Filed Pursuant to Rule 424(b)(3) Registration No. 333-152560

 

 

MERGER PROPOSED — YOUR VOTE IS VERY IMPORTANT

 

Dear Shareholders,

 

The board of directors of Hilb Rogal & Hobbs Company (“HRH”) has unanimously adopted and approved an agreement and plan of merger with Willis Group Holdings Limited (“Willis”) pursuant to which HRH will merge with and into a wholly-owned subsidiary of Willis. We are sending you the accompanying proxy statement/prospectus to notify you of the special meeting of HRH shareholders being held to vote on the agreement and plan of merger and related matters and to ask you to vote at the special meeting in favor of the agreement.

 

If the merger is completed, you will receive Willis common stock or cash for each share of HRH common stock you own. You will be able to elect between the stock and cash merger consideration, subject to proration as described below.

 

The cash consideration per share of HRH common stock will be equal to the product of (1) the exchange ratio (calculated as described in the accompanying proxy statement/prospectus) multiplied by (2) the average price per share of Willis common stock on the New York Stock Exchange (the “NYSE”) during the ten trading day period ending on the second full trading day prior to the effective time of the merger. The stock consideration per share of HRH common stock for which a stock election has been made will be the number of shares of Willis common stock equal to the exchange ratio. Based on the $35.81 average price per share of Willis common stock on the NYSE during the ten trading day period ending on June 5, 2008, and based on the 31.61 average price per share of Willis common stock on the NYSE during the ten trading day period ending on August 21, 2008, the most recent practicable date prior to the printing of this document, the per share merger consideration was $46.00 per share and $46.00 per share, respectively. The implied value of the merger consideration will fluctuate with the market price of Willis’s common stock under certain circumstances described in the accompanying proxy statement/prospectus; however, the implied value of the merger consideration, based on the ten-day average pre-closing Willis common stock trading price, will be the same regardless of whether you elect to receive cash or stock in exchange for your shares of HRH common stock.

 

The aggregate consideration in the merger is subject to a mandatory cash component of approximately $845 million (based on the number of HRH shares currently outstanding). In the event that the aggregate cash consideration is undersubscribed, HRH shareholders who have made no election may receive all or a portion of their consideration in cash and shareholders who have elected to receive stock consideration in the merger may receive a portion of their consideration in cash. In the event that the aggregate cash consideration is oversubscribed, Willis has the option to increase the aggregate cash consideration above the mandatory cash component, subject to certain limitations, and/or provide a portion of the consideration payable to HRH shareholders who made no election or elected to receive cash consideration in the form of Willis common stock. In addition, if the maximum number of shares of Willis common stock that would be issued in the merger would exceed 19.9% of the total number of shares of Willis common stock outstanding immediately prior to the consummation of the merger, then adjustments will be made to the amount of cash and stock consideration in order to prevent the 19.9% threshold from being exceeded.

 

Willis common stock trades on the NYSE under the symbol “WSH,” and HRH common stock trades on the NYSE under the symbol “HRH.”

 

For a discussion of risk factors that you should consider in evaluating the merger and the other matters on which you are being asked to vote, see “RISK FACTORS” beginning on page 20.

 

We cannot complete the merger without the approval of holders of more than two-thirds of the total shares of HRH common stock outstanding. Accordingly, every vote is important, and we urge you to take the time to vote by following the instructions on your proxy card regardless of whether you plan to attend the special meeting of HRH shareholders.

 

The special meeting of HRH shareholders will be held at 10:00 a.m. (local time) on September 29, 2008 at The Jefferson Hotel, 101 W. Franklin Street, Richmond, Virginia.

 

The HRH board of directors enthusiastically supports the merger and unanimously recommends that HRH shareholders vote “FOR” the proposal to adopt and approve the merger agreement.

 

Sincerely,

 

Martin L. Vaughan, III

Chairman and Chief Executive Officer
Hilb Rogal & Hobbs Company

 

Neither the Securities and Exchange Commission nor any state securities regulator has approved or disapproved the merger and other transactions described in this document nor have they approved or disapproved the issuance of the Willis common stock to be issued in connection with the merger, or determined if this document is accurate or adequate. Any representation to the contrary is a criminal offense.

 

This document is dated August 21, 2008 and is being first mailed to HRH shareholders on or about August 27, 2008.

 

CERTAIN FREQUENTLY USED TERMS

 

Unless otherwise specified or if the context so requires:

 

 

REFERENCES TO ADDITIONAL INFORMATION

 

This document incorporates important business and financial information about Willis and HRH from other documents that are not included in or delivered with this document. This information is available for you to review at the public reference room of the United States Securities and Exchange Commission, or the “SEC,” located at 100 F Street, N.E., Room 1580, Washington, DC 20549, and through the SEC’s website, www.sec.gov. You can also obtain those documents incorporated by reference in this document, excluding exhibits to those documents, without charge, by requesting them from the appropriate company in writing or by telephone at the following addresses and telephone numbers:

 

 

If you would like to request documents, please do so by September 22, 2008 in order to receive them before the special meeting.

 

Information contained in or otherwise accessible through the Internet sites of Willis or HRH is expressly not a part of this document.

 

No person is authorized to give any information or to make any representation with respect to the matters that this document describes other than those contained in this document, and, if given or made, the information or representation must not be relied upon as having been authorized by Willis or HRH. This document does not constitute an offer to sell or a solicitation of an offer to buy securities or a solicitation of a proxy in any jurisdiction where, or to any person to whom, it is unlawful to make such an offer or a solicitation. Neither the delivery of this document nor any distribution of securities made under this document shall, under any circumstances, create an implication that there has been no change in the affairs of Willis or HRH since the date of this document or that the information contained herein is correct as of any time subsequent to the date of this document.

 

See “Where You Can Find More Information” beginning on page 83.

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD ON SEPTEMBER 29, 2008

 

To the Shareholders of HRH:

 

The HRH board of directors has called for a special meeting of HRH shareholders to be held on September 29, 2008, at 10:00 a.m., local time, at The Jefferson Hotel, 101 W. Franklin Street, Richmond, Virginia, for the following purposes:

 

1. to consider and vote upon a proposal to approve and adopt the Agreement and Plan of Merger, dated as of June 7, 2008, by and among Willis, Merger Sub and HRH, as the same may be amended from time to time (including the plan of merger), pursuant to which HRH will merge with and into Merger Sub; and

 

2. to consider and vote upon the adjournment or postponement of the special meeting of HRH shareholders, if necessary, to solicit additional proxies.

 

Only holders of record of HRH common stock at the close of business on August 22, 2008, the record date for the special meeting, are entitled to notice of, and to vote at, the HRH special meeting or any adjournments or postponements of the special meeting.

 

We cannot complete the merger unless holders of more than two-thirds of the outstanding shares of HRH common stock entitled to vote, voting together as a single class, vote in favor of the proposal to approve and adopt the merger agreement (including the plan of merger).

 

For more information about the merger proposal described above and the other transactions contemplated by the merger agreement, please review the accompanying proxy statement/prospectus and the merger agreement attached to it as Annex A.

 

The HRH board of directors unanimously recommends that HRH shareholders vote “FOR” the proposal to approve and adopt the merger agreement (including the plan of merger) and “FOR” the proposal to grant persons named as proxies discretionary authority to adjourn or postpone the special meeting of HRH shareholders, if necessary, to solicit additional proxies.

 

Your vote is important. Whether or not you plan to attend the special meeting, please complete, sign and date the enclosed proxy card and return it promptly in the enclosed postage-paid envelope. You may also cast your vote by using the Internet or by telephone as described in the instructions included with your proxy card. Your failure to vote on the proposal to approve the merger agreement (including the plan of merger) will have the same effect as voting against the merger. Your failure to vote on the proposal to grant persons named as proxies discretionary authority to adjourn or postpone the special meeting of HRH shareholders, if necessary, to solicit additional proxies will have no effect on the result of the vote.

 

By Order of the Board of Directors,

 

Walter L. Smith
Senior Vice President, Business Practices & Quality Assurance and Corporate Secretary

August 21, 2008

 

 

 

 

TABLE OF CONTENTS

 

 

SUMMARY

 

Questions and Answers about the Merger and Related Transactions

Q:		Why am I receiving this document?
A:		We are sending you this document to help you decide how to vote your shares of HRH common stock with respect to the proposed merger of HRH with and into Merger Sub and the related matters described in this proxy statement/prospectus.
		The merger cannot be completed unless HRH shareholders approve and adopt the merger agreement. HRH is holding a special meeting of shareholders to vote on the proposals necessary to complete the merger. Information about this meeting, the merger and the other business to be considered by shareholders is contained in this proxy statement.
		This document is also a prospectus being delivered to HRH shareholders because Willis is offering shares of its common stock to be issued in exchange for shares of HRH common stock if the merger is completed.
Q:		What will happen in the proposed transaction?
A:		Under the terms of the merger agreement, HRH will be merged with and into Merger Sub, with Merger Sub continuing as the surviving corporation in the merger and a wholly owned subsidiary of Willis. Immediately following the merger, Merger Sub will change its name to Willis HRH.
		Upon completion of the merger, which we also refer to as the “effective time” of the merger, Willis HRH will be a direct, wholly-owned subsidiary of Willis. HRH shareholders will, at their election, receive cash or shares of Willis common stock in exchange for each share of HRH common stock that they own, subject to certain adjustments and limitations described below. Shareholders of Willis will continue to be shareholders of Willis following the merger.
		For additional information regarding the merger, see “The Merger Agreement — The Merger” beginning on page 44.
Q:		Are Willis shareholders being asked to vote on the proposed transaction?
A:		No vote of Willis shareholders is required to approve the merger.
Q:		What will HRH shareholders receive in the merger?
A:		HRH shareholders will have the right to elect to receive cash or shares of Willis common stock in exchange for each of their shares of HRH common stock. The value of the per share consideration will be based on the average closing sales price per share of Willis common stock for the ten-trading day period ending on the second full trading day prior to the effective time of the merger (such average price is referred to as the “Average Willis Share Price”). If the Average Willis Share Price is greater than or equal to $31.46 and less than or equal to $40.04, then the value of the per share consideration will be equal to $46.00. Outside of this range, the value of the per share consideration will fluctuate, and if the Average Willis Share Price (i) is less than $31.46, then the value of the per share merger consideration will be less than $46.00, or (ii) is greater than $40.04, then the value of the per share merger consideration will be greater than $46.00. In each case, the value of the per share merger consideration (based on the Average

		Willis Share Price) will be the same regardless of whether an HRH shareholder elects to receive the merger consideration in the form of cash or shares of Willis common stock.
		The chart below sets forth as an illustration the value of the per share merger consideration based on a hypothetical range of the Average Willis Share Price. The illustration assumes that (i) the cash and stock elections are equal, in that total cash elections represent 50% of the total merger consideration and that total stock elections represent 50% of the total merger consideration, and (ii) the number of shares of Willis common stock to be issued in the merger does not exceed 19.9% of the total number of shares outstanding immediately prior to the closing of the merger.

				Value of per Share
Average Willis Share Price		Exchange Ratio		Consideration(1)
$48.00		1.0536		$50.57
$46.00		1.0744		$49.42
$44.00		1.0972		$48.27
$42.00		1.1220		$47.13
$40.04		1.1489		$46.00
$38.97		1.1805		$46.00
$37.90		1.2139		$46.00
$36.82		1.2492		$46.00
$35.75		1.2867		$46.00
$34.68		1.3265		$46.00
$33.61		1.3688		$46.00
$32.53		1.4140		$46.00
$31.46		1.4622		$46.00
$30.00		1.4978		$44.93
$28.00		1.5525		$43.47
$26.00		1.6157		$42.01
$24.00		1.6894		$40.55

(1)		The value of the per share merger consideration will be the same regardless of whether an HRH shareholder elects to receive the merger consideration in the form of cash or shares of Willis common stock.

