secretary and from October 1990 to
December 1994 he was Joint Secretary.
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Mr. Chitty has 22 years of experience in the insurance brokerage industry, all
22 years of which have been at Willis Corroon.
Thomas Colraine has been the Group Finance Director since September
1997 and joined the board of directors of Willis Corroon Group on August 31,
1997. From January 1995 to October 1996, he was chief financial officer of
Willis Corroon's North American Operations and was change program director from
October 1996 to September 1997. Mr. Colraine has 10 years of experience in the
insurance brokerage industry, all 10 years of which have been at Willis Corroon.
Brian D. Johnson joined the board of directors of Willis Corroon Group
on January 1, 1993. He is an actuary and has been the executive responsible for
Willis Corroon's North American retail activities since 1997. Mr. Johnson has 35
years of experience in the insurance brokerage industry, of which 33 years have
been at Willis Corroon.
Patrick Lucas joined the board of directors of Willis Corroon Group on
April 15, 1998 as a non-executive director. He has been Managing Partner of Gras
Savoye since 1991, and Chairman and Chief Executive Officer of Gras Savoye S.A.
and Gras Savoye Reassurance since 1979 and 1976 respectively. He is a former
Chairman of the Federation Francaise des Courtiers en Assurance (the French
professional organization of insurance brokers). Mr. Lucas has 33 years of
experience in the insurance brokerage industry.
George F. Nixon joined the board of directors of Willis Corroon Group
on January 1, 1993. He has been the executive responsible for Willis Corroon's
U.K. retail activities since 1988 and has been chairman of the Company's
European Retail Advisory Board since 1993. He is also a director of World
Insurance Network Limited. Mr. Nixon has 42 years of experience in the insurance
brokerage industry, of which 34 years have been at Willis Corroon.
John M. Pelly joined the board of directors of Willis Corroon Group on
November 1, 1998. He has been chairman and chief executive of Willis Faber Re
since 1997. Mr. Pelly has 26 years of experience in the insurance brokerage
industry, all 26 years of which have been at Willis Corroon.
Kenneth H. Pinkston joined the board of directors of Willis Corroon
Group on January 1, 1993. He has had executive overview responsibility for North
American Retail since 1995, for U.S. Wholesale since 1993 and for Asia-Pacific
and the rest of the world since 1997. He is also a director of SunTrust Bank,
Nashville. Mr. Pinkston has 35 years of experience in the insurance brokerage
industry, of which 27 years have been at Willis Corroon.
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DIRECTORS AND EXECUTIVE OFFICERS OF THE ISSUER
The following table sets forth certain information regarding the
directors and executive officers of the Issuer (ages as of December 31, 1998).
[Enlarge/Download Table]
NAME AGE POSITION
----------------------------------- ----------- ----------------------------------------------------------------------
Kenneth H. Pinkston 56 Group Executive Director responsible for North American
Retail, U.S. Wholesale, Asia-Pacific and rest of the world;
Director;
Brian D. Johnson 56 Executive responsible for North American Retail; Director
Charles D. Hamilton 43 Senior Vice President, Director of Finance and
Administration; Director
Bart R. Schwartz 46 Senior Vice President, Corporate Secretary and General
Counsel; Director
Kimberly G. Windrow 41 Senior Vice President, Director of Human Resources,
North America; Director
Charles D. Hamilton joined the Issuer on October 27, 1986 as a risk
management consultant. On January 1, 1989 he became Vice President and Chief
Financial Officer of Public Entities National Company and the Issuer's US
wholesale operation. He became Vice President and Chief Administrative Officer
of the Issuer in March 1995. He became Senior Vice President and Chief Financial
Officer of the Issuer on October 1, 1996 and on February 2, 1997 he became
Senior Vice President and Chief Financial Officer of Willis Corroon North
America.
Bart R. Schwartz joined the Issuer on July 25, 1994 as Senior Vice
President and Deputy General Counsel. On January 1, 1995 he became Senior Vice
President of the Issuer and Assistant Secretary of Willis Corroon Group. On May
21, 1996 he became Senior Vice President, Secretary and General Counsel of the
Issuer, a position he still holds.
Kimberly G. Windrow joined the Issuer on June 6, 1988 as Human Resource
Manager. On January 1, 1992 she became Employee Relations Manager. On May 21,
1996, she became Human Resource Services Director. On October 1, 1997 she became
Human Resource Director and on January 26, 1999, she became Senior Vice
President for the Issuer. She is also a director of the Issuer.
DIRECTORS AND EXECUTIVE OFFICERS OF WILLIS CORROON PARTNERS
Willis Corroon Partners has no directors or executive officers, and its
operations are managed solely by its general partners.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS OF WILLIS CORROON GROUP AND THE
ISSUER
The aggregate compensation paid to all directors and executive officers
of Willis Corroon Group and the Issuer, who held office during 1998, for
services in such capacities for the year ended December 31, 1998 was L3,078,862,
which included contributions made to the pension plans in respect of such
directors and executive officers of Willis Corroon Group and Issuer of L564,621.
For the year ended December 31, 1998, the highest paid director received
L744,472, including pension plan contributions of approximately L220,000.
Each non-executive director of Willis Corroon Group who is not an
employee of Willis Corroon received an aggregate annual fee of either L21,000 or
$39,000, payable in quarterly installments, for the
89
year ended December 31, 1998. Also, such directors receive attendance fees of
L500 or $925 for committee meetings of Willis Corroon Group's board (L1,000 or
$1,600 if they are Chairman of the committee) and a daily travel allowance of
L650 or $1,000 for attending meetings of the board or its committees outside
their country of residence. Directors who are also employees of Willis Corroon
receive no remuneration for serving as directors.
The compensation and other employment terms and conditions of the
directors of Willis Corroon Group was determined in 1998 by the remuneration
committee of Willis Corroon Group's board of directors which during 1998 was
comprised of Messrs. Rodgers, Schreyer and Sykes (all former non-executive
directors). The remuneration committee determined basic salaries and benefits as
well as performance-related incentives. The Executive Chairman of Willis Corroon
Group determines the compensation and benefits for the executive officers of
Willis Corroon Group.
Partners and employees of Kohlberg Kravis Roberts & Co. L.P. who serve
as directors and officers of TA I Limited, TA II Limited, TA III plc or Trinity
Acquisition do not receive additional compensation for service in such
capacities, other than customary directors' fees. See "Certain Relationships and
Related Transactions."
1998 STOCK OPTION PLAN
TA I Limited has adopted the 1998 Share Purchase and Option Plan for
Key Employees of TA I Limited providing for the grant of time-based vesting
options ("Time Options"), performance-based vesting options ("Performance
Options"), and various other share-based grants (collectively, the "Options") to
employees of TA I Limited and its subsidiaries to purchase ordinary shares of TA
I Limited. The 1998 Plan is intended (i) to promote the long term financial
interests and growth of TA I Limited and its subsidiaries by attracting and
retaining management personnel with the training, experience and ability to
enable them to make a substantial contribution to the success of TA I Limited's
business; (ii) to motivate management personnel by means of growth-related
incentives to achieve long range goals; and (iii) to further the alignment of
interests of participants with those of the shareholders of TA I Limited through
opportunities for increased share ownership in TA I Limited.
As of the closing date of the management equity offering, 10,988,483
Time Options have been granted and Willis Corroon expects that a comparable
number of Performance Options will be granted . There are 30 million ordinary
shares of TA I Limited available to be granted under the 1998 Plan. It is
expected that under the 1998 Plan, unless otherwise provided by the Board of
Directors of TA I Limited, Time Options would become exercisable in five equal
annual installments beginning on the second anniversary of the date of grant and
Performance Options would become exercisable to the extent, if any, that
performance goals based on Willis Corroon's cash flow and EBITDA are achieved
and thereafter in four equal annual installments, beginning on the third
anniversary of the date of grant. The exercisability of the Options may
accelerate or terminate based on the circumstances surrounding an optionee's
termination of employment, and Time Options will (and Performance Options may,
in the discretion of the Board of Directors of TA I Limited), fully accelerate
upon a change in control of Willis Corroon. Unless sooner terminated by TA I
Limited's Board of Directors, the 1998 Plan will expire ten years after its
adoption. Such termination will not affect the validity of any grant outstanding
on the date of termination.
The Board of Directors of TA I Limited will administer the 1998 Plan,
including, without limitation, the determination of the employees to whom grants
will be made, the number of shares of ordinary shares of TA I Limited subject to
each grant, and the various terms of such grants. The Board of Directors of TA I
Limited may from time to time amend the terms of any grant, but, except for
adjustments made upon a change in the ordinary shares of TA I Limited by reason
of a stock split, spin-off, stock dividend, stock combination or
reclassification, recapitalization, reorganization, consolidation, change of
control, or similar event, such action shall not adversely affect the rights of
any participant under the 1998 Plan with respect to the Options without such
participant's consent. The Board of Directors of TA I Limited will retain the
right to amend, suspend or terminate the 1998 Plan.
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SHAREHOLDERS
BENEFICIAL OWNERSHIP
TA I Limited owns 100% of the issued and outstanding ordinary shares of
TA II Limited, which owns 100% of the issued and outstanding shares of TA III
plc, which owns 100% of the issued and outstanding shares of Trinity
Acquisition, which owns 100% of the issued and outstanding ordinary shares of
Willis Corroon Group. The following sets forth information with respect to the
beneficial ownership of the voting and non-voting ordinary shares of TA I
Limited as of the date of this prospectus (without giving effect to any options
issued under the 1998 Plan) by (1) each person who is known by Willis Corroon
Group to beneficially own more than 5% of the TA I Limited ordinary shares, as
well as each member of the consortium, consisting of Guardian Royal Exchange,
Royal & SunAlliance Insurance Group, The Chubb Corporation, The Hartford
Financial Services Group, Inc., Travelers Property Casualty Corp. and The Tokio
Marine and Fire Insurance Co., Limited, who are the limited partners of the
direct parent of TA I Limited (referred to in this prospectus as the
"consortium"), (2) each of TA I Limited's directors and each of the directors
and executive officers of Willis Corroon Group and the Issuer and (3) all
directors and executive officers of Willis Corroon Group and the Issuer as a
group. Unless otherwise indicated, the address of each person named in the table
below is Willis Corroon Group Limited, Ten Trinity Square, London EC3P 3AX,
England.
[Enlarge/Download Table]
BENEFICIAL OWNERSHIP PERCENTAGE OF TA I
OF TA I ORDINARY ORDINARY
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES(1) SHARES OUTSTANDING
------------------------------------------------------------- -------------------------- -------------------------
KKR 1996 Overseas, Limited(2)................................ 92,002,916 77.3%
Henry R. Kravis(2)........................................... 92,002,916 77.3%
George R. Roberts(2)......................................... 92,002,916 77.3%
Perry Golkin(2).............................................. 92,002,916 77.3%
Todd A. Fisher(2)............................................ 92,002,916 77.3%
Scott C. Nuttall(2).......................................... 92,002,916 77.3%
James R. Fisher(3)........................................... -- --
Raymond G. Viault............................................ -- --
Guardian Royal Exchange(4)................................... 4,000,000 3.4%
Royal & SunAlliance Insurance Group(5)....................... 4,000,000 3.4%
The Chubb Corporation(6)..................................... 4,000,000 3.4%
The Hartford Financial Services Group, Inc.(7)............... 3,333,333 2.8%
Travelers Property Casualty Corp.(8)......................... 4,000,000 3.4%
The Tokio Marine and Fire Insurance Co., Limited(9).......... 1,000,000 0.8%
John Reeve(10)............................................... 140,000 *
Richard J.S. Bucknall........................................ 60,000 *
Michael P. Chitty............................................ 12,000 *
Thomas Colraine.............................................. 52,375 *
Brian D. Johnson............................................. 100,000 *
Patrick Lucas................................................ -- *
George F. Nixon.............................................. 100,000 *
John M. Pelly................................................ 100,000 *
Kenneth H. Pinkston.......................................... 40,000 *
Charles D. Hamilton(11)...................................... 6,000 *
Bart R. Schwartz(11)......................................... 62,409 *
Kimberly G. Windrow(11)...................................... 2,500 *
All directors and executive officers of Willis Corroon Group
and
the Issuer as a group (12 persons)......................... 675,284 *
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[Enlarge/Download Table]
BENEFICIAL OWNERSHIP PERCENTAGE OF TA I
OF TA I ORDINARY ORDINARY
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES(1) SHARES OUTSTANDING
------------------------------------------------------------- -------------------------- -------------------------
All directors and executive officers of Willis Corroon Group
and the Issuer together with other employees as a group
(361 persons)(12).......................................... 4,757,062 4.0%
------------------------
* Less than 1%.
(1) The amounts and percentages of TA I ordinary shares beneficially owned are
reported on the basis of regulations of the Securities and Exchange
Commission governing the determination of beneficial ownership of
securities. Under the rules of the Commission, a person is deemed to be a
"beneficial owner" of a security if that person has or shares "voting
power," which includes the power to vote or to direct the voting of such
security, or "investment power," which includes the power to dispose of or
to direct the disposition of such security. A person is also deemed to be a
beneficial owner of any securities of which that person has a right to
acquire beneficial ownership within 60 days. Under these rules, more than
one person may be deemed to be a beneficial owner of the same securities and
a person may be deemed to be a beneficial owner of securities as to which
such person has no economic interest. The percentage of TA I ordinary share
capital outstanding is based on 119,089,975 TA I ordinary shares outstanding
on the date of this prospectus.
(2) TA I ordinary shares shown as owned by KKR 1996 Overseas, Limited are owned
of record by Profit Sharing (Overseas), Limited. Kohlberg Kravis Roberts &
Co. L. P. is the general partner of KKR Associates II (1996), Limited
Partnership, which is the general partner of the KKR 1996 Fund (Overseas),
Limited, which is the general partner of Profit Sharing (Overseas), Limited,
which beneficially owns approximately 77% of the issued and outstanding TA I
ordinary shares. Messrs. Henry R. Kravis, George R. Roberts, James H.
Greene, Jr., Paul E. Raether, Michael W. Michelson, Michael T. Tokarz, Perry
Golkin, Robert I. McDonnell, Clifton S. Robbins, Scott M. Stuart and Edward
A. Gilhuly, as members of KKR Overseas, may be deemed to share beneficial
ownership of any shares beneficially owned by KKR 1996 Overseas, but
disclaim such beneficial ownership. Messrs. Todd A. Fisher and Scott C.
Nuttall are directors of TA I and are executives of Kohlberg Kravis Roberts
& Co. L.P. Messrs. Fisher and Nuttall are also limited partners of KKR
Associates II (1996), Limited Partnership. Messrs. Fisher and Nuttall
disclaim beneficial ownership of any TA I ordinary shares beneficially owned
by Kohlberg Kravis Roberts & Co. & L.P. and KKR Associates II (1996),
Limited Partnership. The address of KKR Overseas and each individual listed
above is c/o Kohlberg Kravis Roberts & Co., L.P., 9 West 57th Street, New
York, New York 10019.
(3) Fisher Capital Corp. LLC, of which Mr. James R. Fisher is an executive, is
the beneficial owner of 181,071 TA I ordinary shares. Mr. Fisher disclaims
beneficial ownership of such TA I ordinary shares. The address of Mr. Fisher
and Fisher Capital Corp. LLC is 8 South River Road, Cranbury, NJ 08512.
(4) TA I ordinary shares shown as owned by Guardian Royal Exchange are owned of
record by its affiliate Guardian Insurance Limited, and its address is Royal
Exchange, London EC2V 3LS.
(5) The address of Royal & SunAlliance Insurance Group is 1 Cornhill, London,
EC3V 3QR.
(6) The address of The Chubb Corporation is 15 Mountain View, Warren, New Jersey
07059.
(7) TA I ordinary shares shown as owned by The Hartford Financial Services
Group, Inc. are owned of record by its affiliate Nutmeg Insurance Company,
and its address is 690 Asylum Avenue, Hartford, Connecticut 06115.
(8) TA I ordinary shares shown as owned by Travelers Property Casualty Corp. are
owned of record by its affiliate Travelers Casualty and Surety Company and
its address is One Tower Square, 10 CR Hartford, Connecticut 06183.
(9) The address of The Tokio Marine and Fire Insurance Co., Limited is West 14th
Floor, Otemachi First Square, 5-1, Otemachi 1-Chome, Chiyoda-ku, Tokyo,
100-0004 Japan.
(10) 120,000 of the 140,000 TA I ordinary shares shown as owned by John Reeve
are held by a family trust of which John Reeve is a beneficiary.
(11) The address for such person is c/o Willis Corroon Corporation, 26 Century
Boulevard, P.O. Box 305026, Nashville, TN 37214.
(12) An additional 1,815,593 TA I ordinary shares are held in trust on behalf of
the directors, executive officers and other employees of the Issuer and
Willis Corroon Group subject to vesting. Such shares were issued in
connection with the cancellation of unvested incentive awards owned by such
employees prior to the Transactions. If all of such TA I ordinary shares
were vested on the date hereof, such directors, executive officers and
employees of the Issuer and Willis Corroon Group would beneficially own
approximately 5.5% of the outstanding TA I ordinary shares in the aggregate.
SHAREHOLDER RIGHTS AGREEMENT AND REGISTRATION RIGHTS AGREEMENT
Pursuant to a shareholder rights agreement dated as of July 22, 1998
among TA I Limited, TA II Limited, Profit Sharing (Overseas), Limited and the
members of the consortium referred to above, the holders of ordinary shares in
TA I ("Trinity Group ordinary shares") and Preference Shares of TA II Limited
are subject to rights of, and restrictions on, transfer, as well as the other
provisions described below.
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Pursuant to the shareholder rights agreement, each member of the
consortium has the right to require a proposed acquirer of any of the Trinity
Group ordinary shares held by Profit Sharing (Overseas), Limited or any of its
affiliates to purchase a specified percentage of such member's holding of
Trinity Group ordinary shares on similar terms. Additionally, if Profit Sharing
(Overseas), Limited or any of its affiliates receives a bona fide offer from a
third party to purchase a majority of the Trinity Group ordinary shares then
owned by them, they may require each of the Insurance Companies to sell a
similar proportion of their Trinity Group ordinary shares to such third party on
similar terms.
If, at any time prior to a public offering in the U.S. or a listing in
the U.K. or on another major stock exchange of the Trinity Group ordinary
shares, a member of the consortium receives a bona fide offer to purchase any of
its Trinity Group ordinary shares from an offeror, the shareholder rights
agreement requires that such member of the consortium first offer such Trinity
Group ordinary shares on equivalent terms to the other members of the
consortium. Any of the Trinity Group ordinary shares of such member of the
consortium which were the subject of any such bona fide offer and which were not
purchased by the other members of the consortium must be reoffered to those
members of the consortium which exercised their right of first refusal and
purchased some of such shares when such shares were initially offered. No member
of the consortium may, however, accept such offer to the extent it would cause
such member (together with its affiliates) beneficially to own more than 9.9% in
aggregate of the Trinity Group ordinary shares. Any remaining Trinity Group
ordinary shares must then be offered to Profit Sharing (Overseas), Limited which
can purchase such Trinity Group ordinary shares or elect to find another
purchaser for such Trinity Group ordinary shares. Any Trinity Group ordinary
shares not purchased by Profit Sharing (Overseas), Limited or its elected
purchaser may be sold to the third party that had initially made the bona fide
offer.
In the event of a transfer from Profit Sharing (Overseas), Limited to a
third party which would result in Profit Sharing (Overseas), Limited and its
affiliates having transferred legal and beneficial ownership of more than 25%
but less than 50% of the Trinity Group ordinary shares subscribed by Profit
Sharing (Overseas), Limited the shareholder rights agreement requires that a pro
rata amount of the Preference Shares held by each member of the consortium but
not such member's transferees (other than affiliates) must first have been
redeemed or transferred, and if a transfer would result in Profit Sharing
(Overseas), Limited and its affiliates having transferred legal and beneficial
ownership of more than 50% of the Trinity Group ordinary shares, all of the
Preference Shares held by each member of the consortium but not such member's
transferees (other than affiliates) must first have been redeemed.
Under the shareholder rights agreement, prior to September 2, 2000,
none of Profit Sharing (Overseas), Limited , its affiliates nor TA I Limited or
any of its subsidiaries may enter into a transaction that would result in a
"Sale of the Business" (as defined in the shareholder rights agreement) nor may
Profit Sharing (Overseas), Limited and its affiliates transfer in excess of 50%
of the Trinity Group Original ordinary shares, unless the Trinity Group is
experiencing financial difficulties of the type described by the shareholder
rights agreement and the holders of 60% or more of the then outstanding
Preference Shares have consented in writing to such transaction. Additionally,
the shareholder rights agreement provides that for three years from September 2,
2000, if Profit Sharing (Overseas), Limited, any of its affiliates or TA I
Limited or any of its subsidiaries receives a written, unsolicited offer from a
third party to enter into a transaction which would result in a Sale of the
Business, then the members of the consortium have the right to match the
unsolicited offer, and such offer may not be accepted if any member of the
consortium makes an offer at the same price and on the same terms in writing
within 35 days of being notified of the unsolicited offer. In addition, if
during such period Profit Sharing (Overseas), Limited or TA I Limited or any of
its subsidiaries proposes to enter into a transaction which would result in a
Sale of the Business other than pursuant to a unsolicited offer, it must first
allow the members of the consortium to make an offer to enter into a similar
transaction within 30 days, but if Profit Sharing (Overseas), Limited or TA I
Limited decides to refuse such offer, or if no member of the consortium makes
any such offer, then Profit
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Sharing (Overseas), Limited or TA I Limited or any of its Subsidiaries, as the
case may be, will be free to enter into a transaction resulting in a Sale of the
Business, provided that a definitive agreement is entered into within specified
time periods at the same or a higher price. These provisions will also apply to
the entering into of a transaction or series of related transactions, whether
pursuant to an unsolicited offer or a proposal by Profit Sharing (Overseas),
Limited or any of its affiliates to enter into such a transaction, whereby
Profit Sharing (Overseas), Limited and its affiliates would transfer at least
30% of the then issued Trinity Group ordinary shares to a single person or a
group of persons acting in concert.
The shareholder rights agreement also provides that Profit Sharing
(Overseas), Limited must use its best efforts to ensure that TA I Limited has an
independent director, and to remove and replace such director if so requested by
the holders of at least 60% of the then outstanding Preference Shares, until (i)
no member of the consortium owns at least 75% of the Preference Shares
originally purchased by it and (ii) the members of the consortium collectively
own in aggregate less than $80 million in redemption value of the Trinity Group
Preference Shares. In the event that the members of the consortium have the
right to appoint directors to the board of TA II Limited pursuant to the
articles of association of TA II Limited and provided that the members of the
consortium still hold at least a majority of the Preference Shares originally
issued to them, and for so long as those conditions prevail, the members of the
consortium are also entitled to nominate two directors for appointment to the
board of TA I Limited. In any such event, Profit Sharing (Overseas), Limited
shall use its best efforts to expand the size of the board of directors of TA I
Limited by two and to cause the newly created directorships to be filled with
such nominees.
Pursuant to a registration rights agreement dated as of July 22, 1998,
as amended, among TA I Limited, TA II Limited and the members of the consortium
named therein, such members, as holders of Trinity Group ordinary shares and
Preference Shares, have certain rights to require the issuer of such securities
to register such securities under the Securities Act.
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CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
As of the issuance of the outstanding Notes, the KKR 1996 Fund
(Overseas), Limited beneficially owned approximately 77% of the share capital of
TA I Limited, which is the parent of TA II Limited, which is the parent of TA
III plc, which is the parent of Trinity Acquisition, which owns all of the
issued and outstanding share capital of Willis Corroon Group. The general
partner of the KKR 1996 Fund (Overseas), Limited is KKR Associates II (1996),
Limited Partnership, a limited partnership of which the general partner is KKR
1996 Overseas, Limited, a company in which Messrs. Kravis, Roberts and Golkin
and other members of the limited liability company which is the general partner
of Kohlberg Kravis Roberts & Co. L.P. own the voting shares, and certain present
partners of Kohlberg Kravis Roberts & Co. L.P. and a former partner of Kohlberg
Kravis Roberts & Co. L.P. own the non-voting shares. KKR 1996 Overseas, Limited
has sole voting and investment power with respect to the share capital owned by
the KKR 1996 Fund (Overseas), Limited.
From time to time, Kohlberg Kravis Roberts & Co. L.P. may receive
customary fees in connection with divestitures, acquisitions and certain other
transactions involving Willis Corroon Group and its subsidiaries. In connection
with the completion of the Tender Offer, Kohlberg Kravis Roberts & Co. L.P. has
received aggregate fees of $7.5 million from Trinity Acquisition and Fisher
Capital Corp. LLC has received aggregate fees of $2.0 million from Trinity
Acquisition. In addition, Kohlberg Kravis Roberts & Co. L.P. and Fisher Capital
Corp. LLC render management, consulting, and certain other services to Willis
Corroon Group and its subsidiaries for annual fees payable quarterly in arrears.
It is expected that such annual fees will initially be in an amount of $1
million, in the case of Kohlberg Kravis Roberts & Co. L.P., and $350,000, in the
case of Fisher Capital Corp. LLC. Partners and employees of Kohlberg Kravis
Roberts & Co. L.P. and Fisher Capital Corp. LLC who also serve as directors and
officers of Willis Corroon Group do not receive additional compensation for
service in such capacity, other than customary directors' fees.
As of the date of this prospectus, the consortium beneficially owned
approximately 17% of the share capital of TA I Limited in the aggregate. Willis
Corroon has, and Willis Corroon will, place premiums with the members of the
consortium in the ordinary course of Willis Corroon's business.
R.J.S. Bucknall, G.F. Nixon and J.M. Pelly (directors of Willis Corroon
Group) and Mrs. E.H. Rendle (an affiliate of M.R. Rendle, a former non-executive
director of Willis Corroon Group) during 1998 were Underwriting Members of
Lloyd's. Insurance brokering subsidiaries of Willis Corroon Group place risks
with the syndicates in which the directors or certain of their affiliates
participate in the normal course of their brokering activities on the same basis
as such subsidiaries do with other Lloyd's syndicates. Willis Corroon Group has
given J. Reeve a guarantee in respect of the performance obligations of Willis
Faber & Dumas Limited, his employing company, in respect of an unfunded pension
scheme established for him and Willis Corroon Group has guaranteed the
performance obligations of Willis Corroon Corporation in respect of the pension
benefits for B.D. Johnson and K.H. Pinkston under the Willis Corroon Executive
Supplemental Plan, an unfunded pension plan.
J. M. Pelly and M. P. Chitty, an executive officer of Willis Corroon
Group, are directors of Sovereign. See "Risk Factors--Sovereign/WFUM."
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DESCRIPTION OF THE SENIOR CREDIT FACILITIES
To provide the senior financing required to complete the Tender Offer,
Trinity Acquisition entered into a Credit Agreement, dated as of July 22, 1998
(as amended, the "tender offer facility agreement"), among Trinity Acquisition,
as borrower, the lenders thereunder and The Chase Manhattan Bank, as
Administrative Agent and Collateral Agent, providing up to $475 million in term
loans and loan notes. In addition, to provide the long-term senior financing
required to refinance the tender offer facility agreement and to provide a
senior revolving credit facility for the general corporate purposes of Trinity
Acquisition and its subsidiaries, Trinity Acquisition entered into a second
Credit Agreement, dated as of July 22, 1998 (as amended, the "Permanent Facility
Agreement"), among Trinity Acquisition, as guarantor, Willis Corroon
Corporation, as borrower, Willis Corroon Group, as guarantor, the lenders
thereunder and The Chase Manhattan Bank, as Administrative Agent and Collateral
Agent, providing up to $450 million in term loans and $150 million in revolving
credit facilities.
GENERAL
The Permanent Facility Agreement, as amended, is comprised of
- a $125 million senior secured term loan facility (the "tranche A
facility"),
- a $125 million senior secured term loan facility (the "tranche B
facility"),
- a $100 million senior secured term loan facility (the "tranche C
facility"),
- a $100 million senior secured term loan facility (the "tranche D
facility") and
- a $150 million senior secured revolving credit facility (the "revolving
credit facility").
Borrowings under the term loan portions of the Permanent Facility Agreement were
borrowed in full on November 19, 1998
- to refinance outstanding indebtedness under the tender offer facility
agreement and certain other outstanding indebtedness of Trinity
Acquisition,
- to finance the repayment of certain existing indebtedness of Willis
Corroon,
- to make an intercompany loan to Trinity Acquisition, and
- to finance the payment of fees and expenses incurred in connection with
the Tender Offer.
The revolving credit facility is available for working capital requirements and
general corporate purposes, subject to certain limitations. The revolving credit
facility is available for loans denominated in U.S. dollars, pounds sterling and
certain other currencies and for letters of credit (including to support loan
note guarantees).
AMORTIZATION; PREPAYMENTS
The final maturity of the loans under the tranche A facility will be
the seventh anniversary of November 19, 1998 (the "Initial Funding Date"), with
interim amortization commencing on the thirtieth month after such Initial
Funding Date. The final maturity of the loans under the tranche B facility will
be the eighth anniversary of the Initial Funding Date, with nominal interim
amortization. The final maturity of the loans under the tranche C facility will
be the ninth anniversary of the Initial Funding Date, with nominal interim
amortization. The final maturity of the loans under the tranche D facility
collectively with the other term loans under the Permanent Facility Agreement
(the "term loans") will be nine years and six months after the Initial Funding
Date, with nominal interim amortization. The revolving credit facility will be
available until the seventh anniversary of the Initial Funding Date, and
extensions of credit outstanding thereunder on such seventh anniversary will
mature on such date.
Certain mandatory prepayments of term loans under the Permanent
Facility Agreement will be required with the proceeds of certain non-ordinary
course asset sales and other dispositions of property, to the extent not
reinvested and subject to other exceptions, and, for each fiscal year in which
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the ratio of consolidated total debt to consolidated adjusted EBITDA (as defined
in the Permanent Facility Agreement) is equal to or greater than 3.0:1.0, 50% of
excess cash flow (as defined in the Permanent Facility Agreement), to the extent
not reinvested and subject to other exceptions. In addition, certain prepayments
of the revolving credit facility will be required in the event that the
aggregate dollar equivalent of all loans and letter of credit outstandings
thereunder exceed 105% of the aggregate available commitments, which are
denominated in dollars.
INTEREST RATES; FEES
Loans under the Permanent Facility Agreement bear interest at a rate
per annum equal to, at the applicable borrower's election, either (i) a base
rate determined by reference to the highest of an announced prime rate, the U.S.
federal funds effective rate plus 1/2% or a rate for certificates of deposit
plus 1% (loans with interest based on the foregoing being referred to herein as
"Base Rate Loans") or (ii) the cost of funds for U.S. dollar deposits at LIBOR
for one, two, three or six months (or certain other periods to the extent
available, subject to certain conditions) as the applicable borrower may elect,
adjusted for certain additional costs (loans with interest based on the
foregoing being referred to herein as "LIBOR Loans"), plus, in each case, a
margin which will be subject to adjustment depending on the ratio of
consolidated total debt to consolidated adjusted EBITDA from time to time. The
applicable margin for LIBOR Loans under the Permanent Facility Agreement will
range, based on such performance pricing adjustments, from 2.25% to 0.875%, in
the case of revolving credit loans and tranche A loans, from 2.50% to 1.75%, in
the case of tranche B loans, from 2.75% to 2.00%, in the case of tranche C
loans, and from 3.00% to 2.25%, in the case of tranche D loans, in each with
applicable margins for Base Rate Loans being 1.25% lower than the margins for
LIBOR Loans at the corresponding performance pricing levels.
A commitment fee calculated based on the available unused commitments
under the Permanent Facility Agreement is payable quarterly in arrears at a per
annum rate of 0.50%, subject, in the case of commitments under the revolving
credit facility, to adjustment in a range from 0.50% to 0.25% depending on the
ratio of consolidated total debt to consolidated adjusted EBITDA from time to
time.
Fees in respect of letters of credit or loan note guarantees are
calculated at a rate per annum equal to (i) in the case of letters of credit,
the applicable margin for LIBOR Loans then applicable to utilizations under the
revolving credit facility, less 0.25%, and (ii) in the case of loan note
guarantees, 2.25%, based on the maximum amount of each letter of credit or loan
note guarantee, payable quarterly in arrears and upon the termination of the
revolving credit facility. In addition, a fronting fee calculated at a rate
equal to 0.25% of the maximum amount of each letter of credit or loan note
guarantee is payable for the account of the issuing bank in respect thereof,
payable quarterly in arrears and upon the termination of the revolving credit
facility.
GUARANTEE; SECURITY
All obligations of the borrower under the Permanent Facility Agreement
are guaranteed by Trinity Acquisition and its U.K. and U.S. subsidiaries
(including Willis Corroon Group), with certain exceptions.
Obligations under the Permanent Facility Agreement are secured by a
pledge of capital stock of certain subsidiaries of Trinity Acquisition
(including capital stock of Willis Corroon Group, its direct subsidiaries (with
certain exceptions), the Issuer and its direct U.S. subsidiaries), the
partnership interests of Willis Corroon Partners, as well as, in some
circumstances, certain intercompany notes and certain non-cash proceeds of asset
sales, in each case subject to exceptions and conditions set forth in the
Permanent Facility Agreement. The pledge of stock owned by Willis Corroon Group
is supported by a general lien (known as a floating charge in the U.K.) filed in
the U.K. against Willis Corroon Group's assets.
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CERTAIN COVENANTS
The Permanent Facility Agreement contains numerous operating and
financial covenants, including, without limitation, requirements in the case of
the Permanent Facility Agreement to maintain minimum ratios of adjusted EBITDA
to interest and maximum levels of indebtedness in relation to adjusted EBITDA.
In addition, the Permanent Facility Agreement includes covenants relating to the
delivery of financial statements, reports and notices, limitations on liens,
limitations on sales and other disposals of assets, limitations on indebtedness
and other liabilities, limitations on capital expenditures, limitations on
investments, mergers, acquisitions, loans and advances, limitations on dividends
and other distributions, limitations on prepayment, redemption or amendment of
the Notes, maintenance of property, environmental matters, employee benefit
matters, maintenance of insurance, nature of business, compliance with
applicable laws, corporate existence and rights, payment of taxes and access to
information and properties.
EVENTS OF DEFAULT
The Permanent Facility Agreement contains events of default after
expiration of applicable grace periods, including failure to make payments under
the Permanent Facility Agreement, breach of covenants, breach of representations
and warranties, certain events relating to employee benefit plans, invalidity of
certain loan documents, default under other agreements or conditions relating to
indebtedness (including the Notes), certain events of liquidation, moratorium,
insolvency, bankruptcy or similar events, certain litigation or other
proceedings, certain events relating to changes in control and certain issuances
by TA II Limited of equity or debt securities.
Upon the occurrence of an event of default, the banks will be able to
terminate the commitments under the Permanent Facility Agreement, and declare
all amounts, including accrued interest, under the Permanent Facility Agreement
to be due and payable and take certain other actions, including enforcement of
rights in respect of the collateral securing the Permanent Facility Agreement.
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DESCRIPTION OF PREFERENCE SHARES
In connection with the Tender Offer, six of the world's leading
insurance companies invested in the preference shares of TA II Limited (the
"Preference Shares"). See "The Tender Offer and Related Financings."
The Preference Shares (with an aggregate liquidation preference of
approximately $270 million) carry the right to a cumulative dividend of 8.5% per
annum (excluding the amount of any associated tax credits) on a fixed amount of
$25 per Preference Share. TA II Limited has the option to satisfy 1% per annum
of this cumulative dividend by the issuance of additional Preference Shares. The
dividend is payable in dollars semi-annually on June 30 and December 31 of each
year with the first dividend being payable on June 30, 1999. If the cash
dividend has not been paid on three or more consecutive dividend payment dates,
the holders of the Preference Shares have the right to appoint two directors to
the board of TA II Limited. The Preference Shares may be redeemed at any time by
TA II Limited by payment of a fixed amount of $25 per share plus any accrued and
unpaid dividends. The Preference Shares are required to be redeemed in full by
payment of a fixed amount of $25 per share plus any accrued and unpaid dividends
on the earlier of (i) the thirteenth anniversary of the first date on which the
Preference Shares were issued and (ii) the date that is six months after the
scheduled maturity date of the Notes, or on the sale of all or substantially all
of the business of Willis Corroon, including, without limitation, whether in a
single transaction or series of transactions and whether by sale of shares, sale
of assets or otherwise. Holders of Preference Shares have a preferential right
to receive out of surplus assets arrears and accruals of dividends and $25 per
share, but do not have any further right to participate in surplus assets.
The following is a brief description of each of the members of the
consortium:
GUARDIAN ROYAL EXCHANGE provides general, health, and life insurance
and related services, including asset management, to its 7.5 million customers
worldwide. Net premium income in 1998 was L4.1 billion. Guardian Royal Exchange
has approximately 17,500 employees. The board of Guardian Royal Exchange has
recommended to shareholders a cash and share offer from Sun Life and Provincial
Holdings plc for the entire company.
ROYAL & SUNALLIANCE INSURANCE GROUP is the U.K.'s largest general
insurer, with 1998 net premium income exceeding L9.7 billion. Royal &
SunAlliance Insurance Group provides general and life insurance products and
services and asset management and administrative services. In addition to the
U.K., Royal & SunAlliance Insurance Group operates in the United States, Canada,
Scandinavia, and more than 100 countries worldwide, including 16 nations in
Europe.
THE CHUBB CORPORATION is a global leader in providing business and
personal property and liability insurance. The company concentrates on specialty
commercial lines and insuring high value homes and their contents. Founded in
1882, Chubb is headquartered in Warren, New Jersey, and has more than 110
offices in 30 countries worldwide. In 1998, Chubb had net written premiums of
$5.5 billion.
THE HARTFORD FINANCIAL SERVICES GROUP, INC. is one of the oldest
insurance and financial services firms in the U.S., with 1998 revenues of $15.0
billion and assets of $150.6 billion. The company is a leading writer of
commercial property and casualty insurance, and is the number one annuity writer
in the U.S. It is also one of the largest writers of personal automobile and
homeowners insurance through independent agents. The company has 25,000
employees worldwide and offices in 15 countries.
TRAVELERS PROPERTY CASUALTY CORP. is one of the oldest and largest
insurance groups in the U.S. The company writes all forms of property casualty
insurance for businesses and individuals, primarily through independent agents.
Its 1998 net written premiums were approximately $8.1 billion. Travelers
Property Casualty Corp. is headquartered in Hartford, Connecticut and has
approximately 20,000 employees.
THE TOKIO MARINE AND FIRE INSURANCE CO., LIMITED is the largest
casualty insurance firm in Japan, with 1997/8 net premiums of Y1,336.0 billion
($10.1 billion). The company writes marine, fire, casualty, automobile and
allied lines of insurance, principally covering risks in Japan, and also offers
life insurance. The company is headquartered in Tokyo, Japan and has
approximately 13,750 employees.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We have entered into an exchange and registration rights agreement with
the initial purchasers of the outstanding Notes in which we agreed, under
certain circumstances, to file a registration statement relating to an offer to
exchange the outstanding Notes for exchange Notes. We also agreed to use our
reasonable best efforts to cause such offer to be consummated within 270 days
following the original issue of the outstanding Notes. The exchange Notes will
have terms substantially identical to the outstanding Notes; except that the
exchange Notes will not contain terms with respect to transfer restrictions,
registration rights and additional interest for failure to observe certain
obligations in the registration rights agreement. The outstanding Notes were
issued on February 2, 1999.
Under the circumstances set forth below, we will use our reasonable
best efforts to cause the Securities and Exchange Commission to declare
effective a shelf registration statement with respect to the resale of the
outstanding Notes and keep the statement effective for up to two years after the
effective date of the shelf registration statement. These circumstances include:
- if any changes in law, Commission rules or regulations or applicable
interpretations thereof by the staff of the Commission do not permit us
to effect the exchange offer as contemplated by the registration rights
agreement;
- if any oustanding Notes validly tendered in the exchange offer are not
exchanged for exchange Notes within 270 days after the original issue
of the outstanding Notes;
- if any initial purchaser of the outstanding Notes so requests (but only
with respect to any outstanding Notes not eligible to be exchanged for
exchange Notes in the exchange offer); or
- if any holder of the outstanding Notes notifies us that it is not
permitted to participate in the exchange offer or would not receive
fully tradable exchange Notes pursuant to the exchange offer.
If we fail to comply with certain obligations under the registration
rights agreement, we will be required to pay additional interest to holders of
the outstanding Notes. Please read the section captioned "Registration Rights
Agreement" for more details regarding the registration rights agreement.
Each holder of outstanding Notes that wishes to exchange such
outstanding Notes for transferable exchange Notes in the exchange offer will be
required to make the following representations:
- any exchange Notes will be acquired in the ordinary course of its
business;
- such holder has no arrangement with any person to participate in the
distribution of the exchange Notes;
- such holder is not our "affiliate," as defined in Rule 405 of the
Securities Act, or if it is our affiliate, that it will comply with
applicable registration and prospectus delivery requirements of the
Securities Act; and
- if such holder is a person in the United Kingdom, that its ordinary
activities involve it in acquiring, holding, managing or disposing of
investments, as principal or agent, for the purposes of its business.
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RESALE OF EXCHANGE NOTES
Based on interpretations of the Commission staff set forth in no action
letters issued to unrelated third parties, we believe that exchange Notes issued
under the exchange offer in exchange for outstanding Notes may be offered for
resale, resold and otherwise transferred by any exchange Note holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act, if:
- such holder is not an "affiliate" of Willis Corroon within the meaning
of Rule 405 under the Securities Act;
- such exchange Notes are acquired in the ordinary course of the holder's
business; and
- the holder does not intend to participate in the distribution of such
exchange Notes; and
- if such holder is a person in the United Kingdom, that its ordinary
activities involve it in acquiring, holding, managing or disposing of
investments, as principal or agent, for the purposes of its business.
Any holder who tenders in the exchange offer with the intention of
participating in any manner in a distribution of the exchange Notes:
- cannot rely on the position of the staff of the Commission enunciated
in "Exxon Capital Holdings Corporation" or similar interpretive
letters; and
- must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale
transaction.
This prospectus may be used for an offer to resell, resale or other
retransfer of exchange Notes only as specifically set forth in this prospectus.
With regard to broker-dealers, only broker-dealers that acquired the outstanding
Notes as a result of market-making activities or other trading activities may
participate in the exchange offer. Each broker-dealer that receives exchange
Notes for its own account in exchange for outstanding Notes, where such
outstanding Notes were acquired by such broker-dealer as a result of market-
making activities or other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of the exchange Notes. Please
read the section captioned "Plan of Distribution" for more details regarding the
transfer of exchange Notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal, the Issuer will accept for exchange
any outstanding Notes properly tendered and not withdrawn prior to the
expiration date. The Issuer will issue $1,000 principal amount of exchange Notes
in exchange for each $1,000 principal amount of outstanding Notes surrendered
under the exchange offer. Outstanding Notes may be tendered only in integral
multiples of $1,000.
The form and terms of the exchange Notes will be substantially
identical to the form and terms of the outstanding Notes except the exchange
Notes will be registered under the Securities Act, will not bear legends
restricting their transfer and will not provide for any additional interest upon
failure of Willis Corroon to fulfill its obligations under the registration
rights agreement to file, and cause to be effective, a registration statement.
The exchange Notes will evidence the same debt as the outstanding Notes. The
exchange Notes will be issued under and entitled to the benefits of the same
indenture that authorized the issuance of the outstanding Notes. Consequently,
both series will be treated as a single class of debt securities under that
indenture. For a description of the indenture, see "Description of the Notes"
below.
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The exchange offer is not conditioned upon any minimum aggregate
principal amount of outstanding Notes being tendered for exchange.
As of the date of this prospectus, $550 million aggregate principal
amount of the outstanding Notes are outstanding. This prospectus and the letter
of transmittal are being sent to all registered holders of outstanding Notes.
There will be no fixed record date for determining registered holders of
outstanding Notes entitled to participate in the exchange offer.
The Issuer intends to conduct the exchange offer in accordance with the
provisions of the registration rights agreement, the applicable requirements of
the Securities Act and the Securities Exchange Act of 1934 and the rules and
regulations of the Commission. Outstanding Notes that are not tendered for
exchange in the exchange offer will remain outstanding and continue to accrue
interest and will be entitled to the rights and benefits such holders have under
the indenture relating to the outstanding Notes and the registration rights
agreement.
The Issuer will be deemed to have accepted for exchange properly
tendered outstanding Notes when it has given oral or written notice of the
acceptance to the exchange agent. The exchange agent will act as agent for the
tendering holders for the purposes of receiving the exchange Notes from us and
delivering the exchange Notes to such holders. Subject to the terms of the
registration rights agreement, the Issuer expressly reserves the right to amend
or terminate the exchange offer, and not to accept for exchange any outstanding
Notes not previously accepted for exchange, upon the occurrence of any of the
conditions specified below under the caption "--Certain Conditions to the
Exchange Offer."
Holders who tender outstanding Notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of
outstanding Notes. We will pay all charges and expenses, other than certain
applicable taxes described below, in connection with the exchange offer. It is
important that you read the section labeled "--Fees and Expenses" below for more
details regarding fees and expenses incurred in the exchange offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time on
, 1999, unless in its sole discretion, the Issuer extends it.
In order to extend the exchange offer, the Issuer will notify the
exchange agent orally or in writing of any extension. The Issuer will notify the
registered holders of outstanding Notes of the extension no later than 9:00
a.m., New York City time, on the business day after the previously scheduled
expiration date.
The Issuer reserves the right, in its sole discretion:
- to delay accepting for exchange any outstanding Notes;
- to extend the exchange offer or to terminate the exchange offer and to
refuse to accept outstanding Notes not previously accepted if any of
the conditions set forth below under "--Certain Conditions to the
Exchange Offer" have not been satisfied, by giving oral or written
notice of such delay, extension or termination to the exchange agent;
or
- subject to the terms of the registration rights agreement, to amend the
terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will
be followed as promptly as practicable by oral or written notice thereof to the
registered holders of outstanding Notes. If
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the Issuer amends the exchange offer in a manner that it determines to
constitute a material change, the Issuer will promptly disclose such amendment
in a manner reasonably calculated to inform the holders of outstanding Notes of
such amendment.
Without limiting the manner in which the it may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, the Issuer shall have no obligation to publish, advertise,
or otherwise communicate any such public announcement, other than by making a
timely release to a financial news service.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Despite any other term of the exchange offer, the Issuer will not be
required to accept for exchange, or exchange any exchange Notes for, any
outstanding Notes, and the Issuer may terminate the exchange offer as provided
in this prospectus before accepting any outstanding Notes for exchange if in the
Issuer's reasonable judgment:
- the exchange Notes to be received will not be tradeable by the holder,
without restriction under the Securities Act, the Securities Exchange
Act of 1934 and without material restrictions under the blue sky or
securities laws of substantially all of the states of the United
States;
- the exchange offer, or the making of any exchange by a holder of
outstanding Notes, would violate applicable law or any applicable
interpretation of the staff of the Commission; or
- any action or proceeding has been instituted or threatened in any court
or by or before any governmental agency with respect to the exchange
offer that, in the Issuer's judgment, would reasonably be expected to
impair the ability of Willis Corroon to proceed with the exchange
offer.
