Distribution Agreement

Distribution Agreement

(1)

THE WYATT COMPANY HOLDINGS LIMITED a company incorporated under the laws of England and Wales with registered number 908628 and having its registered office at 100 New Bridge Street, London EC4V 6JA (" WCHL ");

(2)

THE WYATT COMPANY (UK) LIMITED a company incorporated under the laws of England and Wales with registered number 01166919 and having its registered office at 100 New Bridge Street, London EC4V 6JA (" WC(UK)L ");

(3)

WATSON WYATT LLP a limited liability partnership incorporated under the laws of England and Wales with registered number OC301975 and having its registered office and its principal place of business at Watson House, London Road, Reigate, Surrey RH2 9PQ (" WWLLP ");

(4)

WYATT TRUSTEE LIMITED a company incorporated under the laws of England and Wales with registered number 1231236 and having its registered office at 100 New Bridge Street, London EC4V 6JA in its capacity as Trustee of the Wyatt Trust pursuant to the Trust Deed and as the Wyatt Member (" WTL ");

(5)

WATSON WYATT LIMITED a company incorporated under the laws of England and Wales with registered number 5379716 and having its registered office at 100 New Bridge Street, London EC4V 6JA (" WWL ");

RECITALS:

(A)

WTL is a member of WWLLP and holds its membership interest on bare trust for the benefit of WCHL and WC(UK)L.

(B)

WC(UK)L will distribute its interest in WTL's membership interest in WWLLP to WCHL prior to the Declaration Date.

(C)

WTL, at the direction of WCHL and WC(UK)L, has agreed to surrender its principal rights as a member in WWLLP on the terms of this Deed.

IT IS AGREED as follows:

1.

INTERPRETATION

1.1

Defined terms

In this deed, the following words and expressions shall have the following meanings:

" BTA " means the business transfer agreement to be entered into, on the date hereof, between Watson Wyatt (UK) Acquisitions 2 Limited, Watson Wyatt & Company Holdings, WCHL and WWLLP for the sale and purchase of the business and assets of WWLLP;

" Conditions " the conditions specified in clause 3;

" Declaration Date " means the date falling two Business Days prior to the date on which Completion is anticipated to take place in accordance with clause 7.1 of the BTA;

" Declaration of Trust " means the declaration of trust in respect of the Assets in the form set out in the schedule;

" Deed of Accession " means the deed of accession dated 2 April, 1995, as amended by a deed of ratification and amendment dated 29 September 1995, a deed of amendment dated 24 February 1999 and a deed of variation dated 30 April 2002 originally made between the then current partners of WWP, WCHL, WC(UK)L, WTL and the Protector (as defined therein) and subsequently novated pursuant to the Deed of Novation;

" Deed of Novation " means the deed of variation and novation dated 30 April 2002 made between WCHL, WC(UK)L, the partners of WWP, WWLLP, Watson Wyatt & Company, WTL, Watson Wyatt Holdings Limited, Watson Wyatt Holdings (Europe) Limited and the Protector;

" Parties " means the parties to this deed, namely WCHL, WWLLP, WTL and WWL and " Party " shall mean any one of them;

" Trust Deed " means the Deed of Settlement, as amended, dated 30 March 1995 between (1) WC(UK)L and (2) WCHL on the one part and (3) Robert David Masding on the other part;

" WWP " means Watson Wyatt Partners, an English general partnership formerly known as R Watson & Sons;

" Wyatt Trust " means the trust established by the Trust Deed.

1.2

Recitals, schedules, etc

References to this deed include the recitals and the schedule which form part of this deed for all purposes. References in this deed to the parties, the recitals, the schedule and clauses are references respectively to the parties and their legal personal representatives and successors, the recitals to, the schedule to and clauses of this deed.

1.3

Meaning of references.

Save where specifically required or indicated otherwise:

(a)

words importing one gender shall be treated as importing any gender, words importing individuals shall be treated as importing corporations and vice versa and words importing the singular shall be treated as importing the plural and vice versa;

(b)

references to a person shall include any individual, firm, body corporate, unincorporated association, government, state or agency of state, association, joint venture or partnership, in each case whether or not having a separate legal personality. References to a company shall be construed so as to include any company, corporation or other body corporate wherever and however incorporated or established;

(c)

terms used in this deed shall have the meanings attributed to them in the BTA, unless otherwise provided in this deed.

1.4

Headings

Clause and paragraph headings and the table of contents are inserted for ease of reference only and shall not affect construction.

2.

SURRENDER OF ECONOMIC INTEREST AND RIGHTS OF MEMBERSHIP IN WWLLP AND DECLARATION OF TRUST

2.1

In reliance upon the Warranties and upon the obligations of WWLLP under this deed, and subject to the Conditions and to Clause 2.5, WTL, at the direction of WCHL and WC(UK)L, agrees to waive, in each case with effect from the Declaration Date:

(a)

all its rights under clauses 2.4, 5, 6, 7 and 10 of, and Schedules 2, 4, 5, 6 and 7 to, the Deed of Accession, insofar as such provisions relate to membership of WWLLP, and under clauses 12 and 24.5 of the LLP Agreement provided that nothing in this deed shall release or otherwise affect the liability of any party in respect of claims arising out of any antecedent breach of such clauses or schedules;

(b)

all such right, title and interest it has to any amount standing to the credit of any of its capital accounts with WWLLP, including its Additional Capital Account, and to the net assets, goodwill and future profits and losses of WWLLP.