		See “The Merger Agreement — Consideration to be Received in the Merger” beginning on page 44.
Q:		Can a shareholder who makes either a cash election or a stock election nevertheless receive a mix of cash and stock?
A:		Yes. Under the merger agreement, Willis has agreed to pay approximately half of the merger consideration in cash, which amount may be increased in certain circumstances. See “The Merger Agreement — Consideration to be Received in the Merger — Exchange Ratio; Value of Per Share Merger Consideration” beginning on page 45 for a more detailed description of fluctuations in consideration payable in connection with the merger. If HRH shareholders make valid elections to receive more cash than is available as cash consideration under the merger agreement, those HRH shareholders making a cash election will have the cash portion of their consideration proportionately reduced and will receive a portion of their consideration in stock, despite their elections. In lieu of such proration, however, Willis may choose to increase the cash amount to be paid in the merger up to the elected amount of cash consideration plus the value of the shares with respect to which no election has been made, subject to certain limitations.
		Similarly, if HRH shareholders make valid elections to receive less cash than is available as cash consideration under the merger agreement, those HRH shareholders making stock elections may have the stock portion of their consideration proportionately reduced (after taking into account cash consideration being

		paid to all HRH shareholders that have made no election) and may receive a portion of their consideration in cash, despite their elections.
		For a detailed description of the proration adjustment if the cash consideration is oversubscribed or undersubscribed and Willis’s option to increase the cash component, see “The Merger Agreement — Consideration to be Received in the Merger — Proration Adjustment if Cash Consideration is Oversubscribed” beginning on page 46 and “The Merger Agreement — Consideration to be Received in the Merger — Proration Adjustment if Cash Consideration is Undersubscribed” beginning on page 46. Please note that the description of the election procedures described in this document apply to HRH shareholders of record. If you are not a record holder, such as if you hold your shares in “street name” through a broker or bank, you should contact your broker or bank for the applicable election procedures.
Q:		What are the tax consequences of the merger to me?
A:		The obligations of Willis and HRH to complete the merger are conditioned on, among other things, the receipt by each of Willis and HRH of tax opinions from Weil, Gotshal & Manges LLP and Wachtell, Lipton, Rosen & Katz, respectively, that for U.S. federal income tax purposes (i) the merger will be treated as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (referred to as the “Code”), and (ii) each transfer of shares of HRH common stock to Willis by a shareholder of HRH pursuant to the merger will not be subject to Section 367(a)(1) of the Code. Each opinion will be subject to customary qualifications and assumptions, including that the merger will be completed according to the terms of the merger agreement, that each “five-percent transferee shareholder” (as defined in the Treasury regulations) with respect to Willis will enter into and file a gain recognition agreement (as described in the Treasury regulations) with the IRS, and that all applicable reporting requirements have been satisfied. In rendering the opinions, each counsel may require and rely upon representations of Willis, Merger Sub and HRH.
		Assuming that the merger qualifies as a reorganization under Section 368(a) of the Code and that each deemed transfer of HRH common stock to Willis by a shareholder of HRH pursuant to the merger is not subject to Section 367(a)(1) of the Code, you will not recognize any gain or loss for U.S. federal income tax purposes if you exchange your shares of HRH common stock solely for shares of Willis common stock in the merger, except with respect to cash received in lieu of fractional shares of Willis common stock. You will recognize gain or loss if you exchange your shares of HRH common stock solely for cash in the merger. You will recognize gain, but not loss, if you exchange your shares of HRH common stock for a combination of Willis common stock and cash, but your taxable gain in that case will not exceed the cash you receive in the merger.
		Special U.S. federal income tax rules apply to U.S. holders of HRH common stock who will own 5% or more of the total voting power or the total value of Willis stock, either directly or indirectly through attributions rules, immediately after the merger. As a result of such special rules, such U.S. holders should consult their own tax advisors as to the U.S. federal income tax consequences to them as a result of the merger.
		For more information regarding tax matters, see “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 60. Tax matters can be complicated and the tax consequences of the merger to you will depend on your particular tax situation. You should consult your tax advisor to determine the tax consequences of the merger to you.
Q:		Am I entitled to appraisal rights?
A:		No. Under the Virginia Stock Corporation Act, HRH shareholders are not entitled to appraisal rights in connection with the merger.
Q:		When and how must I elect the type of merger consideration that I prefer to receive?
A:		Prior to the effective time of the merger, you will receive a form of election in the mail. The form of election allows you to elect to receive cash or shares of Willis common stock for each share of HRH common stock that you own. You must return your properly completed and signed form of election to the exchange

		agent prior to the anticipated election deadline, which will be 5:00 p.m., New York City time, on the second business day prior to the effective time of the merger. Willis will publicly announce the anticipated election deadline at least five business days prior to the anticipated effective time. If the effective time is delayed to a subsequent date, the election deadline will also be delayed and Willis will promptly announce any such delay and, when determined, the rescheduled election deadline.
Q:		What if I do not send a form of election or it is not received?
		If you do not return your form of election by the election deadline or improperly complete or do not sign your form of election, then you will have no control over the type of merger consideration that you receive. As a result, each of your shares of HRH common stock may be exchanged for cash consideration or stock consideration consistent with the proration procedures contained in the merger agreement. For additional information, see “The Merger Agreement — Consideration to be Received in the Merger” beginning on page 44.
Q:		Can I revoke or change an election after it has been submitted to the exchange agent?
A:		Yes. An election may be revoked by written notice to the exchange agent received prior to the election deadline. An election may also be changed prior to the election deadline by submitting to the exchange agent a properly completed and signed revised form of election.
		For additional information, see “The Merger Agreement — Consideration to be Received in the Merger — Conversion of Shares; Exchange of Certificates” and “— Elections as to Form of Consideration; Form of Election” beginning on pages 47 and 48, respectively.
Q:		When and where is the special meeting?
A:		The special meeting of HRH shareholders will be held at The Jefferson Hotel, 101 W. Franklin Street, Richmond, Virginia, on September 29, 2008 at 10:00 a.m., local time. All HRH shareholders at the close of business on August 22, 2008, the record date for the special meeting of HRH shareholders, are invited to attend the special meeting. If you attend, you will be asked to present valid picture identification, such as a driver’s license or passport, and, if you are not a shareholder of record, evidence from your broker or bank that you are an HRH shareholder and are eligible to attend the meeting, such as a letter or account statement from your broker or bank. Shareholders will not be allowed to use cameras, recording devices or other electronic devices at the meeting. For additional information, see “The Special Meeting of HRH Shareholders” beginning on page 26.
Q:		What constitutes a quorum?
A:		Shareholders who hold a majority of the HRH common stock issued and outstanding as of the close of business on the record date and who are entitled to vote must be present or represented by proxy in order to constitute a quorum to conduct business at the special meeting of HRH shareholders.
Q:		What vote is required to approve the merger?
A:		We cannot complete the merger unless HRH shareholders vote to approve and adopt the merger agreement (including the plan of merger). The merger agreement must be approved and adopted by the holders of more than two-thirds of the outstanding shares of HRH common stock entitled to vote. Each holder of a share of HRH common stock as of the close of business on August 22, 2008, the record date for the special meeting of HRH shareholders, will be entitled to one vote for each share of HRH common stock held of record at the close of business on the record date.

		At the close of business on August 22, 2008, the record date for the special meeting of HRH shareholders, directors and executive officers of HRH had or shared the power to vote in the aggregate approximately 1,675,812 shares of HRH common stock, or approximately 4.56% of the then-outstanding shares of HRH common stock. We have been advised that HRH’s directors and executive officers will vote their shares of HRH common stock for the proposal to approve and adopt the merger agreement.

Q:		How does the HRH board of directors recommend that I vote?
A:		The HRH board of directors unanimously recommends that HRH shareholders vote “FOR” the proposal to approve and adopt the merger agreement (including the plan of merger) and the adjournment or postponement of the special meeting of HRH shareholders, if necessary, to solicit additional proxies. For a description of the reasons underlying the recommendation of the HRH board of directors with respect to the merger, see “The Merger — HRH’s Reasons for the Merger; Recommendation of HRH’s Board of Directors” beginning on page 31.
Q:		When do the parties currently expect to complete the merger?
A:		We currently expect the transaction to close in the fourth quarter of 2008. However, we cannot assure you when or if the merger will occur. We must first obtain the necessary approvals of HRH shareholders at the special meeting, obtain the necessary regulatory approvals and allow for the expiration of applicable waiting periods, among other closing conditions.
Q:		What do I need to do now in order to vote?
A:		After you have carefully read this document in its entirety, please respond as soon as possible so that your shares will be represented and voted at the special meeting:
		•  by completing, signing and dating your proxy card and returning it in the postage-paid envelope; or
		•  by submitting your proxy by Internet or telephone as described elsewhere in this document and the proxy card.
Q:		If I am an HRH shareholder, should I send in my HRH common stock certificates with my proxy card?
A:		No. Please DO NOT send your HRH common stock certificates with your proxy card. You should carefully review and follow the instructions regarding the surrender of your stock certificates set forth in the letter of transmittal that will be mailed to you promptly after completion of the merger.
Q:		How do I vote my shares or make an election regarding the merger consideration if my shares are held in “street name”?
A:		You should contact your broker or bank. Your broker or bank can give you directions on how to vote your shares. Your broker or bank cannot vote your shares unless the broker or bank receives appropriate instructions from you (a so-called “broker non-vote”). Because approval of the merger requires the affirmative vote of holders of more than two-thirds of the outstanding HRH common stock, a failure to provide your broker or bank instructions will have the same effect on the vote to approve the merger proposal as a vote against the merger. You should therefore provide your broker or bank with instructions as to how to vote your shares. In addition, if you are an HRH shareholder, in connection with the election form that will be mailed to you, you should follow your broker’s or bank’s instructions for making an election with respect to your shares of HRH common stock.
		For additional information on voting procedures, see “The Special Meeting of HRH Shareholders” beginning on page 26.
Q:		How will my proxy be voted?
A:		If you vote by completing, signing, dating and returning your signed proxy card, your proxy will be voted in accordance with your instructions. You may also vote by Internet or telephone. If your proxy card is properly executed and received in time to be voted, the shares represented by your proxy card will be voted in accordance with the instructions that you mark on your proxy card. If you sign, date and return your proxy and do not indicate how you want to vote, your shares will be voted “FOR” approval of the applicable proposals.
		For additional information on voting procedures, see “The Special Meeting of HRH Shareholders” beginning on page 26.

Q:		What if I want to change my vote after I have delivered my proxy card?
A:		You may change your vote at any time before your proxy is voted at the special meeting of HRH shareholders. If you are the record holder of your shares you can do this in one of three ways. First, you can send a written notice stating that you would like to revoke your proxy. Second, you can complete and submit a new valid proxy bearing a later date by mail or by Internet or telephone. Third, you can attend the special meeting and vote in person. Attendance at the special meeting of HRH shareholders will not in and of itself constitute revocation of a proxy. If you hold shares of HRH common stock in “street name,” you should contact your broker or bank to give it instructions to change your vote.
		If you are an HRH shareholder and you choose to send a written notice or to mail a new proxy, you must submit your notice of revocation or new proxy to the Corporate Secretary of HRH at HRH’s executive headquarters address, which is The Hilb Rogal & Hobbs Building, 4951 Lake Brook Drive, Suite 500, Glen Allen, Virginia 23060. Such notice or new proxy must be received prior to the special meeting.
Q:		How important is my vote?
A:		Every vote is important. You should be aware that because the required vote of HRH shareholders to approve and adopt the merger agreement is based upon the number of outstanding shares of HRH common stock, rather than upon the number of shares actually voted, the failure by an HRH shareholder to vote by proxy or in person at the special meeting of HRH shareholders, abstentions and “broker non-votes” will have the same effect as a vote against the approval and adoption of the merger agreement.
Q:		Who can I call with questions about the shareholder meeting or the merger?
A:		If you have questions about the merger or the special meeting of HRH shareholders or you need additional copies of this document, or if you have questions about the process for making an election or voting or if you need a replacement proxy card, you should contact:

 

Other Information Regarding the Merger

The Merger Agreement

	•	the approval of the merger agreement by HRH shareholders in accordance with applicable law;

	•	obtaining material approvals that are required from governmental authorities in order to consummate the merger, including the approval of the United Kingdom Financial Services Authority, which we refer to in this document as the “FSA”;

	•	the absence of any statute, rule, regulation, ordinance, decree, order, injunction, judgment, ruling or similar action of any governmental entity having the effect of prohibiting the merger or making it illegal;
	•	the effectiveness of the registration statement on Form S-4 of which this proxy statement/prospectus forms a part under the Securities Act of 1933, as amended, or the “Securities Act” and the absence of any stop order or proceedings initiated or threatened by the United States Securities and Exchange Commission or the “SEC” for such purpose; and
	•	the approval for listing on the NYSE of the shares of Willis common stock to be issued in the merger, subject to official notice of issuance.

	•	the other party’s representations and warranties in the merger agreement being true and correct, without regard to qualifications or limitations as to materiality or material adverse effect, except where the failure of such representations and warranties to be true and correct does not have, and is not reasonably expected to result in, a material adverse effect on the other party (apart from certain identified representations and warranties which must be true and correct in all material respects, and representations and warranties made by HRH with respect to its capitalization, which must be true and correct except to a de minimis extent);
	•	the performance by the other party of its obligations under the merger agreement in all material respects; and
	•	the receipt by such party of a legal opinion from its counsel with respect to certain U.S. federal income tax consequences of the merger.

	•	initiate, solicit or knowingly facilitate or encourage any inquiries or proposals that constitute or would reasonably be expected to lead to a Takeover Proposal;
	•	participate in any discussions or negotiations with any third party regarding any Takeover Proposal; or
	•	enter into any letter of intent, agreement, arrangement or other understanding related to any Takeover Proposal.