In addition, the Issuer will not be obligated to accept for exchange
the outstanding Notes of any holder that has not made to the Issuer (i) the
representations described under "--Purpose and Effect of the Exchange Offer,"
"--Procedures for Tendering" and "Plan of Distribution" and (ii) such other
representations as may be reasonably necessary under applicable Commission
rules, regulations or interpretations to make available to the Issuer an
appropriate form for registration of the exchange Notes under the Securities
Act.
The Issuer expressly reserves the right, at any time or at various
times, to extend the period of time during which the exchange offer is open.
Consequently, the Issuer may delay acceptance of any outstanding Notes by giving
oral or written notice of such extension to their holders. During any such
extensions, all outstanding Notes previously tendered will remain subject to the
exchange offer, and the Issuer may accept them for exchange. The Issuer will
return any outstanding Notes that we do not accept for exchange for any reason
without expense to their tendering holder as promptly as practicable after the
expiration or termination of the exchange offer.
The Issuer expressly reserves the right to amend or terminate the
exchange offer, and to reject for exchange any outstanding Notes not previously
accepted for exchange, upon the occurrence of any of the conditions of the
exchange offer specified above. We will give oral or written notice of any
extension, amendment, non-acceptance or termination to the holders of the
outstanding Notes as promptly as practicable. In the case of any extension, such
notice will be issued no later than 9:00 a.m., New York City time, on the
business day after the previously scheduled expiration date.
These conditions are for the sole benefit of the Issuer and the Issuer
may assert them regardless of the circumstances that may give rise to them or
waive them in whole or in part at any or at various times in its sole
discretion. If the Issuer fails at any time to exercise any of the foregoing
rights,
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this failure will not constitute a waiver of such right. Each such right will be
deemed an ongoing right that the Issuer may assert at any time or at various
times.
In addition, the Issuer will not accept for exchange any outstanding
Notes tendered, and will not issue exchange Notes in exchange for any such
outstanding Notes, if at such time any stop order will be threatened or in
effect with respect to the registration statement of which this prospectus
constitutes a part or the qualification of the indenture under the Trust
Indenture Act of 1939.
PROCEDURES FOR TENDERING
Only a holder of outstanding Notes may tender such outstanding Notes in
the exchange offer. To tender in the exchange offer, a holder must:
- complete, sign and date the letter of transmittal, or a facsimile of
the letter of transmittal; have the signature on the letter of
transmittal guaranteed if the letter of transmittal so requires; and
mail or deliver such letter of transmittal or facsimile to the exchange
agent prior to the expiration date; or
- comply with DTC's Automated Tender Offer Program procedures described
below.
In addition, either:
- the exchange agent must receive outstanding Notes along with the letter
of transmittal; or
- the exchange agent must receive, prior to the expiration date, a timely
confirmation of book-entry transfer of such outstanding Notes into the
exchange agent's account at DTC according to the procedure for
book-entry transfer described below or a properly transmitted agent's
message; or
- the holder must comply with the guaranteed delivery procedures
described below.
To be tendered effectively, the exchange agent must receive any
physical delivery of the letter of transmittal and other required documents at
the address set forth below under "--Exchange Agent" prior to the expiration
date.
The tender by a holder that is not withdrawn prior to the expiration
date will constitute an agreement between such holder and the Issuer in
accordance with the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal.
The method of delivery of outstanding Notes, the letter of transmittal
and all other required documents to the exchange agent is at the holder's
election and risk. Rather than mail these items, the Issuer recommends that
holders use an overnight or hand delivery service. In all cases, holders should
allow sufficient time to assure delivery to the exchange agent before the
expiration date. Holders should not send the letter of transmittal or
outstanding Notes to Willis Corroon. Holders may request their respective
brokers, dealers, commercial banks, trust companies or other nominees to effect
the above transactions for them.
Any beneficial owner whose outstanding Notes are registered in the name
of a broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact the registered holder promptly and instruct it
to tender on the owner's behalf. If such beneficial owner wishes to tender on
its own behalf, it must, prior to completing and executing the letter of
transmittal and delivering its outstanding Notes; either:
- make appropriate arrangements to register ownership of the outstanding
Notes in such owner's name; or
104
- obtain a properly completed bond power from the registered holder of
outstanding Notes.
The transfer of registered ownership may take considerable time and may
not be completed prior to the expiration date.
Signatures on a letter of transmittal or a notice of withdrawal
described below must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or another "eligible institution" within the meaning of Rule
17Ad-15 under the Exchange Act, unless the outstanding Notes tendered pursuant
thereto are tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal; or
- for the account of an eligible institution.
If the letter of transmittal is signed by a person other than the
registered holder of any outstanding Notes listed on the outstanding Notes, such
outstanding Notes must be endorsed or accompanied by a properly completed bond
power. The bond power must be signed by the registered holder as the registered
holder's name appears on the outstanding Notes and an eligible institution must
guarantee the signature on the bond power.
If the letter of transmittal or any outstanding Notes or bond powers
are signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing. Unless waived by us,
they should also submit evidence satisfactory to us of their authority to
deliver the letter of transmittal.
The exchange agent and DTC have confirmed that any financial
institution that is a participant in DTC's system may use DTC's Automated Tender
Offer Program to tender. Participants in the program may, instead of physically
completing and signing the letter of transmittal and delivering it to the
exchange agent, transmit their acceptance of the exchange offer electronically.
They may do so by causing DTC to transfer the outstanding Notes to the exchange
agent in accordance with its procedures for transfer. DTC will then send an
agent's message to the exchange agent. The term "agent's message" means a
message transmitted by DTC, received by the exchange agent and forming part of
the book-entry confirmation, to the effect that:
- DTC has received an express acknowledgment from a participant in its
Automated Tender Offer Program that is tendering outstanding Notes that
are the subject of such book-entry confirmation;
- such participant has received and agrees to be bound by the terms of
the letter of transmittal (or, in the case of an agent's message
relating to guaranteed delivery, that such participant has received and
agrees to be bound by the applicable notice of guaranteed delivery);
and
- the agreement may be enforced against such participant.
The Issuer will determine in its sole discretion all questions as to
the validity, form, eligibility (including time of receipt), acceptance of
tendered outstanding Notes and withdrawal of tendered outstanding Notes. The
Issuer's determination will be final and binding. The Issuer reserves the
absolute right to reject any outstanding Notes not properly tendered or any
outstanding Notes the acceptance of which would, in the opinion of the Issuer's
counsel, be unlawful. The Issuer also reserves the right to waive any defects,
irregularities or conditions of tender as to particular outstanding Notes. The
Issuer's interpretation of the terms and conditions of the exchange offer
(including the instructions in the letter of
105
transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of outstanding Notes must
be cured within such time as the Issuer shall determine. Although the Issuer
intends to notify holders of defects or irregularities with respect to tenders
of outstanding Notes, neither the Issuer, the exchange agent nor any other
person will incur any liability for failure to give such notification. Tenders
of outstanding Notes will not be deemed made until such defects or
irregularities have been cured or waived. Any outstanding Notes received by the
exchange agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned to the exchange
agent without cost to the tendering holder, unless otherwise provided in the
letter of transmittal, as soon as practicable following the expiration date.
In all cases, the Issuer will issue exchange Notes for outstanding
Notes that it has accepted for exchange under the exchange offer only after the
exchange agent timely receives:
- outstanding Notes or a timely book-entry confirmation of such
outstanding Notes into the exchange agent's account at DTC; and
- a properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
By signing the letter of transmittal, each tendering holder of
outstanding Notes will represent to the Issuer that, among other things:
- any exchange Notes that the holder receives will be acquired in the
ordinary course of its business;
- the holder has no arrangement or understanding with any person or
entity to participate in the distribution of the exchange Notes;
- if the holder is not a broker-dealer, that it is not engaged in and
does not intend to engage in the distribution of the exchange Notes;
- if the holder is a broker-dealer that will receive exchange Notes for
its own account in exchange for outstanding Notes that were acquired as
a result of market-making activities, that it will deliver a
prospectus, as required by law, in connection with any resale of such
exchange Notes;
- the holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of Willis Corroon or, if the holder is an affiliate, it
will comply with any applicable registration and prospectus delivery
requirements of the Securities Act; and
- if the holder is a person in the United Kingdom, that its ordinary
activities involve it in acquiring, holding, managing or disposing of
investments, as principal or agent, for the purposes of its business.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with
respect to the outstanding Notes at DTC for purposes of the exchange offer
promptly after the date of this prospectus; and any financial institution
participating in DTC's system may make book-entry delivery of outstanding Notes
by causing DTC to transfer such outstanding Notes into the exchange agent's
account at DTC in accordance with DTC's procedures for transfer. Holders of
outstanding Notes who are unable to deliver confirmation of the book-entry
tender of their outstanding Notes into the exchange agent's account at DTC or
all other documents required by the letter of transmittal to the exchange agent
on or prior to the
106
expiration date must tender their outstanding Notes according to the guaranteed
delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders wishing to tender their outstanding Notes but whose outstanding
Notes are not immediately available or who cannot deliver their outstanding
Notes, the letter of transmittal or any other required documents to the exchange
agent or comply with the applicable procedures under DTC's Automated Tender
Offer Program prior to the expiration date may tender if:
- the tender is made through an eligible institution;
- prior to the expiration date, the exchange agent receives from such
eligible institution either a properly completed and duly executed
notice of guaranteed delivery (by facsimile transmission, mail or hand
delivery) or a properly transmitted agent's message and notice of
guaranteed delivery:
- setting forth the name and address of the holder, the
registered number(s) of such outstanding Notes and the
principal amount of outstanding Notes tendered;
- stating that the tender is being made thereby; and
- guaranteeing that, within three (3) New York Stock Exchange
trading days after the expiration date, the letter of
transmittal (or facsimile thereof) together with the
outstanding Notes or a book-entry confirmation, and any
other documents required by the letter of transmittal will
be deposited by the eligible institution with the exchange
agent; and
- the exchange agent receives such properly completed and executed letter
of transmittal (or facsimile thereof), as well as all tendered
outstanding Notes in proper form for transfer or a book-entry
confirmation, and all other documents required by the letter of
transmittal, within three (3) New York State Exchange trading days
after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery
will be sent to holders who wish to tender their outstanding Notes according to
the guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, holders of outstanding
Notes may withdraw their tenders at any time prior to the expiration date.
For a withdrawal to be effective:
- the exchange agent must receive a written notice (which may be by
telegram, telex, facsimile transmission or letter) of withdrawal at one
of the addresses set forth below under "--Exchange Agent;" or
- holders must comply with the appropriate procedures of DTC's Automated
Tender Offer Program system.
Any such notice of withdrawal must:
- specify the name of the person who tendered the outstanding Notes to be
withdrawn;
107
- identify the outstanding Notes to be withdrawn (including the principal
amount of such
outstanding Notes); and
- where certificates for outstanding Notes have been transmitted, specify
the name in which such outstanding Notes were registered, if different
from that of the withdrawing holder.
If certificates for outstanding Notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of such
certificates, the withdrawing holder must also submit:
- the serial numbers of the particular certificates to be withdrawn; and
- a signed notice of withdrawal with signatures guaranteed by an eligible
institution unless such holder is an eligible institution.
If outstanding Notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawn
outstanding Notes and otherwise comply with the procedures of such facility. The
Issuer will determine all questions as to the validity, form and eligibility
(including time of receipt) of such notices, and our determination shall be
final and binding on all parties. The Issuer will deem any outstanding Notes so
withdrawn not to have validity tendered for exchange for purposes of the
exchange offer. Any outstanding Notes that have been tendered for exchange but
that are not exchanged for any reason will be returned to their holder without
cost to the holder (or, in the case of outstanding Notes tendered by book-entry
transfer into the exchange agent's account at DTC according to the procedures
described above, such outstanding Notes will be credited to an account
maintained with DTC for outstanding Notes) as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. Properly
withdrawn outstanding Notes may be retendered by following one of the procedures
described under "--Procedures for Tendering" above at any time on or prior to
the expiration date.
EXCHANGE AGENT
The Bank of New York has been appointed as exchange agent for the
exchange offer. You should direct questions and requests for assistance,
requests for additional copies of this prospectus or of the letter of
transmittal and requests for the notice of guaranteed delivery to the exchange
agent addressed as follows:
[Download Table]
FOR DELIVERY BY REGISTERED OR CERTIFIED FOR OVERNIGHT DELIVERY ONLY OR BY HAND:
MAIL:
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street
New York, New York 10286 New York, New York 10286
Attn: Marcia Brown, Attn: Marcia Brown,
Corporate Trust Operations, 7E Corporate Trust Operations, 7E
BY FACSIMILE TRANSMISSION (FOR ELIGIBLE INSTITUTIONS ONLY):
The Bank of New York
(212) 815-4699
Attn: Marcia Brown,
Corporate Trust Operations, 7E
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT
CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
108
FEES AND EXPENSES
The Issuer will bear the expenses of soliciting tenders. The principal
solicitation is being made by mail; however, we may make additional solicitation
by telegraph, telephone or in person by our officers and regular employees and
those of our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. The Issuer will, however, pay the exchange
agent reasonable and customary fees for its services and reimburse it for its
related reasonable out-of-pocket expenses.
The Issuer will pay the cash expenses to be incurred in connection with
the exchange offer. The expenses are estimated in the aggregate to be
approximately $ - . They include:
- Commission registration fees;
- fees and expenses of the exchange agent and trustee;
- accounting and legal fees and printing costs; and
- related fees and expenses.
The Issuer will pay all transfer taxes, if any, applicable to the
exchange of outstanding Notes under the exchange offer. The tendering holder,
however, will be required to pay any transfer taxes (whether imposed on the
registered holder or any other person) if:
- certificates representing outstanding Notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of
outstanding Notes tendered;
- tendered outstanding Notes are registered in the name of any person
other than the person signing the letter of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of
outstanding Notes under the exchange offer.
If satisfactory evidence of payment of such taxes is not submitted with the
letter of transmittal, the amount of such transfer taxes will be billed to that
tendering holder.
TRANSFER TAXES
Holders who tender their outstanding Notes for exchange will not be
required to pay any transfer taxes. However, holders who instruct the Issuer to
register exchange Notes in the name of, or request that outstanding Notes not
tendered or not accepted in the exchange offer be returned to, a person other
than the registered tendering holder will be required to pay any applicable
transfer tax.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of outstanding Notes who do not exchange their outstanding
Notes for exchange Notes under the exchange offer will remain subject to the
restrictions on transfer of such outstanding Notes:
- as set forth in the legend printed on the notes as a consequence of the
issuance of the outstanding Notes pursuant to the exemptions from, or
in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws; and
109
- otherwise set forth in the offering memorandum distributed in
connection with the private offering of the outstanding Notes.
In general, you may not offer or sell the outstanding Notes unless they
are registered under the Securities Act or the offer or sale is exempt from
registration under the Securities Act and applicable state securities laws.
Except as required by the registration rights agreement, we do not intend to
register resales of the outstanding Notes under the Securities Act. Based on
interpretations of the Commission staff, exchange Notes issued pursuant to the
exchange offer may be offered for resale, resold or otherwise transferred by
their holders (other than any such holder that is our "affiliate" within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the holders acquired the exchange Notes in the ordinary course of the
holders' business and the holders have no arrangement or understanding with
respect to the distribution of the exchange Notes to be acquired in the exchange
offer. Any holder who tenders in the exchange offer for the purpose of
participating in a distribution of the exchange Notes:
- cannot rely on the applicable interpretations of the Commission; and
- must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale
transaction.
ACCOUNTING TREATMENT
The Issuer will record the exchange Notes in its accounting records at
the same carrying value as the outstanding Notes, which is the aggregate
principal amount as reflected in the Issuer's accounting records on the date of
exchange. Accordingly, the Issuer will not recognize any gain or loss for
accounting purposes in connection with the exchange offer. The Issuer will
record the expenses of the exchange offer as incurred.
OTHER
Participation in the exchange offer is voluntary, and you should
carefully consider whether to accept. You are urged to consult your financial
and tax advisors in making your own decision on what action to take.
The Issuer may in the future seek to acquire untendered outstanding
Notes in open market or privately negotiated transactions, through subsequent
exchange offers or otherwise. The Issuer has no present plans to acquire any
outstanding Notes that are not tendered in the exchange offer or to file a
registration statement to permit resales of any untendered outstanding Notes.
110
DESCRIPTION OF THE NOTES
GENERAL
The outstanding Notes were issued and the exchange Notes will be issued
pursuant to an Indenture, dated as of February 2, 1999, between Willis Corroon
Group, Willis Corroon Partners, the Issuer and The Bank of New York, as trustee,
a copy of the form of which will be made available to holders of outstanding
Notes upon request. The Indenture is limited in aggregate principal amount to
$550.0 million. Upon the issuance of the exchange Notes, or the effectiveness of
the Shelf Registration Statement (as defined), the Indenture will be subject to
and governed by the Trust Indenture Act of 1939. The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act. The following summary of the material provisions of
the Indenture does not purport to be complete and is qualified in its entirety
by reference to the provisions of the Indenture, including the definitions
therein of certain terms used below. The definitions of certain terms used in
the following summary are set forth below under "--Certain Definitions." For
purposes of this summary,
- the term "Willis Corroon Group" refers only to Willis Corroon Group
Limited and not to any of its Subsidiaries,
- the term "Issuer" refers only to Willis Corroon Corporation and not to
any of its Subsidiaries and
- the term "Closing Date" refers to November 19, 1998, the date on which
the Subordinated Bridge Agreement was executed.
The outstanding Notes are and the exchange Notes will be general
unsecured obligations of the Issuer and will be subordinated in right of payment
to all existing and future Senior Indebtedness of the Issuer. As of December 31,
1998, on a pro forma basis giving effect to the Transactions, the aggregate
amount of the Issuer's outstanding Senior Indebtedness would have been
approximately L277.2 million, all of which would have been secured, and the
Issuer would have had no Senior Subordinated Indebtedness outstanding other than
the Notes. The Indenture will permit the incurrence of additional Senior
Indebtedness in the future. See "Risk Factors--Substantial Leverage and Debt
Service."
Willis Corroon Group and Willis Corroon Partners, as primary obligors
and not merely as sureties, will jointly and severally irrevocably and
unconditionally Guarantee, on a senior subordinated basis, the performance and
full and punctual payment when due, whether at Stated Maturity, by acceleration
or otherwise, of all obligations of the Issuer under the Indenture and the
Notes, whether for payment of principal of or interest on or liquidated damages
in respect of the Notes, expenses, indemnification or otherwise, on the terms
set forth in the Indenture by executing the Indenture.
Sovereign Marine & General Insurance Company Limited, in provisional
liquidation, was an Unrestricted Subsidiary on the date of issuance of the
outstanding Notes. Under certain circumstances, Willis Corroon Group will be
able to designate other current or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be Guarantors or be subject to
any of the restrictive covenants set forth in the Indenture.
SUBORDINATION
The payment of the Subordinated Note Obligations will be subordinated
in right of payment, as set forth in the Indenture, to the prior payment in full
in cash or cash equivalents of all Senior Indebtedness, whether outstanding on
the date of the Indenture or thereafter incurred. Upon any
111
distribution to creditors of the Issuer in a liquidation or dissolution of the
Issuer or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Issuer or its property, an assignment for the benefit
of creditors or any marshalling of the Issuer's assets and liabilities, the
holders of Senior Indebtedness will be entitled to receive payment in full in
cash or cash equivalents of such Senior Indebtedness and all outstanding Letter
of Credit Obligations will be fully cash collateralized before the Holders will
be entitled to receive any payment with respect to the Subordinated Note
Obligations, and until all Senior Indebtedness is paid in full in cash or cash
equivalents, any distribution to which the Holders would be entitled shall be
made to the holders of Senior Indebtedness (except that Holders may receive
(i) shares of stock and any debt securities that are
subordinated at least to the same extent as the Notes to
(a) Senior Indebtedness and
(b) any securities issued in exchange for Senior
Indebtedness and
(ii) payments made from the trusts described under "--Legal
Defeasance and Covenant Defeasance").
The Issuer also may not make any payment upon or in respect of the
Subordinated Note Obligations (except in such subordinated securities or from
the trust described under "--Legal Defeasance and Covenant Defeasance") if
- a default in the payment of the principal of, premium, if any, or
interest on, or of unreimbursed amounts under drawn letters of credit
or in respect of bankers' acceptances or fees relating to letters of
credit or bankers' acceptances constituting, Designated Senior
Indebtedness occurs and is continuing beyond any applicable period of
grace (a "PAYMENT DEFAULT") or
- any other default occurs and is continuing with respect to Designated
Senior Indebtedness that permits holders of the Designated Senior
Indebtedness as to which such default relates to accelerate its
maturity without further notice (except such notice as may be required
to effect such acceleration) or the expiration of any applicable grace
periods (a "NON-PAYMENT DEFAULT") and the Trustee receives a notice of
such default (a "PAYMENT BLOCKAGE NOTICE") from a representative of
holders of such Designated Senior Indebtedness.
Payments on the Notes, including any missed payments, may and shall be resumed:
- in the case of a payment default, upon the date on which such default
is cured or waived or shall have ceased to exist or such Designated
Senior Indebtedness shall have been discharged or paid in full in cash
or cash equivalents and all outstanding Letter of Credit Obligations
shall have been fully cash collateralized; and
- in case of a nonpayment default, the earlier of (x) the date on which
such nonpayment default is cured or waived, (y) 179 days after the date
on which the applicable Payment Blockage Notice is received (each such
period, the "PAYMENT BLOCKAGE PERIOD") or (z) the date such Payment
Blockage Period shall be terminated by written notice to the Trustee
from the requisite holders of such Designated Senior Indebtedness
necessary to terminate such period or from their representative.
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No new Payment Blockage Period may be commenced unless and until 365 days have
elapsed since the effectiveness of the immediately preceding Payment Blockage
Notice. However, if any Payment Blockage Notice within such 365-day period is
given by or on behalf of any holders of Designated Senior Indebtedness (other
than the agent under the Senior Credit Facilities), the agent under the Senior
Credit Facilities may give another Payment Blockage Notice within such period.
In no event, however, may the total number of days during which any Payment
Blockage Period or Periods is in effect exceed 179 days in the aggregate during
any 365 consecutive day period. No nonpayment default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the Trustee
shall be, or be made, the basis for a subsequent Payment Blockage Notice unless
such default shall have been cured or waived for a period of not less than 90
days.
If the Issuer fails to make any payment on the Notes when due or within
any applicable grace period, whether or not on account of the payment blockage
provision referred to above, such failure would constitute an Event of Default
under the Indenture and would enable the Holders to accelerate the maturity
thereof.
The Indenture will further require that the Issuer promptly notify
holders of Senior Indebtedness if payment of the Notes is accelerated because of
an Event of Default.
As a result of the subordination provisions described above, in the
event of insolvency, bankruptcy, administration, reorganization, receivership or
similar proceedings relating to the Issuer, Holders may recover less ratably
than creditors of the Issuer who are holders of Senior Indebtedness. At December
31, 1998, on a pro forma basis after giving effect to the Transactions, the
aggregate amount of the Issuer's outstanding Senior Indebtedness would have been
approximately $460.1 million (L277.2 million) (excluding unused commitments),
all of which would have been secured, the Issuer would have had no Senior
Subordinated Indebtedness outstanding other than the Notes, the Guarantors would
have had no Senior Indebtedness (excluding guarantees in respect of the Senior
Credit Facilities) and no Senior Subordinated Indebtedness (excluding the
Guarantees). As of December 31, 1998, the Issuer's subsidiaries had total
liabilities (including payables in respect of insurance broking transactions but
excluding their guarantees under the Permanent Facility Agreement) of L1,103.3
million and Willis Corroon Group's subsidiaries (other than Willis Corroon
Partners, the Issuer and the Issuer's subsidiaries) had total liabilities
(including payables in respect of insurance broking transactions but excluding
their guarantees under the Permanent Facility Agreement) of L2,345.0 million.
The Indenture permits the Issuer to incur additional indebtedness, including
additional senior Indebtedness under the Senior Credit Facilities, subject to
certain limitations. Although the Indenture contains limitations on the amount
of additional Indebtedness that Willis Corroon Group and its Subsidiaries may
incur, under certain circumstances the amount of such Indebtedness could be
substantial and, in any case, such Indebtedness may be Senior Indebtedness. See
"--Certain Covenants--Limitations on Incurrence of Indebtedness and Issuance of
Disqualified Stock."
"DESIGNATED SENIOR INDEBTEDNESS" means:
- Senior Indebtedness under the Senior Credit Facilities; and
- any other Senior Indebtedness permitted under the Indenture the
principal amount of which is $25.0 million or more and that has been
designated by Willis Corroon Group as Designated Senior Indebtedness.
"SENIOR INDEBTEDNESS" means:
(1) the Obligations under the Senior Credit Facilities; and
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(2) the Obligations under any other Indebtedness permitted to be
incurred by the Issuer under the terms of the Indenture, unless the
instrument under which such Indebtedness is incurred expressly provides
that it is on a parity with or subordinated in right of payment to the
Notes,
including, with respect to clauses (1) and (2), interest accruing subsequent to
the filing of, or which would have accrued but for the filing of, a petition for
bankruptcy, in accordance with and at the rate (including any rate applicable
upon any default or event of default, to the extent lawful) specified in the
documents evidencing or governing such Senior Indebtedness, whether or not such
interest is an allowable claim in such bankruptcy proceeding. Notwithstanding
anything to the contrary in the foregoing, Senior Indebtedness will not include:
- any liability for federal, state, local or other taxes owed or owing by
the Issuer;
- any obligation of the Issuer to its direct or indirect parent
corporations or to any of its Subsidiaries;
- any accounts payable or trade liabilities (including obligations in
respect of funds held for the account of third parties) arising in the
ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities) other than obligations in
respect of letters of credit under the Senior Credit Facilities;
- any Indebtedness that is incurred in violation of the Indenture;
- Indebtedness which, when incurred and without respect to any election
under Section 1111(b) of Title 11, United States Code, is without
recourse to the Issuer;
- any Indebtedness, guarantee or obligation of the Issuer which is
subordinate or junior to any other Indebtedness, guarantee or
obligation of the Issuer;
- Indebtedness evidenced by the Notes;
- Indebtedness evidenced by the Group Intercompany Notes or Convertible
Loans; and
- Capital Stock of the Issuer.
"Senior Indebtedness" of Willis Corroon Group or any Guarantor has a
correlative meaning.
"SUBORDINATED NOTE OBLIGATIONS" means any principal of, premium, if
any, and interest on the Notes payable pursuant to the terms of the Notes or
upon acceleration, together with and including any amounts received upon the
exercise of rights of rescission or other rights of action (including claims for
damages) or otherwise, to the extent relating to the purchase price of the Notes
or amounts corresponding to such principal, premium, if any, or interest on the
Notes.
The Notes will rank senior in right of payment to all Subordinated
Indebtedness of the Issuer. At the issuance of the outstanding Notes, the Issuer
had no Subordinated Indebtedness.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $550,000,000 and
will mature at par on February 1, 2009. Interest on the Notes will accrue at the
rate of 9% per annum and will be payable semi-annually in arrears on February 1
and August 1, commencing on August 1, 1999, to Holders of record on the
immediately preceding January 15 and July 15. Interest on the Notes will accrue
from the
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most recent date to which interest has been paid or, if no interest has been
paid, from the date of issuance of the outstanding Notes. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal of, premium, if any, and interest on the Notes will be payable at the
office or agency of the Issuer maintained for such purpose within the City and
State of New York or, at the option of the Issuer, payment of interest may be
made by check mailed to the Holders at their respective addresses set forth in
the register of Holders; PROVIDED that all payments of principal, premium, if
any, and interest with respect to Notes represented by one or more permanent
global Notes registered in the name of or held by DTC or its nominee will be
made by wire transfer of immediately available funds to the accounts specified
by the Holder or Holders thereof. Until otherwise designated by the Issuer, the
Issuer's office or agency in New York will be the office of the Trustee
maintained for such purpose. The Notes will be issued in denominations of $1,000
and integral multiples thereof. If Certificated Notes are issued, the Issuer
will appoint Kredietbank S.A. Luxembourgeoise, or such other Person located in
Luxembourg and reasonably acceptable to the Trustee, as an additional paying and
transfer agent. Upon the issuance of Certificated Notes, Holders will be able to
receive principal, premium, if any, and interest with respect to the Notes and
will be able to transfer Certificated Notes at the Luxembourg office of such
paying and transfer agent, subject to the right of the Issuer to mail payments
in accordance with the terms of the Indenture.
MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of
Holders," the Issuer is not required to make mandatory redemption or sinking
fund payments with respect to the Notes.
OPTIONAL REDEMPTION
Except as described below, the Notes will not be redeemable at the
Issuer's option prior to February 1, 2004. From and after February 1, 2004, the
Notes will be subject to redemption at any time at the option of the Issuer, in
whole or in part, upon not less than 30 nor more than 60 days' prior notice
published in a leading newspaper having a general circulation in New York (which
is expected to be the WALL STREET JOURNAL) (and, so long as the Notes are listed
on the Luxembourg Stock Exchange and the rules of such stock exchange shall so
require, a newspaper having a general circulation in Luxembourg (which is
expected to be the LUXEMBURGER WORT)), or, in the case of Certificated Notes, by
being so published and also mailed by first-class mail to each Holder's
registered address, at the redemption prices (expressed as percentages of
principal amount) set forth below, plus accrued and unpaid interest thereon, if
any, to the applicable redemption date (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the twelve-month period beginning on
February 1 of each of the years indicated below:
[Enlarge/Download Table]
YEAR REDEMPTION PRICE
-------------------------------------------------------------------------- ------------------
2004...................................................................... 104.500%
2005...................................................................... 103.000%
2006...................................................................... 101.500%
2007 and thereafter....................................................... 100.000%
In addition, at any time or from time to time, on or prior to February
1, 2002, the Issuer may, at its option, redeem up to 35% of the aggregate
principal amount of Notes issued under the Indenture at a redemption price equal
to 109% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the redemption date (subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date), with the net proceeds of one or more Equity
Offerings of the Issuer or any direct or indirect parent of the Issuer to the
extent such net proceeds are contributed to the Issuer, or used to repay to the
Issuer amounts outstanding in respect of the Trinity Intercompany Notes;
PROVIDED that at least 65% of the aggregate principal amount of Notes
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remains outstanding immediately after the occurrence of each such redemption;
PROVIDED FURTHER that each such redemption occurs within 90 days of the date of
closing of each such Equity Offering. The Trustee shall select the Notes to be
purchased in the manner described under "--Repurchase at the Option of
Holders--Asset Sales--Selection and Notice."
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL.
The Indenture provides that, upon the occurrence of a Change of
Control, the Issuer will make an offer to purchase all of the Notes pursuant to
the offer described below (the "CHANGE OF CONTROL OFFER") at a price in cash
(the "CHANGE OF CONTROL PAYMENT") equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date). The Indenture
provides that within 30 days following any Change of Control, the Issuer will
publish notice of such in a leading newspaper having a general circulation in
New York (which is expected to be the WALL STREET JOURNAL), (and, so long as the
Notes are listed on the Luxembourg Stock Exchange and the rules of such stock
exchange shall so require, a newspaper having a general circulation in
Luxembourg (which is expected to be the LUXEMBURGER WORT)), or, in the case of
Certificated Notes, mail a notice to each Holder (, and so long as the Notes are
listed on the Luxembourg Stock Exchange and the rules of such stock exchange
shall so require, will publish notice in a newspaper having a general
circulation in Luxembourg (which is expected to be the LUXEMBURGER WORT)), with
a copy to the Trustee, with the following information:
(1) a Change of Control Offer is being made pursuant to the
covenant entitled "CHANGE OF CONTROL," and that all Notes properly
tendered pursuant to such Change of Control Offer will be accepted for
payment;
(2) the purchase price and the purchase date, which will be no
earlier than 30 days nor later than 60 days from the date such notice is
mailed, except as may be otherwise required by applicable law (the
"CHANGE OF CONTROL PAYMENT DATE");
(3) any Note not properly tendered will remain outstanding and
continue to accrue interest;
(4) unless the Issuer defaults in the payment of the Change of
Control Payment, all Notes accepted for payment pursuant to the Change of
Control Offer will cease to accrue interest on the Change of Control
Payment Date;
(5) Holders electing to have any Notes purchased pursuant to a
Change of Control Offer will be required to surrender the Notes, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Notes completed, to the paying agent specified in the notice (which, if
Certificated Notes are issued, will include a paying agent in Luxembourg)
at the address specified in the notice prior to the close of business on
the third Business Day preceding the Change of Control Payment Date;
(6) Holders will be entitled to withdraw their tendered Notes
and their election to require the Issuer to purchase such Notes, PROVIDED
that the paying agent (which, if Certificated Notes are issued, will
include a paying agent in Luxembourg) receives, not later than the close
of business on the last day of the Offer Period (as defined in the
Indenture), a telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the
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principal amount of Notes tendered for purchase, and a statement that
such Holder is withdrawing his tendered Notes and his election to have
such Notes purchased; and
(7) that Holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered, which unpurchased portion must be equal
to $1,000 in principal amount or an integral multiple thereof.
While the Notes are in global form and the Issuer makes an offer to
purchase all of the Notes pursuant to the Change of Control Offer, a holder may
exercise its option to elect for the purchase of the Notes through the
facilities of DTC, Euroclear and Cedel, subject to their rules and regulations.
The Indenture provides that, prior to complying with the provisions of
this covenant, but in any event within 30 days following a Change of Control,
the Issuer will either repay all its outstanding Senior Indebtedness that
prohibits the Issuer from repurchasing Notes in a Change of Control Offer or
obtain the requisite consents, if any, under any outstanding Senior Indebtedness
in each case necessary to permit the repurchase of the Notes required by this
covenant.
The Issuer will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws or regulations are applicable in connection with the repurchase
of the Notes pursuant to a Change of Control Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
the Indenture, the Issuer will comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations described
in the Indenture by virtue thereof.
The Indenture provides that on the Change of Control Payment Date, the
Issuer will, to the extent permitted by law,
(1) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer,
(2) deposit with the paying agent an amount equal to the
aggregate Change of Control Payment in respect of all Notes or portions
thereof so tendered and
(3) deliver, or cause to be delivered, to the Trustee for
cancellation the Notes so accepted together with an Officers' Certificate
stating that such Notes or portions thereof have been tendered to and
purchased by the Issuer.
The Indenture will provide that the paying agent will promptly mail to each
Holder the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail to each Holder a new Note equal in principal
amount to any unpurchased portion of the Notes surrendered, if any, PROVIDED,
that each such new Note will be in a principal amount of $1,000 or an integral
multiple thereof. The Issuer will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
The Senior Credit Facilities will, and future credit agreements or
other agreements relating to Senior Indebtedness to which Willis Corroon Group
or the Issuer becomes a party may, prohibit the Issuer from purchasing any Notes
as a result of a Change of Control and/or provide that certain change of control
events with respect to the Issuer would constitute a default thereunder. In the
event a Change of Control occurs at a time when the Issuer is prohibited from
purchasing the Notes, Willis Corroon Group or the Issuer could seek the consent
of its lenders to permit the purchase of the Notes or could attempt to refinance
the borrowings that contain such prohibition. If the Company or the Issuer does
not obtain such a consent or repay such borrowings, the Issuer will remain
prohibited from purchasing the
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Notes. In such case, the Issuer's failure to purchase tendered Notes would
constitute an Event of Default under the Indenture. If, as a result thereof, a
default occurs with respect to any Senior Indebtedness, the subordination
provisions in the Indenture would restrict payments to the Holders under certain
circumstances.
The existence of a Holder's right to require the Issuer to repurchase
such Holder's Notes upon the occurrence of a Change of Control may deter a third
party from seeking to acquire the Company or the Issuer in a transaction that
would constitute a Change of Control.
ASSET SALES.
The Indenture provides that Willis Corroon Group will not, and will not
permit any Restricted Subsidiary to, cause, make or suffer to exist an Asset
Sale, unless
(1) Willis Corroon Group or such Restricted Subsidiary, as the
case may be, receives consideration at the time of such Asset Sale at
least equal to the fair market value (as determined in good faith by the
Willis Corroon Group) of the assets sold or otherwise disposed of and
(2) except in the case of Permitted Asset Swap, at least 75% of
the consideration therefor received by Willis Corroon Group or such
Restricted Subsidiary, as the case may be, is in the form of cash or Cash
Equivalents; PROVIDED that the amount of
(a) any liabilities (as shown on Willis Corroon
Group's, or such Restricted Subsidiary's, most recent balance
sheet or in the notes thereto) of Willis Corroon Group or any
Restricted Subsidiary (other than liabilities that are by
their terms subordinated to the Notes) that are assumed by the
transferee of any such assets,
(b) any securities received by Willis Corroon Group
or such Restricted Subsidiary from such transferee that are
converted by Willis Corroon Group or such Restricted
Subsidiary into cash (to the extent of the cash received)
within 180 days following the closing of such Asset Sale and
(c) any Designated Noncash Consideration received by
Willis Corroon Group or any Restricted Subsidiary in such
Asset Sale having an aggregate fair market value, taken
together with all other Designated Noncash Consideration
received pursuant to this clause (c) that is at that time
outstanding, not to exceed the greater of (x) $100.0 million
or (y) 10% of Total Revenues at the time of the receipt of
such Designated Noncash Consideration (with the fair market
value of each item of Designated Noncash Consideration being
measured at the time received and without giving effect to
subsequent changes in value),
shall be deemed to be cash for purposes of this provision and for no other
purpose.
Within 365 days after Willis Corroon Group's or any Restricted
Subsidiary's receipt of the Net Proceeds of any Asset Sale, Willis Corroon Group
or such Restricted Subsidiary, at its option, may
(i) apply the Net Proceeds from such Asset Sale to permanently
reduce
(x) Obligations under the Senior Credit Facilities
(and to correspondingly reduce commitments with respect
thereto),
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(y) other Senior Indebtedness or Senior Subordinated
Indebtedness (and to correspondingly reduce commitments with
respect thereto) (PROVIDED that if the Issuer shall so reduce
Obligations under Senior Subordinated Indebtedness, it will
equally and ratably reduce Obligations under the Notes if the
Notes are then prepayable or, if the Notes may not then be
prepaid, the Issuer shall make an offer (in accordance with
the procedures set forth below for an Asset Sale Offer) to all
Holders to purchase their Notes at 100% of the principal
amount thereof, plus the amount of accrued but unpaid
interest, if any, on the amount of Notes that would otherwise
be prepaid) or
(z) Indebtedness of a Restricted Subsidiary (other
than Indebtedness owed to Willis Corroon Group or another
Restricted Subsidiary),
(ii) apply the Net Proceeds from such Asset Sale to an
investment in any one or more businesses (PROVIDED that such investment
in any business may be in the form of the acquisition of Capital Stock so
long as it results in Willis Corroon Group or a Restricted Subsidiary, as
the case may be, owning all the Capital Stock of such business), capital
expenditures or acquisitions of other assets in each case, used or useful
in a Similar Business and/or
(iii) apply the Net Proceeds from such Asset Sale to an
investment in any one or more businesses (PROVIDED that such investment
in any business may be in the form of the acquisition of Capital Stock so
long as it results in Willis Corroon Group or a Restricted Subsidiary, as
the case may be, owning all the Capital Stock of such business),
properties or assets that replace the businesses, properties and assets
that are the subject of such Asset Sale.
The Indenture provides that any Net Proceeds from the Asset Sale that are not
invested or applied as provided and within the time period set forth in the
first sentence of this paragraph will be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $15.0 million, the Issuer
shall make an offer to all Holders (an "ASSET SALE OFFER") to purchase the
maximum principal amount of Notes, that is an integral multiple of $1,000, that
may be purchased out of the Excess Proceeds at an offer price in cash in an
amount equal to 100% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date fixed for the closing of such offer, in accordance
with the procedures set forth in the Indenture. The Issuer will commence an
Asset Sale Offer with respect to Excess Proceeds within ten Business Days after
the date that Excess Proceeds exceeds $15.0 million by mailing the notice
required pursuant to the terms of the Indenture, with a copy to the Trustee. To
the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale
Offer is less than the Excess Proceeds, the Issuer may use any remaining Excess
Proceeds for general corporate purposes. If the aggregate principal amount of
Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased in the manner described under "--
Selection and Notice" below. Upon completion of any such Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.
Pending the final application of any Net Proceeds pursuant to this
covenant, Willis Corroon Group or the applicable Restricted Subsidiary may apply
such Net Proceeds temporarily to reduce Indebtedness outstanding under a
revolving credit facility or otherwise invest such Net Proceeds in Cash
Equivalents or Investment Grade Securities.
The Issuer will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws or regulations are applicable in connection with the repurchase
of the Notes pursuant to an Asset Sale Offer. To the extent that the
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provisions of any securities laws or regulations conflict with the provisions of
the Indenture, the Issuer will comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations described
in the Indenture by virtue thereof.
The Senior Credit Facilities will, and future credit agreements or
other agreements relating to Senior Indebtedness to which the Issuer becomes a
party may, prohibit the Issuer from purchasing any Notes pursuant to this Asset
Sales covenant. In the event the Issuer is prohibited from purchasing the Notes,
the Issuer could seek the consent of its lenders to the purchase of the Notes or
could attempt to refinance the borrowings that contain such prohibition. If the
Issuer does not obtain such a consent or repay such borrowings, the Issuer will
remain prohibited from purchasing the Notes. In such case, the Issuer's failure
to purchase tendered Notes would constitute an Event of Default under the
Indenture. If, as a result thereof, a default occurs with respect to any Senior
Indebtedness, the subordination provisions in the Indenture would restrict
payments to the Holders under certain circumstances.
SELECTION AND NOTICE. If less than all of the Notes are to be redeemed
at any time or if more Notes are tendered pursuant to an Asset Sale Offer than
the Issuer is required to purchase, selection of such Notes for redemption or
purchase, as the case may be, will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
such Notes are listed, or, if such Notes are not so listed, on a pro rata basis,
by lot or by such other method as the Trustee shall deem fair and appropriate
(and in such manner as complies with applicable legal requirements); PROVIDED
that no Notes of $1,000 or less shall be purchased or redeemed in part.
Notices of purchase or redemption shall be mailed by first class mail,
postage prepaid, at least 30 but not more than 60 days before the purchase or
redemption date to each Holder of Notes to be purchased or redeemed at such
Holder's registered address. If any Note is to be purchased or redeemed in part
only, any notice of purchase or redemption that relates to such Note shall state
the portion of the principal amount thereof that has been or is to be purchased
or redeemed.
A new Note in principal amount equal to the unpurchased or unredeemed
portion of any Note purchased or redeemed in part will be issued in the name of
the Holder thereof upon cancellation of the original Note. On and after the
purchase or redemption date unless the Issuer defaults in payment of the
purchase or redemption price, interest shall cease to accrue on Notes or
portions thereof purchased or called for redemption.
CERTAIN COVENANTS
LIMITATION ON RESTRICTED PAYMENTS. The Indenture provides that Willis
Corroon Group will not, and will not permit any Restricted Subsidiary to,
directly or indirectly:
(i) declare or pay any dividend or make any distribution on
account of Willis Corroon Group's or any Restricted Subsidiary's Equity
Interests, including any dividend or distribution payable in connection
with any merger or consolidation (other than (A) dividends or
distributions by Willis Corroon Group payable in Equity Interests (other
than Disqualified Stock) of Willis Corroon Group or in options, warrants
or other rights to purchase such Equity Interests or (B) dividends or
distributions by a Restricted Subsidiary so long as, in the case of any
dividend or distribution payable on or in respect of any class or series
of securities issued by a Subsidiary other than a Wholly Owned
Subsidiary, Willis Corroon Group or a Restricted Subsidiary receives at
least its pro rata share of such dividend or distribution in accordance
with its Equity Interests in such class or series of securities);
(ii) purchase, redeem, defease or otherwise acquire or retire
for value any Equity Interests of Willis Corroon Group or any direct or
indirect parent of Willis Corroon Group;
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(iii) make any principal payment on, or redeem, repurchase,
defease or otherwise acquire or retire for value in each case, prior to
any scheduled repayment, or maturity, any Subordinated Indebtedness
(other than
(x) Indebtedness permitted under clauses (g), (h) and
(q) of the covenant described under "--Limitations on
Incurrence of Indebtedness and Issuance of Disqualified Stock"
or
(y) the purchase, repurchase or other acquisition of
Subordinated Indebtedness purchased in anticipation of
satisfying a sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date
of purchase, repurchase or acquisition);
(iv) make any Restricted Investment; or
(v) pay any principal of or interest on any Group Intercompany
Note unless such amount is immediately repaid to Willis Corroon Group or
a Restricted Subsidiary in respect of the principal of, or interest on,
any Trinity Intercompany Note or pay any amount in respect of a
Convertible Loan
(all such payments and other actions set forth in clauses (i) through (v) above
being collectively referred to as "Restricted Payments"), unless, at the time of
such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) immediately after giving effect to such transaction on a pro
forma basis, Willis Corroon Group could incur $1.00 of additional
Indebtedness under the provisions of the first paragraph of
"--Limitations on Incurrence of Indebtedness and Issuance of Disqualified
Stock"; and
(c) such Restricted Payment, together with the aggregate amount
of all other Restricted Payments made by Willis Corroon Group and its
Restricted Subsidiaries after the Closing Date (including Restricted
Payments permitted by clauses (i), (ii) (with respect to the payment of
dividends on Refunding Capital Stock pursuant to clause (b) thereof),
(iv) (only to the extent that amounts paid pursuant to such clause are
greater than amounts that could have been paid pursuant to such clause if
$6 million and $12 million were substituted in such clause for $12.5
million and $25 million, respectively), (vi), (ix), (x) and (xiv) of the
next succeeding paragraph, but excluding all other Restricted Payments
permitted by the next succeeding paragraph), is less than the sum of
(i) 50% of the Consolidated Net Income of Willis
Corroon Group for the period (taken as one accounting period)
from January 1, 1999, to the end of Willis Corroon Group's
most recently ended fiscal quarter for which internal
financial statements are available at the time of such
Restricted Payment (or, in the case such Consolidated Net
Income for such period is a deficit, minus 100% of such
deficit), PLUS
(ii) 100% of the aggregate net cash proceeds and the
fair market value, as determined in good faith by the Board of
Directors, of marketable securities and
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Qualified Proceeds received by Willis Corroon Group or the
Issuer since immediately after the Closing Date from the issue
or sale of
(x) Equity Interests of Willis Corroon Group
or the Issuer (including Retired Capital Stock (as
defined below), but excluding cash proceeds,
marketable securities and Qualified Proceeds received
from the sale of
(A) Equity Interests (1) to members
of management, directors or consultants of
Willis Corroon Group or the Issuer, any
direct or indirect parent corporation of the
Issuer and Willis Corroon Group's
Subsidiaries after the Closing Date to the
extent such amounts have been applied to
Restricted Payments made in accordance with
clause (iv) of the next succeeding paragraph
or (2) pursuant to the Contribution
Agreement and
(B) Designated Preferred Stock)
and, to the extent actually contributed to
Willis Corroon Group or the Issuer, Equity
Interests of Willis Corroon Group's direct
or indirect parent corporations (excluding
contributions of the proceeds from the sale
of Designated Preferred Stock of such
corporations) or
(y) debt securities (other than that portion
of the Convertible Loan made with the proceeds of
Interim Refinancing Indebtedness) of Willis Corroon
Group or the Issuer that have been converted into
such Equity Interests of Willis Corroon Group or the
Issuer; PROVIDED, HOWEVER, that this clause (ii)
shall not include the proceeds from Refunding Capital
Stock (as defined below), Equity Interests or
convertible debt securities of Willis Corroon Group
or the Issuer sold to a Restricted Subsidiary or
Willis Corroon Group, as the case may be,
Disqualified Stock or debt securities that have been
converted into Disqualified Stock, PLUS
(iii) 100% of the aggregate amount of cash,
marketable securities and Qualified Proceeds contributed to
the capital of Willis Corroon Group or the Issuer following
the Closing Date (other than by a Restricted Subsidiary or
Willis Corroon Group), PLUS
(iv) 100% of the aggregate amount received in cash,
the fair market value of marketable securities and Qualified
Proceeds (other than Restricted Investments) received by means
of
(A) the sale or other disposition (other
than to Willis Corroon Group or a Restricted
Subsidiary) of Restricted Investments made by Willis
Corroon Group and its Restricted Subsidiaries and
repurchases and redemptions of such Restricted
Investments from Willis Corroon Group and its
Restricted Subsidiaries and repayments of loans or
advances which constitute Restricted Investments by
Willis Corroon Group and its Restricted Subsidiaries
or
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(B) the sale (other than to Willis Corroon
Group or a Restricted Subsidiary) of the stock of an
Unrestricted Subsidiary or a distribution from an
Unrestricted Subsidiary (other than in each case to
the extent the Investment in such Unrestricted
Subsidiary was made by Willis Corroon Group or a
Restricted Subsidiary pursuant to clauses (vii) or
(xi) below or to the extent such Investment
constituted a Permitted Investment) or a dividend
from an Unrestricted Subsidiary PLUS
(v) in the case of the redesignation of an
Unrestricted Subsidiary as, or an Associate becoming, a
Restricted Subsidiary, the fair market value of the Investment
in such Unrestricted Subsidiary or Associate, as the case may
be, as determined by the Board of Directors in good faith or
if, in the case of an Unrestricted Subsidiary, such fair
market value may exceed $25 million, in writing by an
independent investment banking firm of nationally recognized
standing, at the time of the redesignation of such
Unrestricted Subsidiary as a Restricted Subsidiary (other than
an Unrestricted Subsidiary to the extent the Investment in
such Unrestricted Subsidiary or such Associate was made by
Willis Corroon Group or a Restricted Subsidiary pursuant to
clauses (vii) or (xi) below or to the extent such Investment
constituted a Permitted Investment).