2.2

Subject to the Conditions and to clause 2.5, with effect from the Declaration Date, WTL hereby irrevocably and unconditionally releases WWLLP from all and any claims, liabilities, actions, demands and obligations of whatsoever nature arising from or in any way connected with the provisions of clauses 2.4, 5, 6, 7 and 10 of, and Schedules 2, 4, 5, 6 and 7 to, the Deed of Accession, insofar as such provisions relate to membership of WWLLP, and under clauses 12 and 24.5 of the LLP Agreement, provided that nothing in this deed shall release or otherwise affect the liability of any party in respect of claims arising out of any antecedent breach of such clauses.

2.3

Subject to the Conditions being satisfied, with effect from the Declaration Date, WWLLP hereby irrevocably and unconditionally releases WTL from all and any claims, liabilities, actions, demands and obligations of whatsoever nature arising from or in any way connected with the provisions of clause 6 of, and schedule 6 to, the Deed of Accession, insofar as such provisions relate to membership of WWLLP, provided that nothing in this deed shall release or otherwise affect the liability of any party in respect of claims arising out of any antecedent breach of such provisions.

2.4

In consideration of (a) WTL's waiver of rights pursuant to clauses 2.1 and 2.2; (b) the Purchaser, WCHL and WWCH entering into the BTA and (c) certain members of the Purchaser's Group agreeing to enter into the Deed of Termination and Variation, WWLLP undertakes that it shall, (i) subject to the Conditions being satisfied; and (ii) upon receipt of a copy of the resolution of WC(UK)L resolving to distribute its interest in WTL's membership interest in WWLLP to WCHL, on the Declaration Date, execute the Declaration of Trust.

2.5

Subject to the Conditions being satisfied, WTL shall be entitled to receive its entitlement, as a Main Member, to a participation in the profits of the Business to the Declaration Date pursuant to the procedure and provisions set out in clause 8.16 of the BTA. WWL is a party hereto in order to acknowledge this right of WTL and be bound by it.

3.

CONDITIONS

3.1

The provisions of Clause 2 are conditional upon:

(a)

the satisfaction (or waiver if applicable under clause 5.2 of the BTA) of the conditions contained in paragraphs 1-13 (inclusive), 15, 16, 18 and 19 of Schedule 1 to the BTA;

(b)

WTL being satisfied that there are no reasonable grounds for believing that (i) WWLLP is insolvent or (ii) that WWLLP will not become so insolvent as a result of WWLLP entering into the Declaration of Trust, taking into account all distributions to members of WWLLP made contemporaneously with the Declaration of Trust or in contemplation at the Declaration Date; and

(c)

WTL not being insolvent.

3.2

In the event that the Conditions above have not been fulfilled (or waived pursuant to clause 5.2 of the BTA) prior to 30 September 2005 then all rights and obligations under this deed shall cease to be of any effect save for clauses 4, 6, 7, 8, 10 and 11 (which shall remain in force) and save in respect of claims arising out of any antecedent breach of this deed.

3.3

For the purposes of this clause "insolvent" shall mean that WWLLP is unable to pay its debts within the meaning of section 123 Insolvency Act 1986.

3.4

For the purposes of clause 3.1(b), the facts which WTL ought to know or ascertain and the conclusions which it ought to reach are those which would be known, ascertained or reached by a reasonably diligent person having both (a) the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by WTL in relation to WWLLP, and (b) the general knowledge, skill and experience that WTL has.

4.

CONFIDENTIALITY

Save to the extent required by law or by any securities exchange or any supervisory or regulatory body to whose rules any party to this deed is subject, the parties agree to, and will procure that each of their respective subsidiaries, holding companies or parent undertakings and any subsidiary of any such holding company or parent undertaking for the time being will keep this deed confidential and no disclosure of nor reference to this deed or its terms shall be made without the prior written consent of all of the parties, which consent may not be unreasonably withheld.

5.

VALUE ADDED TAX

5.1

If any taxable supply for VAT purposes is made by one Party to another Party pursuant to this deed that other Party shall pay to the former Party any VAT chargeable in respect thereof in addition to any consideration stated in this deed.

5.2

References in this clause 5 to:

(a)

"Sections" and "Schedules" are to Sections of and Schedules to VATA; and

(b)

the "Order" are to the Value Added Tax (Special Provisions) Order 1995 (SI/1995/1268).

5.3

In relation to United Kingdom VAT only, WCHL warrants to WWLLP that WCHL and WWL will on the Declaration Date be taxable persons for VAT purposes, that WCHL and WWL will on the Declaration Date be members of the same VAT group (subject to the approval of HM Customs & Excise if not already obtained) and that the VAT group intends to use the Assets after Completion in carrying on the same kind of business as that carried on by WWLLP prior to Completion.

5.4

WWLLP, WCHL and WWL intend that the Declaration of Trust and the sale of the Assets pursuant to the BTA constitute the transfer of a business as a going concern for the purposes of United Kingdom VAT, and shall use all reasonable endeavours to procure that the provisions of Section 49 and article 5 of the Order apply to the Declaration of Trust such that the transfer of the interest in the Assets pursuant to the Declaration of Trust falls to be treated as neither a supply of goods nor a supply of services for the purposes of United Kingdom VAT and that no United Kingdom VAT shall be chargeable in respect thereof.

5.5

If, notwithstanding clause 5.4, HM Customs and Excise determine in writing that United Kingdom VAT is chargeable in respect of the transfer of the interest in the Assets pursuant to the Declaration of Trust, WWLLP shall within 5 Business Days provide to WCHL a copy of such written determination, together with a valid VAT invoice complete in all respects in relation to any VAT chargeable. The VAT so chargeable shall be paid by WCHL to WWLLP two Business Days prior to the date on which WWLLP is liable to account for the same to HM Customs & Excise.

5.6

WCHL hereby notifi