	•	furnish information to the person making the Takeover Proposal; and
	•	participate in discussions or negotiations with such person regarding the Takeover Proposal;

	•	the HRH board of directors may effect an Adverse Recommendation Change in response to a Superior Proposal; or
	•	if the HRH board of directors receives a Takeover Proposal that it reasonably determines constitutes a Superior Proposal, then HRH or its subsidiaries may enter into an Alternative Acquisition Agreement while concurrently terminating the merger agreement, subject to payment of the termination fee (as described below);

	•	the merger is not completed by March 7, 2009 (other than because of a breach of the merger agreement by the party seeking termination); provided that if all conditions to closing of the merger, other than obtaining material approvals required from governmental authorities in order to consummate the merger, have been satisfied or waived, such date may be extended from time to time by either party by up to an aggregate of 45 days;
	•	a final and non-appealable statute, rule, regulation, ordinance, decree, order, injunction, judgment or ruling that has the effect of prohibiting the merger or making it illegal has been enacted, promulgated, issued, entered, amended or enforced by a governmental entity;
	•	shareholder approval is not obtained at the special meeting of HRH shareholders; or
	•	the other party is in material breach of the merger agreement, the breach would prevent satisfaction by the other party of the relevant closing conditions and the breach remains uncured after 30 days notice, or is incapable of being cured.

	•	HRH breaches its obligation to duly convene and hold the special meeting of its shareholders;
	•	HRH fails to recommend, through its board of directors, that HRH’s shareholders approve and adopt the merger agreement;
	•	HRH breaches in any material respect its “non-solicitation” obligations (described above); or
	•	HRH’s board of directors:

	•	makes an Adverse Recommendation Change;
	•	fails to reject any Takeover Proposal within the 10 business day period specified in Rule 14e-2 under the Securities Exchange Act of 1934, as amended, or the “Exchange Act” (including by taking no

		position with respect to the acceptance by HRH’s shareholders of a tender offer or exchange offer); or

	•	fails to publicly reconfirm its recommendation that HRH’s shareholders approve the merger agreement within 10 days of the receipt of a written request from Willis following the making of a Takeover Proposal by any person.

	•	each party will remain liable for fraud and any willful and material breach of the merger agreement; and
	•	certain designated provisions of the merger agreement, including those with respect to payment of fees and expenses, termination and termination fees, non-survival of the representations and warranties, confidentiality restrictions, governing law and jurisdiction and certain specified representations and warranties, will survive termination.

	•	Willis terminates the merger agreement in the event that the HRH board of directors makes an Adverse Recommendation Change;
	•	Willis terminates the merger agreement in the event that the HRH board of directors fails to reject any Takeover Proposal within the 10 business day period specified in Rule 14e-2 under the Exchange Act (including by taking no position with respect to the acceptance by HRH’s shareholders of a tender offer or exchange offer);
	•	Willis terminates the merger agreement in the event that the HRH board of directors fails to publicly reconfirm its recommendation that HRH’s shareholders approve the merger agreement within 10 days of the receipt of a written request from Willis following the making of a Takeover Proposal by any person;
	•	HRH terminates the merger agreement concurrently with entering into an Alternative Acquisition Agreement providing for a Superior Proposal in the manner described above; or
	•	a Takeover Proposal is made or any person publicly announces its intention to make a Takeover Proposal; and

	•	either party terminates the merger agreement because (i) the merger has not been consummated by March 7, 2009 (subject to the applicable extensions described above), if prior to the termination date HRH’s shareholders have not approved the merger agreement, or (ii) shareholder approval is not obtained at the special meeting of HRH shareholders; or
	•	Willis terminates the merger agreement because (i) HRH breaches its obligation to duly convene and hold the special meeting of its shareholders or (ii) HRH fails to recommend, through its board of directors, that HRH’s shareholders approve and adopt the merger agreement; and, in each case,

 

Regulatory Approvals Required for the Merger

 

The Companies

 

Summary Historical Financial Data

 

Summary Historical Consolidated Financial Data of Willis

		Six Months Ended,
		June 30,								Year Ended December 31,
		2008				2007				2007				2006				2005				2004				2003
		(Millions, except per share data)
Income Statement Data
Total revenues		$	1,456			$	1,365			$	2,578			$	2,428			$	2,267			$	2,275			$	2,076
Operating income			302				376				620				552				451				630				593
Income before income taxes, interest in earnings of associates and minority interest			265				345				554				514				421				591				540
Net income		$	205			$	247			$	409			$	449			$	281			$	402			$	365
Earnings per share — basic		$	1.44			$	1.68			$	2.82			$	2.86			$	1.75			$	2.56			$	2.40
Earnings per share — diluted		$	1.43			$	1.65			$	2.78			$	2.84			$	1.72			$	2.42			$	2.17
Balance Sheet Data (as of period end)
Total assets(i)		$	16,222			$	15,019			$	12,948			$	13,378			$	12,194			$	11,641			$	10,914
Total long-term debt			1,460				1,200				1,250				800				600				450				370
Total stockholders’ equity		$	1,442			$	1,227			$	1,347			$	1,454			$	1,256			$	1,412			$	1,280
Book value per share		$	10.18			$	8.60			$	9.41			$	9.50			$	8.00			$	8.68			$	8.05
Other Financial Data
Cash dividends declared per common share		$	0.52			$	0.50			$	1.00			$	0.94			$	0.86			$	0.75			$	0.58

(i)		As an intermediary, Willis holds funds in a fiduciary capacity for the accounts 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. Willis reports premiums, which are held on account of, or due from policyholders, as assets with a corresponding liability due to the insurance carriers. Claims held by, or due to, Willis which are due to clients are also shown as both assets and liabilities of Willis. All those balances due or payable are included in accounts receivable and payable on the balance sheet. Investment income is earned on those 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 vary according to legal jurisdiction. These guidelines generally emphasize capital protection and liquidity. Fiduciary cash is not available to service Willis’s debt or for other corporate purposes.

 

Summary Historical Consolidated Financial Data of HRH

		Six Months Ended June 30,								Year Ended December 31,
		2008				2007				2007				2006				2005				2004				2003
		(Millions, except per share data)
Statement of Consolidated Income Data(i)
Total revenues		$	417			$	398			$	800			$	711			$	674			$	620			$	564
Income before income taxes			38				78				131				141				93				138				80
Net Income		$	17			$	47			$	78			$	87			$	56			$	81			$	43
Net Income per Share — Basic		$	0.46			$	1.30			$	2.14			$	2.42			$	1.57			$	2.27			$	1.25
Net Income per Share — Assuming Dilution		$	0.46			$	1.29			$	2.11			$	2.39			$	1.55			$	2.23			$	1.19
Consolidated Balance Sheet Data
Total assets		$	1,761			$	1,696			$	1,817			$	1,438			$	1,285			$	1,233			$	1,004
Long-term debt, less current portion			407				305				412				232				252				265				174
Total shareholders’ equity		$	681			$	665			$	683			$	603			$	514			$	475			$	402
Book value per share		$	18.69			$	18.05			$	18.59			$	16.62			$	14.31			$	13.24			$	11.35
Other Financial Data
Dividends paid per share		$	0.2700			$	0.2500			$	0.5100			$	0.4750			$	0.4500			$	0.4075			$	0.3675

(i)		Effective January 1, 2006, HRH adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment.” In accordance with the provisions of this standard, HRH elected to adopt the standard using the modified-prospective method. See Note A of Notes to Consolidated Financial Statements contained in the HRH Annual Report on Form 10-K for the year ended December 31, 2007 for information.

 

Summary Unaudited Pro Forma Condensed Combined Financial Data

		Year Ended
		December 31,				Six Months Ended
		2007				June 30, 2008
		(Millions, except per share data)
Income Statement Data
Total revenues		$	3,378			$	1,873
Operating income			724				352
Income before income taxes, interest in earnings of associates and minority interest			565				268
Net income		$	416			$	209
Earnings per share — basic		$	2.48			$	1.27
Earnings per share — diluted		$	2.42			$	1.25
Cash dividends declared per common share(i)		$	1.00			$	0.52

		As at June 30,
		2008
		(Millions, except
		per share data)
Balance Sheet Data (as of period end)
Total assets		$	19,079
Total long-term debt			2,761
Total stockholders’ equity		$	2,299
Book value per share		$	13.93

(i)		The Willis combined pro forma cash dividends per share are the same as the Willis historical amount of cash dividends per share. Under Willis’s current dividend policy, the board of directors consider matters such as financial results, capital requirements, general business conditions and any other such matters that it believes to be a relevant factor in determining the amount of any dividend to be declared.

 

Comparative Per Share Data

		Six Months				Year Ended
		Ended June 30,				December 31,
		2008				2007
Willis Historical Per Share Data
Earnings per share — basic		$	1.44			$	2.82
Earnings per share — diluted		$	1.43			$	2.78
Cash dividends declared per common share		$	0.52			$	1.00
Book value per share (as of period end)		$	10.18			$	9.41

		Six Months				Year Ended
		Ended June 30,				December 31,
		2008				2007
HRH Historical Per Share Data
Earnings per share — basic		$	0.46			$	2.14
Earnings per share — assuming dilution		$	0.46			$	2.11
Cash dividends declared per common share		$	0.27			$	0.51
Book value per share (as of period end)		$	18.69			$	18.59

		Six Months				Year Ended
		Ended June 30,				December 31,
		2008				2007
Unaudited Pro Forma Combined Per Share Data
Earnings per share — basic		$	1.27			$	2.48
Earnings per share — diluted		$	1.25			$	2.42
Cash dividends declared per common share(i)		$	0.52			$	1.00
Book value per share (as of period end)		$	13.93				n/a

		Six Months				Year Ended
		Ended June 30,				December 31,
		2008				2007
Unaudited Pro Forma Equivalent Per Share Data for HRH(ii)
Earnings per share — basic		$	1.63			$	3.19
Earnings per share — diluted		$	1.61			$	3.11
Cash dividends declared per common share(i)		$	0.67			$	1.28
Book value per share (as of period end)		$	17.89				n/a

(i)		The pro forma cash dividends per share are the same as the Willis historical amount of cash dividends per share. Under Willis’s current dividend policy, the board of directors considers matters such as financial results, capital requirements, general business conditions and any other such matters that it believes to be a relevant factor in determining whether or not to declare a dividend.

(ii)		The unaudited pro forma equivalent per share data for HRH are calculated by multiplying the preliminary unaudited pro forma combined per share data by the preliminary exchange ratio of 1.2844, based on the average of the closing share price for Willis common stock for the ten trading days ended June 5, 2008.

		Six Months Ended								Year Ended
		June 30, 2008								December 31, 2007
		Earnings per				Earnings per				Earnings per				Earnings per
		Share - Basic				Share - Diluted				Share - Basic				Share - Diluted
Average Willis Share Price $24.00 (below collar)		$	1.22			$	1.20			$	2.39			$	2.33
Average Willis Share Price $28.00 (below collar)		$	1.23			$	1.21			$	2.40			$	2.34
Average Willis Share Price $31.46 (bottom of collar)		$	1.24			$	1.22			$	2.42			$	2.36
Average Willis Share Price $35.81 (used for pro forma)		$	1.27			$	1.25			$	2.48			$	2.42
Average Willis Share Price $40.04 (top of collar)		$	1.28			$	1.27			$	2.51			$	2.46
Average Willis Share Price $44.00 (above collar)		$	1.29			$	1.28			$	2.52			$	2.48
Average Willis Share Price $48.00 (above collar)		$	1.30			$	1.29			$	2.54			$	2.49

 

In addition to the other information contained in or incorporated by reference into this document, including each of Willis’s and HRH’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and the matters addressed under the heading “Forward-Looking Statements” beginning on page 24 of this document, you should carefully consider the following risk factors in their entirety in deciding whether to vote in favor of the proposals described in this document.

 

Because the market price of Willis common stock will fluctuate, HRH shareholders cannot be sure of the value of the merger consideration they will receive.

 

Upon completion of the merger, HRH shareholders will be entitled to receive, at their election and subject to proration and adjustment as described below, consideration in the form of either (i) shares of Willis common stock or (ii) cash, for each share of HRH common stock that they own. The value of the merger consideration to be received by HRH shareholders will be based on the average closing price of Willis common stock on the NYSE for the ten trading days ending on the second full trading day before the closing of the merger. This average price may differ from the closing price on the date that we announced the merger, on the date that this document was mailed, on the date of the special meeting, on the date that is the deadline for making an election, on the effective time of the merger and on the date you receive the merger consideration. If the pre-closing average Willis common stock is less than $31.46 or more than $40.04, any change in the market value of Willis common stock will affect the market value of the consideration that HRH shareholders will receive upon completion of the merger. Please see “The Merger Agreement — Consideration to be Received in the Merger” beginning on page 44.

 

Accordingly, at the time of the special meeting, and at the time of making an election to receive cash or stock, HRH shareholders will not know or be able to calculate the value of the merger consideration they would receive upon completion of the merger. Stock price changes may result from a variety of factors, including general market and economic conditions, changes in our respective businesses, operations and prospects, regulatory considerations, legal proceedings and developments, market assessments of the benefits of the merger, the prospects of post-merger operations and other factors. Many of these factors are beyond our control. Neither company is permitted to terminate the merger agreement solely because of changes in the market prices of either company’s stock. You should obtain current market quotations for shares of HRH common stock and for shares of Willis common stock.

 

The ability of HRH shareholders to elect to receive cash or shares of Willis common stock in exchange for their shares of HRH common stock will be subject to proration in the event of an oversubscription or undersubscription of the cash election or the stock election.