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration such payment would
have complied with the provisions of the Indenture;
(ii) (a) the redemption, repurchase, retirement or other
acquisition of any Equity Interests ("RETIRED CAPITAL STOCK") or
Subordinated Indebtedness of Willis Corroon Group, or any Equity
Interests of any direct or indirect parent corporation of Willis
Corroon Group, in exchange for, or out of the proceeds of the
substantially concurrent sale (other than to a Restricted
Subsidiary or Willis Corroon Group) of, Equity Interests of
Willis Corroon Group or the Issuer (in each case, other than any
Disqualified Stock) ("REFUNDING CAPITAL STOCK") and
(b) the declaration and payment of dividends on the
Refunding Capital Stock (other than Refunding Capital Stock
the proceeds of which were used to redeem, repurchase, retire
or otherwise acquire any Equity Interests of any direct or
indirect parent corporation of Willis Corroon Group) in an
aggregate amount per year no greater than the aggregate amount
of dividends per annum that was declarable and payable on such
Retired Capital Stock immediately prior to such retirement;
(iii) the redemption, repurchase or other acquisition or
retirement of Subordinated Indebtedness of Willis Corroon Group or the
Issuer made by exchange for, or out of the proceeds of the substantially
concurrent sale of, new Indebtedness of Willis Corroon Group or the
Issuer, as the case may be, which is incurred in compliance with
"--Limitations on Incurrence of Indebtedness and Issuance of Disqualified
Stock" so long as
(A) the principal amount of such new Indebtedness
does not exceed the principal amount of the Subordinated
Indebtedness being so redeemed, repurchased, acquired or
retired for value (PLUS the amount of any premium
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required to be paid under the terms of the instrument
governing the Subordinated Indebtedness being so redeemed,
repurchased, acquired or retired),
(B) such Indebtedness is subordinated to Senior
Indebtedness and the Notes at least to the same extent as such
Subordinated Indebtedness so purchased, exchanged, redeemed,
repurchased, acquired or retired for value,
(C) such Indebtedness has a final scheduled maturity
date equal to or later than the final scheduled maturity date
of the Subordinated Indebtedness being so redeemed,
repurchased, acquired or retired and
(D) such Indebtedness has a Weighted Average Life to
Maturity equal to or greater than the remaining Weighted
Average Life to Maturity of the Subordinated Indebtedness
being so redeemed, repurchased, acquired or retired;
(iv) a Restricted Payment to pay for the repurchase, retirement
or other acquisition or retirement for value of common Equity Interests
of Willis Corroon Group, any of its direct or indirect parent
corporations or the Issuer held by any future, present or former
employee, director or consultant of Willis Corroon Group, any of its
Subsidiaries or any of its direct or indirect parent corporations
pursuant to any management equity plan or stock option plan or any other
management or employee benefit plan or agreement; PROVIDED, HOWEVER, that
the aggregate Restricted Payments made under this clause (iv) do not
exceed in any calendar year $12.5 million (with unused amounts in any
calendar year being carried over to succeeding calendar years subject to
a maximum (without giving effect to the following proviso) of $25.0
million in any calendar year); PROVIDED FURTHER that such amount in any
calendar year may be increased by an amount not to exceed
(A) the cash proceeds from the sale of Equity
Interests of Willis Corroon Group, the Issuer and, to the
extent contributed to Willis Corroon Group or the Issuer,
Equity Interests of any of Willis Corroon Group's direct or
indirect parent corporations, in each case to members of
management, directors or consultants of Willis Corroon Group,
any of its Subsidiaries or any of its direct or indirect
parent corporations that occurs after the Closing Date (to the
extent the cash proceeds from the sale of such Equity
Interests have not otherwise been applied to the payment of
Restricted Payments by virtue of clause (c) of the preceding
paragraph) plus
(B) the cash proceeds of key man life insurance
policies received by Willis Corroon Group and its Restricted
Subsidiaries after the Closing Date less
(C) the amount of any Restricted Payments previously
made pursuant to clauses (A) and (B) of this clause (iv);
and PROVIDED FURTHER that cancellation of Indebtedness owing to Willis
Corroon Group or the Issuer from members of management of Willis Corroon
Group, any of its direct or indirect parent corporations or any
Restricted Subsidiary in connection with a repurchase of Equity Interests
of Willis Corroon Group, any of its direct or indirect parent
corporations or the Issuer will not be deemed to constitute a Restricted
Payment for purposes of this covenant or any other provision of the
Indenture;
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(v) the declaration and payment of dividends to holders of any
class or series of Disqualified Stock of Willis Corroon Group, the Issuer
or any other Guarantor issued in accordance with the covenant described
under "--Limitations on Incurrence of Indebtedness and Issuance of
Disqualified Stock" to the extent such dividends are included in the
definition of Fixed Charges;
(vi) (A) the declaration and payment of dividends to
holders of any class or series of Designated Preferred Stock
(other than Disqualified Stock) issued by Willis Corroon Group
or the Issuer after the Closing Date,
(B) the declaration and payment of dividends to a
direct or indirect parent corporation of Willis Corroon Group,
the proceeds of which will be used to fund the payment of
dividends to holders of any class or series of Designated
Preferred Stock (other than Disqualified Stock) of such parent
corporation issued after the Closing Date (PROVIDED that the
amount of dividends paid pursuant to this clause (B) shall not
exceed the aggregate amount of cash actually contributed to
Willis Corroon Group from the sale of such Designated
Preferred Stock) or
(C) the declaration and payment of dividends on
Refunding Capital Stock in excess of the dividends declarable
and payable thereon pursuant to clause (ii); PROVIDED,
HOWEVER, in each case, that for the most recently ended four
full fiscal quarters for which internal financial statements
are available immediately preceding the date of issuance of
such Designated Preferred Stock or the declaration of such
dividends on Refunding Capital Stock, after giving effect to
such issuance or declaration on a pro forma basis, Willis
Corroon Group and its Restricted Subsidiaries would have had a
Fixed Charge Coverage Ratio of at least 2.00 to 1.00;
(vii) Investments in Unrestricted Subsidiaries and Associates
(or Persons that become Associates as a result of such Investments)
having an aggregate fair market value, taken together with all other
Investments made pursuant to this clause (vii) that are at that time
outstanding (without giving effect to the sale of an Unrestricted
Subsidiary to the extent the proceeds of such sale do not consist of
cash, marketable securities and/or Qualified Proceeds or do consist of
distributions made pursuant to clause (xiii) below), not to exceed $25.0
million at the time of such Investment (with the fair market value of
each Investment being measured at the time made and without giving effect
to subsequent changes in value);
(viii) repurchases of Equity Interests deemed to occur upon
exercise of stock options if such Equity Interests represent a portion of
the exercise price of such options;
(ix) the payment of dividends on Willis Corroon Group's Common
Stock or the Issuer's Common Stock, following the first public offering
of Willis Corroon Group's Common Stock, the Issuer's Common Stock or the
Common Stock of any of its direct or indirect parent corporations after
the Closing Date, of up to 6% per annum of the net proceeds received by
Willis Corroon Group or the Issuer in such public offering, other than
public offerings with respect to Willis Corroon Group's Common Stock or
the Issuer's Common Stock registered on Form S-8;
(x) a Restricted Payment to pay for the repurchase, retirement
or other acquisition or retirement for value of common Equity Interests
of Willis Corroon Group or any direct or indirect parent corporation of
Willis Corroon Group in existence on the Closing Date and which are not
held by Kohlberg Kravis Roberts & Co. L.P., the Consortium or any of
their
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Affiliates on the Closing Date (including any Equity Interests issued in
respect of such Equity Interests as a result of a stock split,
recapitalization, merger, combination, consolidation or otherwise, but
excluding any management equity plan or stock option plan or similar
agreement), PROVIDED that Willis Corroon Group and its Restricted
Subsidiaries shall be permitted to make Restricted Payments under this
clause only if after giving effect thereto, Willis Corroon Group would be
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first sentence of
the covenant described under "--Limitations on Incurrence of Indebtedness
and Issuance of Disqualified Stock"; PROVIDED FURTHER that
notwithstanding the foregoing, Willis Corroon Group and the Restricted
Subsidiaries shall be permitted to make Restricted Payments in an amount
not to exceed $20.0 million to pay for the repurchase, retirement or
other acquisition or retirement for value of common Equity Interests of
Willis Corroon Group or any direct or indirect parent corporation of
Willis Corroon Group held by the Consortium;
(xi) Investments that are made with Excluded Contributions;
(xii) other Restricted Payments in an aggregate amount not to
exceed $25.0 million;
(xiii) the distribution, as a dividend or otherwise, of shares
of Capital Stock of, or Indebtedness owed to Willis Corroon Group or a
Restricted Subsidiary of Willis Corroon Group by, Unrestricted
Subsidiaries (with the exception of Investments in Unrestricted
Subsidiaries acquired pursuant to clause (x) of the definition of
Permitted Investments);
(xiv) cash dividends or other distributions on Willis Corroon
Group's Capital Stock used to, or loans the proceeds of which will be
used to, (A) fund the payment of dividends (at a rate per annum not to
exceed 8 1/2%) on the Consortium Preferred Stock (whether such dividends
have accrued during the then-current fiscal year or any previous fiscal
year) or (B) repay amounts outstanding under the Guaranteed Loan Notes;
(xv) loans in respect of Interim Refinancing Indebtedness or the
declaration and payment of dividends on the Closing Date to Trinity in an
amount equal to the aggregate outstanding principal amount of and accrued
and unpaid interest on, the Interim Financings and indebtedness of Willis
Corroon Group and its Subsidiaries existing on the Closing Date and
required to be repaid under the Senior Credit Facilities, the proceeds of
which were used by Trinity to repay the Interim Financings and such other
indebtedness;
(xvi) the declaration and payment of dividends to, or the making
of loans to, Trinity in an amount not to exceed the amount of principal
and interest then due and payable on the Interim Refinancing
Indebtedness, PROVIDED that the full amount of such dividend or loan is
immediately repaid in cash to Willis Corroon Group or any Restricted
Subsidiary;
(xvii) the declaration and payment of dividends by Willis
Corroon Group to, or the making of loans to, its parent corporation in
amounts required for Willis Corroon Group's direct or indirect parent
corporations to pay
(A) franchise taxes and other fees, taxes and
expenses required to maintain their corporate existence,
(B) federal, state and local income taxes (and
analogous taxes in the United Kingdom) to the extent such
income taxes are attributable to the income of Willis Corroon
Group and the Restricted Subsidiaries (and, to the extent of
the
126
amounts actually received from its Unrestricted Subsidiaries,
in amounts required to pay such taxes to the extent
attributable to the income of such Unrestricted Subsidiaries),
(C) customary salary, bonus and other benefits
payable to officers and employees of any direct or indirect
parent corporation of Willis Corroon Group to the extent such
salaries, bonuses and other benefits are attributable to the
ownership or operation of Willis Corroon Group and its
Subsidiaries and
(D) general corporate overhead expenses of any direct
or indirect parent corporation of the Company to the extent
such expenses are attributable to the ownership or operation
of Willis Corroon Group and its Subsidiaries;
(xviii) cash dividends or other distributions on Willis Corroon
Group's Capital Stock used to, or the making of loans to Trinity the
proceeds of which will be used to, fund the payment of fees and expenses
incurred in connection with the Transactions or owed to Affiliates, in
each case to the extent permitted by the covenant described under "--
Transactions with Affiliates";
(xix) distributions or payments of Receivables Fees;
(xx) the making of loans in respect of Trinity Intercompany
Notes;
(xxi) the declaration and payment of dividends to, or the making
of loans to, Trinity in an amount not to exceed the amount of principal
and interest then due and payable on the Trinity Intercompany Notes,
provided that the full amount of such dividend or loan is immediately
repaid in cash to Willis Corroon Group or any Restricted Subsidiary; or
(xxii) cash dividends or other distributions on Willis Corroon
Group's Capital Stock used to, or loans made to Trinity to, fund the
payment of net amounts required to be paid pursuant to any Trinity
Hedging Obligations.
As of the issuance of the Outstanding Notes, all of Willis Corroon
Group's Subsidiaries (other than Sovereign Marine and General Insurance Company,
in provisional liquidation) will be Restricted Subsidiaries. Willis Corroon
Group will not permit any Unrestricted Subsidiary to become a Restricted
Subsidiary except pursuant to the second to last sentence of the definition of
"Unrestricted Subsidiary". For purposes of designating any Restricted Subsidiary
as an Unrestricted Subsidiary, all outstanding Investments by Willis Corroon
Group and its Restricted Subsidiaries (except to the extent repaid) in the
Subsidiary so designated will be deemed to be Restricted Payments in an amount
determined as set forth in the last sentence of the definition of "Investment".
Such designation will be permitted only if a Restricted Payment in such amount
would be permitted at such time (whether pursuant to the first paragraph of this
covenant or under clauses (vii), (xi) and (xii)) and if such Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary. Unrestricted
Subsidiaries will not be subject to any of the restrictive covenants set forth
in the Indenture.
LIMITATION ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED
STOCK. The Indenture provides that Willis Corroon Group will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create,
incur, issue, assume, guarantee or otherwise become directly or indirectly
liable, contingently or otherwise, (collectively, "INCUR" and collectively, an
"INCURRENCE") with respect to any Indebtedness (including Acquired Indebtedness)
and that Willis Corroon Group will not issue any shares of Disqualified Stock
and will not permit any of its Restricted Subsidiaries to issue any shares of
preferred stock; PROVIDED, HOWEVER, that Willis Corroon Group may incur
Indebtedness (including
127
Acquired Indebtedness) or issue shares of Disqualified Stock, and the Issuer and
any Restricted Subsidiary that is a Guarantor may incur Indebtedness, issue
shares of Disqualified Stock and issue shares of preferred stock, if the Fixed
Charge Coverage Ratio for Willis Corroon Group's and its Restricted
Subsidiaries' most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock or preferred
stock is issued would have been at least 2.00 to 1.00, determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred, or the Disqualified Stock or
preferred stock had been issued, as the case may be, and the application of
proceeds therefrom had occurred at the beginning of such four-quarter period.
The foregoing limitations will not apply to:
(a) the existence of Indebtedness under Credit Facilities on the
Closing Date together with the incurrence by Willis Corroon Group, the
Issuer or any other Restricted Subsidiary of Indebtedness under Credit
Facilities and the issuance and creation of letters of credit and
bankers' acceptances thereunder (with letters of credit and bankers'
acceptances being deemed to have a principal amount equal to the face
amount thereof), up to an aggregate principal amount of $675.0 million
outstanding at any one time; PROVIDED, HOWEVER, that the aggregate amount
of Indebtedness incurred by Restricted Subsidiaries (other than the
Issuer or any Guarantor) pursuant to this clause (a) may not exceed
$150.0 million outstanding at any one time;
(b) the incurrence by the Issuer of Indebtedness represented by
the Notes;
(c) Existing Indebtedness (other than Indebtedness described in
clauses (a) and (b));
(d) Indebtedness (including Capitalized Lease Obligations)
incurred by Willis Corroon Group or any of its Restricted Subsidiaries,
to finance the purchase, lease or improvement of property (real or
personal) or equipment (whether through the direct purchase of assets or
the Capital Stock of any Person owning such assets) in an aggregate
principal amount which, when aggregated with the principal amount of all
other Indebtedness then outstanding and incurred pursuant to this clause
(d) and including all Refinancing Indebtedness incurred to refund,
refinance or replace any other Indebtedness incurred pursuant to this
clause (d), does not exceed the greater of (x) $50.0 million and (y) 5%
of Total Revenues.
(e) Indebtedness incurred by Willis Corroon Group or any of its
Restricted Subsidiaries constituting reimbursement obligations with
respect to letters of credit issued in the ordinary course of business,
including without limitation letters of credit in respect of workers'
compensation claims, or other Indebtedness with respect to reimbursement
type obligations regarding workers' compensation claims; PROVIDED,
HOWEVER, that upon the drawing of such letters of credit or the
incurrence of such Indebtedness, such obligations are reimbursed within
30 days following such drawing or incurrence;
(f) Indebtedness arising from agreements of Willis Corroon
Group or a Restricted Subsidiary providing for indemnification,
adjustment of purchase price or similar obligations, in each case,
incurred or assumed in connection with the disposition of any business,
assets or a Subsidiary, other than guarantees of Indebtedness incurred by
any Person acquiring all or any portion of such business, assets or a
Subsidiary for the purpose of financing such acquisition; PROVIDED,
HOWEVER, that
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(i) such Indebtedness is not reflected on the
balance sheet of Willis Corroon Group or any Restricted
Subsidiary (contingent obligations referred to in a footnote
to financial statements and not otherwise reflected on the
balance sheet will not be deemed to be reflected on such
balance sheet for purposes of this clause (i)) and
(ii) the maximum assumable liability in respect of
all such Indebtedness shall at no time exceed the gross
proceeds including noncash proceeds (the fair market value of
such noncash proceeds being measured at the time received and
without giving effect to any subsequent changes in value)
actually received by Willis Corroon Group and its Restricted
Subsidiaries in connection with such disposition;
(g) Indebtedness of Willis Corroon Group to a Restricted
Subsidiary; PROVIDED that any such Indebtedness is subordinated in right
of payment to the Notes; PROVIDED FURTHER that any subsequent issuance or
transfer of any Capital Stock or any other event which results in any
such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
other subsequent transfer of any such Indebtedness (except to Willis
Corroon Group or another Restricted Subsidiary) shall be deemed, in each
case to be an incurrence of such Indebtedness;
(h) Indebtedness of a Restricted Subsidiary to Willis Corroon
Group or another Restricted Subsidiary; PROVIDED that
(i) any such Indebtedness is made pursuant to an
intercompany note and
(ii) if a Guarantor incurs such Indebtedness to a
Restricted Subsidiary that is not the Issuer or a Guarantor
such Indebtedness is subordinated in right of payment to the
Guarantee of such Guarantor; PROVIDED FURTHER that any
subsequent transfer of any such Indebtedness (except to Willis
Corroon Group or another Restricted Subsidiary) shall be
deemed, in each case to be an incurrence of such Indebtedness;
(i) shares of preferred stock of a Restricted Subsidiary issued
to Willis Corroon Group or another Restricted Subsidiary; PROVIDED that
any subsequent issuance or transfer of any Capital Stock or any other
event which results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any other subsequent transfer of any such shares
of preferred stock (except to Willis Corroon Group or another Restricted
Subsidiary) shall be deemed in each case to be an issuance of such shares
of preferred stock;
(j) Hedging Obligations (excluding Hedging Obligations entered
into for speculative purposes);
(k) obligations in respect of performance and surety bonds and
completion guarantees provided by Willis Corroon Group or any Restricted
Subsidiary in the ordinary course of business;
(l) Indebtedness of any Guarantor in respect of such
Guarantor's Guarantee;
(m) Indebtedness and Disqualified Stock of Willis Corroon Group
or any of its Restricted Subsidiaries not otherwise permitted hereunder
in an aggregate principal amount or liquidation preference, which when
aggregated with the principal amount and liquidation
129
preference of all other Indebtedness and Disqualified Stock then
outstanding and incurred pursuant to this clause (m), does not at any one
time outstanding exceed the sum of (x) $250 million and (y) 100% of the
net cash proceeds received by Willis Corroon Group or the Issuer since
immediately after the Closing Date from the issue or sale of Equity
Interests of Willis Corroon Group, any of its direct or indirect parent
corporations or the Issuer or net cash proceeds contributed to the
capital of Willis Corroon Group or the Issuer (in each case other than
proceeds of Disqualified Stock or sales of Equity Interests to Willis
Corroon Group or any of its Subsidiaries) as determined in accordance
with clauses (c)(ii) and (c)(iii) of the first paragraph of "--Limitation
on Restricted Payments" to the extent such net cash proceeds have not
been applied pursuant to such clauses to make Restricted Payments or to
make other payments or exchanges pursuant to the second paragraph of
"--Limitation on Restricted Payments" or to make Permitted Investments
(other than Permitted Investments specified in clauses (a) and (c) of the
definition thereof) (it being understood that any Indebtedness incurred
under this clause (m) shall cease to be deemed incurred or outstanding
for purposes of this clause (m) but shall be deemed to be incurred for
purposes of the first paragraph of this covenant from and after the first
date on which Willis Corroon Group could have incurred such Indebtedness
under the first paragraph of this covenant without reliance upon this
clause (m));
(n) (i) any guarantee by Willis Corroon Group or the Issuer
of Indebtedness or other obligations of any of its Restricted
Subsidiaries so long as the incurrence of such Indebtedness
incurred by such Restricted Subsidiary is permitted under the
terms of the Indenture,
(ii) any guarantee by a Restricted Subsidiary of
Indebtedness of Willis Corroon Group or the Issuer or of the
Trinity Hedging Obligations or the Facility Hedging
Obligations, PROVIDED that such guarantee is incurred in
accordance with the covenant described below under
"--Limitation on Guarantees of Indebtedness by Restricted
Subsidiaries" or
(iii) any guarantee by the Issuer of the Trinity
Hedging Obligations or the Facility Hedging Obligations;
(o) the incurrence by Willis Corroon Group or any of its
Restricted Subsidiaries of Indebtedness which serves to refund or
refinance any Indebtedness incurred as permitted under the first
paragraph of this covenant and clauses (b), (c) and (d) above, this
clause (o) and clause (p) below or any Indebtedness issued to so refund
or refinance such Indebtedness including additional Indebtedness incurred
to pay premiums and fees in connection therewith (the "REFINANCING
INDEBTEDNESS") prior to its respective maturity; PROVIDED, HOWEVER, that
such Refinancing Indebtedness
(i) has a Weighted Average Life to Maturity at the
time such Refinancing Indebtedness is incurred which is not
less than the remaining Weighted Average Life to Maturity of
Indebtedness being refunded or refinanced,
(ii) to the extent such Refinancing Indebtedness
refinances Indebtedness subordinated or PARI PASSU to the
Notes, such Refinancing Indebtedness is subordinated or PARI
PASSU to the Notes at least to the same extent as the
Indebtedness being refinanced or refunded and
(iii) shall not include
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(x) Indebtedness of a Subsidiary that
refinances Indebtedness of Willis Corroon Group or
(y) Indebtedness of Willis Corroon Group or
a Restricted Subsidiary that refinances Indebtedness
of an Unrestricted Subsidiary;
and PROVIDED FURTHER that subclauses (i) and (ii) of this clause (o)
will not apply to any refunding or refinancing of any Senior
Indebtedness;
(p) Indebtedness or Disqualified Stock of Persons that are
acquired by Willis Corroon Group or any Restricted Subsidiary or merged
into a Restricted Subsidiary in accordance with the terms of the
Indenture; PROVIDED that such Indebtedness or Disqualified Stock is not
incurred in contemplation of such acquisition or merger; and PROVIDED
FURTHER that after giving effect to such acquisition or merger, either
(i) Willis Corroon Group would be permitted to incur
at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first
sentence of this covenant or
(ii) the Fixed Charge Coverage Ratio is greater than
immediately prior to such acquisition or merger.
Notwithstanding the foregoing, the second proviso of the immediately
preceding sentence shall not apply to Indebtedness outstanding on the
Closing Date of associates of Willis Corroon Group on the Closing Date
that are acquired by Willis Corroon Group or any Restricted Subsidiary
or merged into a Restricted Subsidiary;
(q) Indebtedness in respect of the Group Intercompany Notes,
PROVIDED that any subsequent transfer of a Group Intercompany Note by
Trinity to a Person other than Willis Corroon Group or a Restricted
Subsidiary shall be deemed to be an incurrence of such Indebtedness:
(r) Indebtedness in respect of a Convertible Loan, PROVIDED that
any subsequent transfer of a Convertible Loan by Trinity to a Person
other than Willis Corroon Group or a Restricted Subsidiary shall be
deemed to be an incurrence of such Indebtedness;
(s) Indebtedness under any BACS Facility entered into in the
ordinary course of business;
(t) Indebtedness incurred in relation to arrangements made in
the ordinary course of business to facilitate the operation of bank
accounts on a net balance basis for the calculation of interest;
(u) short-term Indebtedness from banks incurred in the ordinary
course of business pursuant to a facility required in order to comply
with, or otherwise falling within, paragraph 25 (2) of the Lloyd's
Brokers By-law (No. 5 of 1988) (or any other by-law or regulation issued
by Lloyd's from time to time with which the relevant company is required
to comply); and
(v) any guarantee facility entered into in the ordinary course
of business and consistent with industry custom provided in relation to
employees of Willis Corroon Group or any Restricted Subsidiary who are
Lloyd's names.
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For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of permitted Indebtedness described in clauses (a) through (v) above
or is entitled to be incurred pursuant to the first paragraph of this covenant,
Willis Corroon Group shall, in its sole discretion, classify such item of
Indebtedness in any manner that complies with this covenant and such item of
Indebtedness will be treated as having been incurred pursuant to only one of
such clauses or pursuant to the first paragraph hereof except as otherwise set
forth in clause (m). Accrual of interest, the accretion of accreted value and
the payment of interest in the form of additional Indebtedness will not be
deemed to be an incurrence of Indebtedness for purposes of this covenant.
For purposes of determining compliance with any U.S. dollar-denominated
restriction on the incurrence of Indebtedness, the U.S. dollar-equivalent
principal amount of indebtedness denominated in a foreign currency shall be
calculated based on the relevant currency exchange rate in effect on the date
such Indebtedness was incurred, in the case of term debt, or first committed, in
the case of revolving credit debt; PROVIDED that (x) the U.S. dollar-equivalent
principal amount of any such Indebtedness outstanding or committed on the
Issuance Date shall be calculated based on the relevant currency exchange rate
in effect on September 30, 1998, and (y) if such Indebtedness is incurred to
refinance other Indebtedness denominated in a foreign currency, and such
refinancing would cause the applicable U.S. dollar-denominated restriction to be
exceeded if calculated at the relevant currency exchange rate in effect on the
date of such Refinancing, such U.S. dollar-denominated restriction shall be
deemed not to have been exceeded so long as the principal amount of such
refinancing Indebtedness does not exceed the principal amount of such
Indebtedness being refinanced. The principal amount of any Indebtedness incurred
to refinance other Indebtedness, if incurred in a different currency from the
Indebtedness being refinanced, shall be calculated based on the currency
exchange rate applicable to the currencies in which such respective Indebtedness
is denominated that is in effect on the date of such refinancing.
LIENS. The Indenture provides that Willis Corroon Group will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly
create, incur, assume or suffer to exist any Lien that secures obligations under
any Senior Subordinated Indebtedness or Subordinated Indebtedness on any asset
or property of Willis Corroon Group or such Restricted Subsidiary, or any income
or profits therefrom, or assign or convey any right to receive income therefrom,
unless the Notes are equally and ratably secured (or senior to, in the event the
Lien relates to Subordinated Indebtedness) with the obligations so secured or
until such time as such obligations are no longer secured by a Lien.
The Indenture provides that no Guarantor will directly or indirectly
create, incur, assume or suffer to exist any Lien that secures obligations under
any Senior Subordinated Indebtedness or Subordinated Indebtedness of such
Guarantor on any asset or property of such Guarantor or any income or profits
therefrom, or assign or convey any right to receive income therefrom, unless the
Guarantee of such Guarantor is equally and ratably secured (or senior to, in the
event the Lien relates to Subordinated Indebtedness) with the obligations so
secured or until such time as such obligations are no longer secured by a Lien.
MERGER, CONSOLIDATION OR SALE OF ALL OR SUBSTANTIALLY ALL ASSETS. The
Indenture provides that neither Willis Corroon Group nor the Issuer may
consolidate or merge with or into or wind up into (whether or not Willis Corroon
Group or the Issuer, as the case may be, is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to any Person
unless
(i) Willis Corroon Group or the Issuer, as the case may be, is
the surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other
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than Willis Corroon Group or the Issuer, as the case may be) or to which
such sale, assignment, transfer, lease, conveyance or other disposition
will have been made is a corporation organized or existing under the laws
of
(A) in the case of Willis Corroon Group, the United
Kingdom or the United States, any state thereof, the District
of Columbia, or any territory thereof or
(B) in the case of the Issuer, the United States, any
state thereof, the District of Columbia, or any territory
thereof (the Company, the Issuer or such Person, as the case
may be, being herein called the "SUCCESSOR COMPANY");
(ii) the Successor Company (if other than Willis Corroon Group
or the Issuer) expressly assumes all the obligations of Willis Corroon
Group or the Issuer, as the case may be, under the Indenture and the
Notes pursuant to a supplemental indenture or other documents or
instruments in form reasonably satisfactory to the Trustee;
(iii) immediately after such transaction no Default or Event of
Default exists;
(iv) immediately after giving pro forma effect to such
transaction, as if such transaction had occurred at the beginning of the
applicable four-quarter period,
(A) the Successor Company would be permitted to incur
at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first
sentence of the covenant described under "--Limitations on
Incurrence of Indebtedness and Issuance of Disqualified Stock"
or
(B) the Fixed Charge Coverage Ratio for the Successor
Company and the Restricted Subsidiaries would be greater than
such Ratio for Willis Corroon Group and the Restricted
Subsidiaries immediately prior to such transaction;
(v) each Guarantor, unless it is the other party to the
transactions described above, in which case clause (ii) of the next
paragraph shall apply, shall have by supplemental indenture confirmed
that its Guarantee shall apply to such Person's obligations under the
Indenture and the Notes; and
(vi) Willis Corroon Group or the Issuer, as the case may be,
shall have delivered to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture (if any) comply with the
Indenture.
The Successor Company will succeed to, and be substituted for, Willis Corroon
Group or the Issuer, as the case may be, under the Indenture and the Notes.
Notwithstanding the foregoing clause (iv), (a) any Restricted Subsidiary may
consolidate with, merge into or transfer all or part of its properties and
assets to Willis Corroon Group or the Issuer and (b) Willis Corroon Group or the
Issuer may merge with an Affiliate incorporated solely for the purpose of
reincorporating Willis Corroon Group or the Issuer in another State of the
United States so long as the amount of Indebtedness of Willis Corroon Group and
the Restricted Subsidiaries is not increased thereby.
Subject to certain limitations described in the Indenture governing
release of a Guarantee upon the sale or disposition of a Guarantor, each
Guarantor other than Willis Corroon Group will not, and Willis Corroon Group
will not permit any other Guarantor to, consolidate or merge with or into or
wind up
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into (whether or not such Guarantor is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions to, any Person
unless
(i) such Guarantor is the surviving corporation or the Person
formed by or surviving any such consolidation or merger (if other than
such Guarantor) or to which such sale, assignment, transfer, lease,
conveyance or other disposition will have been made is a corporation
organized or existing under the laws of
(A) the United Kingdom or
(B) the United States, any state thereof, the
District of Columbia, or any territory thereof (such Guarantor
or such Person, as the case may be, being herein called the
"SUCCESSOR GUARANTOR");
(ii) the Successor Guarantor (if other than such Guarantor)
expressly assumes all the obligations of such Guarantor under the
Indenture and such Guarantor's Guarantee pursuant to a supplemental
indenture or other documents or instruments in form reasonably
satisfactory to the Trustee;
(iii) immediately after such transaction no Default or Event of
Default exists; and
(iv) Willis Corroon Group shall have delivered to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if
any) comply with the Indenture.
Subject to certain limitations described in the Indenture, the Successor
Guarantor will succeed to, and be substituted for, such Guarantor under the
Indenture and such Guarantor's Guarantee. Notwithstanding the foregoing, any
Guarantor may merge into or transfer all or part of its properties and assets to
another Guarantor.
TRANSACTIONS WITH AFFILIATES. The Indenture provides that Willis
Corroon Group will not, and will not permit any of its Restricted Subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or purchase any property or assets from, or enter
into or make or amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate of Willis
Corroon Group (each of the foregoing, an "AFFILIATE TRANSACTION") involving
aggregate payments or consideration in excess of $5.0 million, unless
(a) such Affiliate Transaction is on terms that are not
materially less favorable to Willis Corroon Group or the relevant
Restricted Subsidiary than those that would have been obtained in a
comparable transaction by Willis Corroon Group or such Restricted
Subsidiary with an unrelated Person and
(b) Willis Corroon Group delivers to the Trustee with respect to
any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $10.0 million, a
resolution adopted by the majority of the Board of Directors approving
such Affiliate Transaction and set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (a)
above.
The foregoing provisions will not apply to the following:
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(i) transactions between or among Willis Corroon Group and/or
any of its Restricted Subsidiaries;
(ii) Restricted Payments permitted by the provisions of the
Indenture described above under the covenant "--Limitation on Restricted
Payments";
(iii) the payment of customary annual management, consulting,
monitoring and advisory fees and related expenses to Kohlberg Kravis
Roberts & Co. L.P. and its Affiliates;
(iv) the payment of reasonable and customary fees paid to, and
indemnity provided on behalf of, officers, directors, employees or
consultants of Willis Corroon Group, any of its direct or indirect parent
corporations or any Restricted Subsidiary;
(v) payments by Willis Corroon Group or any of its Restricted
Subsidiaries to KKR and its Affiliates made for any financial advisory,
financing, underwriting or placement services or in respect of other
investment banking activities, including, without limitation, in
connection with acquisitions or divestitures which payments are approved
by a majority of the Board of Directors of Willis Corroon Group in good
faith;
(vi) transactions in which Willis Corroon Group or any of its
Restricted Subsidiaries, as the case may be, delivers to the Trustee a
letter from an Independent Financial Advisor stating that such
transaction is fair to Willis Corroon Group or such Restricted Subsidiary
from a financial point of view or meets the requirements of clause (a) of
the preceding paragraph;
(vii) payments or loans to employees or consultants of Willis
Corroon Group, any of its direct or indirect parent corporations or any
Restricted Subsidiary which are approved by a majority of the Board of
Directors of Willis Corroon Group in good faith;
(viii) any agreement as in effect as of the Closing Date
(including, without limitation, each of the agreements entered into in
connection with the Transactions) or any amendment thereto (so long as
any such amendment is not disadvantageous to the Holders in any material
respect) or any transaction contemplated thereby;
(ix) the existence of, or the performance by Willis Corroon
Group or any of its Restricted Subsidiaries of its obligations under the
terms of, any stockholders agreement (including any registration rights
agreement or purchase agreement related thereto) to which it is a party
as of the Closing Date and any similar agreements which it may enter into
thereafter; PROVIDED, HOWEVER, that the existence of, or the performance
by Willis Corroon Group or any of its Restricted Subsidiaries of
obligations under any future amendment to any such existing agreement or
under any similar agreement entered into after the Closing Date shall
only be permitted by this clause (ix) to the extent that the terms of any
such amendment or new agreement are not otherwise disadvantageous to the
Holders in any material respect;
(x) the Transactions and the payment of all fees and expenses
related to the Transactions;
(xi) transactions with customers, clients, suppliers, or
purchasers or sellers of goods or services, in each case in the ordinary
course of business and otherwise in compliance with the terms of the
Indenture which are fair to Willis Corroon Group or its Restricted
Subsidiaries, in the reasonable determination of the Board of Directors
of Willis
135
Corroon Group or the senior management thereof, or are on terms at least
as favorable as might reasonably have been obtained at such time from an
unaffiliated party;
(xii) the issuance of Equity Interests (other than Disqualified
Stock) of Willis Corroon Group or the Issuer to any Permitted Holder;
(xiii) any transaction between Willis Corroon Group or any
Restricted Subsidiary and any Associate, including any transaction
pursuant to which an Associate becomes a Restricted Subsidiary; and
(xiv) sales of accounts receivable, or participations therein,
in connection with any Receivables Facility.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The
Indenture provides that Willis Corroon Group will not, and will not permit any
of its Restricted Subsidiaries (other than the Issuer) to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or consensual restriction on the ability of any such
Restricted Subsidiary to:
(a) (i) pay dividends or make any other distributions to Willis
Corroon Group or any of its Restricted Subsidiaries (1) on its Capital
Stock or (2) with respect to any other interest or participation in, or
measured by, its profits or (ii) pay any Indebtedness owed to Willis
Corroon Group or any of its Restricted Subsidiaries;
(b) make loans or advances to Willis Corroon Group or any of its
Restricted Subsidiaries; or
(c) sell, lease or transfer any of its properties or assets to
the Company or any of its Restricted Subsidiaries, except (in each case)
for such encumbrances or restrictions existing under or by reason of:
(1) contractual encumbrances or restrictions in
effect on the Closing Date, including, without limitation,
pursuant to Existing Indebtedness or the Senior Credit
Facilities and their related documentation;
(2) the Indenture and the Notes;
(3) purchase money obligations for property acquired
in the ordinary course of business that impose restrictions of
the nature discussed in clause (c) above on the property so
acquired;
(4) applicable law or any applicable rule, regulation
or order;
(5) any agreement or other instrument of a Person
acquired by Willis Corroon Group or any Restricted Subsidiary
in existence at the time of such acquisition (but not created
in contemplation thereof), which encumbrance or restriction is
not applicable to any Person, or the properties or assets of
any Person, other than the Person, or the property or assets
of the Person, so acquired;
(6) contracts for the sale of assets, including,
without limitation customary restrictions with respect to a
Subsidiary pursuant to an agreement that
136
has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such
Subsidiary;
(7) secured Indebtedness otherwise permitted to be
incurred pursuant to the covenants described under
"--Limitations on Incurrence of Indebtedness and Issuance of
Disqualified Stock" and "--Liens" that limit the right of the
debtor to dispose of the assets securing such Indebtedness;
(8) restrictions on cash or other deposits or net
worth imposed by customers under contracts entered into in the
ordinary course of business;
(9) other Indebtedness or Disqualified Stock of
Restricted Subsidiaries permitted to be incurred subsequent to
the Closing Date pursuant to the provisions of the covenant
described under "--Limitations on Incurrence of Indebtedness
and Issuance of Disqualified Stock";
(10) customary provisions in joint venture agreements
and other similar agreements entered into in the ordinary
course of business;
(11) customary provisions contained in leases and
other agreements entered into in the ordinary course of
business;
(12) customary restrictions on fiduciary cash held by
Willis Corroon Group's Subsidiaries;
(13) any encumbrances or restrictions of the type
referred to in clauses (a), (b) and (c) above imposed by any
amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings of the
contracts, instruments or obligations referred to in clauses
(1) through (12) above, PROVIDED that such amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are, in the good
faith judgment of Willis Corroon Group's Board of Directors,
no more restrictive with respect to such dividend and other
payment restrictions than those contained in the dividend or
other payment restrictions prior to such amendment,
modification, restatement, renewal, increase, supplement,
refunding, replacement or refinancing; or
(14) restrictions created in connection with any
Receivables Facility that, in the good faith determination of
the Board of Directors of Willis Corroon Group or the Issuer,
as the case may be, are necessary or advisable to effect such
Receivables Facility.
LIMITATION ON GUARANTEES OF INDEBTEDNESS BY RESTRICTED
SUBSIDIARIES. (a) The Indenture provides that Willis Corroon Group will not
permit any Domestic Subsidiary or U.K. Subsidiary of Willis Corroon Group that
is not a Subsidiary of the Issuer or any Domestic Subsidiary of the Issuer (in
each case, other than any such Restricted Subsidiary created in connection with
a Receivables Facility) to guarantee the payment of any Indebtedness of Willis
Corroon Group or the Issuer unless
(A) such Restricted Subsidiary simultaneously executes and
delivers a supplemental indenture to the Indenture providing for a
Guarantee of payment of the Notes
137
by such Restricted Subsidiary except that with respect to a guarantee of
Indebtedness of Willis Corroon Group or the Issuer
(1) if the Notes are subordinated in right of payment
to such Indebtedness, the Guarantee under the supplemental
indenture shall be subordinated to such Restricted
Subsidiary's guarantee with respect to such Indebtedness
substantially to the same extent as the Notes are subordinated
to such Indebtedness under the Indenture and
(2) if such Indebtedness is by its express terms
subordinated in right of payment to the Notes, any such
guarantee of such Restricted Subsidiary with respect to such
Indebtedness shall be subordinated in right of payment to such
Restricted Subsidiary's Guarantee with respect to the Notes
substantially to the same extent as such Indebtedness is
subordinated to the Notes;
(B) such Restricted Subsidiary waives and will not in any manner
whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against
Willis Corroon Group or any other Restricted Subsidiary as a result of
any payment by such Restricted Subsidiary under its Guarantee; and
(C) such Restricted Subsidiary shall deliver to the Trustee an
opinion of counsel to the effect that
(1) such Guarantee of the Notes has been duly
executed and authorized and
(2) such Guarantee of the Notes constitutes a valid,
binding and enforceable obligation of such Restricted
Subsidiary, except insofar as enforcement thereof may be
limited by bankruptcy, insolvency or similar laws (including,
without limitation, all laws relating to fraudulent transfers)
and except insofar as enforcement thereof is subject to
general principles of equity;
PROVIDED that this paragraph (a) shall not be applicable to any guarantee of any
Restricted Subsidiary
(x) that (1) existed at the time such Person became a Restricted
Subsidiary and (2) was not incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary or
(y) that guarantees the payment of Obligations of Willis Corroon
Group, the Issuer or any Restricted Subsidiary under the Senior Credit
Facilities or any other Senior Indebtedness and any refunding,
refinancing or replacement thereof, in whole or in part, PROVIDED that
such refunding, refinancing or replacement thereof constitutes Senior
Indebtedness and PROVIDED FURTHER that any such Senior Indebtedness and
any refunding, refinancing or replacement thereof is not incurred
pursuant to a registered offering of securities under the Securities Act
or a private placement of securities (including under Rule 144A) pursuant
to an exemption from the registration requirements of the Securities Act,
which private placement provides for registration rights under the
Securities Act.
(b) Notwithstanding the foregoing and the other provisions of the
Indenture, any Guarantee by a Restricted Subsidiary of the Notes shall provide
by its terms that it shall be automatically and unconditionally released and
discharged upon
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(i) any sale, exchange or transfer, to any Person not an
Affiliate of Willis Corroon Group, of all of Willis Corroon Group's or
the Issuer's Capital Stock in, or all or substantially all the assets of,
such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by the Indenture) or
(ii) the release or discharge of the guarantee by such
Restricted Subsidiary that is a Subsidiary of the Issuer which resulted
in the creation of such Guarantee, except a discharge or release by or as
a result of payment under such guarantee.
LIMITATION ON OTHER SENIOR SUBORDINATED INDEBTEDNESS. The Indenture
provides that Willis Corroon Group will not, and will not permit the Issuer or
any other Guarantor to, directly or indirectly, incur any Indebtedness
(including Acquired Indebtedness) that is subordinate in right of payment to any
Indebtedness of Willis Corroon Group, the Issuer or any Guarantor, as the case
may be, unless such Indebtedness is either
(a) equal in right of payment with the Notes or Willis Corroon
Group's or such other Guarantor's Guarantee, as the case may be, or
(b) subordinate in right of payment to the Notes, or Willis
Corroon Group's or such other Guarantor's Guarantee, as the case may be.
REPORTS AND OTHER INFORMATION. Notwithstanding that neither Willis
Corroon Group nor the Issuer may be subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act or otherwise report on an annual and
quarterly basis on forms provided for such annual and quarterly reporting
pursuant to rules and regulations promulgated by the Securities and Exchange
Commission, the Indenture will require Willis Corroon Group to file with the
Commission (and make available to the Trustee and Holders (without exhibits),
without cost to each Holder, within 15 days after it files them with the
Commission),
(a) within 90 days after the end of each fiscal year, annual
reports on Form 20-F (or any successor or comparable form) containing the
information required to be contained therein (or required in such
successor or comparable form);
(b) within 45 days after the end of each of the first three
fiscal quarters of each fiscal year, reports on Form 6-K, which will
contain all quarterly information that would be required to be contained
in Form 10-Q (or any successor or comparable form);
(c) promptly from time to time after the occurrence of an event
required to be therein reported, such other reports on Form 6-K (or any
successor or comparable form); and
(d) any other information, documents and other reports which
Willis Corroon Group would be required to file with the Commission if it
were subject to Section 13 or 15(d) of the Exchange Act;
PROVIDED that all such information may be prepared in accordance with GAAP but
shall contain a reconciliation to United States generally accepted accounting
principles and PROVIDED, FURTHER, that Willis Corroon Group shall not be so
obligated to file such reports with the Commission if the Commission does not
permit such filing, in which event Willis Corroon Group will make available such
information to prospective purchasers of Notes, in addition to providing such
information to the Trustee and the Holders, in each case within 15 days after
the time Willis Corroon Group would be required to file such information with
the Commission, if it were subject to Sections 13 or 15(d) of the Exchange Act.
139
Notwithstanding the foregoing, such requirements shall be deemed satisfied prior
to the commencement of the Exchange Offer or the effectiveness of the Shelf
Registration Statement by the filing with the Commission of the Exchange Offer
Registration Statement and/or Shelf Registration Statement, and any amendments
thereto, with such financial information that satisfies Regulation S-X of the
Securities Act, PROVIDED, HOWEVER, that in order for the provisions of clause
(a) above to be deemed satisfied with respect to 1998, such Exchange Offer
Registration Statement or Shelf Registration Statement must include audited
financial statements for the year 1998.
EVENTS OF DEFAULT AND REMEDIES
The following events constitute Events of Default under the Indenture:
(i) default in payment when due and payable, upon redemption,
acceleration or otherwise, of principal of, or premium, if any, on the
Notes whether or not such payment shall be prohibited by the
subordination provisions relating to the Notes;
(ii) default for 30 days or more in the payment when due of
interest on or with respect to the Notes whether or not such payment
shall be prohibited by the subordination provisions relating to the
Notes;
(iii) failure by Willis Corroon Group, the Issuer or any
Guarantor for 30 days after receipt of written notice given by the
Trustee or the holders of at least 30% in principal amount of the Notes
then outstanding to comply with any of its other agreements in the
Indenture or the Notes;
(iv) default under any mortgage, indenture or instrument under
which there is issued or by which there is secured or evidenced any
Indebtedness for money borrowed by Willis Corroon Group or any of its
Restricted Subsidiaries or the payment of which is guaranteed by Willis
Corroon Group or any of its Restricted Subsidiaries (other than
Indebtedness owed to Willis Corroon Group or a Restricted Subsidiary and
other than any Group Intercompany Note, PROVIDED that such Group
Intercompany Note is held by Trinity at such time), whether such
Indebtedness or guarantee now exists or is created after the issuance of
the Outstanding Notes, if both
(A) such default either (1) results from the failure
to pay any such Indebtedness at its stated final maturity
(after giving effect to any applicable grace periods) or (2)
relates to an obligation other than the obligation to pay
principal of any such Indebtedness at its stated final
maturity and results in the holder or holders of such
Indebtedness causing such Indebtedness to become due prior to
its stated maturity and
(B) the principal amount of such Indebtedness,
together with the principal amount of any other such
Indebtedness in default for failure to pay principal at stated
final maturity (after giving effect to any applicable grace
periods), or the maturity of which has been so accelerated,
aggregate $25 million or more at any one time outstanding;
(v) failure by Willis Corroon Group, the Issuer or any of its
Significant Subsidiaries to pay final judgments aggregating in excess of
$25 million, which final judgments remain unpaid, undischarged and
unstayed for a period of more than 60 days after such judgment becomes
final, and in the event such judgment is covered by insurance, an
enforcement
140
proceeding has been commenced by any creditor upon such judgment or
decree which is not promptly stayed;
(vi) certain events of bankruptcy or insolvency with respect to
Willis Corroon Group, the Issuer or any of its Significant Subsidiaries;
or
(vii) the Guarantee of any Significant Subsidiary shall for any
reason cease to be in full force and effect or be declared null and void
or any responsible officer of Willis Corroon Group or any Guarantor that
is a Significant Subsidiary denies that it has any further liability
under its Guarantee or gives notice to such effect (other than by reason
of the termination of the Indenture or the release of any such Guarantee
in accordance with the Indenture).
If any Event of Default (other than of a type specified in clause (vi)
above) occurs and is continuing under the Indenture, the Trustee or the Holders
of at least 30% in principal amount of the then outstanding Notes may declare
the principal, premium, if any, interest and any other monetary obligations on
all the then outstanding Notes to be due and payable immediately; PROVIDED,
HOWEVER, that, so long as any Indebtedness permitted to be incurred under the
Indenture as part of the Senior Credit Facilities shall be outstanding, no such
acceleration shall be effective until the earlier of
(1) acceleration of any such Indebtedness under the Senior
Credit Facilities or
(2) five business days after the giving of written notice to the
Issuer and the administrative agent under the Senior Credit Facilities of
such acceleration.
Upon the effectiveness of such declaration, such principal and interest will be
due and payable immediately. Notwithstanding the foregoing, in the case of an
Event of Default arising under clause (vi) of the first paragraph of this
section, all outstanding Notes will become due and payable without further
action or notice. Holders may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Indenture provides that the Trustee may
withhold from Holders notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal,
premium, if any, or interest) if it determines that withholding notice is in
their interest. In addition, the Trustee shall have no obligation to accelerate
the Notes if in the best judgment of the Trustee acceleration is not in the best
interest of the Holders of such Notes.
The Indenture provides that the Holders of a majority in aggregate
principal amount of the then outstanding Notes issued thereunder by notice to
the Trustee may on behalf of the Holders of all of such Notes waive any existing
Default or Event of Default and its consequences under the Indenture except a
continuing Default or Event of Default in the payment of interest on, premium,
if any, or the principal of any such Note held by a non-consenting Holder. In
the event of any Event of Default specified in clause (iv) above, such Event of
Default and all consequences thereof (including without limitation any
acceleration or resulting payment default) shall be annulled, waived and
rescinded, automatically and without any action by the Trustee or the Holders,
if within 20 days after such Event of Default arose
(x) the Indebtedness or guarantee that is the basis for such
Event of Default has been discharged, or
(y) the holders thereof have rescinded or waived the
acceleration, notice or action (as the case may be) giving rise to such
Event of Default, or
(z) if the default that is the basis for such Event of Default
has been cured.
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The Indenture provides that the Issuer is required to deliver to the
Trustee annually a statement regarding compliance with the Indenture, and the
Issuer is required, within five Business Days, upon becoming aware of any
Default or Event of Default or any default under any document, instrument or
agreement representing Indebtedness of the Issuer or any Guarantor, to deliver
to the Trustee a statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the
Issuer or any Guarantor, shall have any liability for any obligations of the
Issuer or the Guarantors under the Notes, the Guarantees or the Indenture or for
any claim based on, in respect of, or by reason of such obligations or their
creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a waiver
is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The obligations of the Issuer and the Guarantors under the Indenture
will terminate (other than certain obligations) and will be released upon
payment in full of all of the Notes. The Issuer may, at its option and at any
time, elect to have all of its obligations discharged with respect to the
outstanding Notes and have each Guarantor's obligation discharged with respect
to its Guarantee ("LEGAL DEFEASANCE") and cure all then existing Events of
Default except for
(i) the rights of Holders of outstanding Notes to receive
payments in respect of the principal of, premium, if any, and interest on
such Notes when such payments are due solely out of the trust created
pursuant to the Indenture,
(ii) the Issuer's obligations with respect to Notes concerning
issuing temporary Notes, registration of such Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or
agency for payment and money for security payments held in trust,
(iii) the rights, powers, trusts, duties and immunities of the
Trustee, and the Issuer's obligations in connection therewith and
(iv) the Legal Defeasance provisions of the Indenture.
In addition, the Issuer may, at its option and at any time, elect to have the
obligations of the Issuer and each Guarantor released with respect to certain
covenants that are described in the Indenture ("COVENANT DEFEASANCE") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment on other
indebtedness, bankruptcy, receivership, rehabilitation and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance
with respect to the Notes:
(i) the Issuer must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders, cash in U.S. dollars, non-callable
Government Securities, or a combination
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thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest due on the outstanding Notes
on the stated maturity date or on the applicable redemption date, as the
case may be, of such principal, premium, if any, or interest on the
outstanding Notes;
(ii) in the case of Legal Defeasance, the Issuer shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that, subject to
customary assumptions and exclusions,
(A) the Issuer has received from, or there has been
published by, the United States Internal Revenue Service a
ruling or
(B) since the issuance of the outstanding Notes,
there has been a change in the applicable U.S. federal income
tax law,
in either case to the effect that, and based thereon such opinion of counsel in
the United States shall confirm that, subject to customary assumptions and
exclusions, the Holders will not recognize income, gain or loss for U.S. federal
income tax purposes as a result of such Legal Defeasance and will be subject to
U.S. federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, the Issuer shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that, subject to
customary assumptions and exclusions, the Holders will not recognize
income, gain or loss for U.S. federal income tax purposes as a result of
such Covenant Defeasance and will be subject to such tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or, with respect to certain
bankruptcy or insolvency Events of Default, on the 91st day after such
date of deposit;
(v) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under, the
Senior Credit Facilities or any other material agreement or instrument
(other than the Indenture) to which, the Issuer or any Guarantor is a
party or by which the Issuer or any Guarantor is bound;
(vi) the Issuer shall have delivered to the Trustee an opinion
of counsel to the effect that, as of the date of such opinion and subject
to customary assumptions and exclusions following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally under any applicable U.S. federal or state law, and that the
Trustee has a perfected security interest in such trust funds for the
ratable benefit of the Holders;
(vii) the Issuer shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the Issuer
with the intent of defeating, hindering, delaying or defrauding any
creditors of the Issuer or any Guarantor or others; and
(viii) the Issuer shall have delivered to the Trustee an
Officers' Certificate and an opinion of counsel in the United States
(which opinion of counsel may be subject to
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customary assumptions and exclusions) each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the
Covenant Defeasance, as the case may be, have been complied with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
as to all Notes issued thereunder, when either
(a) all such Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid
and Notes for whose payment money has theretofore been deposited in
trust) have been delivered to the Trustee for cancellation; or
(b) (i) all such Notes not theretofore delivered to such
Trustee for cancellation have become due and payable by reason
of the making of a notice of redemption or otherwise or will
become due and payable within one year and the Issuer or any
Guarantor has irrevocably deposited or caused to be deposited
with such Trustee as trust funds in trust solely for the benefit
of the Holders, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be
sufficient without consideration of any reinvestment of interest
to pay and discharge the entire indebtedness on such Notes not
theretofore delivered to the Trustee for cancellation for
principal, premium, if any, and accrued interest to the date of
maturity or redemption;
(ii) no Default or Event of Default with respect to
the Indenture or the Notes shall have occurred and be
continuing on the date of such deposit or shall occur as a
result of such deposit and such deposit will not result in a
breach or violation of, or constitute a default under, any
other instrument to which the Issuer or any Guarantor is a
party or by which the Issuer or any Guarantor is bound;
(iii) the Issuer or any Guarantor has paid or caused
to be paid all sums payable by it under such Indenture; and
(iv) the Issuer has delivered irrevocable
instructions to the Trustee under such Indenture to apply the
deposited money toward the payment of such Notes at maturity
or the redemption date, as the case may be.
In addition, the Issuer must deliver an Officers' Certificate and an opinion of
counsel to the Trustee stating that all conditions precedent to satisfaction and
discharge have been satisfied.
WITHHOLDING TAXES
All payments made by Willis Corroon Group with respect to its Guarantee
will be made without withholding or deduction for, or on account of, any present
or future taxes, duties, assessments or governmental charges of whatever nature
(collectively, "Taxes") imposed or levied by or on behalf of the United Kingdom
or any political subdivision thereof or any authority having power to tax
therein (each a "U.K. Tax Authority"), unless the withholding or deduction of
such Taxes is then required by law. If any deduction or withholding for, or on
account of, any Taxes of any U.K. Tax Authority, shall at any time be required
on any payments made by Willis Corroon Group with respect to its Guarantee,
Willis Corroon Group will pay such additional amounts (the "Additional Amounts")
as may be necessary in order that the net amounts received in respect of such
payments by the Holders of the Notes or the
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Trustee, as the case may be, after such withholding or deduction, equal the
respective amounts which would have been received in respect of such payments in
the absence of such withholding or deduction, except that no such Additional
Amounts will be payable with respect to:
(i) any payments on a Note held by or on behalf of a Holder or
beneficial owner who is liable for such Taxes in respect of such Note by
reason of the Holder or beneficial owner having some connection with the
United Kingdom (including being a citizen or resident or national of, or
carrying on a business or maintaining a permanent establishment in, or
being physically present in, the United Kingdom) other than by the mere
holding of such Note or enforcement of rights thereunder or the receipt
of payments in respect thereof;
(ii) any Taxes that are imposed or withheld by reason of the
failure of the Holder or beneficial owner of the Note to comply with any
request by Willis Corroon Group to provide information concerning the
nationality, residence or identity of such Holder or beneficial owner or
to make any declaration or similar claim or satisfy any information or
reporting requirement, which is required or imposed by a statute, treaty,
regulation or administrative practice of the taxing jurisdiction as a
precondition to exemption from all or part of such Taxes; and
(iii) any Note presented for payment (where presentation is
required) more than 30 days after the relevant payment is first made
available for payment to the Holder.
Such Additional Amounts will also not be payable where, had the
beneficial owner of the Note been the Holder of the Note, he would not have been
entitled to payment of Additional Amounts by reason of clauses (i) to (iii)
inclusive, above.
References to principal, interest, premium or other amounts payable in
respect of Willis Corroon Group's Guarantee shall be deemed also to refer to any
Additional Amounts which may be payable.
Willis Corroon Group will also
(i) make such withholding or deduction and
(ii) remit the full amount deducted or withheld to the relevant
authority in accordance with applicable law.
Upon request, Willis Corroon Group will provide the Trustee with documentation
satisfactory to the Trustee evidencing the payment of Additional Amounts. Copies
of such documentation will be made available to the Holders upon request.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Issuer may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Issuer is not required to transfer or exchange
any Note selected for redemption. Also, the Issuer is not required to transfer
or exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
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If Certificated Notes are issued, the Issuer will appoint and maintain
a transfer agent (the "Transfer Agent") in Luxembourg for so long as the Notes
are listed on the Luxembourg Stock Exchange, at which office a holder of a
Certificated Note will be able to surrender its Note for registration of
transfer. The Issuer will be able to at any time terminate the appointment of a
Transfer Agent and appoint additional or other Transfer Agents. Notice of such
termination or appointment and of any change in the specified office of a
Transfer Agent will be provided in the manner described below in "--Notices."
The registered Holder of a Note will be treated as the owner of the
Note for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the
Indenture, any Guarantee and the Notes issued thereunder may be amended or
supplemented with the consent of the Holders of at least a majority in principal
amount of the Notes then outstanding (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for, Notes), and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a purchase of or tender offer or exchange offer for
Notes).
The Indenture provides that without the consent of each Holder
affected, an amendment or waiver may not (with respect to any Notes held by a
non-consenting Holder):
(i) reduce the principal amount of Notes whose Holders must
consent to an amendment, supplement or waiver,
(ii) reduce the principal of or change the fixed maturity of any
such Note or alter or waive the provisions with respect to the redemption
of the Notes (other than provisions relating to the covenants described
above under the caption "--Repurchase at the Option of Holders"),
(iii) reduce the rate of or change the time for payment of
interest on any Note,
(iv) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Notes (except a
rescission of acceleration of the Notes by the Holders of at least a
majority in aggregate principal amount of such Notes and a waiver of the
payment default that resulted from such acceleration), or in respect of a
covenant or provision contained in the Indenture or any Guarantee which
cannot be amended or modified without the consent of all Holders,
(v) make any Note payable in money other than that stated in
such Notes,
(vi) make any change in the provisions of the Indenture relating
to waivers of past Defaults or the rights of Holders to receive payments
of principal of or premium, if any, or interest on the Notes,
(vii) make any change in the foregoing amendment and waiver
provisions,
(viii) impair the right of any Holder to receive payment of
principal of, or interest on such Holder's Notes on or after the due
dates therefor or to institute suit for the enforcement of any payment on
or with respect to such Holder's Notes or
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(ix) make any change in the subordination provisions of the
Indenture that would adversely affect the Holders.
The Indenture provides that, notwithstanding the foregoing, without the
consent of any Holder, the Issuer, any Guarantor (with respect to a Guarantee or
the Indenture to which it is a party) and the Trustee may amend or supplement
the Indenture, any Guarantee or the Notes:
(i) to cure any ambiguity, omission, defect or inconsistency;
(ii) to provide for uncertificated Notes in addition to or in
place of certificated Notes;
(iii) to comply with the covenant relating to mergers,
consolidations and sales of assets;
(iv) to provide for the assumption of the Issuer's or any
Guarantor's obligations to Holders;
(v) to make any change that would provide any additional rights
or benefits to the Holders or that does not adversely affect the legal
rights under the Indenture of any such Holder;
(vi) to add covenants for the benefit of the Holders or to
surrender any right or power conferred upon the Issuer;
(vii) to comply with requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust
Indenture Act;
(viii) to evidence and provide for the acceptance and
appointment under the Indenture of a successor Trustee pursuant to the
requirements thereof;
(ix) to provide for the issuance of Exchange Notes or private
exchange notes (which are identical to Exchange Notes except that they
are not freely transferrable;
(x) to add a Guarantor under the Indenture; or
(xi) to provide that Trinity be added as a Guarantor (along with
Willis Corroon Group and Willis Corroon Partners).
The consent of the Holders is not necessary under the Indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment.
NOTICES
Notices regarding the Notes will be (i) published in a leading
newspaper having circulation in New York (which is expected to be the WALL
STREET JOURNAL) (and, so long as the Notes, are listed on the Luxembourg Stock
Exchange and the rules of such stock exchange shall so require, a newspaper
having a general circulation in Luxembourg (which is expected to be the
LUXEMBURGER WORT)) or (ii) in the case of Certificated Notes, mailed to Holders
by first-class mail at their respective addresses as they appear on the
registration books of the Registrar (and, so long as the Notes are listed on the
Luxembourg Stock Exchange and the rules of such stock exchange shall so require,
published in a newspaper having a general circulation in Luxembourg (which is
expected to be the LUXEMBURGER WORT)). Notices given by publication will be
deemed given on the first date on which publication is made and notices given by
first-class mail, postage prepaid, will be deemed given five calendar days after
mailing.
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CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Issuer, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The Indenture provides that the Holders of a majority in principal
amount of the outstanding Notes issued thereunder will have the right to direct
the time, method and place of conducting any proceeding for exercising any
remedy available to the Trustee, subject to certain exceptions. The Indenture
provides that in case an Event of Default shall occur (which shall not be
cured), the Trustee will be required, in the exercise of its power, to use the
degree of care of a prudent person in the conduct of his own affairs. Subject to
such provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any Holder of such Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense.
GOVERNING LAW
The Indenture, the Notes and the Guarantees will be, subject to certain
exceptions, governed by and construed in accordance with the internal laws of
the State of New York, without regard to the choice of law rules thereof.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture.
Reference is made to the Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided. For purposes of the Indenture, unless otherwise specifically
indicated, the term "consolidated" with respect to any Person refers to such
Person consolidated with its Restricted Subsidiaries, and excludes from such
consolidation any Unrestricted Subsidiary as if such Unrestricted Subsidiary
were not an Affiliate of such Person.
"ACQUIRED INDEBTEDNESS" means, with respect to any specified Person,
(i) Indebtedness of any other Person existing at the time such
other Person is merged with or into or became a Restricted Subsidiary of
such specified Person, including, without limitation, Indebtedness
incurred in connection with, or in contemplation of, such other Person
merging with or into or becoming a Restricted Subsidiary of such
specified Person, and
(ii) Indebtedness secured by a Lien encumbering any asset
acquired by such specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
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"ASSET SALE" means
(i) the sale, conveyance, transfer or other disposition (whether
in a single transaction or a series of related transactions) of property
or assets (including by way of a sale and leaseback) of Willis Corroon
Group or any Restricted Subsidiary (each referred to in this definition
as a "DISPOSITION") or
(ii) the issuance or sale of Equity Interests of any Restricted
Subsidiary (whether in a single transaction or a series of related
transactions),
in each case, other than:
(a) a disposition of Cash Equivalents or Investment Grade
Securities or obsolete or worn out equipment in the ordinary course of
business or inventory or goods held for sale in the ordinary course of
business;
(b) the disposition of all or substantially all of the assets of
Willis Corroon Group in a manner permitted pursuant to the provisions
described above under "--Certain Covenants--Merger, Consolidation or Sale
of All or Substantially All Assets" or any disposition that constitutes a
Change of Control pursuant to the Indenture;
(c) the making of any Restricted Payment or Permitted Investment
that is permitted to be made, and is made, under the covenant described
above under "--Certain Covenants--Limitation on Restricted Payments";
(d) any disposition of assets or issuance or sale of Equity
Interests of any Restricted Subsidiary with an aggregate fair market
value of less than $2.5 million;
(e) any disposition of property or assets or issuance of
securities by a Restricted Subsidiary to Willis Corroon Group or by
Willis Corroon Group or a Restricted Subsidiary to a Restricted
Subsidiary;
(f) any exchange of like property pursuant to Section 1031 of
the Internal Revenue Code of 1986 for use in a Similar Business;
(g) the lease, assignment or sub-lease of any real or personal
property in the ordinary course of business;
(h) any financing transaction with respect to property built or
acquired by Willis Corroon Group or any Restricted Subsidiary after the
Closing Date, including, without limitation, sale-leasebacks and asset
securitizations;
(i) foreclosures on assets;
(j) any sale of Equity Interests in, or Indebtedness or other
securities of, an Unrestricted Subsidiary (with the exception of
Investments in Unrestricted Subsidiaries acquired pursuant to clause
(b)(x) of the definition of Permitted Investments); and
(k) sales of accounts receivable, or participations therein, in
connection with any Receivables Facility.
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"ASSOCIATE" means any Person engaged in a Similar Business of which at
least 20% but not more than 50% of the Voting Stock thereof is owned by Willis
Corroon Group or any Restricted Subsidiary.
"BACS FACILITY" means a facility created to make automated payments
through Banks' Automated Clearance System.
"CAPITAL STOCK" means
(i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and
all shares, interests, participations, rights or other equivalents
(however designated) of corporate stock,
(iii) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a
Person the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
"CAPITALIZED LEASE OBLIGATION" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be required to be capitalized and reflected as a
liability on a balance sheet (excluding the footnotes thereto) in accordance
with GAAP.
"CASH EQUIVALENTS" means
(i) United States dollars,
(ii) pounds sterling,
(iii) Euro,
(iv) Japanese Yen,
(v) Canadian dollars,
(vi) Australian dollars,
(vii) securities issued or directly and fully guaranteed or
insured by the United States or United Kingdom government or any agency
or instrumentality thereof with maturities of 24 months or less from the
date of acquisition,
(viii) certificates of deposit, time deposits and eurodollar
time deposits with maturities of one year or less from the date of
acquisition, bankers' acceptances with maturities not exceeding one year
and overnight bank deposits, in each case with any commercial bank having
capital and surplus in excess of $500.0 million,
(ix) repurchase obligations for underlying securities of the
types described in clauses (vii) and (viii) entered into with any
financial institution meeting the qualifications specified in clause
(viii) above,
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(x) commercial paper rated A-1 or the equivalent thereof by
Moody's or S&P and in each case maturing within one year after the date
of acquisition,
(xi) investment funds investing 95% of their assets in
securities of the types described in clauses (i)-(x) above,
(xii) readily marketable direct obligations issued by any state
of the United States of America or any political subdivision thereof
having one of the two highest rating categories obtainable from either
Moody's or S&P with maturities of 24 months or less from the date of
acquisition and
(xiii) Indebtedness or preferred stock issued by Persons with a
rating of "A" or higher from S&P or "A2" or higher from Moody's with
maturities of 24 months or less from the date of acquisition.
Notwithstanding the foregoing, Cash Equivalents shall include amounts
denominated in currencies other than those set forth in clauses (i) through (vi)
above, PROVIDED that such amounts are converted into any currency listed in
clauses (i) through (vi) as promptly as practicable and in any event within ten
Business Days following the receipt of such amounts.
"CHANGE OF CONTROL" means the occurrence of any of the following:
(i) the sale, lease or transfer, in one or a series of related
transactions, of all or substantially all of the assets of Willis Corroon Group
and its Subsidiaries, taken as a whole, to any Person other than a Permitted
Holder; or
(ii) Willis Corroon Group becomes aware of (by way of a report or any
other filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written
notice or otherwise) the acquisition by any Person or group (within the meaning
of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor
provision), including any group acting for the purpose of acquiring, holding or
disposing of securities (within the meaning of Rule 13d-5(b)(1) under the
Exchange Act), other than the Permitted Holders, in a single transaction or in a
related series of transactions, by way of merger, consolidation or other
business combination or purchase of beneficial ownership (within the meaning of
Rule 13d-3 under the Exchange Act, or any successor provision) of 50% or more of
the total Voting Stock of Willis Corroon Group or any of its direct or indirect
parent corporations.
"CLOSING DATE" means November 19, 1998, the date on which the
Subordinated Bridge Agreement was executed.
"CONSOLIDATED DEPRECIATION AND AMORTIZATION EXPENSE" means with
respect to any Person for any period, the total amount of depreciation and
amortization expense and other noncash charges (excluding any noncash item that
represents an accrual or reserve for a cash expenditure for a future period) of
such Person and its Restricted Subsidiaries for such period on a consolidated
basis and otherwise determined in accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for
any period, the sum, without duplication, of:
(a) consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, to the extent such expense was
deducted in computing Consolidated Net Income (including amortization of
original issue discount, non-cash interest payments, the
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interest component of Capitalized Lease Obligations and net payments (if
any) pursuant to Hedging Obligations, excluding amortization of deferred
financing fees),
(b) consolidated capitalized interest of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued and
(c) the impact of any net payments or receipts related to
Trinity Hedging Obligations, PROVIDED that any reduction of interest
expense related to any net amounts to be received by Trinity are actually
received by Willis Corroon Group within 31 days of the end of the period
during which such reduction of interest expense was recorded; PROVIDED,
HOWEVER, that Receivables Fees shall be deemed not to constitute
Consolidated Interest Expense. Notwithstanding anything to the contrary
stated above, Consolidated Interest Expense shall not include interest
expense in respect of the Group Intercompany Notes; PROVIDED, HOWEVER,
that such interest expense shall be included in Consolidated Interest
Expense to the extent such interest expense is actually paid and not
immediately repaid to Willis Corroon Group or a Restricted Subsidiary in
respect of interest on any Trinity Intercompany Notes or Interim
Refinancing Indebtedness.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any
period, the aggregate of the Net Income, of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, and otherwise determined
in accordance with GAAP; PROVIDED, HOWEVER, that
(i) any net after-tax exceptional items (less all fees and
expenses relating thereto) shall be excluded,
(ii) the Net Income for such period shall not include the
cumulative effect of a change in accounting principles during such
period,
(iii) any net after-tax income (loss) from discontinued
operations and any net after-tax gains or losses on disposal of
discontinued operations shall be excluded,
(iv) any net after-tax gains or losses (less all fees and
expenses relating thereto) attributable to asset dispositions other than
in the ordinary course of business (as determined in good faith by the
Board of Directors of Willis Corroon Group) shall be excluded,
(v) the Net Income for such period of any Person that is not a
Subsidiary, or is an Unrestricted Subsidiary, or that is accounted for by
the equity method of accounting, shall be excluded; PROVIDED that
Consolidated Net Income of Willis Corroon Group shall be increased by the
amount of dividends or distributions or other payments that are actually
paid in cash (or to the extent converted into cash) to the referent
Person or a Restricted Subsidiary thereof in respect of such period,
(vi) the Net Income of any Person acquired in a pooling of
interests transaction shall not be included for any period prior to the
date of such acquisition,
(vii) the Net Income for such period of any Restricted
Subsidiary (other than the Issuer and any Guarantor) shall be excluded if
the declaration or payment of dividends or similar distributions by that
Restricted Subsidiary of its Net Income is not at the date of
determination wholly permitted without any prior governmental approval
(which has not been obtained) or, directly or indirectly, by the
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule, or governmental regulation
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applicable to that Restricted Subsidiary or its stockholders, unless such
restriction with respect to the payment of dividends or in similar
distributions has been legally waived; PROVIDED that Consolidated Net
Income of Willis Corroon Group shall be increased by the amount of
dividends or other distributions or other payments that could have been
paid in cash (or to the extent converted into cash) to the referent
Person or a Restricted Subsidiary thereof in respect of such period and
(viii) the after-tax impact of any net payments or receipts
related to Trinity Hedging Obligations shall be included, PROVIDED that
any reduction of interest expense related to any net amounts to be
received by Trinity are actually received by Willis Corroon Group within
31 days of the end of the period during which such reduction of interest
expense was recorded.
Notwithstanding the foregoing, for the purpose of the covenant described under
"Certain Covenants-- Limitation on Restricted Payments" only (other than clause
(c)(iv) thereof), there shall be excluded from Consolidated Net Income any
income arising from any sale or other disposition of Restricted Investments made
by Willis Corroon Group and its Restricted Subsidiaries, any repurchases and
redemptions of Restricted Investments from Willis Corroon Group and the
Restricted Subsidiaries, any repayments of loans and advances which constitute
Restricted Investments by Willis Corroon Group or any Restricted Subsidiary, any
sale of the stock of an Unrestricted Subsidiary or any distribution or dividend
from an Unrestricted Subsidiary, in each case only to the extent such amounts
increase the amount of Restricted Payments permitted under such covenant
pursuant to clause (c)(iv) thereof. Notwithstanding anything to the contrary
stated above, Consolidated Net Income shall not include
(x) net after-tax income (net of any interest expense in respect
of Group Intercompany Notes) relating to amounts received or accrued in
respect of the Trinity Intercompany Notes and loans made in respect of
Interim Refinancing Indebtedness or
(y) net after-tax income (or losses) relating to payments
received in respect of the Trinity Intercompany Notes or Interim
Refinancing Indebtedness or payments made in respect of the corresponding
Group Intercompany Note that are solely the result of exchange rate
fluctuations or
(z) net after-tax gain or loss relating to the impact of
Facility Hedging Obligations being marked-to-market.
"CONSORTIUM" means Guardian Royal Exchange, Royal & Sun Alliance
Insurance Group, The Chubb Corporation, The Hartford Financial Services Group,
Inc., The Tokio Marine and Fire Insurance Co., Limited and Travelers Property
Casualty Corp. and their respective Affiliates or any replacement insurance
company investors from time to time and their respective Affiliates.
"CONSORTIUM PREFERRED STOCK" means
(a) preferred stock of TA II having a liquidation preference of
approximately $270,000,000 issued to the Consortium in connection with
the Transactions and
(b) any preferred stock that
(i) is issued in exchange for, or to replace or
refinance, all or a portion thereof,
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(ii) is not subject to mandatory redemption or
redemption at the option of the holder thereof prior to the
date that is six months later than the maturity date of the
Notes and
(iii) may include, at the election of TA II,
(A) provisions for required cash dividends
(at a rate per annum not in excess of 7 1/2%, or a
higher rate if the payment of cash dividends in
excess of 7 1/2% is stated in the provisions of such
preferred stock to be subject to the limitations set
forth in the Indenture),
(B) provisions for transferability,
(C) provisions for customary voting rights
and/or board representation upon the occurrence of
non-payment of dividends and
(iv) other terms customary for public issuances of
preferred stock.
"CONTINGENT OBLIGATIONS" means, with respect to any Person, any
obligation of such Person guaranteeing any leases, dividends or other
obligations that do not constitute Indebtedness ("PRIMARY OBLIGATIONS") of any
other Person (the "PRIMARY OBLIGOR") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent,
(i) to purchase any such primary obligation or any property
constituting direct or indirect security therefor,
(ii) to advance or supply funds (A) for the purchase or payment
of any such primary obligation or (B) to maintain working capital or
equity capital of the primary obligor or otherwise to maintain the net
worth or solvency of the primary obligor, or
(iii) to purchase property, securities or services primarily for
the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation
against loss in respect thereof.
"CONTRIBUTION AGREEMENT" means the Contribution Agreement dated as of
November 19, 1998, between Trinity and Willis Corroon Group in a form previously
approved by the Administrative Agent under the Subordinated Bridge Agreement.
"CONVERTIBLE LOAN" means an interest-free loan made by Trinity to
Willis Corroon Group in exchange for a note that is convertible at the option of
Willis Corroon Group into common equity interests in Willis Corroon Group,
PROVIDED that the obligations of Willis Corroon Group under such note are
subordinated in right of payment to the Notes in a form previously approved by
the Administrative Agent under the Subordinated Bridge Agreement including,
without limitation, that no payment may be made in respect of such note prior to
the date that is 91 days after the Maturity Date.
"CREDIT FACILITIES" means, with respect to Willis Corroon Group and
the Issuer, one or more debt facilities (including, without limitation, the
Senior Credit Facilities) or commercial paper facilities with banks or other
institutional lenders or indentures providing for revolving credit loans, term
loans, receivables financing (including through the sale of receivables to such
lenders or to special purpose entities formed to borrow from such lenders
against receivables), letters of credit or other long-term
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indebtedness, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced (including increasing the amount borrowed thereunder) in
whole or in part from time to time.
"DEFAULT" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"DESIGNATED NONCASH CONSIDERATION" means the fair market value of
noncash consideration received by Willis Corroon Group or one of its Restricted
Subsidiaries in connection with an Asset Sale that is so designated as
Designated Noncash Consideration pursuant to an Officers' Certificate, setting
forth the basis of such valuation, executed by an executive vice president and
the principal financial officer of Willis Corroon Group or the Issuer, less the
amount of cash or Cash Equivalents received in connection with a subsequent sale
of such Designated Noncash Consideration.
"DESIGNATED PREFERRED STOCK" means preferred stock of Willis Corroon
Group, any of its direct or indirect parent corporations or the Issuer (in each
case other than Disqualified Stock) that is issued for cash (other than to a
Restricted Subsidiary) and is so designated as Designated Preferred Stock,
pursuant to an Officers' Certificate executed by an executive vice president and
the principal financial officer of Willis Corroon Group or the Issuer, any of
its direct or indirect parent corporations or the Issuer, as the case may be, on
the issuance date thereof, the cash proceeds of which are excluded from the
calculation set forth in clause (c) of the first paragraph of the "--Certain
Covenants--Limitation on Restricted Payments" covenant.
"DISQUALIFIED STOCK" means, with respect to any Person, any Capital
Stock of such Person which, by its terms (or by the terms of any security into
which it is convertible or for which it is putable or exchangeable), or upon the
happening of any event, matures or is mandatorily redeemable (other than as a
result of a change of control or asset sale), pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof
(other than as a result of a change of control or asset sale), in whole or in
part, in each case prior to the date 91 days after the earlier of the maturity
date of the Notes or the date the Notes are no longer outstanding; PROVIDED,
HOWEVER, that if such Capital Stock is issued to any plan for the benefit of
employees of Willis Corroon Group or its Subsidiaries or by any such plan to
such employees, such Capital Stock shall not constitute Disqualified Stock
solely because it may be required to be repurchased by Willis Corroon Group or
its Subsidiaries in order to satisfy applicable statutory or regulatory
obligations.
"DOMESTIC SUBSIDIARY" means, with respect to any Person, any
Restricted Subsidiary of such Person other than a Foreign Subsidiary.
"EBITDA" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period plus
(a) provision for taxes based on income or profits of such
Person for such period deducted in computing Consolidated Net Income,
plus
(b) Consolidated Interest Expense of such Person for such period
paid by such Person or any of its Restricted Subsidiaries during such
period, in each case to the extent the same was deducted in calculating
such Consolidated Net Income, plus
(c) Consolidated Depreciation and Amortization Expense of such
Person for such period to the extent such depreciation and amortization
were deducted in computing Consolidated Net Income, plus
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(d) any expenses or charges related to any Equity Offering,
Permitted Investment, acquisition (including amounts paid in connection
with the acquisition or retention of one or more individuals comprising
teams engaged in a Similar Business, PROVIDED that such payments are made
at the time of such acquisition and are consistent with the customary
practice in the industry at the time of such acquisition),
recapitalization or Indebtedness permitted to be incurred by the
Indenture (whether or not successful) (including such fees, expenses or
charges related to the Transactions) and deducted in such period in
computing Consolidated Net Income, plus
(e) the amount of any restructuring charge deducted in such
period in computing Consolidated Net Income (including any one-time costs
incurred in connection with acquisitions after the Closing Date), plus
(f) without duplication, any non-recurring charges relating to
the Lloyd's Reconstruction and Renewal Plan, plus
(g) without duplication, any other non-cash charges reducing
Consolidated Net Income for such period (excluding any such charge that
represents an accrual or reserve for a cash expenditure for a future
period), plus
(h) the amount of any minority interest expense deducted in
calculating Consolidated Net Income, less, without duplication
(i) non-cash items increasing Consolidated Net Income of such
Person for such period (excluding any items which represent the reversal
of any accrual of, or cash reserve for, anticipated cash charges in any
prior period).
"EMU" means economic and monetary union as contemplated in the Treaty
on European Union.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EQUITY OFFERING" means any public or private sale of common stock or
preferred stock of Willis Corroon Group, any of its direct or indirect parent
corporations or the Issuer (excluding Disqualified Stock), other than (i) public
offerings with respect to Willis Corroon Group's Common Stock registered on Form
S-8 and (ii) any such public or private sale that constitutes an Excluded
Contribution.
"EURO" means the single currency of participating member states of the
EMU.
"EXCHANGE ACT" means the Securities Exchange Act of 1934 and the rules
and regulations of the Commission promulgated thereunder.
"EXCLUDED CONTRIBUTION" means net cash proceeds, marketable securities
or Qualified Proceeds, in each case, received by Willis Corroon Group or the
Issuer from (a) contributions to its common equity capital (other than, in the
case of the Issuer, contributions by Willis Corroon Group) and (b) the sale
(other than to a Subsidiary of Willis Corroon Group or to any Willis Corroon
Group or Subsidiary management equity plan or stock option plan or any other
management or employee benefit plan or agreement) of Capital Stock (other than
Disqualified Stock and Designated Preferred Stock) of Willis Corroon Group or
the Issuer, in each case designated as Excluded Contributions pursuant to an
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Officers' Certificate executed by an executive vice president and the principal
financial officer of Willis Corroon Group or the Issuer on the date such capital
contributions are made or the date such Equity Interests are sold, as the case
may be, which are excluded from the calculation set forth in clause (c) of the
first paragraph under "--Certain Covenants--Limitation on Restricted Payments."
"EXISTING INDEBTEDNESS" means Indebtedness of Willis Corroon Group or
its Restricted Subsidiaries in existence on the Closing Date, plus interest
accruing thereon, after application of the net proceeds of the loans made under
the Subordinated Bridge Agreement.
"FACILITY HEDGING OBLIGATIONS" means Hedging Obligations of Willis
Corroon Group or the Issuer (other than Hedging Obligations entered into for
speculative purposes) having an aggregate notional amount at any time
outstanding not in excess of $1,175,000,000 less the notional amount of any
Trinity Hedging Obligations outstanding at such time.
"FIXED CHARGE COVERAGE RATIO" means, with respect to any Person for
any period, the ratio of EBITDA of such Person for such period to the Fixed
Charges of such Person for such period. In the event that Willis Corroon Group
or any of its Restricted Subsidiaries incurs, assumes, guarantees or redeems any
Indebtedness or issues or redeems Disqualified Stock or preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the event for which the calculation of
the Fixed Charge Coverage Ratio is made (the "CALCULATION DATE"), then the Fixed
Charge Coverage Ratio shall be calculated giving pro forma effect to such
incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of Disqualified Stock or preferred stock, as if the same
had occurred at the beginning of the applicable four-quarter period.
For purposes of making the computation referred to above, Investments,
acquisitions, dispositions, mergers, consolidations and discontinued operations
(as determined in accordance with GAAP) that have been made by Willis Corroon
Group or any of its Restricted Subsidiaries during the four-quarter reference
period or subsequent to such reference period and on or prior to or
simultaneously with the Calculation Date shall be calculated on a pro forma
basis assuming that all such Investments, acquisitions, dispositions, mergers,
consolidations and discontinued operations (and the change in any associated
fixed charge obligations and the change in EBITDA resulting therefrom) had
occurred on the first day of the four-quarter reference period. If since the
beginning of such period any Person (that subsequently became a Restricted
Subsidiary or was merged with or into Willis Corroon Group or any Restricted
Subsidiary since the beginning of such period) shall have made any Investment,
acquisition, disposition, merger, consolidation or discontinued operation that
would have required adjustment pursuant to this definition, then the Fixed
Charge Coverage Ratio shall be calculated giving pro forma effect thereto for
such period as if such Investment, acquisition, disposition, merger,
consolidation or discontinued operation had occurred at the beginning of the
applicable four-quarter period.
For purposes of this definition, whenever pro forma effect is to be
given to a transaction, the pro forma calculations shall be made in good faith
by a responsible financial or accounting officer of Willis Corroon Group. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest on such Indebtedness shall be calculated as if the rate in
effect on the Calculation Date had been the applicable rate for the entire
period (taking into account any Hedging Obligations applicable to such
Indebtedness). Interest on a Capitalized Lease Obligation shall be deemed to
accrue at an interest rate reasonably determined by a responsible financial or
accounting officer of Willis Corroon Group to be the rate of interest implicit
in such Capitalized Lease Obligation in accordance with GAAP. For purposes of
making the computation referred to above, interest on any Indebtedness under a
revolving credit facility computed on a pro forma basis shall be computed based
upon the average daily balance of such Indebtedness during the applicable
period. Interest on Indebtedness that may
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optionally be determined at an interest rate based upon a factor of a prime or
similar rate, a eurocurrency interbank offered rate, or other rate, shall be
deemed to have been based upon the rate actually chosen, or, if none, then based
upon such optional rate chosen as Willis Corroon Group may designate.
"FIXED CHARGES" means, with respect to any Person for any period, the
sum of
(a) Consolidated Interest Expense of such Person for such
period,
(b) all cash dividend payments (excluding items eliminated in
consolidation) on any series of
(i) Disqualified Stock,
(ii) preferred stock and
(iii) to the extent paid pursuant to clause (vi)(B)
of the covenant described under "--Certain
Covenants--Limitation on Restricted Payments," other Capital
Stock of such Person.
"FOREIGN SUBSIDIARY" means, with respect to any Person, any Restricted
Subsidiary of such Person that is not organized or existing under the laws of
the United States, any state thereof, the District of Columbia, or any territory
thereof.
"GAAP" means generally accepted accounting principles in the United
Kingdom which are in effect on the Closing Date. For the purposes of the
Indenture, the term "consolidated" with respect to any Person means such Person
consolidated with its Restricted Subsidiaries, and shall not include any
Unrestricted Subsidiary.
"GOVERNMENT SECURITIES" means securities that are
(a) direct obligations of the United States of America for the
timely payment of which its full faith and credit is pledged or
(b) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America
the timely payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America,
which, in either case, are not callable or redeemable at the option of the
issuers thereof, and shall also include a depository receipt issued by a bank
(as defined in Section 3(a)(2) of the Securities Act), as custodian with respect
to any such Government Securities or a specific payment of principal of or
interest on any such Government Securities held by such custodian for the
account of the holder of such depository receipt; PROVIDED that (except as
required by law) such custodian is not authorized to make any deduction from the
amount payable to the holder of such depository receipt from any amount received
by the custodian in respect of the Government Securities or the specific payment
of principal of
or interest on the Government Securities evidenced by such depository receipt.
"GROUP INTERCOMPANY NOTE" means a note issued by Willis Corroon Group
or a Restricted Subsidiary in favor of Trinity (a) in consideration of the
issuance of a Trinity Intercompany Note or (b) in connection with a loan made by
Trinity to Willis Corroon Group or such Restricted Subsidiary out of the
proceeds received from the issuance of a Trinity Intercompany Note, PROVIDED, in
each case, that the obligations of Willis Corroon Group or such Restricted
Subsidiary under such note are subordinated in
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right of payment to the Notes in a form previously approved by the
Administrative Agent under the Subordinated Bridge Agreement including, without
limitation, that no payment shall be made in respect of such note if any Default
on the Notes or any default under the Senior Credit Facilities has occurred and
is continuing.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness or other obligations.
"GUARANTEE" means any guarantee of the obligations of Willis Corroon
Group under the Indenture and the Notes by any Person in accordance with the
provisions of the Indenture. When used as a verb, "Guarantee" shall have a
corresponding meaning.
"GUARANTEED LOAN NOTES" means loan notes of Trinity issued pursuant to
the offer at the election of holders of the shares, having the terms contained
in the Guaranteed Loan Notes Instrument and guaranteed by The Chase Manhattan
Bank, acting through its London branch.
"GUARANTEED LOAN NOTES INSTRUMENT" means the Guaranteed Loan Notes
Instrument in the form of Exhibit J to the Senior Bridge Facility.
"GUARANTOR" means any Person that incurs a Guarantee; PROVIDED that
upon the release and discharge of such Person from its Guarantee in accordance
with the Indenture, such Person shall cease to be a Guarantor.
"HEDGING OBLIGATIONS" means, with respect to any Person, the
obligations of such Person under (i) currency exchange, interest rate or
commodity swap agreements, currency exchange, interest rate or commodity cap
agreements and currency exchange, interest rate or commodity collar agreements
and (ii) other agreements or arrangements designed to protect such Person
against fluctuations in currency exchange, interest rates or commodity prices.
"HOLDER" means a holder of the Notes.
"INDEBTEDNESS" means, with respect to any Person,
(a) any indebtedness (including principal and premium) of such
Person, whether or not contingent
(i) in respect of borrowed money,
(ii) evidenced by bonds, notes, debentures or similar
instruments or letters of credit or bankers' acceptances (or,
without double counting, reimbursement agreements in respect
thereof),
(iii) representing the balance deferred and unpaid of
the purchase price of any property (including Capitalized
Lease Obligations), except any such balance that constitutes a
trade payable or similar obligation to a trade creditor, in
each case accrued in the ordinary course of business or
(iv) representing any Hedging Obligations, if and to
the extent that any of the foregoing Indebtedness (other than
letters of credit and Hedging
159
Obligations) would appear as a liability upon a balance sheet
(excluding the footnotes thereto) of such Person prepared in
accordance with GAAP,
(b) to the extent not otherwise included, any obligation by such
Person to be liable for, or to pay, as obligor, guarantor or otherwise,
on the Indebtedness of another Person (other than by endorsement of
negotiable instruments for collection in the ordinary course of business)
and
(c) to the extent not otherwise included, Indebtedness of
another Person secured by a Lien on any asset owned by such Person
(whether or not such Indebtedness is assumed by such Person); PROVIDED,
HOWEVER, that Contingent Obligations incurred in the ordinary course of
business shall be deemed not to constitute Indebtedness, and obligations
under or in respect of Receivables Facilities shall not be deemed to
constitute Indebtedness.
In addition, "Indebtedness" of any Person shall include Indebtedness
described in the foregoing paragraph that would not appear as a liability on the
balance sheet of such Person if
(1) such Indebtedness is the obligation of a partnership or a
joint venture that is not a Restricted Subsidiary (a "Joint Venture"),
(2) such Person or a Restricted Subsidiary is a general partner
of the Joint Venture (a "General Partner") and
(3) there is recourse, by contract or operation of law, with
respect to the payment of such Indebtedness to property or assets of such
Person or a Restricted Subsidiary; and such Indebtedness shall be
included in an amount not to exceed
(x) the greater of (A) the net assets of the General
Partner and (B) the amount of such obligations to the extent
that there is recourse by, contract or operation of law, to
the property or assets of such Person or a Restricted
Subsidiary (other than the General Partner) or
(y) if less than the amount determined pursuant to
clause (x) immediately above, the actual amount of such
Indebtedness that is recourse to such Person, if the
Indebtedness is evidenced by a writing and is for a
determinable amount and the related interest expense shall be
included in Consolidated Interest Expense to the extent paid
by Willis Corroon Group or its Restricted Subsidiaries.
"INDEPENDENT FINANCIAL ADVISOR" means an accounting, appraisal,
investment banking firm or consultant to Persons engaged in Similar Businesses
of nationally recognized standing that is, in the good faith judgment of Willis
Corroon Group or the Issuer, qualified to perform the task for which it has been
engaged.
"INTERIM FINANCINGS" means the Sponsor Promissory Note and the Senior
Bridge Facility.
"INTERIM REFINANCING INDEBTEDNESS" means indebtedness in respect of
loans made to Trinity on the Closing Date by the Issuer using the proceeds from
the borrowing under the Subordinated
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Bridge Agreement and the borrowing of term loans under the Senior Credit
Facilities, the proceeds of which were used
(a) directly or indirectly to repay the Interim Financings,
(b) to make a Convertible Loan, substantially all the proceeds
of which were used to repay indebtedness of Willis Corroon Group and its
Subsidiaries existing on the Closing Date and required to be repaid under
the Senior Credit Facilities and
(c) to pay related fees and expenses.
"INVESTMENT GRADE SECURITIES" means
(i) securities issued or directly and fully guaranteed or
insured by the United States government or any agency or instrumentality
thereof (other than Cash Equivalents),
(ii) debt securities or debt instruments with a rating of BBB-or
higher by S&P or Baa3 or higher by Moody's or the equivalent of such
rating by such rating organization, or, if no rating of S&P or Moody's
then exists, the equivalent of such rating by any other nationally
recognized securities rating agency, but excluding any debt securities or
instruments constituting loans or advances among Willis Corroon Group and
its Subsidiaries,
(iii) investments in any fund that invests exclusively in
investments of the type described in clauses (i) and (ii) which fund may
also hold immaterial amounts of cash pending investment and/or
distribution and
(iv) corresponding instruments in countries other than the
United States or the United Kingdom customarily utilized for high-quality
investments.
"INVESTMENTS" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the form of loans
(including guarantees), advances or capital contributions (excluding accounts
receivable, trade credit, advances to customers, commission, travel and similar
advances to officers and employees, in each case made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities issued by any other Person and investments
that are required by GAAP to be classified on the balance sheet (excluding the
footnotes) of Willis Corroon Group in the same manner as the other investments
included in this definition to the extent such transactions involve the transfer
of cash or other property. For purposes of the definition of "Unrestricted
Subsidiary" and the covenant described under "--Certain Covenants--Limitation on
Restricted Payments,"
(i) "Investments" shall include the portion (proportionate to
the Company's equity interest in such Subsidiary) of the fair market
value of the net assets of a Subsidiary of Willis Corroon Group at the
time that such Subsidiary is designated an Unrestricted Subsidiary;
provided, however, that upon a redesignation of such Subsidiary as a
Restricted Subsidiary, Willis Corroon Group shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary in an
amount (if positive) equal to (x) Willis Corroon Group's "Investment" in
such Subsidiary at the time of such redesignation less (y) the portion
(proportionate to Willis Corroon Group's equity interest in such
Subsidiary) of the fair market value of the net assets of such Subsidiary
at the time of such redesignation; and
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(ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by Willis Corroon
Group.
"LETTER OF CREDIT OBLIGATIONS" means all Obligations in respect of
Indebtedness of Willis Corroon Group with respect to letters of credit issued
pursuant to the Senior Credit Facilities which Indebtedness shall be deemed to
consist of (a) the aggregate maximum amount available to be drawn under all such
letters of credit (the determination of such aggregate maximum amount to assume
compliance with all conditions for drawing) and (b) the aggregate amount that
has been paid by, and not reimbursed to, the issuers of such letters of credit.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction);
PROVIDED that in no event shall an operating lease be deemed to constitute a
Lien.
"MANAGEMENT GROUP" means the directors and executive officers of the
Issuer, Willis Corroon Group or its direct or indirect parent corporations.
"MOODY'S" means Moody's Investors Service, Inc.
"NET INCOME" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends.
"NET PROCEEDS" means the aggregate cash proceeds received by Willis
Corroon Group or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any Designated Noncash Consideration received in any Asset Sale),
net of the direct costs relating to such Asset Sale and the sale or disposition
of such Designated Noncash Consideration (including, without limitation, legal,
accounting and investment banking fees, and brokerage and sales commissions),
any relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of principal, premium (if any) and interest on Senior Indebtedness
required (other than required by clause (i) of the second paragraph of
"--Repurchase at the Option of Holders--Asset Sales" to be paid as a result of
such transaction) and any deduction of appropriate amounts to be provided by
Willis Corroon Group as a reserve in accordance with GAAP against any
liabilities associated with the asset disposed of in such transaction and
retained by Willis Corroon Group after such sale or other disposition thereof,
including, without limitation, pension and other post-employment benefit
liabilities and liabilities related to environmental matters or against any
indemnification obligations associated with such transaction.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements (including, without limitation, reimbursement
obligations with respect to letters of credit and banker's acceptances), damages
and other liabilities, and guarantees of payment of such principal, interest,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities, payable under the documentation governing any Indebtedness.
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"OFFICER" means the Chairman of the Board, the President, any
Executive Vice President, Senior Vice President or Vice President, the Treasurer
or the Secretary of Willis Corroon Group, the Issuer or any Guarantor, as
applicable.
"OFFICERS' CERTIFICATE" means a certificate signed on behalf of Willis
Corroon Group or the Issuer, as the case may be, by two Officers of Willis
Corroon Group or the Issuer, as applicable, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of Willis Corroon Group or the Issuer, as
applicable, that meets the requirements set forth in the Indenture.
"PERMITTED ASSET SWAP" means any one or more transactions in which
Willis Corroon Group or any Restricted Subsidiary exchanges assets for
consideration consisting of
(i) Equity Interests in or assets of a Person engaged in a
Similar Business and
(ii) any cash or Cash Equivalents, provided that such cash or
Cash Equivalents will be considered Net Proceeds from an Asset Sale.
"PERMITTED HOLDERS" means KKR, its Affiliates and the Management
Group.
"PERMITTED INVESTMENTS" means
(a) with respect to fiduciary cash held by Willis Corroon Group
or its Restricted Subsidiaries, Investments in which it is customary for
Persons that are engaged in a Similar Business and that comply with all
applicable laws and regulations; and
(b) in all other cases
(i) any Investment in Willis Corroon Group or any
Restricted Subsidiary;
(ii) any Investment in cash and Cash Equivalents or
Investment Grade Securities;
(iii) any Investment by Willis Corroon Group or any
Restricted Subsidiary of Willis Corroon Group in a Person that
is engaged in a Similar Business if as a result of such
Investment (A) such Person becomes a Restricted Subsidiary or
(B) such Person, in one transaction or a series of related
transactions, is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets
to, or is liquidated into, Willis Corroon Group or a
Restricted Subsidiary;
(iv) any Investment in securities or other assets not
constituting cash or Cash Equivalents and received in
connection with an Asset Sale made pursuant to the provisions
of "--Repurchase at the Option of Holders--Asset Sales" or any
other disposition of assets not constituting an Asset Sale;
(v) any Investment existing on the Closing Date;
(vi) advances to employees not in excess of $15.0
million outstanding at any one time, in the aggregate;
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(vii) any Investment acquired by Willis Corroon Group
or any of its Restricted Subsidiaries (A) in exchange for any
other Investment or accounts receivable held by Willis Corroon
Group or any such Restricted Subsidiary in connection with or
as a result of a bankruptcy, workout, reorganization or
recapitalization of the issuer of such other Investment or
accounts receivable or (B) as a result of a foreclosure by
Willis Corroon Group or any of its Restricted Subsidiaries
with respect to any secured Investment or other transfer of
title with respect to any secured Investment in default;
(viii) Hedging Obligations permitted under clause (j)
of the covenant described in "--Certain Covenants--Limitation
of Incurrence of Indebtedness and Issuance of Disqualified
Stock" covenant;
(ix) loans and advances to officers, directors and
employees for business-related travel expenses, moving
expenses and other similar expenses, in each case incurred in
the ordinary course of business;
(x) any Investment in a Similar Business having an
aggregate fair market value, taken together with all other
Investments made pursuant to this clause (x) that are at that
time outstanding (without giving effect to the sale of an
Unrestricted Subsidiary to the extent the proceeds of such
sale do not consist of cash, marketable securities and/or
Qualified Proceeds), not to exceed the greater of (A) $125.0
million or (B) 12.5% of Total Revenues at the time of such
Investment (with the fair market value of each Investment
being measured at the time made and without giving effect to
subsequent changes in value);
(xi) Investments the payment for which consists of
Equity Interests of Willis Corroon Group, any of its direct or
indirect parent corporations or the Issuer (exclusive of
Disqualified Stock); PROVIDED, HOWEVER, that such Equity
Interests will not increase the amount available for
Restricted Payments under clause (c) of the first paragraph
under the covenant described in "--Certain
Covenants--Limitation on Restricted Payments;"
(xii) additional Investments having an aggregate fair
market value, taken together with all other Investments made
pursuant to this clause (xii) that are at that time
outstanding (without giving effect to the sale of an
Unrestricted Subsidiary to the extent the proceeds of such
sale do not consist of cash, marketable securities and/or
Qualified Proceeds or do consist of distributions made
pursuant to clause (xiii) of the second paragraph of the
covenant described in "--Certain Covenants--Limitation on
Restricted Payments"), not to exceed $50.0 million at the time
of such Investment (with the fair market value of each
Investment being measured at the time made and without giving
effect to subsequent changes in value);
(xiii) guarantees (including Guarantees) of
Indebtedness permitted under the covenant described in
"--Certain Covenants--Limitation on Incurrence of Indebtedness
and Issuance of Disqualified Stock;"
(xiv) any transaction to the extent it constitutes an
investment that is permitted and made in accordance with the
provisions of the second paragraph of the covenant described
under "--Certain Covenants--Transactions with
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Affiliates" (except transactions described in clauses (ii),
(vi), (vii) and (xi) of such paragraph);
(xv) Investments consisting of the licensing or
contribution of intellectual property pursuant to joint
marketing arrangements with other Persons;
(xvi) any Investment by Willis Corroon Group or any
Restricted Subsidiary in a Person that is an Associate on the
Closing Date; and
(xvii) Investments relating to any special purpose
Wholly Owned Subsidiary of Willis Corroon Group or the Issuer
organized in connection with a Receivables Facility that, in
the good faith determination of the Board of Directors of
Willis Corroon Group, are necessary or advisable to effect
such Receivables Facility.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"PREFERRED STOCK" means any Equity Interest with preferential rights
of payment of dividends or upon liquidation, dissolution, or winding up.
"QUALIFIED PROCEEDS" means assets that are used or useful in, or
Capital Stock of any Person engaged in, a Similar Business; PROVIDED that the
fair market value of any such assets or Capital Stock shall be determined by the
Board of Directors in good faith, except that in the event the value of any such
assets or Capital Stock may exceed $25.0 million or more, the fair value shall
be determined in writing by an independent investment banking firm of nationally
recognized standing.
"RECEIVABLES FACILITY" means one or more receivables financing
facilities, as amended from time to time, pursuant to which the Company and/or
any of its Restricted Subsidiaries sells its accounts receivable to a Person
that is not a Restricted Subsidiary.
"RECEIVABLES FEES" means distributions or payments made directly or by
means of discounts with respect to any participation interest issued or sold in
connection with, and other fees paid to a Person that is not a Restricted
Subsidiary in connection with, any Receivables Facility.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" means, at any time, the Issuer and any direct
or indirect Subsidiary of Willis Corroon Group (including any Foreign
Subsidiary) that is not then an Unrestricted Subsidiary; PROVIDED, HOWEVER, that
upon the occurrence of an Unrestricted Subsidiary ceasing to be an Unrestricted
Subsidiary, such Subsidiary shall be included in the definition of "Restricted
Subsidiary."
"S&P" means Standard and Poor's Ratings Group.
"SECURITIES ACT" means the Securities Act of 1933 and the rules and
regulations of the Commission promulgated thereunder.
"SENIOR BRIDGE FACILITY" means the Credit Agreement dated as of July
22, 1998, as amended and restated as of September 25, 1998, and as amended on
October 30, 1998 and
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November 13, 1998, among Trinity, the lenders party thereto and The Chase
Manhattan Bank, as Administrative Agent.
"SENIOR CREDIT FACILITIES" means the Credit Agreement dated as of July
22, 1998, as amended and restated as of September 1, 1998, September 25, 1998
and February 19, 1999, and as amended on October 28, 1998, among Willis Corroon
Group, the Issuer, Trinity, the Lenders from time to time party thereto and The
Chase Manhattan Bank, as Administrative Agent and Collateral Agent, including
any collateral documents, instruments and agreements executed in connection
therewith, and any amendments, supplements, modifications, extensions, renewals,
restatements or refundings thereof and any indentures or credit facilities or
commercial paper facilities with banks or other institutional lenders that
replace, refund or refinance any part of the loans, notes, other credit
facilities or commitments thereunder, including any such replacement, refunding
or refinancing facility or indenture that increases the amount borrowable
thereunder or alters the maturity thereof, PROVIDED, HOWEVER, that in connection
with any facilities which refund, replace or refinance such Credit Agreement
there shall not be more than one facility at any one time that is identified as
the Senior Credit Facilities and, if at any time there is more than one facility
which would constitute the Senior Credit Facilities, the Issuer will designate
to the Trustee which one of such facilities will be the Senior Credit Facilities
for purposes of the Indenture.
"SENIOR SUBORDINATED INDEBTEDNESS" means (a) with respect to the
Issuer, Indebtedness which ranks equal in right of payment to the Notes and (b)
with respect to any Guarantor, Indebtedness which ranks equal in right of
payment to the Guarantee of such Guarantor.
"SIGNIFICANT SUBSIDIARY" means the Issuer and any other Restricted
Subsidiary that would be a "significant subsidiary" as defined in Article 1,
Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such
regulation is in effect on the date hereof.
"SIMILAR BUSINESS" means insurance brokering, risk management
consulting, insurance agency, employee benefit consulting and any activities or
businesses incidental or directly related or similar thereto, or any line of
business engaged in by Willis Corroon Group or its Subsidiaries on the Issuance
Date or any business activity that is a reasonable extension, development or
expansion thereof or ancillary thereto.
"SPONSOR PROMISSORY NOTE" means the subordinated promissory note dated
as of July 22, 1998, issued by Trinity in favor of an affiliate of KKR in an
amount not to exceed $575,000,000.
"SUBORDINATED BRIDGE AGREEMENT" means the Senior Subordinated Loan
Agreement dated as of November 19, 1998, among Willis Corroon Group, Willis
Corroon Partners, the Issuer, the Lenders from time to time party thereto and
The Chase Manhattan Bank, as Administrative Agent.
"SUBORDINATED INDEBTEDNESS" means
(a) with respect to the Issuer, any Indebtedness of the Issuer
which is by its terms subordinated in right of payment to the Notes and
(b) with respect to any Guarantor, any Indebtedness of such
Guarantor which is by its terms subordinated in right of payment to the
Guarantee of such Guarantor.
"SUBSIDIARY" means, with respect to any Person,
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(i) any corporation, association, or other business entity
(other than a partnership, joint venture, limited liability company or
similar entity) of which more than 50% of the total voting power of
shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees
thereof is at the time of determination owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of
that Person or a combination thereof and
(ii) any partnership, joint venture, limited liability company
or similar entity of which (x) more than 50% of the capital accounts,
distribution rights, total equity and voting interests or general or
limited partnership interests, as applicable, are owned or controlled,
directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person or a combination thereof whether in the form
of membership, general, special or limited partnership or otherwise and
(y) such Person or any Wholly Owned Restricted Subsidiary of such Person
is a controlling general partner or otherwise controls such entity.
"TA II" means TA II Limited, a company with limited liability
organized under the laws of England and Wales.
"TOTAL REVENUES" means the total operating revenues of Willis Corroon
Group and its Restricted Subsidiaries, as shown on the most recent annual income
statement of Willis Corroon Group.
"TREATY ON EUROPEAN UNION" means the Treaty of Rome of March 25, 1957,
as amended by the Single European Act 1986 and the Maastricht Treaty (which was
signed at Maastricht on February 7, 1992, and came into force on November 1,
1993), as amended from time to time.
"TRINITY" means Trinity Acquisition plc, a public limited company
organized under the laws of England and Wales.
"TRINITY HEDGING OBLIGATIONS" means Hedging Obligations of Trinity
(other than Hedging Obligations entered into for speculative purposes) having an
aggregate notional amount at any time outstanding not in excess of
$1,175,000,000 less the notional amount of any Facility Hedging Obligations
outstanding at such time.
"TRINITY INTERCOMPANY NOTE" means any note issued by Trinity in favor
of Willis Corroon Group or a Restricted Subsidiary (a) in consideration of the
issuance of a Group Intercompany Note or (b) in connection with the making of a
loan to Trinity by Willis Corroon Group or such Restricted Subsidiary (other
than with respect to Interim Refinancing Indebtedness), PROVIDED that all the
proceeds received by Trinity from such loan, if any, are immediately used to
make a loan to Willis Corroon Group or a Restricted Subsidiary pursuant to a
Group Intercompany Note.
"U.K. SUBSIDIARY" means, with respect to any Person, any Restricted
Subsidiary of such Person that is organized under the laws of England and Wales.
"UNRESTRICTED SUBSIDIARY" means
(i) Sovereign Marine & General Insurance Company Limited, in
provisional liquidation,
(ii) any Subsidiary of Willis Corroon Group which at the time of
determination is an Unrestricted Subsidiary (as designated by the Board
of Directors of Willis Corroon Group, as provided below) and
(iii) any Subsidiary of an Unrestricted Subsidiary.
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The Board of Directors of Willis Corroon Group may designate any Subsidiary of
Willis Corroon Group (including any existing Subsidiary and any newly acquired
or newly formed Subsidiary but excluding the Issuer) to be an Unrestricted
Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Equity
Interests or Indebtedness of, or owns or holds any Lien on, any property of,
Willis Corroon Group or any Subsidiary of Willis Corroon Group (other than any
Subsidiary of the Subsidiary to be so designated), PROVIDED that
(a) any Unrestricted Subsidiary (other than Sovereign) must be
an entity of which shares of the capital stock or other equity interests
(including partnership interests) entitled to cast at least a majority of
the votes that may be cast by all shares or equity interests having
ordinary voting power for the election of directors or other governing
body are owned, directly or indirectly, by Willis Corroon Group,
(b) such designation complies with the covenants described under
"--Certain Covenants--Limitation on Restricted Payments" and
(c) each of (I) the Subsidiary to be so designated and (II) its
Subsidiaries has not at the time of designation, and does not thereafter,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable with respect to any Indebtedness pursuant to which the
lender has recourse to any of the assets of Willis Corroon Group or any
of its Restricted Subsidiaries.
The Board of Directors of Willis Corroon Group may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED that,
immediately after giving effect to such designation no Default or Event of
Default shall have occurred and be continuing and either
(i) Willis Corroon Group could incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test
described under "--Certain Covenants-- Limitations on Incurrence of
Indebtedness and Issuance of Disqualified Stock" or
(ii) the Fixed Charge Coverage Ratio for Willis Corroon Group
and its Restricted Subsidiaries would be greater than such ratio for
Willis Corroon Group and its Restricted Subsidiaries immediately prior to
such designation, in each case on a pro forma basis taking into account
such designation. Any such designation by the Board of Directors of
Willis Corroon Group shall be notified by Willis Corroon Group to the
Trustee by promptly filing with the Trustee a copy of the board
resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"VOTING STOCK" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness or Disqualified Stock, as the case may be, at any date, the
quotient obtained by dividing
(i) the sum of the products of the number of years from the date
of determination to the date of each successive scheduled principal
payment of such Indebtedness or redemption or similar payment with
respect to such Disqualified Stock multiplied by the amount of such
payment, by
(ii) the sum of all such payments.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" is any Wholly Owned Subsidiary
that is a Restricted Subsidiary.
"WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such
Person, 100% of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person and one
or more Wholly Owned Subsidiaries of such Person.
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REGISTRATION RIGHTS AGREEMENT
Willis Corroon Group, the Issuer, Willis Corroon Partners (which are
collectively referred to as the "Willis Corroon" for purposes of this summary)
and the initial purchasers under the issuance of outstanding Notes entered into
an exchange and registration rights agreement on February 2, 1999. Pursuant to
the registration rights agreement, Willis Corroon agreed to:
- file with the Commission on or prior to 100 days after the date of
issuance of the outstanding Notes a registration statement on an
appropriate form under the Securities Act, relating to a registered
exchange offer for the outstanding Notes under the Securities Act; and
- use its reasonable best efforts to cause the exchange offer
registration statement to be declared effective under the Securities
Act within 240 days after the issuance of the outstanding Notes.
As soon as practicable after the effectiveness of the exchange offer
registration statement, the Issuer will offer to the holders of Transfer
Restricted Securities (as defined below) who are not prohibited by any law or
policy of the Commission from participating in the exchange offer the
opportunity to exchange their Transfer Restricted Securities for an issue of a
second series of notes that are identical in all material respects to the
outstanding Notes (except that the exchange Notes will not contain terms with
respect to transfer restrictions) and that would be registered under the
Securities Act. The Issuer will keep the exchange offer open for not less than
20 business days (or longer, if required by applicable law) after the date on
which notice of the exchange offer is mailed to the holders of the outstanding
Notes.
If
- because of any change in law or applicable interpretations thereof by
the staff of the Commission, Willis Corroon is not permitted to effect
the exchange offer as contemplated hereby,
- any outstanding Notes validly tendered pursuant to the exchange offer
are not exchanged for exchange Notes within 270 days after the issuance
of the outstanding Notes,
- the initial purchasers so request with respect to outstanding Notes not
eligible to be exchanged for exchange notes in the exchange offer,
- any applicable law or interpretations do not permit any holder of
outstanding Notes to participate in the exchange offer or
- any holder of outstanding Notes that participates in the exchange offer
does not receive freely transferable exchange Notes in exchange for
tendered outstanding Notes,
then Willis Corroon will file with the Commission a shelf registration statement
to cover resales of Transfer Restricted Securities by such holders who satisfy
certain conditions relating to the provision of information in connection with
the shelf registration statement. For purposes of the foregoing, "Transfer
Restricted Securities" means each outstanding Note until:
- the date on which such outstanding Note has been exchanged for a freely
transferable exchange Note in the exchange offer;
169
- the date on which such outstanding Note has been effectively registered
under the Securities Act and disposed of in accordance with the shelf
registration statement; or
- the date on which such outstanding Note is distributed to the public
pursuant to Rule 144 under the Securities Act or is salable pursuant to
Rule 144(k) under the Securities Act.
Willis Corroon will use its reasonable best efforts to have the
exchange offer registration statement or, if applicable, the shelf registration
statement declared effective by the Commission as promptly as practicable after
the filing thereof. Unless the exchange offer would not be permitted by a policy
of the Commission, the Issuer will commence the exchange offer and will use its
reasonable best efforts to consummate the exchange offer as promptly as
practicable, but in any event prior to 270 days after the issuance of the
outstanding Notes. If applicable, Willis Corroon will use its reasonable best
efforts to keep the shelf registration statement effective for a period until
two years after the issuance of the outstanding Notes or such shorter period
when all Notes covered by the shelf registration statement have been sold in the
manner set forth and as contemplated in the shelf registration statement or when
the outstanding Notes became eligible for resale pursuant to Rule 144 under the
Securities Act without volume restrictions, if any.
If
(1) the applicable registration statement is not filed with the
Commission on or prior to 100 days after the issuance of the
outstanding Notes (or, in the case of a shelf registration
statement required to be filed in response to a change in law or
applicable interpretations of the staff of the Commission, if
later, within 60 days after publication of the change in law or
interpretations, but in no event before 100 calendar days after the
issuance of the outstanding Notes);
(2) the exchange offer registration statement or the shelf registration
statement, as the case may be, is not declared effective within 240
days after the issuance of the outstanding Notes (or in the case of
a shelf registration statement required to be filed in response to
a change in law or applicable interpretations of the staff of the
Commission, if later, within 90 days after publication of the
change in law or interpretations, but in no event before 240 days
after the issuance of the outstanding Notes);
(3) the exchange offer is not consummated on or prior to 270 days after
the issuance of the outstanding Notes (other than in the event
Willis Corroon files a shelf registration statement); or
(4) the shelf registration statement is filed and declared effective
within the time periods specified in clause (2) above but shall
thereafter cease to be effective (at any time that Willis Corroon
is obligated to maintain the effectiveness thereof) without being
succeeded within 90 days by an additional registration statement
filed and declared effective
(each such event referred to in clauses (1) through (4) above, a "Registration
Default"), Willis Corroon will be obligated to pay liquidated damages to each
holder of Transfer Restricted Securities, during the period of one or more such
Registration Defaults, with respect to the first 90-day period immediately
following the occurrence of the first Registration Default in an amount equal to
one-quarter of one percent per annum (which rate will be increased by an
additional one-quarter of one percent per annum for each subsequent 90-day
period that any liquidated damages continue to accrue; provided that the rate at
which liquidated damages accrue may in no event exceed 1.0% per annum) in
respect of the
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Notes constituting Transfer Restricted Securities held by such holder until the
applicable registration statement is filed, the exchange offer registration
statement is declared effective and the exchange offer is consummated or the
shelf registration statement is declared effective or again becomes effective,
as the case may be. All accrued liquidated damages shall be paid to holders in
the same manner as interest payments on the Notes on semi-annual payment dates
which correspond to interest payment dates for the Notes. Following the cure of
all Registration Defaults, the accrual of liquidated damages will cease.
Notwithstanding the foregoing, Willis Corroon may issue a notice that the shelf
registration statement is unusable pending the announcement of a material
corporate transaction and may issue any notice suspending use of the shelf
registration statement required under applicable securities laws to be issued
and, in the event that the aggregate number of days in any consecutive
twelve-month period for which all such notices are issued and effective exceeds
60 days in the aggregate, then Willis Corroon will be obligated to pay
liquidated damages to each holder of Transfer Restricted Securities in an amount
equal to one-quarter of one percent per annum (which rate will be increased by
an additional one-quarter of one percent per annum for each subsequent 90-day
period that liquidated damages continue to accrue; provided that the rate at
which liquidated damages accrue may in no event exceed 1.0% per annum) in
respect of the Notes constituting Transfer Restricted Securities. Upon Willis
Corroon declaring that the shelf registration statement is usable after the
period of time described in the preceding sentence, the accrual of liquidated
damages will cease.
The registration rights agreement also provides that Willis Corroon
- shall make available for a period of 90 days after the consummation of
the exchange offer a prospectus meeting the requirements of the
Securities Act to any broker-dealer for use in connection with any
resale of any such exchange Notes and
- shall pay expenses incident to the exchange offer and will indemnify
certain holders of the Notes (including any broker-dealer) against
certain liabilities, including liabilities under the Securities Act.
A broker-dealer that delivers such a prospectus to purchasers in connection with
such resales will be subject to certain of the civil liability provisions under
the Securities Act and will be bound by the provisions of the exchange and
registration rights agreement (including certain indemnification rights and
obligations).
Each holder of the outstanding Notes who wishes to exchange such
outstanding Notes for exchange Notes in the exchange offer will be required to
make certain representations, including representations that:
- any exchange Notes to be received by it will be acquired in the
ordinary course of its business;
- it has no arrangement or understanding with any person to participate
in the distribution of the Exchange Notes;
- it is not an "affiliate" (as defined in Rule 405 under the Securities
Act) of Willis Corroon, or if it is an affiliate, that it will comply
with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable; and
- if it is a person in the United Kingdom, that its ordinary activities
involve it in acquiring, holding, managing or disposing of investments
(as principal or agent) for the purposes of its business.
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If the holder is not a broker-dealer, it will be required to represent
that it is not engaged in, and does not intend to engage in, the distribution of
the exchange Notes. If the holder is a broker-dealer that will receive exchange
Notes for its own account in exchange for outstanding Notes that were acquired
as a result of market-making activities or other trading activities, it will be
required to acknowledge that it will deliver a prospectus in connection with any
resale of such exchange Notes.
Holders of the outstanding Notes will be required to make certain
representations to Willis Corroon (as described above) in order to participate
in the exchange offer and will be required to deliver information to be used in
connection with the shelf registration statement in order to have their
outstanding Notes included in the shelf registration statement and benefit from
the provisions regarding liquidated damages set forth in the preceding
paragraphs. A holder who sells outstanding Notes pursuant to the shelf
registration statement generally will be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the registration rights agreement which are applicable to such a
holder (including certain indemnification obligations).
For so long as the Notes are outstanding, the Issuer will continue to
provide to holders of the Notes and to prospective purchasers of the Notes the
information required by Rule 144A(d)(4) under the Securities Act.
The foregoing description of the registration rights agreement is a
summary only, does not purport to be complete and is qualified in its entirety
by reference to all provisions of the registration rights agreement. Willis
Corroon will provide a copy of the registration rights agreement to holders of
outstanding Notes identified to Willis Corroon by the initial purchasers under
the offering of outstanding Notes upon request.
Application will be made to list the exchange Notes on the Luxembourg
Stock Exchange. The exchange Notes will be accepted for clearance through the
accounts of the Euroclear Operator and Cedel Bank and they will have a new
common code and a new ISIN number, which will be transmitted to the Luxembourg
Stock Exchange. All documents prepared in connection with the exchange offer
will be available at the office of the special agent in Luxembourg and all
necessary actions and services in respect of the exchange offer may be done at
the office of the special agent in Luxembourg. The special agent appointed for
these purposes is Kredietbank S.A. Luxembourgeoise, 43, Boulevard Royal, L-2955
Luxembourg.
All notices relating to the exchange offer will be published in
accordance with the notice provisions of the indenture. See "Description of the
Notes--Notices." So long as the outstanding Notes are listed on the Luxembourg
Stock Exchange and the rules of such stock exchange shall require, prior to the
commencement of the exchange offer, notice of the exchange offer will be given
to the Luxembourg Stock Exchange and will be published in a newspaper having a
general circulation in Luxembourg (which is expected to be the LUXEMBURGER
WORT). Such notice will, among other things, provide details of the conditions
to the exchange offer and the commencement and expected completion dates of the
exchange offer. So long as the Notes are listed on the Luxembourg Stock Exchange
and the rules of such stock exchange shall require, notice of the results of the
exchange offer will be given to the Luxembourg Stock Exchange and will be
published in a newspaper having a general circulation in Luxembourg (which is
expected to be the LUXEMBURGER WORT), in each case, as promptly as practicable
following the completion of the exchange offer. Similar notice will also be
provided in connection with the payment of liquidated damages and the
declaration of the effective date of interest rates.
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CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER
EXCHANGE OF NOTES
The following summary describes the material United States federal
income tax consequences of the exchange offer. The exchange of outstanding Notes
for exchange Notes in the exchange offer will not constitute a taxable event to
holders. Consequently, no gain or loss will be recognized by a holder upon
receipt of an exchange Note, the holding period of the exchange Note will
include the holding period the outstanding Note and the basis of the exchange
Note will be the same as the basis of the outstanding Note immediately before
the exchange.
IN ANY EVENT, PERSONS CONSIDERING THE EXCHANGE OF OUTSTANDING NOTES FOR
EXCHANGE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS
AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING
JURISDICTION.
CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following summary describes the material United States federal
income tax consequences of the ownership of Notes as of the date hereof by a
Non-U.S. Holder (as defined below). Except where noted it deals only with Notes
held as capital assets by Non-U.S. Holders. As used herein the term "Non-U.S.
Holder" means any person or entity that is not a United States Holder ("U.S.
Holder"). A U.S. Holder is any beneficial owner of a Note that is (i) a citizen
or resident of the United States, (ii) a corporation or partnership created or
organized in or under the laws of the United States or any political subdivision
thereof, (iii) an estate the income of which is subject to U.S. federal income
taxation regardless of its source and (iv) a trust (x) that is subject to the
supervision of a court within the United States and the control of one or more
United States persons as described in section 7701(a)(30) or (y) that has a
valid election in effect under applicable U.S. Treasury regulations to be
treated as a U.S. person.
The discussion below is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), and regulations, rulings and
judicial decisions thereunder as of the date hereof, and such authorities may be
repealed, revoked or modified so as to result in United States federal income
tax consequences different from those discussed below. PERSONS CONSIDERING THE
PURCHASE, OWNERSHIP OR DISPOSITION OF NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES IN LIGHT
OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER THE
LAWS OF ANY OTHER TAXING JURISDICTION.
Under present United States federal income and estate tax law, and
subject to the discussion below concerning backup withholding:
(a) no withholding of United States federal income tax will be
required with respect to the payment by the Issuer or any paying agent of
principal or interest on a Note owned by a Non-U.S. Holder, provided that
(i) the beneficial owner does not actually or constructively own 10% or
more of the total combined voting power of all classes of stock of the
Issuer entitled to vote within the meaning of section 871(h)(3) of the
Code and the regulations thereunder, (ii) the beneficial owner is not a
controlled foreign corporation that is related to the Issuer through
stock ownership, (iii) the beneficial owner is not a bank whose receipt
of interest on a Note is described in section 881(c)(3)(A) of the Code
and (iv) the
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beneficial owner satisfies the statement requirement (described generally
below) set forth in section 871(h) and section 881(c) of the Code and the
regulations thereunder;
(b) no withholding of United States federal income tax will be
required with respect to any gain or income realized by a Non-U.S. Holder
upon the sale, exchange, retirement or other disposition of a Note; and
(c) a Note beneficially owned by an individual who at the time
of death is a Non-U.S. Holder will not be subject to United States
federal estate tax as a result of such individual's death, provided that
such individual does not actually or constructively own 10% or more of
the total combined voting power of all classes of stock of the company
entitled to vote within the meaning of section 871(h)(3) of the Code and
provided that the interest payments with respect to such Note would not
have been, if received at the time of such individual's death,
effectively connected with the conduct of a United States trade or
business by such individual.
It is unclear whether the payment of Liquidated Damages to a Non-U.S.
Holder would be subject to withholding of U.S. federal income tax.
To satisfy the requirement referred to in (a)(iv) above, the beneficial
owner of such Note, or a financial institution holding the Note on behalf of
such owner, must provide, in accordance with specified procedures, a paying
agent of the Issuer with a statement to the effect that the beneficial owner is
not a U.S. Holder. Currently, these requirements will be met if (1) the
beneficial owner provides his name and address, and certifies, under penalties
of perjury, that he is not a U.S. Holder (which certification may be made on an
Internal Revenue Service ("IRS") Form W-8 (or successor form)) or (2) a
financial institution holding the Note on behalf of the beneficial owner
certifies, under penalties of perjury, that such statement has been received by
it and furnishes a paying agent with a copy thereof. Under recently finalized
Treasury regulations (the "Final Regulations"), the statement requirement
referred to in (a)(iv) above may also be satisfied with other documentary
evidence for interest paid after December 31, 1999 with respect to an offshore
account or through certain foreign intermediaries.
If a Non-U.S. Holder is engaged in a trade or business in the United
States and interest on the Note is effectively connected with the conduct of
such trade or business, the Non-U.S. Holder, although exempt from the
withholding tax discussed above, will be subject to United States federal income
tax on such interest on a net income basis in the same manner as if it were a
U.S. Holder. In addition, if such holder is a foreign corporation, it may be
subject to a branch profits tax equal to 30% (or lower applicable treaty rate)
of its effectively connected earnings and profits for the taxable year, subject
to adjustments. For this purpose, interest on a Note will be included in such
foreign corporation's earnings and profits.
Any gain or income realized upon the sale, exchange, retirement or
other disposition of a Note generally will not be subject to United States
federal income tax unless (i) such gain or income is effectively connected with
the conduct of a trade or business in the United States by the Non-U.S. Holder,
or (ii) in the case of a Non-U.S. Holder who is an individual, such individual
is present in the United States for 183 days or more in the taxable year of such
sale, exchange, retirement or other disposition, and certain other conditions
are met.
Special rules may apply to certain Non-U.S. Holders, such as
"controlled foreign corporations," "passive foreign investment companies" and
"foreign personal holding companies," that are subject to special treatment
under the Code. Such entities should consult their own tax advisors to determine
the U.S. federal, state, local and other tax consequences that may be relevant
to them.
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INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, no information reporting or backup withholding will be
required with respect to payments made by the Issuer or any paying agent to
Non-U.S. Holders if a statement described in (a)(iv) above has been received
(and the payor does not have actual knowledge that the beneficial owner is a
United States Person).
In addition, backup withholding and information reporting will not
apply if payments of the principal, interest or premium on a Note are paid or
collected by a foreign office of a custodian, nominee or other foreign agent on
behalf of the beneficial owner of such Note, or if a foreign office of a broker
(as defined in applicable Treasury regulations) pays the proceeds of the sale of
a Note to the owner thereof. If, however, such nominee, custodian, agent or
broker is, for United States federal income tax purposes, a United States
person, a controlled foreign corporation or a foreign person that derives 50% or
more of its gross income for certain periods from the conduct of a trade or
business in the United States, or, for taxable years beginning after December
31, 1999, a foreign partnership in which one or more United States persons, in
the aggregate, own more than 50% of the income or capital interests in the
partnership or a foreign partnership which is engaged in a trade or business in
the United States, such payments will not be subject to backup withholding but
will be subject to information reporting, unless (1) such custodian, nominee,
agent or broker has documentary evidence in its records that the beneficial
owner is not a United States person and certain other conditions are met or (2)
the beneficial owner otherwise establishes an exemption.
Payments of principal, interest and premium on a Note paid to the
beneficial owner of a Note by a United States office of a custodian, nominee or
agent, or the payment by the United States office of a broker of the proceeds of
sale of a Note, will be subject to both backup withholding and information
reporting unless the beneficial owner provides the statement referred to in
(a)(iv) above and the payor does not have actual knowledge that the beneficial
owner is a United States person or otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be allowed
as a refund or a credit against such holder's United States federal income tax
liability provided the required information is furnished to the IRS.
CERTAIN UNITED KINGDOM TAX CONSEQUENCES
CERTAIN UNITED KINGDOM TAX CONSEQUENCES OF PAYMENTS BY WILLIS CORROON GROUP AS
GUARANTOR
Under current law if Willis Corroon Group, as guarantor, makes any
payments in respect of interest on the Notes (or other amounts due under the
Notes other than repayment of principal) such payments may be subject to United
Kingdom withholding tax at the basic rate (currently 23%). Relief from such
withholding may be available pursuant to the provisions of any applicable double
taxation treaty. In particular, under the terms of the U.S./U.K. double taxation
treaty, Holders entitled to the benefit of that treaty would be able to recover
in full any U.K. tax withheld by making a claim on the appropriate form.
Alternatively, a claim may be made by a holder in advance of a payment in
respect of interest. If the claim is accepted by the U.K. Inland Revenue, it
will authorize subsequent payments to be made without deduction of U.K.
withholding tax. Claims for repayment must be made within six years of the end
of the U.K. year of assessment (generally April 5 in each year) to which the
interest relates and must be accompanied by the original statement provided by
the Company when the interest payment was made showing the amount of U.K. income
tax deducted. Because a claim is not considered until the U.K. Inland Revenue
receives the appropriate form from the Internal Revenue Service, forms should be
sent
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to the Internal Revenue Service, in the case of an advance claim well before the
relevant interest payment date or, in the case of a claim for repayment of the
tax, well before the end of the appropriate limitation period.
As described above, Willis Corroon Group has agreed, subject to
specific exceptions and limitations, to pay to the holders of the Notes
Additional Amounts in respect of any applicable United Kingdom withholding tax
in order that the interest (and other amounts due under the Notes) such holders
receive, net of any applicable United Kingdom withhholding tax, will equal the
amounts which would have been receivable by such holders in the absence of such
United Kingdom withholding tax. See "Description of Notes--Withholding Taxes".
TRANSFER TAXES ON TRANSFER OF NOTES IN THE UNITED KINGDOM
Under current law the sale or transfer in the United Kingdom of the
Notes will not be subject to stamp duty or stamp duty reserve tax or any other
transfer tax in the United Kingdom.
CERTAIN UNITED KINGDOM TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of outstanding Notes for exchange Notes in the exchange
offer may constitute a disposal for the purposes of taxation of capital gains or
a transfer for the purposes of the accrued income scheme for an individual
holder who is resident or ordinarily resident for tax purposes in the United
Kingdom or who carries on a trade, profession or vocation through a branch or
agency to which the Note is attributable. The exchange of outstanding Notes for
exchange Notes will not constitute a taxable disposal for holders which are
companies within the charge to corporation tax or for holders which are exempt
from taxation.
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BOOK-ENTRY; DELIVERY AND FORM
The exchange Notes will initially be represented by one or more
permanent global notes in definitive, fully registered book-entry form, without
interest coupons (the "Global Notes") that will be deposited with, or on behalf
of, DTC and registered in the name of Cede & Co., as nominee of DTC, on behalf
of the acquirors of exchange Notes represented thereby for credit to the
respective accounts of the acquirors (or to such other accounts as they may
direct) at DTC, or Morgan Guaranty Trust Company of New York, Brussels Office,
as operator of the Euroclear System, or Cedel Bank, societe anonyme. See "The
Exchange Offer--Book Entry Transfer."
Except as set forth below, the Global Notes may be transferred, in
whole and not in part, solely to another nominee of DTC or to a successor of DTC
or its nominee. Beneficial interests in the Global Notes may not be exchanged
for Notes in physical, certificated form ("Certificated Notes") except in the
limited circumstances described below.
All interests in the Global Notes, including those held through
Euroclear or Cedel, may be subject to the procedures and requirements of DTC.
Those interests held through Euroclear or Cedel may also be subject to the
procedures and requirements of such systems.
CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
The descriptions of the operations and procedures of DTC, Euroclear and
Cedel set forth below are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to change by them from time to time. The
Issuer takes no responsibility for these operations or procedures, and investors
are urged to contact the relevant system or its participants directly to discuss
these matters.
DTC has advised the Issuer that it is
(i) a limited purpose trust company organized under the laws of
the State of New York,
(ii) a "banking organization" within the meaning of the New York
Banking Law,
(iii) a member of the Federal Reserve System,
(iv) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended and
(v) a "clearing agency" registered pursuant to Section 17A of
the Exchange Act.
DTC was created to hold securities for its participants (collectively, the
"Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry changes to the
accounts of its Participants, thereby eliminating the need for physical transfer
and delivery of certificates. DTC's Participants include securities brokers and
dealers (including the initial purchaser under the offering of outstanding
Notes), banks and trust companies, clearing corporations and certain other
organizations. Indirect access to DTC's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly. Investors who are not
Participants may beneficially own securities held by or on behalf of DTC only
through Participants or Indirect Participants.
177
The Issuer expects that pursuant to procedures established by DTC
ownership of the Notes will be shown on, and the transfer of ownership thereof
will be effected only through, records maintained by DTC (with respect to the
interests of Participants) and the records of Participants and the Indirect
Participants (with respect to the interests of persons other than Participants).
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the Notes represented by a
Global Note to such persons may be limited. In addition, because DTC can act
only on behalf of its Participants, who in turn act on behalf of persons who
hold interests through Participants, the ability of a person having an interest
in Notes represented by a Global Note to pledge or transfer such interest to
persons or entities that do not participate in DTC's system, or to otherwise
take actions in respect of such interest, may be affected by the lack of a
physical definitive security in respect of such interest.
So long as DTC or its nominee is the registered owner of a Global Note,
DTC or such nominee, as the case may be, will be considered the sole owner or
holder of the Notes represented by the Global Note for all purposes under the
Indenture. Except as provided below, owners of beneficial interests in a Global
Note will not be entitled to have Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of Certificated Notes, and will not be considered the owners or holders
thereof under the Indenture for any purpose, including with respect to the
giving of any direction, instruction or approval to the Trustee thereunder.
Accordingly, each holder owning a beneficial interest in a Global Note must rely
on the procedures of DTC and, if such holder is not a Participant or an Indirect
Participant, on the procedures of the Participant through which such holder owns
its interest, to exercise any rights of a holder of Notes under the Indenture or
such Global Note. The Issuer understands that under existing industry practice,
in the event that the Issuer requests any action of holders of Notes, or a
holder that is an owner of a beneficial interest in a Global Note desires to
take any action that DTC, as the holder of such Global Note, is entitled to
take, DTC would authorize the Participants to take such action and the
Participants would authorize holders owning through such Participants to take
such action or would otherwise act upon the instruction of such holders. Neither
the Issuer nor the Trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of Notes by DTC,
or for maintaining, supervising or reviewing any records of DTC relating to such
Notes.
Payments with respect to the principal of, premium, if any, Liquidated
Damages, if any, and interest on, any Notes represented by a Global Note
registered in the name of DTC or its nominee on the applicable record date will
be payable by the Trustee to or at the direction of DTC or its nominee in its
capacity as the registered holder of the Global Note representing such Notes
under the Indenture. Under the terms of the Indenture, the Issuer and the
Trustee may treat the persons in whose names the Notes, including the Global
Notes, are registered as the owners thereof for the purpose of receiving payment
thereon and for any and all other purposes whatsoever. Accordingly, neither the
Issuer nor the Trustee has or will have any responsibility or liability for the
payment of such amounts to owners of beneficial interests in a Global Note
(including principal, premium, if any, Liquidated Damages, if any, and
interest). Payments by the Participants and the Indirect Participants to the
owners of beneficial interests in a Global Note will be governed by standing
instructions and customary industry practice and will be the responsibility of
the Participants or the Indirect Participants and DTC.
Transfers between Participants in DTC will be effected in accordance
with DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
178
Subject to compliance with the transfer restrictions applicable to the
Notes, cross-market transfers between the Participants in DTC, on the one hand,
and Euroclear or Cedel participants, on the other hand, will be effected through
DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as the case
may be, by its respective depositary; however, such cross-market transactions
will require delivery of instructions to Euroclear or Cedel, as the case may be,
by the counterparty in such system in accordance with the rules and procedures
and within the established deadlines (Brussels time) of such system. Euroclear
or Cedel, as the case may be, will, if the transaction meets its settlement
requirements, deliver instructions to its respective depositary to take action
to effect final settlement on its behalf by delivering or receiving interests in
the relevant Global Notes in DTC, and making or receiving payment in accordance
with normal procedures for same-day funds settlement applicable to DTC.
Euroclear participants and Cedel participants may not deliver instructions
directly to the depositaries for Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear
or Cedel participant purchasing an interest in a Global Note from a Participant
in DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day
(which must be a business day for Euroclear and Cedel) immediately following the
settlement date of DTC. Cash received in Euroclear or Cedel as a result of sales
of interest in a Global Security by or through a Euroclear or Cedel participant
to a Participant in DTC will be received with value on the settlement date of
DTC but will be available in the relevant Euroclear or Cedel cash account only
as of the business day for Euroclear or Cedel following DTC's settlement date.
Although DTC, Euroclear and Cedel have agreed to the foregoing
procedures to facilitate transfers of interests in the Global Notes among
participants in DTC, Euroclear and Cedel, they are under no obligation to
perform or to continue to perform such procedures, and such procedures may be
discontinued at any time. Neither the Issuer nor the Trustee will have any
responsibility for the performance by DTC, Euroclear or Cedel or their
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
CERTIFICATED NOTES
If
(i) the Issuer notifies the Trustee in writing that DTC is no
longer willing or able to act as a depositary or DTC ceases to be
registered as a clearing agency under the Exchange Act and a successor
depositary is not appointed within 90 days of such notice or cessation,
(ii) Willis Corroon, at its option, notifies the Trustee in
writing that it elects to cause the issuance of Notes in definitive form
under the Indenture or
(iii) upon the occurrence of certain other events as provided in
the Indenture,
then, upon surrender by DTC of the Global Notes, Certificated Notes will be
issued to each person that DTC identifies as the beneficial owner of the Notes
represented by the Global Notes. Upon any such issuance, the Trustee is required
to register such Certificated Notes in the name of such person or persons (or
the nominee of any thereof) and cause the same to be delivered thereto.
Neither the Issuer nor the Trustee shall be liable for any delay by DTC
or any Participant or Indirect Participant in identifying the beneficial owners
of the related Notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes
179
(including with respect to the registration and delivery, and the respective
principal amounts, of the Notes to be issued).
If Certificated Notes are issued, Willis Corroon will appoint
Kredietbank S.A. Luxembourgeoise, or such other person located in Luxembourg and
reasonably acceptable to the Trustee, as an additional paying and transfer
agent. Upon the issuance of Certificated Notes, Holders will be able to transfer
and exchange Certificated Notes at the Luxembourg office of such paying and
transfer agent, PROVIDED that all transfers and exchanges must be effected in
accordance with the terms of the Indenture and, among other things, be recorded
in the register maintained by the registrar.
YEAR 2000
DTC management is aware that some computer applications, systems, and
the like for processing data ("Systems") that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter "year 2000
problems." DTC has informed its Participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as the same relate to the timely payment of distributions
(including principal and income payments) to securityholders, book-entry
deliveries, and settlement of trades within DTC ("DTC Services"), continue to
function appropriately. This program includes a technical assessment and a
remediation plan, each of which is complete. Additionally, DTC's plan includes a
testing phase, which is expected to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also
dependent upon other parties, including but not limited to issuers and their
agents, as well as third party vendors from whom DTC licenses software and
hardware, and third party vendors on whom DTC relies for information or the
provision of services, including telecommunication and electrical utility
service providers, among others. DTC has informed the Industry that it is
contacting (and will continue to contact) third party vendors from whom DTC
acquires services to: (i) impress upon them the importance of such services
being year 2000 compliant; and (ii) determine the extent of their efforts for
year 2000 remediation (and, as appropriate, testing) of their services. In
addition, DTC is in the process of developing such contingency plans as it deems
appropriate.
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PLAN OF DISTRIBUTION
Until , 1999 (90 days after the date of this prospectus),
all dealers effecting transactions in the exchange Notes, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
Each broker-dealer that receives exchange Notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange Notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange Notes received in
exchange for outstanding Notes only where such outstanding Notes were acquired
as a result of market-making activities or other trading activities. Willis
Corroon has agreed that it will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale for a period of 90 days from the date on which the exchange offer is
consummated, or such shorter period as will terminate when all outstanding Notes
acquired by broker-dealers for their own accounts as a result of market-making
activities or other trading activities have been exchanged for exchange Notes
and such exchange Notes have been resold by such broker-dealers.
Willis Corroon will not receive any proceeds from any sale of exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the exchange offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer or the purchasers of any exchange Notes. Any broker-dealer
that resells exchange Notes that were received by it for its own account
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of such exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of exchange
Notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The letter of
transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 90 days from the date on which the exchange offer is
consummated, or such shorter period as will terminate when all outstanding Notes
acquired by broker-dealers for their own accounts as a result of market-making
activities or other trading activities have been exchanged for exchange Notes
and such exchange Notes have been resold by such broker-dealers, Willis Corroon
will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. Willis Corroon has agreed to pay all expenses
incident to the exchange offer other than commissions or concessions of any
brokers or dealers and the fees of any counsel or other advisors or experts
retained by the holders of outstanding Notes, except as expressly set forth in
the registration rights agreement, and will indemnify the holders of outstanding
Notes (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
The exchange of outstanding Notes for exchange Notes will not be
subject to stamp duty or stamp duty reserve tax or any other transfer tax in the
United Kingdom.
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LEGAL MATTERS
Certain legal matters with respect to the Notes and the Guarantees are
being passed upon on behalf of Willis Corroon by Simpson Thacher & Bartlett, New
York, New York.
EXPERTS
The consolidated financial statements of Willis Corroon as of December
31, 1997 and 1998 and for the years ended December 31, 1996 and 1997 and periods
January 1 to September 1, 1998 and September 2 to December 31, 1998 appearing in
this prospectus and registration statement have been audited by Ernst & Young,
independent auditors, as set forth in their reports appearing elsewhere herein
and in the registration statement and are included in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Commission a registration statement on Form F-4
under the Securities Act with respect to the exchange Notes being offered
hereby. This prospectus, which forms a part of the registration statement, does
not contain all of the information set forth in the registration statement. You
should refer to the registration statement for further information. Statements
contained in this prospectus as to the contents of any contract or other
document are not necessarily complete, and, where such contract or other
document is an exhibit to the registration statement, each such statement is
qualified by the provision in such exhibit to which reference is hereby made.
We are not currently subject to the informational requirements of the
Securities Exchange Act of 1934. As a result of this offering of these
securities, we will become subject to the informational requirements of the
Securities Exchange Act of 1934. Accordingly, we will file reports and such
other information with the Commission unless and until we obtain an exemption
from such requirement. The registration statement, such other reports and other
information can be inspected and copied at the Public Reference Section of the
Securities and Exchange Commission located at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington D.C. 20549 and at the regional public reference
facilities maintained by the Securities and Exchange Commission located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material, including copies of all or any portion of the registration
statement, can be obtained from the Public Reference Section of the Securities
and Exchange Commission at prescribed rates. Such material may be accessed
electronically by means of the Commission's home page on the Internet
(http://www.sec.gov).
Furthermore, we agree that, even if we are not required to file
periodic reports and information with the Commission, for so long as any
exchange Note remains outstanding we will furnish to you the information that
would be required to be furnished by us under Section 13 of the Securities
Exchange Act of 1934.
Prior to the consummation of the Tender Offer, Willis Corroon Group was
subject to the periodic reporting and other information requirements of the
Securities Exchange Act of 1934, and, in accordance therewith, filed reports and
other information with the Commission.
So long as the Notes are listed on the Luxembourg Stock Exchange and
the rules of such stock exchange shall so require, copies of such information
will also be available during normal business hours on any weekday at the office
of Kredietbank S.A. Luxembourgeoise.
182
LISTING AND GENERAL INFORMATION
1. Application has been made to list the exchange Notes on the
Luxembourg Stock Exchange. A legal notice relating to the issue of the
outstanding Notes and the Certificate of Incorporation and Bylaws of the Issuer
was deposited with the GREFFIER EN CHEF DU TRIBUNAL D'ARRONDISSEMENT DE ET A
LUXEMBOURG, where such documents may be examined or copies obtained.
2. So long as the Notes are listed on the Luxembourg Stock Exchange and
the rules of such stock exchange shall so require, copies of the Certificate of
Incorporation and Bylaws of the Issuer, the Memorandum and Articles of
Association of Willis Corroon Group, the Partnership Agreement of Willis Corroon
Partners and the Indenture will be available at the office of Kredietbank S.A.
Luxembourgeoise, 43, Boulevard Royal, L-2955 Luxembourg. So long as the
outstanding Notes or the exchange Notes are listed on the Luxembourg Stock
Exchange and the rules of such stock exchange shall so require, copies of the
consolidated financial statements of Willis Corroon (the Issuer and Willis
Corroon Partners do not publish separate financial statements) for the year
ended December 31, 1998 and subsequent years and any and all annual and
quarterly reports of Willis Corroon will be available during normal business
hours on any weekday at the office of Kredietbank S.A. Luxembourgeoise, 43,
Boulevard Royal, L-2955 Luxembourg. So long as the outstanding Notes or the
exchange Notes are listed on the Luxembourg Stock Exchange and the rules of such
stock exchange shall so require, copies of all other material documents
referenced herein that are entered into in connection with the Transactions will
be available during normal business hours on any weekday at the office of
Kredietbank S.A. Luxembourgeoise, 43, Boulevard Royal, L-2955 Luxembourg.
3. The Issuer was incorporated under the laws of the State of Delaware
on December 20, 1928. Willis Corroon Group was registered as a private limited
company under the laws of England and Wales on November 10, 1998. Willis Corroon
Partners was duly formed as a general partnership under the laws of Delaware on
November 11, 1998. The creation and issuance of the Notes was authorized on
behalf of the Issuer by resolutions adopted by the Board of Directors of the
Issuer on January 26 and 28, 1999. The guarantees of the Notes were authorized
on behalf of Willis Corroon Group by a resolution of the Board of Directors of
Willis Corroon Group on January 25, 1999 and on behalf of Willis Corroon
Partners by a unanimous written consent of the general partners of Willis
Corroon Partners on January 27, 1999.
4. Willis Corroon Group accepts responsibility for the information
contained in this prospectus. To the best knowledge of Willis Corroon Group, the
information contained in this prospectus is in accordance with the facts and
does not omit anything likely to affect the import of this prospectus.
5. There has been no material adverse change in the financial position
of Willis Corroon since December 31, 1998.
6. Willis Corroon is not a party to any litigation that, in the
judgment of Willis Corroon Group, could be material in the context of the issue
of the Notes, except as disclosed herein.
7. The Auditors of Willis Corroon Group are Ernst & Young, London, who
have audited Willis Corroon's financial statements for the years ended December
31, 1996 and 1997 and the periods January 1 to September 1, 1998 and September 2
to December 31, 1998.
8. The Issuer will not appoint a paying and transfer agent in
Luxembourg until such time, if any, as Certificated Notes are issued. The Issuer
has appointed Kredietbank S.A. Luxembourgeoise as its special agent to act as an
intermediary between the Issuer and the holders of the Notes in Luxembourg until
such time as the Issuer is required to appoint a transfer and paying agent
located in
183
Luxembourg as provided in this prospectus. So long as the outstanding Notes or
the exchange Notes are listed on the Luxembourg Stock Exchange and the rules of
such stock exchange so require, the Issuer shall maintain a special agent so
long as the outstanding Notes or the exchange Notes are in global form and
appoint and maintain a paying and transfer agent upon the issuance of the
Certificated Notes. The Issuer reserves the right to vary such appointment.
9. The exchange Notes have been accepted for clearance through the
Euroclear Operator and Cedel Bank. The Global Notes have been assigned the
following CUSIP number: and; a Euroclear common code number of
; and an ISIN number of .
184
INDEX TO FINANCIAL STATEMENTS
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PAGE
---------
Report of Independent Auditors............................................................................. F-2
Consolidated Financial Statements
Consolidated Statement of Income......................................................................... F-3
Consolidated Balance Sheet............................................................................... F-4
Consolidated Statement of Movements in Shareholders' Equity.............................................. F-5
Consolidated Statement of Cash Flows..................................................................... F-6
Consolidated Statement of Total Recognized Gains and Losses.............................................. F-7
Notes to the Financial Statements........................................................................ F-8
F-1
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
REPORT OF INDEPENDENT AUDITORS
TO: THE BOARD OF DIRECTORS
WILLIS CORROON GROUP LIMITED
We have audited the accompanying consolidated balance sheets of Willis
Corroon Group Limited as of December 31, 1997 and 1998, and the related
consolidated statements of income, movements in shareholders' equity, cash flows
and total recognized gains and losses for the years ended December 31, 1996 and
1997 and the periods January 1 to September 1, 1998 and September 2 to December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Willis Corroon Group Limited at December 31, 1997 and 1998, and the consolidated
results of its operations and its consolidated cash flows for the years ended
December 31, 1996 and 1997 and the periods January 1 to September 1, 1998 and
September 2 to December 31, 1998, in conformity with accounting principles
generally accepted in the United Kingdom, which differ in certain respects from
those followed in the United States (see Note 31 of Notes to the Financial
Statements).
Ernst & Young
London, England
March 15, 1999
F-2
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
[Enlarge/Download Table]
YEAR ENDED
DECEMBER 31, JANUARY 1 TO SEPTEMBER 2 TO
---------------------- SEPTEMBER 1, DECEMBER 31,
NOTE 1996 1997 1998 1998
--------- ---------- ---------- ------------- ---------------
(L MILLION)
CONTINUING OPERATIONS
Commissions and fees............................. 683.2 652.0 441.9 235.8
DISCONTINUED OPERATIONS
Underwriting premiums, commissions and fees...... 2.3 0.3 -- 0.2
---------- ---------- ------------- ---------------
3 685.5 652.3 441.9 236.0
Interest and investment income................... 5 45.2 41.7 26.9 13.4
---------- ---------- ------------- ---------------
TOTAL OPERATING REVENUES......................... 730.7 694.0 468.8 249.4
Operating expenses............................... (640.6) (603.7) (418.7) (223.2)
Underwriting claims.............................. (4.1) (1.0) -- --
Utilization of provisions........................ 1.8 2.8 6.7 (0.2)
---------- ---------- ------------- ---------------
OPERATING INCOME
Continuing operations
Before exceptional items......................... 87.8 92.1 56.8 26.0
Exceptional items................................ -- -- (35.8) (5.0)
---------- ---------- ------------- ---------------
87.8 92.1 21.0 21.0
Discontinued operations.......................... -- -- -- --
---------- ---------- ------------- ---------------
TOTAL OPERATING INCOME........................... 5 87.8 92.1 21.0 21.0
(Loss)/gain on closure/disposal of operations.... 2.5 2.2 (28.0) (1.3)
Share of profit of associates.................... 3.5 1.9 7.7 (1.4)
Net interest expense............................. 7 (2.2) (0.7) (2.0) (1.2)
---------- ---------- ------------- ---------------
INCOME/(LOSS) BEFORE TAXATION.................... 8 91.6 95.5 (1.3) 17.1
Taxation......................................... 9 (36.6) (38.1) (13.5) (40.9)
---------- ---------- ------------- ---------------
INCOME/(LOSS) AFTER TAXATION..................... 55.0 57.4 (14.8) (23.8)
Minority interests............................... (0.8) (0.5) (0.8) (1.9)
---------- ---------- ------------- ---------------
NET INCOME/(LOSS) (i)............................ 54.2 56.9 (15.6) (25.7)
Dividends........................................ 10 (27.6) (27.6) (22.2) --
---------- ---------- ------------- ---------------
RETAINED INCOME/(LOSS)........................... 26.6 29.3 (37.8) (25.7)
---------- ---------- ------------- ---------------
---------- ---------- ------------- ---------------
PER ORDINARY SHARE (i)
Net income/(loss)................................ 11 13.0p 13.6p (3.7)p (6.0)p
---------- ---------- ------------- ---------------
---------- ---------- ------------- ---------------
Average number of ordinary shares
outstanding (in millions)...................... 419.7 421.5 424.6 427.1
---------- ---------- ------------- ---------------
---------- ---------- ------------- ---------------
------------------------
(i) A summary of the significant adjustments to net income that would be
required if United States generally accepted accounting principles were to
be applied instead of those generally accepted in the United Kingdom is set
forth in Note 31.
The Notes to the Financial Statements are an integral part of these
Financial Statements.
F-3
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
[Enlarge/Download Table]
DECEMBER 31,
------------------------------------------
NOTE 1997 1998
----- -------------------- --------------------
(L MILLION)
ASSETS
CURRENT ASSETS
Cash and short-term deposits...................................... 359.4 317.1
Investments....................................................... 12 257.7 281.6
Receivables....................................................... 13 2,533.2 3,794.6
--------- ---------
Total current assets.......................................... 3,150.3 4,393.3
FIXED ASSETS
Intangible assets................................................. 14 -- 19.7
Tangible assets................................................... 15 134.8 141.6
Investments....................................................... 16 19.2 34.4
--------- ---------
Total fixed assets............................................ 154.0 195.7
--------- ---------
TOTAL ASSETS...................................................... 3,304.3 4,589.0
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade payables.................................................... 2,868.6 2,860.3
Corporate tax..................................................... 20.5 17.7
Accruals and deferred income...................................... 60.2 67.6
Bank loans and overdrafts......................................... 18 0.5 352.7
Dividends payable................................................. 7.1 --
Other............................................................. 17 89.9 817.4
--------- ---------
Total current liabilities..................................... 3,046.8 4,115.7
NONCURRENT LIABILITIES
Bank loans........................................................ 18 34.0 276.4
Other............................................................. 19 3.7 5.0
--------- ---------
Total noncurrent liabilities.................................. 37.7 281.4
PROVISIONS FOR LIABILITIES AND CHARGES............................ 21 90.0 94.8
MINORITY INTERESTS................................................ 5.2 8.1
--------- ---------
Total liabilities and minority interests...................... 3,179.7 4,500.0
SHAREHOLDERS' EQUITY (i)
Share capital..................................................... 52.9 53.6
Share premium..................................................... 21.4 28.5
Revaluation reserve............................................... 14.9 14.9
Retained earnings/(deficit)....................................... 35.4 (8.0)
--------- ---------
Total shareholders' equity.................................... 124.6 89.0
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................ 3,304.3 4,589.0
--------- ---------
--------- ---------
------------------------
(i) A summary of the significant adjustments to shareholders' equity that would
be required if United States generally accepted accounting principles were
to be applied instead of those generally accepted in the United Kingdom is
set forth in Note 31.
The Notes to the Financial Statements are an integral part of these
Financial Statements.
F-4
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF MOVEMENTS IN SHAREHOLDERS' EQUITY
[Enlarge/Download Table]
ORDINARY SHARES
------------------------------
AUTHORIZED SHARE CAPITAL
At January 1, 1996, December 31, 1996, December 31, 1997 NUMBER (000) (L MILLION)
and December 31, 1998.............................................................. 528,000 66.0
ISSUED SHARE CAPITAL --------------- -------------
--------------- -------------
------------------------ SHARE REVALUATION RETAINED
ISSUED SHARE CAPITAL AND RESERVES ORDINARY SHARES PREMIUM(I) RESERVE(I) EARNINGS(II)
------------------------ ------------- --------------- -------------
NUMBER
(000) (L MILLION)
AT JANUARY 1, 1996.......................... 419,299 52.4 17.0 14.9 36.3
Retained income............................. -- -- -- -- 26.6
Issued for acquisitions..................... 38 -- -- -- --
Issued under employee share plans........... 740 0.1 1.0 -- --
Goodwill on acquisitions eliminated (iii)... -- -- -- -- (1.1)
Goodwill reinstated on disposals............ -- -- -- -- 13.7
Exchange adjustments........................ -- -- -- -- (9.0)
----------- --- --- ----- -----
AT DECEMBER 31, 1996........................ 420,077 52.5 18.0 14.9 66.5
Retained income............................. -- -- -- -- 29.3
Issued for acquisitions..................... 1,545 0.2 1.8 -- --
Issued under employee share plans........... 1,352 0.2 1.6 -- --
Goodwill on acquisitions eliminated (iv).... -- -- -- -- (68.9)
Goodwill reinstated on disposals............ -- -- -- -- 6.6
Exchange adjustments........................ -- -- -- -- 1.9
----------- --- --- ----- -----
AT DECEMBER 31, 1997........................ 422,974 52.9 21.4 14.9 35.4
Retained income............................. -- -- -- -- (63.5)
Scrip dividends............................. 1,758 0.2 2.2 -- --
Issued under employee share plans........... 3,683 0.5 4.9 -- --
Goodwill on acquisitions eliminated (v)..... -- -- -- -- 0.2
Goodwill reinstated on disposals............ -- -- -- -- 30.4
Exchange adjustments........................ -- -- -- -- (10.5)
----------- --- --- ----- -----
AT DECEMBER 31, 1998........................ 428,415 53.6 28.5 14.9 (8.0)
----------- --- --- ----- -----
----------- --- --- ----- -----
------------------------
(i) The share premium and revaluation reserve are not distributable.
(ii) Retained earnings at December 31, 1998 included L4.1 million (1997: L2.9
million, 1996: L4.9 million) in respect of associates.
(iii) Goodwill eliminated in 1996 comprised subsidiaries (L1.1 million).
(iv) Goodwill eliminated in 1997 comprised subsidiaries (L20.8 million) and
associates (L48.1 million).
(v) Goodwill eliminated in 1998 comprised adjustments relating to subsidiaries
acquired before December 31, 1997.
(vi) The cumulative amount of goodwill eliminated in 1998 and earlier financial
years, net of goodwill relating to subsidiaries sold, amounts to L542.1
million.
(vii) Trinity Acquisition plc ("Trinity Acquisition") has the right to convert
the preferred shares it holds in a non-U.K. subsidiary into 563,580 ordinary
shares of Willis Corroon Group Limited ("ordinary shares") at any time up to
December 31, 2002.
The Notes to the Financial Statements are an integral part of these
Financial Statements.
F-5
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
[Enlarge/Download Table]
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
-------------------- --------------- ---------------
NOTE 1996 1997 1998 1998
----- --------- --------- --------------- ---------------
(L MILLION)
NET CASH INFLOW FROM OPERATING ACTIVITIES............... 23 63.7 113.4 127.5 (97.7)
--------- --------- ------ -------
DIVIDENDS FROM ASSOCIATES............................... 1.5 0.9 1.9 0.5
--------- --------- ------ -------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest paid........................................... (2.0) (0.6) (1.8) (1.1)
Bank fees on borrowings................................. -- -- -- (9.6)
Interest element of finance lease rental payments....... (0.2) (0.1) (0.1) --
--------- --------- ------ -------
Net cash outflow for returns on investment and servicing
of finance............................................ (2.2) (0.7) (1.9) (10.7)
--------- --------- ------ -------
TAXATION................................................ (26.8) (23.7) (8.4) (18.5)
--------- --------- ------ -------
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of tangible fixed assets....................... (28.9) (26.5) (20.1) (9.8)
Sale of tangible fixed assets........................... 13.1 4.7 2.4 1.0
Purchase of fixed asset investments..................... (0.9) (5.0) (1.9) --
--------- --------- ------ -------
Net cash (outflow)/inflow for capital expenditure and
financial investment.................................. (16.7) (26.8) (19.6) (8.8)
--------- --------- ------ -------
ACQUISITIONS AND DISPOSALS
Purchase of subsidiaries................................ (1.2) (17.1) (1.5) (16.7)
Purchase of associates.................................. -- (35.6) (14.9) (5.7)
Sale of subsidiaries.................................... 36.4 10.5 5.0 1.6
Net cash transferred on purchase/sale of subsidiaries... (12.6) (0.5) 2.2 (2.3)
--------- --------- ------ -------
Net cash (outflow)/inflow for acquisitions and
disposals............................................. 22.6 (42.7) (9.2) (23.1)
--------- --------- ------ -------
EQUITY DIVIDENDS PAID................................... (27.3) (26.6) (19.8) (7.6)
--------- --------- ------ -------
CASH FLOW BEFORE MANAGEMENT OF LIQUID RESOURCES AND
FINANCING............................................. 14.8 (6.2) 70.5 (165.9)
--------- --------- ------ -------
MANAGEMENT OF LIQUID RESOURCES.......................... 25.2 2.8 (66.8) 122.2
--------- --------- ------ -------
FINANCING
Issue of ordinary shares................................ -- 0.3 0.7 4.0
Amounts due from parent company......................... -- -- -- (858.3)
Amounts due to parent company........................... -- -- -- 332.6
Convertible debentures.................................. -- -- -- (0.2)
Debt due within a year:
increase/(decrease) in short-term borrowings.......... (0.1) -- -- 349.4
Debt due beyond a year:
increase/(decrease) in long-term borrowings........... (42.6) 15.7 32.6 208.7
Capital element of finance lease rental payments........ (0.6) (1.0) (0.6) --
--------- --------- ------ -------
Net cash inflow/(outflow) from financing................ (43.3) 15.0 32.7 36.2
--------- --------- ------ -------
INCREASE/(DECREASE) IN CASH............................. (3.3) 11.6 36.4 (7.5)
--------- --------- ------ -------
--------- --------- ------ -------
------------------------
(i) Acquisitions and disposals and financing activities not involving cash
consideration: The fair value of ordinary shares issued in connection with
acquisitions in 1997 amounted to L2.0 million.
(ii) The significant differences between the consolidated statement of cash
flows presented above and that required under U.S. GAAP are described in
Note 31.
F-6
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES
[Enlarge/Download Table]
YEAR ENDED DECEMBER JANUARY 1 TO SEPTEMBER 2 TO
31, SEPTEMBER 1, DECEMBER 31,
-------------------- --------------- -----------------
1996 1997 1998 1998
--------- --------- --------------- -----------------
(L MILLION)
NET INCOME
Parent and subsidiaries.................................... 51.3 55.4 (23.1) (22.6)
Associates................................................. 2.9 1.5 7.5 (3.1)
--- --- ----- -----
54.2 56.9 (15.6) (25.7)
CURRENCY TRANSLATION DIFFERENCES
Parent and subsidiaries.................................... (9.7) 1.4 (2.2) (7.8)
Associates................................................. 0.7 0.5 -- (0.5)
--- --- ----- -----
TOTAL RECOGNIZED GAINS AND LOSSES FOR THE FINANCIAL YEAR... 45.2 58.8 (17.8) (34.0)
--- --- ----- -----
--- --- ----- -----
------------------------------
(i) A statement of Comprehensive Income under U.S. GAAP is set forth in Note 31
of Notes to the Financial Statements.
The Notes to the Financial Statements are an integral part of these
Financial Statements.
F-7
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1--ACCOUNTING POLICIES
BASIS OF PREPARATION
The consolidated financial statements of Willis Corroon Group Limited (the
"Company") and its subsidiaries (together, the "Group") have been prepared on
the going concern basis under the historical cost convention as modified by the
revaluation of certain land and buildings. The Group's consolidated financial
statements comply with accounting standards applicable in the United Kingdom.
The Company was acquired by Trinity Acquisition effective September 2, 1998.
While this acquisition has no impact on the basis of accounting for the Company,
in accordance with the requirements of the U.S. Securities and Exchange
Commission, financial information for the periods January 1 to September 1,
1998, and September 2 to December 31, 1998 is presented separately. Under U.S.
GAAP, the acquisition establishes a new basis of accounting for the Company from
September 2, 1998 as described in Note 31.
BASIS OF CONSOLIDATION
The Group's consolidated financial statements incorporate those of the
Company and its subsidiaries together with the Group's share of the results and
net assets of associates based on financial statements drawn up to December 31.
The results of subsidiaries and associates acquired or disposed of during the
year are included from or to the relevant dates of acquisition or disposal.
GOODWILL
Goodwill arising on acquisitions occurring after January 1, 1998 is
capitalized and amortized on a systematic basis over its useful economic life.
Goodwill on acquisitions completed before January 1, 1998 has been eliminated
against retained earnings. On disposal of a business acquired before January 1,
1998, any goodwill which had been previously eliminated against retained
earnings is reinstated and charged to the income statement.
REVENUE RECOGNITION
The Group takes credit for commission (including fees in lieu) at the date
when the insured is debited or at the inception date of the policy, whichever is
the later. Commissions on return and additional premiums and adjustments are
brought into account as and when these occur; other fees and commissions are
accounted for on a receivable basis.
INSURANCE BROKING RECEIVABLES AND PAYABLES
Insurance brokers usually act as agents in placing the insurable risks of
their clients with insurers and, as such, generally are not liable as principals
for amounts arising from such transactions. Notwithstanding the legal
relationships with clients and insurers, insurance brokers are entitled to
retain investment income on any cashflows arising from insurance broking
transactions; accounting standards require receivables and payables arising from
such transactions to be shown as assets and liabilities.
Debit and credit balances arising from insurance broking transactions are
reported as separate assets or liabilities unless such balances are due to or
from the same party and the offset would survive the insolvency of that party,
in which case they are aggregated into a single net balance.
CURRENCY TRANSLATION
Transactions in foreign currencies are recorded at the rate of exchange at
the date of the transaction, or, in the case of forward contracts in respect of
the current year's income, at the contracted rate. Assets and liabilities in
foreign currencies are translated into sterling at the rates of exchange ruling
F-8
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--ACCOUNTING POLICIES (CONTINUED)
at the balance sheet date. Exchange differences arising on the translation of
the net assets of overseas subsidiaries and associates, and the exchange
differences arising on foreign currency borrowings taken out to provide a hedge
against the exchange risk associated with those investments, are taken to
retained earnings.
The results of overseas subsidiaries and associates are translated into
sterling at average rates of exchange and the difference between average rates
and year end rates is taken to retained earnings. Other exchange differences are
taken to income.
DEPRECIATION
Depreciation is calculated on a straight line basis at rates estimated to
write down the value of assets over their expected useful lives. Depreciation on
freehold buildings and long leaseholds is provided at 2% per annum. Other
leaseholds are written off over the remaining period of the lease. Depreciation
on fixed plant, furniture, equipment and vehicles is provided at rates between
4% and 33 1/3% per annum. No depreciation is provided on freehold land.
DEFERRED TAX
Provision for deferred tax is made using the liability method for all timing
differences to the extent that it is probable that a liability will crystallize.
No provision is made for tax that would be payable on the disposal of revalued
properties until it is decided in principle to dispose of the asset.
PENSIONS
The regular cost of providing benefits is charged to operating income over
the employees' service lives on the basis of a constant percentage of
pensionable earnings. Variations from regular cost, arising from periodic
actuarial valuations, are allocated to operating income on a systematic basis
over the expected remaining service lives of current employees.
NOTE 2--MAJOR ACQUISITIONS AND DISPOSALS
YEAR ENDED DECEMBER 31, 1996
There were no material acquisitions in 1996.
CONSUMER BENEFIT LIFE INSURANCE COMPANY ("CBL")
During 1996, the Group disposed of its interest in CBL, a wholly owned
subsidiary company. The net proceeds of disposal were L20.7 million and the net
assets disposed of were L19.4 million. There was no gain or loss on disposal
after charging positive goodwill of L1.3 million which had been previously
included within retained earnings.
W F CORROON
During 1996, the Group disposed of its interests in W F Corroon, its
wholly-owned employee benefit consulting operations. The net proceeds of
disposal were L16.1 million and the net assets disposed of were L8.1 million.
There was no gain or loss on disposal after charging positive goodwill of L8.0
million which had been previously included within retained earnings.
YEAR ENDED DECEMBER 31, 1997
There were no material acquisitions of subsidiaries in 1997.
F-9
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--MAJOR ACQUISITIONS AND DISPOSALS (CONTINUED)
WILLIS FABER & DUMAS (AGENCIES) LIMITED ("WF&D AGENCIES")
WF&D Agencies, a Lloyd's members' agent, was disposed of in October 1997.
GRAS SAVOYE & CIE ("GRAS SAVOYE")
On December 30, 1997, the Group acquired a 33% interest in Gras Savoye for a
cash consideration of L47.8 million, of which L15.2 million was paid in July
1998. Goodwill eliminated against retained earnings amounted to L46.0 million.
YEAR ENDED DECEMBER 31, 1998
GRUPPO ITAL BROKERS
The Group acquired a 50% interest in Gruppo Ital Brokers in July 1998 for a
consideration of L13.0 million. Following this acquisition, a merger was
effected with the Group's existing Italian associate to form Willis Corroon
Italia SpA.
S&C WILLIS CORROON CORREDURIA DE SEGUROS Y REASEGUROS SA ("S&C WILLIS CORROON")
The Group increased its investment from 48% to 60% in July 1998 and
reorganized its existing Spanish and Portuguese operations.
PROFESSIONAL LIABILITY UNDERWRITING MANAGEMENT ("PLUM")
The Group's professional liability wholesale operation in the United States
was closed in May 1998. The loss on closure amounted to L30.3 million including
attributable goodwill which had previously been eliminated against retained
earnings.
The effect of acquiring subsidiaries (including major acquisitions), all of
which were accounted for under the purchase method of accounting, was as
follows:
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
(L MILLION)
NET ASSETS ACQUIRED
Tangible assets.................................................... -- 3.9 4.3
Fixed asset investments............................................ -- 0.3 0.6
Receivables........................................................ 0.1 21.0 33.3
Cash and investments............................................... -- 4.7 3.2
Payables........................................................... -- (19.3) (34.9)
Provisions for liabilities and charges............................. -- (3.9) --
Minority interest.................................................. -- (3.5) (2.7)
Goodwill........................................................... 1.1 20.8 19.7
Net assets previously reported as associates....................... -- (2.6) (2.0)
--- --------- ---------
1.2 21.4 21.5
--- --------- ---------
--- --------- ---------
COST OF ACQUISITIONS
Cash............................................................... 1.2 17.1 17.5
Deferred consideration............................................. -- 2.3 4.0
Shares issued...................................................... -- 2.0 --
--- --------- ---------
1.2 21.4 21.5
--- --------- ---------
--- --------- ---------
F-10
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--MAJOR ACQUISITIONS AND DISPOSALS (CONTINUED)
Had the acquisitions been consummated at January 1, 1998 and at the
beginning of the preceeding financial year, the unaudited consolidated pro forma
results for those years would have been:
[Enlarge/Download Table]
YEAR ENDED DECEMBER
31,
--------------------
1997 1998
--------- ---------
(L MILLION, EXCEPT
PER SHARE AMOUNTS)
Total operating revenues.......................................... 724.4 735.5
Net income/(loss)................................................. 60.8 (39.1)
Net income/(loss) per ordinary share.............................. 13.6p (9.2)p
The subsidiaries acquired during 1998 utilized L4.4 million of the Group's
net operating cash flow, paid Lnil in respect of net returns on investments and
servicing of finance, paid Lnil in respect of taxation and utilized L0.2 million
for capital expenditure.
The L18.2 million shown as "Purchase of subsidiaries" in the Consolidated
Statement of Cash Flows includes L0.7 million relating to deferred consideration
paid during 1998 in respect of acquisitions completed in 1997.
These acquisitions would have had no material impact on the results for
1996, 1997 and 1998 had they been consummated at the beginning both of the
respective years of acquisition and of the immediate preceding years.
The effect of the above, and other, disposals (including provisional
liquidation) was as follows:
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31,
------------------------------------------------
DISCONTINUED
CONTINUING OPERATIONS OPERATIONS
------------------------------- ---------------
1996 1997 1998 1997
--------- --------- --------- ---------------
(L MILLION)
NET ASSETS DISPOSED OF
Tangible assets...................................... 0.9 0.6 0.6 --
Investments.......................................... 25.6 -- -- --
Receivables.......................................... 16.8 8.1 2.8 23.2
Current asset investments............................ -- -- -- 38.3
Deposits and cash.................................... 12.6 5.2 3.3 20.0
Payables............................................. (25.7) (11.0) (5.2) (9.9)
Insurance funds...................................... -- -- -- (73.0)
--------- --------- --------- -----
30.2 2.9 1.5 (1.4)
Minority interest.................................... -- -- (0.3) --
Goodwill written off................................. 13.7 2.5 30.1 4.1
Loss/gain on disposal................................ 2.5 2.2 (27.5) (2.7)
--------- --------- --------- -----
TOTAL PROCEEDS....................................... 46.4 7.6 3.8 --
--------- --------- --------- -----
--------- --------- --------- -----
SATISFIED BY
Cash................................................. 36.4 4.5 3.0 --
Deferred consideration............................... 10.0 3.1 0.8 --
--------- --------- --------- -----
46.4 7.6 3.8 --
--------- --------- --------- -----
--------- --------- --------- -----
Continuing operations sold during 1997 comprised WF&D Agencies which was
sold on October 20, 1997 and Willis Corroon France SA on December 30, 1997. The
contribution to Group income up to their respective dates of disposal was L5.1
million and L(0.5) million.
F-11
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--MAJOR ACQUISITIONS AND DISPOSALS (CONTINUED)
Discontinued operations disposed of comprise the net assets of Sovereign
Marine & General Insurance Company Limited ("Sovereign") and its subsidiaries.
Sovereign was placed into provisional liquidation on July 11, 1997.
The operations disposed of during 1998 utilized L1.2 million (1997:
contribution L2.7 million) of the Group's net operating cash flow and paid Lnil
in respect of returns on investments and servicing of finance, paid Lnil million
(1997: L3.1 million) in respect of taxation and utilized Lnil million for
capital expenditure.
The L6.6 million shown as "Sale of subsidiaries" in the Consolidated
Statement of Cash Flows includes L3.6 million relating to deferred consideration
received during 1998 in respect of disposals completed in prior years.
NOTE 3--SEGMENTAL ANALYSIS
The Group's continuing operations comprise its insurance broking and risk
management consulting activities, which included employee benefits consulting
operations up to November 1996 and Lloyd's members' agency operations up to
October 1997, the respective dates of disposal. The Group's discontinued
operations comprise its UK underwriting activities, which ceased underwriting in
1991, and include Sovereign up to July 11, 1997, when it was placed into
provisional liquidation, and Willis Faber (Underwriting Management) Limited
("WFUM").
[Enlarge/Download Table]
CONTINUING DISCONTINUED
BUSINESS ANALYSIS OPERATIONS OPERATIONS TOTAL
--------------------------------------------------------------------------- ----------- ----------------- ---------
(L MILLION)
JANUARY 1 TO SEPTEMBER 1, 1998
COMMISSIONS AND FEES....................................................... 441.9 -- 441.9
Interest and investment income............................................. 26.9 -- 26.9
----------- --- ---------
TOTAL OPERATING REVENUES................................................... 468.8 -- 468.8
Operating expenses......................................................... (412.0) (6.7) (418.7)
Exceptional items.......................................................... (35.8) -- (35.8)
Utilization of provisions.................................................. -- 6.7 6.7
----------- --- ---------
OPERATING INCOME........................................................... 21.0 -- 21.0
----------- --- ---------
----------- --- ---------
SEPTEMBER 2 TO DECEMBER 31, 1998
COMMISSIONS AND FEES....................................................... 235.8 0.2 236.0
Interest and investment income............................................. 13.4 -- 13.4
----------- --- ---------
TOTAL OPERATING REVENUES................................................... 249.2 0.2 249.4
Operating expenses......................................................... (223.2) -- (223.2)
Exceptional items.......................................................... (5.0) -- (5.0)
Utilization of provisions.................................................. -- (0.2) (0.2)
----------- --- ---------
OPERATING INCOME........................................................... 21.0 -- 21.0
----------- --- ---------
----------- --- ---------
F-12
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--SEGMENTAL ANALYSIS (CONTINUED)
[Enlarge/Download Table]
CONTINUING DISCONTINUED
BUSINESS ANALYSIS OPERATIONS OPERATIONS TOTAL
--------------------------------------------------------------------------- ----------- ----------------- ---------
(L MILLION)
YEAR ENDED DECEMBER 31, 1997
COMMISSIONS AND FEES....................................................... 652.0 0.3 652.3
Interest and investment income............................................. 40.0 1.7 41.7
----------- --- ---------
TOTAL OPERATING REVENUES................................................... 692.0 2.0 694.0
Operating expenses......................................................... (599.9) (3.8) (603.7)
Underwriting claims........................................................ -- (1.0) (1.0)
Utilization of provisions.................................................. -- 2.8 2.8
----------- --- ---------
OPERATING INCOME........................................................... 92.1 -- 92.1
----------- --- ---------
----------- --- ---------
YEAR ENDED DECEMBER 31, 1996
COMMISSIONS AND FEES 683.2 2.3 685.5
Interest and investment income............................................. 41.8 3.4 45.2
----------- --- ---------
TOTAL OPERATING REVENUES................................................... 725.0 5.7 730.7
Operating expenses......................................................... (637.2) (3.4) (640.6)
Underwriting claims........................................................ -- (4.1) (4.1)
Utilization of provisions.................................................. -- 1.8 1.8
----------- --- ---------
OPERATING INCOME........................................................... 87.8 -- 87.8
----------- --- ---------
----------- --- ---------
[Enlarge/Download Table]
CONTINUING OPERATIONS
------------------------------------------------------------
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
DECEMBER 31, SEPTEMBER 1 DECEMBER 31,
------------------------ --------------- -----------------
GEOGRAPHICAL ANALYSIS BY LOCATION OF CLIENT 1996 1997 1998 1998
--------------------------------------------------------- ----------- ----------- --------------- -----------------
(L MILLION)
COMMISSIONS AND FEES
United Kingdom........................................... 175.0 164.7 110.2 54.9
North America............................................ 361.1 355.8 242.5 125.5
Rest of the World........................................ 147.1 131.5 89.2 55.4
----- ----- ----- -----
683.2 652.0 441.9 235.8
----- ----- ----- -----
----- ----- ----- -----
The above table analyzes commissions and fees by the address of the client
from whom the business is derived. This does not necessarily reflect the
original source or location of the business.
F-13
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--SEGMENTAL ANALYSIS (CONTINUED)
[Enlarge/Download Table]
CONTINUING OPERATIONS
----------------------------------------------------
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
DECEMBER 31, SEPTEMBER 1 DECEMBER 31,
-------------------- ------------- ---------------
GEOGRAPHICAL ANALYSIS BY LOCATION OF COMPANY 1996 1997 1998 1998
----------------------------------------------------------- --------- --------- ------------- ---------------
(L MILLION)
COMMISSIONS AND FEES
United Kingdom............................................. 287.8 276.6 190.9 87.6
North America.............................................. 357.7 325.2 223.6 115.9
Rest of the World.......................................... 37.7 50.2 27.4 32.3
--------- --------- ------------- -------
683.2 652.0 441.9 235.8
--------- --------- ------------- -------
TOTAL OPERATING REVENUES
United Kingdom............................................. 314.9 303.6 209.0 96.2
North America.............................................. 370.2 336.1 231.5 119.8
Rest of the World.......................................... 39.9 52.3 28.3 33.2
--------- --------- ------------- -------
725.0 692.0 468.8 249.2
--------- --------- ------------- -------
OPERATING INCOME
United Kingdom............................................. 49.6 56.5 (4.5) 8.6
North America.............................................. 33.4 27.7 22.1 3.6
Rest of the World.......................................... 4.8 7.9 3.4 8.8
--------- --------- ------------- -------
87.8 92.1 21.0 21.0
--------- --------- ------------- -------
DEPRECIATION AND AMORTIZATION.............................. 24.5 22.7 15.5 8.9
--------- --------- ------------- -------
CAPITAL EXPENDITURE........................................ 28.9 26.5 20.1 9.8
--------- --------- ------------- -------
--------- --------- ------------- -------
Commissions and fees earned by the Group's discontinued operations arose in the
United Kingdom.
[Enlarge/Download Table]
CONTINUING OPERATIONS
DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
(L MILLION)
NET ASSETS
United Kingdom................................................................... 114.0 93.7 0.5
North America.................................................................... 65.3 74.5 84.8
Rest of the World................................................................ 18.9 6.1 40.2
--------- --------- ---------
198.2 174.3 125.5
--------- --------- ---------
TOTAL ASSETS
United Kingdom................................................................... 2,006.4 1,958.0 2,581.7
North America.................................................................... 1,199.6 1,256.6 1,843.3
Rest of the World................................................................ 80.8 83.7 167.9
--------- --------- ---------
3,286.8 3,298.3 4,592.9
--------- --------- ---------
--------- --------- ---------
Discontinued Operations: Net assets and total assets located in the United
Kingdom at December 31, 1998 amounted to L(28.4) million (1997: L(44.5) million,
1996: L(52.8) million) and L(3.9) million (1997: L6.0 million, 1996: 73.3
million), respectively and in North America at December 31, 1996 amounted to
L8.0 million and L17.1 million, respectively.
F-14
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--EXCEPTIONAL ITEMS
(I) PENSIONS REVIEW
In March 1998, the Financial Services Authority and the Personal Investment
Authority issued a consultation paper on proposals for phase 2 of the pension
transfers and opt outs review. The Group has approximately 8,000 transfer cases
to review and a small number of opt out cases. On the basis of both the Group's
experience of settling phase 1 priority cases and the assumptions set out in the
consultation paper, the Directors consider that, although there is still
uncertainty as to the eventual outcome, a further provision of L25.0 million is
a reasonable estimate to meet the costs of redress and related administration
for both phase 1 and phase 2.
(II) COSTS IN CONNECTION WITH THE OFFER BY TRINITY ACQUISITION
Costs written off by the Group in connection with the acquisition by Trinity
Acquisition of the whole of
the issued share capital of the Company amounted to L15.8 million.
(III) LOSS ON CLOSURE/DISPOSAL OF OPERATIONS
The Group's U.S. professional liability wholesale operation, ("PLUM"), was
closed in May 1998. The loss on closure amounted to L0.7 million before writing
off attributable goodwill. In accordance with FRS 10, goodwill attributable to
PLUM of L29.6 million, which had been previously eliminated directly against
retained earnings, has been reinstated and written off as a component of the
loss on closure. This accounting requirement does not affect the Group's net
assets; the net impact after tax of the closure of PLUM was to reduce net assets
by L0.4 million. The profit on disposal of other operations during 1998 amounted
to L1.0 million.
NOTE 5--OPERATING INCOME
[Enlarge/Download Table]
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
-------------------- ----------------- -----------------
1996 1997 1998 1998
--------- --------- ----------------- -----------------
(L MILLION)
OPERATING INCOME WAS ARRIVED AT AFTER (CREDITING)/ CHARGING:
Interest receivable........................................... (35.8) (30.0) (18.4) (8.7)
Investment income............................................. (9.4) (11.7) (8.5) (4.7)
--------- --------- ----- -----
INTEREST AND INVESTMENT INCOME................................ (45.2) (41.7) (26.9) (13.4)
--------- --------- ----- -----
AUDITORS' REMUNERATION
Audit fees.................................................. 1.1 1.1 0.7 0.4
Other services provided by Ernst & Young
(United Kingdom only)..................................... 0.1 0.4 0.2 0.2
DEPRECIATION AND AMORTIZATION ON
Owned assets................................................ 23.8 22.2 15.4 8.9
Finance leased assets....................................... 0.7 0.5 0.1 --
OPERATING LEASE RENTALS
Land and buildings.......................................... 34.1 28.1 19.2 9.3
Equipment................................................... 3.5 2.7 1.9 1.1
--------- --------- ----- -----
--------- --------- ----- -----
F-15
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--EMPLOYEES
[Enlarge/Download Table]
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
-------------------- --------------- -----------------
SALARIES AND ASSOCIATED EXPENSES 1996 1997 1998 1998
-------------------------------------------------------------- --------- --------- --------------- -----------------
(L MILLION)
Salaries...................................................... 360.9 345.7 240.4 131.5
Social security costs......................................... 24.6 23.7 16.7 7.7
Other pension costs........................................... 20.7 20.2 14.2 6.2
--------- --------- ----- -----
406.2 389.6 271.3 145.4
--------- --------- ----- -----
--------- --------- ----- -----
[Enlarge/Download Table]
AVERAGE FOR
--------------------------------------------------------
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
-------------------- --------------- -----------------
NUMBER OF GROUP EMPLOYEES 1996 1997 1998 1998
-------------------------------------------------------------- --------- --------- --------------- -----------------
(NUMBER)
United Kingdom................................................ 4,444 3,938 3,910 3,777
North America................................................. 4,899 4,531 4,363 4,348
Rest of the World............................................. 621 893 942 1,179
--------- --------- ----- -----
9,964 9,362 9,215 9,304
--------- --------- ----- -----
--------- --------- ----- -----
NOTE 7--NET INTEREST EXPENSE
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31, JANUARY 1 TO SEPTEMBER 2 TO
SEPTEMBER 1, DECEMBER 31,
------------------------ ----------------- -------------------
1996 1997 1998 1998
----- ----- ----------------- -------------------
(L MILLION)
Bank loans, overdrafts.......................................... 2.0 0.6 1.8 1.1
Interest payable by associates.................................. -- -- 0.1 0.1
Finance charges payable under finance leases.................... 0.2 0.1 0.1 0.0
-- -- -- --
2.2 0.7 2.0 1.2
-- -- -- --
-- -- -- --
NOTE 8--INCOME BEFORE TAXATION
[Enlarge/Download Table]
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
-------------------- --------------- -----------------
1996 1997 1998 1998
--------- --------- --------------- -----------------
(L MILLION)
United Kingdom................................................... 52.5 53.7 (4.9) 6.4
Other countries.................................................. 39.1 41.8 3.6 10.7
--- --- --- ---
91.6 95.5 (1.3) 17.1
--- --- --- ---
--- --- --- ---
F-16
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--TAXATION
[Enlarge/Download Table]
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
-------------------- --------------- -----------------
CHARGE FOR THE YEAR 1996 1997 1998 1998
---------------------------------------------------------------- --------- --------- --------------- -----------------
(L MILLION)
UK corporation tax at 31% (1997: 31.5% 1996: 33%)............... 20.9 16.2 11.9 (0.4)
Non-UK tax...................................................... 14.6 11.1 4.9 6.1
Deferred tax.................................................... 0.5 10.5 (3.4) 23.9
Advance corporation tax written off............................. -- -- -- 9.7
--- --- --- ---
36.0 37.8 13.4 39.3
Associates...................................................... 0.6 0.3 0.1 1.6
--- --- --- ---
Charge for the year............................................. 36.6 38.1 13.5 40.9
--- --- --- ---
--- --- --- ---
The deferred tax charge for 1998 includes the write-off of U.K. deferred tax
assets amounting to L23.4 million. The timing of the recovery of these assets is
uncertain.
The deferred tax charge for 1997 included L1.1 million resulting from the
reduction in U.K. corporation tax rate from 33% to 31% and L2.7 million in
respect of discontinued operations which was no longer considered recoverable
following the provisional liquidation of Sovereign.
The total tax charge for 1998 includes a tax credit of L3.8 million relating
to exceptional items.
[Enlarge/Download Table]
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
------------------------ ------------- -----------------
RECONCILIATION OF UK STATUTORY RATE TO EFFECTIVE RATE 1996 1997 1998 1998
-------------------------------------------------------------- ----------- ----------- ------------- -----------------
% % % %
UK statutory rate............................................. 33.0 31.0 31.0 31.0
Adjusted for:
Rate change during the course of the year................... -- 0.5 -- --
Overseas profits taxed at other than UK statutory rate...... (0.7) 0.5 (47.2) 18.8
Capital gains not currently taxable or reduced by other
reliefs................................................... (2.0) (0.8) 50.1 (0.6)
Permanent differences and other items....................... 8.3 8.5 (111.6) 2.1
Prior year adjustments...................................... 1.3 0.2 -- (5.7)
Disallowable costs incurred by the company on the
acquisition............................................... -- -- (257.5) --
Disallowable consolidated goodwill eliminated on disposal... -- -- (703.5) --
--- --- ------------- ---
Effective rate................................................ 39.9 39.9 (1,038.7) 45.6
--- --- ------------- ---
--- --- ------------- ---
The effective rate excludes the write-off of advance corporation tax and
deferred taxes.
F-17
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--DIVIDENDS
[Enlarge/Download Table]
YEAR ENDED DECEMBER JANUARY 1 TO SEPTEMBER 2 TO
31, SEPTEMBER 1, DECEMBER 31,
-------------------- --------------- -----------------
1996 1997 1998 1998
--------- --------- --------------- -----------------
(L MILLION)
First interim................................................... 6.9 6.9 7.4 --
Second interim.................................................. 6.9 6.9 7.4 --
Third interim................................................... 6.9 6.9 7.4 --
Fourth interim.................................................. 6.9 6.9 -- --
--- --- --- ---
27.6 27.6 22.2 --
--- --- --- ---
--- --- --- ---
NOTE 11--EARNINGS PER ORDINARY SHARE
Earnings per ordinary share have been calculated using net income and the
weighted average number of ordinary shares in issue during the periods January 1
to September 1, 1998 and September 2 to December 31, 1998 respectively of 424.6
million and 427.1 million respectively (1997: 418.4 million, 1996: 418.1
million) after excluding those ordinary shares on which dividends were waived.
The dilution arising from the issue of ordinary shares in accordance with
the Group's employee share plans and Willis Corroon Corporation's 7 1/2%
convertible subordinated debentures would not have been material.
NOTE 12--CURRENT ASSET INVESTMENTS
[Enlarge/Download Table]
DECEMBER 31,
--------------------
1997 1998
--------- ---------
(L MILLION)
Listed investments (market value L49.8 million (1997 : L55.9 million)).......................... 55.6 48.7
Unlisted investments............................................................................ 202.1 232.9
--------- ---------
257.7 281.6
--------- ---------
--------- ---------
Listed investments mainly comprise U.K. and U.S. government securities which
were purchased with the intention of holding to maturity.
F-18
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--RECEIVABLES
[Enlarge/Download Table]
DECEMBER 31,
--------------------
1997 1998
--------- ---------
(L MILLION)
DUE WITHIN ONE YEAR
Trade receivables......................................................................... 2,425.6 2,447.6
Less: provision for bad and doubtful debts................................................ 11.6 11.8
--------- ---------
2,414.0 2,435.8
Amounts owed by parent company............................................................ -- 965.1
Amounts owed by associates................................................................ 0.2 0.8
Corporate tax............................................................................. 2.8 2.0
Prepayments and accrued revenue........................................................... 26.0 54.1
Other receivables......................................................................... 38.8 35.0
--------- ---------
2,481.8 3,492.8
DUE AFTER MORE THAN ONE YEAR
Trade receivables......................................................................... 4.0 6.2
Amounts owed by parent company............................................................ -- 270.3
Deferred tax (see Note 22)................................................................ 14.4 --
Advance corporation tax recoverable....................................................... 7.4 --
Other receivables......................................................................... 25.6 25.3
--------- ---------
2,533.2 3,794.6
--------- ---------
--------- ---------
The level of insurance brokering receivables is no indication of credit
risk, since the status of the insurance broker as agent means that generally the
credit risk is borne by the principals; nor is it an indication of future cash
flows as it is normal practice for insurance brokers to settle accounts with
clients, insurers, other intermediaries and market settlement bureaux on a net
basis. The simultaneous recording of an insurance brokering transaction between
client and insurer results in a high level of correlation between insurance
brokering receivables and payables.
NOTE 14--INTANGIBLE ASSETS
Goodwill arising on acquisition of subsidiaries during the year amounted to
L20 million. Amortization of goodwill amounted to L0.3 million.
F-19
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--TANGIBLE ASSETS
[Enlarge/Download Table]
FURNITURE
LAND AND EQUIPMENT
BUILDINGS AND VEHICLES TOTAL
----------- ------------- ---------
(L MILLION)
YEAR ENDED DECEMBER 31, 1996
COST OR VALUATION
January 1, 1996............................................................... 88.3 148.0 236.3
Exchange adjustments.......................................................... (0.5) (5.6) (6.1)
Additions..................................................................... 2.7 26.2 28.9
Disposals..................................................................... (4.8) (25.9) (30.7)
----- ----- ---------
December 31, 1996............................................................. 85.7 142.7 228.4
----- ----- ---------
DEPRECIATION
January 1, 1996............................................................... (5.2) (87.3) (92.5)
Exchange adjustments.......................................................... 0.1 3.2 3.3
Provided in the year.......................................................... (4.4) (20.1) (24.5)
Disposals..................................................................... 2.0 15.4 17.4
----- ----- ---------
December 31, 1996............................................................. (7.5) (88.8) (96.3)
----- ----- ---------
NET BOOK VALUE
December 31, 1996............................................................. 78.2 53.9 132.1
----- ----- ---------
----- ----- ---------
YEAR ENDED DECEMBER 31, 1997
COST OR VALUATION
January 1, 1997............................................................... 85.7 142.7 228.4
Exchange adjustments.......................................................... (0.5) 0.8 0.3
Additions..................................................................... 7.3 19.2 26.5
Disposals..................................................................... (1.5) (30.4) (31.9)
Arising from acquisitions..................................................... 0.7 9.1 9.8
----- ----- ---------
December 31, 1997............................................................. 91.7 141.4 233.1
----- ----- ---------
DEPRECIATION
January 1, 1997............................................................... (7.5) (88.8) (96.3)
Exchange adjustments.......................................................... 0.4 (0.4) 0.0
Provided in the year.......................................................... (4.3) (18.4) (22.7)
Disposals..................................................................... 0.9 25.7 26.6
Arising from acquisitions..................................................... (0.5) (5.4) (5.9)
----- ----- ---------
December 31, 1997............................................................. (11.0) (87.3) (98.3)
----- ----- ---------
NET BOOK VALUE
December 31, 1997............................................................. 80.7 54.1 134.8
----- ----- ---------
----- ----- ---------
F-20
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--TANGIBLE ASSETS (CONTINUED)
[Enlarge/Download Table]
FURNITURE
LAND AND EQUIPMENT
BUILDINGS AND VEHICLES TOTAL
----------- ------------- ---------
(L MILLION)
JANUARY 1 TO DECEMBER 31, 1998
COST OR VALUATION
January 1, 1998............................................................... 91.7 141.4 233.1
Exchange adjustments.......................................................... (0.3) (1.7) (2.0)
Additions..................................................................... 3.4 16.7 20.1
Disposals..................................................................... (1.8) (10.6) (12.4)
Arising from acquisitions..................................................... 1.3 4.7 6.0
----- ----- ---------
September 1, 1998............................................................. 94.3 150.5 244.8
Exchange and other adjustments................................................ 0.1 1.7 1.8
Additions..................................................................... 3.5 6.3 9.8
Disposals..................................................................... (1.8) (7.9) (9.7)
Arising from acquisitions..................................................... 0.0 0.1 0.1
----- ----- ---------
December 31, 1998............................................................. 96.1 150.7 246.8
DEPRECIATION
January 1, 1998............................................................... (11.0) (87.3) (98.3)
Exchange adjustments.......................................................... 0.1 0.9 1.0
Provided in the period........................................................ (3.0) (12.0) (15.0)
Disposals..................................................................... 1.5 8.1 9.6
Arising from acquisitions..................................................... -- (1.7) (1.7)
----- ----- ---------
September 1, 1998............................................................. (12.4) (92.0) (104.4)
Exchange adjustments.......................................................... (0.1) (0.8) (0.9)
Provided in the period........................................................ (1.7) (6.7) (8.4)
Disposals..................................................................... 1.5 7.0 8.5
----- ----- ---------
December 31, 1998............................................................. (12.7) (92.5) (105.2)
----- ----- ---------
NET BOOK VALUE
December 31, 1998............................................................. 83.4 58.2 141.6
----- ----- ---------
----- ----- ---------
F-21
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--TANGIBLE ASSETS (CONTINUED)
[Enlarge/Download Table]
DECEMBER 31,
-------------------------------
NET BOOK VALUE OF LAND AND BUILDINGS 1996 1997 1998
------------------------------------------------------------------------------------------- --------- --------- ---------
(L MILLION)
Freehold: Land............................................................................. 17.4 17.3 18.4
Buildings......................................................................... 50.2 49.3 49.6
Leasehold: Long............................................................................ 0.4 0.2 0.1
Short........................................................................... 10.2 13.9 15.3
--- --- ---
78.2 80.7 83.4
--- --- ---
--- --- ---
The Group's principal freehold properties were valued at December 31, 1995
on the basis of open market value for existing use. The carrying value of these
revalued properties, at December 31, 1998, was L60.5 million (1997: L60.5
million, 1996: L60.5 million), and the accumulated depreciation was L6.1 million
(1997: L4.0 million, 1996: L2.0). The historical cost was L61.6 million (1997:
L61.6 million, 1996: L61.6 million) and the accumulated depreciation was L21.0
million (1997: L18.6 million, 1996: L16.3 million).
No tax would be payable on the realization of revalued properties at their
net book value by virtue of available capital losses.
The net book value of assets held under finance leases included within
furniture, equipment and vehicles was Lnil (1997: L0.7 million, 1996: L1.6
million).
NOTE 16--INVESTMENTS
[Enlarge/Download Table]
OWN OTHER
ASSOCIATES SHARES INVESTMENTS TOTAL
------------- ------------- --------------- ---------
(L MILLION)
YEAR ENDED DECEMBER 31, 1996
COST
January 1, 1996................................................. 6.0 10.7 1.5 18.2
Exchange adjustments............................................ (0.9) (0.7) (0.1) (1.7)
Additions....................................................... -- 0.3 0.9 1.2
Disposals....................................................... -- (1.4) -- (1.4)
Share of retained earnings of associates........................ 1.1 -- -- 1.1
----- ----- --- ---------
December 31, 1996............................................... 6.2 8.9 2.3 17.4
----- ----- --- ---------
PROVISIONS
January 1, 1996................................................. -- (4.2) -- (4.2)
Exchange adjustments............................................ -- 0.3 -- 0.3
Provided in the year............................................ -- -- (0.5) (0.5)
Amortization.................................................... -- (1.8) -- (1.8)
Disposals....................................................... -- 1.4 -- 1.4
----- ----- --- ---------
December 31, 1996............................................... -- (4.3) (0.5) (4.8)
----- ----- --- ---------
NET BOOK VALUE
December 31, 1996............................................... 6.2 4.6 1.8 12.6
----- ----- --- ---------
----- ----- --- ---------
F-22
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 16--INVESTMENTS (CONTINUED)
[Enlarge/Download Table]
OWN OTHER
ASSOCIATES SHARES INVESTMENTS TOTAL
------------- ------------- --------------- ---------
(L MILLION)
YEAR ENDED DECEMBER 31, 1997
COST
January 1, 1997................................................. 6.2 8.9 2.3 17.4
Exchange adjustments............................................ (0.4) 0.2 -- (0.2)
Additions....................................................... 3.5 4.9 1.4 9.8
Net assets reclassified on becoming a subsidiary................ (2.6) -- -- (2.6)
Investment reclassified on becoming an associate................ 2.6 -- (2.6) --
Disposals....................................................... -- (0.6) -- (0.6)
Share of retained earnings of associates........................ 0.5 -- -- 0.5
----- ----- --- ---------
December 31, 1997............................................... 9.8 13.4 1.1 24.3
----- ----- --- ---------
PROVISIONS
January 1, 1997................................................. -- (4.3) (0.5) (4.8)
Exchange adjustments............................................ -- (0.1) -- (0.1)
Amortization.................................................... -- (1.3) -- (1.3)
Disposals....................................................... -- 0.6 -- 0.6
Other adjustments............................................... -- -- 0.5 0.5
----- ----- --- ---------
December 31, 1997............................................... -- (5.1) -- (5.1)
----- ----- --- ---------
NET BOOK VALUE
December 31, 1997............................................... 9.8 8.3 1.1 19.2
----- ----- --- ---------
----- ----- --- ---------
F-23
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 16--INVESTMENTS (CONTINUED)
[Enlarge/Download Table]
OWN OTHER
ASSOCIATES SHARES TA I INVESTMENTS TOTAL
---------- ------ ---- ----------- -----
(L MILLION)
JANUARY 1 TO DECEMBER 31, 1998
COST
January 1, 1998............................................................ 9.8 13.4 -- 1.1 24.3
Exchange adjustments....................................................... (1.8) (0.2) -- (0.2) (2.2)
Additions.................................................................. 14.7 0.2 -- 2.2 17.1
Transfer to subsidiary..................................................... (2.0) -- -- -- (2.0)
Disposals.................................................................. -- (4.0) -- -- (4.0)
Share of retained earnings of associates................................... 5.6 -- -- -- 5.6
--- ------ ---- --- -----
September 1, 1998.......................................................... 26.3 9.4 -- 3.1 38.8
Exchange adjustments....................................................... 0.5 0.1 -- 0.2 0.8
Additions.................................................................. 5.9 -- 3.6 -- 9.5
Disposals.................................................................. -- (1.3) -- -- (1.3)
Shares exchanged for cash.................................................. -- (8.2) -- -- (8.2)
Share of retained earnings of associates................................... (3.7) -- -- -- (3.7)
--- ------ ---- --- -----
December 31, 1998.......................................................... 29.0 -- 3.6 3.3 35.9
--- ------ ---- --- -----
PROVISIONS
January 1, 1998............................................................ -- (5.1) -- -- (5.1)
Amortization............................................................... (0.4) (1.0) -- -- (1.4)
Disposals.................................................................. -- 4.0 -- -- 4.0
--- ------ ---- --- -----
September 1, 1998.......................................................... (0.4) (2.1) -- -- (2.5)
Amortization............................................................... (0.3) (0.9) -- -- (1.2)
Disposals.................................................................. -- 1.3 -- -- 1.3
Other adjustments.......................................................... -- 1.7 (0.8) -- 0.9
--- ------ ---- --- -----
December 31, 1998.......................................................... (0.7) -- (0.8) -- (1.5)
--- ------ ---- --- -----
NET BOOK VALUE
December 31, 1998.......................................................... 28.3 -- 2.8 3.3 34.4
--- ------ ---- --- -----
--- ------ ---- --- -----
At December 31, 1998, the Group's employee share ownership plans held
1,815,593 management ordinary shares in TA I Limited. These shares are not
listed on any stock exchange.
F-24
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 17--OTHER CURRENT LIABILITIES
[Enlarge/Download Table]
DECEMBER 31,
--------------------
1997 1998
--------- ---------
(L MILLION)
Amounts owed to parent company.................................................................. -- 714.1
Amounts owed to associates...................................................................... 0.4 --
Income tax and social security.................................................................. 2.4 2.6
Finance lease obligations....................................................................... 0.6 --
Other payables.................................................................................. 86.5 100.7
--- ---------
89.9 817.4
--- ---------
--- ---------
Included within amounts owed to parent company, is an interest free convertible
loan of L92.9 million. This was converted into 46,464,949 ordinary shares in the
Company on February 3, 1999.
NOTE 18--BANK LOANS AND OVERDRAFTS
Bank loans and overdrafts due in less than one year includes a loan of $575
million (L348.5 million) under a fully drawn Subordinated Bridge Facility. This
short-term loan was repaid on February 2, 1999 and refinanced by the issue of
$550 million of unsecured Senior Subordinated Notes which mature in 2009 and
accrue interest at a rate of 9%.
The weighted average interest rate payable on short-term bank loans and
overdrafts outstanding at December 31, 1998, amounting to L350.3 million (1997:
L0.5 million) was 9.9% (1997: 4.9%).
Included within bank loans and overdrafts are L4.4 million of debt issuance
costs which were refunded after December 31, 1998.
[Enlarge/Download Table]
DECEMBER 31,
----------------------
BANK LOANS REPAYABLE IN MORE THAN ONE YEAR 1997 1998
------------------------------------------------------------------------------------------------ ----------- ---------
(L MILLION)
between one and two years....................................................................... -- 2.4
between two and three years..................................................................... 12.0 5.4
between three and four years.................................................................... -- 6.7
between four and five years..................................................................... 22.0 8.5
thereafter...................................................................................... -- 253.4
--- ---------
34.0 276.4
--- ---------
--- ---------
The Group entered into a Senior Credit Facility agreement comprising Term Loans
of $450 million and a Revolving Credit Facility of $150 million. See Note 27.
The Term Loans were fully drawn down on November 19, 1998 and are arranged in
four tranches that are repayable between 2005 and 2008. The loans accrue
interest at LIBOR plus a variable margin. With effect from February 19, 1999 the
Group entered into a swap transaction to exchange the applicable LIBOR rate for
a fixed rate. At that date the weighted average interest rate was 7.7%.
The Revolving Credit Facility is available until 2005. At December 31, 1998, the
balance drawn on this facility was L6.1 million ($10.0 million) with interest
accruing at 7.8%.
F-25
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 19--OTHER NONCURRENT LIABILITIES
[Enlarge/Download Table]
DECEMBER 31,
----------------------
1997 1998
----------- ---------
(L MILLION)
Trade payables................................................................................... 3.1 4.3
Accruals and deferred income..................................................................... 0.4 0.7
US dollar 7.5% convertible subordinated debentures............................................... 0.2 --
--- ---
3.7 5.0
--- ---
--- ---
The US dollar 7.5% convertible subordinated debentures due in June 2005 were
repaid in the year.
NOTE 20--OPERATING LEASE COMMITMENTS
[Enlarge/Download Table]
LAND AND BUILDINGS
OTHER
-------------------- --------------------
DECEMBER 31,
------------------------------------------
1997 1998 1997 1998
--------- --------- --------- ---------
(L MILLION)
Payments committed to be made within one year for leases expiring:
in less than one year.......................................................... 2.2 2.5 0.2 0.6
between one and five years..................................................... 6.3 8.7 1.5 1.3
after five years............................................................... 15.4 13.1 -- --
--------- --------- --------- ---------
23.9 24.3 1.7 1.9
--------- --------- --------- ---------
Payments committed to be made after one year:
within two years............................................................... 22.8 22.4 1.3 1.2
between two and three years.................................................... 21.2 21.5 0.6 0.8
between three and four years................................................... 20.1 20.7 0.3 0.2
between four and five years.................................................... 18.7 16.9 0.1 0.1
thereafter..................................................................... 116.5 109.0 -- --
--------- --------- --------- ---------
199.3 190.5 2.3 2.3
--------- --------- --------- ---------
223.2 214.8 4.0 4.2
--------- --------- --------- ---------
--------- --------- --------- ---------
F-26
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 21--PROVISIONS FOR LIABILITIES AND CHARGES
[Enlarge/Download Table]
SURPLUS DISCONTINUED
CLAIMS PROPERTY OPERATIONS OTHER DEFERRED
PROVISIONS PROVISIONS(I) PROVISIONS(II) PROVISIONS(III) PROVISIONS TAX TOTAL
----------------------------------- --------------- --------------- --------------- ------------- ----------- ---------
(L MILLION)
JANUARY 1, 1996.................... 35.6 32.1 40.5 6.2 -- 114.4
Charged to income.................. 2.9 3.9 -- (2.2) -- 4.6
Utilized in the year............... (5.8) (4.2) (1.8) (0.8) -- (12.6)
Exchange and other adjustments..... (3.2) (7.0) -- (0.3) -- (10.5)
----- ----- ----- --- ----- ---------
DECEMBER 31, 1996.................. 29.5 24.8 38.7 2.9 -- 95.9
Charged to income.................. 2.3 (1.6) (3.1) -- -- (2.4)
Utilized in the year............... (5.0) (3.0) (2.8) (0.1) -- (10.9)
Arising on acquisition............. 3.9 -- -- -- -- (3.9)
Exchange and other adjustments..... 3.4 -- -- 0.1 -- 3.5
----- ----- ----- --- ----- ---------
DECEMBER 31, 1997.................. 34.1 20.2 32.8 2.9 -- 90.0
Charged to income.................. 34.5 -- -- -- (3.4) 31.1
Transferred to payables............ -- -- (5.5) -- -- (5.5)
Transferred from receivables....... -- -- -- -- (14.4) (14.4)
Utilized in the period............. (10.9) (1.9) (6.7) -- -- (19.5)
Exchange and other adjustments..... (0.4) -- -- -- -- (0.4)
----- ----- ----- --- ----- ---------
SEPTEMBER 1, 1998.................. 57.3 18.3 20.6 2.9 (17.8) 81.3
Charged to income.................. (2.8) (0.3) -- -- 23.9 20.8
Utilized in the period............. (6.9) (1.1) 0.2 -- -- (7.8)
Exchange and other adjustments..... 0.6 -- -- -- (0.1) 0.5
----- ----- ----- --- ----- ---------
DECEMBER 31, 1998.................. 48.2 16.9 20.8 2.9 6.0 94.8
----- ----- ----- --- ----- ---------
----- ----- ----- --- ----- ---------
------------------------
(i) The claims provisions include estimates for liabilities that may arise from
potential claims for errors and omissions, including pension advice, which
may not be covered by insurance arrangements.
(ii) Provisions for properties surplus to operational requirements.
(iii) Provisions for discontinued operations include estimates for future
operating costs of administering the run-off of the business previously
placed with Sovereign and certain other insurance companies.
F-27
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 22--DEFERRED TAX
[Enlarge/Download Table]
DECEMBER 31,
--------------------
1997 1998
--------- ---------
(L MILLION)
OPENING BALANCE................................................................................. (27.1) (14.4)
Transfer to/(from) income....................................................................... 10.5 20.5
Other adjustments............................................................................... 2.2 (0.1)
--------- ---------
CLOSING BALANCE................................................................................. (14.4)* 6.0
--------- ---------
--------- ---------
The deferred tax (assets)/liabilities arise from:
Capital allowances.............................................................................. 14.4 11.5
Short-term timing differences................................................................... (5.5) (5.1)
Provisions...................................................................................... (23.3) (0.4)
--------- ---------
(14.4) 6.0
--------- ---------
--------- ---------
------------------------
* Included in receivables (Note 13)
NOTE 23--NOTES TO CONSOLIDATED STATEMENT OF CASH FLOWS
[Enlarge/Download Table]
RECONCILIATION OF OPERATING ACTIVITIES TO NET CASH FLOW YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
FROM OPERATING ACTIVITIES DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
----------------------------------------------------------- -------------------- --------------- ---------------
1996 1997 1998 1998
--------- --------- --------------- ---------------
(L MILLION)
Operating income from total operations..................... 87.8 92.1 21.0 21.0
Exceptional items.......................................... -- -- (0.4) (4.0)
Depreciation charges and loss on sale of tangible fixed
assets................................................... 24.7 22.7 15.0 8.7
Amortization of goodwill................................... -- -- 0.5 0.5
Decrease/(increase) in receivables......................... 82.2 34.4 2.0 (24.5)
(Decrease)/increase in payables............................ (106.0) (26.5) 78.4 (93.3)
Net movement on provisions and insurance funds............. (25.0) (9.3) 11.0 (6.1)
--------- --------- ----- ------
NET CASH INFLOW FROM OPERATING ACTIVITIES.................. 63.7 113.4 127.5 (97.7)
--------- --------- ----- ------
--------- --------- ----- ------
F-28
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 23--NOTES TO CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
[Enlarge/Download Table]
BORROWINGS
------------------------
CASH AND OVERDRAFTS DUE DUE AFTER
RECONCILIATION OF NET CASH FLOW TO ----------------------------------- LIQUID WITHIN MORE THAN
MOVEMENT IN NET FUNDS CASH OVERDRAFTS TOTAL RESOURCES ONE YEAR ONE YEAR NET FUNDS
------------------------------------------- --------- ------------- --------- ----------- ----------- ----------- -----------
(L MILLION)
JANUARY 1, 1996............................ 84.9 (1.4) 83.5 681.3 (0.8) (63.7) 700.3
Cash flow before management of liquid
resources and financing.................. 14.1 0.7 14.8 -- -- -- 14.8
Management of liquid resources............. 25.2 -- 25.2 (25.2) -- -- --
Financing.................................. (43.3) -- (43.3) -- -- 43.3 --
Disposals.................................. -- -- -- (25.6) -- -- (25.6)
Foreign exchange........................... (2.8) -- (2.8) (44.9) -- 1.4 (46.3)
--------- --- --------- ----------- ----------- ----------- -----------
DECEMBER 31, 1996.......................... 78.1 (0.7) 77.4 585.6 (0.8) (19.0) 643.2
Cash flow before management of liquid
resources and financing.................. (6.5) 0.3 (6.2) -- -- -- (6.2)
Management of liquid resources............. 2.8 -- 2.8 (2.8) -- -- --
Financing.................................. 14.7 -- 14.7 -- 0.1 (14.8) --
Issue of share capital..................... 0.3 -- 0.3 -- -- -- 0.3
Provisional liquidation.................... -- -- -- (58.3) -- -- (58.3)
Foreign exchange........................... (0.8) -- (0.8) 4.0 -- (0.4) 2.8
--------- --- --------- ----------- ----------- ----------- -----------
DECEMBER 31, 1997.......................... 88.6 (0.4) 88.2 528.5 (0.7) (34.2) 581.8
Cash flow before management of
liquid resources and financing........... 77.0 (6.5) 70.5 -- -- -- 70.5
Management of liquid resources............. (66.8) -- (66.8) 66.8 -- -- --
Financing.................................. 32.0 -- 32.0 -- 0.6 (32.6) --
Issue of share capital..................... 0.7 -- 0.7 -- -- -- 0.7
Foreign exchange........................... (1.0) -- (1.0) (6.9) -- -- (7.9)
--------- --- --------- ----------- ----------- ----------- -----------
SEPTEMBER 1, 1998.......................... 130.5 (6.9) 123.6 588.4 (0.1) (66.8) 645.1
Cash flow before management of
liquid resources and financing........... (166.8) 0.9 (165.9) -- -- -- (165.9)
Management of liquid resources............. 122.2 -- 122.2 (122.2) -- -- --
Financing.................................. 32.2 -- 32.2 -- (92.9) 60.7 --
Issue of share capital..................... 4.0 -- 4.0 -- -- -- 4.0
Foreign exchange........................... 1.3 (0.2) 1.1 9.1 (6.9) -- 3.3
--------- --- --------- ----------- ----------- ----------- -----------
DECEMBER 31, 1998.......................... 123.4 (6.2) 117.2 475.3 (99.9) (6.1) 486.5
--------- --- --------- ----------- ----------- ----------- -----------
--------- --- --------- ----------- ----------- ----------- -----------
F-29
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 23--NOTES TO CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31,
ANALYSIS OF CASH AND SHORT-TERM DEPOSITS AND LIQUID RESOURCES -------------------------------
AS SHOWN IN THE BALANCE SHEET 1996 1997 1998
------------------------------------------------------------------------------------ --------- --------- ---------
(L MILLION)
CASH
Cash and short-term deposits........................................................ 277.9 359.4 317.1
less short-term deposits classified as liquid resources............................. (199.8) (270.8) (193.7)
--------- --------- ---------
78.1 88.6 123.4
--------- --------- ---------
--------- --------- ---------
LIQUID RESOURCES
Current asset investments........................................................... 385.8 257.7 281.6
Short-term deposits................................................................. 199.8 270.8 193.7
--------- --------- ---------
585.6 528.5 475.3
--------- --------- ---------
--------- --------- ---------
As described in Note 27, deposits and cash totalling L66.3 million are
subject to a floating charge.
NOTE 24--PENSIONS
The Group operates two principal pension plans, one in the United Kingdom
and the other in the United States, covering substantially all employees in
those countries. Both plans are of the defined benefit type and are funded
externally. The pension cost of both plans is assessed in accordance with the
advice of professionally qualified actuaries, using the projected unit credit
method.
The most recent valuation of the U.K. plan, which was undertaken by a Group
employee, was at December 31, 1995 and of the U.S. plan at January 1, 1997. The
major assumption is that the rate of return on investments would exceed salary
inflation by between 2.25% and 4.0% per annum. The market value of the
investments at the respective dates of the latest actuarial valuations was L676
million and the actuarial value of the investments was sufficient to cover
approximately 110% of the benefits that had accrued to members after allowing
for expected future salary increases.
NOTE 25--EMPLOYEE SHARE PLANS
The Executive Option Scheme (1984) (the "1984 Plan") and the International
Executive Option Scheme (the "International Plan") expired in November 1994 from
which date no further options have been granted. Prior to that date, the 1984
Plan and the International Plan were open to those employees and Directors of
the Group who worked for at least 20 hours per week (or, in the case of
Directors, 25 hours per week) except, in the case of the 1984 Plan, those who
were within 18 months of their normal retirement date. The option price per
ordinary share was determined on the date of grant as the greater of (i) the
nominal value of an ordinary share and (ii) the middle market quotation of an
ordinary share derived from the Daily Official List of the London Stock Exchange
on the business day immediately preceding the date of the grant of the option.
No option would have been granted under the 1984 Plan and the International
Plan if immediately thereafter the aggregate number of ordinary shares issued or
issuable in respect of rights granted under the 1984 Plan and the International
Plan would have exceeded either the lower of 30,000,000 ordinary shares or 5% of
the issued share capital at the date of grant.
Options were normally exercisable between three and ten years after the date
of grant.
F-30
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 25--EMPLOYEE SHARE PLANS (CONTINUED)
The Willis Corroon Group plc Savings-Related Share Option Scheme 1995 (the
"1995 Plan") replaced the Savings-Related Share Option Scheme (the "1981 Plan")
which expired in November 1994 in respect of new grants. The 1995 Plan was open
to any U.K. employee with at least 6 months' continuous service with
participating Group companies (an "eligible employee").
An eligible employee was required to enter into a savings contract for a
period of three years to which he would have contributed 36 monthly payments of
between L5 and L250 in aggregate, or for a period of five or seven years to
which he would contribute 60 monthly payments of between L5 and L250 in
aggregate. He would then be entitled to exercise his option, the aggregate
subscription price of which must not have exceeded the total amount contributed
to the savings contract. The exercise price of any particular option was not
less than the higher of (i) 80% of the market value of ordinary shares on the
business day preceding the date an offer was made and (ii) the nominal value of
an ordinary share.
Options granted under the 1995 Plan and 1981 Plan were normally exercisable
only for a period of six months commencing on the expiration of the eligible
employee's savings contract.
The number of ordinary shares which could have been issued under the 1995
Plan did not at any time exceed 10% of the issued share capital of the Company
immediately prior to the date of grant when aggregated with the number of
ordinary shares issued or placed under option to subscribe in the previous ten
years under any other employee share plan adopted by the Company. In determining
the limit, no account was taken of ordinary shares where the right to acquire
such ordinary shares was released or lapsed without being exercised.
Options under the 1984 Plan, International Plan, 1981 Plan and 1995 Plan
lapsed on November 6, 1998.
The following tables show movements under the Company's employee share plans
since January 1996.
[Enlarge/Download Table]
EXECUTIVE SHARE OPTION PLANS
--------------------------------------------------------------------------------------
1984 PLAN INTERNATIONAL PLAN
------------------------------------------ ------------------------------------------
NO. OF WEIGHTED NO. OF WEIGHTED
ORDINARY AVERAGE ORDINARY AVERAGE
SHARES OPTION PRICE PRICE RANGE SHARES OPTION PRICE PRICE RANGE
----------- --------------- ------------ ----------- --------------- ------------
(000) (P) (P) (000) (P) (P)
Outstanding January 1, 1996................. 10,104 237 149-473 3,421 207 149-296
Exercised................................... -- -- -- -- -- --
Cancelled................................... (1,232) 342 149-473 (208) 214 149-296
----------- -----------
Outstanding December 31, 1996............... 8,872 223 149-473 3,213 207 149-296
Exercised................................... -- -- -- -- -- --
Cancelled................................... (1,715) 257 149-378 (66) 244 152-296
----------- -----------
Outstanding December 31, 1997............... 7,157 215 149-296 3,147 206 149-296
Exercised................................... (1,374) 165 149-198 (13) 149 149
Cancelled................................... (5,783) 226 149-296 (3,134) 206 149-296
----------- --- ------------ ----------- --- ------------
Outstanding December 31, 1998............... -- -- -- -- -- --
----------- --- ------------ ----------- --- ------------
----------- --- ------------ ----------- --- ------------
F-31
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 25--EMPLOYEE SHARE PLANS (CONTINUED)
[Enlarge/Download Table]
SAVINGS-RELATED OPTION PLANS
--------------------------------------------------------------------------------------
1981 PLAN 1995 PLAN
------------------------------------------ ------------------------------------------
NO. OF WEIGHTED NO. OF WEIGHTED
ORDINARY AVERAGE ORDINARY AVERAGE
SHARES OPTION PRICE PRICE RANGE SHARES OPTION PRICE PRICE RANGE
----------- --------------- ------------ ----------- --------------- ------------
(000) (P) (P) (000) (P) (P)
Outstanding January 1, 1996................. 7,309 148 116-246 1,477 112 112
Granted..................................... -- -- -- 1,498 112 112
Exercised................................... (21) 117 116-119 (2) 112 112
Cancelled................................... (1,631) 159 116-246 (248) 112 112
----------- -----------
Outstanding December 31, 1996............... 5,657 145 116-246 2,725 112 112
Granted..................................... -- -- -- 1,999 100 100
Exercised................................... (207) 117 116-119 (23) 112 112
Cancelled................................... (1,053) 181 116-246 (363) 109 100-112
----------- -----------
Outstanding December 31, 1997............... 4,397 138 116-246 4,338 106 100-112
Exercised................................... (1,676) 130 116-186 (228) 111 100-112
Cancelled................................... (2,721) 143 116-246 (4,110) 106 100-112
----------- --- ------------ ----------- --- ------------
Outstanding December 31, 1998............... -- -- -- -- -- --
----------- --- ------------ ----------- --- ------------
----------- --- ------------ ----------- --- ------------
The fair value of options granted during the year ended December 31, 1997
under the 1995 Plan was 30p (1996: 32p).
The weighted average fair value of options granted was estimated using the
Black-Scholes option pricing model with the following assumptions: dividend
yield of 7% (1996: 6%), expected volatility of 30% (1996: 25%), risk-free
interest rate of 7% (1996: 7%) and expected life of 5 years (1996: 5 years).
F-32
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 25--EMPLOYEE SHARE PLANS (CONTINUED)
The following table shows the movements in options over ordinary shares
pursuant to the 1982 Share Option Plan of Stewart Wrightson Holdings plc
("Stewart Wrightson"). The options under that Plan were granted in substitution
for outstanding options over Stewart Wrightson shares, upon the acquisition of
that company in August 1987, from which date no further options were granted.
[Enlarge/Download Table]
1982 SHARE OPTION PLAN
--------------------------------------------
NO. OF WEIGHTED
ORDINARY AVERAGE
SHARES OPTION PRICE PRICE RANGE
------------- ------------- --------------
(000) (P) (P)
Outstanding January 1, 1996.............................................. 38 298 298
Exercised................................................................ -- -- --
Cancelled................................................................ (38) 298 298
--
Outstanding December 31, 1996............................................ -- -- --
Exercised................................................................ -- -- --
Cancelled................................................................ -- -- --
--
Outstanding December 31, 1997............................................ -- -- --
Exercised................................................................ -- -- --
Cancelled................................................................ -- -- --
--
----- --------------
Outstanding December 31, 1998............................................ -- -- --
--
--
----- --------------
----- --------------
The following table shows the movements in options over American Depositary
Shares ("ADS") of the Company, each ADS representing five ordinary shares,
pursuant to the Willis Corroon Corporation 1986 Long-Term Incentive Plan.
[Enlarge/Download Table]
1986 LONG-TERM INCENTIVE PLAN
----------------------------------------------
WEIGHTED
AVERAGE
NO. OF ADSS OPTION PRICE PRICE RANGE
--------------- ------------- --------------
(000) ($) ($)
Outstanding January 1, 1996.......................................... 685 20.32 18.07-23.28
Exercised............................................................ -- -- --
Cancelled............................................................ (12) 20.73 18.59-22.52
---
Outstanding December 31, 1996........................................ 673 20.32 18.07-23.28
Exercised............................................................ -- -- --
Cancelled............................................................ (150) 19.04 18.59-22.52
---
Outstanding December 31, 1997........................................ 523 20.65 18.07-23.28
Exercised............................................................ -- -- --
Cancelled............................................................ (523) 20.65 18.07-23.28
--- ----- --------------
Outstanding December 31, 1998........................................ -- -- --
--- ----- --------------
--- ----- --------------
On May 1, 1997, options over 2,217 ADSs were exercised at 62.5p per ADS
under the Herget Scheme and the balance of 2,233 ADSs were cancelled.
F-33
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 26--CAPITAL COMMITMENTS
Capital commitments to acquire fixed assets:
[Enlarge/Download Table]
DECEMBER 31,
------------------------
1997 1998
----------- -----
(L MILLION)
Expenditure contracted for................................................... 5.9 3.5
-- --
-- --
The Company and certain of its subsidiaries have call options over shares
not already owned in a number of subsidiary and associated companies which are
exercisable at various dates in the future at prices related to the then current
and historic profits before tax at the date of exercise. There also exist put
options which are exercisable at various dates in the future on a similar basis.
The exact amounts payable depend on the future level of profitability of the
companies concerned and exchange rates at the date of exercise. Based on current
projections of profitability and exchange rates, the potential amounts payable
arising from these options are not expected to exceed L160.1 million (1997:
L108.0 million). Most of this relates to amounts which may be payable under put
options, exercisable between 2001 and 2012, entered into with the shareholders
of Gras Savoye. If, by 2012, the Group has not reached a majority shareholding
in Gras Savoye, it has call options to increase its interest to over 50%.
FINANCIAL COMMITMENTS
The Company has undertaken to provide certain subsidiaries with financial
support to enable them to meet their future operational obligations as they fall
due. This financial support does not extend to providing finance for liabilities
arising from negligence, breach of contract, breach of trust or any other breach
of duty.
NOTE 27--CONTINGENT LIABILITIES
ASSETS SUBJECT TO CHARGE
The Company has entered into a debenture in favor of The Chase Manhattan
Bank in which it has charged by way of a first fixed charge its interests in the
shares of Willis Faber Limited and, by way of a floating charge, all its assets
not otherwise effectively mortgaged, charged or assigned by the first fixed
charge.
The Company has also entered into a Pledge Agreement in favor of The Chase
Manhattan Bank whereby it has assigned and pledged its interest in the shares of
Willis Corroon Corporation.
Those subsidiaries which are Lloyd's brokers have each entered into a deed
as required by the Lloyd's brokers bye-law under which all insurance brokering
assets are subject to a floating charge held on trust by the Society of Lloyd's
for the benefit of those companies' insurance brokering payables. The charge
only becomes enforceable under certain circumstances as defined in the deed. The
assets (including deposits and cash of L66.3 million) subject to this charge at
December 31, 1998 amounted to L1,834 million (1997: L1,822 million) and the
insurance brokering payables at that date amounted to L1,821 million (1997:
L1,805 million).
FINANCING OBLIGATIONS
The Company has guaranteed, on a joint and several basis with other
companies in the Group, the prompt and complete performance of Willis Corroon
Corporation in respect of credit facilities ("facilities") made available to
that company. At December 31, 1998 these facilities amounted to $1,175 million.
F-34
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 27--CONTINGENT LIABILITIES (CONTINUED)
On February 2, 1999, $575 million of the facilities were repaid and Willis
Corroon Corporation issued $550 million 9% Senior Subordinated Notes due 2009
(the "Notes"). The Company together with its affiliate Willis Corroon Partners,
has guaranteed Willis Corroon Corporation's obligations in respect of the Notes.
OTHER
The Company has given guarantees to bankers and other third parties
amounting to L4.4 million (1997: L4.4 million). The Company has also given
guarantees to bankers in respect of commitments entered into by them to provide
security for membership of Lloyd's of certain Group employees who are not
directors of the Company amounting to L0.3 million (1997: L0.3 million).
The Company and certain of its U.K. subsidiaries have given the landlords of
some of the leasehold properties occupied by the Group in the United Kingdom and
the United States guarantees in respect of the performance of the lease
obligations of the Group companies holding the leases. The operating lease
obligations amounted to L104 million at December 31, 1998 (1997: L116 million).
The Group has extensive international operations and the Company or its
subsidiaries are subject to claims and litigation in the ordinary course of
business resulting principally from alleged errors and omissions in connection
with their businesses. Most of the claims are covered by professional indemnity
insurance and many of the defenses to these claims are being conducted by the
Group's insurers. In respect of any self-insured deductibles applicable to such
claims, the Group has established provisions which are believed to be adequate
in the light of current information and legal advice. These provisions may be
adjusted from time to time according to developments. The Company does not
expect the outcome of such claims, either individually or in the aggregate, to
have a material effect on the Group's operations or financial position.
NOTE 28--DIRECTORS' INTERESTS IN CONTRACTS
The undermentioned Directors who held office during each of the three years
in the period ended December 31, 1998 (except as otherwise indicated) and, where
applicable, connected persons (as defined in section 346 of the Companies Act)
were Underwriting Members of Lloyd's through the agency of WF&D Agencies, which
was a subsidiary of the Company until October, 1997 as follows:
[Download Table]
R J S Bucknall (1998 Mrs E H Rendle
only)
G F Nixon J M P Taylor (in
1996 and 1997 only)
J M Pelly (1998 only)
For the relevant years, the agreements between the above and WF&D Agencies
were on similar terms to the agreements which govern all other members of the
syndicates in which they participated. WF&D Agencies received a fee in respect
of each of the above relating to his or her membership of Lloyd's.
Fees exceeding L5,000 were paid to WF&D Agencies by:
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
J M P Taylor............................................... L21,463 -- --
--------- --------- ---------
--------- --------- ---------
F-35
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 28--DIRECTORS' INTERESTS IN CONTRACTS (CONTINUED)
Insurance brokering subsidiaries of the Company place risks with the
syndicates in which the Directors or connected persons (as defined above)
participate in the normal course of their brokering activities on the same basis
as such subsidiaries do with other Lloyd's syndicates.
The Company has given J Reeve a guarantee in respect of the performance
obligations of Willis Faber & Dumas Limited, his employing company, in respect
of an unfunded pension scheme established for him. The Company has also
guaranteed the performance obligations of Willis Corroon Corporation in respect
of the pension benefits for B D Johnson and K H Pinkston under the Willis
Corroon Executive Supplemental Plan, an unfunded pension plan.
Save as disclosed above, no Director or connected person (as defined above)
had any interest either during or at the end of the financial years 1996, 1997
and 1998 in any contract which was significant in relation to the Company's
business, or in a contract, transaction or arrangement which required disclosure
under section 232 of the Companies Act.
NOTE 29--OFFICER'S INTERESTS
The Company had guaranteed an amount of L30,000 in respect of a letter of
credit issued to provide the required security for the membership of Lloyd's of
an officer, which was released during 1996.
NOTE 30--COMPANIES ACT 1985
These financial statements do not comprise the Company's statutory accounts
within the meaning of section 240 of the Companies Act. Statutory accounts for
the years ended December 31, 1996 and 1997 have been, and statutory accounts for
the year ended December 31, 1998 will be, delivered to the Registrar of
Companies for England and Wales. The auditors' reports on such accounts were
unqualified.
NOTE 31-- DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED
KINGDOM AND THE UNITED STATES
The Group's financial statements are prepared in accordance with U.K. GAAP
which differ in certain respects from U.S. GAAP. Those differences which have a
significant effect on the Group are described below.
PUSHDOWN ACCOUNTING
Under U.S. GAAP, Trinity Acquisition's cost of acquiring the Company should
be "pushed down," i.e., used to establish a new accounting basis in the
Company's separate financial statements. Under U.K. GAAP, there is no such
requirement.
GOODWILL
Goodwill (which includes expirations) arising on acquisitions occurring
after January 1, 1998 is capitalized and amortized on a systematic basis over
its useful economic life. Goodwill arising on acquisitions completed before
January 1, 1998 was eliminated against retained earnings and other reserves.
Under U.S. GAAP, goodwill and expirations are capitalized and amortized over
their respective useful economic lives. For the purposes of the reconciliation
below, periods of 17 1/2 to 40 years have been utilized. The carrying amount of
goodwill, and the amortization period assigned to it, are periodically reviewed
for impairment by reference to expected future cash flows. Under U.K. GAAP, on
the disposition of a business acquired before January 1, 1998, goodwill
previously eliminated against
F-36
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 31-- DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED
KINGDOM AND THE UNITED STATES (CONTINUED)
retained earnings is reinstated and charged to income in arriving at the gain or
loss on disposal of an entity; under U.S. GAAP, only unamortized goodwill is
charged.
REVALUATION OF FREEHOLD LAND AND BUILDINGS
Certain of the Group's freehold land and buildings are included in the
financial statements at revalued amounts on which depreciation is calculated.
Under U.S. GAAP such assets must be recorded at their historical cost less
depreciation thereon. The depreciation charged on the revaluation increase is
not significant.
PENSION COSTS
For the purposes of the reconciliation below, the Group has adopted the
provisions of U.S. Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions", ("FAS 87") in respect of the Group's
principal U.K. pension plan. This standard requires that the projected benefit
obligation be matched against the market value of the underlying plan assets and
other unrecognized actuarial gains and losses in determining the pension expense
for the year. As a result, pension expense can be significantly different from
that computed under U.K. GAAP which requires the cost of providing pension
benefits to be expensed over the periods benefiting from the employees' service
on the basis of a constant percentage of current and estimated future earnings.
The additional information required by FAS 87 in respect of the principal
U.K. and U.S. pension plans is given below.
FORWARD EXCHANGE CONTRACTS AND OTHER FINANCIAL INSTRUMENTS
The Group enters into forward exchange contracts and other financial
instruments which, under U.K. GAAP, are treated as hedges of future income.
Under U.S. GAAP such instruments would not be regarded as hedges and,
accordingly, would be revalued at each balance sheet date and the gain or loss
arising would be dealt with in income for the period then ended.
EXCEPTIONAL ITEMS
During 1994, the Group made provisions for job eliminations and for the net
lease expense of properties no longer needed. Under U.S. GAAP, such provisions
would only be recorded when the termination benefit arrangements had been
communicated to the employees and when the leased property had no substantive
use or benefit to the lessee. These provisions were charged under U.S. GAAP in
1995.
INVESTMENTS
Certain of the Group's investments, purchased with the intention of holding
to maturity, have been valued at amortized cost. For U.S. GAAP purposes, all the
Group's investments have been classified as available for sale and are reported
at fair value with unrealized gains and losses reported as a separate component
of shareholders' equity (net of tax effects).
DEFERRED TAX
Under U.K. GAAP, deferred taxes are accounted for using the liability method
to the extent that is is considered probable that a liability or asset will
crystallize in the foreseeable future. Under U.S. GAAP,
F-37
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 31-- DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED
KINGDOM AND THE UNITED STATES (CONTINUED)
deferred taxes are accounted for using the liability method on all temporary
differences and deferred tax assets are recognized where it is more likely than
not that they will be realized.
The effect on net income, comprehensive income and shareholders' equity of
applying the significant differences between U.K. GAAP and U.S. GAAP described
above is summarized as follows:
[Enlarge/Download Table]
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
---------------------------- ------------- ---------------
NET INCOME 1996 1997 1998 1998
------------------------------------------- --------- ----------------- ------------- ---------------
(L MILLION, EXCEPT PER ORDINARY SHARE)
NET INCOME/LOSS AS REPORTED IN THE
CONSOLIDATED STATEMENT OF INCOME......... 54.2 56.9 (15.6) (25.7)
ADJUSTMENTS
Amortization of goodwill and expirations... (17.9) (17.7) (12.0) (6.5)
Gain on disposal of operations............. 2.2 5.9 9.6 --
Revaluation of forward exchange contracts
and other financial instruments.......... 10.9 (5.6) 0.2 (3.7)
Pension costs.............................. (12.1) (7.6) (1.6) (1.7)
Deferred taxes--effect of above
adjustments.............................. 0.4 4.3 0.4 1.7
--------- ------ ------ ------
NET INCOME/(LOSS) AS ADJUSTED TO ACCORD
WITH U.S. GAAP........................... 37.7 36.2 (19.0) (35.9)
--------- ------ ------ ------
--------- ------ ------ ------
COMPRISING
Income/(loss) from continuing operations... 37.7 36.0 (19.0) (35.9)
Income/(loss) from discontinued
operations............................... -- 0.2 -- --
--------- ------ ------ ------
NET INCOME/(LOSS).......................... 37.7 36.2 (19.0) (35.9)
--------- ------ ------ ------
--------- ------ ------ ------
PER ORDINARY SHARE (BASIC AND DILUTED) AS
SO ADJUSTED
Continuing operations...................... 9.0p 8.6p (4.5)p (8.4)p
Discontinued operations.................... -- 0.1p -- --
--------- ------ ------ ------
NET INCOME/(LOSS).......................... 9.0p 8.7p (4.5)p (8.4)p
--------- ------ ------ ------
--------- ------ ------ ------
F-38
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 31-- DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED
KINGDOM AND THE UNITED STATES (CONTINUED)
[Enlarge/Download Table]
YEAR ENDED DECEMBER JANUARY 1 TO SEPTEMBER 2 TO
31, SEPTEMBER 1, DECEMBER 31,
-------------------- ------------- ---------------
COMPREHENSIVE INCOME 1996 1997 1998 1998
---------------------------------------------------------- --------- --------- ------------- ---------------
(L MILLION)
NET INCOME/(LOSS) AS ADJUSTED TO ACCORD WITH
U.S. GAAP............................................... 37.7 36.2 (19.0) (35.9)
Other comprehensive income, net of tax:
Foreign currency translation adjustments................ (35.5) 11.4 (6.5) 6.5
Unrealized holding gains................................ (0.9) (0.4) (0.1) 0.8
--------- --------- ------ ------
COMPREHENSIVE INCOME...................................... 1.3 47.2 (25.6) (28.6)
--------- --------- ------ ------
--------- --------- ------ ------
Unrealized holding gains
Beginning of period....................................... 1.4 0.5 0.1 --
Arising during the period................................. (0.9) (0.4) (0.1) 0.8
--------- --------- ------ ------
End of period............................................. 0.5 0.1 -- 0.8
--------- --------- ------ ------
--------- --------- ------ ------
[Enlarge/Download Table]
DECEMBER 31,
--------------------
SHAREHOLDERS' EQUITY 1997 1998
---------------------------------------------------------------------------------------------- --------- ---------
(L MILLION)
SHAREHOLDERS' EQUITY AS REPORTED IN THE CONSOLIDATED BALANCE SHEET............................ 124.6 89.0
ADJUSTMENTS
Intangible assets
Goodwill--cost.............................................................................. 580.1 800.6
--amortization....................................................................... (129.8) (6.9)
Tangible assets
Revaluation of freehold land and buildings.................................................. (14.9) --
Current assets
Investments................................................................................. 0.1 0.8
Forward exchange contracts.................................................................. 6.1 2.7
Pension costs............................................................................... 16.0 (16.3)
Provisions for liabilities and charges
Deferred taxes--effect of above adjustments................................................. 1.4 5.5
--------- ---------
SHAREHOLDERS' EQUITY AS ADJUSTED TO ACCORD WITH U.S. GAAP..................................... 583.6 875.4
--------- ---------
--------- ---------
F-39
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 31-- DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED
KINGDOM AND THE UNITED STATES (CONTINUED)
ADDITIONAL INFORMATION REQUIRED BY FAS 87
The pension cost for the Group's two principal pension plans computed in
accordance with the requirements of FAS 87 comprises:
[Enlarge/Download Table]
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
-------------------- --------------- ---------------
1996 1997 1998 1998
--------- --------- --------------- ---------------
(L MILLION)
NET PENSION EXPENSE
------------------------------------------------------------
Service cost................................................ 30.8 29.7 19.3 9.6
Interest cost............................................... 47.8 51.2 34.5 14.4
Return on plan assets....................................... (70.3) (123.0) (76.0) (17.8)
Net amortization and deferral............................... 19.5 66.4 32.9 --
--------- --------- ------ ------
Net pension expense......................................... 27.8 24.3 10.7 6.2
--------- --------- ------ ------
--------- --------- ------ ------
[Enlarge/Download Table]
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
--------------- --------------- ---------------
1997 1998 1998
--------------- --------------- ---------------
(L MILLION)
CHANGE IN BENEFIT OBLIGATION
----------------------------------------------------------------
Benefit obligation--beginning of period......................... 675.8 810.7 811.9
Service cost.................................................... 29.7 19.3 9.6
Interest cost................................................... 51.2 34.5 14.4
Benefits paid................................................... (29.5) (20.6) (9.8)
Actuarial gains and losses...................................... 83.5 (32.0) 26.8
------ ------ ------
Benefit obligation--end of period............................... 810.7 811.9 852.9
------ ------ ------
------ ------ ------
[Enlarge/Download Table]
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
--------------- --------------- ---------------
1997 1998 1998
--------------- --------------- ---------------
(L MILLION)
CHANGE IN PLAN ASSETS
----------------------------------------------------------------
Plan assets--beginning of period................................ 683.0 798.4 799.9
Actual return on plan assets.................................... 129.9 11.0 111.2
Employer contribution........................................... 15.0 11.1 3.8
Benefits paid................................................... (29.5) (20.6) (9.8)
------ ------ ------
Plan assets--end of period...................................... 798.4 799.9 905.1
------ ------ ------
------ ------ ------
F-40
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 31-- DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED
KINGDOM AND THE UNITED STATES (CONTINUED)
[Enlarge/Download Table]
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
--------------- --------------- ---------------
1997 1998 1998
--------------- --------------- ---------------
(L MILLION)
FUNDED STATUS
----------------------------------------------------------------
Plan assets at fair value....................................... 798.4 799.9 905.1
Projected benefit obligation.................................... (810.7) (811.9) (852.9)
------ ------ ------
Plan assets in excess of projected benefit obligation........... (12.3) (12.0) 52.2
Transition assets............................................... (10.2) (7.6) --
Unrecognized net loss/(gain).................................... 45.3 42.8 (68.5)
Prior service cost.............................................. (0.1) -- --
------ ------ ------
Prepaid/(accrued) pension costs................................. 22.7 23.2 (16.3)
------ ------ ------
------ ------ ------
The U.K. plan assets are invested mainly in U.K. fixed interest and equity
securities and non-U.K. equity securities. The U.S. plan assets are invested
mainly in U.S. fixed interest and equity securities.
The major assumptions used in computing the funded status were:
[Enlarge/Download Table]
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
----------------- ----------------- -----------------
1997 1998 1998
----------------- ----------------- -----------------
% % %
U.K. PLAN
Expected long-term rate of return on plan assets............... 8.5 7.5 7.5
Discount rate.................................................. 7.0 5.75 5.5
Expected long-term rate of earnings increases.................. 5.5 4.5 4.5
U.S. PLAN
Expected long-term rate of return on plan assets............... 8.5 8.5 8.5
Discount rate.................................................. 7.0 6.0 6.0
Expected long-term rate of earnings increases.................. 5.0 5.0 5.0
-- -- --
-- -- --
CONSOLIDATED STATEMENT OF CASH FLOWS
The Consolidated Statement of Cash Flows prepared under U.K. GAAP presents
substantially the same information as that required under U.S. GAAP but may
differ with regard to classification of items within the statements and as
regards the definition of cash under U.K. GAAP and cash and cash equivalents
under U.S. GAAP.
Under U.K. GAAP, cash flows are presented separately for operating
activities, returns on investments and servicing of finance, taxation, capital
expenditure and financial investments, acquisitions and disposals, equity
dividends paid, management of liquid resources and financing activities. U.S.
GAAP requires only three categories of cash flow activity to be reported:
operating, investing and financing. Cash flows from taxation and returns on
investments and servicing of finance shown under U.K. GAAP would be included as
operating activities under U.S. GAAP. Cash flows from capital expenditure and
financial investment, acquisitions and disposals, shown separately under U.K.
GAAP, would be included as part of the investing activities under U.S. GAAP. The
payment of dividends would be included as a financing activity under U.S. GAAP.
Cash, as defined by U.S. GAAP, would
F-41
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 31-- DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED
KINGDOM AND THE UNITED STATES (CONTINUED)
include cash equivalents with initial maturities of less than three months and
would exclude bank overdrafts.
The categories of cash flow activity under U.S. GAAP can be summarized as
follows:
[Enlarge/Download Table]
YEAR ENDED JANUARY 1 TO SEPTEMBER 2 TO
DECEMBER 31, SEPTEMBER 1, DECEMBER 31,
-------------------- --------------- ---------------
1996 1997 1998 1998
--------- --------- --------------- ---------------
(L MILLION)
Cash inflow from operating activities....................... 36.2 89.9 119.1 (126.4)
Cash (outflow)/inflow on investing activities............... (10.3) (60.4) 36.5 (27.4)
Cash (outflow)/inflow on financing activities............... (71.3) (12.0) 19.4 27.9
--------- --------- ----- ------
Increase/(decrease) in cash and cash equivalents............ (45.4) 17.5 175.0 (125.9)
Effect of foreign exchange rate changes..................... (30.7) (0.7) (9.0) 11.2
Cash and cash equivalents at start of period................ 507.9 431.8 448.6 614.6
--------- --------- ----- ------
Cash and cash equivalents at end of period.................. 431.8 448.6 614.6 499.9
--------- --------- ----- ------
--------- --------- ----- ------
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
FORWARD FOREIGN EXCHANGE CONTRACTS AND CURRENCY OPTIONS
The Group manages its exposure to foreign currencies by entering into
forward foreign exchange contracts and currency options. At December 31, 1998,
the Group had contracted to exchange foreign currency, principally U.S. dollars,
equivalent to approximately L72.7 million (1997: L81.3 million).
INTEREST RATE AGREEMENTS
In order to manage interest rate risk, the Group enters into interest rate
swap agreements and forward rate agreements effectively to change the interest
receivable or payable on parts of its underlying investments and borrowings from
variable to fixed rates and from fixed to variable rates. Accordingly, while the
Group is exposed to market risk to the extent that receipts and payments under
interest rate agreements are affected by market interest rates, any such
fluctuations will be offset by changes to interest receipts or payments made on
variable rate investments and borrowings. The Group accounts for interest rate
agreements as hedges.
F-42
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 31-- DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED
KINGDOM AND THE UNITED STATES (CONTINUED)
Outstanding interest swap agreements and forward rate agreements are
summarized as follows:
[Enlarge/Download Table]
DECEMBER 31, 1997
---------------------------------------------------------------------------------
INTEREST RATES
----------------------------------------------------
NOTIONAL
PRINCIPAL TERMINATION FIXED VARIABLE FIXED VARIABLE
BALANCE DATES RECEIVABLE PAYABLE PAYABLE RECEIVABLE
------------- ------------ ----------- ----------- ----------- -------------
(MILLIONS) % % % %
U.S. dollars................................... 545 1998-2000 5.58-7.75 5.72-5.94 -- --
U.S. dollars................................... 15 1998 -- -- 6.91 5.81
Sterling....................................... 275 1998-2002 6.58-8.41 7.36-7.75 -- --
Deutschemark................................... 27 1998-2001 4.51-5.07 3.44-3.78 -- --
--- ------------ ----------- ----------- --- ---
--- ------------ ----------- ----------- --- ---
[Enlarge/Download Table]
DECEMBER 31, 1998
-------------------------------------------------------------------------------
INTEREST RATES
----------------------------------------------------
NOTIONAL
PRINCIPAL TERMINATION FIXED VARIABLE FIXED VARIABLE
BALANCE DATES RECEIVABLE PAYABLE PAYABLE RECEIVABLE
----------- ------------ ----------- ----------- ----------- -------------
(MILLIONS) % % % %
U.S. dollars................................... 664 1999-2002 5.15-7.16 5.06-5.41 -- --
U.S. dollars................................... 450 2006 -- -- 5.10 5.06
Sterling....................................... 166 1999-2002 6.43-8.27 6.12-7.31 -- --
Deutschemark................................... 49 1999-2001 3.70-5.07 3.70-5.07 -- --
Deutschemark................................... 10 2000 -- -- 4.61 3.56
Japanese Yen................................... 2,060 1999-2001 1.45-1.70 0.22-0.40 -- --
Italian Lire................................... 14,600 2000-2001 4.54-7.10 3.25-4.59 -- --
----------- ------------ ----------- ----------- --- ---
----------- ------------ ----------- ----------- --- ---
CONCENTRATION OF CREDIT RISK
Potential concentrations of credit risk to the Group comprise principally
cash and short-term deposits, current asset investments, trade receivables and
foreign exchange contracts.
The Group places cash and short-term deposits and undertakes foreign
exchange contracts with a range of banks and financial institutions and controls
its exposure to any one bank or financial institution. The Group's current asset
investments comprise a broad range of financial instruments issued principally
in the United Kingdom and the United States.
Trade receivables include significant amounts due from clients and
underwriters. The Group's insurance brokering client base is widely dispersed
throughout the world, principally in the United Kingdom and the United States.
The credit risk arising from amounts due from clients and underwriters in
respect of insurance premiums and claims is minimized as such premiums and
claims are not generally paid to the beneficiary until collected.
At December 31, 1998, the Group did not consider there to be any significant
concentration of credit risk.
F-43
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 31-- DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED
KINGDOM AND THE UNITED STATES (CONTINUED)
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following information is presented in compliance with the requirements
of FAS 107, "Disclosure about Fair Value of Financial Instruments". The carrying
amounts and fair values of the material financial instruments of the Group are
as follows:
[Enlarge/Download Table]
DECEMBER 31,
----------------------------------------------
1997 1998
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- --------- ----------- ---------
(L MILLION)
ASSETS
Cash and short-term deposits............................................ 359.4 359.4 317.1 317.1
Current asset investments:
Listed investments.................................................... 55.6 55.9 48.7 49.8
Unlisted investments.................................................. 202.1 203.5 232.9 236.9
LIABILITIES
Bank loans and overdrafts............................................... (34.5) (34.5) (629.1) (629.1)
OFF-BALANCE SHEET INSTRUMENTS
Interest rate swaps and forward rate agreements....................... -- 3.7 -- 10.9
Forward foreign exchange contracts.................................... -- 6.1 -- 2.7
----------- --------- ----------- ---------
----------- --------- ----------- ---------
The following methods and assumptions were used by the Group in establishing
its fair value disclosures for financial instruments:
CASH AND SHORT-TERM DEPOSITS: the carrying amount approximates fair
value.
LISTED INVESTMENTS AND UNLISTED INVESTMENTS: the fair value is based on
market prices.
BANK LOANS AND OVERDRAFTS: the carrying amount approximates fair value.
OFF-BALANCE SHEET INSTRUMENTS: fair values of interest rate swap
agreements are based on discounted cash flow analyses. Fair values of
forward foreign exchange contracts are based on contractual and market rates
and represent net unrealized gains and losses.
ACCOUNTING AND DISCLOSURE OF STOCK-BASED COMPENSATION
FAS 123, Accounting for Stock-Based Compensation, established accounting
disclosure standards for stock-based employee compensation plans. The statement
gives companies the option of continuing to account for such costs under APB 25,
Accounting for Stock Issued to Employees, and related interpretations. The Group
has chosen to continue to account for its employee share option plans under APB
25 and, accordingly, there is no compensation cost to the Group arising from
these plans. Had the Group chosen to account for the costs of its employee share
option plans under FAS 123, which requires such costs to be determined on the
basis of the fair value of the options at the date of grant, the Group's net
income for the year ended December 31, 1997 would have been L36.1 million (1996:
L37.7 million) and net income per Ordinary Share would have been 8.6 pence
(1996: 9.0 pence). Details of the fair value of stock awards are given in Note
25. Because options vest over several years and additional options grants may be
made, the effects of these hypothetical calculations are not likely to be
representative of similar future calculations. No options were granted in 1998.
F-44
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 31-- DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED
KINGDOM AND THE UNITED STATES (CONTINUED)
DEBT AND EQUITY SECURITIES
U.S. GAAP requires debt and equity investments to be classified into three
categories: held-to-maturity, trading and available-for-sale. All the Group's
investments have been classified as available-for-sale.
The debt securities held at December 31, 1998 comprise:
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AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------- --------------- ------------- -----------
(L MILLION)
U.S. Government securities..................... 18.5 0.2 -- 18.7
U.K. Government securities..................... 2.7 0.1 -- 2.8
Other foreign government securities............ 4.3 0.2 -- 4.5
Corporate debt securities...................... 22.8 0.6 -- 23.4
--
--- --- ---
48.3 1.1 -- 49.4
--
--
--- --- ---
--- --- ---
During 1998 sales of debt securities totaled L31.1 million (1997: L46.9
million), on which gross realized gains and gross realized losses were L0.3
million and Lnil million (1997: L0.1 million and L0.1 million) respectively.
Maturities of debt securities held at December 31, 1998 are as follows:
[Enlarge/Download Table]
(L MILLION)
within one year................................................................... 10.2
after one year through five years................................................. 36.2
after five years through ten years................................................ 1.9
after more than ten years......................................................... --
---
48.3
---
---
NOTE 32--NEW ACCOUNTING STANDARDS
Four U.K. accounting standards have recently been issued:
FRS 12, "Provisions, Contingent Liabilities and Contingent Assets", was
issued in September 1998 and is effective for accounting periods ending on
or after March 23, 1999, though earlier adoption is permitted. This standard
sets out rules on the recognition, measurement and disclosure of provisions
and contingencies. The Company does not expect the adoption of this standard
to have any impact on its financial statements for prior years or,
currently, on its financial statements for future periods.
FRS 13, "Derivatives and other Financial Instruments Disclosures", was
also issued in September 1998 and is effective for accounting periods ending
on or after March 23, 1999, though earlier adoption is permitted. This
standard sets out narrative disclosure requirements which require an
explanation of the role that financial instruments play in creating or
changing the risks that the Company faces in its activities and its approach
to the management of those risks, including a description of the objectives,
policies and strategies for holding and issuing financial instruments. It
also sets out numerical disclosure requirements with respect to interest
rate risk, currency risk, liquidity risk, fair values, financial instruments
used for trading, financial instruments used for hedging and certain
commodity contracts. As this standard only relates to disclosures, its
adoption
F-45
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 32--NEW ACCOUNTING STANDARDS (CONTINUED)
will not impact the Company's results of operations or financial position
reported under U.K. GAAP. The Company has not yet determined the impact that
its adoption will have on its disclosures.
FRS 14, "Earnings per Share", was issued in October 1998 and is
effective for accounting periods ending after December 23, 1998. The
Company's earnings per share computed under this standard will not differ
from those previously reported.
FRS 15, "Tangible Fixed Assets", was issued in February 1999 and is
effective for accounting periods ending on or after March 23, 2000 though
earlier adoption is permitted. This standard sets out the principles of
accounting for the initial measurement, valuation and depreciation of
tangible fixed assets. Adoption of this standard by the Company would have
no impact on its financial statements.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities" which has to be adopted for fiscal years
beginning after June 15, 1999. This standard requires all derivatives to be
recognized as either assets or liabilities on the balance sheet at their fair
values. It also prescribes the accounting to be followed for the changes in the
fair values of derivatives depending upon their intended use and resulting
designation. It supersedes or amends the existing standards which deal with
hedge accounting and derivatives. The Company has not yet evaluated the effect
that adopting this standard will have on the U.S. GAAP amounts reported in its
financial statements.
NOTE 33--WILLIS CORROON CORPORATION AND WILLIS CORROON PARTNERS
Summarized financial information under U.K. GAAP relating to Willis Corroon
Corporation is as follows:
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YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
(L MILLION)
Total operating revenues............................................................. 356.7 321.4 340.0
Operating income..................................................................... 35.6 28.4 29.0
Net income........................................................................... 14.1 11.4 8.4
--------- --------- ---------
--------- --------- ---------
AT DECEMBER 31,
--------------------
1997 1998
--------- ---------
(L MILLION)
Current assets............................................................................. 1,201.2 1,806.5
Fixed assets............................................................................... 52.3 59.9
--------- ---------
1,253.5 1,866.4
--------- ---------
--------- ---------
Current liabilities........................................................................ 1,152.5 1,756.5
Noncurrent liabilities..................................................................... 35.5 35.8
Stockholders' equity....................................................................... 65.5 74.1
--------- ---------
1,253.5 1,866.4
--------- ---------
--------- ---------
Willis Corroon Partners, formed on November 11, 1998, has no assets other
than the capital stock of Willis Corroon Corporation and conducts no business
other than the holding of such capital stock.
F-46
HEAD OFFICE OF WILLIS CORROON GROUP
Ten Trinity Square
London EC3P 3AX
HEAD OFFICE OF THE ISSUER
26 Century Boulevard
P.O. Box 305026
Nashville, TN 37214
AUDITORS TO WILLIS CORROON GROUP
Ernst & Young
Rolls House
7 Rolls Buildings
Fetter Lane
London EC4A 1NH
TRUSTEE AND EXCHANGE AGENT
The Bank of New York
101 Barclay Street
New York, New York 10286
LISTING AGENT
Kredietbank S.A. Luxembourgeoise
43, Boulevard Royal
L-2955 Luxembourg
LEGAL ADVISERS TO WILLIS CORROON GROUP
[Download Table]
AS TO U.S. LAW AS TO ENGLISH LAW
Simpson Thacher & Bartlett Clifford Chance
200 Aldersgate
425 Lexington Avenue Street
New York, NY 10017 London EC1A 4JJ
[LOGO]
$550,000,000
WILLIS CORROON CORPORATION
OFFER TO EXCHANGE ALL OUTSTANDING 9% SENIOR SUBORDINATED
NOTES DUE 2009 FOR 9% SENIOR SUBORDINATED NOTES DUE 2009,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
UNCONDITIONALLY GUARANTEED ON A SENIOR SUBORDINATED BASIS BY WILLIS CORROON
GROUP LIMITED AND WILLIS CORROON PARTNERS
UNTIL , 1999 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
English law does not permit a company to indemnify a director or an
officer of the company against any liability which by virtue of any rule of law
would otherwise attach to him in respect of negligence, default, breach of duty
or breach of trust of which he may be guilty in relation to the company except
liability incurred by such director or officer in defending any legal proceeding
(whether civil or criminal) in which judgement is given in his favor or in which
he is acquitted or in certain instances where, although he is liable, a court
finds that such director or officer acted honestly and reasonably and that
having regard to all the circumstances he ought fairly to be excused and relief
is granted by the court.
The Articles of Association of Willis Corroon Group Limited provide
that, subject to the restrictions referred to in the immediately preceding
paragraph, Willis Corroon Group Limited may indemnify each of its directors and
officers or those of its subsidiaries against all costs, charges, losses,
expenses and liabilities incurred by him in the actual or purported execution
and/or discharge of his duties and/or the exercise or purported exercise of his
powers and/or otherwise in relation to or in connection with his duties, power
or office including (without prejudice to the generality of the foregoing) any
liability incurred by him in defending any proceedings, civil or criminal, which
relate to anything done or omitted or alleged to have been done omitted by him
as an officer of Willis Corroon Group Limited and in which judgement is given in
his favor (or the proceedings are otherwise disposed of without any finding or
admission of any material breach of duty on his part) or in which he is
acquitted or in connection with any application under any statute for relief
from liability in respect of any such act or omission in which relief is granted
to him by the court
Pursuant to the Companies Act of 1985, as amended, companies may
purchase and maintain liability insurance for directors and officers. Willis
Corroon Group Limited currently maintains liability insurance for the directors
and officers of TA I Limited and of its subsidiaries (which includes Willis
Corroon Group Limited) to the extent authorized by English law and their
governing instruments. Such insurance does not cover any dishonest, fraudulent
or criminal act or omission by the directors and officers of Willis Corroon
Group Limited.
Section 145 of the Delaware General Corporation Law (the "DGCL")
provides that a corporation may indemnify directors and officers as well as
other employees and individuals against expenses (including attorneys' fees),
judgments, lines, and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative, or
investigative (other than action by or in the right of the corporation a
"derivative action"), if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceedings, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) incurred in connection with the
defense or settlement of such actions, and the statute requires court approval
before there can be any indemnification where the person seeking indemnification
has been found liable to the corporation.
Such 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duties as a director, except for liability (i) for any
transaction from which the director derives an improper personal benefit, (ii)
for acts or omissions not in good faith or that involve international misconduct
or a knowing violation of law, (iii) for improper payment of dividends or
redemptions of shares, or (iv) for any breach of a director's duty of loyalty to
the company or
II-1
its stockholders. Article Thirteen of Willis Corroon Corporation's Amended
Certificate of Incorporation includes such a provision.
The directors and officers of Willis Corroon Corporation are covered by
the liability insurance for directors' and officers' maintained by Willis
Corroon Group Limited.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
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EXHIBIT NO. DESCRIPTION OF EXHIBIT
------------- -----------------------------------------------------------------------------------------------------
2.1 Master Acquisition Agreement, dated October 13, 1998, among Willis Corroon Group plc, Willis Corroon
Europe B.V., Tolbert Insurance & Finance B.V., UTA Willis Corroon S.p.A., Saint Gallen S.r.l.,
Olimpia S.r.l., Ital Brokers Holding S.p.A., and ARCEF N.V.
2.2 Stock Purchase Agreement, dated September 28, 1998, between Assurandrgruppen A/S and Willis Corroon
Europe B.V.
2.3 WIFA Share Sale Agreement, dated August 4, 1997, between Willis Corroon Limited and Willis National
Holdings Limited, including Side Agreement, dated December 11, 1998
2.4 ANIFA Share Sale Agreement, dated August 4, 1997, between Abbey National Independent Consulting Group
Limited and Willis National Holdings Limited, including Side Agreement, dated December 11, 1998
2.5 Framework Agreement, dated January 28, 1998, for the Merger of the limited partnership Jaspers
Industrie Assekuranz GmbH & Co. KG and the general partnership C. Wuppesahl & Co. Assekuranzmakler
2.6 Purchase and Transfer Agreement, dated January 27, 1998, concerning shares in Industrie-Assekuranz
GmbH and Jaspers Industrie Assekuranz GmbH & Co. KG between Alexander & Alexander International
Inc., Achtundsechzigste Verwaltungsgesellschaft Dammtor mbH, and Willis Corroon Group plc
2.7 Transfer of Shares, dated January 22, 1998, of Industrie-Assekuranz GmbH into Jaspers Industrie
Assekuranz GmbH & Co. KG
2.8 Merger Contract, dated March 17, 1998, between Jaspers Industrie Assekuranz GmbH & Co. KG and C.
Wuppesahl & Co. Assekuranzmakler
2.9 Purchase and Sales Agreement, dated January 27, 1998, on the acquisition of limited partner shares in
Jaspers Wuppesahl Industrie Assekuranz GmbH & Co. KG among Ms. Irene Koenig, Ms. Doris Ballauff,
Mr. Michael Emken, C. Wuppesahl Management GmbH, C. Wuppesahl, 68. Verwaltungsgesellschaft Dammtor
mbH, and Willis Corroon GmbH
2.10 Purchase and Sales Agreement dated January 22, 1998 between Deutsche Bank Aktiengesellschaft, Willis
Corroon GmbH and Willis Corroon Group plc in respect of a limited partnership interest of 14.6% in
Jaspers Wuppesahl Industrie Assekuranz GmbH & Co. KG.
2.11 Agreement, dated July 23, 1997, among Assurances Generales de France IART, UAP Incendie-Accidents,
Athena, Gras Savoye Euro Finance S.A., Mr. Emmanuel Gras, Mr. Patrick Lucas, Mr. Daniel Naftalski,
Willis Corroon Group plc, Willis Corroon Europe B.V., and Gras Savoye & Cie, along with Amendment
No. 1 thereto, dated December 11, 1997, and Addendum thereto dated July 23, 1997
II-2
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EXHIBIT NO. DESCRIPTION OF EXHIBIT
------------- -----------------------------------------------------------------------------------------------------
2.12 Sale and Purchase Agreement, dated October 20, 1997, among Willis Corroon Group plc, Acegiant
Limited, Willis Corroon Group Services Limited and Willis Faber & Dumas (Agencies) Limited
3.1 Amended Certificate of Incorporation of Willis Corroon Corporation
3.2 By-laws of Willis Corroon Corporation
3.3 Partnership Agreement of Willis Corroon Partners
3.4 Memorandum and Articles of Association of Willis Corroon Group Limited
4.1 Indenture, dated February 2, 1999, among Willis Corroon Corporation, as issuer, Willis Corroon
Partners and Willis Corroon Group Limited, as guarantors, and The Bank of New York, as trustee
4.2 Form of 9% Senior Subordinated Notes due 2009 (the "Exchange Note") (Included as part of Exhibit 4.1
hereto)
4.3 Exchange and Registration Rights Agreement, dated February 2, 1999, among Willis Corroon Corporation,
Willis Corroon Partners, Willis Corroon Group Limited, Chase Securities Inc. and Chase Manhattan
International Limited
5.1 Opinion of Simpson Thacher & Bartlett as to the legality of the securities being registred hereby
10.1 Purchase Agreement, dated January 28, 1999, among Willis Corroon Corporation, Willis Corroon
Partners, Willis Corroon Group Limited, Chase Securities Inc. and Chase Manhattan International
Limited
10.2 Credit Agreement, dated as of July 22, 1998, and amended and restated as of September 1, 1998,
September 25, 1998 and February 19, 1999 and amended as of October 28, 1998, among Willis Corroon
Corporation, as borrower, Willis Corroon Group Limited and Trinity Acquisition plc, as guarantors,
the lenders thereunder and The Chase Manhattan Bank, as administrative agent and collateral agent
10.3 Master Shareholders' Agreement, dated October 13, 1998, among Willis Corroon Group plc, Willis
Corroon Europe B.V., Tolbert Insurance & Finance B.V., Saint Gallen S.r.l., Olimpia S.r.l., Ital
Brokers Holding S.p.A., ARCEF Holding N.V., and the Directors (as defined therein)
10.4 Shareholders' Agreement, dated September 28, 1998, among Willis Corroon Europe B.V. and the Current
Shareholders (as defined therein) (relating to the Assurandrgruppen merger)
10.5 Shareholders' Agreement, dated August 4, 1997, among Abbey National plc, Willis Corroon Group plc,
and Willis National Holdings Limited, as supplemented on December 11, 1998
10.6 Shareholders' Agreement, dated July 15, 1998, between Willis Corroon Europe B.V., Jaime Castellanos
Borrego, Antonio Serrats Iriarte and Pedro Cardelus Munoz-Seca
10.7 Shareholders' Agreement, dated December 17, 1998, among Willis Corroon AB, Mr. Staffan Larsson and
Mr. Tomas Larsson
10.8 1998 Share Purchase and Option Plan for Key Employees of TA I Limited
10.9 Guarantee by Willis Corroon Group Limited of pension scheme of John Reeve
10.10 Guarantee by Willis Corroon Group Limited of pension plan of Kenneth Pinkston
10.11 Guarantee by Willis Corroon Group Limited of pension plan of Brian Johnson
II-3
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EXHIBIT NO. DESCRIPTION OF EXHIBIT
------------- -----------------------------------------------------------------------------------------------------
10.12 TA I Limited Zero Cost Share Option Scheme
12.1 Computation of ratio of earnings to fixed charges
21.1 List of subsidiaries of Willis Corroon Group Limited
23.1 Consent of Simpson Thacher & Bartlett (Included as part of Exhibit 5.1 hereto)
23.2 Consent of Ernst & Young
24.1 Powers of Attorney
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New York, as
Trustee
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
(b) Financial Statement Schedules
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PAGE
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Report of Independent Auditors on Schedule..................................................... S-1
Schedule II--Valuation and Qualifying Accounts................................................. S-2
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned registrant hereby undertakes: (i) to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means and (ii) to arrange or provide for a facility
in the U.S. for the purpose of responding to such requests. The undertaking in
subparagraph (i) above includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(c) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act
II-4
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more that a 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement; and
(iii) to include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering; and
(4) To file a post-effective amendment to the registration
statement to include any financial statements required by Rule 3-19 at
the start of any delayed offering or throughout a continuous offering.
(d) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant guarantor has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of London, Country of England, on March 15, 1999.
[Download Table]
WILLIS CORROON GROUP LIMITED
BY: /S/ THOMAS COLRAINE
-----------------------------------------
NAME: THOMAS COLRAINE
TITLE: GROUP FINANCE DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed on March 15, 1999 by or on behalf of
the following persons in the capacities indicated with the registrant.
[Download Table]
SIGNATURE TITLE
------------------------------ ---------------------------
Executive Chairman;
* Director
------------------------------ (Principal Executive
John Reeve Officer)
Chief Executive of Global
Specialties; Executive
* responsible for
------------------------------ discontinued U.K.
Richard J. S. Bucknall underwriting activities;
Director
Group Finance Director;
* Director
------------------------------ (Principal Financial and
Thomas Colraine Accounting Officer)
* Executive responsible for
------------------------------ North American Retail;
Brian D. Johnson Director
* Managing Partner of Gras
------------------------------ Savoye; Director
Patrick Lucas
Chairman of U.K. Retail and
* Executive responsible for
------------------------------ Willis Corroon
George F. Nixon International
Holdings-Europe; Director
* Chairman of Willis Faber
------------------------------ Re; Director
John M. Pelly
II-6
[Download Table]
SIGNATURE TITLE
------------------------------ ---------------------------
Group Executive Director
responsible for North
* American Retail, U.S.
------------------------------ Wholesale, Asia-Pacific
Kenneth H. Pinkston and rest of the world;
Director
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*By: /s/ MICHAEL P.
CHITTY
--------------------
Michael P. Chitty
ATTORNEY-IN-FACT
II-7
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below in the City of Nashville,
State of Tennessee on March 15, 1999 by the undersigned as the duly authorized
representative of WILLIS CORROON GROUP LIMITED in the United States.
[Download Table]
/s/ BART R. SCHWARTZ
-----------------------------------------
BART R. SCHWARTZ
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant guarantor has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, on March 15,
1999.
[Download Table]
WILLIS CORROON PARTNERS
BY: WILLIS CORROON GROUP LIMITED, ITS GENERAL
PARTNER
BY: /S/ THOMAS COLRAINE
-----------------------------------------
NAME: THOMAS COLRAINE
TITLE: GROUP FINANCE DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed on March 15, 1999 by or on behalf of
the following persons in the capacities indicated with the general partner of
registrant.
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SIGNATURE TITLE
----------------------------- ---------------------------
Executive Chairman;
* Director
----------------------------- (Principal Executive
John Reeve Officer)
Chief Executive of Global
Specialties; Executive
* responsible for
----------------------------- discontinued U.K.
Richard J. S. Bucknall underwriting activities;
Director
Group Finance Director;
* Director
----------------------------- (Principal Financial and
Thomas Colraine Accounting Officer)
* Executive responsible for
----------------------------- North American Retail;
Brian D. Johnson Director
* Managing Partner of Gras
----------------------------- Savoye; Director
Patrick Lucas
Chairman of U.K. Retail and
* Executive responsible for
----------------------------- Willis Corroon
George F. Nixon International
Holdings-Europe; Director
* Chairman of Willis Faber
----------------------------- Re; Director
John M. Pelly
II-9
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SIGNATURE TITLE
----------------------------- ---------------------------
Group Executive Director
responsible for North
* American Retail, U.S.
----------------------------- Wholesale, Asia-Pacific
Kenneth H. Pinkston and rest of the world;
Director
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*By: /s/ MICHAEL P. CHITTY
-------------------------
Michael P. Chitty
ATTORNEY-IN-FACT
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant issuer has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 15, 1999.
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WILLIS CORROON CORPORATION
BY: /S/ BART R. SCHWARTZ
-----------------------------------------
NAME: BART R. SCHWARTZ
TITLE: SENIOR VICE PRESIDENT & GENERAL
COUNSEL
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed on March , 1999 by or on behalf of
the following persons in the capacities indicated with the registrant.
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SIGNATURE TITLE
----------------------------- ---------------------------
Group Executive Director
responsible for North
American Retail, U.S.
* Wholesale, Asia-Pacific
----------------------------- and rest of the world;
Kenneth H. Pinkston Director
(Principal Executive
Officer)
* Executive responsible for
----------------------------- North American Retail;
Brian D. Johnson Director
Senior Vice President;
* Director of Finance and
----------------------------- Administration; Director
Charles D. Hamilton (Principal Financial and
Accounting Officer)
/s/ BART R. SCHWARTZ Senior Vice President;
----------------------------- Corporate Secretary and
Bart R. Schwartz General Counsel; Director
Senior Vice President;
* Director of Human
----------------------------- Resources, North America;
Kim Windrow Director
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*By: /s/ BART R. SCHWARTZ
-------------------------
Bart R. Schwartz
ATTORNEY-IN-FACT
II-11
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
REPORT OF INDEPENDENT AUDITORS ON SCHEDULE
We have audited the consolidated financial statements of Willis Corroon
Group Limited at December 31, 1997 and 1998 and for the years ended December 31,
1996 and 1997, and the periods January 1 to September 1, 1998 and September 2 to
December 31, 1998, and have issued our report thereon dated March 15, 1999. Our
audits also included the financial statement schedule listed in Item 21(b) of
this Registration Statement. This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young
London, England
March 15, 1999
S-1
SCHEDULE II
WILLIS CORROON GROUP LIMITED AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS
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ADDITIONS ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
--------------------------------------------- ------------- --------------- --------------- --------------- -------------
Year ended December 31, 1996
Provision for bad and doubtful debts....... 26.9 0.8 (1.3)(a) (7.8) 18.6
--- --- --- --- ---
Year ended December 31, 1997
Provision for bad and doubtful debts....... 18.6 (4.0) (3.0) 11.6
--- --- --- --- ---
January 1 to September 1, 1998
Provision for bad and doubtful debts....... 11.6 1.5 (0.5) 12.6
--- --- --- --- ---
September 2 to December 31, 1998
Provision for bad and doubtful debts....... 12.6 (0.4) 0.1(a) (0.5) 11.8
------------------------------
(a) Exchange adjustments
S-2
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EXHIBIT
NO. DESCRIPTION OF EXHIBIT
----------- ---------------------------------------------------------------------------------------------------------
2.1 Master Acquisition Agreement, dated October 13, 1998, among Willis Corroon Group plc, Willis Corroon
Europe B.V., Tolbert Insurance & Finance B.V., UTA Willis Corroon S.p.A., Saint Gallen S.r.l., Olimpia
S.r.l., Ital Brokers Holding S.p.A., and ARCEF N.V.
2.2 Stock Purchase Agreement, dated September 28, 1998, between Assurandrgruppen A/S and Willis Corroon
Europe B.V.
2.3 WIFA Share Sale Agreement, dated August 4, 1997, between Willis Corroon Limited and Willis National
Holdings Limited, including Side Agreement, dated December 11, 1998
2.4 ANIFA Share Sale Agreement, dated August 4, 1997, between Abbey National Independent Consulting Group
Limited and Willis National Holdings Limited, including Side Agreement, dated December 11, 1998
2.5 Framework Agreement dated January 28, 1998 for the Merger of the limited partnership Jaspers Industrie
Assekuranz GmbH & Co. KG and the general partnership C. Wuppesahl & Co. Assekuranzmakler
2.6 Purchase and Transfer Agreement dated January 27, 1998 concerning shares in Industrie-Assekuranz GmbH and
Jaspers Industrie Assekuranz GmbH & Co. KG between Alexander & Alexander International Inc.,
Achtundsechzigste Verwaltungsgesellschaft Dammtor mbH, and Willis Corroon Group plc
2.7 Transfer of Shares dated January 22, 1998 of Industrie-Assekuranz GmbH to the Limited Partnership in the
firm Jaspers Industrie Assekuranz GmbH & Co. KG
2.8 Merger Contract, dated March 17, 1998, between Jaspers Industrie Assekuranz GmbH & Co. KG and C.
Wuppesahl & Co. Assekuranzmakler
2.9 Purchase and Sales Agreement, dated January 27, 1998, on the acquisition of limited partner shares in
Jaspers Wuppesahl Industrie Assekuranz GmbH & Co. KG, among Ms. Irene Koenig, Ms. Doris Ballauff, Mr.
Michael Emken, C. Wuppesahl Management GmbH, C. Wuppesahl, 68. Verwaltungsgesellschaft Dammtor mbH, and
Willis Corroon GmbH
2.10 Purchase and Sales Agreement dated January 22, 1998 between Deutsche Bank Aktiengesellschaft, Willis
Corroon GmbH and Willis Corroon Group plc in respect of a limited partnership interest of 14.6% in
Jaspers Wuppesahl Industrie Assekuranz GmbH & Co. KG
2.11 Agreement, dated July 23, 1997, among Assurances Generales de France IART, UAP Incendie-Accidents,
Athena, Gras Savoye Euro Finance S.A., Mr. Emmanuel Gras, Mr. Patrick Lucas, Mr. Daniel Naftalski, Willis
Corroon Group plc, Willis Corroon Europe B.V., and Gras Savoye & Cie, along with Amendment No. 1 thereto,
dated December 11, 1997, and Addendum thereto dated July 23, 1997
2.12 Sale and Purchase Agreement, dated October 20, 1997, among Willis Corroon Group plc, Acegiant Limited,
Willis Corroon Group Services Limited, and Willis Faber & Dumas (Agencies) Limited
3.1 Amended Certificate of Incorporation of Willis Corroon Corporation
3.2 By-laws of Willis Corroon Corporation
3.3 Partnership Agreement of Willis Corroon Partners
3.4 Memorandum and Articles of Association of Willis Corroon Group Limited
4.1 Indenture, dated February 2, 1999, among Willis Corroon Corporation, as issuer, Willis Corroon Partners
and Willis Corroon Group Limited, as guarantors, and The Bank of New York, as trustee
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EXHIBIT
NO. DESCRIPTION OF EXHIBIT
----------- ---------------------------------------------------------------------------------------------------------
4.2 Form of 9% Senior Subordinated Notes due 2009 (the "Exchange Note") (Included as part of Exhibit 4.1
hereto)
4.3 Exchange and Registration Rights Agreement, dated February 2, 1999, among Willis Corroon Corporation,
Willis Corroon Partners, Willis Corroon Group Limited, Chase Securities Inc. and Chase Manhattan
International Limited
5.1 Opinion of Simpson Thacher & Bartlett as to the legality of the securities being registered hereby
10.1 Purchase Agreement, dated January 28, 1999, among Willis Corroon Corporation, Willis Corroon Partners,
Willis Corroon Group Limited, Chase Securities Inc. and Chase Manhattan International Limited
10.2 Credit Agreement, dated as of July 22, 1998, and amended and restated as of September 1, 1998, September
25, 1998 and February 19, 1999 and amended as of October 28, 1998, among Willis Corroon Corporation, as
borrower, Willis Corroon Group Limited and Trinity Acquisition plc, as guarantors, the lenders thereunder
and The Chase Manhattan Bank, as administrative agent and collateral agent
10.3 Master Shareholders' Agreement, dated October 13, 1998, among Willis Corroon Group plc, Willis Corroon
Europe B.V., Tolbert Insurance & Finance B.V., Saint Gallen S.r.l., Olimpia S.r.l., Ital Brokers Holding
S.p.A., ARCEF Holding N.V., and the Directors (as defined therein)
10.4 Shareholders' Agreement, dated September 28, 1998, among Willis Corroon Europe B.V. and the Current
Shareholders (as defined therein) (relating to the Assurandrgruppen merger)
10.5 Shareholders' Agreement, dated August 4, 1997, among Abbey National plc, Willis Corroon Group plc, and
Willis National Holdings Limited, as supplemented on December 11, 1998
10.6 Shareholders' Agreement, dated July 15, 1998, between Willis Corroon Europe B.V., Jaime Castellanos
Borrego, Antonio Serrats Iriarte and Pedro Cardelus Munoz-Seca
10.7 Shareholders' Agreement, dated December 17, 1998, among Willis Corroon AB, Mr. Staffan Larsson and Mr.
Tomas Larsson
10.8 1998 Share Purchase and Option Plan for Key Employees of TA I Limited
10.9 Guarantee by Willis Corroon Group Limited of pension scheme of John Reeve
10.10 Guarantee by Willis Corroon Group Limited of pension plan of Kenneth Pinkston
10.11 Guarantee by Willis Corroon Group Limited of pension plan of Brian Johnson
10.12 TA I Limited Zero Cost Share Option Scheme
12.1 Computation of ratio of earnings to fixed charges
21.1 List of subsidiaries of Willis Corroon Group Limited
23.1 Consent of Simpson Thacher & Bartlett (Included as part of Exhibit 5.1 hereto)
23.2 Consent of Ernst & Young
24.1 Powers of Attorney
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New York, as
Trustee
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
Dates Referenced Herein and Documents Incorporated by Reference
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