 

Although each HRH shareholder may elect to receive all cash, all Willis common stock or a combination of both, in the merger, the cash and stock elections are subject to proration and adjustment to ensure that, in the aggregate, the merger consideration will consist 50% of cash and 50% of shares of Willis common stock (unless Willis chooses to increase the cash percentage of the aggregate merger consideration). As a result, even if you make an all-cash election or an all-stock election, you may nevertheless receive a mix of cash and stock consideration for your shares of HRH common stock. In addition, if you elect to receive a combination of stock and cash, you may not receive the desired mix. Accordingly, HRH shareholders may not receive exactly the amount and type of consideration that they elected to receive in the merger, which could result in, among other things, tax consequences that differ from those that would have resulted if they had received the form of consideration that they had elected (including the potential recognition of gain for U.S. federal income tax purposes if they receive cash).

 

For a discussion of the election mechanism and possible adjustments to the consideration paid per share of HRH common stock for which either a cash election or a stock election has been made, see “The Merger Agreement — Consideration to be Received in the Merger” beginning on page 44. For a discussion of the material U.S. federal income tax consequences of the merger, see “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 60.

We may fail to realize all of the anticipated benefits of the merger.

 

The success of the merger will depend, in part, on our ability to achieve the anticipated cost synergies and other strategic benefits from combining the businesses of Willis and HRH. We expect Willis to benefit from operational synergies resulting from the consolidation of capabilities and elimination of redundancies as well as greater efficiencies from increased scale. However, to realize these anticipated benefits, we must successfully combine the businesses of Willis and HRH. If we are not able to achieve these objectives, the anticipated cost synergies and other strategic benefits of the merger may not be realized fully or at all or may take longer to realize than expected. We may fail to realize some or all of the anticipated benefits of the transaction in the amounts and times projected for a number of reasons, including that the integration may take longer than anticipated, be more costly than anticipated or have unanticipated adverse results relating to Willis’s or HRH’s existing businesses.

 

The integration of the businesses and operations of Willis and HRH involves risks, and the failure to integrate successfully the businesses and operations in the expected time frame may adversely affect Willis’s future results.

 

Historically, Willis and HRH have operated as independent companies, and they will continue to do so until the completion of the merger. The management of Willis may face significant challenges in consolidating the functions of Willis and HRH and their subsidiaries, integrating their technologies, organizations, procedures, policies and operations, addressing differences in the business cultures of the two companies, retaining key personnel and maintaining relationships with certain third parties. In connection with the merger, Willis expects to integrate certain operations of Willis and HRH, and the integration of the two companies will be complex and time consuming, and require substantial resources and effort. The integration process and other disruptions resulting from the merger may disrupt each company’s ongoing businesses or cause inconsistencies in standards, controls, procedures and policies that adversely affect our relationships with clients and customers of Willis and HRH and with other market participants, employees, regulators and others with whom we have business or other dealings. If Willis fails to manage the integration of these businesses effectively, its growth strategy and future profitability could be negatively affected, and it may fail to achieve the intended benefits of the merger, potentially resulting in, among other things, a charge to earnings as a result of a possible goodwill impairment.

 

Willis and HRH will incur transaction, integration and restructuring costs in connection with the merger.

 

Willis and HRH expect to incur significant costs associated with transaction fees, professional services and other costs related to the merger. Willis also will incur integration and restructuring costs following the completion of the merger as Willis integrates the business of HRH with that of Willis. Although Willis and HRH expect that the realization of efficiencies related to the integration of the businesses will offset incremental transaction, merger-related and restructuring costs over time, this net benefit may not be achieved in the near term, or at all.

 

HRH will be subject to business uncertainties and contractual restrictions while the merger is pending.

 

Uncertainty about the effect of the merger on employees, producers, customers and other third-parties may have an adverse effect on HRH and consequently, on Willis. These uncertainties may impair HRH’s ability to retain and motivate key personnel until the merger is completed and could cause customers and others that deal with HRH to defer purchases or other decisions concerning HRH or seek to change existing business relationships with HRH. If key employees depart because of uncertainty about their future roles and the potential complexities of integration, the combined company’s business following the merger could be harmed.

 

In addition, the merger agreement restricts HRH from making certain acquisitions and taking other specified actions without the consent of Willis until the merger occurs. These restrictions may prevent HRH from pursuing attractive business opportunities that may arise prior to the completion of the merger. Please see

the section entitled “The Merger Agreement — Conduct of Business Pending the Merger” beginning on page 51 of this proxy statement/prospectus for a description of the restrictive covenants applicable to HRH.

 

The fairness opinion obtained by HRH from its financial advisors will not reflect changes in circumstances between signing the merger agreement and the completion of the merger.

 

HRH has not obtained an updated opinion as of the date of this document from Sandler O’Neill, HRH’s financial advisor. Changes in the operations and prospects of HRH, Willis, general market and economic conditions and other factors, which may be beyond the control of HRH, and on which the fairness opinion was based, may alter the value of Willis or HRH or the prices of shares of Willis or HRH common stock by the time the merger is completed. The opinion is based on the information in existence on the date delivered and will not be updated as of the time the merger will be completed. Because HRH does not anticipate asking its financial advisors to update its opinion, the opinion given at the time the merger agreement was signed does not address the fairness of the merger consideration, from a financial point of view, at the time of the special meeting or at the time the merger is completed. For a description of the opinion that HRH received from its financial advisor, please refer to “The Merger — Opinion of Sandler O’Neill, Financial Advisor to HRH” beginning on page 32.

 

The merger agreement limits HRH’s ability to pursue alternatives to the merger.

 

Under the terms of the merger agreement, HRH will be required to pay to Willis a termination fee of $74 million if the merger agreement is terminated under certain circumstances. In addition, the merger agreement limits the ability of HRH to initiate, solicit, encourage, facilitate, discuss, negotiate or enter into any agreement with respect to certain acquisition or merger proposals from a third party. These provisions might discourage a potential competing acquiror that might have an interest in acquiring all or a significant part of HRH from considering or proposing an acquisition even if it were prepared to pay consideration with a higher per share market price than that proposed in the merger, or might result in a potential competing acquiror proposing to pay a lower per share price to acquire HRH than it might otherwise have proposed to pay. See “The Merger Agreement — Termination of the Merger Agreement — Termination Fee” and “The Merger Agreement — Non-Solicitation of Alternative Transactions” on pages 58 and 53, respectively.

 

HRH’s executive officers and directors may have financial interests in the merger that are different from, or in addition to, the interests of HRH shareholders.

 

Executive officers and directors of HRH negotiated the terms of the merger agreement, and HRH’s board of directors approved and recommended that HRH’s shareholders vote to approve and adopt the merger agreement. These executive officers and directors may have interests in the merger that are different from, or in addition to, those of HRH shareholders generally. These interests include, but are not limited to, the continued employment of certain executive officers of HRH by Willis, the treatment of equity awards held by directors and executive officers of HRH in the merger (including the accelerated vesting of equity awards), the vesting and accelerated payment of certain retirement benefits and the indemnification of former HRH directors and executive officers by Willis. In addition, pursuant to existing employment agreements, certain executive officers of HRH could receive substantial payments in connection with the merger, and HRH could also be obligated to make gross-up payments to certain of those executives for the amount of certain taxes resulting from some of these payments. In considering these facts and the other information contained in this document, you should be aware of these interests. Please see “The Merger — Interests of HRH Executive Officers and Directors in the Merger” beginning on page 40.

 

Any delay in completion of the merger may significantly reduce the benefits expected to be obtained from the merger.

 

In addition to the required regulatory clearances and approvals, the merger is subject to a number of other conditions beyond our control that may prevent, delay or otherwise negatively affect its completion. See “Regulatory Approvals” beginning on page 59 and “The Merger Agreement — Conditions to Complete the Merger” beginning on page 56. We cannot predict whether and when these other conditions will be satisfied.

Further, the requirements for obtaining the required clearances and approvals could delay the completion of the merger for a significant period of time or prevent it from occurring. Any delay in completing the merger may reduce the cost and revenue synergies and other benefits that we expect to achieve if we successfully complete the merger within the expected timeframe and integrate our respective businesses.

 

The unaudited pro forma financial information included in this document may not be indicative of what Willis’s actual financial position or results of operations would have been.

 

The unaudited pro forma financial information in this document is presented for illustrative purposes only and is not necessarily indicative of what Willis’s actual financial position or results of operations would have been had the merger been completed on the dates indicated. The unaudited pro forma financial information reflects adjustments, which are based upon preliminary estimates, to allocate the purchase price to HRH’s net assets. The purchase price allocation reflected in this document is preliminary, and final allocation of the purchase price will be based upon the actual purchase price and the fair value of the assets and liabilities of HRH as of the date of the completion of the merger. In addition, subsequent to the merger completion date, there may be further refinements of the purchase price allocation as additional information becomes available. Accordingly, the final purchase accounting adjustments may differ materially from the pro forma adjustments reflected in this document. See “Unaudited Pro Forma Condensed Combined Financial Information of Willis” on page 68 for more information.

 

Willis’s incurrence of additional debt to pay a portion of the merger consideration will significantly increase Willis’s interest expense, financial leverage and debt service requirements.

 

In connection with the merger, Willis expects to incur incremental borrowings of up to $2.25 billion (initially consisting of a $700 million term loan facility, a $300 million revolving credit facility and a $1.25 billion 364-day interim term loan facility). See “Description of Debt Financing” on page 65. Incurrence of this new debt will significantly increase the combined company’s leverage. Although management believes that the combined company’s cash flows will be more than adequate to service this debt, there may be circumstances in which required payments of principal and/or interest on this new debt could adversely affect the combined company’s cash flows and this level of indebtedness may:

 

 

The terms of the proposed financing also include conditions to borrowing and affirmative and negative covenants, which include limitations on Willis’s ability to incur additional debt or sell assets and limitations on the amount and type of investments that may be made and the amount of dividends that may be declared. In addition, any borrowings may be made at variable interest rates, making Willis vulnerable to increases in interest rates generally.

 

In addition, to the extent that the credit ratings of Willis are below pre-merger levels, borrowing costs may increase (including with respect to Willis’s credit facilities and outstanding notes). A failure to comply with the terms of the proposed financing could result in a default under the financing obligations or could require Willis to obtain waivers from its lenders for failure to comply with these restrictions. The occurrence of a default that remains uncured or the inability to secure a necessary consent or waiver could cause Willis’s obligations with respect to its debt to be accelerated and have a material adverse effect on Willis’s business,

financial condition or results of operations. More information about these financing arrangements can be found in the “Description of Debt Financing” on page 65.

 

HRH’s shareholders will not control Willis’s future operations.

 

HRH’s shareholders collectively own 100% of HRH and, in the aggregate, have the absolute power to approve or reject any matters requiring the adoption or approval of shareholders under Virginia law and HRH’s amended and restated articles of incorporation and by-laws. After the merger, HRH’s shareholders in the aggregate will hold less than 20% of the outstanding shares of Willis common stock. Accordingly, even if all of the former HRH shareholders voted in concert on all matters presented to Willis’s shareholders from time to time, the former HRH shareholders may not have a significant impact on the election of directors or whether future Willis proposals are approved or rejected.

 

The shares of Willis common stock to be received by HRH shareholders as a result of the merger will have different rights from the shares of HRH common stock.

 

Following completion of the merger, HRH shareholders will no longer be shareholders of HRH, a Virginia corporation, but will instead be shareholders of Willis, a Bermuda company. There will be important differences between your current rights as an HRH shareholder and the rights to which you will be entitled as a shareholder of Willis. See “Comparative Rights of Willis and HRH Shareholders” beginning on page 77 for a discussion of the different rights associated with shares of Willis common stock.

 

Willis common stock may be affected by factors different from those affecting the price of HRH common stock.

 

Upon completion of the merger, holders of shares of HRH common stock will become holders of shares of Willis common stock. While Willis and HRH operate in the same industry, certain factors may affect Willis’s business, results of operations and the price of its common stock that might not similarly affect HRH’s business, results of operations and the price of its common stock. For a discussion of Willis’s and HRH’s businesses and certain factors to consider in connection with such businesses, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in each of Willis’s and HRH’s Annual Reports on Form 10-K for the year ended December 31, 2007 and other documents incorporated by reference herein.

 

This document contains or incorporates by reference a number of forward-looking statements regarding the financial condition, results of operations, earnings outlook and business prospects of Willis and HRH and may include statements for the period following the completion of the merger. You can find many of these statements by looking for words such as “expects,” “projects,” “anticipates,” “believes,” “intends,” “estimates,” “strategy,” “plan,” “potential,” “possible” and other similar expressions.

 

The forward-looking statements involve certain risks and uncertainties. The ability of either Willis or HRH to predict results or the actual effects of its plans and strategies, or those of the combined company after the merger, is inherently uncertain. Accordingly, actual results, events and outcomes may differ materially from those expressed in, or implied by, the forward-looking statements. Some of the factors that may cause actual results or earnings to differ materially from those contemplated by the forward-looking statements include, but are not limited to, those discussed under “Risk Factors” and those discussed in the filings of each of Willis and HRH that are incorporated herein by reference, as well as the following:

 

 

 

Because these forward-looking statements are subject to assumptions and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. You are cautioned not to place undue reliance on these statements, which speak only as of the date of this document or the date of any document incorporated by reference in this document.

 

All subsequent written and oral forward-looking statements concerning the merger or other matters addressed in this document and attributable to Willis or HRH or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable law or regulation, Willis and HRH undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events.

 

This document is being furnished to HRH shareholders in connection with the solicitation of proxies by the HRH board of directors to be used at the special meeting of HRH shareholders to be held on September 29, 2008, at 10:00 a.m., local time, at The Jefferson Hotel, 101 W. Franklin Street, Richmond, Virginia, and at any adjournment or postponement of that meeting. This document and the enclosed proxy card are being sent to HRH shareholders on or about August 27, 2008.

 

At the special meeting of HRH shareholders, HRH shareholders will be asked to consider and vote on a proposal to:

 

 

The HRH board of directors has fixed the close of business on August 22, 2008 as the record date for determining the HRH shareholders entitled to receive notice of and to vote at the special meeting of HRH shareholders. Only HRH shareholders of record at the close of business on that date will be entitled to vote at the special meeting of HRH shareholders and at any adjournment or postponement of that meeting. At the close of business on the record date, there were 36,730,918 shares of HRH common stock outstanding, held by approximately 438 holders of record.

 

Each holder of shares of HRH common stock outstanding on the record date will be entitled to one vote for each share held of record upon each matter properly submitted at the special meeting of HRH shareholders and at any adjournment or postponement of that meeting. In order for HRH to satisfy its quorum requirements, the holders of at least a majority of the total number of outstanding shares of HRH common stock entitled to vote at the special meeting of HRH shareholders must be present. You will be deemed to be present if you attend the meeting or if you submit a proxy card that is received at or prior to the special meeting of HRH shareholders (and not revoked as described below).

 

If your proxy card is properly executed and received by HRH in time to be voted at the special meeting of HRH shareholders, the shares represented by your proxy card will be voted in accordance with the instructions that you mark on your proxy card. If you execute your proxy but do not provide HRH with any instructions, your shares will be voted “FOR” the approval of the merger agreement and “FOR” the grant to persons named as proxies of discretionary authority to adjourn or postpone the special meeting of HRH shareholders, if necessary to solicit additional proxies.

 

The approval of the merger agreement requires the affirmative vote of holders of more than two-thirds of the outstanding shares of HRH common stock. Approval of any proposal to adjourn or postpone the meeting, if necessary, for the purpose of soliciting additional proxies may be obtained by the affirmative vote of the holders of a majority of the votes cast at the special meeting of HRH shareholders. Shares of HRH common stock as to which the “abstain” box is selected on a proxy card will be counted as present for purposes of determining whether a quorum is present. The required vote of HRH shareholders on the merger agreement is based upon the number of outstanding shares of HRH common stock, and not the number of shares that are actually voted. Accordingly, the failure to submit a proxy card or to vote by Internet, telephone or in person at the special meeting of HRH shareholders or the abstention from voting by HRH shareholders, or the failure of any HRH shareholder who holds shares in “street name” through a bank or broker to give voting instructions to such bank or broker, will have the same effect as a vote

“AGAINST” the approval and adoption of the merger agreement. The required vote of HRH shareholders to approve the grant to persons named as proxies of discretionary authority to adjourn or postpone the special meeting of HRH shareholders, if necessary, to solicit additional proxies is based on the number of shares that are actually voted, not on the number of outstanding shares of HRH common stock. Accordingly, the failure to submit a proxy card or to vote by Internet, telephone or in person at the special meeting of HRH shareholders or the abstention from voting by HRH shareholders, or the failure of any HRH shareholder who holds shares in “street name” through a bank or broker to give voting instructions to such bank or broker, will have no effect on the proposal to approve the grant to persons named as proxies of discretionary authority to adjourn or postpone the special meeting of HRH shareholders, if necessary, to solicit additional proxies.

 

As of the record date, HRH directors and executive officers and their affiliates had or shared the power to vote in the aggregate approximately 1,675,812 shares of HRH common stock, representing approximately 4.56% of the outstanding shares of HRH common stock.

 

We have been advised that HRH directors and executive officers will vote their shares of HRH common stock “FOR” the approval and adoption of the merger agreement and the grant to persons named as proxies of discretionary authority to adjourn or postpone the special meeting of HRH shareholders, if necessary, to solicit additional proxies.

 

As discussed elsewhere in this document, the HRH board of directors unanimously approved and adopted the merger agreement, the plan of merger and the transactions contemplated by the merger agreement. The HRH board of directors declared that the merger agreement, the plan of merger and the transactions contemplated by the merger agreement are advisable, fair to and in the best interests of HRH and its shareholders. The HRH board of directors unanimously recommends that the HRH shareholders vote “FOR” the approval and adoption of the merger agreement and the plan of merger and the grant to persons named as proxies of discretionary authority to adjourn or postpone the special meeting of HRH shareholders, if necessary, to solicit additional proxies.

 

The HRH board of directors did not make any recommendation as to whether or to what extent any HRH shareholder should elect cash or stock consideration, or both, in the merger.

 

HRH shareholders should carefully read this document in its entirety for more detailed information concerning the merger agreement and the merger. In particular, HRH shareholders are directed to the merger agreement, including the plan of merger, which is attached as Annex A to this document.

 

The presence of an HRH shareholder at the special meeting of HRH shareholders will not automatically revoke that HRH shareholder’s proxy. However, an HRH shareholder may revoke a proxy at any time prior to its exercise by:

 

 

If your shares of HRH common stock are held by a broker or bank, you must follow the instructions on the form you receive from your broker or bank with respect to changing or revoking your proxy.

 

All HRH shareholders at the close of business on August 22, 2008, the record date for the special meeting, are invited to attend the special meeting. If you attend, you will be asked to present valid picture identification, such as a driver’s license or passport, and, if you are not a shareholder of record, evidence from your broker or bank that you are a shareholder and are eligible to attend the meeting, such as a letter or account statement from your broker or bank. Shareholders will not be allowed to use cameras, recording devices and other electronic devices at the meeting.

 

You can vote by mail by completing, signing, dating and mailing your proxy card in the postage-paid envelope included with this document. If you elect to vote by mail, you should vote early to ensure that your proxy card is received before the special meeting.

 

In addition to voting by submitting your proxy card by mail, HRH shareholders of record and many shareholders who hold their shares of HRH common stock through a broker or bank will have the option to submit their proxy electronically through the Internet or by telephone. Please note that there are separate arrangements for using the Internet and telephone depending on whether your shares are registered in HRH’s stock records in your name or in the name of a broker, bank or other holder of record. If you hold your shares through a broker, bank or other holder of record, you should check your proxy and voting instructions forwarded by your broker, bank or other holder of record to see which options are available.

 

HRH shareholders of record may submit their proxies:

 

 

 

If you vote your proxy over the Internet or by telephone, you must do so before 11:59 p.m., New York time, on September 21, 2008. If you hold your shares through a bank, broker, custodian or other recordholder, you may be subject to additional timing requirements. Please refer to the information provided by your bank, broker, custodian or other recordholder.

 

In addition to solicitation by mail, directors, officers and employees of HRH may solicit proxies for the special meeting of HRH shareholders from HRH shareholders personally or by telephone and other electronic means. However, they will not be paid for soliciting such proxies. HRH also will provide persons, firms, banks and corporations holding shares in their names or in the names of nominees, which in either case are beneficially owned by others, proxy material for transmittal to such beneficial owners and will reimburse such record owners for their expenses in taking such actions. HRH has also made arrangements with Georgeson Inc. to assist in soliciting proxies and has agreed to pay them approximately $10,000, plus reasonable expenses, for these services.

 

Willis and HRH will share equally the expenses incurred in connection with the printing and mailing of this document.

 

The terms and conditions of the merger are contained in the merger agreement, which is attached as Annex A to this document. Please carefully read the merger agreement in its entirety, as it is the legal document that governs the merger.

 

The management of HRH has from time to time explored and assessed various strategic options potentially available to HRH, including through periodic contacts with various institutions regarding potential business combination transactions, and has reviewed and discussed these options with the HRH board of directors. These strategic discussions have focused on, among other things, the business environment facing insurance brokerage firms generally and HRH in particular, as well as conditions and ongoing consolidation in the insurance brokerage industry and the broader financial services market.

 

Willis’s management and board of directors also regularly review the insurance brokerage industry environment, including the ongoing consolidation in the industry, and periodically discuss ways in which to enhance Willis’s competitive position and business strategy.

 

In mid-February 2008, Mr. Joseph J. Plumeri, Chief Executive Officer of Willis, met informally with Mr. Vaughan, Chief Executive Officer of HRH, to discuss the insurance brokerage industry generally and their respective companies. Among other things, the two discussed industry trends and the strategic challenges and opportunities facing the industry and their companies. Mr. Plumeri indicated at this meeting that he believed that a strategic combination of the two institutions could be worth future discussions.

 

In mid-March 2008, Mr. Plumeri and Mr. Patrick Regan, Willis’s Chief Financial Officer, attended a meeting with certain representatives of HRH, including Mr. Vaughan, to further discuss the possibility of a strategic combination of the two institutions. In late March 2008, Willis provided HRH with an informal expression of interest in a potential combination transaction. Thereafter, the board of directors of HRH met to review and consider this expression of interest from Willis. At that meeting, the HRH board determined that it would be advisable to consider whether discussions with Willis regarding a potential transaction would be in the best interests of HRH and its shareholders. Accordingly, in early April 2008, the HRH board determined to form a special committee to lead the board’s exploration of whether a potential transaction might be advisable, and HRH indicated to Willis that it would respond to Willis’s expression of interest following the review and evaluation of the committee and the full board. The special committee was comprised of HRH board members Robert W. Fiondella, Anthony F. Markel and Theodore L. Chandler, Jr., all of whom are independent directors within the meaning of the NYSE listing standards.

 

During the month of April and the first half of May 2008, the special committee of the HRH board retained financial and legal advisors and met on several occasions with HRH management and the advisors to study the potential merits of a transaction generally and a transaction with Willis in particular, as well as other strategic alternatives. Among the alternatives considered was the possibility of remaining as an independent entity, and the special committee, management and HRH’s advisors all worked to consider the potential strategies for and merits of continuing as an independent entity, as well as the risks attendant to such a strategy. During this period, the special committee or its chairperson periodically updated the full HRH board of directors regarding the committee’s review, and the board authorized the special committee to engage in further informal discussions with Willis regarding a potential transaction when and if the special committee determined that such further discussions were advisable, and requested that the special committee report back regarding the results of those discussions and the analyses of the committee, HRH management and the HRH advisors.

 

In mid-May 2008, the HRH special committee determined that, based on the review and discussions to date of the committee, the full board, HRH management and the HRH advisors, it would be advisable to engage in further discussions with Willis. Also, in mid-May 2008, Mr. Chandler indicated to Mr. Plumeri that HRH wished to further consider Willis’s expression of interest and encouraged Mr. Plumeri to contact Sandler O’Neill, which Mr. Plumeri did shortly thereafter. In late May 2008, the HRH special committee determined

that, based on its review and discussions to date, it would be advisable to permit Willis to engage in a due diligence review of HRH with a view towards determining whether a transaction could be accomplished on advisable terms. Accordingly, HRH and Willis entered into a customary confidentiality agreement and Willis began its due diligence investigation of HRH and undertook meetings with the HRH management team to determine the potential benefits and risks associated with a combination.

 

Although subject to its due diligence investigations and board approval, Willis indicated that, as of the end of the month of May, it believed that it would be able to agree to a per share valuation at the high end of a range of $42 to $46 per share of HRH common stock. On May 30, 2008, the HRH board of directors met to receive an update from the special committee, management and its advisors regarding the status of the discussions with Willis, the status of Willis’s due diligence and the status of HRH’s continuing consideration of potential strategic alternatives. Following this meeting, the HRH board reiterated its continued interest in a potential transaction with Willis if such a transaction could be accomplished at the top of the range indicated by Willis and instructed the special committee and management to continue to work towards a potential transaction. In late May and continuing into the first days of June 2008, the parties discussed the potential financial terms of the merger, including the potential transaction pricing, the form of merger consideration and the transaction pricing protection mechanics, and legal counsel to Willis and HRH began to work with their clients to prepare a draft merger agreement and related deal documentation. On June 4, the HRH board met again to receive an update on the potential terms and merger consideration. Thereafter, the parties and their advisors worked to finalize the terms of the merger agreement and related transaction documentation and to finalize their due diligence investigation, including HRH’s due diligence investigation of Willis.

 

On June 5, the board of directors of Willis held a special meeting, at which members of Willis’s senior management and Willis’s legal and financial advisors also were present, to discuss the proposed merger, including the proposed terms of the merger agreement. On June 6, the Willis board of directors met again, by telephone, with members of Willis’s senior management and Willis’s legal and financial advisors. At the meeting, the board of directors of Willis voted unanimously to approve the merger agreement and the transactions contemplated by the merger agreement.

 

Also on June 6, the board of directors of HRH met again. The special committee and management reviewed for the HRH board of directors the background of the discussions with Willis and the progress of the negotiations, and reported on HRH’s due diligence investigation of Willis. HRH’s financial advisor, Sandler O’Neill, reviewed with the HRH board of directors the proposed financial terms of the transaction with Willis. Sandler O’Neill also reviewed with the HRH board of directors additional information, including financial information regarding Willis, HRH and the transaction, as well as information regarding peer companies and comparable transactions. In connection with the deliberation by the HRH board of directors, Sandler O’Neill rendered to the HRH board of directors its oral opinion (subsequently confirmed in writing), as described under “— Opinion of Sandler O’Neill, Financial Advisor to HRH” beginning on page 32, that, as of the date of its opinion, and subject to and based on the qualifications and assumptions set forth in its opinions, the merger consideration was fair, from a financial point of view, to the HRH shareholders. Representatives of Wachtell, Lipton, Rosen & Katz, legal advisors to HRH, discussed with the HRH board of directors the legal standards applicable to its decisions and actions with respect to its evaluation of merger proposals, and reviewed the proposed merger agreement and the related information.

 

Following these discussions, and review and discussion among the members of the HRH board of directors, including consideration of the factors described beginning on page 31 under “— HRH’s Reasons for the Merger; Recommendation of HRH’s Board of Directors,” the HRH board of directors determined that the merger, the merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of HRH and its shareholders, and the directors voted unanimously to approve the merger with Willis and to approve and adopt the merger agreement.

 

The definitive transaction documentation was finalized and executed on June 7, 2008, and on June 8, the transaction was announced in a press release issued jointly by Willis and HRH.

 

In reaching its decision to adopt and approve the merger agreement and recommend the merger to its shareholders, the HRH board of directors consulted with the special committee of the board, HRH management, as well as its legal and financial advisors, and considered a number of factors, including:

 

 

 

 

 

The HRH board of directors unanimously recommends that HRH shareholders vote “FOR” the proposal to approve and adopt the merger agreement (including the plan of merger).

 

Pursuant to a letter agreement dated April 10, 2008, HRH engaged Sandler O’Neill to act as its financial advisor in connection with HRH’s consideration of a possible business combination transaction. Sandler O’Neill is a nationally recognized investment banking firm whose principal business specialty is financial institutions. In the ordinary course of its investment banking business, Sandler O’Neill is regularly engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions. The HRH board of directors retained Sandler O’Neill because Sandler O’Neill is a nationally recognized investment banking firm whose principal business specialty is financial institutions and has substantial experience in transactions similar to the proposed merger.

 

Sandler O’Neill acted as financial advisor to HRH in connection with the proposed merger and participated in certain of the negotiations leading to the merger agreement. At the June 6, 2008 meeting at which HRH’s board considered and approved the merger agreement, Sandler O’Neill delivered to the board its oral opinion, subsequently confirmed in writing that, as of such date, the merger consideration was fair to HRH’s shareholders from a financial point of view. The full text of Sandler O’Neill’s opinion is attached to this document as Annex B. The opinion outlines the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Sandler O’Neill in rendering its opinion. The description of the opinion set forth below is qualified in its entirety by reference to the opinion. Sandler O’Neill urges HRH shareholders to read the entire opinion carefully in connection with their consideration of the proposed merger.

 

Sandler O’Neill’s opinion speaks only as of the date of the opinion. The opinion was directed to the HRH board and is directed only to the fairness of the merger consideration to HRH from a financial point of view. It does not address the underlying business decision of HRH to engage in the merger or any other aspect of the merger and is not a recommendation to any HRH shareholder as to how such shareholder should vote at the special meeting with respect to the merger or any other matter.

 

In connection with rendering its June 6, 2008 opinion, Sandler O’Neill reviewed and considered, among other things:

 

 

 

Sandler O’Neill also discussed with certain members of the senior management of HRH the business, financial condition, results of operations and prospects of HRH and held similar discussions with certain members of the senior management of Willis regarding the business, financial condition, results of operations and prospects of Willis.

 

In performing its review, Sandler O’Neill relied upon the accuracy and completeness of all of the financial and other information that was available to it from public sources, that was provided to Sandler O’Neill by HRH or Willis or their respective representatives or that was otherwise reviewed by Sandler O’Neill and Sandler O’Neill has assumed such accuracy and completeness for purposes of rendering this opinion. Sandler O’Neill has confirmed with the senior management of each of HRH and Willis that they are not aware of any facts or circumstances that would make any such information inaccurate or misleading. Sandler O’Neill has not been asked to undertake, and has not undertaken, an independent verification of any of such information and Sandler O’Neill does not assume any responsibility or liability for the accuracy or completeness thereof. Sandler O’Neill did not make an independent evaluation or appraisal of the specific assets, the collateral securing assets or the liabilities (contingent or otherwise) of HRH or Willis or any of their subsidiaries, or the collectability of any such assets, nor has Sandler O’Neill been furnished with any such evaluations or appraisals.

 

With respect to the internal financial projections for HRH provided by senior management of HRH (the “Management Case”) and the publicly available earnings estimates for Willis used by Sandler O’Neill in its analyses, the senior managements of HRH and Willis confirmed to Sandler O’Neill that those projections and estimates reflected the best currently available estimates and judgments of the future financial performances of HRH and Willis, respectively. With respect to the estimates of transaction costs, certain purchase accounting adjustments, cost savings, other synergies and the terms of the expected debt financings to be engaged in by Willis in connection with the merger used by Sandler O’Neill in its analyses, the senior management of Willis confirmed to Sandler O’Neill that those estimates reflected their best currently available estimates. Sandler O’Neill expresses no opinion as to such financial projections or estimates or the assumptions on which they are based. Sandler O’Neill has also assumed that there has been no change in the assets, financial condition, results of operations, business or prospects of HRH or Willis since the date of the most recent financial statements made available to Sandler O’Neill that would be material to its analysis. Sandler O’Neill has assumed in all respects material to its analysis that HRH and Willis will remain as going concerns for all periods relevant to its analyses, that each party to the merger agreement will perform all of the material covenants required to be performed by such party under the merger agreement, that the conditions precedent in the merger agreement are not waived and that the merger will qualify as a reorganization for federal income tax purposes. Sandler O’Neill expresses no opinion as to any of the legal, accounting and tax matters relating to the merger and the other transactions contemplated by the merger agreement.

 

Sandler O’Neill’s opinion is necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to it as of, the date hereof. Events occurring after the date hereof could materially affect this opinion. Sandler O’Neill has not undertaken to update, revise, reaffirm or withdraw this opinion or otherwise comment upon events occurring after the date hereof. Sandler O’Neill is expressing

no opinion herein as to what the value of Willis’s common stock will be when issued to HRH’s shareholders pursuant to the Agreement or the prices at which HRH’s or Willis’s common stock may trade at any time.

 

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth below, without considering the analyses as a whole, could create an incomplete view of the process underlying the opinions of Sandler O’Neill. In arriving at their fairness determinations, Sandler O’Neill considered the results of all the analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Sandler O’Neill made their determinations as to fairness on the basis of their experience and professional judgment after considering the results of all the analyses. No company or transaction used in the above analyses as a comparison is directly comparable to HRH, Willis or the contemplated merger.

 

Sandler O’Neill prepared these analyses for the purposes of providing their opinion to the HRH board of directors as to the fairness from a financial point of view to the holders of HRH common stock of the consideration to be received for each share of HRH common stock pursuant to the merger agreement. These analyses do not purport to be appraisals or necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of HRH, Willis, Sandler O’Neill or any other person assumes responsibility if future results are materially different from those forecast.

 

As described above, the opinion of Sandler O’Neill to the HRH board of directors was one of many factors taken into consideration by the HRH board of directors in making its determination to approve the merger agreement. Sandler O’Neill did not, however, recommend any specific amount of consideration to HRH or its board of directors or that any specific amount of consideration constituted the only appropriate consideration for the merger. The foregoing summary does not purport to be a complete description of the analysis performed by Sandler O’Neill in connection with the opinion and is qualified in its entirety by reference to the written opinion of Sandler O’Neill attached as Annex B to this proxy statement/prospectus, respectively.

 

Financial Analyses of Sandler O’Neill.  The following is a summary of the material financial analyses prepared by Sandler O’Neill in connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Sandler O’Neill, nor does the order of analyses described represent relative importance or weight given to those analyses by Sandler O’Neill. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of the financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before June 6, 2008, and is not necessarily indicative of current market conditions.

 

Transaction Multiples Analysis.  Based upon the fixed value of $46.00 per share, Sandler O’Neill calculated the following multiples resulting from the implied value of the merger consideration:

 

 

 

 

The results of these analyses are summarized as follows:

 

 

 

 

 

Historical Stock Price Performance Analysis — HRH.  Sandler O’Neill reviewed the stock price performance of the HRH common stock, Willis common stock, the Standard & Poor’s 500 Index and the Standard & Poor’s Property & Casualty Index beginning June 6, 2005. The results of these analyses are summarized as follows:

 

 

Sandler O’Neill also reviewed the 1-year, 3-year and 5-year compound annual growth rates of the HRH common stock, the Standard & Poor’s 500 Index, the Standard & Poor’s Property & Casualty Index and the common stock of the following insurance brokers:

 

 

The results of these analyses are summarized as follows:

 

 

Selected Companies Analysis — HRH.  Sandler O’Neill reviewed and compared certain financial information for HRH to corresponding financial information, ratios and public market multiples for the selected insurance brokers described under the “Historical Stock Price Performance Analysis — HRH” above.

 

The multiples and ratios of the selected insurance brokers were based on market data as of June 6, 2008, and financial data as of or for the twelve month period ended March 31, 2008. The multiples and ratios of HRH and the selected insurance brokers were calculated using both mean publicly available consensus analyst estimates and publicly available financial data. With respect to the selected insurance brokers and HRH, Sandler O’Neill calculated:

 

 

 

 

 

 

Selected Transactions Analysis — HRH.  Sandler O’Neill reviewed 14 merger transactions announced from January 1, 2002 through June 6, 2008 involving insurance brokers with an enterprise value greater than $100 million.

 

 

 

 

In each of the comparable transactions, Sandler O’Neill reviewed the following multiples: (i) enterprise value to last twelve months’ revenue and (ii) enterprise value to EBITDA, and computed the high, mean, median and low multiples for these transactions.

 

 

 

 

These multiples were applied to HRH’s financial information as of and for the twelve months ended March 31, 2008. As illustrated in the following table, Sandler O’Neill imputed ranges of values per share for HRH’s common stock of $21.72 to $115.98 based upon the low, mean, median and high multiples for the last twelve month’s revenue and EBITDA.

 

 

 

 

Premiums Paid Analysis.  Sandler O’Neill reviewed premiums to stock price paid in public acquisition transactions for (i) all financial services acquisition transactions excluding insurance industry transactions between January 1, 2002 and June 6, 2008 with transaction values between $1 billion and $5 billion and (ii) all insurance transactions between January 1, 2002 and June 6, 2008, and applied such premiums to the closing stock price for HRH’s common stock on June 6, 2008.

 

The following table presents the results of this analysis:

 

 

Discounted Cash Flow Analysis — HRH.  Sandler O’Neill performed an illustrative discounted cash flow analysis to determine a range of implied present values per share of HRH common stock based on the 2008 to 2011 Management Case projections. Sandler O’Neill used discount rates ranging from 11% to 15%, terminal 2011 EBITDA multiples ranging from 8.0x to 11.0x and assumed results were discounted back to January 1, 2008. This analysis resulted in a range of implied present value per share of HRH common stock of $31.21 to $49.24.

 

Selected Companies Analysis — Willis.  Sandler O’Neill reviewed and compared certain financial information for Willis to corresponding financial information, ratios and public market multiples for the following selected insurance brokers:

 

 

 

The multiples and ratios of the selected insurance brokers were based on market data as of June 6, 2008, and financial data as of or for the period ended March 31, 2008. The multiples and ratios of Willis and the selected insurance brokers were calculated using both mean publicly available consensus analyst estimates and publicly available financial data. With respect to the selected insurance brokers and Willis, Sandler O’Neill calculated:

 

 

The results of these analyses are summarized as follows:

 

 

 

 

Dividend Discount Analysis — Willis.  Sandler O’Neill performed a dividend discount analysis to determine a range of values per share of Willis common stock. Sandler O’Neill used discount rates ranging from 11% to 15%, forecasts of Willis’s earnings per share based on mean publicly available consensus analyst estimates for 2008, 2009 and 2010, grown by the mean consensus long-term growth rate of 10.3% thereafter, reviewed by Willis management, dividends per share of $1.04 in 2008 grown at 6.6% thereafter, terminal forward EPS multiples ranging from 12.0x to 15.0x and discounted values back to January 1, 2008. This analysis resulted in a range of implied present value of $36.79 to $51.85 per share of Willis common stock.

 

Using the same set of projections, Sandler O’Neill performed a sensitivity analysis to analyze the percentage achievement of the mean publicly available consensus analyst estimates using 95% to 110% of EPS estimate achievement and dividend growth of between 2% and 10% assuming a constant terminal

multiple of 14.0x and discount rate of 13%. This analysis resulted in a range of implied present value of $39.18 to $59.43 per share of Willis common stock.

 

Pro Forma Analysis.  Sandler O’Neill prepared an illustrative pro forma analysis of the potential financial impact of the merger on Willis using the merger related assumptions provided by Willis, HRH’s Management Case and the mean publicly available consensus analyst estimates for Willis. This analysis indicated that the merger would be dilutive to Willis in 2009 and accretive in 2010 on a GAAP operating EPS basis and accretive in 2009 and 2010 on a cash EPS basis.

 

Sandler O’Neill is entitled to receive a fee of $9.7 million, of which $100,000 became payable upon execution of the letter agreement and the balance of which is contingent upon completion of the merger. Over the past two years, Sandler O’Neill received an aggregate of approximately $100,000 in fees for services performed for HRH.

 

Willis’s board of directors, in reaching its decision to approve the merger agreement and the transactions contemplated thereby, considered the following, among other factors:

 

 

In the view of the number and variety of factors considered in its evaluation of the merger, Willis’s board of directors did not consider it practicable to, and did not attempt to, quantify or otherwise assign relative weights of the specific factors it considered in reaching its determination.

 

In considering the recommendation of the HRH board of directors that you vote to approve and adopt the merger agreement, you should be aware that some of HRH’s executive officers and directors have financial interests in the merger that are different from, or in addition to, those of HRH’s shareholders generally. The independent members of HRH’s board of directors were aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending to the shareholders that the merger agreement be approved and adopted.

 

References in this section to HRH’s executive officers refer to the following individuals: Robert P. Abramson, Frank H. Beard, Joseph Birriel, William L. Chaufty, William F. Creedon, F. Michael Crowley, Steven C. Deal, Michael Dinkins, Peter Gruenberg, John Hamerski, Steven P. Hearn, Stanley Jablonowski,

A. Brent King, Timothy J. Korman, Karl E. Manke, John P. McGrath, Robert S. O’Brien, Walter L. Smith, J. Thomas Stiles, and Martin L. Vaughan, III.

 

References in this section to HRH’s “named executive officers” refer to those of HRH’s executive officers for whom information was disclosed in the compensation table of HRH’s proxy statement for its 2008 annual meeting: Messrs. Vaughan, Dinkins, Crowley, Korman, and McGrath.

 

Each of Messrs. Vaughan and Crowley have been in discussions with Willis regarding the terms of new employment agreements relating to their continued employment with Willis through 2009 and 2010, respectively. Any such agreements would not become effective until the merger is completed, and as of today, they continue to be discussed and negotiated between the parties.

 

Change of Control Agreements

 

Agreements between HRH and its named executive officers and several other of its executive officers provide for change of control severance benefits in the event of certain qualifying terminations of employment in connection with or following a change of control. Completion of the merger will constitute a change of control for purposes of the change of control agreements.

 

These agreements provide generally that the applicable executive’s terms and conditions of employment (including position, location, compensation, and benefits) will not be adversely changed during the employment term of the agreements, which is the three-year period following a change of control, and provide for certain minimum guaranteed compensation levels (including base salary, annual bonus, long-term incentives, and participation in benefit plans) during that employment term.

 

Under the agreements, if HRH terminates the executive’s employment without cause or the executive terminates employment for “good reason” (as defined in the change of control agreements and summarized below) during the employment term, then the executive will be eligible to receive: (i) two or three times the sum of base salary and annual bonus (determined based on the highest bonus paid during the three-year period ending prior to the year of the change of control), (ii) a prorated annual bonus for the year of termination, (iii) continued coverage under welfare plans for three years, (iv) outplacement benefits, (v) a payment reflecting the value of an additional three years of HRH retirement plan contributions, and (vi) three years of additional service credit for retiree medical benefits. Under these agreements, ”good reason” is defined generally to include certain adverse changes in duties, responsibilities, position, authority, or status, decreases in base salary or annual bonus, adverse changes in other incentive or other employee benefit plans, certain relocations, or any failure by HRH to have a successor corporation assume the terms of the change of control agreements.

 

Under the agreements, if the executive voluntarily terminates employment without good reason during the 30-day period following the first anniversary of completion of the merger, the executive will receive a more limited severance benefit, consisting of (i) .5 or 1 times the sum of base salary and annual bonus (determined based on the highest bonus paid during the three-year period ending prior to the year of the change of control), (ii) a prorated annual bonus for the year of termination, (iii) continued coverage under welfare plans for three years, and (iv) three years of additional service credit for retiree medical benefits.

 

The following executive officers are party to change of control agreements with three-year payment multiples in the event of a severance-qualifying termination and one-year payment multiples in the event of voluntary termination without good reason during the 30-day period following the first anniversary of completion of the merger: Messrs. Vaughan, Crowley, Dinkins, Korman, Birriel, King and Smith. The following executive officers are party to change of control agreements with two-year payment multiples in the event of a severance-qualifying termination and half-year payment multiples in the event of voluntary termination without good reason during the 30-day period following the first anniversary of completion of the merger: Messrs. Beard, Chaufty, Creedon, Deal, Gruenberg, Jablonowski, Manke, McGrath, O’Brien and Stiles.

 

Each change of control agreement also provides for an additional payment in the event that the executive becomes subject to the excise tax under Section 4999 of the Code, such that the executive will be placed in the same after-tax position as if no such excise tax had been imposed. However, if the executive’s change of

control payments do not exceed by more than 10% the maximum amount payable without triggering the excise tax, the payments are instead reduced so as to avoid the assessment of the tax.

 

The estimated aggregate cash severance benefit under these agreements for each of Messrs. Vaughan, Crowley, Dinkins, Korman and McGrath, and for all 17 executive officers party to change of control employment agreements as a group, assuming all executive officers incurred a qualifying termination of employment following completion of the merger, would be $3,845,560, $2,971,492, $1,686,732, $2,094,404, $1,291,799, and $25,803,095, respectively (assuming an October 1, 2008, closing date). These estimated payments do not include additional payments due in the event an excise tax is imposed.

 

Equity Compensation Awards

 

HRH’s executive officers and non-employee directors participate in HRH’s equity incentive plans under which stock options and restricted stock have been granted. Upon a change of control, all outstanding stock options not already vested will vest and become exercisable, and the restrictions on all HRH restricted stock will lapse.

 

The number of unvested stock options outstanding as of August 20, 2008 (at exercise prices ranging from $28.99 to $42.70) that would vest upon completion of the merger (assuming an October 1, 2008, closing date) held by each of Messrs. Vaughan, Crowley, Dinkins, Korman and McGrath, and by all executive officers and directors as a group, is 81,250, 44,000, 23,188, 31,000, 24,875 and 484,122, respectively. The number of shares of restricted stock outstanding as of August 20, 2008 that would vest upon completion of the merger (assuming an October 1, 2008, closing date) held by each of Messrs. Vaughan, Crowley, Dinkins, Korman and McGrath, and all executive officers as a group, is 35,000, 24,750, 10,750, 15,625, 13,000 and 207,875, respectively.

 

The treatment of outstanding HRH stock options and restricted stock in the merger is discussed in greater detail under “The Merger Agreement — Consideration to be Received in the Merger — Stock Options and Other Equity Rights” beginning on page 47.

 

Deferred Compensation Arrangements

 

Under HRH’s supplemental executive retirement plan, all participants fully vest in their benefits upon a change of control (typically, participants vest gradually over a 15-year period beginning with commencement of service), and under HRH’s supplemental cash incentive plan, all participants fully vest in their benefits upon a change of control (typically, participants vest gradually over a 4-year period beginning with the date of contribution of the applicable amount). The unvested portion of the supplemental executive retirement plan and the supplemental cash incentive plan account balances as of July 31, 2008 for each of Messrs. Vaughan, Crowley, Dinkins, Korman and McGrath, and for all executive officers as a group, that would vest upon completion of the merger (assuming an October 1, 2008, closing date), is $387,029, $249,451, $142,071, $157,411, $122,809, and $2,141,273, respectively. All deferred compensation accounts of HRH’s non-employee directors are fully vested.

 

In addition, HRH is required upon a change of control to fund in a grantor trust the potential benefits payable under the HRH deferred compensation plans (Supplemental Cash Incentive Plan, Executive Voluntary Deferral Plan, and Outside Director Deferral Plan) for employees and for non-employee directors within seven days of the change of control.

 

The treatment of outstanding HRH deferred stock units under the deferred compensation plans in the merger is discussed in greater detail under “The Merger Agreement — Consideration to be Received in the Merger — Stock Options and Other Equity Rights” beginning on page 47.

 

2008 HRH Bonuses

 

All of HRH’s executive officers participate in HRH’s 2008 annual bonus program and therefore are subject to the merger agreement provision relating to the treatment of that program generally. See “The Merger Agreement — Employee Matters” beginning on page 55.

Indemnification and Insurance

 

The merger agreement provides that all rights to exculpation, advancement of expenses and indemnification with respect to acts or omissions occurring prior to the effective time of the merger, existing in favor of current or former directors or officers of HRH and its subsidiaries by virtue of the organizational documents or any indemnification agreements of HRH and its subsidiaries will continue in full force and effect following the effective time of the merger.

 

Following the effective time of the merger, Willis and the surviving corporation in the merger are required to indemnify the directors and officers of HRH and its subsidiaries to the fullest extent permitted by law. Willis is also required to maintain, for a period of 6 years after completion of the merger, HRH’s current directors’ and officers’ liability insurance policies, or policies with coverage and terms that are no less favorable, with respect to acts or omissions occurring prior to the effective time of the merger, subject to specified cost limitations. Alternatively, HRH may obtain a 6-year prepaid “tail” policy prior to the effective time of the merger, which is also subject to specified cost limitations.

 

Listing of Willis Common Stock

 

It is a condition to the merger that the shares of Willis common stock issuable in connection with the merger, subject to official notice of issuance, be authorized for listing on the NYSE.

 

Delisting of HRH Common Stock

 

If the merger is completed, HRH common stock will be delisted from the NYSE and deregistered under the Exchange Act.

 

Under the Virginia Stock Corporation Act, HRH shareholders are not entitled to appraisal rights in connection with the merger.

 

The shares of Willis common stock to be issued in connection with the merger will be registered under the Securities Act and will be freely transferable under the Securities Act, except for shares of Willis common stock issued to any person who is deemed to be an “affiliate” of Willis for purposes of Rule 144 under the Securities Act. Persons who may be deemed to be affiliates include individuals or entities that control, are controlled by or are under common control with Willis and may include the executive officers, directors and significant shareholders of Willis. Former HRH shareholders who were affiliates of HRH at the time of the HRH special meeting and who do not become affiliates of Willis after the completion of the merger, may sell their shares of Willis common stock received in the merger at any time without regard to the volume and manner of sale limitations of Rule 144 under the Securities Act. Former HRH shareholders who become affiliates of Willis after completion of the merger will be subject to the volume and manner of sale limitations of Rule 144 under the Securities Act, until each such shareholder is no longer an affiliate of Willis.

 

This proxy statement/prospectus does not cover resales of shares of Willis common stock received by any affiliate of Willis upon completion of the merger, and no such affiliate is authorized to make any use of this proxy statement/prospectus in connection with any resale.

 

 

The following is a summary of the material provisions of the merger agreement. This summary is qualified in its entirety by reference to the merger agreement, a copy of which is attached as Annex A to this proxy statement/prospectus and is incorporated into this proxy statement/prospectus by reference. You should read the merger agreement carefully in its entirety, as it is the legal document governing the transaction.

 

The merger agreement and this summary of its terms have been included with this proxy statement/prospectus to provide you with information regarding the terms of the merger agreement and are not intended to modify or supplement any factual disclosures about Willis or HRH in our public reports filed with the SEC. In particular, the merger agreement and related summary are not intended to be, and should not be relied upon as, disclosures regarding any facts and circumstances relating to Willis or HRH. The representations and warranties contained in the merger agreement have been negotiated with the principal purpose of establishing the circumstances in which a party may have the right not to close the merger if the representations and warranties of the other party prove to be untrue due to a change in circumstance or otherwise, and allocate risk between the parties, rather than establishing matters as facts. The representations and warranties may also be subject to a contractual standard of materiality different from those generally applicable to shareholders.

 

Pursuant to the merger agreement, HRH will merge with and into Merger Sub, with Merger Sub surviving the merger as a wholly-owned subsidiary of Willis. Each share of Willis common stock issued and outstanding at the effective time of the merger will remain issued and outstanding as one share of Willis common stock, and each share of HRH common stock issued and outstanding at the effective time of the merger will be converted into either cash or shares of Willis common stock, as described below under “— Consideration to be Received in the Merger.”

 

We currently expect that the merger will be completed in the fourth quarter of 2008, subject to HRH shareholders approving and adopting the merger agreement (including the plan of merger), the expiration of all waiting periods applicable to the merger under antitrust merger control laws, and the receipt of other material regulatory approvals that are required to consummate the merger, including from the FSA, among other conditions to closing. The merger will become effective upon the issuance of a certificate of merger by the Virginia State Corporation Commission, or at such later time as may be specified in the articles of merger to be filed with the Virginia State Corporation Commission. Completion of the merger could be delayed if there is a delay in obtaining the material regulatory approvals that are required to consummate the merger or in satisfying any of the other conditions to the merger.

 

As a result of the merger, each HRH shareholder will have the right, with respect to each share of HRH common stock held, to elect to receive merger consideration consisting of either cash or shares of common stock of Willis, subject to adjustments and certain other limitations described below. The value of the merger consideration will fluctuate if the Average Willis Share Price is less than $31.46 or more than $40.04. However, whether an HRH shareholder makes a cash election or a stock election, the value of the consideration (based on the Average Willis Share Price) that such shareholder will be entitled to receive is expected to be the same.

 

HRH shareholders of record may specify different elections with respect to different shares held by them. For example, if an HRH shareholder has 100 shares, the shareholder could make a cash election with respect to 50 shares and a stock election with respect to the other 50 shares. If you are an HRH shareholder, a form of election will be mailed to you. Procedures for making your election and returning the form of election are described more fully below under “— Conversion of Shares; Exchange of Certificates” and “— Elections as to Form of Consideration; Form of Election” beginning on pages 47 and 48, respectively. If you are not a

shareholder of record, such as if you hold your shares in “street name” through a broker or bank, you should contact your broker or bank for the applicable election procedures.

 

Cash Election

 

The merger agreement provides that each HRH shareholder who makes a valid cash election will have the right to receive, in exchange for each share of HRH common stock for which a valid cash election is made (referred to as a “Cash Election Share”), an amount in cash equal to the Per Share Cash Consideration, subject to the adjustments described below. The “Per Share Cash Consideration” is an amount in cash equal to the “Exchange Ratio” (determined in the manner described below) multiplied by the Average Willis Share Price.

 

Stock Election

 

The merger agreement provides that each HRH shareholder will have the right to receive, in exchange for each share of HRH common stock for which a valid stock election is made (referred to as a “Stock Election Share”), a number of shares of Willis common stock equal to the Exchange Ratio, subject to the adjustments described below. We sometimes refer to the number of shares of Willis common stock to be received with respect to each Stock Election Share (absent the adjustments described below) as the “Per Share Stock Consideration.”

 

No Election

 

Shareholders who do not make an election to receive cash or shares of Willis common stock in the merger will have the right to receive, in exchange for each share of HRH common stock with respect to which no election is made (referred to as a “No Election Share”), the Per Share Cash Consideration and/or the Per Share Stock Consideration, subject to the adjustments described below. If you are an HRH shareholder and your elections are not received by the exchange agent by the election deadline, or if your forms of election are improperly completed and/or are not signed, you will be deemed not to have made an election.

 

Exchange Ratio; Value of Per Share Merger Consideration

 

The value of the per share consideration to be received by each HRH shareholder upon consummation of the merger is based on the Exchange Ratio. The Exchange Ratio is calculated on the basis of the Average Willis Share Price, as follows:

 

 

The preceding calculations reflect a portion of the value of the per share merger consideration being fixed at $23.00 (the “fixed value”), regardless of the Average Willis Share Price. The value of the remaining portion of the per share merger consideration (the “variable value”) will depend on the Average Willis Share Price. If the Average Willis Share Price is greater than or equal to $31.46 and less than or equal to $40.04 (such range being the “collar”), then the variable value will be equal to $23.00. Outside of the collar the variable value will fluctuate and, if the Average Willis Share Price (i) is less than $31.46, then the variable value will be less than $23.00 or (ii) is greater than $40.04, then the variable value will be greater than $23.00. As a result, the total value of the per share merger consideration (i.e., the fixed value plus the variable value) will (i) be $46.00 if the Average Willis Share Price falls within the collar, (ii) be greater than $46.00 if the Average Willis Share Price is greater than $40.04 and (iii) be less than $46.00 if the Average Willis Share Price is less

than $31.46. In each case, the value of the per share merger consideration will be the same regardless of whether an HRH shareholder elects to receive the merger consideration in the form of cash or shares of Willis common stock.

 

Proration Adjustment if Cash Consideration is Oversubscribed

 

At a minimum, the cash component of the total consideration (referred to as the “Available Cash Consideration”) to be paid by Willis in the merger is an amount equal to the product of (x) $23.00 multiplied by (y) the number of shares of HRH common stock outstanding at the effective time of the merger. As described below, the Available Cash Consideration may be increased, in certain circumstances, at the option of Willis or because of limitations on the number of shares of Willis common stock that may be issued in the merger (See “— Possible Increase in Cash Component of Merger Consideration” below.

 

If the aggregate amount of cash payable with respect to all Cash Election Shares absent any adjustment (such aggregate amount of cash referred to as the “Elected Cash Consideration”) is greater than the Available Cash Consideration:

 

 

Proration Adjustment if Cash Consideration is Undersubscribed

 

If the Elected Cash Consideration is less than the Available Cash Consideration (such difference referred to as the “Cash Shortfall”), then each Cash Election Share will be converted into the right to receive the Per Share Cash Consideration, and:

 

If the No Election Amount (as described below) is less than the Cash Shortfall, then:

 

 

If the No Election Amount (as described below) is greater than or equal to the Cash Shortfall, then:

 

 

The “No Election Amount” is equal to the product of (i) the Per Share Cash Consideration multiplied by (ii) the number of No Election Shares.

 

Possible Increase in Cash Component of Merger Consideration

 

Willis has the option to increase the amount of the Available Cash Consideration up to an amount equal to the sum of the Elected Cash Consideration and the No Election Amount. In addition, the total cash consideration will be increased (and the value of the total stock consideration decreased by an equivalent

amount) in the event that the number of shares of Willis common stock issuable in the merger would exceed 19.9% of the number of shares of Willis common stock outstanding immediately prior to the effective time of the merger (the NYSE threshold for requiring Willis shareholder approval). In either case, such increase in the aggregate amount of cash consideration payable in the merger is subject to certain limitations relating to the tax treatment of the merger.

 

Stock Options and Other Equity Rights

 

Each outstanding option to acquire HRH common stock granted under HRH’s stock option or other equity-based compensation plans will, if unvested, vest in full and become exercisable and, if not exercised, will be converted at the effective time of the merger into an option to purchase Willis common stock, on the same terms and conditions as were applicable with respect to such HRH stock option, except that:

 

 

Each outstanding share of restricted stock granted under HRH’s equity-based compensation plans will, immediately prior to the effective time of the merger, vest in full and the restrictions thereon will lapse (with any performance goals to be deemed achieved at the maximum level) and, as of the effective time of the merger, will be exchanged for the Merger Consideration, less applicable tax withholdings.

 

Each outstanding equity right under HRH’s employee benefits plans (excluding HRH’s 401(k) plan) of any kind, contingent or accrued, to acquire or receive HRH common stock or benefits measured by the value of HRH common stock (other than HRH stock options and shares of HRH restricted stock, described above) (the “HRH Deferred Units”) will, at the election of the holder of such right, be converted into an obligation to pay or provide, at the time specified in the applicable HRH plan, agreement or arrangement, either:

 

 

Such obligation shall be payable or distributable in accordance with the terms of the agreement, plan, or arrangement relating to such HRH Deferred Units. Any holder who does not submit an election will be deemed to have elected to convert the applicable HRH Deferred Units into Adjusted Deferred Units.

 

The vesting of certain stock options and equity rights held by certain executive officers of HRH will be accelerated in connection with the merger, as more fully described in “The Merger — Interests of HRH Executive Officers and Directors in the Merger” beginning on page 40.

 

Conversion of Shares; Exchange of Certificates

 

The conversion of HRH common stock into the right to receive the merger consideration will occur automatically at the effective time of the merger. After the effective time of the merger, the exchange agent will exchange certificates representing shares of HRH common stock for the merger consideration to be received in the merger pursuant to the terms of the merger agreement. The Bank of New York Mellon Corporation will be the exchange agent in the merger and will receive your form of election, exchange your HRH stock certificates for the merger consideration and perform other duties as specified in the merger agreement.

Elections as to Form of Consideration; Form of Election

 

If you are an HRH shareholder, a form of election will be mailed to you. The form of election allows you to make a cash or stock election in respect of each share of HRH common stock that you hold. HRH shareholders may specify different elections with respect to different shares held by them. HRH shareholders should return their properly completed and signed form of election to the exchange agent prior to the election deadline. If you are an HRH shareholder and you do not return your form of election by the election deadline, you will be paid, in exchange for each No Election Share that you hold, the Per Share Cash Consideration and/or the Per Share Stock Consideration, as described above.

 

Unless otherwise designated on the election form or agreed by Willis and HRH and publicly announced, the election deadline will be 5:00 p.m., New York time, on the second business day prior to the effective time of the merger. Willis will publicly announce the anticipated election deadline at least 5 business days prior to the anticipated effective time of the merger.

 

If you wish to elect the type of merger consideration you will receive in the merger, you should carefully review and follow the instructions set forth in the form of election. If it is determined that any purported cash election or stock election was not properly made, the purported election will be deemed to be of no force or effect and the holder making the purported election will be deemed not to have made an election for these purposes, unless a proper election is subsequently made on a timely basis. Shareholders holding No Election Shares will be paid, in exchange for each such share, the Per Share Cash Consideration and/or the Per Share Stock Consideration, as described above. HRH shareholders who hold their shares of HRH common stock in “street name” or through a bank, broker or other nominee will be subject to the procedures established by, and should follow the instructions of, their bank, broker or other nominee for making an election with respect to such shares of HRH common stock.

 

To make a valid election, each HRH shareholder must submit a properly completed form of election so that it is actually received by the exchange agent at or prior to the election deadline in accordance with the instructions on the form of election. Generally, an election may be revoked, but only by written notice received by the exchange agent prior to the election deadline. In addition, an election may be changed, but only upon receipt by the exchange agent prior to the election deadline of a properly completed and signed revised form of election. HRH shareholders will not be entitled to make, revoke or change any election following the election deadline.

 

Letter of Transmittal

 

Promptly after the completion of the merger, the exchange agent will send a letter of transmittal to those persons who were HRH shareholders of record at the effective time of the merger. This mailing will contain instructions on how to surrender certificates representing shares of HRH common stock in exchange for the consideration that the holder of such shares is entitled to receive under the merger agreement. A letter of transmittal will be properly completed only if accompanied by certificates representing all shares of HRH common stock covered by the letter of transmittal (or appropriate evidence as to the loss, theft or destruction, appropriate evidence as to the ownership of that certificate by the claimant, and appropriate and customary indemnification, as will be described in the letter of transmittal).

 

Withholding

 

The exchange agent will be entitled to deduct and withhold from the cash consideration the amounts it is required to deduct and withhold under any U.S. federal, state, local or foreign tax law. These amounts will be treated as having been paid to the shareholders from whom they were withheld.

 

Dividends and Distributions

 

Until HRH common stock certificates are surrendered for exchange, any dividends or other distributions declared after the effective time with respect to shares of Willis common stock into which shares of HRH common stock have been converted, will accrue but will not be paid. Willis will pay such unpaid dividends or

other distributions, without interest, to former HRH shareholders only after such shareholders have duly surrendered their HRH common stock certificates.

 

Prior to the effective time of the merger, HRH and its subsidiaries may not, without Willis’s consent, declare or pay any dividend or distribution on its capital stock, other than dividends paid by any wholly owned subsidiary of HRH to its parent and regular quarterly cash dividends of HRH not exceeding $0.14 per share. Prior to the effective time of the merger, Willis also may not declare or pay any dividend with respect to its shares of common stock apart from regular quarterly cash dividends consistent with past practice. Willis and HRH are required to coordinate with each other with regard to the declaration of dividends and the record and payment dates for dividends, so that holders of HRH common stock do not receive two dividends, or fail to receive one dividend, for any quarter with respect to their shares of HRH common stock and any shares of Willis common stock that they receive in exchange for their shares in connection with the merger.

 

The merger agreement contains customary representations and warranties of HRH, Willis and Merger Sub relating to their respective businesses. The representations and warranties of each of HRH, Willis and Merger Sub have been made solely for the benefit of the other party or parties and such representations and warranties should not be relied on by any other person. In addition, such representations and warranties:

 

 

Each of Willis, HRH and Merger Sub has made representations and warranties regarding, among other things:

 

 

 

In addition, HRH has made other representations and warranties about itself to Willis and Merger Sub regarding:

 

 

In addition, each of Willis and Merger Sub has made other representations and warranties to HRH regarding, among other things:

 

 

As soon as practicable after the date of the merger agreement, HRH is required to establish a record date for and hold a special meeting of its shareholders for the purpose of obtaining approval of the merger agreement in accordance with applicable law. Subject to the provisions of the merger agreement described

below under “— Non-Solicitation of Alternative Transactions” beginning on page 53, HRH is also required to recommend, through its board of directors, that its shareholders adopt the merger agreement.

 

Each of HRH and Willis has agreed to certain covenants that place restrictions on them and their respective subsidiaries until the effective time of the merger. In general, each party has agreed to (i) conduct its businesses in the ordinary course consistent with past practice and (ii) use commercially reasonable efforts to maintain and preserve its business organization and its goodwill and relationships with third parties (and with respect to Willis, its employees). In addition, HRH is obligated to use commercially reasonable efforts to retain the services of its present officers, key employees and Producers.

 

In addition, HRH has agreed that, subject to certain exceptions, it will not, and will not permit any of its subsidiaries to, among other things, undertake the following actions without the consent of Willis: