PAINE WEBBER GROUP INC, 10-K, 1994-03-29

PAINE WEBBER GROUP INC
10-K, 1994-03-29
SECURITY BROKERS, DEALERS & FLOTATION COMPANIES

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM _________TO________

COMMISSION FILE NUMBER 1-7367
PAINE WEBBER GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 13-2760086
(State or other jurisdiction I.R.S. Employer
of incorporation or organization) Identification No.)
1285 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10019
(Address of principal executive offices) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 713-2000

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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
<S> <C>
Common Stock, $1 Par Value New York Stock Exchange, Inc.
Pacific Stock Exchange, Inc.
Hong Kong 30 Index Call Warrants,
expiring October 27, 1995 American Stock Exchange, Inc.
Hong Kong 30 Index Put Warrants,
expiring October 27, 1995 American Stock Exchange, Inc.
Hong Kong 30 Index Call Warrants,
expiring January 17, 1996 American Stock Exchange, Inc.
Hong Kong 30 Index Put Warrants,
expiring January 17, 1996 American Stock Exchange, Inc.
U.S. Dollar Increase Warrants on the Major Market
Currency Index, expiring January 18, 1996 American Stock Exchange, Inc.
U.S. Dollar Increase Warrants on the Japanese Yen,
expiring March 6, 1996 American Stock Exchange, Inc.
Stock Index Return Securities on the S&P
MidCap 400 Index due June 2, 2000 American Stock Exchange, Inc.

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

</TABLE>

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE

Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No_______

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.( )

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

The aggregate market value of voting stock held by non-affiliates of
the Registrant was $1,260,558,211 as of March 17, 1994. (See Item 12.)

On March 17, 1994, the Registrant had outstanding 77,105,605 shares of
common stock of $1 par value, which is Registrant's only class of common stock.

Parts I, II and IV incorporate information by reference from the
Registrant's 1993 Annual Report to Stockholders. Part I and Part III
incorporate information by reference from the Registrant's definitive proxy
statement for the annual meeting to be held on May 5, 1994.

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<PAGE> 2

PART I

ITEM 1. BUSINESS

In addition to the detailed information set forth below, incorporated herein by
reference is the general business description information on Paine Webber Group
Inc. ("PWG") and its operating subsidiaries (collectively the "Company"), under
the caption "Management's Discussion and Analysis" on page 29 in the 1993
Annual Report to Stockholders.

BROKERAGE TRANSACTIONS

A portion of the Company's revenues are generated from commissions or fees
earned as a broker for individual and institutional clients in the purchase and
sale of corporate securities (listed and over-the-counter securities), mutual
funds, insurance products, options, commodities and financial futures, and
direct investments. The Company also earns commissions or fees for services
provided in the areas of employee benefits, managed accounts and personal
trusts.

Securities transactions The Company holds memberships in all major securities
exchanges in the United States in order to provide services to its brokerage
clients in the purchase and sale of listed securities. A major portion of the
Company's revenues is derived from commissions from individual and
institutional clients on brokerage transactions in listed securities and in
over-the-counter ("OTC") markets. The largest portion of the Company's
commissions revenue (53%) is derived from brokerage transactions in listed
securities. The Company also acts as broker for investors in the purchase and
sale of U.S. government and municipal securities. The Company has established
commission rates for brokerage transactions which vary with the size and
complexity of the transaction and with the activity level of the client's
account.

Mutual funds The Company distributes shares of mutual funds for which it
serves as investment advisor and sponsor as well as shares of funds sponsored
by others. Income from the sale of mutual funds is derived from standard
dealers' discounts, which are determined by terms of the selling agreement and
the size of the transaction. In addition, the Company distributes shares of
proprietary mutual funds for which it serves as investment advisor and
administrator. Income from these proprietary mutual funds is also derived from
management and distribution fees. Mutual funds include both taxable and
tax-exempt funds and front-load, reverse- load, and level-load funds.

Insurance Through subsidiaries, PaineWebber Incorporated ("PWI") acts as agent
for several life insurance companies and sells deferred annuities and life
insurance. Additionally, variable annuities are issued by PaineWebber Life
Insurance Company.

Managed accounts The Company acts in a consulting capacity to both individuals
and institutions in the selection of professional money managers. Services
provided in this consulting capacity may include client profiling, asset
allocation, manager selection and performance measurement. Money managers
recommended may be either affiliated with the Company or non affiliated
managers. Compensation for services is in the form of commissions or
established fees.

Options The Company's options related services include the purchase and sale
of options on behalf of clients, and the delivery and receipt of the underlying
securities upon exercise of the options. In addition, the Company utilizes its
securities research capabilities in the formulation of options strategies and
recommendations for its clients.

Commodities and financial futures The Company provides transaction services
for clients in the purchase and sale of futures contracts, including metals,
currencies, interest rates, stock indexes and agricultural products.
Transactions in futures contracts are on margin and are subject to individual
exchange regulations. The risk to the Company's clients in futures
transactions, and the resulting credit risk to the Company, is greater than the
risk in cash securities transactions, principally due to the low initial margin
requirements relative to the nominal value of the actual futures contract.
Additionally, commodities exchange regulations governing
<PAGE> 3

daily price movements can have the effect of precluding clients from taking
actions to mitigate adverse market conditions. These factors may increase the
Company's risk of loss on collections of amounts due from clients. However,
net worth requirements and other credit standards for customer accounts are
utilized to limit this exposure.

Employee benefit plans PW Trust Company, a wholly owned subsidiary of PWG,
offers and administers 401(K) plans for corporations and acts as trustee,
custodian or investment manager of retirement assets for approximately 1,300
corporate retirement plans.

Personal trust services The Company offers its clients a full range of
domestic and international personal trust services, including self trustee and
corporate trustee options. Investment choices are broad and flexible. The
Company serves its international clients through a trust company located in
Guernsey and through third party trustees, and may serve as corporate trustee
for domestic clients in 22 states.

Direct investments The Company originates and markets a select number of
private placements and publicly registered limited partnerships. While market
conditions have significantly reduced activities in this area, the Company's
offerings include a publicly registered equipment leasing partnership and a
tax-credit real estate trust.

DEALER TRANSACTIONS

The Company regularly makes a market in OTC securities and as a block
positioner, acts as market-maker in certain listed securities, U.S. government
and agency securities, investment-grade and high-yield corporate debt, and a
full range of mortgage-backed securities.

Equity The Company effects transactions in large blocks of securities, usually
with institutional investors, generally involving 5,000 or more shares of
listed stocks. Such transactions are handled on an agency basis to the extent
possible, but the Company may take a long or short position as principal to the
extent that no buyer or seller is immediately available. By engaging in block
positioning, the Company places a portion of its capital at risk to facilitate
transactions for clients. Where possible, the Company seeks to reduce such
risks by hedging with option positions. Despite the risks involved in block
positioning, the aggregate brokerage commissions generated by the Company's
willingness to commit a portion of its capital in repositioning, including
commissions on other orders from the same clients, justify such activities.

The Company makes markets, buying and selling as principal, in common stocks,
convertible preferred stocks, warrants and other securities traded on the
Automated Quotation System of the National Association of Securities Dealers
("NASD") or in other OTC markets. The unlisted equity securities in which the
Company makes markets are principally those in which there is substantial
continuing client interest and include securities which the Company has
underwritten.

Fixed Income The Company provides clients access to a multitude of fixed
income products including: U.S. government and agency securities; mortgage
related securities including those issued through Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA") and
Federal Home Loan Mortgage Corp. ("FHLMC"); corporate investment-grade and
high-yield bonds; and options and futures contracts on these products. The
Company's capital can be at risk to the extent significant price fluctuations
occur. This risk is lessened by hedging inventory positions.

As a "primary dealer" in U.S. government securities, the Company actively
participates in the distribution of United States treasury securities and
reports its inventory positions and market transactions to the Federal Reserve
Bank on a weekly basis. The Company takes positions in government and
government agency securities to facilitate transactions for its clients on a
principal basis. Profits or losses are recognized from fluctuations in the
value of securities in which it maintains positions. Additionally, trading
activities include the purchase of securities under agreements to resell at
future dates (reverse repurchase agreements) and the sale of the same or
similar securities under agreements to repurchase at future dates (repurchase
agreements).
<PAGE> 4

Profits and losses on the repurchase transactions are recognized from interest
rate differentials.

The Company actively participates in the mortgage-backed securities markets
through the purchase or sale of GNMA, FNMA, FHLMC, mortgage pass-through
securities, Collateralized Mortgage Obligations ("CMOs") and other mortgage
related securities, in order to meet client needs on a principal basis. As a
means of financing its trading, the Company enters into repurchase agreements.
The Company also structures and underwrites CMOs. Additionally, the Company
serves as principal and financier in the purchase, sale, securitization and
resale of first mortgage notes and the related servicing rights.

The Company is an active participant in the corporate bond markets. Through
the fixed income debt syndicate desk and institutional sales force, the Company
distributes and markets new issuances of corporate debt securities. The
corporate bond trading desk supports this effort as a dealer in the secondary
markets by effecting transactions on behalf of clients or for the Company's own
account. Revenues generated from these activities include underwriting fees on
syndicate transactions and trading gains or losses.

The Company also underwrites, makes markets, and facilitates trades for clients
in the high-yield securities markets. High-yield securities refer to companies
whose debt is rated as non-investment grade. The Company continually monitors
its risk positions associated with high-yield debt securities and establishes
limits with respect to overall market exposure, industry group and individual
issuer.

Municipal securities Through its municipal bond department, the Company is a
dealer in both the primary and secondary markets, buying and selling securities
for its own account and for clients. Revenues derived from all these
activities include underwriting and management fees, selling concessions and
trading profits.

Derivatives The Company is engaged in activities, primarily on behalf of
clients, in equity derivative products, including listed and OTC options,
warrants, futures and underlying equity securities. The Company has also
engaged in creating structured products, which are sold to retail and
institutional clients, that are based on baskets of securities and currencies,
primary foreign and domestic market indexes and other equity and debt-based
products. The Company generally hedges positions taken in these structured
products based on option and other valuation models. Through the institutional
options and futures group, the Company engages in interest rate, stock index,
commodity options and futures contract transactions in connection with the
Company's principal trading activities.

The various commodity markets are highly regulated and impose strict margin and
other financial requirements on the Company and its clients. Transactions in
futures contracts are conducted through regulated exchanges which clear and
guarantee performance of counterparties, however, in the event that members of
clearinghouses default on material obligations to such clearinghouses, the
Company may have financial exposure. The Company is also subject to credit
risk on derivatives not traded on formal exchanges. The Company's risk of
credit loss is mitigated by adherence to formal credit control procedures which
include approved customer and counterparty credit limits, periodic monitoring
of customer and counterparty credit worthiness, and continuous assessment of
market exposure. As a principal trader, the Company is exposed to market risk
in the event of unfavorable changes in interest rates, foreign currency
exchange rates or the market values of the securities underlying the
instruments. The Company monitors its exposure to market risk through a
variety of control procedures including a review of trading positions and
hedging strategies, and establishing limits by the Risk Management Committee.

INVESTMENT BANKING

The Company is a leading manager of public offerings of corporate securities.
In addition, the Company participates as an underwriter in syndicates of public
offerings managed by others. Management of an underwriting account is
generally more profitable than participation as a syndicate member since the
managing underwriters receive a management fee and have more control over the
allocation of securities available for distribution. The Company is invited to
participate in many syndicates of negotiated public offerings managed by
others.
<PAGE> 5

The Corporate Finance Group manages and underwrites public offerings of debt
and equity securities, arranges private placements and provides financial
advice in connection with mergers and acquisitions, divestitures and other
corporate reorganizations and restructurings.

Significant risks are involved in the underwriting of securities. Underwriting
syndicates agree to purchase securities at a discount from the public offering
price. If the securities are ultimately sold below the cost to the syndicate,
an underwriter will experience losses on the securities which it has purchased.
In addition, losses may be incurred on stabilization activities taken during
such underwritings.

The Company is an industry leader in the management of tax-exempt bond
offerings. Through its Municipal Securities Group, the Company provides
financial advice to, and raises capital for, issuers of municipal securities to
finance the construction and maintenance of a broad range of public-related
facilities, including healthcare, housing, education, public power, water and
sewer, airports, highways and other public finance infrastructure needs. The
group also provides a secondary market for these securities and develops and
markets various derivative products.

The Company, through certain subsidiaries, may participate as an equity
investor or provide bridge financing in connection with specific transactions.
The Company has substantially decreased these activities in response to a
changed environment for this type of financing.

ASSET MANAGEMENT

Asset management activities are conducted principally by Mitchell Hutchins
Asset Management Inc. ("MHAM") and Mitchell Hutchins Institutional Investors
Inc., ("MHII"). MHAM and MHII provide investment advisory and portfolio
management services to individuals and pension, endowment and mutual funds.
Mutual funds, for which MHAM serves as an investment advisor, include both
taxable and tax-exempt funds and front-load, reverse-load, and level-load
funds. At December 31, 1993, total assets under management were $38.9 billion
including approximately $25.6 billion of proprietary mutual funds sponsored by
PWI.

MARGIN LENDING

Client securities transactions are executed on either a cash or margin basis.
In a margin transaction, the Company extends credit to a client for the
purchase of securities, using the securities purchased and/or other securities
in the client's account as collateral for amounts loaned. The Company receives
income from interest charged on such extensions of credit. Amounts loaned are
limited by margin requirements which are subject to the Company's credit review
and daily monitoring procedures and are generally more restrictive than the
margin regulations of the Federal Reserve Board and other regulatory
authorities. The Company may lend to other brokers or use as collateral a
portion of the margin securities to the extent permitted by applicable margin
regulations.

The financing of margin purchases can be an important source of revenue to the
Company since the interest rate paid by the client on funds loaned by the
Company exceeds the Company's cost of short-term funds. The amount of the
Company's gross interest revenues is affected not only by prevailing interest
rates, but also by the volume of business conducted on a margin basis. To
finance margin loans to clients, the Company utilizes both interest-bearing and
non-interest-bearing funds generated from a variety of sources in the course of
its operations, including bank loans, free credit balances in client accounts,
sale of securities under agreements to repurchase, the lending of securities
and sales of securities not yet purchased. No interest is paid on a
substantial portion of clients' free credit balances.

By permitting a client to purchase on margin, the Company takes the risk that
market declines could reduce the value of the collateral below the principal
amount loaned, plus accrued interest, before the collateral could be sold.
<PAGE> 6

RESEARCH

Research provides investment advice to institutional and individual clients.
More than 750 companies in 78 industry sectors and sub-sectors are covered by
the division's analysts. In addition to fundamental company and industry
research, the Company offers research products and services in the following
areas: asset allocation, economics, fixed income and high yield issues,
convertible and closed-end bond funds, country funds and derivatives.

OTHER ACTIVITIES

Portions of the Company's core business activities are conducted through
PaineWebber International Inc. and its subsidiaries, which also function as an
introducing broker-dealer to PWI for U.S. market products and are members of
various international exchanges.

PaineWebber Specialists Inc. ("PWSI") maintains trading posts on the Pacific,
Boston and Cincinnati stock exchanges and an affiliation on the Chicago stock
exchange. Specialists are responsible for executing transactions and
maintaining an orderly market in certain securities. In this function, the
specialist firm acts as an agent in executing orders entrusted to it and/or
acts as a dealer. PWSI acts as a specialist for approximately 430 equity
issues.

Correspondent Services Corporation, a registered broker-dealer and a wholly
owned subsidiary of PWI, provides execution and clearing services of securities
for approximately 100 broker-dealers on a fully disclosed and omnibus basis.

Incorporated herein by reference is the information set forth under the caption
"Revenues" in the "Five Year Financial Summary" on page 54 in the 1993 Annual
Report to Stockholders, which summarizes the major sources of consolidated
revenues.

REGULATION

The securities and commodities industry is one of the nation's most extensively
regulated industries. The Securities and Exchange Commission ("SEC") is
responsible for carrying out the federal securities laws and serves as a
supervisory body over all national securities exchanges and associations. The
regulation of broker-dealers has to a large extent been delegated, by the
federal securities laws, to self-regulatory organizations ("SROs"). These SROs
include all the national securities and commodities exchanges, the NASD and the
Municipal Securities Rulemaking Board. Subject to approval by the SEC and
Commodity Futures Trading Commission ("CFTC"), these SROs adopt rules that
govern the industry and conduct periodic examinations of the operations of
certain subsidiaries of the Company. The New York Stock Exchange ("NYSE") has
been designated by the SEC as the primary regulator of certain of the Company's
subsidiaries including PWI and other broker-dealer subsidiaries. In addition,
certain of these subsidiaries are subject to regulation of the laws of the 50
states, the District of Columbia, Puerto Rico and certain foreign countries in
which they are registered to conduct securities, banking, insurance or
commodities business.

Broker-dealers are subject to regulations which cover all aspects of the
securities business, including sales methods, trade practices among
broker-dealers, use and safekeeping of customers' funds and securities, capital
structure of securities firms, record-keeping, and the conduct of directors,
officers and employees. Violation of applicable regulations can result in the
revocation of broker-dealer licenses, the imposition of censures or fines, and
the suspension or expulsion of a firm, its officers or employees.

As a registered broker-dealer and member firm of the NYSE, PWI is subject to
the Net Capital Rule (Rule 15c3-1 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")), which also has been adopted through
incorporation by reference in NYSE Rule 325. The Net Capital Rule, which
specifies minimum net capital requirements for registered broker-dealers, is
designed to measure the financial soundness and liquidity of broker-dealers.
<PAGE> 7

The Net Capital Rule, as defined, prohibits registered broker-dealers from
making substantial distributions of capital by means of dividends or similar
payments, or unsecured advances and loans to certain related persons, including
stockholders, without giving at least two business days prior or post
notification to the SEC. Pre-notification requirement applies to any proposed
withdrawal of capital if the aggregate of such withdrawals, on a net basis,
within any 30 calendar day period would exceed 30% of the broker-dealer's
excess net capital, as defined. Post notification requirement applies if the
aggregate of such withdrawals, on a net basis, would exceed 20% of the
broker-dealer's excess net capital, as defined. The rule permits the SEC, by
order to restrict, for up to 20 business days, withdrawing of equity capital or
making unsecured advances or loans to related persons under certain limited
circumstances. Finally, broker-dealers are prohibited from making any
withdrawal of capital that would cause the broker-dealer's net capital to be
less than 25% of the deductions from net worth required by the Net Capital Rule
as to readily marketable securities ("haircuts").

Under the Market Reform Act of 1990, the SEC adopted regulations requiring
registered broker-dealers to maintain, preserve and report certain information
concerning the organizational structure, risk management policies and financial
condition of any affiliate of the Company whose activities are reasonably
likely to have a material impact on the financial and operational condition of
the broker-dealer. Securities broker-dealers are also required to file with
the SEC, specified information on a quarterly and annual basis.

COMPETITION

All aspects of the business of the Company are highly competitive. The Company
competes directly with numerous other brokers and dealers, investment banking
firms, insurance companies, investment companies, banks, commercial banks and
other financial institutions.

In recent years, competitive pressures from discount brokerage firms and
commercial banks, increased investor sophistication and an increase in the
variety of investment products have resulted, primarily through mergers and
acquisitions, in the emergence of a few well capitalized national firms. The
Company believes that the principal factors affecting competition in the
securities industry are available capital, and the quality and prices of
services and products offered.

ITEM 2. PROPERTIES

The principal executive offices of the Company are located at 1285 Avenue of
the Americas, New York, New York under a lease expiring March 31, 2000. The
Company is currently leasing approximately 507,000 square feet at 1285 Avenue
of the Americas comprising the offices of its investment banking, asset
management, institutional sales and trading, and corporate headquarters staff,
as well as two branch offices for retail investment executives.

The Company leases approximately 900,000 square feet of space at Lincoln Harbor
in Weehawken, New Jersey under leases expiring December 31, 2013. The Lincoln
Harbor facility houses retail sales and marketing headquarters, systems,
operations, administrative services, and finance and training divisions.

At December 31, 1993, the Company maintained 281 offices worldwide under leases
expiring between 1994 and 2014. In addition, the Company leases various
furniture and equipment.

ITEM 3. LEGAL PROCEEDINGS

The Company is involved in a number of proceedings concerning matters arising
in connection with the conduct of its business. Certain actions, in which
compensatory damages of $120 million or more appear to be sought, are described
below. The Company is also involved in numerous proceedings in which
compensatory damages of less than $120 million appear to be sought, or in which
punitive or exemplary damages, together with the apparent compensatory damages
alleged, appear to exceed $120 million. The Company had denied, or believes it
has legitimate defenses and will deny, liability in all significant cases
pending against it, including those described below, and intends to defend
actively each such case.
<PAGE> 8

NORTHVIEW CORPORATION LITIGATION

In March 1992, PaineWebber Incorporated ("PaineWebber") as well as other
individuals and entities including, inter alia, the former officers and
directors of Northview Corporation ("Northview"), Calmark Holding Corporation
and Calmark Financial Corporation and its respective officers and directors,
were named as defendants in a purported class action filed by Northview in the
Superior Court of the State of California for the County of Los Angeles.

The Complaint sought to set aside as fraudulent and illegal, certain transfers
of funds and distributions of cash, and to recover damages allegedly caused by
the defendants for breach of contract, impairment of capital, unjust
enrichment, breach of fiduciary duty, gross negligence and looting of corporate
assets.

As to PaineWebber, Plaintiff alleged that in November 1987, Northview retained
PaineWebber to render a fairness opinion respecting the fair market value of
the common stock of Calmark Financial Corporation which Northview was to
receive in exchange for issuing its own stock to Calmark Holding Corporation,
the parent corporation of Calmark Financial Corporation. The Complaint
asserted that PaineWebber issued a fairness opinion which allegedly overstated
the value of Calmark Financial Corporation's assets, which enabled the
transaction at issue in the form of a self tender and merger to go forward.
Plaintiff contends that, as a result of PaineWebber's allegedly overstating the
value of the assets of Calmark Financial Corporation, Northview's assets were
improperly transferred to Calmark, whose principals depleted the assets
subsequent to the merger. On March 16, 1990, Northview filed for protection
under Chapter XI of the Bankruptcy Law.

The Complaint sought damages in an amount to be proven at trial, the imposition
of a constructive trust of at least $100 million, punitive damages, interest,
costs and attorneys fees from all the defendants.

The Complaint was amended three times before January 12, 1994. On February 8,
1994, Plaintiff filed a motion for leave to file a Fourth Amended Complaint,
which motion was granted on March 15, 1994. The Fourth Amended Complaint adds
a new cause of action for negligent misrepresentation against PaineWebber and
claims for professional negligence and breach of fiduciary duty against the law
firm of Troy & Gould and certain of its principals who acted as outside counsel
to both Northview and Calmark in connection with their merger. Defendants have
until April 15, 1994 to respond to the Fourth Amended Complaint. In the
meantime, discovery is on- going.

GENERAL DEVELOPMENT CORPORATION SECURITIES LITIGATION

On or about June 10, 1991, PaineWebber Incorporated ("PaineWebber") was served
with a "First Amended Complaint" in an action captioned Rolo v. City Investing
Liquidating Trust, et al., Civ. Action 90-4420 (D.N.J., filed on or about May
13, 1991) (the "Rolo action") naming it and other entities and individuals as
defendants. The First Amended Complaint alleges violations of: (1) one or more
provisions of the Racketeer Influenced and Corrupt Organizations Act ("RICO");
(2) one or more provisions of the Securities Exchange Act of 1934; (3) one or
more provisions of the Interstate Land Sales Full Disclosure Act; and (4) the
common law, on behalf of all persons (excluding defendants) who purchased lots
and/or houses from General Development Corporation ("GDC") or one of its
affiliates and who are members of an association known as the North Port
Out-of-State Lot Owners Association.

The allegations in the First Amended Complaint which relate to PaineWebber are
premised on claims that PaineWebber is responsible for misrepresentations
and/or omissions of material facts in the prospectuses and other public
documents filed in connection with, and after, the following: (1) the April 8,
1988 offering by GDC of the Bonds; and (2) a 1989 offering of Adjustable Rate
General Development Residential Mortgage Pass-Through Certificates, Series
1989-A, for which PaineWebber served as underwriter. Plaintiffs contend that
due to such alleged misrepresentations and/or omissions of material facts,
PaineWebber knowingly enabled GDC to acquire additional financial resources for
perpetuation of (and/or aided and abetted) an alleged scheme to defraud
purchasers of GDC lots and/or houses. The First Amended Complaint requests
<PAGE> 9

certain declaratory relief, equitable relief, compensatory damages of not less
than $500 million, punitive damages of not less than three times compensatory
damages, treble damages with respect to the RICO count, pre-judgment and
post-judgment interest on all sums awarded, and attorney's fees, costs,
disbursement and expert witness fees.

Served with the Rolo First Amended Complaint was a letter from Plaintiffs'
counsel to all parties in the action stating that the Rolo court stayed the
action on April 26, 1991. The letter further stated that "the time within
which defendants must answer or otherwise respond is stayed pursuant to the
Court's Order."

The stay remained in effect until January 28, 1993, when Plaintiffs in Rolo
filed a motion to dissolve the stay. On March 9, 1993, the Court granted
Plaintiffs' motion and dissolved the stay of proceedings in the Rolo action.

On or about March 31, 1993, PaineWebber filed a motion to dismiss Plaintiffs'
First Amended Complaint for insufficient service of process. On May 11, 1993,
the Court denied said motion. On May 28, 1993, PaineWebber, together with a
majority of other defendants filed motions to dismiss Plaintiffs' First Amended
Complaint on, inter alia, jurisdictional and statute of limitation grounds as
well as challenging the adequacy of the pleadings. On December 27, 1993, the
Court entered an order dismissing Plaintiffs' First Amended Complaint against
PaineWebber and the majority of the other defendants. On January 10, 1994,
Plaintiffs filed a notice of appeal to the United States Court of Appeals for
the Third Circuit.

ICN PHARMACEUTICALS LITIGATION

Class actions were commenced against PaineWebber Incorporated ("PaineWebber")
in 1986 in the United States District Court for the Southern District of New
York, and in 1987 in the United States District Court for the Central District
of California, alleging Rule 10b-5 and common law fraud claims based on
purported misstatements in a market advisory concerning ICN Pharmaceuticals,
Inc. and its antiviral drug, ribavirin. Virtually all those complaints also
alleged various federal securities and common law claims against ICN, its
subsidiaries and several of its officers and directors. The California actions
were transferred to New York in 1987, and all the related actions were there
consolidated under an amended consolidated complaint.

In June 1991, the Court dismissed the complaint with leave to replead. After
motion practice directed to the repleaded complaint and the conduct of pretrial
discovery, PaineWebber and plaintiffs reached an agreement to settle the
consolidated action for $6.5 million, conditioned on (a) the execution of
stipulation of settlement, (b) certification of the class by the Court, and (c)
entry of a final judgment (no longer subject to appeal), issued after notice to
the class and the conduct of a fairness hearing (i) approving the settlement,
(ii) dismissing the complaint with prejudice, and (iii) barring co-defendants
from maintaining any claim against PaineWebber for contribution or
indemnification.

ARIZONA STATE CARPENTERS PENSION TRUST FUND, ET AL. V. MITCHELL HUTCHINS
INSTITUTIONAL INVESTORS, ET AL.

In April 1989, Mitchell Hutchins Institutional Investors Inc. ("MHII") was
named as a defendant in a suit filed in the U.S. District Court, District of
Arizona, Phoenix (No. CIV 89-0693) by four employee benefit plans. MHII has
been a subsidiary of Mitchell Hutchins Asset Management Inc. ("MHAM") since
February 1988, when it was acquired from Manufacturers Hanover Trust Company
("Manufacturers"). The current complaint alleges violation of the Employee
Retirement Income Security Act ("ERISA") and other federal and state laws as to
MHII and other defendants and seeks unspecified monetary damages and other
relief. The allegations of the complaint which pertain to MHII involve certain
real estate related investments made through a Phoenix branch office almost
entirely while the firm was owned by Manufacturers. The Plaintiffs were
investment advisory clients until December 31, 1988. Subsequent amendments
added, among others, Manufacturers, MHAM, PaineWebber Incorporated and Paine
Webber Group Inc. as defendants. The parties are engaged in discovery. Under
the current scheduling order entered by the Court, discovery will continue into
1994 and a trial date has been set for the middle of 1995.
<PAGE> 10

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

Executive Officers of the Registrant

Incorporated herein by reference is the Company's definitive proxy statement
for the annual meeting of stockholders to be held on May 5, 1994 ("Proxy
Statement") to be filed with the Commission not later than 120 days after the
end of the fiscal year.

Set forth below, in addition to information contained in the Proxy Statement,
is certain information concerning the executive officers of PWG who do not also
serve as directors of PWG:

Regina A. Dolan, 39, is Vice President and Chief Financial Officer of PWG, a
position she has held since February 3, 1994. Prior thereto, she was the
principal financial and accounting officer of PWG from October 1992 to February
3, 1994. Ms. Dolan is also Senior Vice President and has been Chief Financial
Officer of PWI since February 3, 1994. From October 1992 to February 3, 1994,
she was Director of Finance and Controls of PWI. Prior to joining the Company,
Ms. Dolan was with Ernst & Young from September 1975 to September 1992, where
she rose to the position of Partner and served as Director of the firm's
Securities Industry Practice.

Lee Fensterstock, 45, is an Executive Vice President and Director of
Institutional Sales and Trading of PWI. Mr. Fensterstock was Senior Vice
President, Finance and Controls of PWI from 1988 to January 1991. Before
joining PWI he was with Citibank for fifteen years where he held various
positions in planning, financial control and business management.

Theodore A. Levine, 49, is General Counsel, Vice President and Secretary of
PWG, and is an Executive Vice President of PWI, positions he has held since
June 15, 1993. Prior to joining the Company, Mr. Levine was a partner at the
Washington D.C. - based law firm of Wilmer, Cutler and Pickering from February
1984 to June 1993. He was with the Securities and Exchange Commission from
1969 to 1984 where he rose to the position of Associate Director in the
Division of Enforcement.

Pierce R. Smith, 50, has been Treasurer of PWG since February 16, 1988,
Executive Vice President and Treasurer of PWI since February 2, 1988 and was
appointed Controller of PWI as of February 15, 1993. He was Senior Vice
President and Treasurer of Norwest Corporation from August 1982 to December
1987.

Executive Officers are elected annually to serve until their successors are
elected and qualify or until they sooner die, retire, resign or are removed.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

The information set forth under the captions "Market for Common Stock" and
"Common Stock Dividend History" in the 1993 Annual Report to Stockholders is
incorporated herein by reference.

ITEM 6. SELECTED FINANCIAL DATA

The information set forth under the caption "Financial Highlights" in the 1993
Annual Report to Stockholders is incorporated herein by reference.
<PAGE> 11

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The information set forth under the caption "Management's Discussion and
Analysis" in the 1993 Annual Report to Stockholders is incorporated herein by
reference beginning on page 30 under the caption "Results of Operations".

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements, schedules and supplementary financial information
required by this item and included in this report or incorporated herein by
reference are listed in the index appearing on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information concerning the age and principal occupation of each director is set
forth under the caption "Information Concerning the Nominees and Directors" in
the Proxy Statement and is incorporated herein by reference. Information
concerning executive officers of the Registrant, who do not serve as directors,
is given at the end of Part I of this report.

ITEM 11. EXECUTIVE COMPENSATION

Information concerning compensation of directors and executive officers of the
Registrant is set forth under the captions "Compensation of Directors,"
"Executive Compensation," "Other Benefit Plans and Agreements" and "Certain
Transactions and Arrangements" in the Proxy Statement and is incorporated
herein by reference.

ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security ownership of executive officers, directors and certain beneficial
owners is set forth under the caption "Security Ownership" in the Proxy
Statement and is incorporated herein by reference.

Solely for the purpose of calculating the aggregate market value of the voting
stock held by non-affiliates of the Registrant as set forth on the cover of
this report, it has been assumed that directors and executive officers of the
Registrant are affiliates.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information related to certain transactions with directors of the
Registrant is set forth under the captions "Certain Agreements with Directors"
and "Certain Transactions and Arrangements" in the Proxy Statement and is
incorporated herein by reference.
<PAGE> 12

PART IV

ITEM 14. FINANCIAL STATEMENTS, FINANCIAL SCHEDULES, EXHIBITS AND REPORTS ON
FORM 8-K

(a) The following documents are filed as a part of this report:

(1) & (2) The financial statements and schedules included in this
report are incorporated herein by reference and are listed in the
accompanying index to financial statements and financial statement
schedules appearing on page F-1.

(3) The exhibits included in this report or incorporated herein by
reference are listed in the accompanying index to exhibits appearing
on page F-9. The management contracts or compensatory plans and
arrangements listed in the index to exhibits that are applicable to
the executive officers named in the "Summary Compensation Table",
appearing in Registrant's 1994 Proxy Statement, are set forth on pages
F-18 and F-19.

(b) Reports on Form 8-K:

The Company filed a Current Report on Form 8-K dated January 14, 1994
with the SEC relating to the issuance by the Company of 2,200,000 AMEX
Hong Kong 30 Index Call Warrants expiring January 17, 1996 and
4,100,000 AMEX Hong Kong 30 Index Put Warrants expiring January 17,
1996. The item reported on such Current Report was "Item 5 - Other
Events".

The Company filed a Current Report on Form 8-K dated February 10, 1994
with the SEC relating to the Certificate of the Powers, Designations,
Preferences and Rights relating to the Company's 6% Convertible
Preferred Stock. The item reported on such Current Report was "Item 7
- Exhibits".
<PAGE> 13

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized on March 25, 1994.

PAINE WEBBER GROUP INC.
(Registrant)

BY: Donald B. Marron /s/
____________________________________
Donald B. Marron
Chairman of the Board and
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 25, 1994.

Donald B. Marron /s/
____________________________________
Donald B. Marron
Chairman of the Board,
Chief Executive Officer
and Director (principal executive
officer)

Regina A. Dolan /s/
____________________________________
Regina A. Dolan
Vice President,
Chief Financial Officer

T. Stanton Armour /s/
____________________________________
T. Stanton Armour
Director

E. Garrett Bewkes, Jr. /s/
____________________________________
E. Garrett Bewkes, Jr.
Director

John A. Bult /s/
____________________________________
John A. Bult
Director
<PAGE> 14

SIGNATURES

______________________________
Yozo Fujisawa
Director

Joseph J. Grano, Jr. /s/
______________________________
Joseph J. Grano, Jr.
Director

Paul B. Guenther /s/
____________________________________
Paul B. Guenther
Director

John E. Kilgore, Jr. /s/
____________________________________
John E. Kilgore, Jr.
Director

Robert M. Loeffler /s/
____________________________________
Robert M. Loeffler
Director

Edward Randall, III /s/
____________________________________
Edward Randall, III
Director

Henry Rosovsky /s/
____________________________________
Henry Rosovsky
Director

_______________________________
Kyosaku Sorimachi
Director
<PAGE> 15

PAINE WEBBER GROUP INC.
ITEMS 8, 14(A)(1) AND (2) AND 14(D)
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

Financial Statements

Incorporated herein by reference are the following financial statements
included in the 1993 Annual Report to Stockholders. With the exception of the
following financial statements and the information incorporated by reference on
items 1, 5, 6 and 7, the 1993 Annual Report to Stockholders is not to be deemed
filed as part of this report.

<TABLE>
<CAPTION>
1993 Annual
Report
Description (Page)
----------- --------------
<S> <C>
Report of independent auditors 53

Consolidated statements of financial
condition at December 31, 1993 and 1992 37

For the years ended December 31, 1993,
1992 and 1991:

Consolidated statements of income 36
Consolidated statements of changes in
stockholders' equity 38-39
Consolidated statements of cash flows 40

Notes to consolidated financial statements 41-52

Quarterly financial information (unaudited) 56

Schedules
- ---------
Form 10-K
Description (Page)
----------- -----------------

III - Condensed Financial Information F-2 - F-5

VIII - Valuation and Qualifying Accounts F-6

IX - Short-Term Borrowings F-7

X - Supplementary Income Statement Information F-8
</TABLE>

All other schedules have been omitted since the required information is not
present in amounts sufficient to require submission of the schedules, or
because the information required is included in the respective financial
statements or notes thereto.

F-1

<PAGE> 16

SCHEDULE III
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PAINE WEBBER GROUP INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1993 1992 1991
-------- --------- --------
<S> <C> <C> <C>
REVENUES
Interest $104,600 $ 63,378 $102,342
Other 1,231 - 2,661
-------- -------- --------
Total revenues 105,831 63,378 105,003

Interest Expense 138,627 87,933 82,909
-------- -------- --------
Net revenues (32,796) (24,555) 22,094
-------- -------- ---------

NON-INTEREST EXPENSES 17,004 14,848 30,143
-------- -------- --------

Loss before income taxes and
equity in income of affiliates (49,800) (39,403) (8,049)

Benefit for income taxes 20,143 15,333 6,040
-------- -------- --------

Loss before equity in net income
of affiliates (29,657) (24,070) (2,009)

Equity in income of affiliates 275,840 237,245 152,725
-------- -------- --------

NET INCOME $246,183 $213,175 $150,716
======== ======== ========
</TABLE>

See Notes to Condensed Financial Information of Registrant.

F-2

<PAGE> 17

SCHEDULE III
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PAINE WEBBER GROUP INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
December 31, December 31,
1993 1992
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 55 $ 8,993
Securities inventory, at market value 60,024 134,122
Loans to and receivables from affiliates 3,334,572 1,554,517
Investment in affiliates 1,355,283 1,200,971
Other assets 132,459 165,034
---------- ----------
$4,882,393 $3,063,637
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $1,707,645 $ 712,843
Securities sold but not yet purchased,
at market value 59,924 134,022
Payable to affiliates 514 314
Other liabilities and accrued expenses 53,522 38,164
---------- ----------
1,821,605 885,343
Long-term borrowings 1,865,741 1,097,627
---------- ----------
3,687,346 1,982,970
---------- ----------

Commitments and Contingencies

Stockholders' Equity
Preferred stock - 188,760
Common stock, $1 par value, 100,000,000
shares authorized; issued 83,603,262 shares
in 1993; 78,518,729 shares in 1992 * 83,603 78,519
Additional paid-in capital * 568,487 470,315
Retained earnings 721,115 529,049
---------- ----------
1,373,205 1,266,643
Common stock held in treasury, at cost:
6,568,433 shares in 1993; 12,476,834
shares in 1992 * (112,390) (149,462)
Unamortized cost of restricted stock (60,980) (30,709)
Foreign currency translation adjustment (4,788) (5,805)
----------
$1,195,047 1,080,667
---------- ----------
$4,882,393 $3,063,637
========== ==========
</TABLE>
* Retroactively adjusted to reflect a three-for-two common stock split in
the form of a 50% stock dividend effective March 10, 1994 to
stockholders of record on February 17, 1994.

See Notes to Condensed Financial Information of Registrant.

F-3

<PAGE> 18

SCHEDULE III
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PAINE WEBBER GROUP INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1993 1992 1991
----------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 246,183 $ 213,175 $ 150,716
Adjustments to reconcile net income to cash
used for operating activities:
Noncash items included in net income:
Equity in income of affiliates (275,840) (237,245) (152,725)
Depreciation and amortization 362 821 2,097
Deferred income taxes (20,255) (16,588) (21,872)
Other 2,812 2,785 8,561
(Increase) decrease in assets:
Securities inventory 74,098 (37,071) (33,426)
Loans to and receivables from affiliates (1,740,163) (124,056) (85,164)
Investment in affiliates (12,875) (104,486) 83,143
Other assets 50,595 (41,617) (28,311)
Increase (decrease) in liabilities:
Payable to affiliates 200 314 (142,182)
Securities sold but not yet purchased (74,098) 36,971 33,426
Other liabilities and accrued expenses 14,638 7,165 (5,404)
Proceeds from:
Dividends received from subsidiaries 169,339 65,000 95,101
----------- --------- ---------
Cash used for operating activities (1,565,004) (234,832) (96,040)
----------- --------- ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments on) short-term
borrowings 994,802 130,347 (46,184)

Proceeds from:
Issuance of long-term borrowings 1,035,507 384,149 351,750
Employee stock transactions 21,121 16,556 20,239
Payments for:
Settlement of long-term borrowings (243,012) (49,600) (192,450)
Repurchases of common stock (116,627) (32,016) -
Preferred stock transactions (104,425) (167,220) -
Repurchase of warrant - (1,687) -
Dividends (30,973) (36,876) (37,573)
----------- --------- ---------
Cash provided by financing activities 1,556,393 243,653 95,782
----------- --------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Net payments for office equipment and
leasehold improvements (327) (171) (43)
----------- --------- ---------
Cash used for investing activities (327) (171) (43)
----------- --------- ---------
Increase (decrease) in cash and cash
equivalents (8,938) 8,650 (301)
Cash and cash equivalents, beginning
of year 8,993 343 644
----------- --------- ---------
Cash and cash equivalents, end of year $ 55 $ 8,993 $ 343
=========== ========= =========
</TABLE>

See Notes to Condensed Financial Information of Registrant.

F-4

<PAGE> 19

SCHEDULE III
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PAINE WEBBER GROUP INC.
(PARENT COMPANY ONLY)
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(IN THOUSANDS OF DOLLARS)

GENERAL

The condensed financial information of Paine Webber Group Inc. (Parent
Company Only) should be read in conjunction with the consolidated
financial statements of Paine Webber Group Inc. and the notes thereto
incorporated by reference in this report.

STATEMENT OF CASH FLOWS

Interest payments for the years ended December 31, 1993, 1992 and 1991
approximated $122,073, $84,323 and $86,421, respectively. Income tax
payments (consolidated) totalled $128,089, $96,941 and $26,983 for the
years ended December 31, 1993, 1992 and 1991, respectively.

COMMITMENTS AND CONTINGENCIES

The Company has guaranteed certain of its subsidiaries' unsecured lines of
credit and contractual obligations.

F-5

<PAGE> 20

SCHEDULE VIII

PAINE WEBBER GROUP INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
Balance at Balance at
beginning of end of
period Additions (1) Deductions (2) period
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Reserves deducted from related assets:

Year ended December 31, 1993 $ 48,599 $ 15,860 $ (13,483) $ 50,976
Year ended December 31, 1992 88,339 21,572 (61,312) 48,599
Year ended December 31, 1991 173,852 27,201 (112,714) 88,339

</TABLE>

(1) Amounts charged to expense.
(2) Represents amounts written off against assets and recoveries.

F-6

<PAGE> 21

SCHEDULE IX

PAINE WEBBER GROUP INC.
SHORT-TERM BORROWINGS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
Weighted Maximum Month-End Average Amount
Category of Amount Average Amount Outstanding Weighted Average
Aggregate Short- Outstanding at Interest Rate Outstanding During the Interest Rate
Term Borrowings (1) End of Period End of Period During the Period Period (2) During the Period (3)
- ------------------- ------------- ------------- ----------------- ------------- ---------------------
<S> <C> <C> <C> <C> <C>
Bank Loans
- ----------

Year ended December 31, 1993 $1,670,730 3.6% $ 2,046,016 $1,097,643 3.8%
Year ended December 31, 1992 832,944 3.3 1,581,319 1,009,573 3.8
Year ended December 31, 1991 748,353 5.9 1,216,823 800,750 6.2

Commercial Paper
- ----------------

Year ended December 31, 1993 1,083,483 3.6 1,083,483 527,505 3.4
Year ended December 31, 1992 351,263 4.0 498,057 401,756 4.1
Year ended December 31, 1991 351,945 5.4 412,425 340,838 6.5

Medium-Term Notes (4)
- ---------------------

Year ended December 31, 1993 25,000 3.7 161,000 118,231 3.8
Year ended December 31, 1992 136,000 4.1 136,000 71,571 4.1

Repurchase Agreements
- ---------------------

Year ended December 31, 1993 16,903,736 3.1 23,711,416 19,090,185 4.2
Year ended December 31, 1992 12,807,410 3.4 19,650,531 15,295,043 4.2
Year ended December 31, 1991 11,617,985 4.6 15,574,625 11,768,407 6.3

</TABLE>

(1) The general terms of each category of aggregate short-term borrowings are
contained in the Notes to Consolidated Financial Statements appearing in
the 1993 Annual Report to Stockholders on pages 41 and 43 under the
captions "Summary of Significant Accounting Policies" and "Short-Term
Borrowings", respectively.

(2) Computation is based upon the total aggregate month-end borrowings divided
by the number of months in the period during which the borrowings were
outstanding.

(3) Computation is based upon the total aggregate interest cost for the year
divided by the average borrowings outstanding during the year.

(4) There were no Medium-Term Notes with maturities of nine months to one year
outstanding during 1991.

F-7

<PAGE> 22

SCHEDULE X

PAINE WEBBER GROUP INC.
SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS OF DOLLARS)

ITEM CHARGED TO COSTS AND EXPENSES
- ---- -----------------------------

Advertising Costs:

Year ended December 31, 1993 $40,419
Year ended December 31, 1992 $31,233
Year ended December 31, 1991 $28,274

F-8

<PAGE> 23

PAINE WEBBER GROUP INC.
INDEX TO EXHIBITS

Item 14(c)
A. The following Exhibits are filed herewith:

1 - Distribution Agreement dated November 30, 1993 between
Registrant, PWI and The First Boston Corporation.

4.1 - Copy of form of certificate of common stock to reflect a new
signatory.

4.2 - Third Supplemental Indenture dated as of November 30, 1993
between Registrant and Chemical Bank Delaware, as Trustee,
relating to the Subordinated Debt Securities.

10.1 - Limited Partnership Agreement of PW Partners 1992 Dedicated
L.P. dated as of September 2, 1992.

10.2 - Employment Agreement dated as of May 4, 1993 between
Registrant, PWI and Theodore A. Levine.

10.3 - Restated and Amended Agreement of Lease, dated as of January
1, 1989, between The Equitable Life Assurance Society of the
United States and Registrant relating to property located at
1285 Avenue of the Americas, New York, New York.

11 - Computation of Earnings per Common Share.

12.1 - Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends.

12.2 - Computation of Ratio of Earnings to Fixed Charges.

13 - 1993 Annual Report to Stockholders of Registrant.

21 - Subsidiaries of the Registrant.

23 - Consent of Independent Auditors.

F-9

<PAGE> 24

B. Pursuant to the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended, the following Exhibits previously filed with the
Securities and Exchange Commission are incorporated by reference as Exhibits
to this annual report:

3.1 - Restated Certificate of Incorporation of Registrant, as
filed with the Office of the Secretary of State of the State
of Delaware on May 4, 1987 (incorporated by reference to
Registrant's Form 10-Q for the quarter ended March 31,
1987).

3.2 - Certificate of Amendment to the Restated Certificate of
Incorporation of Registrant as filed with the Office of the
Secretary of State of the State of Delaware on June 3, 1988
(incorporated by reference to Exhibit 3.2 of Registrant's
Form 10-Q for the quarter ended June 30, 1988).

3.3 - Certificate of Powers, Designations, Preferences and Rights
relating to Registrant's 7.5% Convertible Preferred Stock as
filed with the Office of the Secretary of State of Delaware
on January 16, 1992 (incorporated by reference to Exhibit
3.1 of Registrant's Form 10-K for the year ended December
31, 1991).

3.4 - Certificate of Powers, Designations, Preferences and Rights
relating to Registrant's 7.5% Convertible Preferred Stock,
Series B, as filed with the Office of the Secretary of State
of Delaware on January 16, 1992 (incorporated by reference
to Exhibit 3.2 to Registrant's Form 10-K for the year ended
December 31, 1991).

3.5 - Certificate of Designation, Preference and Rights relating
to Registrant's Cumulative Participating Convertible Voting
Preferred Stock, Series A as filed with the Office of the
Secretary of State of the State of Delaware on November 5,
1992 (incorporated by reference to Exhibit 3 of Registrant's
Form 10-Q for the quarter ended September 30, 1992).

3.6 - By-laws of the Registrant as amended March 1, 1988
(incorporated by reference to Exhibit 3.1 of Registrant's
Form 10-K for the year ended December 31, 1987).

3.7 - Certificate of Stock Designation (elimination) relating to
Registrant's 7% Cumulative Convertible Exchangeable Voting
Preferred Stock, Series A as filed with the office of the
Secretary of State of the State of Delaware on November 5,
1992 (incorporated by reference to Exhibit 3.1 of
Registrant's Form 10-K for the year ended December 31,
1992).

3.8 - Certificate of Powers, Designations, Preferences and Rights
relating to the Company's 6% Convertible Preferred Stock as
filed with the Office of the Secretary of State of the State
of Delaware on February 8, 1994 (incorporated by reference
to Exhibit 7.1 of Registrant's Form 8-K dated February 10,
1994).

4.3 - Indenture dated as of March 15, 1988 between Registrant and
Chemical Bank (Delaware), as Trustee, relating to
Registrant's Medium-Term Subordinated Notes, Series B and
Series D (incorporated by reference to Exhibit 4.2b of
Registrant's Registration Statement No. 33-29253 on Form S-3
filed with the SEC on June 14, 1989).

F-10

<PAGE> 25

4.4 - Supplemental Indenture dated as of September 22, 1989, to
the Indenture dated as of March 15, 1988, between Registrant
and Chemical Bank Delaware, as Trustee, Relating to
Subordinated Debt Securities (incorporated by reference to
Exhibit 4.2d of Registrant's Form 8-K dated September 30,
1989).

4.5 - Supplemental Indenture dated as of March 22, 1991 between
Registrant and Chemical Bank Delaware, as Trustee, relating
to Subordinated Debt Securities (incorporated by reference
to Exhibit 4.2f of Registrant's Registration Statement No.
33-39818 on Form S-3 filed with the SEC on April 5, 1991).

4.6 - Form of Debt Securities (Medium-Term Subordinated Note,
Series B, Floating Rate) -- Additional alternate form
providing for the payment of additional amounts in certain
circumstances to United States aliens (incorporated by
reference to Exhibit 4.1 of Registrant's Form 8-K dated
December 20, 1989).

4.7 - Indenture dated as of March 15, 1988 between Registrant and
Chemical Bank, as Trustee, relating to Registrant's
Medium-Term Senior Notes, Series A and Series C
(incorporated by reference to Exhibit 4.2a of Registrant's
Registration Statement No. 33-39818 on Form S-3 filed with
the SEC on April 5, 1991).

4.8 - Supplemental Indenture dated as of September 22, 1989, to
the Indenture dated as of March 15, 1988 between Registrant
and Chemical Bank, as Trustee, relating to Senior Debt
Securities (incorporated by reference to Exhibit 4.2c of
Registrant's Form 8-K dated September 30, 1989).

4.9 - Supplemental Indenture dated as of March 22, 1991 between
Registrant and Chemical Bank, as Trustee, relating to Senior
Debt Securities (incorporated by reference to Exhibit 4.2c
of Registrant's Registration Statement No. 33- 39818 on Form
S-3 filed with the SEC on April 5, 1991).

4.10 - Form of Debt Securities (9-1/4% Notes Due 2001)
(incorporated by reference to Exhibit 4.1 of Registrant's
Form 8-K dated December 17, 1991 filed with the SEC).

4.11 - Form of Debt Securities (9-5/8% Senior Note Due 1995)
(incorporated by reference to Exhibit 4.1 of Registrant's
Form 8-K dated April 25, 1991 filed with the SEC).

4.12 - Form of 8% Convertible Debenture Due 1998 issued in
connection with Registrant's Key Executive Equity Program
(incorporated by reference to Exhibit 4.1 of Registrant's
Form 10-K for the year ended December 31, 1988).

4.13 - Form of 8% Convertible Debentures Due 2000 issued in
connection with Registrant's Key Executive Equity Program
(incorporated by reference to Exhibit 4.1 of Registrant's
Form 10-K for the year ended December 31, 1991).

4.14 - Form of 6.5% Convertible Debenture Due 2002 issued in
connection with Registrant's Key Executive Equity Program
(incorporated by reference to Exhibit 4.1 of Registrant's
Form 10-K for the year ended December 31, 1992).

4.15 - Form of Debt Securities (7% Notes Due 2000) (incorporated by
Reference to Exhibit 4.2 of Registrant's Form 10-K for the
year ended December 31, 1992).

F-11

<PAGE> 26

4.16 - Form of Debt Securities (7-7/8% Notes Due 2003)
(incorporated by reference to Exhibit 4.1f of Registrant's
Form 8-K dated February 11, 1993).

4.17 - Form of Book-Entry Global Security relating to Stock Index
Return Securities on the S&P MidCap 400 Index due June 2,
2000 (incorporated by reference to Exhibit 4.1g of
Registrant's Form 8-K dated May 25, 1993).

4.18 - Warrant Agreement dated as of January 27, 1993 between
Registrant, Citibank, N.A., as Warrant Agent and PaineWebber
Incorporated as Determination Agent relating to the
Registrant's U.S. Dollar Increase Warrants on the Major
Market Currency Index (incorporated by Reference to Exhibit
4.3 of Registrant's Form 10-K for the year ended December
31, 1992).

4.19 - Warrant Agreement, dated as of November 2, 1993, among
Registrant, Citibank, N.A. as Warrant Agent and PaineWebber
Incorporated as Determination Agent, relating to the
Registrant's 2,400,000 AMEX Hong Kong 30 Index Put Warrants
Expiring October 27, 1995 (incorporated by reference to
Exhibit 4.1 of Registrant's Form 8-K dated October 26,
1993).

4.20 - Warrant Agreement, dated as of November 2, 1993, among
Registrant, Citibank, N.A. as Warrant Agent and PaineWebber
Incorporated as Determination Agent, relating to
Registrant's 2,600,000 AMEX Hong Kong 30 Index Call Warrants
Expiring October 27, 1995 (incorporated by reference to
Exhibit 4.2 of Registrant's Form 8-K dated October 26,
1993).

4.21 - Warrant Agreement, dated as of January 24, 1994, among
Registrant, Citibank, N.A. as Warrant Agent and PaineWebber
Incorporated as Determination Agent, relating to
Registrant's 4,100,000 AMEX Hong Kong 30 Index Put Warrants
Expiring January 17, 1996 (incorporated by reference to
Exhibit 4.1 of Registrant's Form 8-K dated January 14,
1994).

4.22 - Warrant Agreement, dated as of January 24, 1994, among
Registrant, Citibank, N.A. as Warrant Agent and PaineWebber
Incorporated as Determination Agent, relating to
Registrant's 2,200,000 AMEX Hong Kong 30 Index Call Warrants
Expiring January 17, 1996 (incorporated by reference to
Exhibit 4.2 of Registrant's Form 8-K dated January 14,
1994).

4.23 - Warrant Agreement dated as of March 16, 1994 among
Registrant, Citibank, N.A., as Warrant Agent and PaineWebber
Incorporated as Determination Agent relating to the
Registrant's U.S. Dollar Increase Warrants on the Japanese
Yen Expiring March 6, 1996 (incorporated by reference to
Registrant's Amendment No.1 of Registration Statement
No.33-53776 filed on Form 8-A/A dated March 17, 1994).

F-12

<PAGE> 27

4.24 - Form of Registrant's Medium-Term Senior Note, Series A,
Floating Rate Due March 15, 1994 (incorporated by reference
to Exhibit 4.4 of Registrant's Form 10-K for the year ended
December 31, 1990).

4.25 - Form of Registrant's Medium-Term Subordinated Note, Series
B, Floating Rate Due December 20, 1994 (incorporated by
reference to Exhibit 4.5 of Registrant's Form 10-K for the
year ended December 31, 1990).

The credit agreements listed below have not been registered under the
Securities Act of 1933 or the Securities Exchange Act of 1934, nor does the
long-term indebtedness that they represent exceed, in the aggregate, 10% of the
total assets of Registrant and its subsidiaries on a consolidated basis.
Consequently, these instruments have not been filed as an exhibit with this
report, but copies will be furnished to the Securities and Exchange Commission
upon request.

Credit Agreement dated as of June 3, 1993 among Registrant, the Lenders
named therein and Citibank, N.A. as Administrative Agent, relating to the
$275 million credit facility.

Credit Agreement dated as of March 25, 1992 among Registrant, the managers
named therein and the First National Bank of Chicago, Administrative Agent,
relating to the $225 million credit facility.

10.4 - Amended and Restricted Investment Agreement dated as of
November 5, 1992 by and between Registrant and The Yasuda
Mutual Life Insurance Company ("Yasuda") relating to the
repurchase by Registrant of 1,685,394 shares of Registrant's
7% Cumulative Convertible Exchangeable Voting Preferred
Stock, Series A ("7% Preferred Shares") and the replacement
of the remaining 3,370,786 7% Preferred Shares for 7,758,632
shares of Registrant's Cumulative Participating Convertible
Voting Preferred Stock, Series A (incorporated by reference
to Exhibit 10 of Registrant's Form 10-Q for the quarter
ended September 30, 1992).

10.5 - Employment Agreement dated as of January 2, 1987 between
Registrant, PaineWebber Incorporated and Donald B. Marron
(incorporated by reference to Exhibit 10.2 of Registrant's
Form 10-K for the three months ended December 31, 1986).

10.6 - Employment Agreement dated as of January 2, 1987 between
Registrant, PWI and Paul B. Guenther (incorporated by
reference to Exhibit 10.10 of Registrant's Form 10-K for the
three months ended December 31, 1986).

10.7 - Employment Agreement dated as of January 2, 1987 between
Registrant, PWI and John A. Bult (incorporated by reference
to Exhibit 10.2 of Registrant's Form 10-K for the fiscal
year ended December 31, 1988).

10.8 - Registrant's Supplemental Employee's Retirement Plan For
Certain Senior Officers dated August 4, 1988 (incorporated
by reference to Exhibit 10.4 of Registrant's Form 10-K for
the year ended December 31, 1988).

10.9 - Deferred Compensation Agreement dated as of August 29, 1988
between Registrant and Donald B. Marron relating to the
Supplemental Employees Retirement Plan (incorporated by
reference to Exhibit 10.6 of Registrant's Form 10-K for the
year ended December 31, 1988).

10.10 - Deferred Compensation Agreement dated as of August 29, 1988
between Registrant and Paul B. Guenther relating to the
Supplemental Employees Retirement Plan (incorporated by
reference to Exhibit 10.8 of Registrant's Form 10-K for the
year ended December 31, 1988).

10.11 - Deferred Compensation Agreement dated as of August 29, 1988
between Registrant and John A. Bult relating to the
Supplemental Employees Retirement Plan (incorporated by
reference to Exhibit 10.9 of Registrant's Form 10-K for the
year ended December 31, 1988).

F-13

<PAGE> 28

10.12 - Agreement and Declaration of Trust for Supplemental
Employees Retirement Plan dated as of January 1, 1990
between Registrant and Chase Manhattan Bank, N.A. as Trustee
(incorporated by reference to Exhibit 10.3 of Registrant's
Form 10-K for the year ended December 31, 1990).

10.13 - Form of Consulting Agreement dated as of February 21, 1989
between PWI and E. Garrett Bewkes, Jr. (incorporated by
reference to Exhibit 10.10 of Registrant's Form 10-K for the
year ended December 31, 1988).

10.14 - Registrant's 1980 Employee Stock Option Plan (incorporated
by reference to Registrant's Registration Statement No.
2-78627 on Form S-8 filed with the SEC on June 30, 1982).

10.15 - Registrant's 1983 Stock Option Plan (incorporated by
reference to Exhibit 4 of Registrant's Registration
Statement No. 2-81554 on Form S-8 filed with the SEC on
January 28, 1983).

10.16 - Registrant's 1984 Stock Award Plan (incorporated by
reference to Exhibit 4(a) of Registrant's Registration
Statement No. 2-92770 on Form S-8 filed with the SEC on
August 15, 1984).

10.17 - Registrant's 1984 Stock Appreciation Rights Plan
(incorporated by reference to Exhibit 4(a) of Registrant's
Registration Statement No. 2-92770 on Form S-8 filed with
the SEC on August 15, 1984).

10.18 - Registrant's Stock Award Plan (incorporated by reference to
Exhibit 4 of Registrant's Registration Statement No.
33-22265 on Form S-8 Filed with the SEC on June 1, 1988).

10.19 - Registrant's 1986 Stock Award Plan (incorporated by
reference to Registrant's Registration Statement No. 33-2959
on Form S-8 filed with the SEC on February 4, 1986).

10.20 - Registrant's 1990 Stock Award and Option Plan (incorporated
by reference to Exhibit 10.1 of Registrant's Form 10- K for
the year ended December 31, 1990).

10.21 - Registrant's Savings Investment Plan (incorporated by
reference to Exhibit 4.1 to Registrant's Post-Effective
Amendment No. 1 on Form S-8, No. 33-20240, filed with the
SEC on October 31, 1990).

10.22 - Lease dated March 22, 1985 between Jacom Computer Services,
Inc. and PWI (IBM 3084) (incorporated by reference to
Exhibit 10.1 of Registrant's report on Form 10-K for fiscal
year ended September 30, 1985).

10.23 - Lease dated June 21, 1983 between Paine, Webber, Jackson and
Curtis Incorporated and Jacom Computer Services Inc. (IBM
3081) (incorporated by reference to Exhibit 10.5 of
Registrant's Report on Form 10-K for fiscal year ending
September 30, 1983).

10.24 - Lease dated April 9, 1986 between Unilease Computer
Corporation and PWI (IBM 3090-200) (incorporated by
reference to Exhibit 10.2 of Registrant's Form 10-K for the
year ended December 31, 1987).

F-14

<PAGE> 29

10.25 - Master Agreement between PWI and Quotron Systems Inc. dated
February 11, 1991 (incorporated by reference to Exhibit 10.4
of Registrant's Form 10-K for the year ended December 31,
1990).

10.26 - Third-Party Master Lease Agreement between PWI and AT&T
Systems Leasing Corporation dated as of October 21, 1991
(incorporated by reference to Exhibit 10.3 of Registrant's
Form 10-K for the year ended December 31, 1991).

10.27 - Lease dated December 14, 1983 between Oliver Wendell Realty
Trust and PaineWebber, Jackson & Curtis Incorporated
relating to property located at 265 Franklin Street, Boston,
Massachusetts (incorporated by reference to Exhibit 10.3 of
Registrant's Report on Form 10-K for the fiscal year ended
September 30, 1985).

10.28 - Lease dated May 17, 1985 between Rosehaugh Greycoat Estates
Limited and PaineWebber International Inc. relating to
property located at 1 Finsbury Avenue, London EC2M 2PA,
England (incorporated by reference to Exhibit 10.4 of
Registrant's Report on Form 10-K for the fiscal year ended
September 30, 1985).

10.29 - Lease Agreement dated as of April 14, 1986, between PWI (as
Tenant) and Hartz-PW Limited Partnership (as Landlord)
relating to the Lincoln Harbor Project (Operations Center)
located in Weehawken, New Jersey (incorporated by reference
to Exhibit 10.1 of Registrant's Form 10-K for the fiscal
year ended September 30, 1986).

10.30 - Lease Agreement dated as of April 14, 1986, between PWI (as
Tenant) and Hartz-PW Limited Partnership (as Landlord)
relating to the Lincoln Harbor Project (Data Processing
Center) located in Weehawken, New Jersey (incorporated by
reference to Exhibit 10.2 of Registrant's Form 10-K for the
fiscal year ended September 30, 1986).

10.31 - Lease Agreement dated as of April 14, 1986, between PWI (as
Tenant) and Hartz-PW Tower B Limited Partnership, as
successor in interest to Hartz-PW Hotel Limited Partnership
relating to the Lincoln Harbor Project (Hotel/Office
Building) located in Weehawken, New Jersey (incorporated by
reference to Exhibit 10.3 of Registrant's Form 10-K for the
fiscal year ended September 30, 1986).

10.32 - Agreement of Limited Partnership of Hartz-PW Limited
Partnership dated April 14, 1986 relating to the Lincoln
Harbor Project located in Weehawken, New Jersey
(incorporated by reference to Exhibit 10.3 of Registrant's
10-K for the year ended December 31, 1987).

10.33 - Ground lease between Hartz Mountain Industries and Hartz-PW
Limited Partnership dated April 14, 1986 relating to the
Operations Center at the Lincoln Harbor Project in
Weehawken, New Jersey (incorporated by reference to Exhibit
10.4 of Registrant's 10-K for the year ended December 31,
1987).

F-15

<PAGE> 30

10.34 - Ground lease between Hartz Mountain Industries and Hartz-PW
Limited Partnership dated April 14, 1986 relating to the
Data Processing Center at Lincoln Harbor Project in
Weehawken, New Jersey (incorporated by reference to Exhibit
10.5 of Registrant's 10-K for the year ended December 31,
1987).

10.35 - Lease Acquisition Agreement between Hartz-PW Limited
Partnership and PWI dated April 14, 1986 relating to the
Lincoln Harbor Project in Weehawken, New Jersey
(incorporated by reference to Exhibit 10.6 of Registrant's
10-K for the year ended December 31, 1987).

10.36 - Transportation and Completion Agreement between Hartz-PW
Limited Partnership and PWI dated April 14, 1986 relating to
the Lincoln Harbor Project in Weehawken, New Jersey
(incorporated by reference to Exhibit 10.7 of Registrant's
10-K for the year ended December 31, 1987).

10.37 - Guarantee between Hartz Mountain Industries, as Guarantor,
and PWI, as Beneficiary, dated April 14, 1986 relating to
the Lincoln Harbor Project in Weehawken, New Jersey
(incorporated by reference to Exhibit 10.8 of Registrant's
10-K for the year ended December 31, 1987).

10.38 - General Partner Guarantee, between Hartz Mountain
Industries, as Guarantor, and PWI, as Beneficiary, dated
April 14, 1986 relating to the Lincoln Harbor Project in
Weehawken, New Jersey (incorporated by reference to Exhibit
10.9 of Registrant's 10-K for the year ended December 31,
1987).

10.39 - Agreement of Limited Partnership of River-PW Hotel Limited
Partnership relating to the Ramada Suites Hotel, Weehawken,
New Jersey (incorporated by reference to Exhibit 10.4 of
Registrant's Form 10-K for the year ended December 31,
1991).

10.40 - Hotel Rental Guarantee between PWI as Guarantor and River-PW
Hotel Limited Partnership relating to the Ramada Suite
Hotel, Weehawken, New Jersey (incorporated by reference to
Exhibit 10.5 of Registrant's Form 10-K for the year ended
December 31, 1991).

10.41 - First Amendment to Lease Agreement between 700 Louisiana
Limited, successor to RBC Limited, and Rotan Mosle Inc., as
of December 24, 1991 (incorporated by reference to Exhibit
10.6 of Registrant's Form 10-K for the year ended December
31, 1991).

10.42 - Joint Venture Agreement dated as of November 30, 1987
between Registrant and The Yasuda Mutual Life Insurance
Company (incorporated by reference to Exhibit 10.1 of
Registrant's Form 10-K for the year ended December 31,
1988).

10.43 - Lease dated as of September 27, 1988 between PWI and
American National Bank & Trust Company of Chicago relating
to property located at 181 West Madison Street, Chicago,
Illinois (incorporated by reference to Exhibit 10.12 of
Registrant's Form 10-K for the year ended December 31,
1988).

10.44 - Directors and Officers Liability and Corporation
Reimbursement insurance policy with Fiduciary Liability
Rider with National Union Fire Insurance Company
(incorporated by reference to Exhibit 10.2 of Registrant's
Form 10-K for the year ended December 31, 1990).

F-16

<PAGE> 31

10.45 - Limited Partnership Agreement of PW Partners 1989 Dedicated
L.P. dated as of December 1, 1989 (incorporated by reference
to Exhibit 10.1 of Registrant's Form 10-K for the year ended
December 31, 1992).

10.46 - Limited Partnership Agreement of PW Partners 1991 Dedicated
L.P. dated as of October 7, 1991 (incorporated by reference
to Exhibit 10.2 of Registrant's Form 10-K for the year ended
December 31, 1992).

10.47 - Letter Agreement dated as of March 9, 1993 between
Registrant and The Yasuda Mutual Life Insurance Company
(incorporated by reference to Exhibit 10.3 of Registrant's
Form 10-K for the year ended December 31, 1992).

10.48 - Form of License Agreement between Standard and Poor's
Corporation and Registrant (incorporated by reference to
Exhibit 10.1 of Registrant's Form 8-K dated June 1, 1993).

F-17

<PAGE> 32

C. Executive Compensation Plans and Arrangements

o Employment Agreement dated as of January 2, 1987 between
Registrant, PaineWebber Incorporated and Donald B. Marron
(incorporated by reference to Exhibit 10.2 of Registrant's Form
10-K for the three months ended December 31, 1986).

o Employment Agreement dated as of January 2, 1987 between
Registrant, PWI and Paul B. Guenther (incorporated by reference
to Exhibit 10.10 of Registrant's Form 10-K for the three months
ended December 31, 1986).

o Employment Agreement dated as of January 2, 1987 between
Registrant, PWI and John A. Bult (incorporated by reference to
Exhibit 10.2 of Registrant's Form 10-K for the fiscal year ended
December 31, 1988).

o Employment Agreement dated as of May 4, 1993 between Registrant,
PWI and Theodore A. Levine (filed as Exhibit 10.2 to this Form
10-K for the year ended December 31, 1993).

o Registrant's Supplemental Employee's Retirement Plan for Certain
Senior Officers dated August 4, 1988 (incorporated by reference
to Exhibit 10.4 of Registrant's Form 10-K for the year ended
December 31, 1988).

o Deferred Compensation Agreement dated as of August 29, 1988
between Registrant and Donald B. Marron relating to the
Supplemental Employees Retirement Plan (incorporated by reference
to Exhibit 10.6 of Registrant's Form 10-K for the year ended
December 31, 1988).

o Deferred Compensation Agreement dated as of August 29, 1988
between Registrant and Paul B. Guenther relating to the
Supplemental Employees Retirement Plan (incorporated by reference
Exhibit 10.8 of Registrant's Form 10-K for the year ended
December 31, 1988).

o Deferred Compensation Agreement dated as of August 29, 1988
between Registrant and John A. Bult relating to the Supplemental
Employees Retirement Plan (incorporated by Exhibit 10.9 of
Registrant's Form 10-K for the year ended December 31, 1988).

o Agreement and Declaration of Trust for Supplemental Employees
Retirement Plan dated as of January 1, 1990 between Registrant
and Chase Manhattan Bank, N.A. as Trustee (incorporated by
reference to Exhibit 10.3 of Registrant's Form 10-K for the year
ended December 31, 1990).

o Registrant's 1980 Employee Stock Option Plan (incorporated by
reference to Registrant's Registration Statement No. 2-78627 on
Form S-8 filed with the SEC on June 30, 1982).

o Registrant's 1983 Stock Option Plan (incorporated by reference to
Exhibit 4 of Registrant's Registration Statement No. 2-81554 on
Form S-8 filed with the SEC on January 28, 1983).

o Registrant's 1984 Stock Award Plan (incorporated by reference to
Exhibit 4(a) of Registrant's Registration Statement No. 2-92770
on Form S-8 filed with the SEC on August 15, 1984).

o Registrant's 1984 Stock Appreciation Rights Plan (incorporated by
reference to Exhibit 4(a) of Registrant's Registration Statement
No. 2-92770 on Form S-8 filed with the SEC on August 15, 1984).

o Registrant's Stock Award Plan (incorporated by reference to
Exhibit 4 of Registrant's Registration Statement No. 33-22265 on
Form S-8 filed with the SEC on June 1, 1988).

F-18

<PAGE> 33

o Registrant's 1986 Stock Award Plan (incorporated by reference to
Registrant's Registration Statement No. 33-2959 on Form S-8 filed
with the SEC on February 4, 1986).

o Registrant's 1990 Stock Award and Option Plan (incorporated by
reference to Exhibit 10.1 of Registrant's Form 10-K for the year
ended December 31, 1990).

o Form of 8% Convertible Debenture Due 1998 issued in connection
with Registrant's Key Executive Equity Program (incorporated by
reference to Exhibit 4.1 of Registrant's Form 10-K for the year
ended December 31,1988).

o Form of 8% Convertible Debentures Due 2000 issued in connection
with Registrant's Key Executive Equity Program (incorporated by
reference to Exhibit 4.1 of Registrant's Form 10-K for the year
ended December 31, 1991).

o Form of 6.5% Convertible Debenture Due 2002 issued in connection
with Registrant's Key Executive Equity Program (incorporated by
reference to Exhibit 4.1 of Registrant's Form 10-K for the year
ended December 31, 1992).

o Limited Partnership Agreement of PW Partners 1989 Dedicated L.P.
dated as of December 1, 1989 (incorporated by reference to
Exhibit 10.1 of Registrant's Form 10-K for the year ended
December 31, 1992).

o Limited Partnership Agreement of PW Partners 1991 Dedicated L.P.
dated as of October 7, 1991 (incorporated by reference to Exhibit
10.2 of Registrant's Form 10-K for the year ended December 31,
1992).

o Limited Partnership Agreement of PW Partners 1992 Dedicated L.P.
dated as of September 2, 1992 (filed as Exhibit 10.1 to this Form
10-K for the year ended December 31, 1993).

F-19

<PAGE> 34

PAINE WEBBER GROUP INC.
INDEX TO EXHIBITS

1 - Distribution Agreement dated November 30, 1993 between
Registrant, PWI and The First Boston Corporation.

4.1 - Copy of form of certificate of common stock to reflect a new
signatory.

4.2 - Third Supplemental Indenture dated as of November 30, 1993
between Registrant and Chemical Bank Delaware, as Trustee,
relating to the Subordinated Debt Securities.

10.1 - Limited Partnership Agreement of PW Partners 1992 Dedicated
L.P. dated as of September 2, 1992.

10.2 - Employment Agreement dated as of May 4, 1993 between
Registrant, PWI and Theodore A. Levine.

11 - Computation of Earnings per Common Share.

12.1 - Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends.

12.2 - Computation of Ratio of Earnings to Fixed Charges.

13 - 1993 Annual Report to Stockholders of Registrant.

21 - Subsidiaries of the Registrant.

23 - Consent of Independent Auditors.

<PAGE> 1

[EXECUTION COPY]
$1,587,775,000 1/
Medium-Term Senior Notes, Series C, and
Medium-Term Subordinated Notes, Series D,
Due from Nine Months to 30 Years
from Date of Issue

Paine Webber Group Inc.

Distribution Agreement

November 30, 1993
New York, New York

PAINEWEBBER INCORPORATED
1285 Avenue of the Americas
New York, New York 10019

CS FIRST BOSTON CORPORATION
Park Avenue Plaza
New York, New York 10055

Dear Sirs:

Paine Webber Group Inc., a Delaware corporation (the
"Company"), confirms its agreement with each of you with respect to the issue
and sale by the Company of up to $1,587,775,000 1/ aggregate principal amount
of its Medium-Term Senior Notes, Series C, and Medium-Term Subordinated Notes,
Series D, Due from Nine Months to 30 Years from Date of Issue (the "Notes").
The Notes will be issued either as subordinated to ("Subordinated Notes") or on
a parity with ("Senior Notes") other unsecured and unsubordinated indebtedness
of the Company and will have the annual interest rates, maturities, redemption
provisions, optional repayment rights and other terms as set forth in a
supplement to the Prospectus referred to below. The Senior Notes will be
issued under an Indenture dated as of March 15, 1988, between the Company and
Chemical Bank, as trustee (the "Senior Note Trustee"), as amended by the First
Supplemental Indenture dated as of September 22, 1989, and by the Second
Supplemental Indenture dated as of March 22, 1991 (such

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

____________________

1/ Or the U.S. dollar equivalent.
<PAGE> 2
2

Indenture, as so supplemented, being hereinafter referred to as the "Senior
Note Indenture"), each between the Company and the Senior Note Trustee. The
Subordinated Notes will be issued under an Indenture dated as of March 15,
1988, between the Company and Chemical Bank Delaware, as trustee (the
"Subordinated Note Trustee"), as amended by the First Supplemental Indenture
dated as of September 22, 1989, by the Second Supplemental Indenture dated as
of March 22, 1991, and by the Third Supplemental Indenture dated as of November
30, 1993 (such Indenture, as so supplemented, being hereinafter referred to as
the "Subordinated Note Indenture"), each between the Company and the
Subordinated Note Trustee. The Senior Note Indenture and the Subordinated Note
Indenture are hereinafter sometimes referred to as the "Indentures"; and the
Senior Note Trustee and the Subordinated Note Trustee are hereinafter sometimes
referred to as the "Trustees". The Notes will be issued, and the terms thereof
established, in accordance with the Indentures and, in the case of Notes sold
pursuant to Section 1(a), the Medium-Term Notes Administrative Procedures
attached hereto as Annex A (the "Procedures"). For the purposes of this
Agreement, the term the "Agent" shall refer to each of you acting solely in the
capacity as agent for the Company pursuant to Section 1(a) and not as
principal, the term the "Purchaser" shall in each instance refer to the
applicable Agent acting solely as principal pursuant to Section 1(g) and not as
agent, and the term "you" shall refer to each of you acting in both such
capacities or in either such capacity.

1. Appointment of Agents; Solicitation by the Agents of
Offers to Purchase; Sales of Notes to a Purchaser. (a) Subject to the terms
and conditions set forth herein, the Company hereby appoints each of the Agents
to act as its agent for the purpose of soliciting offers to purchase all or
part of the Notes from the Company upon the terms set forth in the Prospectus,
as amended or supplemented from time to time, and in the Procedures. The
appointment of the Agents hereunder is not exclusive and the Company may from
time to time offer Notes for sale otherwise than to or through an Agent;
provided, however, that so long as this Agreement is in effect the Company will
not solicit offers to purchase Notes through any agent without amending this
Agreement to appoint such agent an additional Agent hereunder on the same terms
and conditions as provided herein for the Agents and without giving the Agents
prior notice of such appointment. It is understood, however, that if from time
to time the Company is approached by a

<PAGE> 3
3

prospective agent offering to solicit a specific purchase of Notes, the Company
may engage such agent with respect to such specific purchase, provided that (i)
such agent is engaged on terms substantially similar to the applicable terms of
this Agreement and (ii) the Agents are given notice of such engagement promptly
after it is agreed to.

(b) On the basis of the representations and warranties set
forth herein, but subject to the terms and conditions set forth herein, each of
the Agents agrees to use reasonable efforts, as agent of the Company, to
solicit offers to purchase Notes from the Company upon the terms set forth in
the Prospectus, as amended or supplemented from time to time, and in the
Procedures. Each Agent shall make reasonable efforts to assist the Company in
obtaining performance by each purchaser whose offer to purchase Notes has been
solicited by such Agent and accepted by the Company, but such Agent shall not,
except as otherwise provided in this Agreement, be obligated to disclose the
identity of any purchaser or have any liability to the Company in the event any
such purchase is not consummated for any reason. Subject to the provisions of
this Section and to the Procedures, offers for the purchase of Notes may be
solicited by an Agent at such times and in such amounts as such Agent may from
time to time deem advisable.

(c) The Company reserves the right, in its sole discretion,
to suspend solicitation of offers to purchase Senior Notes or Subordinated
Notes from the Company at any time for any period of time or permanently. Upon
receipt of instructions from the Company, each Agent forthwith will suspend its
solicitation of offers to purchase Senior Notes or Subordinated Notes, as the
case may be, from the Company until such time as the Company has advised such
Agent that such solicitation may be resumed.

(d) Each Agent will communicate to the Company, orally or in
writing, each offer to purchase Notes from the Company that is received by such
Agent as agent of the Company and that is not rejected by such Agent as
provided below. The Company will have the sole right to accept offers to
purchase Notes from the Company and may reject any such offer, in whole or in
part, for any reason. Each of the Agents may, in its discretion reasonably
exercised, reject any offer to purchase Notes from the Company that is received
by such Agent, in whole or in part, and any such rejection shall not be deemed
a breach of such Agent's agreements contained herein.

<PAGE> 4
4

(e) The Company agrees to pay an Agent a commission, on the
date of delivery by the Company of any Note sold hereunder (a "Closing Date"),
with respect to each sale of Notes by the Company as a result of a solicitation
made by such Agent, in an amount equal to that percentage specified in Schedule
I hereto of the aggregate principal amount of each Senior Note and each
Subordinated Note sold by the Company. Such commission shall be payable as
specified in the Procedures. The commission rates may be amended from time to
time by written agreement of the Company and the Agents.

(f) Each of the Agents agrees, with respect to any Note
denominated in a currency other than the U.S. dollar or the European Currency
Unit, as agent, directly or indirectly, not to solicit offers to purchase, and
as principal under any Terms Agreement (as hereinafter defined) or otherwise,
directly or indirectly, not to offer, sell or deliver, such Note in, or to
residents of, the country issuing such currency, except as permitted by
applicable law.

(g) Subject to the terms and conditions stated herein,
whenever the Company and an Agent determine that the Company shall sell Notes
directly to such Agent as purchaser (the "Purchaser"), each such sale of Notes
shall be made in accordance with the terms of this Agreement and any
supplemental agreement relating thereto between the Company and the Purchaser.
Each such supplemental agreement (which shall be substantially in the form of
Annex B) is herein referred to as a "Terms Agreement". The Purchaser's
commitment to purchase Notes pursuant to any Terms Agreement shall be deemed to
have been made on the basis of the representations and warranties of the
Company herein contained and shall be subject to the terms and conditions
herein set forth. Each Terms Agreement shall describe the Notes to be
purchased by the Purchaser pursuant thereto and shall specify the principal
amount of such Notes, the price to be paid to the Company for such Notes, the
rate at which interest will be paid on the Notes, the Closing Date for such
Notes, the place of delivery of the Notes and payment therefor, the method of
payment and any modification of the requirements for the delivery of the
opinions of counsel, the certificates from the Company or its officers and the
letter from the Company's independent public accountants pursuant to Section
7(c). Such Terms Agreement shall also specify any period of time referred to
in Section 5(l).

<PAGE> 5
5

Delivery of the certificates for Notes sold to the Purchaser
pursuant to any Terms Agreement shall be made as agreed to between the Company
and the Purchaser and set forth in the respective Terms Agreement, not later
than the Closing Date set forth in such Terms Agreement, against payment of
funds to the Company in the net amount due to the Company for such Notes by the
method and in the form set forth in such Terms Agreement.

2. Offering Procedures. The Procedures may be amended only
by written agreement of the Company and the Agents after notice to the
Trustees, and, to the extent any such amendment affects a Trustee, with the
approval of such Trustee. The Company and each of the Agents agree to perform
the respective duties and obligations specifically provided to be performed by
them in the Procedures.

3. Registration Statements and Prospectus. The Company has
filed with the Securities and Exchange Commission (the "Commission"), pursuant
to the Securities Act of 1933, as amended (the "Securities Act"), and the
published rules and regulations adopted by the Commission thereunder (the
"Rules"), a registration statement on Form S-3 (No. 33-58124), as amended by
Amendment No. 1 thereto (as so amended, the "First Registration Statement"),
and a registration statement on Form S-3 (No. 33-51149) (the "Second
Registration Statement") (such Second Registration Statement also constituting
Post-Effective Amendment No. 1 to the First Registration Statement), each
including a basic prospectus, which have become effective under the Securities
Act under which the sale of $1,587,775,000 aggregate principal amount of debt
securities (the "Securities"), including the Notes, remains registered at this
time (the First Registration Statement and the Second Registration Statement,
each including all exhibits thereto and each as amended at the date of this
Agreement, being hereinafter collectively called the "Registration
Statements"). The Company has included in the Registration Statements, or has
filed or will file with the Commission pursuant to the applicable paragraph of
Rules 424(b) and 429 under the Securities Act, a supplement to the form of
prospectus included in the Registration Statements relating to the Notes and
the plan of distribution thereof (the "Prospectus Supplement"). In connection
with the sale of the Notes the Company proposes to file with the Commission
pursuant to the applicable paragraph of Rules 424(b) and 429 under the
Securities Act further supplements to the Prospectus Supplement specifying the
interest rates, maturity dates, redemption

<PAGE> 6
6

provisions, if any, optional repayment rights, if any, and other terms of
the Notes sold pursuant hereto or the offering thereof. The Indentures have
been qualified under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). The term "the Effective Date" shall mean, for each of the
Registration Statements, each date that such Registration Statement and any
post-effective amendment or amendments thereto became or become effective.
"Basic Prospectus" shall mean the form of basic prospectus relating to the
Securities contained in each Registration Statement at the Effective Date. The
term "Prospectus" means the Basic Prospectus as supplemented by the Prospectus
Supplement. Any reference herein to a Registration Statement, the Basic
Prospectus, the Prospectus Supplement or the Prospectus includes the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 (the
"Incorporated Documents") which were filed under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), on or before the Effective Date of such
Registration Statement or the issue date of the Basic Prospectus, the
Prospectus Supplement or the Prospectus, as the case may be, and any reference
herein to "amend", "amendment" or "supplement" with respect to a Registration
Statement, the Basic Prospectus, the Prospectus Supplement or the Prospectus
includes the Incorporated Documents filed under the Exchange Act after the
Effective Date of such Registration Statement or the issue date of the Basic
Prospectus, the Prospectus Supplement or the Prospectus, as the case may be;
and any reference herein to the Registration Statements includes each of the
First Registration Statement and the Second Registration Statement only so long
as Notes may be issued in the future thereunder and shall refer to either one
or both of such Registration Statements, as appropriate.

The Company confirms that you are authorized to distribute the
Prospectus and any amendments or supplements thereto.

4. Representations and Warranties. The Company represents
and warrants to you as follows:

(a) The Company meets the requirements for the use of Form
S-3 under the Securities Act. The Registration Statements meet the
requirements set forth in Rule 415(a)(1)(ix) or (x) of the Rules and comply in
all other material respects with Rule 415 of the Rules.

<PAGE> 7
7

(b) As of the date hereof, on the Effective Date, when any
amendment or supplement to the Prospectus is filed with the Commission pursuant
to Rule 424 or Rule 429 of the Rules, as of the date of any Terms Agreement and
on any Closing Date, (i) the Registration Statements, as amended as of any such
time, the Prospectus, as amended or supplemented as of any such time, and the
Incorporated Documents will comply in all material respects with the applicable
requirements of the Securities Act and the Rules, and the Exchange Act and the
Trust Indenture Act and the respective published rules and regulations adopted
by the Commission thereunder, (ii) the Registration Statements, as amended as
of any such time, did not or will not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading, and (iii)
the Prospectus, as amended or supplemented as of any such time, will not
contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; except that this
representation and warranty does not apply to (x) statements or omissions made
in reliance on and in conformity with information relating to you furnished in
writing to the Company by you expressly for use in the Registration Statements,
the Prospectus or any amendment or supplement thereto or (y) that part of the
Registration Statements that shall constitute the Statements of Eligibility and
Qualification on Form T-1 of the Trustees under the Trust Indenture Act, except
statements or omissions in any such Statement made in reliance upon information
furnished in writing to the applicable Trustee by or on behalf of the Company
for use therein.

(c) As of the time any Notes are issued and sold hereunder,
the Indenture will constitute a legal, valid and binding instrument enforceable
against the Company in accordance with its terms and such Notes will have been
duly authorized, executed, authenticated and, when paid for by the purchasers
thereof, will constitute legal, valid and binding obligations of the Company
entitled to the benefits of the Indenture.

Each acceptance by the Company of an offer to purchase Notes
from the Company and each request by the Company to you that you solicit offers
to purchase Notes from the Company will be deemed to be a representation and
warranty by the Company to you that the representations and

<PAGE> 8
8

warranties of the Company in this Agreement are true and correct as of the time
of such acceptance and that such representations and warranties will be true
and correct as of the Closing Date for such Notes, in each case as though made
at and as of such time; it being understood that such representations and
warranties will relate to the Registration Statements as amended as of any such
time and the Prospectus as amended or supplemented as of any such time.

5. Agreements. (a) Prior to the termination of the offering
of the Notes, the Company will not file any amendment or supplement to either
of the Registration Statements or the Prospectus (except for (i) periodic or
current reports filed under the Exchange Act, (ii) a supplement relating to any
offering of Notes providing solely for the specification of or a change in the
maturity dates, the interest rates, the issuance prices or other similar terms
of any Notes or (iii) a supplement relating to an offering of Securities other
than Notes) (including any document to be incorporated therein by reference)
unless a copy thereof has been submitted to you a reasonable period of time
before its filing and you have not reasonably objected thereto within a
reasonable period of time after receiving such copy. Subject to the foregoing
sentence, the Company will cause each amendment or supplement to the Prospectus
to be filed with the Commission as required pursuant to the applicable
paragraph of Rules 424(b) and/or 429 of the Rules or, in the case of any
document to be incorporated therein by reference, to be filed with the
Commission as required pursuant to the Exchange Act, within the time period
prescribed and will provide evidence satisfactory to you of such filing.

(b) The Company will advise you promptly (i) when each
amendment or supplement to the Prospectus shall have been filed with the
Commission pursuant to Rules 424(b) and/or 429 or, in the case of any document
incorporated therein by reference, when such document shall have been filed
with the Commission pursuant to the Exchange Act, (ii) when, prior to the
termination of the offering of the Notes, any amendment to either of the
Registration Statements shall have been filed or become effective, (iii) of the
initiation or threatening of any proceedings for, or receipt by the Company of
any notice with respect to, the suspension of the qualification of the Notes
for sale in any jurisdiction or the issuance of any order by the Commission
suspending the effectiveness of either of the Registration Statements and (iv)
of the receipt by the

<PAGE> 9
9

Company or any representative or attorney of the Company of any other
communication from the Commission relating to either of the Registration
Statements, the Prospectus or any amendment or supplement thereto or to the
transactions contemplated by this Agreement. The Company will use its best
efforts to prevent the issuance of an order suspending the effectiveness of
either of the Registration Statements and, if any such order is issued, to
obtain its lifting as soon as possible.

(c) The Company will deliver to you, without charge, two
conformed copies of the Second Registration Statement and each post-effective
amendment to the Registration Statements filed after the date hereof (including
all exhibits filed with any such document) and as many conformed copies of the
Registration Statements and each such amendment (excluding exhibits) and each
Indenture as you may reasonably request.

(d) The Company, during the period when a prospectus relating
to the Notes is required to be delivered under the Act, will deliver, without
charge, to you, at such office or offices as you may designate, as many copies
of the Prospectus or any amendment or supplement thereto as you may reasonably
request, and, if any event occurs during such period as a result of which the
Prospectus, as then amended or supplemented, would include any untrue statement
of a material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, or if during such period it is necessary to amend
either Registration Statement or to amend or supplement the Prospectus to
comply with the Securities Act or the Rules or the Exchange Act or the
published rules and regulations adopted by the Commission thereunder, the
Company promptly will (i) notify you to suspend solicitation of offers to
purchase Notes from the Company, (ii) prepare and file with the Commission,
subject to Section 5(a), and deliver, without charge, to you, an amendment or
supplement which will correct such statement or omission or effect such
compliance and (iii) supply any amended or supplemented Prospectus to you in
such quantities as you may reasonably request.

(e) The Company, during the period when a prospectus relating
to the Notes is required to be delivered under the Act, will file promptly all
documents required to be filed with the Commission pursuant to Section 13(a),

<PAGE> 10
10

13(c), 14 or 15(d) of the Exchange Act. The Company will make generally
available to its security holders as soon as practicable, but in any event not
later than fifteen months after (i) the Effective Dates of the Registration
Statements, (ii) the Effective Date of each post-effective amendment to either
of the Registration Statements and (iii) the date of each filing by the Company
with the Commission of an Annual Report on Form 10-K that is incorporated by
reference in the Registration Statements, an earnings statement satisfying the
provisions of Section 11(a) of the Securities Act and Rule 158 of the Rules.

(f) The Company will take such actions as you designate in
order to qualify the Notes for offer and sale under the securities or "blue
sky" laws of such jurisdictions as you designate, will maintain such
qualification in effect for so long as may be required for the distribution of
the Notes and will arrange for the determination of the legality of the Notes
for purchase by institutional investors.

(g) The Company will supply to you copies of such financial
statements and other periodic and special reports as the Company may from time
to time distribute generally to the holders of any class of its capital stock
and of each annual or other report it is required to file with the Commission.
The Company shall furnish to you such information, documents, certificates of
officers of the Company and opinions of counsel for the Company relating to the
business, operations and affairs of the Company, the Registration Statements,
the Prospectus, and any amendments thereof or supplements thereto, the
Indenture, the Notes, this Agreement, the Procedures and the performance by the
Company and you of its and your respective obligations hereunder and thereunder
as you may from time to time and at any time prior to the termination of this
Agreement reasonably request.

(h) The Company will, whether or not the transactions
contemplated by this Agreement are consummated or this Agreement is terminated,
(i) pay, or reimburse if paid by you, all costs and expenses incident to the
performance of the obligations of the Company under this Agreement, including
costs and expenses relating to (A) the preparation, printing and filing of the
Registration Statements and exhibits thereto, the Prospectus, all amendments
and supplements to either of the Registration Statements and the Prospectus,
and the printing or other reproduction of the

<PAGE> 11
11

Indentures and this Agreement, (B) the authorization and issuance of the Notes
and the preparation and delivery of certificates for the Notes, (C) the
registration or qualification of the Notes for offer and sale under the
securities or "blue sky" laws of the jurisdictions referred to in paragraph (f)
of this Section 5 and the determination of the legality of the Notes for
investment, including the fees and disbursements of Cravath, Swaine & Moore,
your counsel, in that connection, and the preparation and printing of
preliminary and supplemental "blue sky" memoranda and legal investment
memoranda, (D) the furnishing (including costs of shipping and mailing) to you
of copies of the Prospectus, and all amendments or supplements to the
Prospectus, and of all other documents, reports and other information required
by this Section to be so furnished, (E) all transfer taxes, if any, with
respect to the sale and delivery of the Notes by the Company, (F) the fees and
expenses of the Trustees, (G) all fees charged by the National Association of
Securities Dealers, Inc., in connection with the Notes and (H) the fees charged
by rating agencies in connection with any rating of the Notes, (ii) reimburse
you on a quarterly basis for all out-of-pocket expenses (including advertising
expenses) incurred by you with the advance approval of the Company and (iii)
reimburse the reasonable fees and disbursements of Cravath, Swaine & Moore,
your counsel, incurred in connection with this Agreement.

(i) Each time that either of the Registration Statements or
the Prospectus is amended or supplemented (other than by an amendment or
supplement relating to any offering of Securities other than the Notes or
providing solely for the specification of or a change in the maturity dates,
the interest rates, the issuance prices or other similar terms of any Notes
sold pursuant hereto), including by the filing of any document incorporated
therein by reference, the Company will deliver or cause to be delivered
forthwith to you a certificate of the chief executive, operating or financial
officer or treasurer and the secretary or chief financial or accounting officer
or treasurer of the Company, dated the date of the effectiveness of such
amendment or the date of filing of such supplement, in form reasonably
satisfactory to you, to the effect that the statements contained in the
certificate that was last furnished to you pursuant to either Section 6(c) or
this paragraph (i) are true and correct at the time of the effectiveness of
such amendment or the filing of such supplement as though made at and as of
such time (except that (i) the last day of the fiscal quarter for which

<PAGE> 12
12

financial statements of the Company were last filed with the Commission shall
be substituted for the corresponding date in such certificate and (ii) such
statements shall be deemed to relate to the Registration Statements and the
Prospectus as amended or supplemented to the time of the effectiveness of such
amendment or the filing of such supplement) or, in lieu of such certificate, a
certificate of the same tenor as the certificate referred to in Section 6(c)
but modified to relate to the last day of the fiscal quarter for which
financial statements of the Company were last filed with the Commission and to
the Registration Statements and the Prospectus as amended or supplemented to
the time of the effectiveness of such amendment or the filing of such
supplement.

(j) Each time that either of the Registration Statements or
the Prospectus is amended or supplemented (other than by an amendment or
supplement (i) relating to any offering of Securities other than the Notes,
(ii) providing solely for the specification of or a change in the maturity
dates, the interest rates, the issuance prices or other similar terms of any
Notes sold pursuant hereto, or (iii) setting forth or incorporating by
reference financial statements or other information as of and for a fiscal
quarter, unless, in the case of clause (iii) above, in your reasonable
judgment, such financial statements or other information are of such a nature
that an opinion of counsel should be furnished), including by the filing of any
document incorporated therein by reference, the Company will furnish or cause
to be furnished forthwith to you a written opinion of counsel for the Company
satisfactory to you, dated the date of the effectiveness of such amendment or
date of filing of such supplement, in form satisfactory to you, of the same
tenor as the opinion referred to in Section 6(d) but modified to relate to the
Registration Statements and the Prospectus as amended or supplemented to the
time of the effectiveness of such amendment or the filing of such supplement
or, in lieu of such opinion, counsel last furnishing such an opinion to you may
furnish you with a letter to the effect that you may rely on such counsel's
last opinion to the same extent as though it were dated the date of such letter
authorizing reliance (except that statements in such counsel's last opinion
will be deemed to relate to the Registration Statements and the Prospectus as
amended or supplemented to the time of the effectiveness of such amendment or
the filing of such supplement).

<PAGE> 13
13

(k) Each time that either of the Registration Statements or
the Prospectus is amended or supplemented to set forth amended or supplemental
financial information, including by the filing of any document incorporated
therein by reference, the Company will cause its independent public accountants
forthwith to furnish a letter, dated the date of the effectiveness of such
amendment or the date of filing of such supplement, in form satisfactory to
you, of the same tenor as the letter referred to in Section 6(f) with such
changes as may be necessary to reflect the amended and supplemental financial
information included or incorporated by reference in the Registration
Statements and the Prospectus, as amended or supplemented to the date of such
letter, provided that if either of the Registration Statements or the
Prospectus is amended or supplemented solely to include or incorporate by
reference financial information as of and for a fiscal quarter, the Company's
independent public accountants may limit the scope of such letter, which shall
be satisfactory in form to you, to the unaudited financial statements, the
related "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and any other information of an accounting, financial or
statistical nature included in such amendment or supplement, unless, in your
reasonable judgment, such letter should cover other information or changes in
specified financial statement line items.

(l) During the period, if any, specified in any Terms
Agreement, the Company shall not, without the prior consent of the Purchaser,
issue or announce the proposed issuance of any of its debt securities,
including Notes, with terms substantially similar to the Notes being purchased
pursuant to such Terms Agreement.

(m) Upon your reasonable request on any Closing Date, the
Company will furnish or cause to be furnished forthwith to you a written
opinion of counsel for the Company satisfactory to you, dated such Closing
Date, of the same tenor as paragraphs 1 and 4 of the opinion referred to in
Section 6(d), but modified, as necessary, to relate to the Prospectus as
amended or supplemented at such Closing Date and except that such opinion shall
state that the Notes being sold by the Company on such Closing Date, when
delivered against payment therefor as provided in the applicable Indenture and
this Agreement, will, assuming performance by the Authenticating Agent or the
applicable Trustee under the applicable Indenture, have been duly executed,
authenticated, issued and delivered and will constitute legal, valid

<PAGE> 14
14

and binding obligations of the Company entitled to the benefits of the
applicable Indenture and enforceable in accordance with their terms, subject
only to the exceptions as to enforcement set forth in paragraph 4 of the
opinion referred to in Section 6(d), and that such Notes conform to the
description thereof contained in the Prospectus as amended or supplemented to
such Closing Date.

6. Conditions to the Obligations of each Agent. The
obligations of each Agent to solicit offers to purchase Notes from the Company
are subject to the accuracy, on the date of this Agreement, on the Effective
Date, when any amendment or supplement to the Prospectus is filed with the
Commission pursuant to the applicable paragraph of Rule 424(b) and/or 429 of
the Rules and on each Closing Date, of the representations and warranties of
the Company in this Agreement, to the accuracy and completeness of all
statements made by the Company or any of its officers in any certificate
delivered to such Agent or such Agent's counsel pursuant to this Agreement, to
performance by the Company of its obligations under this Agreement and to each
of the following additional conditions:

(a) If filing of the Prospectus, or any supplement thereto,
is required pursuant to Rule 424(b), the Prospectus, and any such supplement,
shall have been filed in the manner and within the time period required by Rule
424(b); and no order suspending the effectiveness of either of the Registration
Statements, as amended from time to time, shall be in effect and no proceedings
for such purpose shall be pending before or threatened by the Commission, and
any requests for additional information on the part of the Commission (to be
included in either of the Registration Statements or the Prospectus or
otherwise) shall have been complied with to the reasonable satisfaction of such
Agent.

<PAGE> 15
15

or not arising from transactions in the ordinary course of business, except as
set forth in or contemplated by the Prospectus, as then amended or
supplemented, (iii) the Company and its subsidiaries must not have sustained
any material loss or interference with their business or properties from fire,
explosion, earthquake, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or any court or legislative or other
governmental action, order or decree not described in the Prospectus, as then
amended or supplemented, and (iv) there must not have been any downgrading in
the rating of any of the Company's debt securities by any nationally recognized
statistical rating organization (as defined for purposes of Rule 436(g) of the
Rules) or any public announcement by any such organization of any proposal by
it to downgrade such rating or that it has under surveillance or review its
rating of the Notes or any other debt securities of the Company (other than an
announcement with positive implications of a possible upgrading, and no
implication of a possible downgrading, of such rating) if, in the judgment of
such Agent, any such development referred to in clause (i), (ii), (iii) or (iv)
makes it impracticable or inadvisable to proceed with the soliciting of offers
to purchase Notes from the Company as contemplated by the Prospectus, as then
amended or supplemented.

(c) The Company shall have furnished to such Agent on the
date of this Agreement a certificate of the Treasurer and the General Counsel
of the Company, dated such date, certifying that (i) the signers have carefully
examined the Registration Statements, the Prospectus, the Indentures and this
Agreement, (ii) the representations and warranties of the Company in this
Agreement are accurate on and as of the date of such certificate and the
Company has complied with all the agreements and satisfied all the conditions
on its part to be performed or satisfied as a condition to the obligation of
such Agent to solicit offers to purchase the Notes, (iii) since the date of the
most recent financial statements included or incorporated by reference in the
Prospectus, there has not been any material adverse change in the general
affairs, prospects, management, business, properties, financial condition or
results of operations of the Company and its subsidiaries taken as a whole,
whether or not arising from transactions in the ordinary course of business,
except as set forth in or contemplated in the Prospectus, as amended or
supplemented as of the date of such certificate, and (iv) to the knowledge of
such officers, no action to suspend the effectiveness

<PAGE> 16
16

of either of the Registration Statements, as amended as of the date of
such certificate, or to prohibit the sale of the Notes has been taken or
threatened by the Commission.

(d) Such Agent shall have received on the date of this
Agreement from the General Counsel of the Company an opinion dated such date
substantially in the form of Annex C to this Agreement.

(e) Such Agent shall have received on the date of this
Agreement from Cravath, Swaine & Moore, its counsel, an opinion dated such date
with respect to the Company, the Notes, the Indentures, the Registration
Statements, the Prospectus, this Agreement and the form and sufficiency of all
proceedings taken in connection with the sale and delivery of the Notes. Such
opinion and proceedings shall be satisfactory in all respects to such Agent.
The Company must have furnished to such counsel such documents as they may
reasonably request for the purpose of enabling them to render such opinion.

(f) Such Agent shall have received, at the date of this
Agreement, a signed letter from Ernst & Young, independent accountants for the
Company, substantially in the form of Annex D to this Agreement.

All opinions, letters, evidence and certificates mentioned
above or elsewhere in this Agreement will comply with this Agreement only if
they are in form and scope satisfactory to such Agent and its counsel.

If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material respects when and as provided in this
Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all material respects reasonably
satisfactory in form and substance to such Agent and its counsel, this
Agreement and all obligations of such Agent hereunder may be cancelled at any
time by such Agent. Notice of such cancellation shall be given to the Company
in writing or by telephone or telegraph confirmed in writing.

The documents required to be delivered by this Section 6 shall
be delivered at the office of Cravath, Swaine & Moore, counsel for the Agents,
at Worldwide Plaza,

<PAGE> 17
17

825 Eighth Avenue, New York, New York, on the date of this Agreement.

7. Conditions to the Obligations of the Purchaser. The
obligations of the Purchaser to purchase any Notes from the Company are subject
to the accuracy, on the date of any related Terms Agreement and on the Closing
Date for such Notes, of the representations and warranties of the Company in
this Agreement, to the accuracy and completeness of all statements made by the
Company or any of its officers in any certificate delivered to the Purchaser or
its counsel pursuant to this Agreement, to performance by the Company of its
obligations under this Agreement and to each of the following additional
conditions:

(a) No stop order suspending the effectiveness of either of
the Registration Statements shall have been issued and no proceedings
for that purpose shall have been instituted or threatened.

(b) Since the date of the most recent financial statements
included or incorporated by reference in the Prospectus, (i) there
must not have been any change or decrease (of the type indicated in
paragraph (b)(3) of Annex D to this Agreement) specified in the most
recent letter of the type referred to in Section 5(k), in Section 6(f)
or in paragraph (c)(iv) of this Section 7, (ii) there must not have
been any material adverse change in the general affairs, prospects,
management, business, properties, financial condition or results of
operations of the Company and its subsidiaries taken as a whole,
whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated by the Prospectus, as
then amended or supplemented, (iii) the Company and its subsidiaries
must not have sustained any material loss or interference with their
business or properties from fire, explosion, earthquake, flood or
other calamity, whether or not covered by insurance, or from any labor
dispute or any court or legislative or other governmental action,
order or decree not described in the Prospectus, as then amended or
supplemented, and (iv) there must not have been any downgrading in the
rating of any of the Company's debt securities by any nationally
recognized statistical rating organization (as defined for purposes of
Rule 436(g) of the Rules) or, if so specified in the applicable Terms
Agreement, any public announcement by any such organization of any
proposal

<PAGE> 18
18

by it to downgrade such rating or that it has under surveillance or
review its rating of the Notes or any other debt securities of the
Company (other than an announcement with positive implications of a
possible upgrading, and no implication of a possible downgrading, of
such rating), if, in the judgment of the Purchaser, any such
development referred to in clause (i), (ii), (iii) or (iv) makes it
impracticable or inadvisable to consummate the purchase of the Notes.

(c) If specified by any related Terms Agreement and except to
the extent modified by such Terms Agreement, the Purchaser shall have
received, appropriately updated, (i) a certificate of the Company,
dated as of the Closing Date, to the effect set forth in Section 6(c)
(except that references to the Prospectus shall be to the Prospectus
as supplemented at the time of execution of the Terms Agreement), (ii)
the opinion of the General Counsel of the Company, dated as of the
Closing Date, to the effect set forth in Section 6(d), (iii) the
opinion of Cravath, Swaine & Moore, counsel for the Purchaser, dated
as of the Closing Date, to the effect set forth in Section 6(e) and
(iv) a letter of Ernst & Young, independent accountants for the
Company, dated as of the Closing Date, to the effect set forth in
Section 6(f).

(d) Prior to the Closing Date, the Company shall have
furnished to the Purchaser such further information, certificates and
documents as the Purchaser may reasonably request.

If any of the conditions specified in this Section 7 shall not
have been fulfilled in all material respects when and as provided in this
Agreement and any Terms Agreement, or if any of the opinions and certificates
mentioned above or elsewhere in this Agreement or such Terms Agreement shall
not be in all material respects reasonably satisfactory in form and substance
to the Purchaser and its counsel, such Terms Agreement and all obligations of
the Purchaser thereunder and with respect to the Notes subject thereto may be
cancelled at, or at any time prior to, the respective Closing Date by the
Purchaser. Notice of such cancellation shall be given to the Company in
writing or by telephone or telegraph confirmed in writing.

8. Right of Person Who Agreed to Purchase to Refuse to
Purchase. The Company agrees that any person who

<PAGE> 19
19

has agreed to purchase and pay for any Note, including the Purchaser and any
person who purchases pursuant to a solicitation by an Agent, shall have the
right to refuse to purchase such Note if, at the Closing Date therefor, any
condition set forth in Section 6 or 7, as applicable, shall not be satisfied,
it being understood that under no circumstances whatsoever shall an Agent have
any duty or obligation to exercise the judgment permitted under Section 6(b) or
Section 7(b) on behalf of any such person.

9. Indemnification. (a) The Company will indemnify and hold
harmless you, your directors, officers, employees and agents and each person,
if any, who controls you within the meaning of either the Securities Act or the
Exchange Act against any and all losses, claims, damages and liabilities, joint
or several (including any investigation, legal and other expenses reasonably
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted), to which they, or any of them, may
become subject under the Securities Act, the Exchange Act or other Federal or
state statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus, either Registration Statement or the Prospectus or
any amendment or supplement to any of the foregoing, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, provided that the Company will not be liable to the extent that
such loss, claim, damage or liability arises from the sale of Notes by the
Company to any person in the manner contemplated in the Prospectus, as amended
or supplemented as of the time of the confirmation of such sale, as a result of
a solicitation by you and is based upon an untrue statement or omission or
alleged untrue statement or omission (i) made in reliance upon and in
conformity with information relating to you furnished in writing to the Company
by you expressly for use in the document or (ii) in a preliminary prospectus if
the Prospectus, as amended or supplemented as of the time of the confirmation
of the sale to such person, corrected the untrue statement or omission or
alleged untrue statement or omission which is the basis of the loss, claim,
damage or liability for which indemnification is sought and a copy of the
Prospectus, as so amended (but excluding any documents incorporated therein by
reference), was not sent or given to such person at or before the confirmation
of the

<PAGE> 20
20

sale to such person in any case where such delivery is required by the
Securities Act, unless such failure to deliver the Prospectus, as so amended,
was a result of noncompliance by the Company with Section 5(d). This indemnity
agreement will be in addition to any liability that the Company might otherwise
have.

(b) You will indemnify and hold harmless the Company, each
person, if any, who controls the Company within the meaning of either the
Securities Act or the Exchange Act, each director of the Company and each
officer of the Company who signs either of the Registration Statements to the
same extent as the foregoing indemnity from the Company to you, but only
insofar as losses, claims, damages or liabilities arise from the sale of Notes
by the Company to any person in the manner contemplated in the Prospectus as a
result of a solicitation by you and are based upon any untrue statement or
omission or alleged untrue statement or omission made in any preliminary
prospectus, either Registration Statement or the Prospectus or any amendment or
supplement to any of them in reliance upon and in conformity with information
relating to you furnished in writing to the Company by you expressly for use in
the document. This indemnity agreement will be in addition to any liability
that you might otherwise have.

(c) Any party that proposes to assert the right to be
indemnified under this Section 9 will, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim is to
be made against an indemnifying party or parties under this Section 9, notify
each such indemnifying party of the commencement of such action, enclosing a
copy of all papers served, but the omission so to notify such indemnifying
party will not relieve it from liability under this Section 9 unless and to the
extent it did not otherwise learn of such action and such failure results in
the forfeiture by the indemnifying party of substantial rights and defenses and
will not relieve it from any liability that it may have to any indemnified
party otherwise than under this Section 9. If any such action is brought
against any indemnified party and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it elects by delivering written notice to the
indemnified party promptly after receiving notice of the commencement of the
action from the indemnified party, jointly with any other indemnifying party
similarly notified, to assume the defense of the action,

<PAGE> 21
21

with counsel satisfactory to the indemnified party, and, after notice from the
indemnifying party to the indemnified party of its election to assume the
defense, the indemnifying party will not be liable to the indemnified party for
any legal or other expenses except as provided below and except for the
reasonable costs of investigation subsequently incurred by the indemnified
party in connection with the defense. The indemnified party will have the
right to employ its own counsel in any such action, but the fees and expenses
of such counsel will be at the expense of such indemnified party unless (1) the
employment of counsel by the indemnified party has been authorized in writing
by the indemnifying party, (2) the indemnified party has reasonably concluded
that there may be legal defenses available to it or other indemnified parties
which are different from or in addition to those available to the indemnifying
party (in which case the indemnifying party will not have the right to direct
the defense of such action on behalf of the indemnified party) or (3) the
indemnifying party has not in fact employed counsel to assume the defense of
such action within a reasonable time after receiving notice of the commencement
of the action, in each of which cases the fees and expenses of such counsel
will be at the expense of the indemnifying party or parties and all such fees
and expenses will be reimbursed promptly as they are incurred. An indemnifying
party will not be liable for any settlement of any action or claim effected
without its written consent or, in connection with any proceeding or related
proceedings in the same jurisdiction, for the fees and expenses of more than
one separate counsel for all indemnified parties.

10. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 9 is applicable in accordance with its terms but for any reason is held
to be unavailable from the Company or you, the Company and each of you agree to
contribute to the aggregate losses, claims, damages and liabilities (including
any investigation, legal and other expenses reasonably incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claim asserted) (collectively "Losses") to which the Company and one or
more of you may be subject in such proportion as is appropriate to reflect the
relative benefits received by the Company and by each of you from the offering
of the Notes from which such Losses arise; provided, however, that in no case
shall any of you be responsible for any amount in excess of the commissions
received by you yourself in connection with the sale of

<PAGE> 22
22

Notes from which such Losses arise (or, in the case of Notes sold pursuant to a
Terms Agreement, the aggregate commissions that would have been received by you
yourself if such commissions had been payable). If the allocation provided by
the immediately preceding sentence is unavailable for any reason, the Company
and each of you shall contribute in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company and each of you in connection with the statements or omissions which
resulted in such Losses as well as any other relevant equitable considerations.
Benefits received by the Company shall be deemed to be equal to the total net
proceeds from the offering (before deducting expenses) of the Notes from which
such Losses arise, and benefits received by each of you shall be deemed to be
equal to the total commissions received by you yourself in connection with the
sale of Notes from which such Losses arise (or, in the case of Notes sold
pursuant to a Terms Agreement, the aggregate commissions that would have been
received by you yourself if such commissions had been payable). Relative fault
shall be determined by reference to whether any alleged untrue statement or
omission relates to information provided by the Company or any of you. The
Company and each of you agree that it would not be just and equitable if
contribution were determined by pro rata allocation or any other method of
allocation which does not take account of the equitable considerations referred
to above. Notwithstanding the provisions of this Section 10, no person found
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. For purposes of this Section
10, any person who controls a party to this Agreement within the meaning of
either the Securities Act or the Exchange Act will have the same rights to
contribution as that party, and each officer of the Company who signed either
of the Registration Statements and each director of the Company will have the
same rights to contribution as the Company, subject in each case to the
applicable terms and conditions of this Section 10. Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action against such party in respect of which a claim for contribution may be
made under this Section 10, notify such party or parties from whom contribution
may be sought, but the omission so to notify (i) will not relieve such party or
parties from liability under this Section 8 unless and to the extent it or they
did not

<PAGE> 23
23

otherwise learn of such action and such failure results in the forfeiture by
such party or parties of substantial rights and defenses and (ii) will not
relieve the party or parties from whom contribution may be sought from any
other obligation it or they may have otherwise than under this Section 10. No
party will be liable for contribution with respect to any action or claim
settled without its written consent.

11. Termination. (a) This Agreement may, as between the
Company and you, be terminated for any reason at any time by either the Company
or you giving written notice of such termination to the other party. If any
such notice is given, this Agreement will terminate, as between the Company and
you, at the close of business on the third business day following the receipt
of such notice by the party to whom such notice is given. In the event of any
such termination, no party shall have any liability to the other party hereto,
except as provided in Sections 1(e), 5(h), 9, 10 and 12, and this Agreement
shall continue between the Company and any other party to this Agreement
without regard to any such termination.

(b) Each Terms Agreement shall be subject to termination in
the absolute discretion of the Purchaser by notice given to the Company if,
prior to delivery of any payment for Notes to be purchased thereunder, (1)
trading in the equity securities of the Company is suspended by the Commission,
by an exchange that lists such equity securities of the Company, or by the
National Association of Securities Dealers Automated Quotation National Market
System, (2) additional material governmental restrictions, not in force on the
date of this Agreement, have been imposed upon trading in securities generally
or minimum or maximum prices have been generally established on the New York
Stock Exchange or on the American Stock Exchange, or trading in securities
generally has been suspended on any such Exchange or a general banking
moratorium has been established by Federal or New York authorities or (3) any
outbreak or material escalation of hostilities or other calamity or crisis
occurs the effect of which is such as to make it, in the judgment of the
Purchaser, impracticable to market such Notes.

12. Miscellaneous. The respective representations,
warranties and agreements of the Company and you in this Agreement will remain
in full force and effect regardless of any investigation made by or on behalf
of you,

<PAGE> 24
24

the Company or any person controlling you or the Company and will survive
delivery of and payment for the Notes. The reimbursement, indemnification and
contribution agreements in Sections 1(e), 5(h), 9, 10 and 11 will remain in
full force and effect regardless of any termination of this Agreement.

This Agreement is for the benefit of you and the Company and
the respective successors of each of you and the Company and, to the extent
expressed in this Agreement, for the benefit of persons controlling you or the
Company, and directors and officers of the Company, and their respective
successors, and no other person, partnership, association or corporation shall
acquire or have any right under or by virtue of this Agreement.

Notwithstanding anything to the contrary contained in the
Distribution Agreement dated March 2, 1993, between the Company and you (the
"Prior Agreement"), the Prior Agreement shall terminate (except with respect to
Sections 1(e), 5(h), 9, 10 and 11 thereof) immediately upon the execution and
delivery of this Agreement.

All notices and communications under this Agreement will be in
writing, effective only on receipt and mailed or delivered by messenger,
facsimile transmission or otherwise to PaineWebber Incorporated at 1285 Avenue
of the Americas, New York, New York 10019, attention of General Counsel and
Treasurer, to CS First Boston Corporation at Park Avenue Plaza, New York, New
York 10055, attention of New Issue Processing Department, or to the Company at
1285 Avenue of the Americas, New York, New York 10019, attention of General
Counsel and Treasurer.

<PAGE> 25
25

This Agreement may be signed in multiple counterparts that
taken as a whole constitute one agreement.

This Agreement will be governed by and construed in accordance
with the laws of the State of New York.

Please confirm that the foregoing correctly sets forth the agreement between
us.

Very truly yours,

PAINE WEBBER GROUP INC.

by______________________
Title:

Confirmed:

PAINEWEBBER INCORPORATED

by________________________
Title:

CS FIRST BOSTON CORPORATION

by ________________________
Title:

<PAGE> 26

Schedule I

SENIOR AND SUBORDINATED MEDIUM-TERM NOTE FEES

<TABLE>
<CAPTION>
Maturity Senior Subordinated
- ------------------------------- ------ ------------
<S> <C> <C>
9 months to less than 12 months .080 .080

12 months to less than 18 months .125 .125

18 months to less than 2 years .150 .150

2 years to less than 3 years .250 .250

3 years to less than 4 years .350 .350

4 years to less than 5 years .450 .450

5 years to less than 7 years .500 .500

7 years to less than 10 years .550 .550

10 years to less than 20 years .600 .600

20 years to 30 years .750 .750
</TABLE>
<PAGE> 27

Annex A

PAINE WEBBER GROUP INC.

Medium-Term Notes Administrative Procedures
November 30, 1993

Medium-Term Senior Notes, Series C, and Medium-Term
Subordinated Notes, Series D, Due from Nine Months to 30 Years from Date of
Issue (the "Notes") are to be offered on a continuing basis by Paine Webber
Group Inc. (the "Company"). Each of PaineWebber Incorporated, as agent, and CS
First Boston Corporation, as agent (collectively, the "Agents"), has agreed to
use reasonable efforts to solicit offers to purchase Notes from the Company.
Neither Agent will be obligated to purchase Notes for its own account. The
Notes are being sold pursuant to a Distribution Agreement between the Company
and each of the Agents dated November 30, 1993 (the "Distribution Agreement").
The Notes will be issued either as subordinated to ("Subordinated Notes") or on
a parity with ("Senior Notes") other unsecured and unsubordinated indebtedness
of the Company and have been registered with the Securities and Exchange
Commission (the "Commission"). Chemical Bank (the "Senior Note Trustee") is
the trustee under the Indenture dated as of March 15, 1988, covering the Senior
Notes, as supplemented by the First Supplemental Indenture dated as of
September 22, 1989, and by the Second Supplemental Indenture dated as of March
22, 1991 (such Indenture, as so supplemented, being hereinafter referred to as
the "Senior Note Indenture"), each between the Company and the Senior Note
Trustee. Chemical Bank Delaware (the "Subordinated Note Trustee") is the
trustee under the Indenture dated as of March 15, 1988, covering the
Subordinated Notes, as supplemented by the First Supplemental Indenture dated
as of September 22, 1989, by the Second Supplemental Indenture dated as of
March 22, 1991, and by the Third Supplemental Indenture dated as of November
30, 1993 (such Indenture, as so supplemented, being hereinafter referred to as
the "Subordinated Note Indenture"), each between the Company and the
Subordinated Note Trustee. The Senior Note Indenture and the Subordinated Note
Indenture are hereinafter sometimes called the "Indentures"; and the Senior
Note Trustee and the Subordinated Note Trustee are hereinafter sometimes called
the "Trustees".

Notes may be represented by a Global Note (as hereinafter
defined) delivered to Chemical Bank (in such
<PAGE> 28
2

capacity, the "Custodian") as agent for The Depository Trust Company ("DTC"),
with ownership of beneficial interests in such Global Notes recorded in the
book-entry system maintained by DTC (each such interest in a Global Note being
referred to herein as a "Book- Entry Note"), or may be represented by a
certificate delivered to the holder thereof or a person designated by such
holder (each a "Certificated Note"). An owner of a Book-Entry Note will not be
entitled to receive a certificate representing such Note. In connection with
the qualification of the Book-Entry Notes for eligibility in the book-entry
system maintained by DTC, Chemical Bank will perform the custodial, document
control and administrative functions described in Part II below, in accordance
with its respective obligations under a Letter of Representations from the
Company and Chemical Bank to DTC relating to the Senior Notes and a Letter of
Representations from the Company, Chemical Bank and the Subordinated Note
Trustee to DTC relating to the Subordinated Notes (each a "Letter of
Representations", and, collectively, the "Letters of Representations") and a
Medium-Term Note Certificate Agreement (the "Certificate Agreement") between
Chemical Bank and DTC, and its obligations as a participant in DTC, including
DTC's Same-Day Funds Settlement system ("SDFS").

Administrative procedures and certain terms of the offering
are explained below. Certain general terms of the offering, applicable to both
Book-Entry Notes and Certificated Notes, are set forth in Part I hereof.
Book-Entry Notes will be issued in accordance with the administrative
procedures set forth in Part II hereof, as adjusted in accordance with changes
in DTC's operating requirements, and Certificated Notes will be issued in
accordance with the administrative procedures set forth in Part III hereof.
Unless otherwise defined herein, terms defined in the Distribution Agreement,
the Indentures and the Notes shall be used herein as therein defined. Notes
for which interest is calculated on the basis of a fixed interest rate, which
may be zero, are referred to herein as "Fixed Rate Notes". Notes for which
interest is calculated on the basis of a floating interest rate are referred to
herein as "Floating Rate Notes". To the extent the procedures set forth below
conflict with the provisions of the Notes, the Indentures, DTC's operating
requirements or the Distribution Agreement, the relevant provisions of the
Notes, the Indentures, DTC's operating requirements and the Distribution
Agreement shall control. The Company will advise each Agent from time to time
in writing of those persons with whom such Agent is to communicate with respect
to offers to purchase Notes from

<PAGE> 29
3

the Company and the details of their delivery. References below to "the Agent"
shall mean whichever of the Agents is involved in any proposed purchase and
sale of any Note or Notes.

Part I. Certain Terms of the Offering

<TABLE>
<S> <C>
Price to Public: Each Note will be issued at the percentage of its principal amount specified in the
Prospectus Supplement, as then amended or supplemented, relating to the Notes.

Denominations: Notes denominated in U.S. dollars will be issued in minimum denominations of $100,000 and
in denominations exceeding such amount by integral multiples of $1,000. Book-Entry Notes
will not be denominated in any currency or composite currency other than the U.S. dollar.
Certificated Notes denominated in other than U.S. dollars will be issued in the
denominations specified pursuant to "Settlement Procedures" in Part III below.

Registration: Notes will be issued only in fully registered form.

Maturities: Each Note will mature on a date selected by the purchaser and agreed to by the Company,
which will be not less than nine months and not more than 30 years after the date of issue
thereof.

Interest
Payment: Each Note will bear interest (i) in the case of Fixed Rate Notes, at the annual rate
stated on the face thereof, payable in arrears on such dates as are specified therein
(each such date of payment other than the maturity date being an "Interest Payment Date"
with
</TABLE>

<PAGE> 30
4

<TABLE>
<S> <C>
respect to such Fixed Rate Note) and at maturity and (ii) in the case of Floating Rate
Notes, at a rate determined pursuant to the formula stated on the face thereof, payable in
arrears on such dates as are specified therein (each such date of payment other than the
maturity date an "Interest Payment Date" with respect to such Floating Rate Note) and at
maturity.

Unless otherwise specified, each Note will bear interest from and including the later of
its date of issue and the most recent date to which interest has been paid or provided
for, to but excluding the current Interest Payment Date or the maturity date of such Note.
Interest payments for a Note will include interest accrued to but excluding the Interest
Payment Date; provided, however, that a Floating Rate Note which has a rate of interest
that is reset daily or weekly will bear interest from and including the later of its date
of issue and the day following the most recent Regular Record Date (as defined below) to
which interest on such Note has been paid or provided for, to and including the next
preceding Regular Record Date or the maturity date of such Note, except as otherwise
provided in such Note. Unless otherwise specified, the "Regular Record Date" with respect
to any Interest Payment Date for any Note shall be the 15th day preceding such Interest
Payment Date, whether or not such day shall be a Business Day.

Unless otherwise specified, interest (including payments for partial periods) will be
calculated and paid, in the case of Fixed Rate
</TABLE>
<PAGE> 31
5

<TABLE>
<S> <C>
Notes, on the basis of a 360-day year of twelve 30-day months and, in the case of Floating
Rate Notes, on the basis of the actual number of days elapsed over a year of 360 days,
except with respect to interest on Treasury Rate Notes (as defined in the Prospectus
Supplement relating to the Notes) which will be calculated and paid on the basis of the
actual number of days elapsed over a year of 365 or 366 days, as applicable. Interest
will be payable to the person in whose name the Note is registered at the close of
business on the Regular Record Date next preceding the Interest Payment Date except that,
in the case of Notes issued between a Regular Record Date and an Interest Payment Date,
interest payable on such Interest Payment Date will be paid to the person in whose name
such Note was initially registered; provided, however, that interest payable at Maturity
(as defined below) will be payable to the person to whom principal shall be payable.
"Maturity" shall mean the date on which the principal of a Note or an installment of
principal becomes due, whether on the Maturity Date specified for such Note, upon
redemption or early repayment or otherwise.

Procedure for Rate
Setting and Posting: The Company and the Agents will discuss from time to time the interest rates per annum to
be borne by, the issuance price of, the aggregate principal amount of and maturity of
Notes that may be sold as a result of the solicitation of offers by the Agents. If the
Company establishes a fixed set of interest rates and maturities for an offering period (a
"post-
</TABLE>

<PAGE> 32
6

<TABLE>
<S> <C>
ing"), or if the Company decides to change already posted rates, it will promptly advise
the Agents of the rates and maturities to be posted.

If the Company decides to post interest rates and a decision has been reached to change
the posted interest rates, the Company will promptly notify the Agents. Each Agent
forthwith will suspend solicitation of offers to purchase Notes from the Company until
such time as the Company has advised such Agent as to the new rates. Until such time only
"indications of interest" may be recorded.

Acceptance
of Offers: The Agent will communicate to the Company, orally or in writing, each offer to purchase
Notes from the Company that is received by the Agent as agent of the Company and that is
not rejected by the Agent as provided below. The Company will have the sole right to
accept offers to purchase Notes from the Company and may reject any such offer, in whole
or in part, for any reason. The Agent may, in its discretion reasonably exercised, reject
any offer to purchase Notes from the Company that is received by the Agent, in whole or in
part.

The Company will promptly notify the Agent of its acceptance or rejection of an offer to
purchase Notes. If the Company accepts an offer to purchase Notes, it will confirm such
acceptance in writing to the Agent.
</TABLE>
<PAGE> 33
7

<TABLE>
<S> <C>
Suspension of
Solicitation;
Amendment or
Supplement: As provided in the Distribution Agreement, the Company may suspend solicitation of offers
to purchase at any time and, upon receipt of instructions from the Company, an Agent will
forthwith suspend solicitation until such time as the Company has advised it that
solicitation of offers to purchase may be resumed.

If an Agent receives the notice from the Company contemplated by Section 5(d) of the
Distribution Agreement, it will promptly suspend solicitation and will only resume
solicitation as provided in the Distribution Agreement. If the Company is required,
pursuant to Section 5(d) of the Distribution Agreement, to prepare an amendment or
supplement, it will promptly furnish such Agent with the proposed amendment or supplement;
in all other cases, if the Company decides to amend or supplement either of the
Registration Statements or the Prospectus relating to the Notes, it will promptly advise
such Agent and will furnish such Agent with the proposed amendment or supplement in
accordance with the terms of the Distribution Agreement. The Company will promptly file
such amendment or supplement, provide such Agent (and Cravath, Swaine & Moore or such
other law firm as may be counsel to such Agent at the time) with copies of any such
amendment or supplement, confirm to such Agent that such amendment or supplement has been
filed with the Commission and advise such Agent that solicitation may be resumed.
</TABLE>
<PAGE> 34
8

<TABLE>
<S> <C>
In the event that at any time the Company suspends solicitation of offers to purchase
Notes from the Company there shall be any outstanding offers to purchase Notes from the
Company that have been accepted by the Company but for which settlement has not yet
occurred, the Company will promptly advise the Agent and the Trustees whether such sales
may be settled and whether copies of the Prospectus as amended or supplemented to the time
of the suspension may be delivered in connection with the settlement of such sales. The
Company will have the sole responsibility for such decision and for any arrangements which
may be made in the event that the Company determines that such sales may not be settled or
that copies of the Prospectus as so amended or supplemented may not be so delivered.

Delivery of
Prospectus: A copy of the Prospectus, as most recently amended or supplemented on the date of delivery
thereof (except as provided below), relating to any Note must be delivered to a purchaser
prior to or together with the earliest of (i) any written offer of such Note, (ii) the
delivery of the written confirmation provided for below and (iii) the delivery of any Note
purchased by such purchaser. Subject to the foregoing and to the procedures described in
Part II below, it is anticipated that delivery of the Prospectus, confirmation and Notes
to the purchaser will be made simultaneously at settlement. The Company shall ensure that
the Agent receives copies of the Prospectus and each amendment or supplement
</TABLE>
<PAGE> 35
9

<TABLE>
<S> <C>
thereto (including appropriate pricing stickers) in such quantities and within such time
limits as will enable the Agent to deliver such confirmation or Note to a purchaser as
contemplated by these procedures and in compliance with the preceding sentence. If, since
the date of acceptance of a purchaser's offer, the Prospectus shall have been supplemented
solely to reflect any sale of Notes on terms different from those agreed to between the
Company and such purchaser or a change in posted rates not applicable to such purchaser,
such purchaser shall not receive the Prospectus as supplemented by such new supplement,
but shall receive the Prospectus as supplemented to reflect the terms of the Notes being
purchased by such purchaser and otherwise as most recently amended or supplemented on the
date of delivery of the Prospectus.

Confirmation: For each offer to purchase a Note from the Company solicited by the Agent and accepted by
the Company, the Agent will issue a confirmation to the purchaser, with a copy to the
Company, setting forth the Settlement Details (as hereinafter defined) and delivery and
payment instructions.

Business Day: "Business Day" with respect to any Note means each day, other than a Saturday or Sunday,
that is (i) not a day on which banking institutions in the Business Day Centers with
respect to such Note are authorized or obligated by law or executive order to close,
(ii) if such Note is a LIBOR Note (as defined in the Prospectus Supplement), a London
Banking Day (as hereinafter
</TABLE>
<PAGE> 36
10

<TABLE>
<S> <C>
defined) and (iii) if such Notes is denominated in the European Currency Unit ("ECU"), any
day that is not designated as an ECU settlement day by the ECU Banking Association in
Paris or otherwise generally regarded in the ECU interbank market as a day on which
payments in ECU shall not be made. "Business Day Centers", unless otherwise specified in
the applicable Note, with respect to any Note shall mean The City of New York and, in the
case of any Note payable in a Specified Currency other than U.S. dollars or ECU, the
principal financial center of the country issuing the Specified Currency. As used herein,
"London Banking Day" shall mean any day on which dealings in deposits in U.S. dollars are
transacted in the London interbank market.

Advertising Cost: The Company will determine with the Agents the amount of advertising that may be
appropriate in offering the Notes. Advertising expenses approved in advance by the
Company will be paid by the Company.

Payment of
Expenses: Each Agent will forward to the Company, following the end of each quarter, a statement of
the out-of-pocket expenses incurred by such Agent during that quarter which are
reimbursable to it pursuant to the terms of the Distribution Agreement. The Company will
remit payment to such Agent promptly following the receipt of each such statement.

Authenticity of
Signatures: Neither Agent will have any obligation or liability to the Company or either Trustee or
any Authenticat-
</TABLE>

<PAGE> 37
11

<TABLE>
<S> <C>
ing Agent in respect of the authenticity of the signature of any officer, employee or
agent of the Company or either Trustee or such Authenticating Agent on any Note.

Part II. Administrative Procedures for
Book-Entry Notes

Issuance: On any date of settlement (as defined under "Settlement" below) for one or more Book-Entry
Notes, the Company will issue a single global note in fully registered form without
coupons (a "Global Note") representing up to $150,000,000 principal amount of all of such
Book-Entry Notes that have the same terms, except as to principal amount. Each Global
Note will be dated and issued as of the date of its authentication by the relevant Trustee
(or, in the case of the Subordinated Note Trustee, by Chemical Bank, as the Authenticating
Agent). No Global Note will represent any Certificated Note.

Identification
Numbers: The Company will arrange with the CUSIP Service Bureau of Standard & Poor's Corporation
(the "CUSIP Service Bureau") for the reservation of a series of CUSIP numbers (including
tranche numbers) consisting of approximately 900 CUSIP numbers and relating to Global
Notes representing Book-Entry Notes. The Company will obtain from the CUSIP Service
Bureau a written list of such series of reserved CUSIP numbers and will deliver such list
to Chemical Bank and DTC. The Company will assign CUSIP numbers to Global Notes as
described below under
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Settlement Procedure "B". DTC will notify the CUSIP Service Bureau periodically of the
CUSIP numbers that the Company has assigned to Global Notes. Chemical Bank will notify
the Company at any time when fewer than 100 of the reserved CUSIP numbers remain
unassigned to Global Notes, and if it deems necessary, the Company will reserve additional
CUSIP numbers for assignment to Global Notes representing Book-Entry Notes. Upon
obtaining such additional CUSIP numbers, the Company shall deliver a list thereof to
Chemical Bank and DTC.

Registration: Each Global Note will be registered in the name of Cede & Co., as nominee for DTC, on the
Security Register maintained under the Indenture governing such Global Note. The
beneficial owner of a Book-Entry Note (or one or more indirect participants in DTC
designated by such owner) will designate one or more participants in DTC (with respect to
such Note, the "Participants") to act as agent or agents for such owner in connection with
the book-entry system maintained by DTC, and DTC will record in book-entry form, in
accordance with instructions provided by such Participants, a credit balance with respect
to such Note in the account of such Participants. The ownership interest of such
beneficial owner (or such participant) in such Note will be recorded through the records
of such Participants or through the separate records of such Participants and one or more
indirect participants in DTC. So long as Cede & Co. is the registered owner of a Global
Note, DTC will be
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<PAGE> 39
13

<TABLE>
<S> <C>
considered the sole owner and holder of the Book-Entry Notes represented by such Global
Note for all purposes under the Indenture.

Transfers: Transfers of a Book-Entry Note will be accomplished by book entries made by DTC and, in
turn, by Participants (and in certain cases, one or more indirect participants in DTC)
acting on behalf of beneficial transferors and transferees of such Note.

Consolidation
and Exchange: Chemical Bank may deliver to DTC and the CUSIP Service Bureau at any time a written notice
of consolidation specifying (i) the CUSIP numbers of two or more outstanding Global Notes
that represent Book-Entry Notes having the same terms other than principal amount and (for
all such Notes other than zero coupon Notes) for which interest has been paid to the same
date, (ii) a date, occurring at least 30 days after such written notice is delivered and
(for all such Notes other than zero coupon Notes) at least 30 days before the next
Interest Payment Date for such Book-Entry Notes, on which such Global Notes shall be
exchanged for a single replacement Global Note and (iii) a new CUSIP number, obtained from
the Company, to be assigned to such replacement Global Note. Upon receipt of such a
notice, DTC will send to its participants (including Chemical Bank) a written
reorganization notice to the effect that such exchange will occur on such date. Prior to
the specified exchange date, Chemical Bank will deliver to the CUSIP Service Bureau a
written notice setting forth such exchange
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<TABLE>
<S> <C>
date and the new CUSIP number and stating that, as of such exchange date, the CUSIP
numbers of the Global Notes to be exchanged will no longer be valid. On the specified
exchange date, Chemical Bank will exchange such Global Notes for a single Global Note
bearing the new CUSIP number and a new Original Issue Date (determined in accordance with
the Letters of Representations), and the CUSIP numbers of the exchanged Global Notes will,
in accordance with CUSIP Service Bureau procedures, be cancelled and not immediately
reassigned. Notwithstanding the foregoing, if the Global Notes to be exchanged exceed
$150,000,000 in aggregate principal amount, one Global Note will be authenticated and
issued to represent each $150,000,000 of principal amount of the exchanged Global Notes
and an additional Global Note will be authenticated and issued to represent any remaining
principal amount of such Global Notes (see "Denominations" below).

Denominations: As noted in Part I above, Book-Entry Notes will be issued in minimum denominations of
$100,000 and in denominations exceeding such amount by integral multiples of $1,000.
Global Notes will be denominated in principal amounts not in excess of $150,000,000. If
one or more Book-Entry Notes having an aggregate principal amount in excess of
$150,000,000 would, but for the preceding sentence, be represented by a single Global
Note, then one Global Note will be issued to represent each $150,000,000 principal amount
of such Book-Entry Note or Notes and an additional Global Note will be issued to represent
any remaining
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<PAGE> 41
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<S> <C>
principal amount of such Book-Entry Note or Notes. In such a case, each of the Global
Notes representing such Book-Entry Note or Notes shall be assigned the same CUSIP number.

Interest: General. Except as set forth below, each Book-Entry Note will bear interest as set forth
in "Interest Payment" above, and such interest shall be payable as set forth therein.

Standard & Poor's Corporation will use the information received in the pending deposit
message described under Settlement Procedure "C" below in order to include the amount of
any interest payable and certain other information regarding the related Global Note in
the appropriate (daily or weekly) bond report published by Standard & Poor's Corporation.

Payments of
Principal and
Interest: Payments of Interest Only. On the fifth Business Day immediately preceding each Interest
Payment Date, Chemical Bank will deliver to the Company's Treasurer's Office and DTC a
written notice specifying by CUSIP number the amount of interest to be paid on each Global
Note on such Interest Payment Date and the total of such amounts. DTC will confirm the
amount payable on each Global Note on such Interest Payment Date by reference to the
appropriate (daily or weekly) bond reports published by Standard & Poor's Corporation.
The Company will pay to Chemical Bank, as paying agent, the total amount of interest due
on such Interest Payment Date and Chemical Bank will
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<S> <C>
pay such amount to DTC at the times and in the manner set forth below under "Manner of
Payment".

Payments at Maturity. On or about the first Business Day of each month, Chemical Bank
will deliver to the Company and DTC a written list of principal and interest to be paid on
each Global Note maturing in the following month. The Company, Chemical Bank and DTC will
confirm the amounts of such principal and interest payments with respect to each such
Global Note on or about the fifth Business Day preceding the Maturity of such Global Note.
The Company will pay to Chemical Bank, as paying agent, the principal amount of such
Global Note, together with interest due at such Maturity and Chemical Bank will pay such
amount to DTC at the times and in the manner set forth below under "Manner of Payment".

Promptly after payment to DTC of the principal and interest due at the Maturity of such
Global Note, the Senior Note Trustee, in the case of Senior Notes, and the Authenticating
Agent, in the case of Subordinated Notes, will cancel such Global Note and deliver it to
the Company with an appropriate debit advice. On the first Business Date of each month,
Chemical Bank will deliver to each Trustee a written statement indicating the total
principal amount of outstanding Global Notes for which such Trustee serves as trustee as
of the immediately preceding Business Day.

Manner of Payment. The total amount of any principal and/or interest due on Global Notes
on any Interest Payment Date or at Maturi-
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<TABLE>
<S> <C>
ty shall be paid by the Company to Chemical Bank in funds available for use by Chemical
Bank as of 9:30 a.m. (New York City time) on such date. The Company will make such
payment on such Global Notes by instructing Chemical Bank to withdraw funds from an
account maintained by the Company at Chemical Bank or by wire transfer to Chemical Bank.
The Company will confirm such instruction in writing to Chemical Bank (with a copy to the
Subordinated Note Trustee if such Global Notes represent Subordinated Notes). Prior to
10:00 a.m. (New York City time) on such date or as soon as possible thereafter, Chemical
Bank will pay the foregoing amounts to DTC in same day funds in accordance with the
payment provisions contained in the applicable Letter of Representations. DTC will
allocate such payments to its Participants in accordance with its existing operating
procedures.

NEITHER THE COMPANY, AS ISSUER, CHEMICAL BANK, THE SENIOR NOTE TRUSTEE NOR THE
SUBORDINATED NOTE TRUSTEE SHALL HAVE ANY RESPONSIBILITY OR LIABILITY FOR THE PAYMENT BY
DTC TO SUCH PARTICIPANTS OF THE PRINCIPAL OF, PREMIUM, IF ANY, AND INTEREST ON THE BOOK-
ENTRY NOTES.

Withholding Taxes. The amount of any taxes required under applicable law to be withheld
from any interest payment on a Book-Entry Note will be determined and withheld by the
Participant, indirect participant in DTC or other person responsible for forwarding
payments and materials directly to the beneficial owner of such Note.
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<S> <C>
Settlement: The receipt by the Company of immediately available funds in payment for a Book-Entry Note
and the authentication and issuance of the Global Note representing such Note shall
constitute "settlement" with respect to such Book-Entry Note. All orders accepted by the
Company will be settled on the fifth Business Day following the date of acceptance unless
otherwise agreed by the purchaser and the Company. Such date of acceptance shall be
specified upon acceptance of such offer.

Settlement
Procedures: Settlement Procedures with regard to each Book-Entry Note sold by the Company through an
Agent, as agent, shall be as follows:

A. Such Agent will provide to the Company (unless provided by the purchaser directly
to the Company) by telephone, facsimile transmission or other means agreed upon by
the Company and such Agent the following information (the "Settlement Details"):

1. Principal amount and issue price.

2. If a Fixed Rate Note, the interest rate, Regular Record Dates and Interest
Payment Dates, if any.

3. Settlement date (Original Issue Date).

4. Maturity Date.

5. Type of Note (i.e., Senior Note or Subordinated Note).

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6. Agent's commission (to be paid in the form of a discount from the issue
price remitted to the Company upon settlement).

7. Redemption provisions, if any.

8. Repayment provisions, if any.

9. If a Floating Rate Note, such of the following as are applicable:

(i) Interest Rate Basis,

(ii) Index Maturity,

(iii) Spread or Spread Multiplier,

(iv) Maximum Rate,

(v) Minimum Rate,

(vi) Initial Interest Rate,

(vii) Interest Reset Dates,

(viii) Calculation Date,

(ix) Interest Determination Dates,

(x) Interest Payment Dates,

(xi) Regular Record Dates and

(xii) Calculation Agent.

10. All other terms of the Book-Entry Note and all other items necessary to
complete the applicable Global Note.
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<S> <C>
Before accepting any offer to purchase a Book-Entry Note that will have terms in
addition to or different from the terms set forth on any form of Note previously
delivered by the Company to, and approved by, the applicable Trustee, other than
merely as a result of completing any blanks (other than the "Other Terms" or
equivalent blank) on such form, the Company will provide a description of the
proposed different or additional terms to the applicable Trustee and its counsel
for the purpose of determining whether such terms are consistent with the
applicable Indenture, are administratively acceptable to such Trustee and its
agents and do not affect such Trustee's or its agents' own rights, duties or
immunities under the Notes or the applicable Indenture or otherwise in a manner
which is not reasonably acceptable to such Trustee or its agents (all such terms
having been authorized, as of the date of these Administrative Procedures, by or
pursuant to a Board Resolution and the applicable Trustee having received, as of
the date of these Administrative Procedures, all opinions, certificates and orders
required prior to the authentication and issuance of a Note containing such terms).
Any offer to purchase such a Book-Entry Note shall only be accepted by the Company
if such terms shall not be disapproved by the applicable Trustee or its counsel on
one of the
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<S> <C>
above-mentioned grounds after the foregoing review.

In addition, before accepting any offer to purchase any Note to be settled in less
than three Business Days, the Company will verify that the Authenticating Agent
will have adequate time to prepare and authenticate such Note.

B. The Company will assign a CUSIP number to the Global Note representing such
Book-Entry Note and then advise Chemical Bank in writing, including
facsimile or electronic transmission, and in the case of Subordinated Notes, the
Subordinated Note Trustee by telephone (confirmed in writing at any time on the
same date) or facsimile transmission of the information set forth in Settlement
Procedure "A" above, such CUSIP number and the name of the Agent. Each such
communication by the Company shall constitute a representation and warranty by the
Company to Chemical Bank, each Trustee and each Agent that (i) such Book-Entry Note
is then, and at the time of issuance and sale thereof will be, duly authorized for
issuance and sale by the Company, (ii) such Book-Entry Note, and the Global Note
representing such Book-Entry Note, will conform with the terms of the Indenture
pursuant to which such Book-Entry Note is issued and (iii) upon authentication and
delivery of such Global Note and any other Securities to be issued on or prior to
the

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<S> <C>
settlement date for the Book-Entry Note represented by such Global Note, the aggregate
amount of Securities which have been issued and sold by the Company will not exceed the
amount of Securities registered under the Registration Statements.

C. Chemical Bank will enter a pending deposit message through DTC's Participant
Terminal System, providing the following settlement information to DTC, such Agent,
Standard & Poor's Corporation and, upon request, the Trustee under the Indenture
pursuant to which each Book-Entry Note which is represented by the Global Note is
to be issued:

1. The information set forth in Settlement Procedure "A".

2. Initial Interest Payment Date for each such Book-Entry Note, the number of
days by which such date succeeds the related Regular Record Date and the
amount of interest payable on such Interest Payment Date (to the extent
known at such time).

3. CUSIP number of the Global Note representing such Book-Entry Note.

4. Whether such Global Note will represent any other Book-Entry Note (to the
extent known at such time).
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D. Upon receipt of appropriate documentation and instructions, the Company will
instruct the Senior Note Trustee to prepare and authenticate each Senior Global
Note and will instruct the Authenticating Agent to prepare and authenticate each
Subordinated Global Note by facsimile transmission or other acceptable written
means.

E. Chemical Bank will complete and the Senior Note Trustee or the Authenticating
Agent, as the case may be, will authenticate the Global Note, and Chemical Bank
will register the Global Note in the name of Cede & Co., as nominee of DTC, and
hold such Global Note for delivery on the Closing Date therefore to Chemical Bank,
as Custodian.

F. DTC will credit each Book-Entry Note represented by the Global Note to be issued
to the applicable participant account at DTC.

G. Chemical Bank will enter an SDFS deliver order through DTC's Participant Terminal
System with respect to each Book-Entry Note represented by the Global Note to be
issued instructing DTC to (i) debit such Book-Entry Note to Chemical Bank's
participant account and credit such Book-Entry Note to the Agent's participant
account and (ii) debit such Agent's settlement account and credit Chemical Bank's
settlement account for an amount equal to the price of such Book-Entry Note less
such Agent's commis-
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<PAGE> 50
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<S> <C>
sion. The entry of such a deliver order shall constitute a representation and
warranty by Chemical Bank to DTC that (i) the Global Note representing such Book-
Entry Note has been issued and authenticated and (ii) Chemical Bank is holding such
Global Note pursuant to the Certificate Agreement.

H. The Agent will enter an SDFS deliver order through DTC's Participant Terminal
System with respect to each Book-Entry Note represented by the Global Note to be
issued instructing DTC (i) to debit such Book-Entry Note to such Agent's
participant account and credit such Book-Entry Note to the participant account of
the Participant with respect to such Book-Entry Note and (ii) to debit the
settlement account of such Participant and credit the settlement account of such
Agent for an amount equal to the price of such Book-Entry Note.

I. Transfers of funds in accordance with SDFS deliver orders described in Settlement
Procedures "G" and "H" will be settled in accordance with SDFS operating procedures
(as referenced in the Letters of Representations) in effect on the settlement date.

J. Chemical Bank will credit to an account of the Company maintained at Chemical Bank
funds available for immediate use in the amount transferred to
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<S> <C>
Chemical Bank in accordance with Settlement Procedure "G".

K. Chemical Bank, as Custodian, will hold the Global Note pursuant to the Certificate
Agreement. Periodically, Chemical Bank will send to the Company a statement setting
forth the principal amount of Book-Entry Notes outstanding as of that date under
each Indenture.

L. The relevant Agent will deliver to the purchaser a copy of the most recent
Prospectus applicable to the Notes with or prior to the earlier of any written
offer of Notes and the confirmation and payment by the purchaser of the Note.

Such Agent will confirm the purchase of each Book-Entry Note to the purchaser
either by transmitting to the Participant with respect to such Book-Entry Note a
confirmation order or orders through DTC's institutional delivery system or by
mailing a written confirmation to such purchaser.

Settlement
Procedures
Timetable: For orders of Book-Entry Notes solicited by an Agent, as agent, and accepted by the
Company for settlement on the first Business Day after the sale date, Settlement
Procedures "A" through "L" set forth above shall be completed as soon as possible but not
later than the respective times (New York City time) set forth below:
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<TABLE>
<CAPTION>
Settlement
Procedure Time
----
<S> <C>
A-B 11:00 A.M. on the sale date
C 2:00 P.M. on the sale date
D 3:00 P.M. on Business Day before settlement date
E 9:00 A.M. on settlement date
F 10:00 A.M. on settlement date
G-H 2:00 P.M. on settlement date
I 4:45 P.M. on settlement date
J-L 5:00 P.M. on settlement date

If a sale is to be settled more than one Business Day after the sale date, Settlement
Procedures "A", "B" and "C" shall be completed as soon as practicable but no later than
11:00 A.M. and 2:00 P.M., as the case may be, on the first Business Day after the sale
date. Settlement Procedure "I" is subject to extension in accordance with any extension
of Fedwire closing deadlines and in other events specified in the SDFS operating
procedures in effect on the settlement date.

If settlement of a Book Entry Note is rescheduled or canceled the Company will as soon as
practicable give Chemical Bank notice to such effect. Chemical Bank will deliver to DTC,
through DTC's Participant Terminal System, a cancellation message to such effect by no
later than 2:00 P.M. on the Business Day immediately preceding the scheduled settlement
date (provided Chemical Bank has received such notice from the Company by noon on the
Business Day immediately preceding the settlement date).
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<S> <C>
Fails: If Chemical Bank fails to enter an SDFS deliver order with respect to a Book-Entry Note
pursuant to Settlement Procedure "G", Chemical Bank may deliver to DTC, through DTC's
Participant Terminal System, as soon as practicable a withdrawal message instructing DTC
to debit such Book-Entry Note to Chemical Bank's participant account. DTC will process
the withdrawal message, provided that Chemical Bank's participant account contains a
principal amount of the Global Note representing such Book-Entry Note that is at least
equal to the principal amount to be debited. If a withdrawal message is processed with
respect to all the Book-Entry Notes represented by a Global Note, the Senior Note Trustee,
in the case of Senior Notes, or the Authenticating Agent, in the case of Subordinated
Notes, will mark such Global Note "Cancelled", make appropriate entries in its records and
send such cancelled Global Note to the Company. The CUSIP number assigned to such Global
Note shall, in accordance with CUSIP Service Bureau procedures, be cancelled and not
immediately reassigned. If a withdrawal message is processed with respect to one or more,
but not all, of the Book-Entry Notes represented by a Global Note, Chemical Bank and the
Senior Note Trustee or the Authenticating Agent, as the case may be, will exchange such
Global Note for two Global Notes, one of which shall represent such Book-Entry Note or
Notes and shall be canceled immediately after issuance and the other of which shall
represent the other Book-Entry Notes previously represented by the surrendered Global Note
and shall bear the CUSIP number of the surrendered Global Note.
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If the purchase price for any Book-Entry Note is not timely paid to the Participant with
respect to such Note by the beneficial purchaser thereof (or a person, including an
indirect participant in DTC, acting on behalf of such purchaser), such Participant and, in
turn, the Agent for such Note may enter SDFS deliver orders through DTC's Participant
Terminal System reversing the orders entered pursuant to Settlement Procedures "H" and
"G", respectively. Thereafter, Chemical Bank will deliver the withdrawal message and take
the related actions described in the preceding paragraph.

Notwithstanding the foregoing, upon any failure to settle with respect to a Book-Entry
Note, DTC may take any actions in accordance with its SDFS operating procedures then in
effect. In the event of a failure to settle with respect to one or more, but not all, of
the Book-Entry Notes to have been represented by a Global Note, Chemical Bank and the
Senior Note Trustee or the Authenticating Agent, as the case may be, will provide, in
accordance with Settlement Procedures "D" and "E", for the authentication and issuance of
a Global Note representing the other Book-Entry Notes to have been represented by such
Global Note and will make appropriate entries in its records.
</TABLE>

PART III

Administrative Procedures for Certificated Notes

<TABLE>
<S> <C>
Issuance: Each Certificated Note will be dated and issued as of the date of its authentication by
the relevant Trustee (or, in the case of the Subordinated Note Trustee, by the
Authenticating Agent).
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<S> <C>
Transfers and
Exchanges: A Certificated Note (whether a Senior Note or a Subordinated Note) may be presented for
transfer or exchange at the principal corporate trust office in New York City of the
Senior Trustee. Certificated Notes will be exchangeable for other Certificated Notes
having identical terms but different authorized denominations. Certificated Notes will
not be exchangeable for Book-Entry Notes.

Payments of
Principal and
Interest: On the fifth Business Day immediately preceding each Interest Payment Date, Chemical Bank,
as paying agent, will furnish the Company with the total amount of the interest payments
to be made on such Interest Payment Date to the extent known. In addition, on or about
the first Business Day of each month, Chemical Bank will provide to the Company's
Treasurer's Office a list of the principal and interest to be paid on the respective Notes
maturing in the following month. The Company will provide to Chemical Bank not later than
any payment date sufficient moneys to pay in full all principal and interest payments due
on such payment date. Chemical Bank shall make all such payments in accordance with the
terms of the Notes. Notes presented to Chemical Bank at Maturity will be cancelled by
Chemical Bank.

Chemical Bank will be responsible for withholding taxes on interest paid on Certificated
Notes as required by applicable law.
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<S> <C>
Settlement: The receipt by the Company of immediately available funds in exchange for an authenticated
Certificated Note delivered to the Agent and the Agent's delivery of such Certificated
Note against receipt of immediately available funds shall, with respect to such
Certificated Note, constitute "settlement". All orders accepted by the Company will be
settled on the fifth Business Day following the date of acceptance unless otherwise agreed
by the purchaser and the Company. Such date of settlement shall be specified upon
acceptance of such offer.

Settlement
Procedures: Settlement Procedures with regard to each Certificated Note sold by the Company through an
Agent, as agent, shall be as follows:

A. The Agent will provide to the Company (unless provided by the purchaser directly to
the Company), by telephone, facsimile transmission or other means agreed upon by
the Company and the Agent, the following information (the "Settlement Details"):

1. Exact name in which the Note or Notes are to be registered.

2. Exact address of registered owner and, if different, address for payment of
principal and interest.

3. Taxpayer identification number of registered owner.

4. Principal amount and issue price.
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<S> <C>
5. If a Fixed Rate Note, the interest rate, Regular Record Dates and Interest
Payment Dates, if any.

6. Settlement date (Original Issue Date).

7. Maturity Date.

8. Type of Note (i.e., Senior Note or Subordinated Note).
----

9. Agent's commission (to be paid in the form of a discount from the issue
price remitted to the Company upon settlement).

10. Redemption provisions, if any.

11. Repayment provisions, if any.

12. If a Floating Rate Note, such of the following as are applicable:

(i) Interest Rate Basis,

(ii) Index Maturity,

(iii) Spread or Spread Multiplier,

(iv) Maximum Rate,

(v) Minimum Rate,

(vi) Initial Interest Rate,

(vii) Interest Reset Dates,

(viii) Calculation Date,
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<PAGE> 58
32

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<S> <C>
(ix) Interest Determination Dates,

(x) Interest Payment Dates,

(xi) Regular Record Dates, and

(xii) Calculation Agent.

13. Authorized denominations of Notes denominated in other than U.S. dollars.

14. All other terms of the Note and all other items necessary to complete the
Note.

Before accepting any offer to purchase a Certificated Note that will have terms in
addition to or different from the terms set forth on any form of Note previously
delivered by the Company to, and approved by, the applicable Trustee, other than
merely as a result of completing any blanks (other than the "Other Terms" or
equivalent blank) on such form, the Company will provide a description of the
proposed different or additional terms to the applicable Trustee and its counsel
for the purpose of determining whether such terms are consistent with the
applicable Indenture, are administratively acceptable to such Trustee and its
agents and do not affect such Trustee's or its agents' own rights, duties or
immunities under the Notes or the applicable Indenture or otherwise in a manner
which is not reasonably acceptable to such Trustee or its agents (all
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<S> <C>
such terms having been authorized, as of the date of these Administrative
Procedures, by or pursuant to a Board Resolution and the applicable Trustee having
received, as of the date of these Administrative Procedures, all opinions,
certificates and orders required prior to the authentication and issuance of a Note
containing such terms). Any offer to purchase such a Certificated Note shall only
be accepted by the Company if such terms shall not be disapproved by the applicable
Trustee or its counsel on one of the above-mentioned grounds after the foregoing
review.

In addition, before accepting any offer to purchase any Certificated Note to be
settled in fewer than three Business Days, the Company will verify that the Senior
Trustee or the Authenticating Agent, as the case may be, will have adequate time to
prepare and authenticate such Certificated Note.

B. The Company will advise the relevant Trustee (and, in the case of the Subordinated
Note Trustee, the Authenticating Agent) by telephone (confirmed in writing at any
time on the next Business Day) or electronic transmission of the information set
forth in Settlement Procedure "A" above and the name of the Agent and shall
instruct the relevant Trustee or the Authenticating Agent, as applicable, to
authenticate the Note. Each such communication by the
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<PAGE> 60
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<S> <C>
Company shall constitute a representation and warranty by the Company to each
Trustee and each Agent that (i) such Certificated Note is then, and at the time of
issuance and sale thereof will be, duly authorized for issuance and sale by the
Company, (ii) such Certificated Note will conform with the terms of the Indenture
pursuant to which such Certificated Note is issued and (iii) upon authentication
and delivery of such Certificated Note and any other Securities to be issued on or
prior to the settlement date for such Certificated Note, the aggregate amount of
Securities which have been issued and sold by the Company will not exceed the
amount of Securities registered under the Registration Statements.

C. The Company will deliver to Chemical Bank a pre-printed five-ply packet for such
Certificated Note, which packet will contain the following documents in forms that
have been approved by the Company, the Agents and the Trustees:

1. Certificated Note with customer confirmation.

2. Stub One - For Trustee.

3. Stub Two - For Agent.

4. Stub Three - For the Company.

5. Stub Four - For the Authenticating Agent.
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<PAGE> 61
35

<TABLE>
<S> <C>
D. The Senior Trustee (or, in the case of a Subordinated Note, the Authenticating
Agent) will complete and authenticate such Certificated Note and deliver it (with
the confirmation) and Stubs One, Two and Four to the Agent, and the Agent will
acknowledge receipt of the Note by stamping or otherwise marking Stubs One and Four
and returning Stub One to the relevant Trustee and Stub Four to the Authenticating
Agent in the case of Subordinated Notes. Such delivery will be made only against
such acknowledgment of receipt. Upon verification by the Agent that a Note has
been properly prepared and authenticated by the Senior Note Trustee or the
Authenticating Agent, payment therefor will be made to the Company by the Agent on
the settlement date in immediately available funds in an amount equal to the issue
price of such Note less the Agent's commission. Such payment shall be made only
upon prior receipt by the Agent of immediately available funds from or on behalf of
the purchaser unless the Agent decides, at its option, to advance its own funds for
such payment against subsequent receipt of funds from the purchaser.

In the event that any Certificated Note is incorrectly prepared, the applicable
Trustee (and, if a Subordinated Note, the Authenticating Agent) will promptly issue
a replacement Senior Note or Subordinated Note, as the case
</TABLE>

<PAGE> 62
36

<TABLE>
<S> <C>
may be, in exchange for the incorrectly prepared Certificated Note.

E. The Agent will deliver such Certificated Note (with the confirmation) to the
customer against payment in immediately payable funds. The Agent will obtain the
acknowledgement of receipt of such Certificated Note by retaining Stub Two.

F. The applicable Trustee will send Stub Three to the Company by first-class mail.

Notwithstanding the foregoing, the Company, the Agent and the applicable Trustee and its
agents may decide to issue Certificated Notes which are printed as separate documents and
not as part of five-ply plackets, and may decide to dispense with the delivery of Stubs
and instead to use different forms of receipt. Any such different arrangements must be
agreed to prior to the acceptance by the Company of an offer to purchase Notes.

Settlement
Procedures
Timetable: For orders of Certificated Notes solicited by any Agent, as agent, and accepted by the
Company, Settlement Procedures "A" through "F" set forth above shall be completed on or
before the
</TABLE>

<PAGE> 63
37

<TABLE>
<S> <C>
respective times (New York City time) set forth below:

Settlement
Procedure Time
--------- ----
A 2:00 P.M on the Business Day before settlement
B-C 3:00 P.M. on the Business Day before settlement
D 2:15 P.M. on settlement date
E 3:00 P.M. on settlement date
F 5:00 P.M. on settlement date

Notwithstanding the foregoing, if the settlement date is the date of acceptance of the
offer to purchase the Note, Settlement Procedures "A" through "C" shall be completed on or
before 11:00 A.M. (New York City time) on the settlement date.

Fails: In the event that a purchaser shall fail to accept delivery of and make payment for a Note
by 3:00 p.m., New York City time, on the settlement date therefor, the Agent will notify
the relevant Trustee and, if applicable, the Authenticating Agent, and the Company by
telephone, confirmed in writing (which may be given by telex or telecopy), and, if the
Note has been delivered to the Agent, return the Note to the Senior Note Trustee or the
Authenticating Agent. The Company will promptly provide such Trustee or the
Authenticating Agent with appropriate documentation and instructions to complete the
transactions hereinafter outlined and will remit to the Agent funds in
</TABLE>

<PAGE> 64
38

<TABLE>
<S> <C>
the amount, if any, it received with respect to such Note. Such payment will be made on
the settlement date for such Note, if possible, and in any event not later than the
Business Day following such settlement date. If such fail shall have occurred for any
reason other than the failure of the Agent to provide the Settlement Details to the
Company or to provide a confirmation to the purchaser within a reasonable period of time
as described above, the Company will reimburse the Agent on an equitable basis for its
loss of the use of funds during the period when they were credited to the account of the
Company.

Immediately upon receipt of a Note in respect of which a fail occurred, the Senior Note
Trustee or Authenticating Agent will make appropriate entries in its records and cancel
such Note.
</TABLE>

<PAGE> 65

Annex C

Paine Webber Group Inc.

Terms Agreement

, 1994

PaineWebber International (U.K.) Ltd.
1 Finsbury Avenue
London EC2M 2PA, England

Dear Sirs:

Paine Webber Group Inc. (the "Company") proposes, subject to
the terms and conditions stated herein and in the Placement Agency Agreement
dated February , 1994 (the "Placement Agency Agreement"), among the Company
and PaineWebber International (U.K.) Ltd. (the "Purchaser"), to issue and sell
to the Purchaser the securities specified in the Schedule hereto (the
"Purchased Securities"). Each of the provisions of the Placement Agency
Agreement not specifically related to the solicitation outside the United
States by the Agent, as the agent of the Company, of offers to purchase
Securities is incorporated herein by reference in its entirety, and shall be
deemed to be part of this Terms Agreement to the same extent as if such
provisions had been set forth in full herein. Nothing contained herein or in
the Placement Agency Agreement shall make any party hereto an agent of the
Company or make such party subject to the provisions therein relating to the
solicitation of offers to purchase securities from the Company solely by virtue
of such party's execution of this Terms Agreement. Each of the representations
and warranties set forth in the Placement Agency Agreement shall be deemed to
have been made at and as of the date of this Terms Agreement, except that each
representation and warranty in Section 6 of the Placement Agency Agreement
which makes reference to the Prospectus shall be deemed to be a representation
and warranty as of the date of the Placement Agency Agreement in relation to
the Prospectus (as therein defined), and also a representation and warranty as
of the date of this Terms Agreement in relation to the Prospectus as amended
and supplemented to relate to the Purchased Securities.
<PAGE> 66
2

An amendment to one or both of the Registration Statements (as
defined in the Placement Agency Agreement), or a supplement to the Prospectus,
as the case may be, relating to the Purchased Securities, in the form
heretofore delivered to you is now proposed to be filed with the Commission.

Subject to the terms and conditions set forth herein and in
the Placement Agency Agreement incorporated herein by reference, the Company
agrees to issue and sell to the Purchaser and the Purchaser agrees to purchase
from the Company the Purchased Securities, at the time and place, in the
principal amount and at the purchase price set forth in the Schedule hereto.

If the foregoing is in accordance with your understanding,
please sign and return to us the counterparts hereof, and upon acceptance
hereof by you this letter and such acceptance hereof, including those
provisions of the Placement Agency Agreement incorporated herein by reference,
shall constitute a binding agreement between you and the Company.

PAINE WEBBER GROUP INC.

By ________________________
Title:

Accepted:

PAINEWEBBER INTERNATIONAL (U.K.) LTD.

By _______________________
Title:

<PAGE> 67

Annex D

(1) Each of the Company 1/ and PaineWebber Incorporated,
a Delaware corporation (the "Subsidiary"), has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the State
of Delaware, with full corporate power and authority to own its properties and
conduct its business as described in the Prospectus, and is duly qualified to
do business as a foreign corporation and is in good standing under the laws of
each jurisdiction in which the failure to qualify and be in good standing would
materially and adversely affect the business or condition of the Company and
its consolidated subsidiaries considered as a whole.

(2) All of the outstanding shares of capital stock of the
Subsidiary have been duly and validly authorized and issued and are fully paid
and nonassessable, and are owned by the Company directly, free and clear of any
perfected security interest and, to my knowledge, after due inquiry of
appropriate officers of the Company, any other security interests, claims,
liens or encumbrances, except for restrictions on sales of capital stock
contained in debt instruments.

(3) The authorized equity capitalization of the Company
is as described in the documents incorporated by reference in the Prospectus,
and the Indentures and the Notes conform to the description thereof contained
in the Prospectus (subject to the insertion in the Notes of the maturity dates,
the interest rates and other similar terms thereof which will be described in
supplements to the Prospectus as contemplated by the Placement Agency
Agreement).

(4) Each of the Indentures has been duly authorized,
executed and delivered by the Company, has been duly qualified under the Trust
Indenture Act of 1939, as amended, and constitutes a legal, valid and binding
instrument enforceable against the Company in accordance with its terms
(subject to applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or other laws affecting creditors' rights from time
to time in effect); the enforcement of the Company's obligation is

___________________________

1/ All capitalized terms used and not otherwise defined
herein shall have the respective meanings ascribed to them in the
Placement Agency Agreement of which this Annex D is a part.
<PAGE> 68
2

also subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law); and the
Notes have been duly authorized and, when the remaining terms of any Note of
either series have been established in accordance with the applicable Indenture
and such Note has been duly executed, authenticated, issued and delivered
against payment therefore in accordance with the provisions of the applicable
Indenture and the Placement Agency Agreement, will constitute a legal, valid
and binding obligation of the Company entitled to the benefits of the
applicable Indenture, enforceable in accordance with its terms (subject to
applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or other laws affecting creditors' rights from time to time in
effect); the enforcement of the Company's obligation is also subject to general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law).

(5) The Registration Statements have become effective
under the Securities Act of 1933, as amended (the "Securities Act"), and, to
the best of my knowledge, no stop order suspending the effectiveness of either
of the Registration Statements or suspending or preventing the use of the
Prospectus has been issued and no proceedings for that purpose have been
instituted or threatened.

(6) The Registration Statements and the Prospectus and
each amendment thereof or supplement to any of them, and the documents
incorporated by reference in the Prospectus, as of their respective effective,
issue or filing dates, as the case may be (except the financial statements and
schedules and other financial and statistical information contained therein, as
to which I express no opinion), complied as to form in all material respects
with the applicable requirements of the Securities Act and the Securities
Exchange Act of 1934, as amended, and the respective rules and regulations
adopted thereunder.

(7) The Placement Agency Agreement has been duly
authorized, executed and delivered by the Company.

(8) To the best of my knowledge, there are no franchises,
contracts or other documents or any pending or threatened proceedings, legal or
otherwise, before any court, governmental body or arbitrator, that are of a
character required to be described in either of the

<PAGE> 69
3

Registration Statements or the Prospectus or to be filed as exhibits to the
Registration Statements and that are not described or filed as required.

(9) The information required to be set forth in each of
the Registration Statements in answer to Item 10 (insofar as it relates to me)
of Form S-3, to the best of my knowledge, is accurately set forth in such
Registration Statement in all material respects or no response is required with
respect to such Item.

(10) Neither the execution and delivery of the Indentures,
the issue and sale of the Notes nor the consummation by the Company of the
other transactions contemplated by the Placement Agency Agreement conflicts
with, or results in a breach of, the Restated Certificate of Incorporation, as
amended, or By-laws of the Company, any agreement or instrument known to me by
which the Company or any subsidiary is bound, any law or regulation or, so far
as is known to me, any order or regulation of any court, governmental
instrumentality or arbitrator.

(11) To the best of my knowledge, no holder of securities of
the Company has rights to the registration of any securities of the Company
because of the filing of either of the Registration Statements.

(12) No consent, approval, authorization or order of any
court or governmental agency or body is required for the consummation of the
transactions contemplated in the Placement Agency Agreement, except such as
have been obtained under the Securities Act and the Trust Indenture Act and
such as may be required under state securities or blue sky laws in connection
with the sale of Notes.

In the course of the preparation by the Company of the
Registration Statements and Prospectus, I participated in conferences with
certain representatives of and independent accountants for the Company, and my
examination of the Registration Statements and the Prospectus and my
participation in those conferences did not bring to my attention any
information which causes me to believe that either of the Registration
Statements (other than the financial statements and schedules and other
financial and statistical information included therein, as to which I make no
statement or comment), at the time it became effective, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or

<PAGE> 70
4

necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or that the Prospectus (other than the
financial statements and schedules and other financial and statistical
information included therein, as to which I make no statement or comment),
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

<PAGE> 71

Annex E

Accountants' Comfort Letter

At each Closing Date and at such times as provided in the
Placement Agency Agreement, 1/ Ernst & Young shall furnish to the Agents or the
Purchaser, as the case may be, a letter or letters (which may refer to letters
previously delivered to the Agents or the Purchaser, as the case may be), dated
as of the Closing Date or such other date, in form and substance satisfactory
to the Agents or the Purchaser, as the case may be, confirming that they are
independent accountants within the meaning of the Securities Act and the
Exchange Act and the respective applicable published rules and regulations
thereunder, that the response to Item 10 of each of the Registration Statements
is correct insofar as it relates to them and stating in effect that:

(a) in their opinion the consolidated financial statements and
schedules audited by them and incorporated by reference in the
Registration Statements and the Prospectus comply as to form in all
material respects with the applicable accounting requirements of the
Securities Act and the Exchange Act and the related published rules
and regulations thereunder;

(b) on the basis of a reading of the "Selected Financial
Data", if any, included or incorporated in the Registration Statements
and the Prospectus and of the latest unaudited consolidated condensed
financial statements made available by the Company and its
consolidated subsidiaries; carrying out certain specified procedures
(but not an examination in accordance with generally accepted auditing
standards) which would not necessarily reveal matters of significance
with respect to the comments set forth in such letter; a reading of
the minutes of the meetings of the stockholders, directors and audit
and executive committees of the Company; and inquiries of certain
officials of the Company who have responsibility for financial and
accounting matters of the Company and its subsidiaries as to
transactions and events subsequent to the date of the most recent
financial statements included or

__________________________

1/ All capitalized terms used herein shall have the meanings
ascribed to them in the Placement Agency Agreement of which
this Annex E is a part.

<PAGE> 72
2

incorporated in the Registration Statements and the Prospectus,
nothing came to their attention which caused them to believe that:

(1) the amounts in the unaudited "Summary Financial
Information", if any, included in the Prospectus, and the
amounts in the "Selected Financial Data", if any, included or
incorporated by reference in the Registration Statements and
the Prospectus, do not agree with the corresponding amounts in
the audited financial statements from which such amounts were
derived;

(2) any unaudited financial statements included or
incorporated in the Registration Statements and the Prospectus
do not comply as to form in all material respects with
applicable accounting requirements and with the published
rules and regulations of the Commission with respect to
financial statements included or incorporated in quarterly
reports on Form 10-Q under the Exchange Act; or any material
modifications should be made to the unaudited financial
statements for them to be presented in conformity with
generally accepted accounting principles;

(3) with respect to the period subsequent to the date
of the most recent financial statements included or
incorporated in the Registration Statements and the
Prospectus, there were any changes, at a specified date not
more than five business days prior to the date of the letter,
in the consolidated long-term debt of the Company and its
subsidiaries or capital stock of the Company (excluding
retained earnings, amortization of restricted stock, foreign
currency, translation adjustment and tax credits) as compared
with the amounts shown on the most recent consolidated balance
sheet included or incorporated in the Registration Statements
and the Prospectus, except in all instances for changes or
decreases disclosed in the Registration Statements and the
Prospectus; or

(4) if any unaudited pro forma consolidated condensed
financial statements are included or incorporated by reference
in the Prospectus, on

<PAGE> 73
3

the basis of a reading of the unaudited pro forma financial
statements, carrying out certain specified procedures,
inquiries of certain officials of the Company and the acquired
company who have responsibility for financial and accounting
matters, and proving the arithmetic accuracy of the
application of the pro forma adjustments to the historical
amounts in the pro forma financial statements, nothing came to
their attention which caused them to believe that the pro
forma financial statements do not comply in form in all
material respects with the applicable accounting requirements
of Rule 11-02 of Regulation S-X or the pro forma adjustments
have not been properly applied to the historical amounts in
the compilation of those statements;

(c) they have performed certain other specified procedures as
a result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company) set forth in the
Registration Statements, as amended, and the Prospectus, as amended or
supplemented, and in Exhibit 12 to the Registration Statements,
including specified information, if any, included or incorporated from
the Company's Annual Report on Form 10-K incorporated therein or
specified information, if any, included or incorporated from any of
the Company's Quarterly Reports on Form 10-Q incorporated therein,
agrees with the accounting records of the Company and its
subsidiaries, excluding any questions of legal interpretation.

<PAGE> 1

<TABLE>
<S> <C>
not more Paine Webber (PICTURE) COMMON not more
than 100,000 Group Inc. STOCK than 100,000
shares shares
(Number) THIS CERTIFICATE INCORPORATED UNDER (Shares)
IS TRANSFERABLE THE LAWS OF
IN NEW YORK CITY THE STATE OF DELAWARE
CUSIP 695629 10 5

THIS
CERTIFIES IS THE OWNER OF
THAT
SEE REVERSE FOR
CERTAIN DEFINITIONS

FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
Paine Webber Group Inc.
CERTIFICATE OF STOCK
DATED:

/s/ THEODORE A. LEVINE /s/ DARWIN BUCHANAN
Secretary Chairman of the Board

COUNTERSIGNED AND REGISTERED:
MELLON SECURITIES TRUST COMPANY
(NEW YORK, NEW YORK)
(SEAL) TRANSFER AGENT AND REGISTRAR
BY
AMERICAN BANK
NOTE COMPANY AUTHORIZED SIGNATURE
</TABLE>
<PAGE> 2
PAINE WEBBER GROUP INC.

The Corporation will furnish without charge to each stockholder who so requests
the powers, designations, preferences and relative participating, optional or
other special rights of each class of stock or series thereof of the
Corporation and the qualifications, limitations or restrictions of such
preferences and/or rights. Such request may be made to the Corproation or to
the Trasfer Agent or Registrar.
- --------------------------------------------------------------------------------

Explanation of Abbreviations

The following abbreviations when used in the form of ownership on the face of
this certificate shall be construed as though they were written out in full
according to applicable laws or regulations. Abbreviations in addition to those
appearing below, may be used.

<TABLE>
<CAPTION>
Phrase Abbreviation Equivalent Phrase Abbreviation Equivalent
<S> <C> <C> <C>
JT TEN As joint tenants, with right of TEN BY ENT As tenants by the entireties
survivorship and not as tenants
in common

TEN IN COM As tenants in common UNIF GIFT MIN ACT Uniform Gifts to Minors Act
</TABLE>

<TABLE>
<CAPTION>
Word Word Word
Abbreviation Equivalent Abbreviation Equivalent Abbreviation Equivalent
<S> <C> <C> <C> <C> <C>
ADM Administrator(s) EST Estate, Of estate of PAR Paragraph
Administratrix EX Executor(s), Executrix PL Public Law
AGMT Agreement FBO For the benefit of TR (As) trustee(s), for, of
ART Article FDN Foundation U Under
CH Chapter GDN Guardian(s) UA Under Agreement
CUST Custodian for GDNSHP Guardianship UW Under will of, Of will of,
DEC Declaration MIN Minor(s) Under last will & testament
</TABLE>
================================================================================

Assignment Form

For value received...........hereby sell, assign and transfer.............shares
(I or we) (Amount)

of the capital stock represented by this certificate to.........................

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE

______________________________________..........................................
(Print full name and address of Assignee)

................................................................................

.......................................................______________, Assignee,
Zip Code

and do irrevocably constitute and appoint.......................................
(Leave blank of fill in as explained
in Notice below)
as Attorney to transfer the said Stock on the books of the Corporation with full
power of substitution in the promises.

X.........................................
Dated........................
X.........................................
(Sign here exactly as name(s) is (are)
shown on the face of this certificate
without any change or alteration
whatever.)

IMPORTANT NOTICE: When you sign your name to this Assignment Form without
filling in the name of your "Assignee" or "Attorney", this stock certificate
becomes fully negotiable, similar to a check endorsed in blank. Therefore, to
safeguard a signed certificate, it is recommended that you either, (i) fill in
the name of the new owner in the "Assignee" blank, or (ii) if you are sending
the signed certificate to your bank or broker, fill in the name of the bank or
broker in the "Attorney" blank. Alternatively, instead of using this Assignment
Form, you may sign a separate "stock power" form and then mail the unsigned
stock certificate and the signed "stock power" in separate envelopes. For added
protection, use certified or registered mail for a stock certificate.

Printed in U.S.A.

<PAGE> 1

THIRD SUPPLEMENTAL INDENTURE dated as of
November 30, 1993, between PAINE WEBBER GROUP INC., a
corporation duly organized and existing under the
laws of Delaware (herein called the "Company"),
having its principal office at 1285 Avenue of the
Americas, New York, New York 10019, and CHEMICAL BANK
DELAWARE, a corporation duly organized and existing
under the laws of the State of Delaware, as Trustee
(herein called the "Trustee").

RECITALS

The Company and the Trustee are parties to an Indenture dated
as of March 15, 1988, as supplemented by a First Supplemental Indenture dated
as of September 22, 1989, and by a Second Supplemental Indenture dated as of
March 22, 1991 (the "Indenture"), relating to the issuance from time to time by
the Company of its Securities. Capitalized terms used herein and not otherwise
defined shall have the meanings given them in the Indenture.

The Company has requested the Trustee to join with it in the
execution and delivery of this third supplemental indenture (the "Third
Supplemental Indenture") in order to supplement and amend the Indenture by
amending and restating certain provisions thereof for the purpose of
redesignating the officers authorized and required to execute the Securities on
behalf of the Company.

Section 901 of the Indenture provides that supplemental
indenture may be entered into by the Company and the Trustee, without the
consent of any Holders of the Securities, to cure any ambiguity, to correct or
supplement any provision therein which may be defective or inconsistent with
any other provision therein, or to make any other provisions with respect to
matters or questions arising under the Indenture, provided such action shall
not adversely affect the interests of the Holders or Securities of any series
in any material respect.

The Company has determined that this Third Supplemental
Indenture complies with said Section 901 and does not require the consent of
any Holders of Securities.
<PAGE> 2
At the request of the Trustee, the Company has furnished the
Trustee with an Opinion of Counsel complying with the requirements of Section
903 of the Indenture, stating, among other things, that the execution of this
Third Supplemental Indenture is authorized or permitted by the Indenture, and
an Officers' Certificate and Opinion of Counsel complying with the requirements
of Section 102 of the Indenture, and has delivered to the Trustee a Board
Resolution as required by Section 901 of the Indenture authorizing the
execution by the Company of this Third Supplemental Indenture and its delivery
by the Company to the Trustee.

All things necessary to make this Third Supplemental Indenture
a valid agreement of the Company and the Trustee, in accordance with the terms
of the Indenture, and a valid amendment of and supplement to the Indenture have
been done.

NOW, THEREFORE, THIS THIRD SUPPLEMENTAL INDENTURE WITNESSETH:

For and in consideration of the premises, it is mutually
covenanted and agreed, for the equal and proportionate benefit of all Holders
of the Securities, as follows:

I. AMENDMENT TO THE INDENTURE

The first sentence of Section 303 of the Indenture is amended
to read in its entirety as follows:

"The Securities shall be executed on behalf of the Company by manual or
facsimile signatures of its Chairman, its President or any of its Vice
Presidents or its Treasurer, under its corporate seal reproduced thereon
attested by the manual or facsimile signature of its Secretary or one of its
Assistant Secretaries."

II. GENERAL PROVISIONS

A. The recitals contained herein shall be taken as the
statements of the Company, and the Trustee assumes no responsibility for the
correctness of the same. The Trustee makes no representation as to the
validity of this Third Supplemental Indenture. The Indenture, as supplemented
and

<PAGE> 3

amended by this Third Supplemental Indenture, is in all respects hereby
adopted, ratified and confirmed.

B. This instrument may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
but all such counterparts shall together constitute but one and the same
instrument.

C. This Third Supplemental Indenture shall be deemed to be a
contract under the laws of the State of New York and for all purposes shall be
governed by and construed in accordance with the laws of said State.

IN WITNESS WHEREOF, the parties hereto have caused this Third
Supplemental Indenture to be duly executed, and their corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.

PAINE WEBBER GROUP INC.,

by
_________________________________
Name:
Title:
(Seal)

Attest:

_______________________________

CHEMICAL BANK DELAWARE,
as Trustee,

by
_________________________________
Name:
Title:
(Seal)

Attest:

_______________________________

<PAGE> 1

LIMITED PARTNERSHIP AGREEMENT

PW PARTNERS 1992 DEDICATED L.P.

Among

THE PARTIES NAMED HERETO

Dated as of September 2, 1992

- --------------------------------------------------------------------------------
THE LIMITED PARTNERSHIP INTERESTS EVIDENCED BY THIS PARTNERSHIP AGREEMENT AND
THE SECURITIES TO BE HELD BY THE PARTNERSHIP HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES LAW AND MUST BE HELD
INDEFINITELY UNLESS SOLD IN COMPLIANCE WITH ALL APPLICABLE SECURITIES LAWS.

<PAGE> 2
LIMITED PARTNERSHIP AGREEMENT

PW PARTNERS 1992 DEDICATED L.P.

Table of Contents
-----------------

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I. DEFINITIONS AND TERMS . . . . . . . . . . . . . . . . . . . . . 1

Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Terms Generally . . . . . . . . . . . . . . . . . . . . . . . . 6

ARTICLE II. THE PARTNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . 7

Section 2.01. Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.02. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.03. Principal Place of Business . . . . . . . . . . . . . . . . . . 7
Section 2.04. Registered Office in Delaware . . . . . . . . . . . . . . . . . 7
Section 2.05. Names and Addresses of the
Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

ARTICLE III. PURPOSE AND POWERS . . . . . . . . . . . . . . . . . . . . . . . 8

Section 3.01. Purpose and Powers . . . . . . . . . . . . . . . . . . . . . . . 8

ARTICLE IV. MANAGEMENT AND CONTROL . . . . . . . . . . . . . . . . . . . . . 9

Section 4.01. Authority of General Partner . . . . . . . . . . . . . . . . . . 9
Section 4.02. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.03. No Compensation to General
Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

ARTICLE V. CAPITAL CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . 10

Section 5.01. Capital Contributions . . . . . . . . . . . . . . . . . . . . . 10

ARTICLE VI. ALLOCATIONS AND DISTRIBUTIONS . . . . . . . . . . . . . . . . . 11

Section 6.01. Allocation of Income and Loss . . . . . . . . . . . . . . . . . 11
Section 6.02. Liability of General and
Limited Partners . . . . . . . . . . . . . . . . . . . . . . . 11
Section 6.03. Allocations for Tax Purposes . . . . . . . . . . . . . . . . . . 12
Section 6.04. Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 6.05. Distributions . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE VII. PARTNERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Section 7.01. Designation of Limited Partners . . . . . . . . . . . . . . . . 15
Section 7.02. Acceleration of Applicable Date;
Purchase of a Limited
Partners's Interest . . . . . . . . . . . . . . . . . . . . . 16
Section 7.03. Transfer of a Limited Partner's
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 7.04. Admission or Substitution of
New Limited Partners . . . . . . . . . . . . . . . . . . . . . 18
Section 7.05. Admission of Substitute or
Additional General Partners . . . . . . . . . . . . . . . . . 19
Section 7.06. Withdrawal of a Limited or
General Partner . . . . . . . . . . . . . . . . . . . . . . . 20
Section 7.07. Final Events With Respect to a
Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 7.08. Continuation of Partnership . . . . . . . . . . . . . . . . . . 21
Section 7.09. Removal of General Partner . . . . . . . . . . . . . . . . . . . 21
Section 7.10. Compliance with Law . . . . . . . . . . . . . . . . . . . . . . 21

ARTICLE VIII. WINDING-UP AND DISSOLUTION OF
THE PARTNERSHIP . . . . . . . . . . . . . . . . . . . . . . . 22

Section 8.01. Winding-Up and Dissolution . . . . . . . . . . . . . . . . . . . 22
Section 8.02. Amounts Reserved . . . . . . . . . . . . . . . . . . . . . . . . 23

ARTICLE IX. REPORTS TO PARTNERS . . . . . . . . . . . . . . . . . . . . . . 23

Section 9.01. Books of Account . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 9.02. Audit and Report . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 9.03. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . 24

ARTICLE X. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 24

Section 10.01. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 10.02. Understanding of Limited
Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 10.03. Indemnification and Related
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 10.04. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 10.05. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 10.06. Completeness and Amendments . . . . . . . . . . . . . . . . . . 26
Section 10.07. Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . 26
Section 10.08. Transfer of PWG Common
and Option . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
<PAGE> 4
PW PARTNERS 1992 DEDICATED L.P.

LIMITED PARTNERSHIP AGREEMENT dated as of September 2, 1992
among PAINEWEBBER PARTNERS INC., a Delaware corporation, as General
Partner, and the persons signing this Agreement as Limited Partners.

The Partners, in consideration of their mutual covenants herein
contained, hereby agree to become partners and to form a limited partnership
(the "Partnership") under the Delaware Revised Uniform Limited Partnership Act
(the "Delaware Act") upon the filing for record of the Certificate of Limited
Partnership in the office of the Secretary of State as required by Section
17-201 of the Delaware Act, for the purpose and duration, and upon the terms
and conditions, hereinafter set forth, and further hereby mutually covenant and
agree as follows:

ARTICLE I

Definitions and Terms

1.01. Definitions. For the purposes of this Agreement, the following
terms have the corresponding meanings, except as otherwise specifically
provided herein:

"Acquiring Person" means any "person," as such term is used in
Sections 13(d) and 14(d)(2) of the Exchange Act, other than PWG, PWI or any
employee benefit plan sponsored by PWG or PWI, who becomes a "beneficial
owner," as such term is used in Rule 13d-3 promulgated under the Exchange Act,
of 20% or more of the Voting Stock of PWG or PWI; provided, however, that in
the case of any "person" who on the date of this Agreement owned 5% or more of
the Voting Stock of PWG, only acquisitions by such "person" occurring after
such date shall be taken into account in determining whether or not such
"person" is an Acquiring Person.

"Affiliate" means, with respect to a Person, any other Person who,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the first Person.

"Applicable Date" means January 1, 1996, unless accelerated pursuant
to Section 7.02.
<PAGE> 5
2

"Bankruptcy" means, with respect to a Person, the occurrence of any of
the following events: (i) the filing of an application by such Person for, or a
consent to, the appointment of a trustee or custodian of his assets; (ii) the
filing by such Person of a voluntary petition in bankruptcy or the seeking of
relief under Title 11 of the United States Code, as now constituted or
hereafter amended, or the filing of a pleading in any court of record admitting
in writing his inability to pay his debts as they become due; (iii) the
inability of such Person to pay his debts as such debts become due; (iv) the
making by such Person of a general assignment for the benefit of creditors; (v)
the filing by such Person of an answer admitting the material allegations of,
or his consenting to, or defaulting in answering, a bankruptcy petition filed
against him in any bankruptcy proceeding or petition seeking relief under Title
11 of the United States Code, as now constituted or as hereafter amended; or
(vi) the entry of an order, judgment or decree by any court of competent
jurisdiction adjudicating such Person a bankrupt or insolvent or appointing a
trustee or custodian of his assets and the continuance of such order, judgment
or decree unstayed and in effect for a period of 60 consecutive days.

"Bonus Compensation Payment" means a payment equal to the cash dividend
per share paid on PWG Common multiplied by the number of shares of PWG Common
subject to the Option on the record date for such cash dividend.

"Capital Account" means, with respect to a Partner, an account
maintained for such Partner to which is credited such Partner's contributions
to the Partnership and any net income allocated to such Partner pursuant to
Section 6.01 and from which is debited any distributions to such Partner and
any net losses allocated to such Partner pursuant to Section 6.01. In the case
of any distribution in kind, Capital Accounts will be adjusted as if the asset
distributed had been sold and the proceeds distributed in cash, and any
resulting gain or loss on such sale will be allocated pursuant to Section 6.01.

"Capital Contribution" means, with respect to a Partner, the
contribution of capital to the Partnership made by such Partner in accordance
with Section 5.01.

"Capital Gain (Loss)" means, with respect to the sale or other
disposition of PWG Common, the option or any other Investment or asset, the
amount, if any, by which:
<PAGE> 6
3

(i) the proceeds of such sale or other disposition, plus any interest,
dividends or other income received with respect to such Investment or other
asset (unless such amounts previously have been distributed to the Partners
entitled thereto), exceed (are less than) (ii) the cost or other basis of such
Investment or other asset to the Partnership, plus any expenses incurred with
respect thereto.

"Capital Percentage" means, with respect to a Partner, the percentage
that the Capital Account of such Partner bears to the sum of all Capital
Accounts.

"Capital Schedule" means a capital schedule distributed pursuant to
Section 5.01(a).

"Certificate of Limited Partnership" means the Certificate of Limited
Partnership filed or to be filed with respect to the Partnership for record in
the Office of the Secretary of State of Delaware pursuant to Section 17-201 of
the Delaware Act.

A "Change in Control" shall be deemed to have occurred if:

(i) any Person becomes an Acquiring Person;

(ii) a majority of the Board of Directors of PWG ("PWG
Board") at any time consists of individuals elected to membership at a
PWG Board meeting or a PWG shareholders' meeting other than
individuals nominated or approved by a majority of the Disinterested
Directors;

(iii) PWG adopts any plan of liquidation providing for the
distribution of all or substantially all of its assets;

(iv) all or substantially all the business of PWI is
disposed of pursuant to a merger, consolidation or other transaction
(other than a merger, consolidation or other transaction with a
company of which 50% or more of the Voting Stock is owned, directly or
indirectly, by PWG both before and immediately after the merger,
consolidation or other transaction) in which PWI is not the surviving
corporation or PWG is materially or completely liquidated; or

(v) PWG or PWI combines with another company and is the
surviving corporation but,
<PAGE> 7
4

immediately after the combination, the Persons who were shareholders
of PWG immediately prior to the combination hold, directly or
indirectly, 50% or less of the Voting Stock of the combined company
(there being excluded from the number of shares held by such
shareholders, but not from the Voting Stock of the combined company,
any shares received by Affiliates of such other company in exchange
for stock of such other company).

"Code" means the Internal Revenue Code of 1986, as from time to time
amended and in effect.

"Compensation Committee" means the Compensation Committee of the PWG
Board.

"Contribution Date" means the date, fixed by the General Partner in
its discretion, on which Capital Contributions are to be made by the Limited
Partners.

"Disinterested Director" means any member of the PWG Board who (i) is
not an officer or employee of PWG, PWI or any of their subsidiaries, (ii) is
not an Acquiring Person or an affiliate or associate of an Acquiring Person or
a nominee or representative of an Acquiring Person or of any such affiliate or
associate, and (iii) was a member of the PWG Board prior to the date of this
Agreement or was recommended for election or elected by a majority of the
Disinterested Directors then on the PWG Board.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Final Event" means the death, adjudication of incompetency,
Bankruptcy, liquidation, dissolution or withdrawal from the Partnership of any
Partner.

"General Partner" means the Person named herein as General Partner or
any Person admitted as an additional or substitute General Partner, so long as
such Person shall remain a General Partner.

"Initial Limited Partner" means the Person executing a counterpart of
this Agreement as the Initial Limited Partner.

"Investments" means PWG Common, the Option, any securities other than
PWG Common delivered upon exercise of the Option, any securities or other
property distributed in respect of PWG Common or that may be
<PAGE> 8
5

acquired pursuant to rights distributed in respect of PWG Common, short-term
investments commonly regarded as money-market investments, bank deposits and
cash.

"Limited Partner" means any of the Persons named herein as Limited
Partners or any other Person admitted as an additional or substitute Limited
Partner, as long as such Person remains a Limited Partner.

"Limited Partnership Percentage" means, with respect to any Limited
Partner, the Capital Account of such Limited Partner divided by the Capital
Accounts of all the Limited Partners.

"Net Capital Gain" means the sum of all Capital Gains realized by the
Partnership on or prior to a given date, less the sum of the following:

(i) all Capital Losses or, without duplication, other
losses realized by the Partnership on or prior to such date; plus

(ii) a reserve established by the General Partner in its
discretion for unrealized losses; plus

(iii) the aggregate amount of all cash distributions
previously made to the Limited Partners in accordance with Section
6.05(a).

"Net Value" means, with respect to any Investment as of any date: (i)
the value of the Investment on such date, as determined in accordance with
Section 6.04, minus (ii) the sum of the indebtedness incurred by the
Partnership with respect to such Investment, whether or not secured by the
Investment and with or without recourse to the Partnership.

"Operative Date" means the date, if any, following a Change in Control
that has been designated in a resolution adopted by a majority of the
Disinterested Directors, in their sole discretion, as the Operative Date.

"Option" means the contractual right to be granted by Dedicated
Partners Inc., a wholly-owned subsidiary of PWG, to the Partnership to acquire
up to 1,000,000 shares of PWG Common at $22.125 per share, to be exercisable in
whole or in part at any time on or after the Applicable Date through December
31, 2002.

"PaineWebber" means PWG or any Affiliate of PWG.
<PAGE> 9
6

"Partner" means any Person who is a partner in the Partnership, whether
a General Partner or a Limited Partner.

"Person" means any individual, corporation, partnership, association,
trust, joint stock company or unincorporated organization.

"PWG" means Paine Webber Group Inc., a Delaware corporation.

"PWG Common" means the common stock, par value $1.00, of PWG.

"PWI" means PaineWebber Incorporated, a Delaware corporation.

"Senior Limited Partners" means the three individual Limited Partners
who have the largest Limited Partnership Percentages on the Operative Date. If
more than three individuals have such Limited Partnership Percentages (e.g.,
two or more individual Limited Partners hold the third highest interest), then
all such individuals shall be Senior Limited Partners. If three or fewer
individuals are Limited Partners on the Operative Date, then such remaining
individual Limited Partners shall be Senior Limited Partners.

"Successor in Interest" means, with respect to a Partner (whether such
position is acquired or held by operation of law or otherwise), any (i)
trustee, custodian, receiver or other Person acting in any bankruptcy or
reorganization proceeding with respect to such Partner; (ii) assignee for the
benefit of the creditors of such Partner; (iii) trustee, receiver or other
fiduciary acting for or with respect to the dissolution, liquidation or
termination of such Partner; (iv) executor, administrator, committee or other
legal representative of such Partner; or (v) other successor or assign of such
Partner.

"Voting Stock" means the capital stock of any class or classes of a
corporation having general voting power under ordinary circumstances, in the
absence of contingencies, to elect the directors of such corporation.

1.02. Terms Generally. Any definition in Section 1.01 applies
equally to both the singular and plural forms of the terms defined. If the
context requires, any pronoun includes its masculine, feminine and neuter
forms. Each of the words "include," "includes" and
<PAGE> 10
7

"including" is deemed to be followed by the phrase "without limitation." All
terms herein that relate to accounting matters are to be interpreted in
accordance with generally accepted accounting principles as in effect from time
to time. All references to "Sections" and "Articles" refer to Sections and
Articles of this Agreement, unless otherwise specified. The words "hereof,"
"herein" and similar terms relate to this Agreement.

ARTICLE II

The Partnership

2.01. Name. The Partnership will conduct its activities under the
name "PW Partners 1992 Dedicated L.P." The General Partner will have the power
at any time to change the name of the Partnership. The General Partner will
give prompt notice of any such change to each Limited Partner.

2.02. Term. The Partnership will commence upon the filing of the
Certificate of Limited Partnership in the Office of the Secretary of State of
Delaware and will continue in existence through the close of business on
December 31, 2005, unless sooner terminated pursuant to the provisions Section
7.08 or Section 8.01(a). At any time on or prior to December 31, 2005, the
General Partner may extend the term of the Partnership for up to five years if
the General Partner deems such extension desirable to permit the orderly
liquidation of the Partnership or otherwise to further the purposes of the
Partnership.

2.03. Principal Place of Business. The principal place of business
of the Partnership will be 1285 Avenue of the Americas, New York, New York
10019, or such other place, within or without the State of Delaware, as may be
designated by the General Partner from time to time. The General Partner will
give prompt notice of any change to each Limited Partner.

2.04. Registered Office in Delaware. The address of the
Partnership's registered office in Delaware is 1209 Orange Street in the City
of Wilmington, County of New Castle. The name of the Partnership's registered
agent at such address is The Corporation Trust Company.

2.05. Names and Address of the Partners. The name and residence
address of each Partner is as set forth opposite his signature.
<PAGE> 11

ARTICLE III

Purpose and Powers

3.01. Purpose and Powers. The purpose of the Partnership is (a) to
acquire and hold shares of PWG Common, the Option and, upon exercise of the
Option, the securities to be delivered upon such exercise, (b) to realize
Capital Gains upon an increase in the market price of PWG Common, and (c) to
distribute to the Limited Partners the Option, fractional interests in the
Option and any and all shares of PWG Common remaining after the whole or
partial exercise of the Option and payment of the exercise price of the Option.
In furtherance of this purpose, the Partnership will have all powers necessary,
suitable or convenient to accomplish this purpose, alone or with others, as
principal or agent, including the following:

(i) to buy or otherwise acquire, hold and sell the
Option, PWG Common, any other securities to be delivered upon exercise
of the Option and any other Investments, or any combination thereof,
whether any of the foregoing are readily marketable or not;

(ii) to exercise the Option, in whole or in part, at any
time during the term thereof and to pay or cause the payment of the
exercise price of the Option in whole or in part;

(iii) to distribute to the Limited Partners PWG Common, or
any dividends or other distributions received by the Partnership in
respect thereof, fractional interests in the Option, any other
securities received upon exercise of the Option and any other
Investments or assets of the Partnership, or any combination thereof;

(iv) to invest and reinvest any cash assets
of the Partnership in Investments;

(v) to borrow money from time to time, issue promissory
notes or other evidences of indebtedness and secure payment of the
principal of any such indebtedness and the interest thereon by
mortgage, pledge or the granting of a security interest in any of the
property of the Partnership;
<PAGE> 12
9

(vi) to lend any of its property or funds, either with or
without security, at any legal rate of interest or without interest;

(vii) to have and maintain one or more offices within or
without the State of Delaware, and in connection therewith, to rent or
acquire office space, engage personnel and compensate them and do such
other acts and things as may be advisable or necessary in connection
with the maintenance of such office or offices;

(viii) to open, maintain, effect transactions in, and close
securities, commodities and futures accounts, including both cash and
margin accounts, with brokers, dealers, merchants and any other person
authorized to conduct any such business;

(ix) to open, maintain and close bank accounts and draw
checks and other orders for the payment of monies;

(x) to engage and compensate accountants, custodians,
investment advisors, attorneys and any and all other advisors, agents
and assistants, both professional and nonprofessional, as may be
necessary or advisable;

(xi) to enter into, make and perform all contracts,
agreements and other undertakings as may be necessary or advisable or
incident to carrying out its purpose; and

(xii) to sue and be sued, to prosecute, settle or
compromise all claims against third parties, to compromise, settle or
accept judgment with respect to claims against the Partnership, and to
execute all documents and make all representations, admissions and
waivers in connection therewith.

ARTICLE IV

Management and Control

4.01. Authority of General Partner. (a) The management and
operation of the Partnership and the formulation and execution of investment
policy will be vested exclusively in the General Partner. In its sole
<PAGE> 13
10

discretion, the General Partner will exercise all powers necessary or
convenient for the purposes of the Partnership, including those enumerated in
or implied by Section 3.01, on behalf and in the name of the Partnership. If at
any time the Partnership has two or more General Partners, each such General
Partner will have the full authority of the General Partner under this
Agreement; provided, however, that any controversy among the General Partners
will be resolved in favor or the General Partner or Partners having the greater
interest in the Partnership (based upon Capital Contributions).

(b) A Limited Partner will have no right to, and will
not, take part in the management or control of the Partnership's business or
act or bind the Partnership, and will have only the rights and powers granted
to Limited Partners herein.

(c) No provision of this Agreement precludes any Partner
or any Affiliate of any Partner from engaging in any activity whatsoever,
including receiving compensation from issuers of securities for investment
banking services, managing or advising with respect to investments,
participating in investments, brokerage, consulting or advisory arrangements,
or acting as an advisor to or a participant in any corporation, partnership,
trust or other business entity or from receiving compensation or profit
therefore.

4.02. Expenses. The General Partner will bear and pay all the
expenses of the Partnership, excluding (i) costs and expenses directly related
to the purchase or sale of the Option, PWG Common, or other Investments by the
Partnership (including brokerage fees and commissions, transfer taxes and costs
relating to the registration or qualification for sale of the Option, PWG
Common or any other Investments); and (ii) any Federal, state, local or other
taxes of the Partnership.

4.03. No Compensation to General Partner. The General Partner will
not receive any fees or other compensation for serving as such pursuant to this
Agreement.

ARTICLE V

Capital Contributions

5.01. Capital Contributions. (a) Prior to the Contribution Date, the
General Partner will prepare and
<PAGE> 14
11

distribute to each prospective Limited Partner designated pursuant to Section
7.01, other than the Initial Limited Partner, a Capital Schedule stating the
Capital Contribution and Capital Percentage of such prospective Limited
Partner. The General Partner will promptly notify each such prospective Limited
Partner of any change in such Capital Schedule.

(b) On or before the Contribution Date, the General
Partner and each such Limited Partner will make a Capital Contribution to the
Partnership in the amount and in the manner provided on their respective
Capital Schedules.

ARTICLE VI

Allocations and Distributions

6.01. Allocation of Income and Loss. The net income (or net loss) of
the Partnership will be determined in each fiscal year in accordance with the
accounting methods followed by the Partnership for Federal income tax purposes
and will be allocated among the Partners and credited to (or debited from)
their respective Capital Accounts in accordance with their respective Capital
Percentages. Notwithstanding the foregoing, the Capital Accounts of the Limited
Partners will not be reduced below zero. If the Capital Accounts of the Limited
Partners are reduced to zero, any net loss that would otherwise be allocated to
the Limited Partners will be allocated to the General Partner and debited from
its Capital Account. Any net income received following such allocation of net
loss to the General Partner that would otherwise be allocated to the Limited
Partners will first be allocated to the General Partner and credited to its
Capital Account until the amount so credited equals the amount debited from the
General Partner's Capital Account pursuant to the preceding sentence.
Thereafter, net income will be allocated and credited according to the
provisions of the first sentence of this Section 6.01.

6.02. Liability of General and Limited Partners. (a) The General
Partner will have unlimited liability for the satisfaction and discharge of all
losses, liabilities and expenses of the Partnership.

(b) Each Limited Partner and former Limited Partner will
be liable for the satisfaction and discharge of all losses, liabilities and
expenses of the Partnership allocable to him pursuant to Section 6.03, but only
to the
<PAGE> 15
12

extent of his Capital Contribution. In no event will any Limited Partner or
former Limited Partner be obligated to make any additional capital contribution
to the Partnership in excess of his initial Capital Contribution, or have any
liability in excess of his Capital Contribution for the satisfaction and
discharge of the losses, liabilities and expenses of the Partnership. However,
if any Limited Partner or former Limited Partner receives a distribution from
the Partnership in violation of Section 17-607 of the Delaware Act, knowing at
the time of the distribution that it violated Section 17-607 of the Delaware
Act, he will be liable to the Partnership for the amount of the distribution.

(c) Except as set forth in Section 6.01, a Partner will
not have any obligation to the Partnership or to any other Partner to restore
any negative balance in the Capital Account of such Partner. Until distribution
of any such Partner's interest in the Partnership upon the dissolution of the
Partnership, neither his Capital Account nor any part thereof will be subject
to withdrawal or redemption except with the consent of the General Partner.

6.03. Allocations for Tax Purposes. (a) All items of income,
deduction and credit realized by or allowable to the Partnership will be
determined and allocated among the Partners for Federal, state and local income
tax purposes in the same manner as set forth in Section 6.01.

(b) The General Partner will be the "tax matters partner"
for all purposes of the Code and will have the power and authority to effect
the allocations provided for in this Section 6.03 and to take such actions as
the tax matters partner is required or permitted to take under the Code and to
take all other actions that, in the good faith opinion of the General Partner,
are necessary or convenient for the Partnership to take to ensure compliance
with the Code or any other applicable law or regulation. Notwithstanding any
other provision of this Agreement to the contrary, if in the good faith opinion
of the General Partner any of the allocations provided for in this Section 6.03
are prohibited by the Code or other applicable law or regulation or may subject
the Partnership or any Partner to legal penalty or onerous condition, the
General Partner will have the power and authority to modify any such allocation
to the extent necessary to comply with the Code or other applicable law or
regulation or to avoid such legal penalty or onerous condition.
<PAGE> 16
13

6.04. Valuation. For the purpose of determining Net Value, the value
of the Option, any fractional interest in the Option, PWG Common, any other
Investment or any other asset of the Partnership as of any date (or in the
event such date is not a business day, as of the next preceding business day)
will be determined as follows:

(a) except as provided in clause (d) below, marketable
Investments listed on a national securities exchange or as a "National
Market Issue" in the National Association of Securities Dealers'
Automated Quotation System will be valued at the last sales price on
the date of valuation, or in the absence of a sale on such date, at
the last bid price on the date of valuation;

(b) except as provided in clause (d) below, marketable
Investments traded in the over-the-counter market, but which are not
"National Market Issues," will be valued at the last bid price as
reported for the date of valuation;

(c) the option will be valued (i) prior to the Applicable
Date, at zero, and (ii) on and after the Applicable Date, at the
aggregate value on the valuation date of the securities to be
delivered upon exercise of the Option (determined as provided in this
Section 6.04), less the aggregate exercise price of the Option;

(d) notwithstanding anything in this Section 6.04 to the
contrary, any asset required to be sold by the Partnership at a
specified price upon the occurrence of a contingent event will be
valued at such price upon and after the occurrence of such event; and

(e) all other assets will be valued at fair market value.

All valuation decisions made pursuant to this Section 6.04 will be
made by the General Partner.

6.05. Distributions. (a) All cash receipts of the Partnership with
respect to any Capital Gain will be distributed as soon as practicable after
the receipt thereof to the Partners in proportion to their respective Capital
Accounts; provided, however, that the amount to be so distributed may not
exceed the Net Capital Gain of the
<PAGE> 17
14

Partnership at the time of such distribution and provided further that cash
receipts needed for the payment of the exercise price of the Option will be
used for that purpose and not distributed. Notwithstanding the previous
sentence, prior to the Applicable Date, the General Partner will have authority
to withhold any distribution provided for in this Section 6.05(a).

(b) The General Partner will make distributions of cash,
to the extent of the amount of cash then held by the Partnership, to the
Partners for payment of applicable Federal, state and local taxes on any
substantial amount of net realized taxable income not otherwise distributed to
the Partners for any fiscal year of the Partnership. Such distributions will be
disbursed as soon as possible after preparation and mailing of the report
provided for in Section 9.02. The aggregate amount of any such distribution
will be determined by the General Partner, except that, subject to the
limitation in the first sentence of this Section 6.05(b), the minimum aggregate
amount of such distribution will be the taxes that would be payable if the
taxable income of the Partnership were all allocated to an individual subject
to the then-prevailing maximum Federal, New York State and New York City tax
rates (taking into account the extent to which the taxable income allocated by
the Partnership was composed of long-term capital gains and the deductibility
of state and local income taxes for Federal income tax purposes). Each such
distribution will be allocated among the Partners in accordance with their
respective Capital Percentages.

(c) upon the exercise of the Option in whole or in part
and payment of the exercise price thereof, the General Partner will either (i)
distribute to the Partners the shares of PWG Common then held by the
Partnership or (ii) sell some or all such shares and distribute to the Partners
the net cash received on account of such sale and any remaining shares of PWG
Common then held by the Partnership.

(d) Any cash dividends on PWG Common or Bonus
Compensation Payments received by the Partnership will be distributed to the
Partners in proportion to their respective Capital Accounts promptly after the
receipt thereof by the Partnership.

(e) In addition to distributions required by Sections
6.05(a) through 6.05(d), inclusive, the General Partner at any other time may
make distributions to the Partners of cash, PWG Common, the Option,
<PAGE> 18
15

fractional interests in the Option or other Investments or assets or any
combination thereof. Each such distribution will be allocated to the Partners
in accordance with their respective Capital Accounts.

(f) If a Limited Partner receives a distribution of PWG
Common, the Option or a fractional interest in the Option prior to the
Applicable Date, he will, as a condition to receiving such distribution, agree
in writing that (i) he will not pledge, sell or otherwise dispose of such
securities prior to the Applicable Date, except for transfers by will or
pursuant to the laws of descent and distribution and (ii) if his employment by
PaineWebber terminates prior to the Applicable Date for any reason whatsoever
(other than death, permanent disability as determined by the Board of Directors
of PWI, retirement pursuant to any then existing pension or retirement plan of
PaineWebber or otherwise with the prior approval of the Compensation
Committee), he will sell all such securities to the Partnership within 90
calendar days following such termination. The purchase price for such
securities will be determined as follows: (x) for shares of PWG Common, the
value of such shares determined as provided in Section 6.04(d), and (y) for the
Option or a fractional interest in the Option, $1.00. All such securities will
bear appropriate legends reflecting the foregoing provisions. Dissolution of
the Partnership prior to the Applicable Date will not affect such Limited
Partner's obligations under this Section 6.05(f).

(g) In no event will any distribution be made to any
Limited Partner in an amount greater than the amount in such Limited Partner's
Capital Account.

ARTICLE VII

Partners

7.01. Designation of Limited Partners. (a) The Initial Limited
Partner shall be deemed to be a Limited Partner as of the date of this
Agreement. At any time prior to the Contribution Date, the General Partner may
invite any other Person to become a Limited Partner by delivery of a Capital
Schedule prepared in accordance with Section 5.01. Any Person so invited who
agrees in writing prior to the Contribution Date to make the Capital
Contribution set forth on such Capital Schedule will have the opportunity to do
so, but no Person other than the Initial Limited Partner will be deemed to be a
Limited Partner until he has made a Capital Contribution and been
<PAGE> 19
16

admitted to the Partnership pursuant to Section 7.04. The Initial Limited
Partner will have no obligation to make a Capital Contribution.

(b) At the request of any employee of PaineWebber who has
been invited by the General Partner to become a Limited Partner, the General
Partner, in its sole discretion, may permit a trust designated by such employee
to make the Capital Contribution for such person and to become a Limited
Partner of the Partnership. If such a trust is admitted as a Limited Partner,
all references herein to the termination of employment of a Limited Partner or
to any Final Event with respect to a Limited Partner will be deemed to refer
both to such trust and to the employee of PaineWebber who designated such
trust. All references herein to an employee of PaineWebber will include
consultants to PaineWebber and all references herein to employment by
PaineWebber will include employment by PaineWebber as a consultant.

(c) The General Partner's right to designate all the
Limited Partners other than the Initial Limited Partner will be exercised in
its sole discretion and will not be subject to challenge by any Limited
Partner. The fact that a Limited Partner was a limited partner with respect to
a previous partnership sponsored or established by PaineWebber does not confer
upon him any right to be a Limited Partner of this Partnership.

7.02. Acceleration of Applicable Date: Purchase of a Limited
Partner's Interest. (a) The General Partner (acting unanimously, in the case of
multiple General Partners), with the consent of the Compensation Committee, may
at any time or from time to time accelerate the Applicable Date with respect to
the Capital Accounts (in whole or in part) of all (but not less than all) of
the Limited Partners.

(b) Notwithstanding anything in Section 7.02(a) to the
contrary, the Applicable Date will be automatically accelerated with respect to
all of the Capital Accounts upon the occurrence of either of the following
events:

(i) a Change in Control and the declaration of an
Operative Date; or

(ii) the commencement of a tender offer to acquire 20% or
more of the outstanding shares of PWG Common if such tender offer has
not been approved by a majority of the Disinterested Directors.
<PAGE> 20
17

(c) If the employment of a Limited Partner by PaineWebber
terminates for any reason whatsoever (other than death, permanent disability as
determined by the Board of Directors of PWI, retirement pursuant to any then
existing pension or retirement plan of PaineWebber or otherwise with the prior
approval of the Compensation Committee) on or after the Applicable Date, the
General Partner will have the right, exercisable in its sole discretion and on
written notice given within 90 calendar days of such termination, to purchase
for cash such Limited Partner's interest in the Partnership (or if such Person
has ceased to be a Limited Partner, his rights or the rights of his Successor
in Interest, if any, to receive allocations and distributions with respect
thereto) and any fractional interest in the Option distributed to such Limited
Partner or his Successor in Interest, to the extent not exercised prior to the
date such notice is given, for an amount equal to the sum of (A) such Limited
Partner's share (based on his Capital Percentage) of the Net Value of all
assets then held by the Partnership, plus (B) the value of any fractional
interest in the Option held by such Limited Partner determined as provided in
Section 6.04(c), calculated in each case as of the last business day of the
Partnership's fiscal quarter in which such termination occurred.

(d) If the employment of a Limited Partner by PaineWebber
terminates for any reason whatsoever (other than death, permanent disability as
determined by the Board of Directors of PWI, retirement pursuant to any then
existing pension or retirement plan of PaineWebber or otherwise with the prior
approval of the Compensation Committee) prior to the Applicable Date, the
Partnership will purchase for cash such Limited Partner's interest in the
Partnership (or if such-Person has ceased to be a Limited Partner, his rights
or the rights of his Successor in Interest, if any, to receive distributions
and allocations with respect thereto) within 90 calendar days following such
termination for an amount equal to such Limited Partner's share (based on his
Capital Percentage) of the assets then held by the Partnership, such share of
assets to be valued at its Net Value.

(e) Notwithstanding anything in this Agreement to the
contrary, upon the purchase by the General Partner or the Partnership of a
Limited Partner's interest in the Partnership (or his rights or the rights of
his Successor in Interest, if any, to receive allocations and distributions
with respect thereto) pursuant to Section 7.02(c) or (d), the General Partner
shall have no interest in the Option in respect of such
<PAGE> 21
18

interest and the Option shall be allocated among the Partners without regard to
such interest.

7.03. Transfer of a Limited Partner's Interest. A Limited Partner
may not sell, assign, mortgage, pledge or otherwise dispose of or transfer all
or any part of his interest in the Partnership to any Person without the prior
written consent of the General Partner; provided, however, that such consent
will not be required in the case of a Successor in Interest described in
clauses (i) through (iv) of the definition of "Successor in Interest" set forth
in Section 1.01. No Person acquiring any Limited Partner's interest in the
Partnership will become a Partner of the Partnership, or acquire such Limited
Partner's right to participate in the affairs of the Partnership to the extent
permitted herein, unless and until such person is admitted as a Limited Partner
pursuant to Section 7.04. Such Person will, however, to the extent of the
interest transferred to him, be entitled to such Limited Partner's share of
allocations and distributions pursuant to Article VI and VIII (subject to the
rights of the General Partner or the Partnership to purchase such interest
pursuant to Section 7.02(c) or 7.02(d) and to purchase certain securities
distributed to such Limited Partner or such Person pursuant to Section
6.05(f)).

7.04. Admission or Substitution of New Limited Partners. (a) The
General Partner will admit as an additional Limited Partner any Person not
already a Limited Partner who makes a Capital Contribution in accordance with
Section 5.01. The General Partner also has the right, in its sole discretion,
to admit as a substitute or additional Limited Partner any Person who acquires
in accordance with this Agreement the interest in the Partnership, or any part
thereof, of a Limited Partner. The admission of any Person as a substitute or
additional Limited Partner must be in writing signed by the General Partner and
will not be effective until such Person's written acceptance and adoption of
all the terms and provisions of this Agreement is received by the General
Partner. The General Partner's failure or refusal to admit a transferee (as to
whom the General Partner has given his written consent pursuant to Section
7.03) as a substitute or additional Limited Partner will not affect the right
of such transferee to receive allocations and distributions pursuant to
Articles VI and VIII to which his predecessor in interest was entitled.

(b) If the General Partner permits a Limited Partner to transfer
all or part of such Limited

<PAGE> 22
19

Partner's interest to a trust designated by such Limited Partner, and the
General Partner admits such trust into the Partnership as a Limited Partner,
all references herein to the termination of employment of a Limited Partner or
to any Final Event with respect to a Limited Partner will be deemed to refer
both to such trust and to the employee of PaineWebber who transferred such
interest to such trust.

(c) A transferee who is admitted as a substitute or
additional Limited Partner pursuant to this Section 7.04 will reimburse the
General Partner for any out-of-pocket expenses incurred by it directly as a
result of such transferee's admission to the Partnership.

7.05. Admission of Substitute or Additional General Partners. (a)
Except as otherwise provided in this Article VII, a Person other than
PaineWebber will be admitted to the Partnership as a General Partner only if
(i) such admission will not cause the termination of the Partnership or result
in the Partnership being classified as other than a partnership for Federal
income tax purposes, and (ii) such Person is designated in writing by Limited
Partners having a 66-2/3% interest in the Partnership (based upon Limited
Partnership Percentages).

(b) Subject to Section 7.05(a), the admission of a Person
to the Partnership as a General Partner will become effective when such Person
has agreed in writing to adopt and accept this Agreement and to be bound by all
its terms and provisions as a General Partner.

(c) Notwithstanding any other provision of this
Agreement, on the Operative Date the then General Partner(s) automatically will
be deemed to have been removed as such without any further action of any nature
whatsoever by the Limited Partners or such General Partner(s), and each such
former General Partner will thereupon cease to be a Partner, and the then
Senior Limited Partners, upon compliance with Section 7.05(b), will
automatically be deemed to have become General Partners immediately prior to
such automatic removal without any further action of any nature whatsoever by
the Limited Partners or the former General Partner(s). All rights and interests
of such Senior Limited Partners as Limited Partners of the Partnership will
continue in effect without change even though such Senior Limited Partners will
also be General Partners.

(d) Within 30 days after the admission of a General
Partner pursuant to this Section 7.05, the General
<PAGE> 23
20

Partner will cause the Certificate of Limited Partnership of the Partnership to
be amended in accordance with Section 17-202 of the Delaware Act.

7.06. Withdrawal of a Limited or General Partner. (a) A Limited
Partner other than the Initial Limited Partner may not withdraw from the
Partnership without the consent of the General Partner, which may be withheld
for any reason whatsoever or for no reason. The Initial Limited Partner may
withdraw at any time by delivery to the General Partner of written notice of
such withdrawal, which shall be effective upon such delivery.

(b) A General Partner may withdraw from the Partnership
as of the end of any fiscal year by delivery to each of the Limited Partners of
written notice of such withdrawal not less than 50 days before the effective
date thereof.

(c) The withdrawal of any Partner will be a Final Event
with respect to such Partner, within the meaning of Section 7.07.

7.07. Final Events with Respect to a Partner. Upon the occurrence of
a Final Event with respect to any Partner, such Partner thereupon will cease to
be a Partner and no Successor in Interest to any such Partner will, for any
purpose hereof, become or be deemed to become a Partner. The sole right, as
against the Partnership and the remaining Partners, acquired hereunder by, or
resulting hereunder to, a Successor in Interest to any Partner will be to
receive any distributions and allocations pursuant to Articles VI and VIII
(subject to any purchase by the General Partner or the Partnership of the
interest of such former Partner pursuant to Section 7.02(c) or 7.02(d) or
certain securities distributed to such former Partner or his Successor in
Interest pursuant to Section 6.05(f)) to the extent, at the time, in the manner
and in the amount otherwise payable to such Partner had such Final Event not
occurred, and no other right will be acquired hereunder by, or will result
hereunder to, a Successor in Interest to such Partner, whether by operation of
law or otherwise. Until distribution of any such Partner's interest in the
Partnership upon the dissolution of the Partnership as provided in Article
VIII, neither his Capital Account nor any part thereof will be subject to
withdrawal or redemption without the consent of the General Partner. The
Partnership will be entitled to treat any Successor in Interest to such Partner
as the only Person entitled to receive distributions and allocations hereunder
with respect to such Partner's interest in the Partnership.
<PAGE> 24
21

7.08. Continuation of Partnership. if a Final Event occurs with
respect to one or more Limited Partners, no dissolution or termination of the
Partnership will be effected thereby, and the remaining Partners will continue
the Partnership and its business until the dissolution or termination thereof
as provided herein. If a Final Event occurs with respect to a General Partner
and there is no other General Partner in the Partnership, the Partnership will
terminate and will be dissolved by the Limited Partners in accordance with
Article VIII, unless, within 30 days after the occurrence of any such Final
Event, (i) all the Limited Partners elect to continue the business of the
Partnership, and (ii) all the obligations of the General Partner hereunder are
assumed by a successor General Partner approved in writing by such Limited
Partners, in which case the Partnership will not be dissolved but will
continue.

7.09. Removal of General Partner. At any time, the Partners may, by
the action of Limited Partners having a 66-2/3% interest in the Partnership
(based upon Limited Partnership Percentages), remove the General Partner,
which thereupon will cease to be a Partner, provided that, prior to such
removal, Limited Partners having a 66-2/3% interest in the Partnership (based
upon Limited Partnership Percentages) shall have designated a new General
Partner. The sole right, as against the Partnership and the remaining Partners,
of a General Partner removed pursuant to this Section 7.09 or pursuant to
Section 7.05(c) will be to receive any distributions and allocations pursuant
to Articles VI and VIII, to the extent, in the manner and in the amount
otherwise payable to it had it not been so removed, and no other rights will be
acquired hereunder by, or will result hereunder to, such removed General
Partner, whether by operation of law or otherwise. The Partnership will be
entitled to treat such removed Partner as the only person entitled to receive
distributions and allocations hereunder with respect to such General Partner's
interest in the Partnership. Until distribution of such removed General
Partner's interest in the Partnership upon the dissolution of the Partnership
as provided in Article VIII, neither its Capital Account nor any part thereof
will be subject to withdrawal or redemption.

7.10. Compliance with Law. Notwithstanding any provision hereof to
the contrary, no sale or other disposition of an interest in the Partnership
may be made except in compliance with all Federal, state and other applicable
laws, including Federal and state securities laws.
<PAGE> 25
22

ARTICLE VIII

Winding-Up and Dissolution of the Partnership

8.01. Winding-Up and Dissolution. (a) The General Partner will
dissolve the Partnership as soon as practicable following the exercise of the
Option in full.

(b) The General Partner may in its sole discretion
dissolve the Partnership effective as of the end of any fiscal year by written
notice delivered to the Limited Partners not less than 30 days before the end
of such fiscal year.

(c) When the Partnership is dissolved, whether by
expiration of its full term (subject to any extension as provided in Section
2.02) or otherwise, the business and property of the Partnership will, be wound
up and liquidated by the General Partner or, in the event of the unavailability
of the General Partner, such Limited Partners or other Persons as may be named
by Limited Partners having a majority interest in the Partnership (based upon
Limited Partnership Percentages).

(d) Within 60 days after the effective date of
dissolution of the Partnership, the Partnership's assets (except, in the case
of clause (iii) below, for amounts reserved pursuant to Section 8.02) will be
distributed in the following manner and order:

(i) first, all debts and liabilities to creditors of the
Partnership who are not Partners will be paid and discharged or
provision therefore will be made (through reserve accounts or
otherwise);

(ii) second, the claims of all creditors of the
Partnership who are Partners will be paid and discharged or provision
therefore will be made (through reserve accounts or otherwise); and

(iii) third, the remaining assets of the Partnership will
be paid to the Partners in cash or Investments pro rata in accordance
with the Partners' Capital Accounts. Investments divisible only into
shares or other units will be distributed pro rata to the extent
practicable; leftover shares will be sold and the cash distributed
unless reserved in accordance with Section 8.02.
<PAGE> 26
23

8.02. Amounts Reserved. (a) If, in the judgment of the General
Partner (or of any other appropriate party selected pursuant to Section
8.01(c)), any Investment cannot be sold, or properly distributed in kind in the
case of dissolution, without sacrificing a significant portion of the value
thereof, the value of a Partner's interest in each such investment may be
excluded from the amount distributed to such Partner pursuant to Section
8.01(d)(iii). Any Partner's interest, including his pro rata interest in any
gains, losses or distributions, in any Investment so excluded will not be paid
or distributed until such time as the General Partner (or any other appropriate
party selected pursuant to section 8.01(c)) determines.

(b) If there is any pending transaction or claim by or
against the Partnership as to which the interest or obligation of any Partner
therein cannot, in the judgment of the General Partner (or any, other
appropriate party selected pursuant to Section 8.01(c)), be then ascertained,
the value thereof or probable loss therefrom may be deducted from the amount
distributable to such Partner pursuant to Section 8.01(d)(iii). No amount will
be paid or charged to any such Partner on account of any such transaction or
claim until its final settlement or such earlier time as the General Partner
(or any other appropriate party selected pursuant to Section 8.01(c)) shall
determine. The Partnership may retain from other sums due such Partner an
amount which the General Partner (or any other appropriate party selected
pursuant to Section 8.01(c)) estimates to be sufficient to cover the share of
such Partner in any probable loss or liability on account of such transaction
or claim.

(c) Upon determination by the General Partner (or any
other appropriate party selected pursuant to Section 8.01(c)) that
circumstances no longer require the retention of sums as provided in Section
8.02(a), the General Partner (or any other appropriate party selected pursuant
to Section 8.01(c)) will, at the earliest practicable time, pay such sums to
each Partner from whom such sums have been withheld.

ARTICLE IX

Reports to Partners

9.01. Books of Account. Appropriate books of account will be kept,
on a cash basis, at the principal place of business of the Partnership, and
each Partner
<PAGE> 27
24

will have access to all books, records and accounts and the right to make
copies thereof under such conditions and restrictions as the General Partner
may reasonably prescribe.

9.02. Audit and Report. (a) The books and records of the
Partnership will be audited and reported on as of the end of each fiscal year
by independent certified public accountants selected by the General Partner.
Within 60 days after the end of each fiscal year, the Partnership will cause to
be mailed to each Partner a written report, which shall include:

(i) a statement prepared by the Partnership setting forth
such Partner's Capital Account and the amount of such Partner's
allocable share of the Partnership's items of income and deduction,
capital gain and loss or credit for such year, in sufficient detail to
enable him to prepare his Federal, state and other tax returns; and

(ii) a balance sheet and a statement of income and expense
of the Partnership for such fiscal year, including the report thereon
of the Partnership's independent certified public accountants.

(b) Promptly after becoming available, the Partnership
will cause to be mailed to each Limited Partner a copy of the Partnership's
Federal, state and local income tax returns for each year.

(c) The General Partner also will cause to be delivered
to each Limited Partner such other information an such Limited Partner may
reasonably request for the purpose of enabling him to comply with any reporting
or filing requirements imposed by any governmental agency or authority pursuant
to any statute, rule, regulation or otherwise.

9.03. Fiscal Year. The fiscal year of the Partnership will end on
December 31 of each calendar year unless otherwise determined by the General
Partner.

ARTICLE X

Miscellaneous

10.01. Governing Law. The terms of this Agreement and all rights
and obligations or the Partners
<PAGE> 28
25

hereunder will be governed by the laws of the State of Delaware.

10.02. Understanding of Limited Partners. Each Limited Partner
hereby acknowledges and agrees that he has read, understands, and is bound by
each and every provision of this Agreement, and that the General Partner's
right to exercise discretionary power granted under this Agreement will not be
subject to challenge by any Limited Partner or any other Person. Without
limiting the foregoing, the General Partner will have the sole discretion to
determine (a) whether or not to exercise the option in whole or in part at any
time after it becomes exercisable and (b) whether or not to dissolve the
Partnership pursuant to Section 8.01(b). In making such determinations, the
General Partner need not consider the needs or desires of the Limited Partners.

10.03. Indemnification and Related Matters. The General Partner will
not be liable to any Partner for any action taken or not taken by it or for any
action taken or not taken by any other Partner or other person with respect to
the Partnership. Without limiting the foregoing, if the General Partner has
obtained the consent of Limited Partners having a majority interest in the
Partnership (based on Limited Partnership Percentages) to any action taken or
not taken by the General Partner, the General Partner will be conclusively
presumed to have taken such action or not taken such action in good faith and
in conformity with its fiduciary obligations to the Partnership and the Limited
Partners. No negative inference may be drawn from the failure of the General
Partner to obtain such consent in any instance. The Partnership will indemnify
the General Partner against any losses, claims, damages or liabilities, or
threats thereof (including legal or other expenses reasonably incurred in
investigating or defending against any such loss, claim, damages or liability,
or threats thereof), joint or several, to which it may become subject by reason
of its being the General Partner. Limited Partners will not be personally
obligated with respect to indemnification pursuant to this Section 10.03.

10.04. Notice. All notices hereunder must be in writing and will be
deemed to have been duly given when personally delivered or mailed by
registered or certified mail, return receipt requested, to the Partnership, at
1285 Avenue of the Americas, New York, New York 10019, Attention of Ronald M.
Schwartz, or such other address or addresses as to which the Partners will have
been given notice, and to the Partners at the addresses as to which the
Partnership has been given notice.
<PAGE> 29
26

10.05. Counterparts. This Agreement may be executed in any number of
counterparts, all of which together will constitute a single instrument. It
will not be necessary for any counterpart to be signed by all the parties as
long an all counterparts signed by each Limited Partner also are signed by the
General Partner.

10.06. Completeness and Amendments. This Agreement sets forth the
entire understanding of all the parties. The provisions of this Agreement
cannot be amended except by an instrument in writing executed by the General
Partner and Limited Partners having a majority in interest of the Partnership
(based Upon Limited Partnership Percentages), except that any provision of this
Agreement requiring action by more than a majority in interest of Limited
Partners may not be amended except by an instrument in writing executed by
Limited Partners having the percentage in interest of the Partnership required
by such provision.

10.07. Power of Attorney. The Limited Partners hereby appoint the
Person who from time to time shall be a General Partner, including without
limitation a successor General Partner pursuant to Section 7.05(c), as their
true and lawful representative and attorney-in-fact, in their name, place and
stead to make, execute, sign and file all instruments, documents and
certificates which, from time to time, may be required by this Agreement
(including without limitation Section 7.05(d)) or by the laws of the United
States of America, the State of Delaware or any other state in which the
Partnership shall determine to do business, or any other political subdivision
or agency thereof, to execute, implement and continue the valid and subsisting
existence of the Partnership. The General Partner, as representative and
attorney-in-fact, however, will not have any rights, powers or authority to
amend or modify this Agreement when acting in such capacity except as expressly
provided herein. Such power of attorney is coupled with an interest and will
continue in full force and effect notwithstanding the subsequent occurrence of
a Final Event with respect to any Limited Partner.

10.08. Transfer of PWG Common and Option. By signing this Agreement
each Limited Partner acknowledges his instructions to Dedicated Partners Inc.
that the shares of PWG Common acquired with such Limited Partner's Capital
Contribution and the Option be transferred directly to the Partnership in lieu
of being issued to such Limited Partner and subsequently transferred by such
Limited Partner to the Partnership.
<PAGE> 30
27

IN WITNESS WHEREOF, the parties hereto have hereunto executed this
Agreement as of the date first above written.

Address of General Partner: GENERAL PARTNER:

1285 Avenue of the Americas PAINEWEBBER PARTNERS INC.
New York, New York 10019

By:____________________________
Authorized Officer

Name and Residence Address: LIMITED PARTNER:

____________________________

<PAGE> 1
May 4, 1993

Theodore A. Levine, Esq.
32650 Sutton Place, N.W.
Washington, DC 20016

Dear Mr. Levine:

This letter sets forth the terms of your employment with Paine Webber
Group Inc. ("PWG") and PaineWebber Incorporated ("PWI") in the positions of
General Counsel of PWG and Executive Vice President of PWI.

1. Term of Employment. Unless sooner terminated pursuant to
the provisions of this Agreement, the term of employment under this Agreement
shall commence on June 15, 1993 and end on June 14, 1996 (the "Term of
Employment").

2. Positions, Duties and Responsibilities. During the Term of
Employment you shall be employed as General Counsel of PWG and Executive Vice
President of PaineWebber Incorporated ("PWI"). In such capacity, you shall be
responsible for providing legal advice to PWG, PWI and their senior officers
and for the management and administration of the PWI Legal Department,
including, without limitation, the areas of litigation, compliance, counselling
and supervision of outside law firms. In carrying out such duties, you shall
report to the Chairman and Chief Executive Officer of PWG, who may, in his sole
discretion, provide for you to report to a senior level officer of PWG or PWI
designated by him with respect to matters relating to the administration and
management of the PWI Legal Department. During the Term of Employment, you
shall devote all of your business time and attention to the business and
affairs of PWG and PWI. During the Term of Employment, it shall not be a
violation of this Agreement for you to (A) with prior written approval of the
Chairman of PWG, serve on corporate, civic or charitable boards or committees,
(B) deliver lectures fulfill speaking engagements or teach at educational
institutions and (C) manage personal investments, so long as such activities do
not materially interfere with the performance of your responsibilities as an
employee of PWG and PWI in accordance with this Agreement.
<PAGE> 2
2

3. Salary. You shall be paid an annualized base salary, payable
in accordance with the regular payroll practices of PWI, of no less than
$200,000.

4. Special Bonus. Upon the commencement of the Term of
Employment, you shall receive a special cash bonus of $400,000. If within 60
days of the commencement of the Term of Employment you terminate your
Employment voluntarily, other than due to Constructive Termination (as defined
below), or PWG terminates your employment for Cause (as defined below), you
shall repay to PWG the amount of such special bonus.

5. Annual Bonus. You shall be paid a minimum annual bonus at an
annualized rate of $650,000. The minimum annual bonus for 1993 and 1996 shall
be $650,000 multiplied by a fraction, the numerator of which shall be the
number of days in such year during which you were an employee of PWG or PWI,
pursuant to this Agreement or otherwise, and the denominator of which shall be
365. Except as provided In Section 8, such minimum annual bonuses shall be
payable at the same time as bonuses are paid to senior executives of PWI.

6. Restricted Stock. You shall receive annual bonus awards of
shares of restricted stock under the PWG 1990 Stock Award and Option Plan, or
successor plan, on the date of the commencement of the Term of Employment and
on the first and second anniversaries of each date. One-third of the shares
subject to an award shall vest on each of the first, second and third
anniversaries of the date of grant of such award. Notwithstanding the
foregoing, all awards of restricted stock shall vest immediately upon the
occurrence of a Change in Control. For the purpose of this Agreement "Change
in Control" shall mean the occurrence of one or more of the following events:

(i) a person or entity becomes an Acquiring Person and
for this purpose "Acquiring Person" shall mean any "person," as such
term is used in Sections 3(a)(9) and 13(d) of the Securities Exchange
Act of 1934 (the "Exchange Act"), other than PWG, a subsidiary of PWG
or any employee benefit plan sponsored by PWG or any such subsidiary,
who becomes a "beneficial owner," as such term is used in Rule 13d-3
promulgated under the Exchange Act, of 20% or more of the voting stock
of PWG or PWI; provided however, that in the case of any "person" who
on the data of this Agreement owned five percent or more of the voting
stock of PWG, only acquisitions by such "person" occurring after such
issuance date shall be taken into account in determining whether or
not such "person" is an Acquiring Person;

(ii) a majority of the Board at any time consists of
individuals elected to membership at a Board meeting or a
shareholders' meeting other than individuals nominated or approved by
a majority of the Disinterested Directors and for this purpose
"Disinterested Director" shall mean any member of the Board who (x) is
not an officer of PWG or an officer or director of any subsidiary of
PWG, (y) is not an Acquiring Person or an affiliate or associate of an
Acquiring Person or a nominee or representative of an Acquiring Person
or of any such affiliate or associate and (z) was a member of the
Board on the date of this Agreement or was nominated for election or
elected by a majority of the Disinterested Directors;
<PAGE> 3
3

(iii) PWG adopts any plan of liquidation providing for the
distribution of all of or substantially all of its assets;

(iv) all or substantially all the business of PWG is
disposed of pursuant to a merger, consolidation or other transaction
(other than a merger, consolidation or other transaction with a
company of which 50% or more of the voting stock is owned, directly or
indirectly, by PWG both before and immediately after the merger,
consolidation or other transaction) in which PWI is not the surviving
corporation or PWG is materially or completely liquidated; or

(v) PWG or PWI combines with another company and is the
surviving corporation but immediately after the combination, the
persons who were shareholders of PWG immediately prior to the
combination hold, directly or indirectly, 50% or less of the voting
stock of the combined company (there being excluded from the number
of shares held by such shareholders, but not from the voting stock of
the combined company, any shares received by "affiliates", as such
term is defined in the rules of the Securities and Exchange
Commission, of such other company in exchange for stock of such other
company).

Anything to the contrary herein notwithstanding, a Change in Control shall not
be deemed to have occurred if, as a result of the transaction that would
otherwise constitute a Change in Control (x) neither the PWG Common Stock nor
the common stock or other equity interests of any successor to PWG are
publicly traded and (y) either (1) the Chairman of PWG and the President of PWI
immediately prior to such transaction continue to control PWG or such successor
or (2) PWG becomes a subsidiary of another corporation or other entity and the
Chairman of PWG and the President of PWI immediately prior to such transaction
continue to hold such offices.

7. Benefits and Incentive Opportunities. You shall be eligible
to participate in (a) all employee welfare benefit plans, programs and
arrangements made available to senior level executives of PWG and PWI,
including, without limitation, retirement, medical, hospitalization,
disability, life Insurance, savings, fringe benefits, vacation and other plans,
programs and arrangements and (b) all incentive opportunities provided to such
senior level executives. Without limiting the foregoing, you shall participate
in the PWG Supplemental Employees' Retirement Plan for Certain Senior
Officers in accordance with the terms of such plan an a participant who is not
an initial participant described in Section 5.1 of such plan.

8. Termination of Employment.

(a) Death or Disability. If you die or your employment
is terminated for disability, you or your estate shall be entitled to receive
your base salary through the date of your death or such termination and a pro
rata portion of your minimum annual bonus for the year in which your death or
such termination occurs, together with all death or disability benefits, as the
case may be, to which senior level executives of PWG or PWI are then
<PAGE> 4
4

entitled. (The pro rata bonus shall be determined by multiplying $650,000 by a
fraction, the numerator of which shall be the number of days you were employed
during such year and the denominator of which shall be 365.)

(b) Termination for Cause: Voluntary Termination. In
the event your employment in terminated for Cause (as defined below) or you
voluntarily terminate your employment other than as a result of a Constructive
Termination (as defined below), you shall be entitled to receive your base
salary through the date of such termination. For the purpose of this
Agreement, "Cause" shall mean (i) you commit a serious crime or (ii) in
carrying out your duties, you are guilty of (A) willful gross neglect, or (B)
willful gross misconduct, resulting in the case of clause (ii)(A) or (B), in
material harm to PWI or PWG unless such act, or failure to act, was believed by
you in good faith to be in the best interests of PWI or PWG. Your employment
may not be terminated for Causes until there shall have been delivered to you a
copy of a resolution of the Board adopted at a meeting of the Board called and
held for such purpose (after reasonable notice is provided to you) and at which
you have been given an opportunity to be heard before the Board, finding that,
in the good faith opinion of the Board, you have been guilty of conduct
described in clause (ii)(A) or (B) above and specifying the particulars thereof
in detail.

(c) Termination Without Cause or Constructive
Termination. In the event that your employment is terminated without Cause,
other than due to disability, or there is a Constructive Termination (as
defined below), you shall be entitled to:

(i) base salary through the date of such
termination;

(ii) an amount equal to the greater of (x)
$3,300,00 less the total amount of base salary and annual bonus awards
received by you under this agreement, including annual bonus awards
made in stock, pursuant to Section 6 or otherwise, to the extent,
vested upon such termination (in which came such awards shall be
valued for this purpose as of the date made) or (y) $850,000, such
amount to be paid in a lump sum;

(iii) continuation in all employee benefit plans or
programs in which you were participating on the date of such
termination in accordance with the terms of such plans or programs
until the originally scheduled end of the Term of Employment, provided
that if you receive equivalent coverage and benefits under the plans
and programs of a subsequent employer the coverage hereunder shall be
secondary thereto.

For the purpose of this Agreement, "Constructive Termination"
shall mean that, without your prior written consent, one or more the following
events occurs and, within six months thereafter you terminate your employment:

(i) the loss of any of your titles or positions
or reporting responsibilities as described in Section 2;
<PAGE> 5
5

(ii) a material diminution in your authority and
responsibilities or the assignment to you of duties and
responsibilities which are materially inconsistent with your positions
as described in Section 2;

(iii) your office location as assigned to you by
PWG is other than the office at which the Chairman and Chief Executive
Officer of PWG and the President of PWI are located; or

(iv) any material breach of this Agreement by PWG
or PWI.

9. Non-Competition Non-Solicitation.

(a) During the Term of Employment and for a period of one
year after termination of your employment, you shall not become engaged in any
business, whether as an employee, consultant, director, partner or shareholder,
that is in competition with the business of PWG, PWI or any subsidiary of PWG
or PWI ("PaineWebber Group"). For this purpose, a business located in the United
States, the United Kingdom, Japan or in any other country in which PaineWebber
Group is actively engaged in business shall be deemed to be in competition with
PaineWebber Group if such business involves

(i) the sales or trading of securities on behalf
of others (whether the customers are individuals or institutions),

(ii) Proprietary trading, including risk arbitrage,

(iii) asset management, or

(iv) investment or merchant banking.

Anything in this Section 9(a) to the contrary notwithstanding, (x) ownership of
less than one percent of the outstanding common stock of a publicly traded
corporation shall not constitute engaging in a business in competition with the
business of PaineWebber Group and (y) practicing law as a partner or employee
of a law firm that represents a business in competition with the business of
Pains Webber Group shall not constitute your engaging in a business in
competition with the business of PaineWebber Group.

(b) In the event of a violation of the provisions of
Section 9(a), you acknowledge that PaineWebber Group will be subject to
irreparable harm entitling it to immediate injunctive or other equitable
relief.

(c) During the Term of Employment and for a period of one
year following any termination of your employment, you shall not, directly or
indirectly, (i) solicit any customer of PaineWebber Group or (ii) solicit any
person who is or was employed by Painewebber Group within 180 days of such
solicitation to (A) terminate his or her employment with PaineWebber Group, or
(B) accept employment with anyone other than PaineWebber Group. In the event of
any such solicitation, you acknowledge that PaineWebber Group will be subject
to irreparable harm entitling it to immediate injunctive relief.
<PAGE> 6
6

10. Confidential Information. During the Term of Employment and
thereafter, you shall not disclose to any person any Confidential Information
relating to PaineWebber Group except for the benefit of PaineWebber Group or as
required by an order of a court or governmental agency with jurisdiction. For
purposes of this Section 10, "Confidential Information" shall mean non-public
information concerning PaineWebber Group's financial data, strategic business
plans, product development, customer lists, marketing plans and any other
proprietary information, except for specific items which have become publicly
available information other than through a breach by you of your fiduciary duty
or any confidentiality agreement. You shall give immediate written notice to
PWI of any such requirement, or threatened requirement, by a court or
government agency in order to allow PaineWebber Group the opportunity to resist
such a request.

11. Indemnification.

(a) PWG and PWI shall indemnify you, and advance expense
to you, to the fullest extent permitted by the General Corporation Law of the
State of Delaware, as the same exists or may be amended, consistent with the
Certificate of Incorporation and by-laws of PWG in effect as of the date hereof
as the same exists or may be amended (but only to the extent that any such
amendment would provide broader indemnification than provided hereunder) with
respect to any acts or nonacts you may have committed while you were an
officer, director or employee of PWG, PWI or any subsidiary thereof, or of any
other entity which you served as an officer, director or employee at the
request of PWG or PWI.

(b) You shall be covered by directors' and officers'
liability insurance to the same extent as other senior officers of PWG and PWI.

12. Miscellaneous. PWG's and PWI's obligation to make the
payments provided for in this Agreement and otherwise to perform their
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which PWG or PWI may have
against you or others. In no event shall you be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to you under any of the provisions of this Agreement and, subject to PWG and
PWI's rights under Section 9 and 10, such amounts shall not be reduced whether
or not you obtain other employment. PWG and PWI agree to pay as incurred, to
the full extent permitted by law, all legal fees and expenses which you may
reasonable incur as a result of any contest (regardless of the outcome thereof)
by PWG, PWI, you or others with respect to the validity or enforceability of,
or liability under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by you about the
amount of any payment pursuant to this Agreement), plus in each case interest
on any delayed payment at the applicable Federal rate provided for in Section
1274(d) of the Internal Revenue Code of 1986, as amended, provided, however,
that PWG and PWI shall have no obligation to pay such legal fees and expenses
if it shall be determined by the court hearing such contest that your claims or
defenses, taken as a whole, were without any reasonable basis.
<PAGE> 7
7

13. Representation. You represent that neither the execution and
delivery of this Agreement nor the performance of your obligations under this
Agreement will violate any agreement between you and any other person, firm,
corporation or other organization.

14. Governing Law. This Agreement shall be governed by the laws
of the State of New York without reference to the principles of conflict of
laws.

If the above sets forth our understanding, please sign the enclosed
copy of this letter in the space provided and return it to me, whereupon it
will constitute a valid and binding employment agreement.

Sincerely,

Paine Webber Group Inc.

By: ____________________

PaineWebber Incorporated

By: ____________________
Understood and accepted:

/s/ THEODORE A. LEVINE
- ----------------------
Theodore A. Levine

<PAGE> 1

RESTATED

and

AMENDED

AGREEMENT OF LEASE

between

THE EQUITABLE LIFE ASSURANCE SOCIETY
OF THE UNITED STATES,

Landlord

and

PAINEWEBBER INCORPORATED,

Tenant.

Premises:

THE PAINEWEBBER BUILDING
1285 Avenue of the Americas
New York, New York 10019

SHEA & GOULD
1251 Avenue of the Americas
New York, New York 10020
<PAGE> 2
TABLE OF CONTENTS

Page
Definitions . . . . . . . . . . . . . . . . . .
Article 1 - Demise, Premises, Term, Rent . . . . . . . . . .
Article 2 - Use and Occupancy . . . . . . . . . . . . . . .
Article 3 - Alterations . . . . . . . . . . . . . . . . . .
Article 4 - Repairs-Floor Load . . . . . . . . . . . . . . .
Article 5 - Window Cleaning . . . . . . . . . . . . . . . .
Article 6 - Requirements of Law . . . . . . . . . . . . . .
Article 7 - Subordination . . . . . . . . . . . . . . . . .
Article 8 - Rules and Regulations . . . . . . . . . . . . .
Article 9 - Property Loss or Damage; Reimbursement . . . . .
Article 10 - Destruction-Fire or Other Cause . . . . . . . .
Article 11 - Eminent Domain . . . . . . . . . . . . . . . . .
Article 12 - Assignment and Subletting . . . . . . . . . . .
Article 13 - Electricity . . . . . . . . . . . . . . . . . .
Article 14 - Access to Premises . . . . . . . . . . . . . . .
Article 15 - Certificate of Occupancy . . . . . . . . . . . .
Article 16 - Default . . . . . . . . . . . . . . . . . . . .
Article 17 - Remedies and Damages . . . . . . . . . . . . . .
Article 18 - Fees and Expenses . . . . . . . . . . . . . . .
Article 19 - No Representations by Landlord . . . . . . . . .
Article 20 - End of Term . . . . . . . . . . . . . . . . . .
Article 21 - Quiet Enjoyment . . . . . . . . . . . . . . . .
Article 22 - Directory . . . . . . . . . . . . . . . . . . .
Article 23 - No Waiver . . . . . . . . . . . . . . . . . . .
Article 24 - Waiver of Trial by Jury . . . . . . . . . . . .
Article 25 - Inability to Perform . . . . . . . . . . . . . .
Article 26 - Bills and Notices . . . . . . . . . . . . . . .
Article 27 - Escalation . . . . . . . . . . . . . . . . . . .
Article 28 - Services . . . . . . . . . . . . . . . . . . . .
Article 29 - Partnership Tenant . . . . . . . . . . . . . . .
Article 30 - Vault Space . . . . . . . . . . . . . . . . . .
Article 31 - Security . . . . . . . . . . . . . . . . . . . .
Article 32 - Captions . . . . . . . . . . . . . . . . . . . .
Article 33 - Building Name . . . . . . . . . . . . . . . . .
Article 34 - Parties Bound . . . . . . . . . . . . . . . . .
Article 35 - Broker . . . . . . . . . . . . . . . . . . . . .
Article 36 - Indemnity . . . . . . . . . . . . . . . . . . .
Article 37 - Adjacent Excavation-Shoring . . . . . . . . . .
Article 38 - Miscellaneous . . . . . . . . . . . . . . . . .
Article 39 - Rent Control . . . . . . . . . . . . . . . . . .
Article 40 - Right of First Offer . . . . . . . . . . . . . .
Article 41 - Renewal Term . . . . . . . . . . . . . . . . . .
<PAGE> 3
Schedule A - Rules and Regulations
Schedule B - HVAC Specifications
Schedule B-1 - HVAC Specification for Concourse, Subconcourse,
Bank Vault Space and 39th Floor
Schedule C - Cleaning Specifications

Exhibit "A" - Property Description
Exhibit "B" - Concourse Space
Exhibit "C" - Shaftway
Exhibit "D" - 39th Floor Space
Exhibit "E" - Bank Vault Space and Subconcourse Space
Exhibit "F" - 39th Floor Storage Space
<PAGE> 4
THIS RESTATED and AMENDED AGREEMENT OF LEASE, made as of the
1st day of January, 1989, between THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE
UNITED STATES, a New York corporation, having an office at 787 Seventh Avenue,
New York, New York 10019 ("Landlord") and PAINEWEBBER INCORPORATED, a Delaware
corporation, having an office at 1285 Avenue of the Americas, New York, New
York 10019 ("Tenant").

WHEREAS, Landlord and Tenant entered into a lease, dated as of
November 22, 1983, pursuant to which Landlord leased to Tenant the 10th through
17th floors in the Building (hereinafter defined) as well as other space more
particularly described therein (the "Original Lease"); and

WHEREAS, by seven (7) letter agreements (collectively, the
"Letter Agreements"), each dated as of November 22, 1983, Landlord and Tenant
modified and amended the Original Lease and agreed on certain other matters;
and

WHEREAS, Landlord and Tenant mutually desire to amend the
Original Lease pursuant to the terms of the Letter Agreements, with certain
modifications thereto, to restate the Original Lease in its entirety and to
supercede the Letter Agreements in their entirety.

NOW, THEREFORE, the parties hereto, in consideration of the
mutual agreements herein contained, hereby restate and amend the Original Lease
in its entirety upon the agreements, terms, covenants and conditions
hereinafter set forth.

W I T N E S S E T H :

The parties hereto, for themselves, their legal
representatives, successors and assigns, hereby covenant as follows.

DEFINITIONS

For the purposes of this Lease and all agreements supplemental
hereto, the following terms shall have the meanings specified herein.

"Additional Sublet Space" shall mean a portion of the
Premises (exclusive of the Subconcourse Space, the 39th Floor Storage Space,
the Concourse Space and the Bank Vault Space) in excess of the Free Sublet
Space.
<PAGE> 5
"Alterations" shall mean alterations, installations,
improvements, additions or other physical changes, other than decorative items,
made in or about the Premises from and after the execution of the Original
Lease, or hereafter made.

"Alterations Fee" shall have the meaning set forth in Section
3B hereof.

"Applicable Rate" shall mean the lesser of (x) two percent (2%)
per annum above the then current prime rate charged by Citibank (N.A.) or its
successor and (y) the maximum rate permitted by applicable law.

"Assessed Valuation" shall have the meaning set fort in
Section 27A hereof.

"Bankruptcy Code" shall mean 11 U.S.C. # 101 et seq.

"Bank Vault Space" shall mean the portion of the vault space
of the Building indicated by shading on the floor plan annexed hereto as
Exhibit "E".

"Base Operating Expenses" shall have the meaning set forth in
Section 27A hereof.

"Building" shall mean the building known, and subject to
Article 33 hereof, to be known as The PaineWebber Building, and by the street
address 1285 Avenue of the Americas, New York, New York.

"Building Consumption" shall have the meaning set forth in
Article 13 hereof.

"Building Systems" shall mean the heating, air conditions,
ventilating, elevator, plumbing, mechanical, electrical, sanitary, life-safety
and other service systems of the Building.

"Business Days" or "business days" shall mean all days
excluding Saturdays, Sundays and all days observed by either the State of New
York or the Federal Government and by the labor unions servicing the Building
as legal holidays.

"Concourse Space" shall mean that portion of the concourse
floor of the Building indicated by shading on the floor plan annexed hereto as
Exhibit "B".

-2-
<PAGE> 6
"Consumer Price Index" shall mean the Consumer Price Index for
All Urban Consumers published by the Bureau of Labor Statistics of the United
States Department of Labor, New York, N.Y.-Northeastern N.J. Area, All Items
(1967=100), or any successor index thereto, appropriately adjusted. In the
event that the Consumer Price Index is converted to a different standard
reference base or otherwise revised, the determination of any adjustments based
on the Consumer Price Index as provided herein (including without limitation
adjustments of the Fair Market Rent) shall be made with the use of such
conversion factor, formula or table for converting the Consumer Price Index as
may be published by the Bureau of Labor Statistics or, if said Bureau shall not
publish the same, then with the use of such conversion factor, formula or table
as may be published by Prentice-Hall, Inc. or any other nationally recognized
publisher of similar statistical information. If the Consumer Price Index
ceases to be published, and there is no success thereto, such other index as
Landlord and Tenant shall agree upon in writing shall be substituted for the
Consumer Price Index. If Landlord and Tenant are unable to agree as to such
substituted index, such matter shall be submitted to the American Arbitration
Association or any successor organization for the determination in accordance
with the regulations and procedures thereof then obtaining for commercial
arbitration.

"Current Year" shall have the meaning set forth in Section 27C
hereof.

"Deficiency" shall have the meaning set forth in Section 17B
hereof.

"Electrical Capacities" shall have the meaning set forth in
Section 13A hereof.

"Electricity Additional Rent" shall have the meaning set forth
in Section 13B hereof.

"Event of Default" shall have the meaning set forth in Section
16A hereof.

"Expiration Date" shall mean March 31, 2000 or the date of
actual expiration of the Term if the same shall sooner occur (or later occur as
provided in Article 41 hereof).

"Fair Market Rent" shall have the meaning set forth in Section
41C hereof.

-3-
<PAGE> 7
"First Exercise Date" shall have the meaning set forth in
Section 41A hereof.

"First Renewal Term" shall have the meaning set forth in
Section 41A hereof.

"Free Sublet Space" shall mean up to 148,000 (in the
aggregate) Rentable Square Feet of the Premises, provided however, in no event
shall any portion of the Concourse Space, the Subconcourse Space, the 39th
Floor Storage Space or the Bank Vault Space be included in Free Sublet Space.

"Governmental Authorities" shall mean any agency, department,
commission, board, bureau, instrumentality or political subdivision of the
United States of America, the State of New York or The City of New York, now
existing or hereafter created, having jurisdiction over the Real Property or
any portion thereof.

"HVAC" shall mean heat, ventilation and air conditioning.

"HVAC Systems" shall mean the Building Systems provided HVAC.

"Indemnitees" shall mean Landlord, its partners,
shareholders, officers, employees, agents and contractors.

"Landlord" on the date as of which this Lease is made, shall
mean THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES ("Equitable"), a
New York corporation, having an office at 787 Seventh Avenue, New York, New
10019, but thereafter, "Landlord" shall mean only the fee owner of the Real
Property of if there shall exist a Superior Lease, the tenant thereunder.

"Landlord's Appraiser" shall have the meaning set forth in
Section 41C hereof.

"Landlord's Determination" shall have the meaning set forth in
Section 41C hereof.

"Landlord's Notice" shall have the meaning stet forth in
Section 41C hereof.

"Landlord's Offer" shall have the meaning set forth in Article
40 hereof.

-4-
<PAGE> 8
"Landlord's Statement" shall have the meaning set forth in
Section 27A hereof.

"Lessor" shall mean the lessor under any Superior Lease.

"Letter of Intent" shall have the meaning set forth in Article
40 hereof.

"Mortgage(s)" shall mean every trust indenture and mortgage
which may hereafter affect the Real Property, the Building or any Superior
Lease and the leasehold interest created thereby, and all renewals, extensions,
supplements, amendments, modifications, consolidations, and replacements
thereof or thereto and substitutions therefor.

"Mortgagee" shall mean the holder of any Mortgage.

"Mutual Determination" shall have the meaning set forth in
Section 41C hereof.

"Non-Disturbance Agreement" shall have the meaning set forth
in Section 7A hereof.

"Office(s)" shall mean any premises other than premises used
as a store or stores for the sale or display, at any time, of goods, wares or
merchandise, of any kind, or as a restaurant, shop, booth, bootblack or other
stand, barber shop, or for other similar purposes or for manufacturing.

"Operating Expenses" shall have the meaning set forth in
Section 27A hereof.

"Operating Year" shall have the meaning set forth in Section
27A hereof.

"Operation of the Property" shall mean maintenance, repair and
management of the Real Property or the Building and the curbs, sidewalks and
areas adjacent thereto.

"Original Lease" shall have the meaning set forth in the first
Whereas clause hereof.

"Overtime Periods" shall have the meaning set forth in Section
28C hereof.

"Parties" shall have the meaning set forth in Section 38B
hereof.

-5-
<PAGE> 9
"Partnership Tenant" shall have the meaning set forth in
Article 29 hereof.

"Premises" shall mean the Subconcourse Space, the 39th Floor
Storage Space, the Concourse Space, the Bank Vault Space, the entire ninth
(9th) through eighteenth (18th) floors of the Building, the 38th Floor Space
and the 39th Floor Space, together with the vertical shaftway indicated by
shading of the typical floor plans attached hereto as Exhibits "C-1", "C-2"
and "C-3" and located between floors nine (9) through eighteen (18), provided
Tenant seals the slab opening of such shaftway on the ninth (9th) and
eighteenth (18th) floors.

"Prevailing Rental Rate" shall have the meaning set
forth in Section 12B hereof.

"Real Property" shall mean the Building together with the plot
of land, described in Exhibit "A" annexed hereto, upon which it stands.

"Renewal Notice" shall have the meaning set forth in Section
41A hereof.

"Renewal Option" shall have the meaning set forth in Section
41A hereof.

"Renewal Term" shall have the meaning set forth in Section 41A
hereof.

"Rent" shall have the meaning set forth in Article 1 hereof;
"rent" shall mean and be deemed to include Rent, any increases in Rent (pursuant
to Article 27 hereof), all additional rent and any other sums payable by Tenant
hereunder.

"Rentable Square Feet" shall mean rentable square feet
determined in accordance with the Real Estate Board of New York, Inc.'s
Standard Method of Floor Measurement for Office Buildings, then in effect.

"Rental Value" shall have the meaning set forth in Section 41
hereof.

"Rent Notice" shall have the meaning set forth in Section 41C
hereof.

"Rent Per Square Foot" shall have the meaning set forth in
Section 12C hereof.

-6-
<PAGE> 10
"Requirements" shall mean all laws, orders and regulations
(including, but not limited to, the New York State Energy Conservation
Construction Code), of all Governmental Authorities and all rules, order,
regulations or requirements of the New York Board of Fire Underwriters, or any
other similar body which shall impose any violation, order or duty upon
Landlord or Tenant with respect to the Premises as a result of the use or
occupation thereof by Tenant for any purpose not authorized by the provisions
of this Lease or the conduct by Tenant of its business in the Premises in a
manner different from the ordinary and proper conduct of such business.

"Rules and Regulations" shall mean the rules and regulation
annexed hereto as Schedule A, and such other and further reasonable rules and
regulations as Landlord or Landlord's agents may from time to time adopt on
such notice to be given as landlord may elect, subject to Tenant's right to
dispute the reasonableness thereof as provided in Article 8 hereof.

"Second Exercise Date" shall have the meaning set forth in
Section 41A hereof.

"Second Renewal Term" shall have the meaning set forth in
Section 41A hereof.

"Space Factor" shall mean (a) 484,000 with respect to floors
nine (9) through eighteen (18) of the Premises, (b) 27,000 with respect to the
38th Floor Space, (c) 3,399 with respect to the 39th Floor Space, (d) 11,745
with respect to the Subconcourse Space and the 39th Floor Storage Space, (e)
4,344 with respect to the Bank Vault Space, and (f) 553 with respect to the
Concourse Space.

"Subconcourse Space" shall mean that portion of the subcellar
in the Building indicated by shading on the floor plan annexed hereto as
Exhibit "E".

"Sublease Profit" shall have the meaning set forth in Section
12C hereof.

"Sublease Rent" shall have the meaning set forth in Section
12C hereof.

"Sublease Rent Per Square Foot" shall have the meaning set
forth in Section 12C hereof.

"Sublease Statement" shall have the meaning set forth in
Section 12C hereof.

-7-
<PAGE> 11
"Superior Leases" shall mean all ground or underlying leases
of the Real Property or the Building now or hereafter made by Landlord.

"Tax Credit" shall have the meaning set forth in Section 27B
hereof.

"Taxes" shall have the meaning set forth in Section 27A hereof.

"Tax Year" shall mean the period July 1 through June 30 ( or
such other period as hereafter may be duly adopted by the City of New York as
its fiscal year for real estate tax purposes), to the extent such period occurs
during the Term.

"Tenant" on the date as of which this Lease is made, shall
mean PAINEWEBBER INCORPORATED, a Delaware corporation, having an office at 1285
Avenue of the Americas, New York, New York 10019, but thereafter, subject to
the provisions of Section 12A hereof, "Tenant" shall mean only the tenant under
this Lease at the time in question.

"Tenant's Appraiser" shall have the meaning set forth in
Section 41C hereof.

"Tenant's Consumption" shall have the meaning set forth in
Section 13B.

"Tenant's Determination" shall have the meaning set forth in
Section 41C hereof.

"Tenant's Property" shall mean Alterations and fixtures,
leasehold improvements, equipment, furniture, furnishings or other personal
property owned by Tenant.

"Tenant's Pro Rata Share of the Building Electricity" shall
have the meaning set forth in Section 13B.

"Tenant's Share" shall mean thirty-four and six-tenth
(34.6%), as the same shall be increased or decreased as provided herein.

"Tentative Monthly Escalation Charge" shall have the meaning
set forth in Section 27C hereof.

"10th Floor Space" shall mean the entire tenth (10th) Floor of
the Building.

-8-
<PAGE> 12
"Term" shall mean a term which has commenced and shall expire
on the Expiration Date.

"Third Appraiser" shall have the meaning set forth in Section
41C hereof.

"38th Floor Space" shall mean the entire thirty-eighth (38th)
Floor of the Building.

"39th Floor Space" shall mean the portion of the thirty-ninth
(39th) floor of the Building indicated by shading on the floor plan annexed
hereto as Exhibit "D".

"39th Floor Storage Space" shall mean the portion of the
thirty-ninth (39th) floor of the Building indicated by shading on the floor
plan annexed hereto as Exhibit "D".

1. DEMISE, PREMISES, TERM, RENT. Landlord has leased to
Tenant and Tenant has hired from Landlord the Premises, for the Term which
shall end on the Expiration Date unless the Term shall sooner end pursuant to
any of the terms, covenants or conditions of this Lease or pursuant to law, at
an annual Rent of

1. for the period commencing on January 1, 1989 and
ending on February 28, 1990,

(i) with respect to the
Subconcourse Space, One Hundred Ninety-Six
Thousand Dollars ($196,000) ($16,333.33
per month),

(ii) with respect to the 39th Floor
Space One Hundred Thirty-Five Thousand Four
Hundred Sixteen and 16/100 Dollars ($135,416.16)
($11,284,68 per month),

(iii) with respect to the 39th Floor
Storage Space, Thirty Eight Thousand Nine
Hundred Dollars ($38,900) ($3,241.67 per month),

(iv) with respect to the Concourse
Space, Sixteen Thousand Five Hundred Ninety
Dollars ($16,590) ($1,382.50 per month),

(v) with respect to the Bank Vault
Space, Eighty-Six Thousand Eight Hundred

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<PAGE> 13
Eighty Dollars ($86,880) ($7,240 per month),

(vi) with respect to the 38th Floor
Space, One Million Two Hundred Fifteen
Thousand Dollars ($1,215,000) ($101,250 per
month); and

(vii) with respect to the balance of
the Premises other than the 10th Floor
Space, Sixteen Million Sixty Thousand Two
Hundred Seventy-Five Dollars ($16,060,275)
($1,338,356.25 per month);

2. for the period commencing on January 1, 1989 and
ending on April 30, 1990 with respect to the 10th
Floor Space, Two Million Five Hundred Seventy-Three
Thousand Seven Hundred Twenty-Five Dollars
($2,573,725) ($214,477.08 per month),

3. for the period commencing on March 1, 1990 and ending
on February 28, 1995,

(i) with respect to the
Subconcourse Space, Two Hundred Twenty
Thousand Five Hundred Dollars ($220,500)
($18,375 per month),

(ii) with respect to the 39th Floor
Space One Hundred Fifty Two Thousand Four
Hundred Eleven and 16/100 Dollars
($152,411.16) ($12,700.98 per month),

(iii) with respect to the 39th Floor
Storage Space, Forty Three Thousand Seven
Hundred Sixty-Two and 50/100 Dollars
($43,762.50) ($3,646.88 per month),

(iv) with respect to the Concourse
Space, Nineteen Thousand Three Hundred
Fifty Five Dollars ($19,355) ($1,612.92 per
month),

(v) with respect to the Bank Vault
Space, Ninety-Seven Thousand Seven Hundred
Forty Dollars ($97,740) ($8,145 per month),

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<PAGE> 14
(vi) with respect to the 38th Floor
Space, One Million Three Hundred Fifty
Thousand Dollars ($1,350,000) ($112,500 per
month), and

(vii) with respect to the balance of
the Premises other than the 10th Floor
Space, Eighteen Million Three Hundred
Fifty-Four Thousand Six Hundred Dollars
($18,354,600) ($1,529,550 per month);

4. for the period commencing on May 1, 1990 and ending
on April 30, 1995 with respect to the 10th Floor
Space Two Million Nine Hundred Forty-One Thousand
Four Hundred Dollars ($2,941,400) ($245,116.67 per
month),

5. for the period commencing on March 1, 1995 and ending
on the Expiration Date,

(i) with respect to the
Subconcourse Space, Two Hundred Forty-
Five Thousand Dollars ($245,000) ($20,416.67
per month),

(ii) with respect to the 39th Floor
Space, One Hundred Sixty-Nine Thousand Four
Hundred Six and 16/100 Dollars ($169,406.16)
($14,117.18 per month),

(iii) with respect to the 39th Floor
Storage Space, Forty-Eight Thousand Six
Hundred Twenty-Five Dollars ($48,625)
($4,052.08 per month),

(iv) with respect to the Concourse
Space, Twenty-Two Thousand One Hundred
Twenty Dollars ($22,120) ($1,843.33 per
month),

(v) with respect to the Bank Vault
Space, One Hundred Eight Thousand Six
Hundred Dollars ($108,600) ($9,050 per
month),

(vi) with respect to the 38th Floor
Space, One Million Four Hundred Eighty-Five
Thousand Dollars ($1,485,000) ($123,750
per month), and

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<PAGE> 15
(vii) with respect to the balance of
the Premises other than the Tenth Floor
Space, Twenty Million Four Hundred Forty
Thousand Three Hundred Fifty Dollars
($20,440,350) ($1,703,362.50 per month).

6. for the period commencing on May 1, 1995 and ending
on the Expiration Date with respect to the Tenth
Floor Space Three Million Two Hundred Seventy-Five
Thousand Six Hundred Fifty Dollars ($3,275,650)
($272,970.83 per month),

which Tenant agrees to pay in lawful money of the United States which shall be
legal tender in payment of all debts and dues, public and private, at the time
of the payment in equal monthly installments in advance, on the first (1st) day
of each calendar month during the Term (except as hereinafter otherwise
provided) at the office of Landlord or such other place as Landlord may
designate, without any set-off, offset, abatement or deduction whatsoever. At
the request of Landlord, Rent shall be payable when due by wire transfer of
funds to an account designated from time to time by Landlord.

2. USE AND OCCUPANCE. A. Tenant shall use and occupy
the Premises only as general and executive offices, and uses incidental
thereto, provided, however, Tenant may, subject to compliance with Article 15
hereof and all applicable Requirements, use and occupy (i) the Subconcourse
Space for office use and uses incidental thereto, (ii) the 39th Floor Space for
the purposes of storage and preparation of food necessary to service the dining
room located on the 38th Floor Space, (iii) the Concourse Space as messenger
and mail room facility for Tenant's own business requirements, and (iv) The
Bank Vault Space as a reproduction and copying facility for Tenant's own
business requirements. In addition, Tenant may, subject to compliance with all
applicable Requirements, use portions of the Premises (a) for the operation of
a trading floor or floors and trading support systems and (b) as a securities
trading and sales facility, other than for off-the-street retail sales to the
general public. Notwithstanding the foregoing, PaineWebber Incorporated (and
no other Tenant or occupant of the Premises) may use up to 25,000 Rentable
Square Feet of the Premises (other than the Subconcourse Space, the 39th Floor
Storage Space, the Concourse Space, the Bank Vault Space, the 38th Floor Space
and the 39th Floor Space) as a retail securities trading and sales facility as
long as the principal method of the conduct of business of such facility shall

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<PAGE> 16
be by telephone, mail, telex or other method of communication not requiring
face-to-face contact with the public, and provided that the off-the-street
services furnished to the general public on a face-to-face basis shall be
incidental to the conduct of such business and shall not be conducted in a
manner or in a volume so as to materially increase the burden on the elevators
or the security systems of the Building. In addition, Tenant, at its sole
costs and expense and upon compliance with Article 15 hereof and all applicable
requirements, may use other portions of the Premises as: (a) a word processing
center; (b) a computer and communication system center; (c) employee lounges;
and (d) an executive dining room; provided that Tenant, at its sole cost and
expense, obtains and maintains any and all permits required in connection with
such uses.

B. Tenant shall not use the Premises or any part
thereof, or permit the Premises or any part thereof to be used, (i) for the
business of photographic, multilith or multigraph reproductions or offset
printing, except in connection with Tenant's own business, (2) for a banking,
trust company, depository, guarantee or safe deposit business, if (in each
case) open to the general public for off-the-street transactions, (3) as a
savings bank, savings and loan association, or loan company, if (in each case)
open to the general public for off-the-street transactions, (4) for the sale of
travelers checks, money orders, drafts, foreign exchange or letters of credit to
the general public for off-the-street transactions, (5) for the preparation,
dispensing or consumption of food or beverages in any manner whatsoever, except
for consumption by Tenant's officers, employees and business guests, (6) as an
employment agency or similar enterprise (other than an executive search firm,
labor union, school, or vocational training center (except for the training of
employees of Tenant intended to be employed at the Premises), (7) as a barber
shop or beauty salon, or (8) by any agency or department of the United States
Government or the City or State of New York or any foreign government or agency
thereof.

3. ALTERATIONS. A. (1) Except as otherwise expressly
provided herein, Tenant shall not make any Alterations, without Landlord's
prior consent. Landlord agrees not to unreasonably withhold or delay its
consent to any nonstructural Alteration, proposed to be made by Tenant to adapt
the Premises for those purposes permitted by Section A of Article 2, provided
that such Alterations are performed only by contractors reasonably approved by
Landlord, do not adversely affect the Building Systems, or affect any other
part of the Building (other than the Premises), do not

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<PAGE> 17
adversely affect any service required to be furnished by Landlord to Tenant or
to any other tenant or occupant of the Building (including Landlord) and do not
reduce the value of the Building.

(2) All Alterations shall be performed at Tenant's
expense, in accordance with the Rules and Regulations, and at such times and in
such manner as Landlord may from time to time reasonably designate. Tenant
shall be permitted to preform such Alterations during the hours of 8:00 A.M. to
6:00 P.M. on business days, and at any other time upon payment to Landlord of
Landlord's expenses therefor, provided that such work shall not unreasonably
interfere with or cause interruption of the operation and maintenance of the
Building or with the use and occupancy of the Building by other tenants for
space or occupants in the Building. All furniture, furnishings and movable
fixtures and partitions installed by Tenant and all Alterations in and to the
Premises which have been or may be made by Tenant at its own cost and expense
prior to and during the Term, shall remain the property of Tenant and upon the
Expiration Date or earlier end of the Term, may be removed from the Premises by
Tenant at Tenant's option, provided, however, that Tenant shall repair in a
good and workmanlike manner to the then Building standard condition any damage
to the Premises or the Building caused by such removal. Notwithstanding the
foregoing, however, Landlord upon notice given at least thirty (30) days prior
to the Expiration Date or earlier end of the Term, may require Tenant to remove
any such furniture, furnishings, and movable fixtures, partitions and specialty
Alterations, including kitchens, executive bathrooms, raised computer floors,
trading floors, computer installations, vaults, air conditioning equipment, or
other Alterations of similar character, and to repair in a good and workmanlike
manner to the then Building standard condition any damage to the Premises or
the Building caused by such removal. Any of such items or installations not so
removed by Tenant shall become the property of Landlord, and shall remain upon
and be surrendered with the Premises as part thereof at the end of the Term.

(3) Prior to making any Alterations, Tenant (a) shall
submit to Landlord detailed plans and specifications (including layout,
architectural, mechanical and structural drawings to the extent applicable)
for each proposed Alteration and shall not commence any such Alteration without
first obtaining Landlord's approval of such plans and specifications (except
with respect to any nonstructural Alteration referred to in Section A(6) hereof
for which Landlord's approval is not required), which in the case of
nonstructural

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<PAGE> 18
Alterations shall be unreasonably withheld or delayed (b) shall, at its
expense, obtain all permits, approvals and certificates required by all
Governmental Authorities and (c) shall furnish to Landlord duplicate original
policies (or certificates thereof) of worker's compensation (covering all
persons to be employed by Tenant, and Tenant's contractors and subcontractors
in connection with such Alteration) and comprehensive public liability
(including property damage coverage) insurance in such form, with such
companies, for such periods and in such amounts as Landlord may reasonably
require, naming Landlord and its agents, any Lessor and any Mortgagee as
additional insureds. In addition, no Alteration at a cost for labor and
materials (as reasonably estimated by Landlord's architect, engineer or
contractor) in excess of Five Hundred Seventy-Five Thousand Dollars ($575,000)
(which amount will be increased on each September 1 hereafter, by the annual
percentage increase, if any, in the Consumer Price Index from that in effect on
the immediately preceding September 1) either individually or in the aggregate
with any other Alteration constructed in any twelve (12) month period shall be
undertake prior to Tenant delivering to Landlord either (i) a performance bond
and labor and materials payment bond (issued by a surety company, and in form
reasonably satisfactory to Landlord each in an amount equal to 120% of such
estimated cost, or (ii) such other security as shall be reasonably satisfactory
to Landlord, and such Alteration shall be performed under the supervision of a
licensed architect or licensed professional engineer reasonably satisfactory to
Landlord. All Alterations shall be made and performed in accordance with the
plans and specifications therefor as approved by Landlord, all Requirements and
the Rules and Regulations. All materials and equipments to be incorporation in
the Premises as an Alteration or a part thereof shall be first quality, and no
such materials or equipment (other than furniture, furnishings, office
equipment and other personal property not affixed to the Premises) shall be
subject to any lien, encumbrance, chattel mortgage or title retention or
security agreement. Upon competition of any Alteration, Tenant, at Tenant's
expense, shall obtain certificates of final approval of such Alteration as may
be required by any Governmental Authority and shall furnish Landlord with
copies thereof together with the "as-built" plans and specifications for such
Alterations. If Landlord shall fail to disapprove Tenant's final plans and
specifications within twenty (20) days or within fifteen (15) days with respect
to any resubmission of disapproved plans, after Landlord's receipt thereof,
Landlord shall be deemed to have approved such plans and specifications. Any
disapproval given by Landlord shall be ineffective unless accompanied by a
statement of the reasons for such disapproval.

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<PAGE> 19
(4) Any mechanic's lien filed against the Premises, or the Real
Property, for work claimed to have been done for, or materials claimed to have
been furnished to, Tenant shall be discharged by Tenant within thirty (30) days
after notice thereof, at Tenant's expense, by payment or filing the bond
required by law. Tenant shall not, at any time prior to or during the Term,
directly or indirectly employ or permit the employment of, any contractor,
mechanic or laborer in the Premises, whether in connection with any Alteration
or otherwise, if such employment would interfere or cause any conflict with
other contractors, mechanics or laborers engaged in the construction,
maintenance or operation of the Building by the Landlord, Tenant or any
adjacent property owned by Landlord. In the event of any such interference or
conflict, Tenant, upon demand of Landlord, shall cause all contractors,
mechanics or laborers causing such interference or conflict to leave the
Building immediately; provided, however, to the extent that such interference
or conflict is the result of labor affiliation or non-affiliation, and if
Landlord shall have theretofore approved Tenant's mechanics or contractors, as
the case may be, and such approval was given prior to the approval of any other
contractors or mechanics which are the cause of the interference or conflict,
Tenant's contractors or mechanics as the case may be, may remain at the
Building.

(5) Prior to making an Alteration, at Tenant's request,
Landlord shall furnish Tenant with a list of contractors who may perform
Alterations to the Premises on behalf of Tenant. If Tenant engages any
contractor set forth on the list, Tenant shall not be required to obtain
Landlord's consent for such contractor unless, prior to entering into a contract
with such contractor, Landlord shall notify Tenant that such contractor has
been removed from the list.

(6) Anything contained herein to the contrary notwith-
standing, Tenant may make nonstructural Alterations which do not affect the
Building Systems, or any other part of the Building (other than the Premises)
the cost of the labor and materials for which shall not exceed Four Hundred
Thousand Dollars ($400,000) (which amount will be increased on each September 1
hereafter, by the annual percentage increase, if any, in the Consumer Price
Index from that in effect on the immediately preceding September 1) either
individually or in the aggregate with any other nonstructural Alteration made
in any twelve (12) month period, without first obtaining Landlord's consent,
provided that at least five (5) Business Days prior to making such Alterations,
Tenant shall deliver the plans and specifications therefore to Landlord and in
making

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<PAGE> 20
such Alterations Tenant shall otherwise comply with the provisions of this
Article 3.

B. (1) Tenant shall pay to Landlord, as additional
rent, in connection with all Alterations, a fee (the "Alterations Fee") equal
to ten percent (10%) of the total cost of such Alterations. There shall be
excluded from the computation of the total cost of such Alterations the cost of
furniture, furnishings, draperies, office equipment not affixed to the
Premises, art work, cabinetry, painting and carpeting.

(2) Prior to making any Alteration, Tenant shall submit
to Landlord a statement of Tenant's independent architect, if employed, or
contractor estimating the total costs of such Alteration and the estimated time
required to complete such Alteration. The Alterations Fee shall be calculated
on the basis of such estimate and paid in equal monthly installments during the
course of the performance of the Alteration, on the first day of each month.
Within three (3) Business Days after completion of the Alteration, Tenant shall
pay to Landlord the entire balance of the Alterations Fee, if not theretofore
paid in full.

(3) Upon competition of any Alteration, Tenant shall
submit to Landlord a statement of Tenant's independent architect, if employed,
or contractor certifying the total cost of such Alteration together with
documentation reasonably satisfactory to Landlord, evidencing such cost. The
Alterations Fee shall be adjusted, if necessary, based on the certification.
If the Alterations Fee, as adjusted shall be greater than the amount
theretofore paid to Landlord by Tenant on account of such Fee, Tenant shall pay
such deficiency simultaneously with the delivery to Landlord of the
certification. If such Alterations Fee, as adjusted, is less than the amount
theretofore paid to Landlord by Tenant on account of such Fee, Landlord, within
ten (10) Business Days after Landlord's receipt of the certification shall pay
to Tenant the amount of such overpayment. If Landlord shall dispute the
statement certifying the total costs of such Alteration, Landlord shall have
the right, within thirty (30) days after receipt of the certification, to elect
to employ an independent certified public accountant to review Tenant's books
and records relating to such Alteration. The determination of such accountant
shall be conclusively binding upon the parties, and, if necessary, the
Alterations Fee, shall be adjusted accordingly based upon such determination.
If such determination shall reveal that the Alterations Fee paid on account of
such Alteration shall have been understated by more than fifteen (15%), then
Tenant shall pay the

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fees of the accountant in connection with such review and the payment to be
made to Landlord as a result of such understatement shall bear interest at the
Applicable Rate. Any adjustment in the Alterations Fee, together with interest
thereon at the Applicable Rate, as well as any payment of the fees of such
accountant shall be paid by Tenant to Landlord, as additional rent, within
three (3) Business Days after such accountant's determination.

4. REPAIRS-FLOOR LOAD. A. Landlord shall maintain and repair the
Building Systems and the public portions of the Building, both exterior and
interior in a manner consistent with the maintenance and operation of a
non-institutional first class office building in New York City. Tenant, at
Tenant's sole cost and expense, shall take good care of the Premises and the
fixtures, equipment and appurtenances therein and make all nonstructural
repairs thereto as and when needed to preserve them in good working order and
condition, except for reasonable wear and tear, obsolescence and damage for
which Tenant is not responsible pursuant to the provisions of Article 10
hereof. The design and decoration of the elevator areas of each floor of the
Premises, and the public corridors of any floor of the Premises occupied by
more than one (1) occupant, shall be subject to Landlord's approval, which
approval shall not be unreasonably withheld or delayed. All such areas and
corridors shall be maintained and cleaned to Landlord's reasonable
satisfaction. Tenant shall pay Landlord at competitive rates for all
replacements to the lamps, tubes, ballasts and starters in the lighting
fixtures installed in the Premises. Notwithstanding the foregoing, all damage
or injury to the Premises or to any other part of the Building, or to its
fixtures, equipment and appurtenances, whether requiring structural or
nonstructural negligence of, or Alterations made by, Tenant, Tenant's servants,
employees, invitees or licensees, shall be repaired promptly by Tenant, at its
sole cost and expense, to the reasonable satisfaction of Landlord. Tenant also
shall repair all damage to the Building and the Premises caused by the moving
of Tenant's fixtures, furniture or equipment. All the aforesaid repairs shall
be of quality or class equal to the original work or construction and shall be
made in accordance with the provisions of Article 3 hereof. If Tenant fails
after ten (10) days' notice (or such shorter period as may be required due to
an emergency), to proceed with due diligence to make repairs required to be
made by Tenant, the same may be made by Landlord at the expense of Tenant, and
the expenses thereof incurred by Landlord, with interest thereon at the
Applicable Rate, shall be paid to Landlord as additional rent after rendition
of a bill or statement therefor. Tenant

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<PAGE> 22
shall give Landlord prompt notice of any defective condition
in any Building System, or electrical lines, located in, servicing or passing
through the Premises.

B. Tenant shall not place a load upon any floor of the Premises
exceeding 100 pounds per square foot "live load." Landlord reserves the right
to reasonably prescribe the weight and position of all safes, business machines
and heavy equipment and installations to the extent the same might affect the
Building Systems, the structure of the Building, or the use and occupancy of
the Building by other tenants for space or occupants in the Building. Business
machines and mechanical equipment shall be placed and maintained by Tenant at
Tenant's expense in settings sufficient in Landlord's reasonable judgment to
absorb and prevent vibration, noise and annoyance.

C. Subject to the provisions of Articles 10 and 11 and Section C of
Article 14 hereof, there shall be no allowance to Tenant for a diminution of
rental value and no liability on the part of Landlord by reason of
inconvenience, annoyance or injury to business arising from Landlord, Tenant or
others making, or failing to make, any repairs, alterations, additions or
improvements in or to any portion of the Building or the Premises, or in or to
fixtures, appurtenances or equipment thereof.

5. WINDOW CLEANING. Tenant shall not clean, nor require, permit,
suffer or allow any window in the Premises to be cleaned from the outside.

6. REQUIREMENTS OF LAW. A. Tenant at its sole expense shall comply
with all Requirements. Tenant shall not do or permit to be done any act or
thing upon the Premises, which is not permitted by the provisions of Article 2
hereof or which is conducted in a manner different from the ordinary and proper
conduct of a securities and investment banking business comparable to Tenant's
business, or which will invalidate or be in conflict with any insurance
policies covering the Building and fixtures and property therein; and shall not
do, or permit anything to be done in or upon the Premises, or bring or keep
anything therein, except as now or hereafter permitted by all Governmental
Authorities, the New York Fire Insurance Rating Organization or other similar
authority having jurisdiction and then only in such quantity and manner of
storage as not to increase the rate for fire insurance applicable to the
Building, or use the Premises in a manner different from the ordinary and
proper conduct of a securities and investment banking business comparable to
Tenant's business which shall increase the rate of fire

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<PAGE> 23
insurance on the Building or on property located therein, over that in effect
on the date immediately preceding any such increase. If by reason of Tenant's
failure to comply with the provisions of this Article, the fire insurance rate
shall be higher than it otherwise would be, then Tenant shall desist from doing
or permitting to be done any such act or thing and shall reimburse Landlord, as
additional rent hereunder, for that part of all fire insurance premiums
thereafter paid by Landlord which shall have been charged because of such
failure by Tenant, and upon presentation of a bill or another document
evidencing such increase and the reason therefor, shall make such
reimbursement five (5) Business Days after demand by Landlord. In any action
or proceeding wherein Landlord and Tenant are parties, a schedule or "make up"
of rates for the Building or the Premises issued by the new York Fire Insurance
Rating Organization, or other body fixing such fire insurance rates, shall be
conclusive evidence of the facts therein stated and of the several items and
charges in the fire insurance rates then applicable to the Building.

B. Tenant, at its sole cost and expense, after notice to Landlord,
may contest by appropriate proceedings, prosecuted diligently and in good
faith, the legality or applicability of any Requirement affecting the Premises
provided that (a) Landlord (or any Indemnities) shall not be subject to
imprisonment or to prosecution for a crime which might result in imprisonment,
nor shall the Real Property or any part thereof be subject to being condemned
or vacated, nor shall the certificate of occupancy for the Premises or the
Building be suspended or threatened to be suspended by reason of non-compliance
or by reason of such contest; (b) before the commencement of such contest, if
Landlord or any Indemnitees may be subject to any civil fines or penalties or
other criminal penalties or if Landlord may be liable to any independent third
party for an amount greater than Two Hundred Fifty Thousand Dollars ($250,000)
as a result of such non-compliance, then Tenant shall furnish to Landlord either
(i) a bond of a security company satisfactory to Landlord, in form and
substance reasonably satifactory to Landlord and in an amount at least equal to
one hundred twenty percent (120%) of (A) the cost of such compliance, (B) the
criminal or civil penalties or fines that may accrue by reason of such
non-compliance (as reasonably estimated by Landlord) and (C) the amount of such
liability to independent third parties, and shall indemnify Landlord (and any
Indemnitees) against the cost of such compliance and liability resulting from
or incurred in connection with such contest or non-compliance, (except that
Tenant shall not be required to furnish such bond to Landlord if it has
otherwise furnished any similar

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<PAGE> 24
bond required by law to the appropriate Governmental Authority and has
named Landlord as a beneficiary thereunder) or (ii) other security reasonably
satisfactory in all respects to Landlord; (c) such non-compliance or contest
shall not constitute or result in a violation (either with the giving of notice
or the passage of time or both) of the terms of any Mortgage or Superior Lease,
or if such Superior Lease or Mortgage shall condition such non-compliance or
contest upon the taking of action or furnishing of security by Landlord, such
action shall be taken or such security shall be furnished at the expense of
Tenant; and (d) Tenant shall keep Landlord regularly advised as to the status of
such proceedings. Without limiting the application of the foregoing, Landlord
shall be deemed subject to prosecution of a crime if Landlord, a Lessor, a
Mortgagee or any of their officers, directors, partners, shareholders, agents or
employees is charged with a crime of any kind whatsoever unless such charges are
withdrawn ten (10) days before Landlord, such Lessor or such Mortgagee or such
officer, director, partner, shareholder, agent or employee, as the case may be,
is required to plead or answer thereto.

7. SUBORDINATION. A. (1) Provided that (i) any Mortgagee shall
execute and deliver to Tenant an agreement to the effect that, if there shall
be a foreclosure of such Mortgage, such Mortgagee will not make Tenant a party
defendant to such foreclosure, evict Tenant, disturb Tenant's possession under
this Lease, or terminate or disturb Tenant's leasehold estate or rights
hereunder provided no Event of Default has occurred hereunder, and (ii) the
Lessor under any Superior Lease shall execute and deliver to Tenant an
agreement to the effect that if such Superior Lease shall terminate or be
terminated for any reason, Lessor will recognize Tenant as the direct Tenant of
Lessor on the same terms and conditions as are contained in this Lease provided
no Event of Default exists hereunder (any such agreement, or any agreement of
similar import, from a Mortgagee or from a Lessor under a Superior Lease, as
the case may be, being hereinafter called a "Non-Disturbance Agreement"), this
Lease shall be subject and subordinate to each such Superior Lease and to each
such Mortgage which may hereafter affect the Real Property, the Building or any
such Superior Lease and the leasehold interest created thereby, and to all
renewals, extensions, supplements, amendments, modifications, consolidations,
and replacements of or to such Superior Lease or Mortgage or substitutions
therefor, and to all advances made thereunder. Tenant shall execute and
deliver promptly any certificate that Landlord reasonably may request in
confirmation of such subordination.

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(2) Tenant hereby irrevocably waives any and all right(s) it
may have in connection with any zoning lot merger or transfer of development
rights with respect to the Real Property including, without limitation, any
rights it may have to be a party to, to contest, or to execute, any Declaration
of Restrictions (as such term is defined in Section 12-10 of the Zoning
Resolution of the City of New York effective December 15, 1961, as amended)
with respect to the Real Property, which would cause the Premises to be merged
with or unmerged from any other zoning lot pursuant to such Zoning Resolution
or any document of a similar nature and purpose, and this Lease shall be
subject and subordinate to any Declaration of Restrictions or any other
document of similar nature and purpose now or hereafter affecting the Real
Property. This clause shall be self-operative and no further instrument of
subordination or waiver shall be required. In confirmation, however, of such
subordination and waiver, Tenant shall execute and deliver promptly any
certificate or instrument that Landlord reasonably may request and if Tenant
shall fail to execute and deliver any certificate or instrument within five (5)
Business Days after Landlord's request, then Tenant hereby irrevocably
constitutes and appoints Landlord as Tenant's attorney-in-fact to execute any
such certificate or instrument for an on behalf of Tenant, such power of
attorney being coupled with an interest.

B. If at any time prior to the expiration of the Term, any Superior
Lease shall terminate or be terminated for any reason or any Mortgagee comes
into possession of the Real Property or the Building or the estate created by
any such Superior Lease by receiver or otherwise, Tenant shall attorn to any
such Lessor or Mortgagee or any person acquiring the interest of Landlord as a
result of any such termination, or as a result of a foreclosure of the Mortgage
or a granting of a deed in lieu of foreclosure, upon the then executory terms
and conditions of this Lease, for the remainder of the Term, provided that such
owner, Lessor or Mortgagee, as the case may be, or receiver caused to be
appointed by any of the foregoing, shall then be entitled to possession of the
Premises and shall have either agreed to assume the obligations of Landlord
hereunder (subject to the terms hereof) or shall have entered into a
Non-Disturbance Agreement with Tenant. Tenant, upon demand of any such owner,
Lessor or Mortgagee, shall execute from time to time, instruments in
confirmation of the foregoing provisions of this Section B, satisfactory to any
such owner, Lessor or Mortgagee, acknowledging such attornment and setting
forth the terms and conditions of its tenancy.

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<PAGE> 26
C. (1) Any Non-Disturbance Agreement may be made on the
condition that, as long as such Mortgagee or Lessor shall not be owned by the
then defaulting landlord or the then defaulting landlord shall not have a
majority interest in such Mortgagee or Lessor, neither the Mortgagee under such
Mortgage nor the Lessor under such Superior Lease, as the case may be, nor
anyone claiming by, through or under such Mortgagee or Lessor, as the case may
be, including a purchaser at a foreclosure sale, shall be:

(a) liable for any act or omission of any prior landlord
(including, without limitation, the then defaulting landlord), or

(b) subject to any defenses or offsets which Tenant may have
against any prior landlord arising prior to the time such Mortgagee or Lessor
succeeded to any prior landlord's interest (including, without limitation, the
then defaulting landlord), or

(c) bound by any payment of Rent which Tenant might have paid
for more than one (1) month to any prior landlord (including, without
limitation, the then defaulting landlord), or

(d) bound by any obligation to make any payment to Tenant,
which was required to be made prior to the time such Mortgagee or Lessor
succeeded to any prior landlord's interest, or

(e) bound by any obligation to perform any work or to make
improvements to the Premises except for (i) repairs and maintenance pursuant to
the provisions of Article 4 hereof, (ii) repairs to the Premises or any part
thereof as a result of damage by fire or other casualty pursuant to Article 10
hereof, but only to the extent that such repairs can be reasonably made from
the net proceeds of any insurance actually made available to such Lessor or
Mortgagee (unless Landlord is Equitable and acts as a self-insurer pursuant to
Article 9) and (iii) repairs to the Premises as a result of a partial
condemnation pursuant to Article 11 hereof, but only to the extent that such
repairs can be reasonably made from the net proceeds of any award made
available to such Lessor or Mortgagee.

D. If required by the Mortgagee or the Lessor, Tenant promptly shall
join in any Non-Disturbance Agreement to indicate its concurrence with the
provisions thereof and its agreement, in the event of a foreclosure of such
Mortgage or the termination of such Superior Lease, as the case may

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<PAGE> 27
be, to attorn to such Mortgagee or Lessor, as the case may be, as Tenant's
landlord hereunder. Tenant shall promptly so accept, execute and deliver any
Non-Disturbance Agreement proposed by any such Mortgagee or Lessor which
conforms with the provisions of this Article 7. Any such Non-Disturbance
Agreement may also contain other terms and conditions as may otherwise be
reasonably required by such Mortgagee or Lessor, as the case may be, as a
condition to the making of such Mortgage or Superior Lease and which do not
materially increase the obligations of Tenant under this Lease, increase
Tenant's monetary obligations or materially and adversely affect the rights or
obligations of Tenant under this Lease or the leasehold estate hereby created
or Tenant's use and enjoyment of the Premises.

E. From time to time, within seven (7) days next following request by
Landlord given pursuant to Article 26 hereof, any Mortgagee or any Lessor,
Tenant shall deliver to Landlord, such Mortgagee or such Lessor a written
statement executed and acknowledged by Tenant, in form reasonably satisfactory
to Landlord, such Mortgagee or such Lessor, (i) stating that this Lease is then
in full force and effect and has not been modified (or if modified, setting
forth all modifications), (ii) setting forth the date to which the Rent,
additional rent and other charges hereunder have been paid and the amounts
thereof, (iii) stating whether or not, to the best of Tenant's knowledge,
Landlord is in default under this Lease, and, if Landlord is in default,
setting forth the specific nature of all such defaults, and (iv) as to any
other matters reasonably requested by Landlord, such Mortgagee or such Lessor.
Tenant acknowledges that any statement delivered pursuant to this Section E may
be relied upon by any purchaser or owner of the Real Property or the Building,
or Landlord's interest in the Real Property or the Building, or any Superior
Lease, or by any Mortgagee, or by an assignee of any Mortgagee, or by any
Lessor.

F. As long as any Superior Lease or Mortgage shall exist, Tenant
shall not seek to terminate this Lease by reason of any act or omission of
Landlord until Tenant shall have given written notice of such act or omission
to all Lessors and Mortgagees at such addresses as shall have been furnished to
Tenant by such Lessors and Mortgagees and, if any such Lessor or Mortgagee, as
the case may be, shall have notified Tenant within ten (10) Business Days
following the receipt of such notice, that such Lessor or Mortgagee intends to
remedy such act or omission, until a reasonable period of time shall have
elapsed following receipt of such notice by such Lessor or Mortgagee, during
which period such Lessor and

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<PAGE> 28
Mortgagee shall have the right, but not the obligation, to remedy such act or
omission.

G. From time to time, within seven (7) days next following Tenant's
request, Landlord shall deliver to Tenant a written statement executed by
Landlord (i) stating that this Lease is then in full force and effect and has
not been modified (or if modified, setting forth all modifications), (ii)
setting forth the date to which the Rent, additional rent and other charges
hereunder have been paid and the amounts thereof, (iii) stating whether or not,
to the best of Landlord's knowledge, Tenant is in default under this Lease,
and, if Tenant is in default, setting forth the specific nature of all such
defaults, and (iv) as to any other matters reasonably requested by Tenant and
related to this Lease. Landlord acknowledges that any statement delivered
pursuant to this Section G may be relied upon by any subtenant of Tenant.

8. RULES AND REGULATIONS. Tenant and Tenant's servants, contractors,
employees, agents, visitors and licensees shall comply with the Rules and
Regulations. If Tenant disputes the reasonableness of any additional Rule or
Regulation hereafter adopted by Landlord, the dispute shall be submitted for
decision to the American Arbitration Association or any successor organization
in accordance with the regulations and procedures thereof then obtaining for
commercial arbitration, whose determination shall be final and conclusive upon
the parties hereto. The right to dispute the reasonableness of any additional
Rule or Regulation upon Tenant's part shall be deemed waived unless the same
shall be asserted by service of a notice upon Landlord within thirty (30) days
after receipt by Tenant of notice of the adoption of any such additional Rule
or Regulation. Nothing in this Lease contained shall be construed to impose
upon Landlord any duty or obligation to enforce the Rules and Regulations or
terms, covenants or conditions in any other lease, against any other tenant and
Landlord shall not be liable to Tenant for violation of the same by any other
tenant, its servants, employees, agents, visitors or licensees except that
Landlord shall not discriminate in the enforcement of any Rule or Regulation
and shall not enforce any Rule or Regulation against Tenant which Landlord
shall not then be enforcing against the other office tenants of the Building.

9. PROPERTY LOSS OR DAMAGE; REIMBURSEMENT.

A. (1) Any Building employee to whom any property shall be entrusted
by or on behalf of Tenant shall be deemed to be acting as Tenant's agent with
respect to such property and neither Landlord nor its agents shall be liable
for any

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<PAGE> 29
damage to property of Tenant or of others entrusted to employees of the
Building, nor for the loss of or damage to any property of Tenant by theft or
otherwise. Neither Landlord nor its agents shall be liable for any injury or
damage to persons or property or interruption of Tenant's business resulting
from fire or other casualty; nor shall Landlord or its agents be liable for any
such damage caused by other tenants or persons in the Building or caused by
construction of any private, public or quasi-public work; nor shall Landlord be
liable for any latent defect in the Premises or in the Building. Anything in
this Article 9 to the contrary notwithstanding, except as set forth in Articles
4, 10, 13, 28 and 36 of this Lease and otherwise as expressly provided herein,
Landlord shall not be relieved from responsibility directly to Tenant for any
loss or damage caused directly to Tenant wholly or in part by the negligent
acts or omissions of Landlord. It is expressly acknowledged and understood
that the foregoing shall not in any manner whatsoever modify or negate the
provisions of Section E of Article 10 hereof. Nothing in the foregoing shall
affect any right of Landlord to the indemnity from Tenant to which Landlord may
be entitled under Article 36 hereof in order to recoup for payments made to
compensate for losses of third parties.

(2) If at any time any windows of the Premises are permanently or
temporarily closed, darkened or bricked-up for any reason if required by law,
Landlord shall not be liable for any damage Tenant may sustain thereby and
Tenant shall not be entitled to any compensation therefor nor abatement of Rent
nor shall the same release Tenant from its obligations hereunder nor constitute
an eviction, in whole or in part.

(3) Tenant shall give immediate notice to Landlord in case of fire or
accident in the Premises or in the Building (with respect to any fire or
accident in the Building to the extent that Tenant has actual or constructive
knowledge thereof). Tenant shall not move any safe, heavy machinery, heavy
equipment, heavy freight, bulky matter or heavy fixtures into or out of the
Building without Landlord's prior consent, which consent shall not be
unreasonably withheld or delayed, and payment to Landlord of Landlord's
reasonable costs in connection therewith. If such safe, machinery, equipment,
freight, bulky matter or fixtures requires special handling, Tenant shall
employ only persons holding a Master Rigger's License to do said work. All
work in connection therewith shall comply with the Requirements, and shall be
done during such hours as Landlord may reasonably designate.

B. Tenant shall obtain and keep in full force and effect a policy of
comprehensive general public liability and

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<PAGE> 30
property damage insurance with a broad form contractual liability endorsement
under which Tenant is named as the insured, and Landlord and any Lessors and
any Mortgagees (whose names shall have been furnished to Tenant) are named as
additional insureds, and under which the insurer agrees to indemnify and hold
landlord and such Lessors and Mortgagees harmless from and against all costs,
expense and/or liability arising out of or based upon any and all claims,
accidents, injuries and damages mentioned in Article 36. Such policy shall
contain a provision that no act or omission of Tenant shall affect or limit the
obligation of the insurance company to pay the amount of any loss sustained and
shall be non-cancellable with respect to Landlord and such Lessors and
Mortgagees unless at least ten (10) Business Day's written notice shall have
been given to Landlord by certified mail, return receipt requested, which
notice shall contain the policy number and the names of the insured and
additional insureds. A certificate of such insurance shall be delivered to
Landlord and shall have printed thereon Article 36 hereof in its entirety. The
minimum limits of liability shall be a combined single limit with respect to
each occurrence in an amount of not less than $10,000,000 for injury (or death)
and damage to property. Tenant shall also purchase on behalf of, and in the
name of, Landlord and keep in full force and effect a policy of rent insurance
on an "All Risk of Physical Loss" basis in an amount equal to one (1) year's
current estimated Rent, Based upon the previous year's Rent plus ten percent
(10%), and shall name Landlord as loss payee thereon. All insurance required
to be carried or purchased by Tenant pursuant to the terms of this Lease shall
be effected under valid and enforceable policies issued by reputable and
independent insurers permitted to do business in the State of New York, and
rated in Best's Insurance Guide, or any successor thereto (or if there be none,
an organization having a national reputation) as having a general policyholder
rating of "A" and a financial rating of at least "13". Landlord shall obtain
and keep in full force and effect a policy of comprehensive general public
liability and property damage insurance for the Building in at least a minimum
amount required to prevent Landlord from being a co-insurer; provided, however,
if Equitable is Landlord hereunder, Landlord may elect to act as a self-insurer
and not maintain any or all of the insurance required hereunder. A copy of the
certificate of such insurance has been delivered to Tenant and, a copy of the
certificate of any renewal policy for such insurance shall be delivered to
Tenant, at least fifteen (15) days prior to the expiration of the then current
certificate.

10. DESTRUCTION-FIRE OR OTHER CAUSE. A. If the Premises shall be
damaged by fire or other casualty, and if

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<PAGE> 31
Tenant shall give prompt notice thereof to Landlord, the damages shall be
repaired by and at the expense of Landlord to Building standard condition,
exclusive of Tenant's Alterations, and the Rent until such repairs shall be
made shall be reduced (to the extent that Landlord receives the proceeds of
rent insurance required to be purchased by Tenant on behalf of, and in the name
of, Landlord pursuant to Article 9 of this Lease) in the proportion which the
area of the part of the Premises which is not usable by Tenant bears to the
total area of the Premises (taking into account, and making an adjustment on
account of any damage to, and the Rent payable with respect to, the 38th Floor
Space, the Subconcourse Space, the 39th Floor Storage Space, the Concourse
Space, the Bank Vault Space and 39th Floor Space). Landlord shall have no
obligation to repair any damage to, or to replace, any Alterations, fixtures,
furniture, furnishings, equipment or other property or effects of Tenant.

B. Anything is Section A of this Article 10 to the contrary
notwithstanding, (a) if the Premises are totally damaged or are rendered wholly
untenantable, and if the Building shall be so damaged by fire or other casualty
that, in Landlord's reasonable opinion, substantial alteration, demolition, or
reconstruction of the Building shall be required, or (b) if, whether or not the
Premises shall have been damaged or rendered untenantable, the Building shall
be so damaged by fire or other casualty that, in Landlord's reasonable opinion,
substantial alteration, demolition or reconstruction shall be required and
Landlord shall have elected to terminate all of the other leases then in effect
for the space in the Building affected by such damage, then in any of such
events, Landlord, at Landlord's option, may, not later than ninety (90) days
following the damage, give Tenant a notice in writing terminating this Lease.
If Landlord elects to terminate this Lease, the Term shall expire upon the
tenth (10th) day after such notice is given, and Tenant shall vacate the
Premises and surrender the same to Landlord. If Tenant shall not be in default
under this Lease, then upon the termination of this Lease under the conditions
provided for in this Section B, Tenant's liability for Rent shall cease as of
the day following such damage and any prepaid portion of Rent for any period
after such date shall be refunded by Landlord to Tenant.

C. No penalty shall accrue for delays which may arise by
reason of "labor troubles" or any other cause beyond Landlord's or Tenant's
control.

D. This Article 10 constitutes an express agreement governing
any case of damage or destruction of the

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<PAGE> 32
Premises or the Building by fire or other casualty, and that Section 227 of the
Real Property Law of the State of New York, which provides for such contingency
in the absence of an express agreement, and any other law of like import now or
hereafter in force shall have no application in any such case.

E. The parties hereto shall procure an appropriate clause in, or
endorsement on, any fire or extended coverage insurance covering the Premises,
the Building and personal property, fixtures and equipment located thereon or
therein, pursuant to which the insurance companies waive subrogation or consent
to a waiver of right of recovery, and having obtained such clauses or
endorsements of waiver of subrogation or consent to a waiver of right of
recovery, each party will not make any claim against or seek to recover from
the other for any loss or damage to its property or the property of others
resulting from fire or other hazards covered by such fire and extended coverage
insurance, provided, however, that the release, discharge, exoneration and
covenant not to sue herein contained shall be limited by and coextensive with
the terms and provisions of the waiver of subrogation clause or endorsements or
clauses or endorsements consenting to a waiver of right of recovery. If
Landlord is Equitable and acts as a self-insurer pursuant to the provisions of
Article 9 hereof, Landlord shall execute and deliver to Tenant a written
statement waiving subrogation, as set forth above. If the payment of an
additional premium is required for the inclusion of such waiver of subrogation
provision, each party shall advise the other of the amount of any such
additional premiums and the other party at its own election may, but shall not
be obligated to, pay the same. If such other party shall not elect to pay such
additional premium, the first party shall not be required to obtain such waiver
of subrogation provision. Tenant acknowledges Landlord shall not carry
insurance on, and shall not be responsible for damage to, Tenant's Alterations,
fixtures, furnishings, equipment or other property or effects, and that
Landlord shall not carry insurance against or be responsible for any loss
suffered by Tenant due to interruption of Tenant's business.

F. Anything contained in this Article 10 to the contrary
notwithstanding, within forty-five (45) days after notice to Landlord of any
damage described in Section A hereof, Landlord shall deliver to Tenant a
statement prepared by a reputable independent contractor setting forth such
contractor's estimate as to the reasonable time required to repair the damage.
If the estimated time period exceeds twelve (12) months from the date of such
statement, Tenant may elect

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<PAGE> 33
to terminate this Lease by notice to Landlord not later than thirty (30) days
following receipt of such statement. If Tenant makes such election, the Term
shall expire upon the thirtieth (30th) day after notice of such election is
given by Tenant, and Tenant shall vacate the Premises and surrender the same to
Landlord as if such date were the Expiration Date. If Tenant shall not have
elected to terminate this Lease pursuant to this Article (or is not entitled to
terminate this Lease pursuant to this Article), and such repairs are not made
by Landlord within six (6) months after the expiration of the period estimated
for effecting such repair, Tenant may elect to terminate this Lease by notice
to Landlord not later than thirty (30) days following the expiration of such
six (6) month period; provided however that in the event Landlord shall be
unable to complete such repairs by reason of any circumstances set forth in
Article 25 hereof (other than inability caused by delays in adjustment of
insurance), Tenant may not elect to terminate this Lease unless such repairs
are not made within twelve (12) months after the expiration of the period
estimated for effecting such repairs. If Tenant makes such election, the Term
of this Lease shall expire upon the thirtieth (30th) day after notice of such
election is given by Tenant and Tenant shall vacate the Premises and surrender
the same as if such date were the Expiration Date. Notwithstanding the
foregoing, if the Premises shall be substantially damaged during the last two
(2) years of the Term (as renewed or extended pursuant to Article 41 hereof),
either party may elect by notice to the other party within twenty (20) days
after the occurrence of such damage, to terminate this Lease. If either party
makes such an election, the Term shall expire upon the thirtieth (30th) day
after notice of such election is given by such party and Tenant shall vacate
the Premises and surrender the same to Landlord as if such date were the
Expiration Date. Tenant shall have no other options to cancel this Lease
under this Article 10.

11. EMINENT DOMAIN. A. If the whole of the Real Property, the
Building or the Premises shall be acquired or condemned for any public or
quasi-public use or purpose, this Lease and the Term shall end as of the date
of the vesting of title with the same effect as if said date were the
Expiration Date. If only a part of the Real Property shall be so acquired or
condemned then, (1) except as hereinafter provided in this Section A, this
Lease and the Term shall continue in force and effect but, if a part of the
Premises is included in the part of the Real Property so acquired or condemned,
from and after the date of the vesting of title, the Rent shall be equitably
reduced based upon the area and location of the part of the Premises so
acquired or condemned and

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<PAGE> 34
Tenant's Share shall be reduced in the proportion which the area of the part of
the Premises so acquired or condemned bears to the total area of the Premises
immediately prior to such acquisition or condemnation (taking into account and
making an adjustment for the fact that the Rent payable with respect to the
38th Floor Space, the Subconcourse Space, the 39th Floor Storage Space, the
Concourse Space, the Bank Vault Space and the 39th Floor Space is less than or
greater than, as the case may be, the Rent per square foot payable with respect
to the remainder of the Premises); (2) whether or not the Premises shall be
affected thereby, if a part of the Real Property so acquired or condemned shall
render the remaining portion thereof economically unfeasible to operate as an
office Building, Landlord, at Landlord's option, may give to Tenant, within
sixty (60) days next following the date upon which Landlord shall have received
notice of vesting of title, a five (5) days' notice of termination of this
Lease; and (3) if the part of the Real Property so acquired or condemned shall
contain more than fifteen percent (15%) of the total area of the Premises
immediately prior to such acquisition or condemnation, or if, by reason of such
acquisition or condemnation, Tenant no longer has reasonable means of access to
the Premises, Tenant, at Tenant's option, may give to Landlord, within sixty
(60) days next following the date upon which Tenant shall have received notice
of vesting of title, a five (5) days' notice of termination of this Lease.
If any such five (5) days' notice of termination is given, by landlord or
Tenant, this Lease and the Term shall come to an end and expire upon the
expiration of said five (5) days with the same effect as if the date of
expiration of said five (5) days were the Expiration Date. If a part of the
Premises shall be so acquired or condemned and this Lease and the Term shall
not be terminated pursuant to the foregoing provisions of this Section A,
Landlord, at Landlord's expense, shall restore that part of the Premises not so
acquired or condemned to a self-contained rental unit to the then Building
standard condition exclusive of Tenant's Alternations. In the event of any
termination of this Lease and the Term pursuant to the provisions of this
Section A, the Rent shall be apportioned as of the date of sooner termination
and any prepaid portion of Rent for any period after such date shall be
refunded by Landlord to Tenant.

B. In the event of any such acquisition or condemnation of
all or any part of the Real Property, Landlord shall be entitled to receive the
entire award for any such acquisition or condemnation, Tenant shall have no
claim against Landlord or the condemning authority of the value of any
unexpired portion of the Term and Tenant hereby expressly assigns to Landlord
all of its right in and to any such

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<PAGE> 35
award. Nothing contained in this Section B shall be deemed to prevent Tenant
from making a separate claim in any condemnation proceedings for the then value
of any furniture, furnishings and fixtures installed by and at the sole expense
of Tenant and included in such taking, and for any moving expenses.

C. If the whole or any part of the Premises shall be acquired
or condemned temporarily during the Term for any public or quasi-public use or
purpose, Tenant shall give prompt notice thereof to Landlord and the Term shall
not be reduced or affected in any way and Tenant shall continue to pay in full
the Rent payable by Tenant hereunder without reduction or abatement, and Tenant
shall be entitled to receive for itself any award or payments for such use,
provided, however, that:

(i) if the acquisition or condemnation is for a period not
extending beyond the Term, and if by reason of such acquisition or
condemnation changes or alterations are required to be made to the
Premises which would necessitate an expenditure to restore the
Premises to its former condition, such changes or alterations shall be
performed by Tenant, at Tenant's sole cost and expense and in
accordance with the provisions of Article 3 hereof, to Landlord's
satisfaction; or

(ii) if the acquisition or condemnation is for a period
extending beyond the Term (as the same may have then been extended
pursuant to Article 41 thereof), after deducting the cost for any
changes or alterations required for the restoration of the Premises
from the amount of any award or payment which shall be retained by
Landlord, the balance of such award or payment shall be apportioned
between Landlord and Tenant as of the Expiration Date.

12. ASSIGNMENT AND SUBLETTING. A. (1) Except as expressly
provided in this Article 12, Tenant, without the prior consent of Landlord in
each instance, shall not (a) assign its rights or delegate its duties under
this Lease (whether by operation of law, transfers of interests in Tenant or
otherwise), mortgage or encumber its interest in this Lease, in whole or in
part, or (b) permit the Premises or any part thereof to be occupied, or used
for desk space, mailing privileges or otherwise, by any person other than
Tenant. No assignment of this Lease shall relieve Tenant of its obligations
hereunder; and, with respect to any assignment permitted pursuant to Section G
hereof, Tenant's liability hereunder shall continue notwithstanding any
subsequent modifica-

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<PAGE> 36
tion or amendment hereof or the release of any subsequent tenant hereunder from
any liability, to all of which Tenant hereby consents in advance.

(2) If this Lease is assigned to any person or entity
pursuant to the provisions of the Bankruptcy Code, any and all monies or other
consideration payable or otherwise to be delivered in connection with such
assignment shall be paid or delivered to Landlord, shall be and remain the
exclusive property of Landlord and shall not constitute property of Tenant or
of the estate of Tenant within the meaning of the Bankruptcy Code. Any and all
monies or other considerations constituting Landlord's property under the
preceding sentence not paid or delivered to Landlord shall be held in trust for
the benefit of Landlord and shall be promptly paid to or turned over to
Landlord.

B. Tenant shall not sublet or permit the subletting (which
shall, for the purposes hereof, include any proposed transaction pursuant to
which any corporation or entity referred to in clause (iii) of Section G of
this Article, to whom any portion of the Premises shall have been previously
subleased pursuant thereto, would no longer be (i) controlled (ii) be under the
control of, or (iii) be under common control with, Tenant) of the Premises or
any part thereof without the prior consent of Landlord. Landlord shall not
unreasonably withhold or delay its consent to a subletting of the Premises,
including, without limitation, the Free Sublet Space (exclusive of the
Subconcourse Space, the 39th Floor Storage Space, the Concourse Space and the
Bank Vault Space) provided that:

(1) the Premises shall not, without Landlord's prior consent,
have been listed or advertised for subletting at a rental rate less than the
annual rental rate then being asked by Landlord in connection with the offering
of space in the Building comparable to the space proposed to be sublet and for
a comparable term, or, if such comparable space at a comparable term is not
then being offered by Landlord, then the annual rental rate at which Landlord
would offer such comparable space for a comparable term (the "Prevailing Rental
Rate"), nor shall Tenant advise any broker, agent, finder or prospective
subtenant that Tenant is willing to sublet the Premises at a rate less than the
Prevailing Rental Rate;

(2) the Premises shall not be sublet at a rental rate less
than ninety percent (90%) of the Prevailing Rental Rate;

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<PAGE> 37
(3) no Event of Default shall have occurred and be continuing;

(4) the proposed subtenant shall have a financial standing,
be of a character, be engaged in a business, and propose to use the Premises in
a manner in keeping with the standards in such respect of the other tenancies
in the Building;

(5) if Landlord has or within six (6) months thereafter
reasonably expects suitable space to be available in the Building, the proposed
subtenant shall not be a person or entity with whom Landlord is then
negotiating to lease space in the Building; if Tenant shall propose to sublease
space and is about to commence negotiations with a prospective subtenant,
Tenant shall advise Landlord of the identity of such prospective subtenant and
Landlord shall promptly advise Tenant if the execution of a sublease with such
prospective subtenant would violate the provisions of this clause (5);

(6) (a) the character of the business to be conducted or the
proposed use of the Premises by the proposed subtenant shall not (A) materially
increase the burden on existing cleaning services or increase the burden on
elevator usage over the burden prior to such proposed subletting; or (B)
violate any provisions or restrictions herein relating to the use or occupancy
of the Premises; and

(b) if Landlord shall have consented to a sublease and,
as a result of the use and occupancy of the subleased portion of the Premises
by the subtenant, operating expenses or cleaning services are increased, then
Tenant shall pay to Landlord, within five (5) Business Days after demand, as
additional rent, all resulting increases in operating expenses and in the costs
of providing cleaning services;

(7) the subletting shall be expressly subject to all of the
terms, covenants, conditions and obligations on Tenant's part to be observed
and performed under this Lease and the further condition and restriction that
the sublease shall not be assigned, encumbered or otherwise transferred or the
subleased premises further sublet by the subtenant in whole or in part, or any
part thereof suffered or permitted by the subtenant to be used or occupied by
others, without the prior written consent of Landlord in each instance;

(8) the subletting shall end no later than one (1) day before
the Expiration Date of this Lease and

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<PAGE> 38
shall not be for a term of less than two (2) years unless it commences less
than two (2) years before the Expiration Date;

(9) the subletting shall be for not less than 10,000
contiguous square feet on any floor of the Premises, (other than for subtenants
providing brokerage services for whom Tenant provides clearance and
administrative services), and at not time shall there be (a) as to floors of
the Premises of less than 50,000 square feet, more than three (3) occupants,
including Tenant, on any one (1) floor of the Premises and (b) as to all other
floors of the Premises, more than five (5) occupants, including Tenant, in any
one (1) floor of the Premises;

(10) Tenant shall reimburse Landlord on demand for any
reasonable costs that may be actually incurred by Landlord in connection with
said sublease, including, without limitation, the costs of making
investigations as to the acceptability of the proposed subtenant; and

(11) Tenant shall not sublet the 39th Floor Space expect
together with the entire 38th floor of the Building.

C. (1) At least twenty (20) Business Days prior to any proposed
subletting Tenant shall submit a statement to Landlord (a "Sublease Statement")
containing the following information: (a) the name and address of the proposed
subtenant, (b) a description of the portion of the Premises to be sublet, (c)
the terms and conditions of the proposed subletting including the rent payable,
(d) the nature and character of the business of the proposed subtenant and (e)
any other information that Landlord may reasonably request. Landlord shall
have the right, exercisable within twenty (20) Business Days after Landlord's
receipt of the Sublease Statement, to sublet such portion of the Premises from
Tenant on the terms and conditions set forth in the Sublease Statement. If
Landlord shall fail to notify Tenant, within said twenty (20) Day period of
Landlord's intention to exercise its rights pursuant to this Section C(1) or if
Landlord shall have consented to such subletting as provided in Section B
hereof, Tenant shall be free to sublease that portion of the Premises to such
proposed subtenant on the terms and conditions set forth in the Sublease
Statement, subject to the terms and conditions of this Lease, including
subsection (2) of this Section C. If Tenant shall not enter into such sublease
within one hundred twenty (120) days after the delivery of the Sublease
Statement to Landlord, then the provisions of Section B and C of this Article
12 shall again be applicable to any other proposed subletting.

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<PAGE> 39
(2) (a) Except with respect to the Free Sublet Space, Tenant shall pay
to Landlord, in respect of any period of time during which Tenant shall sublet
Additional Sublet Space or the Subconcourse Space, the 39th Floor Storage
Space, the Concourse Space or the Bank Vault Space, a sum equal to fifty
percent (50%) of any Sublease Profit derived therefrom. All sums payable
hereunder by Tenant shall be calculated on an annualized basis, but shall be
paid to Landlord as additional rent within five (5) Business Days after the
receipt thereof by Tenant. If Tenant shall sublet portions of the Premises in
excess of the Free Sublet Space or the Subconcourse Space, the 39th Floor
Storage Space, the Concourse Space or the Bank Vault Space, the Sublet Profit
to be paid to Landlord hereunder shall be calculated based upon the Sublease
Rent payable under those subleases (x) which result in the subletting of space
in excess of the Free Sublet Space or (y) which are of the Subconcourse Space,
the 39th Floor Storage Space, the Concourse Space or the Bank Vault Space, as
the case may be.

(b) For purposes of this Section C of Article 12:

(i) "Rent Per Square Foot" shall mean (x) with respect to
floors nine (9) through eighteen (18) of the Premises the then Rent payable by
Tenant for said Premises, as the same may be increased pursuant to Articles 40
and 41 hereof, divided by the Space Factor and (y) with respect to the 38th
Floor Space, the Subconcourse Space, the 39th Floor Storage Space, the
Concourse Space, the Bank Vault Space and the 39th Floor Space the then Rent
payable by Tenant for such Space, as the same may be increased pursuant to
Article 41 hereof, divided by the Space Factor with respect to such space.

(ii) "Sublease Profit" shall mean the product of (x) the
Sublease Rent Per Square Foot less the Rent Per Square Foot, multiplied by (y)
the number of Rentable Square Feet constituting the Additional Sublet Space or
the Subconcourse Space, the 39th Floor Storage Space, the Concourse Space or
the Bank Vault Space, as the case may be.

(iii) "Sublease Rent" shall mean any rent or other
consideration paid to Tenant, directly or indirectly, by any subtenant or any
other amount received by Tenant from or in connection with any subletting
(including but not limited to sums paid for the sale or rental (or
consideration received on account of any contribution) of Tenant's Property)
after deducting therefrom (a) in the event of a sale (or contribution) of
Tenant's Property, the then unamortized or undepreciated cost thereof
determined on the basis of

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<PAGE> 40
Tenant's Federal income tax returns, (b) the actual out-of-pocket cost and
expenses of Tenant in making such sublease such as brokers' fees, attorneys'
fees, and advertising fees paid to unrelated third parties and the reasonable
out-of-pocket cost of administering such sublease, (c) any sums paid by Tenant
to Landlord pursuant to Section B(10) of this Article 12 and (d) nondecorative
improvement or alteration costs to prepare such portion of the Premises for
such subtenancy and the unamortized unreimbursed cost of any Tenant's Property
leased to and used by such subtenant (to the extent that such costs are
required to be capitalized for federal income tax purposes, such costs shall be
amortized during the term of such sublease over the useful life Tenant actually
establishes for income tax purposes for such alteration or improvement pursuant
to the Internal Revenue Code of 1954, as amended, together with interest thereon
at the then prime rate being charged by Citibank, N.A. or its successor).

(iv) "Sublease Rent Per Square Foot" shall mean the Sublease
Rent divided by the Rentable Square Feet of the Additional Sublet Space or the
Subconcourse Space, the 39th Floor Storage Space, the Concourse Space, the Bank
Vault Space or 39th Floor Space, as the case may be.

D. Every subletting hereunder is subject to the express condition,
and by accepting a sublease hereunder each subtenant shall be conclusively
deemed to have agreed, that if this Lease should be terminated prior to the
Expiration Date or if Landlord should succeed to Tenant's estate in the
Premises, then at Landlord's election the subtenant shall either surrender the
Premises to Landlord within 60 days of Landlord's request therefor, or attorn
to and recognize Landlord as the subtenant's Landlord under the sublease and
the subtenant shall promptly execute and deliver any instrument Landlord may
reasonably request to evidence such attornment.

E. If Tenant's interest in this Lease is assigned in violation of the
provisions of this Article 12, such assignment shall be void and of no force
and effect against Landlord; provided, however, that Landlord may collect an
amount equal to the then Rent from the assignee as a fee for its use and
occupancy. If the Premises or any part thereof are sublet to, or occupied by,
or used by, any person other than Tenant, whether or not in violation of this
Article 12, Landlord, after default by Tenant under this Lease, may collect any
rent or other sums paid by the subtenant, user or occupant as a fee for its use
and occupancy, and Landlord shall apply the net amount collected to the Rent
and Sublease Profit reserved in this Lease. No such assignment, subletting,
occupancy or use, whether with or without Landlord's

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<PAGE> 41
prior consent, nor any such collection or application of Rent or fee for use
and occupancy, shall be deemed a waiver by Landlord of any term, covenant or
condition of this Lease or the acceptance by Landlord of such assignee,
subtenant, occupant or user as tenant hereunder. The consent by Landlord to
any assignment, subletting, occupancy or use shall not relieve Tenant from its
obligation to obtain the express prior consent of Landlord to any further
assignment, subletting, if applicable, occupancy or use. Tenant agrees to pay
to Landlord the reasonable attorneys' fees and disbursements incurred by
Landlord in connection with any proposed assignment of Tenant's interest in
this Lease or any proposed subletting of the Premises or any part thereof.
Neither any assignment of Tenant's interest in this Lease nor any subletting,
occupancy or use of the Premises or any part thereof by any person other than
Tenant, nor any collection of Rent or Sublease Profit by Landlord from any
person other than Tenant as provided in this Section E, nor any application of
any such Rent or Sublease Profit as provided in this Section E shall, in any
circumstances, relieve Tenant of it obligations under this Lease on Tenant's
part to be observed and performed. Any person or entity to which this Lease is
assigned pursuant to the provisions of the Bankruptcy Code shall be deemed
without further act or deed to have assumed all of the obligations arising
under this Lease on and after the date of such assignment. Any such assignee
shall execute and deliver to Landlord upon demand an instrument confirming such
assumption.

F. (1) If Tenant assumes this Lease and proposes to assign the same
pursuant to the provisions of the Bankruptcy Code to any person or entity who
shall have made a bona fide offer to accept an assignment of this Lease on
terms acceptable to the Tenant, then notice of such proposed assignment shall
be given to Landlord by Tenant no later than twenty (20) days after receipt by
Tenant, but in any event no later than ten (10) days prior to the date that
Tenant shall make application to a court of competent jurisdiction for
authority and approval to enter into such assignment and assumption. Such
notice shall set forth (a) the name and address of such person, (b) all of the
terms and conditions of such offer, and (c) adequate assurance of future
performance by such person under the Lease, including, without limitation, the
assurance referred to in #365(b)(3) of the Bankruptcy Code. Landlord shall
have the prior right and option, to be exercised by notice to Tenant given at
any time prior to the effective date of such proposed assignment, to accept an
assignment of this Lease upon the same terms and conditions and for the same
consideration, if any, as the bona fide offer made by such person, less any
brokerage commis-

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<PAGE> 42
sions which would otherwise be payable by Tenant out of the consideration to be
paid by such person in connection with the assignment of this Lease.

(2) The term "adequate assurance of future performance" as
used in this Lease shall mean that any proposed assignee shall, among other
things, (a) deposit with Landlord on the assumption of this Lease an amount
equal to the then annual Rent as security for the faithful performance and
observance by such assignee of the terms and obligations of this Lease, which
sum shall be held in accordance with the provisions of Article 31 hereof, (b)
furnish Landlord with financial statements of such assignee for the prior three
(3) fiscal years, as finally determined after an audit and certified as correct
by a certified public accountant, which financial statements shall show a net
worth (calculated in accordance with generally accepted accounting principles
consistently applied) of at least Twenty-Five Million Dollars ($25,000,000) for
each of such three (3) years, (c) grant to Landlord a security interest in such
property of the proposed assignee as Landlord shall deem necessary to secure
such assignee's future performance under this Lease, and (d) provide such other
information or take such action as Landlord, in its reasonable judgment shall
determine is necessary to provide adequate assurance of the performance by such
assignee of its obligations under the Lease.

G. As long as PaineWebber Incorporated is Tenant hereunder,
Tenant shall have the privilege, without the consent of Landlord, to assign its
interest in this Lease (i) to any corporation which is a successor to Tenant
either by merger or consolidation, (ii) to a purchaser of all or substantially
all of Tenant's assets (provided such purchaser shall have also assumed
substantially all of Tenant's liabilities), or (iii) to a corporation or other
entity which shall (1) control, (2) be under the control of, or (3) be under
common control with, Tenant (the term "control" as used herein shall be deemed
to mean ownership of more than 50% of the voting stock of a corporation on a
fully diluted basis, or other majority equity and control interest, if not a
corporation); Tenant may also sublease all or any portion of the Premises to an
entity described in this clause (iii) without the consent of Landlord;
provided, however, that (a) any such assignee shall continue to use the
Premises for the conduct of the same business as Tenant was conducting previous
to such assignment, (b) the principal purpose of such assignment (or sublease)
is not the acquisition of Tenant's interest in this Lease (except if such
assignment (or sublease) is made pursuant to clause (iii) and is made for a
valid intracorporate business purpose and is not made to circumvent the pro-

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visions of Section A of this Article), and (c) any such assignee shall have a
net worth and annual income and cash flow, determined in accordance with
generally accepted accounting principles, consistently applied, after giving
effect to such assignment, equal to or greater than Tenant's net worth and
annual income and cash flow, as so determined, on the date of such assignment.
Tenant shall, within ten (10) business days after execution thereof, deliver to
Landlord (a) a duplicate original instrument of assignment in form and
substance reasonably satisfactory to Landlord, duly executed by Tenant, and (b)
an instrument in form and substance reasonably satisfactory to Landlord, duly
executed by the assignee, in which such assignee shall assume observance and
performance of, and agree to be personally bound by, all of the terms,
covenants and conditions of this Lease on Tenant's part to be observed and
performed. Except as set forth above, either a transfer of a controlling
interest in the shares of Tenant (if Tenant is a corporation or trust) or a
transfer of a majority of the total interest in Tenant (if Tenant is a
partnership) at any one time or over a period of time through a series of
transfers, shall be deemed an assignment of this Lease and shall be subject to
all of the provisions of this Article 12, including, without limitation, the
requirement that Tenant obtain Landlord's prior consent thereto. The transfer
of shares of Tenant (if Tenant is a corporation or trust) for purposes of this
Section G, shall not include the sale of shares by persons other than those
deemed "insiders" within the meaning of the Securities Exchange Act of 1934, as
amended, which sale is effected through the "over-the-counter market" or
through any recognized stock exchange.

H. If, at any time after Tenant may have assigned Tenant's
interest in this Lease, this Lease shall be disaffirmed or rejected in any
proceeding of the types described in clauses (6) and (8) of Section A of
Article 16 hereof, or in any similar proceeding, or in the event of termination
of this Lease by reason of any such proceeding or by reason of lapse of time
following notice of termination given pursuant to said Article 16 based upon
any of the Events of Default set forth in such clauses, Tenant, upon request of
Landlord given within thirty (30) days next following any such disaffirmance,
rejection or termination (and actual notice thereof to Landlord in the event of
a disaffirmance or rejection or in the event of termination other than by act
of Landlord), shall (1) pay to Landlord all Rent, additional rent and other
charges due and owing by the assignee to Landlord under this Lease to and
including by the date of such disaffirmance, rejection or termination, and (2)
as "tenant", enter into a new lease with Landlord of the Premises for a

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term commencing on the effective date of such disaffirmance, rejection or
termination and ending on the Expiration Date, unless sooner terminated as in
such lease provided, at the same Rent and upon the then executory terms,
covenants and conditions as are contained in this Lease, except that (a)
Tenant's rights under the new lease shall be subject to the possessory rights
of the assignee under this Lease and the possessory rights of any person
claiming through or under such assignee or by virtue of any statute or of any
order of any court, and (b) such new lease shall require all defaults existing
under this Lease to be cured by Tenant with due diligence, and (c) such new
lease shall require Tenant to pay all increases in the Rent reserved in this
Lease which, had this Lease not been so disaffirmed, rejected or terminated,
would have accrued under the provisions of Articles 27 and 28 hereof after the
date of such disaffirmance, rejection or termination with respect to any period
prior thereto. If Tenant shall default in its obligation to enter into said
new lease for a period of ten (10) Business Days next following Landlord's
request therefor, then, in addition to all other rights and remedies by reason
of such default, either at law or in equity, Landlord shall have the same
rights and remedies against Tenant as if Tenant had entered into such new lease
and such new lease had thereafter been terminated as at the commencement date
thereof by reason of Tenant's default thereunder.

13. ELECTRICITY. A. Tenant shall make no electrical
installations, alterations or additions without the prior written consent of
Landlord in each instance. Landlord shall not unreasonably withhold or delay
its consent with respect to any electrical installation which does not affect
any Building System. Tenant shall at all times comply with the rules,
regulations, terms and conditions applicable to service, equipment, wiring and
requirements of the public utility supplying electricity to the Building.
Landlord represents that (i) the electrical capacity available to each floor of
the Premises (other than the 10th Floor Space, the Subconcourse Space, the
Concourse Space, the Bank Vault Space and the 39th Floor Space is 5.1 watts per
square foot, (ii) two (2) separate risers and four (4) submetered ducts
together furnish 1,031 Kilowatts to the 10th Floor Space, (iii) the electrical
capacity available to the Concourse Space is 5 watts per square foot, (iv) the
electrical capacity available to the Bank Vault Space is 200 Kilowatts, and (v)
the electrical capacity available to the 39th Floor Space is 80 Kilowatts
(individually the "Electrical Capacity" and collectively, the "Electrical
Capacities"). Tenant's use of electric current shall not exceed the Electrical
Capacities nor shall Tenant overload the existing risers or

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<PAGE> 45
wiring installations serving the Premises or interfere with the use thereof by
other tenants of the Building. If Tenant desires to use electricity in excess
of the Electrical Capacity on any floor of the Premises, then Landlord, upon
Tenant's request, provided that Landlord, in its sole judgment (taking into
consideration the potential needs of present and future tenants of the Building
and of the Building itself) determines that such installation is practicable,
shall install additional risers or other proper or necessary equipment to meet
Tenant's electrical requirements. Any such installations shall be made at
Tenant's sole cost and expense and shall be chargeable and paid to Landlord as
additional rent and paid within five (5) Business Days after the rendition of a
bill to Tenant therefor. Landlord shall not be liable in any way to Tenant for
any failure or defect in the supply or character of electric service furnished
to the Premises by reason by any requirement, act or omission of the utility
company serving the Building or for any other reason not attributable to the
gross negligence of Landlord, whether electric service is provided by public or
private utility or by any electricity generation system owned and operated by
Landlord.

B. (1) Unless Landlord elects to have Tenant obtain electric
current from the public utility company furnishing electric service to the
Building pursuant to the provisions of Section C hereof, electric current shall
be supplied by Landlord to the Premises to service Tenant's electrical
requirements, including Tenant's office equipment and the air conditioning
units therein contained installed by Tenant, if any, and Tenant shall pay to
Landlord, as additional rent for such service, an amount (the "Electricity
Additional Rent") equal to Tenant's Pro Rata Share of the Building Electricity.
"Tenant's Pro Rata Share of the Building Electricity" shall mean the product of
(a) the total dollar amount billed to Landlord by the public utility supplying
electricity to the Building (including energy charges, demand charges, time of
day charges, fuel adjustments, rate adjustment charges, sales tax any other
factors used by the public utility in computing its charges to Landlord)
multiplied by (b) a fraction the numerator of which is Tenant's Consumption and
the denominator of which is the Building Consumption. "Tenant's Consumption"
shall mean the total kilowatt hours consumed at the Premises measured during
any particular billing period on a meter or submeter installed by Landlord, at
Tenant's cost, for the purpose of measuring such consumption; "Building
Consumption" shall mean the total kilowatt hours of electrical consumption in
the Building for which Landlord is billed by the public utility company.

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(2) If electric current shall hereafter be supplied to the
Building on a "primary service" basis from the public utility corporation,
Tenant shall also pay to Landlord each month thereafter, as additional rent, an
amount equal to Tenant's Share of the costs incurred by Landlord in converting
the Building to such "primary service," which costs shall be amortized over the
shortest useful life permitted pursuant to the Internal Revenue Code of 1954,
as amended, of the improvements made in connection therewith.

(3) Where more than one meter measures the electric service
to Tenant, the electric service rendered through each meter may be computed and
billed separately in accordance with the provisions hereinabove set forth.
Bills for the Electricity Additional Rent shall be rendered to Tenant at such
time as Landlord may elect, and Tenant shall pay the amount shown thereon to
Landlord within ten (10) Business Days thereafter. Tenant shall also pay to
Landlord, as additional rent, an amount equal to $7,500 per annum payable in
equal monthly installments of $625 on the first day of each month during the
Term (but only as long as Electricity Additional Rent shall be payable
hereunder), which amounts shall be increased on each January 1 hereafter by an
amount equal to 4% of the amount payable during the immediately preceding year,
as a fee for Landlord's administration of the provisions of this Section B.

C. Landlord reserves the right to discontinue furnishing
electricity to Tenant in the Premises on not less than ninety (90) days' notice
to Tenant, except that if Tenant shall be unable to obtain electric services
from the public utility within said ninety (90) day period, Landlord shall
continue to furnish electricity to Tenant until such time as Tenant shall
obtain electric service directly from the public utility, provided that Tenant
shall have used, and shall continue to use, its best efforts to obtain such
electric service. If Tenant shall have failed to use best efforts or shall not
continue to use best efforts to obtain such electric service, Landlord shall
have no obligation to furnish electricity to Tenant after the expiration of the
aforesaid ninety (90) day period. If Landlord exercises such right to
discontinue furnishing electricity to Tenant, this Lease shall continue in full
force and effect and shall be unaffected thereby, except only that from and
after the effective date of such discontinuance, Landlord shall not be
obligated to furnish electricity to Tenant and Tenant shall not be obligated to
pay the Electricity Additional Rent. If Landlord so discontinues furnishing
electricity to Tenant, Tenant shall obtain electric energy directly from the
public utility company furnishing electric service to the Building.

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<PAGE> 47
The costs of such service shall be paid by Tenant directly to such public
utility. Such electricity may be furnished to Tenant by means of the existing
electrical facilities serving the Premises to the extent the same are
available, suitable and safe for such purposes as determined by Landlord. All
meters and all additional panel boards, feeders, risers, wiring and other
conductors and equipment which may be required to obtain electricity, shall be
installed by Landlord at Tenant's expense.

14. ACCESS TO PREMISES. A. Subject to the provisions of
Section C hereof, Tenant shall permit Landlord, Landlord's agents and public
utilities servicing the Building to erect, use and maintain, concealed ducts,
pipes and conduits in and through the Premises. Landlord or Landlord's agents
shall have the right to enter the Premises at all reasonable times upon prior
notice (except in an emergency) to examine the same, to show them to
prospective purchasers, Lessors, Mortgagees or lessees of the Building or space
therein, and to make such repairs, alterations, improvements or additions as
Landlord may deem necessary to the Premises or to any other portion of the
Building or which Landlord may elect to perform ten (10) days after notice
Tenant following Tenant's failure to make repairs or perform any work which
Tenant is obligated to make or perform under this Lease, or for the purpose of
complying with all Requirements and Landlord shall be allowed to take all
material into and upon the Premises that may be required therefor without the
same constituting an eviction or constructive eviction of Tenant in whole or in
part and the Rent shall in no wise abate while said repairs, alterations,
improvements or additions are being made, by reason of loss or interruption of
business of Tenant, or otherwise.

B. During the one (1) year prior to the Expiration Date or
the expiration of any renewal or extended term, Landlord may at reasonable times
upon reasonable notice exhibit the Premises to prospective tenants thereof. If
Tenant shall not be present when for any reason entry in the Premises shall be
necessary (in the event of an emergency) or permissible in accordance with the
terms hereof, Landlord or Landlord's agents may enter the same by a master key,
or may forcibly enter the same, without rendering Landlord or such agents
liable therefor (if during such entry Landlord or Landlord's agents shall
accord reasonable care to Tenant's property), and without in any manner
affecting this Lease. Nothing herein contained, however, shall be deemed or
construed to impose upon Landlord any obligation, responsibility or liability
whatsoever, for the care, supervision or repair

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of the Building or any part thereof, other than as herein provided.

C. (1) Any work performed or installations made pursuant to
this Article shall be made with reasonable diligence in a manner designed to
minimize interference with or disruption of Tenant's normal business
operations; provided however that Landlord shall not be obligated to employ
contractors or labor at so called overtime or other premium pay rates or to
incur any other overtime costs or expenses whatsoever. Landlord shall promptly
repair in a good and workerlike manner, any damage to the Premises or Tenant's
property caused by such work or installations.

(2) Any pipes, ducts or conduits installed in or through the
Premises pursuant to this Article, shall either be concealed behind, beneath,
or within partitioning, columns, ceilings or floors or, if necessary,
completely furred at points immediately adjacent to partitioning, columns or
ceilings.

(3) If due to any work or installation performed by Landlord
hereunder, (i) Tenant shall be unable for at least fifteen (15) consecutive
business days to operate its business in the Premises in substantially the same
manner as such business was operated prior to the performance of such work or
installation, (ii) such interruption shall occur during business hours and
(iii) Tenant shall have been unable, after using reasonable efforts, and at
reasonable costs, to relocate its employees and property located in that
portion of the Premises which is the subject of such work or installation so as
to have been able to have continued so to operate its business, the Rent shall
be reduced on a per diem basis in the proportion in which the area of the part
of the Premises which is unusable bears to the total area of the Premises
(taking into account and making an adjustment for the fact that the Rent payable
with respect to the 38th Floor Space, the Subconcourse Space, the 39th Floor
Space, the Concourse Space, the Bank Vault Space and the 39th Floor Space is
less than or greater than, as the case may be, the Rent per square foot payable
with respect to the remainder of the Premises) for each day subsequent to the
aforesaid fifteen (15) day period that such portion of the Premises remains
unusable.

D. Landlord also shall have the right at any time, without
the same constituting an actual or constructive eviction and without incurring
any liability of Tenant therefor, to change the arrangement or location of
entrances or passageways, doors and doorways, and corridors, elevators,

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stairs, toilets, or other public parts of the Building provided any such change
does not (a) unreasonably interfere with or deprive Tenant of access to the
Building or Premises or (b) reduce the rentable area (except by a de minimis
amount) of the Premises. Landlord shall not, without the prior consent of
Tenant, which consent shall not be unreasonably withheld or delayed, change the
location of the entrance to the Building fronting on the Avenue of the Americas
so that it shall no longer front on the Avenue of the Americas. All parts
(except surfaces facing the interior of the Premises) of all walls, windows and
doors bounding the Premises (including exterior Building walls, exterior core
corridor walls, exterior doors and entrances), all balconies, terraces and
roofs adjacent to the Premises, all space in or adjacent to the Premises used
for shafts, stacks, stairways, chutes, pipes, conduits, ducts, fan rooms,
heating, air cooling, plumbing and other mechanical facilities, service closets
and other Building Systems and facilities are not part of the Premises, and
Landlord shall have the use thereof, as well as access thereto through the
Premises for the purposes of operation, maintenance, alteration and repair.
Notwithstanding the fact that the corridor designated "P" on Exhibit "E"
annexed hereto is included in the 39th Floor Space, Tenant acknowledges that in
accordance with applicable Requirements, such corridor is required as a
secondary means of egress that (a) Tenant shall not construct any walls or
partitions which block access of Landlord, its agents, employees and invitees
and any other tenant of the thirty ninth (39th) floor of the Building or of the
Building, its agents, employees and invitees to such corridor and (b) Tenant
shall allow Landlord and the public access across such corridor to the
secondary fire stairs located adjacent to such corridor.

E. Tenant shall not construct partitions or other
obstructions which may unreasonably interfere with Landlord's free access to
any Building Systems or facilities serving the Building Systems, or
unreasonably interfere with the moving of Landlord's equipment to and from the
enclosures containing the Building Systems or such facilities. Neither Tenant,
nor its agents, employees or contractors shall at any time enter the said
enclosures or tamper with, adjust or touch or otherwise in any manner affect
the Building Systems or such facilities.

15. CERTIFICATE OF OCCUPANCY. A. Tenant shall not at any
time use or occupy the Premises in violation of the certificate of occupancy at
such time issued for the Premises or for the Building and in the event that any
Governmental Authority shall hereafter contend or declare by

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notice, violation, order or in any other manner whatsoever that the Premises
are used for a purpose which is a violation of such certificate of occupancy,
Tenant shall, upon five (5) days' written notice from Landlord or from any
Governmental Authority, immediately discontinue such use of the Premises.
Landlord has delivered to Tenant a copy of the certificate of occupancy issued
for the Building, dated June 26, 1989, and shall not seek an amendment thereto
which may affect Tenant's use of the Premises without Tenant's consent, which
shall not be unreasonably withheld or delayed. Neither the delivery of such
certificate of occupancy nor any provision of this Lease, nor any act or
omission of Landlord, shall be deemed to constitute a representation or
warranty that the Premises, or any part thereof, lawfully may be used or
occupied for any particular purpose or in any particular manner in
contradistinction to mere "office" use.

B. Landlord shall not unreasonably withhold its consent to
any action taken by Tenant to effectuate an amendment to the certificate of
occupancy to permit any portion of the Premises to be used for the purposes
permitted herein, provided (i) such action shall be necessary and appropriate
to accomplish the foregoing; (ii) Landlord shall incur no cost or expense by
reason thereof, and (iii) notwithstanding the provisions of Section A(1) of
Article 3 hereof, Landlord shall have the right, in its sole discretion, to
approve any Alteration required to be performed to obtain such amendment and
any such Alteration shall be performed in accordance with Article 3 hereof.
Landlord, upon Tenant's request, shall join in any application required in
connection with the foregoing (provided Landlord shall be required to join in
such application) and shall otherwise cooperate with Tenant in connection
therewith, provided Landlord shall not be obligated to incur any cost, expense
or liability by reason thereof.

16. DEFAULT. A. Each of the following events shall be an
"Event of Default" hereunder:

(1) if Tenant shall default in the payment when due
of any installment of Rent or in the payment when due of any additional rent
and such default shall continue for five (5) days after notice to Tenant,
except that if Landlord shall have give three (3) such notices in any twelve
(12) month period, Tenant shall not be entitled to any further notice of its
delinquency in the payment of any installment of Rent or any additional rent;
or

(2) if Tenant shall default in the observance or
performance of any term, covenant or condition on

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Tenant's part to be observed or performed under any other lease with Landlord
of space in the Building and such default shall continue beyond any grace
period set forth in such other lease for the remedying of such default; or,

(3) if the Premises shall become abandoned; or

(4) if Tenant's interest in this Lease shall devolve
upon or pass to any person, whether by operation by law or otherwise, except as
expressly permitted under Article 12 hereof; or

(5) to the extent permitted by law, if Tenant shall
generally not pay its debts as they become due, or shall admit in writing its
inability to pay its debts, or shall file a voluntary petition in bankruptcy or
insolvency, or shall be adjudicated a bankrupt or insolvent, or shall file any
petition or answer seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under the present or
any future federal bankruptcy act or any other present or future applicable
federal, state or other statute or law, or shall make an assignment for
the benefit of creditors or shall seek or consent to or acquiesce in the
appointment of any trustee, receiver, liquidator, custodian or other similar
official of Tenant or of all or any part of Tenant's property; or

(6) if Tenant shall take any corporate action to
authorize any of the actions set forth above in clause (5); or

(7) if, within ninety (90) days after the
commencement of any proceeding against Tenant, whether by the filing of a
petition or otherwise, seeking to have an order for relief entered against it
as debtor or seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under the Bankruptcy
Code or any future federal bankruptcy act or any other present or future
applicable federal, state or other statute or law, such proceeding shall result
in the entry of an order for relief against Tenant which is not fully stayed
within seven (7) days after entry thereof or shall not have been dismissed, or
if, within thirty (30) days after the appointment of any trustee, receiver,
liquidator, custodian or other similar official of Tenant, or of all or any
part of Tenant's property, without the consent or acquiescence of Tenant, such
appointment shall not have been vacated or otherwise discharged, or if any
execution or attachment shall be issued against Tenant or any of Tenant's
property pursuant to which

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the Premises shall be taken or occupied or attempted to be taken or occupied;
or

(8) if Landlord shall present the Letter of Credit
to the bank which issued the same in accordance with the provisions of Article
31 hereof, and the bank shall fail to honor the Letter of Credit and pay the
proceeds thereof to Landlord for any reason whatsoever and Tenant shall fail to
deliver to Landlord immediately available funds within twenty-four (24) hours
after notice of such event;

(9) if this Lease is assigned (or all or
substantially all of the Premises are subleased) pursuant to clause (iii) of
Section G of Article 12 hereof, and Tenant shall no longer (i) control, (ii) be
under common control with, or (iii) be under the control of, PaineWebber
Incorporated (or any permitted successor hereunder by merger, consolidation or
purchase), as provided therein; or

(10) if Tenant shall default in the observance or
performance of any other term, covenant or condition of this Lease on Tenant's
part to be observed or performed and Tenant shall fail to remedy such default
within thirty (30) days after notice by Landlord to Tenant of such default, or
if such default is of such a nature that it cannot be completely remedied
within said period of thirty (30) days, if Tenant shall not commence within
said period of thirty (30) days and shall not thereafter diligently prosecute
to completion, all steps necessary to remedy such default.

B. (1) If an Event of Default (i) described in Sections
A(5), (6) or (7) hereof shall occur, or (ii) described in Sections A(2), (3),
(4), (8), (9) or (10) shall occur and Landlord, at any time thereafter, at its
option gives written notice to Tenant stating that this Lease and the Term
shall expire and terminate on the date specified in such notice, which date
shall not be less than ten (10) days after the giving of such notice, and if,
on the date specified in such notice, Tenant shall have failed to cure the
default which was the basis for the Event of Default, then this Lease and the
Term and all rights of Tenant under this Lease shall expire and terminate as
if the date on which the Event of Default described in clause (i) above
occurred or the date specified in the notice given pursuant to clause (ii)
above, as the case may be, were the date herein definitely fixed for the
expiration of the Term and Tenant immediately shall quit and surrender the
Premises. Anything contained herein to the contrary notwithstanding, if such
termination shall be stayed by order of any court having juris-

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diction over any proceeding described in Sections A(5) or (7) hereof, or by
federal or state statute, then, following the expiration of any such stay, or
if the trustee appointed in any such proceeding, Tenant or Tenant as
debtor-in-possession shall fail to assume Tenant's obligations under this Lease
within the period prescribed therefor by law or within one hundred twenty (120)
days after entry of the order for relief or as may be allowed by the court, or
if said trustee, Tenant or Tenant as debtor-in-possession shall fail to provide
adequate protection of Landlord's right, title and interest in and to the
Premises or adequate assurance of the complete and continuous future
performance of Tenant's obligations under this Lease as provided in Section
F(2) of Article 12, Landlord, to the extent permitted by law or by leave of the
court having jurisdiction over such proceeding, shall have the right, at its
election, to terminate this Lease on five (5) days' notice to Tenant, Tenant as
debtor-in-possession or said trustee and upon the expiration of said five (5)
day period this Lease shall cease and expire as aforesaid and Tenant, Tenant as
debtor-in-possession or said trustee shall immediately quit and surrender the
Premises as aforesaid.

(2) If an Event of Default described in Section A(1) hereof
shall occur, or this Lease shall be terminated as provided in Section B(1)
hereof, Landlord, without notice, may re-enter and repossess the Premises using
such force for that purpose as may be necessary without being liable to
indictment, prosecution or damages therefor and may dispossess Tenant by
summary proceedings or otherwise.

C. If, at any time, (i) Tenant shall comprise two (2) or more
persons, or (ii) Tenant's obligations under this Lease shall have been
guaranteed by any person other than Tenant, or (iii) Tenant's interest in this
Lease shall have been assigned, the word "Tenant", as used in clauses (5) and
(7) of Section A of this Article 16, shall be deemed to mean any one or more of
the persons primarily or secondarily liable for Tenant's obligations under this
Lease. Any monies received by Landlord from or on behalf of Tenant during the
pendency of any proceeding of the types referred to in said clauses (5) and (7)
shall be deemed paid as compensation for the use and occupation of the Premises
and the acceptance of any such compensation by Landlord shall not be deemed an
acceptance of rent or a waiver on the part of Landlord of any rights under
Section B. Upon the occurrence of an Event of Default referred to in Sections
B(5), (6) and (7) hereof, Landlord shall have the further right to remove any
signs on the Building bearing Tenant's name.

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17. REMEDIES AND DAMAGES. A. (1) If there shall occur any
Event of Default, and this Lease and the Term shall expire and come to an end
as provided in Article 16 hereof:

(a) Tenant shall quit and peacefully surrender the
Premises to Landlord, and Landlord and its agents may immediately, or at any
time after such default or after the date upon which this Lease and the Term
shall expire and come to an end, re-enter the Premises or any part thereof,
without notice, either by summary proceedings, or by any other applicable
action or proceeding, or by force or otherwise (without being liable to
indictment, prosecution or damages therefor), and may repossess the Premises
and dispossess Tenant and any other persons from the Premises and remove any
and all of their property and effects from the Premises; and

(b) Landlord, at Landlord's option, may relet the
whole or any part or parts of the Premises from time to time, either in the
name of Landlord or otherwise, to such tenant or tenants, for such term or
terms ending before, on or after the Expiration Date, at such rental or rentals
and upon such other conditions, which may include concessions and free rent
periods, as Landlord, in its sole discretion, may determine; Landlord shall
have no obligation to relet the Premises or any part thereof and shall in no
event be liable for refusal or failure to relet the Premises or any part
thereof, or, in the event of any such reletting, for refusal or failure to
collect any rent due upon any such reletting, and no such refusal or failure
shall operate to relieve Tenant of any liability under this Lease or otherwise
affect any such liability; Landlord, at Landlord's option, may make such
repairs, replacements, alterations, additions, improvements, decorations and
other physical changes in and to the Premises as Landlord, in its sole
discretion, considers advisable or necessary in connection with any such
reletting or proposed reletting, without relieving Tenant of any liability
under this Lease or otherwise affecting any such liability.

(2) Tenant hereby waives the service of any notice
of intention to re-enter or to institute legal proceedings to that end which
may otherwise be required to be given under any present or future law. Tenant,
on its own behalf and on behalf of all persons claiming through or under
Tenant, including all creditors, does further hereby waive any and all rights
which Tenant and all such persons might otherwise have under any present or
future law to redeem the Premises, or to re-enter or repossess the Premises, or
to restore the operation of this Lease, after (a) Tenant shall

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have been dispossessed by a judgment or by warrant of any court or judge, or
(b) any re-entry by Landlord, or (c) any expiration or termination of this
Lease and the Term, whether such dispossess, re-entry, expiration or
termination shall be by operation of law or pursuant to the provisions of this
Lease. The words "re-enter", "re-entry" and "re-entered" as used in this Lease
shall not be deemed to be restricted to their technical legal meanings. In the
event or a breach of threatened breach by Tenant, or any persons claiming
through or under Tenant, of any term, covenant or condition of this Lease,
Landlord shall have the right to enjoin such breach and the right to invoke any
other remedy allowed by law or in equity as if re-entry, summary proceedings
and other special remedies were not provided in this Lease for such breach.
The right to invoke the remedies hereinbefore set forth are cumulative and
shall not preclude Landlord from invoking any other remedy allowed at law or in
equity.

B. (1) If this Lease and Term shall expire and come to an
end as provided in Article 16 hereof, or by or under any summary proceeding or
any other action or proceeding, or if Landlord shall re-enter the Premises as
provided in Section A of this Article 17, or by or under any summary proceeding
or any other action or proceeding, then, in any of said events:

(a) Tenant shall pay to Landlord all Rent,
additional rent and other charges payable under this Lease by Tenant to
Landlord to the date upon which this Lease and Term shall have expired and come
to an end or to the date of re-entry upon the Premises by Landlord, as the case
may be;

(b) Tenant also shall be liable for and shall pay to
Landlord, as damages, any deficiency (referred to as "Deficiency") between the
Rent for the period which otherwise would have constituted the unexpired
portion of the Term and the net amount, if any, of rents collected under any
reletting effected pursuant to the provisions of clause (1) of Section A of
this Article 17 for any part of such period (first deducting from the rents
collected under any such reletting all of Landlord's expenses in connection
with the termination of this Lease, Landlord's re-entry upon the Premises and
with such reletting including, but not limited to, all repossession costs,
brokerage commissions, legal expenses, attorneys' fees and disbursements,
alteration costs and other expenses of preparing the Premises for such
reletting); any such Deficiency shall be paid in monthly installments by Tenant
on the days specified in this Lease for payment of installments of Rent,
Landlord shall be entitled to

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recover from Tenant each monthly Deficiency as the same shall arise, and no
suit to collect the amount of the Deficiency for any month shall prejudice
Landlord's right to collect the Deficiency for any subsequent month by a
similar proceeding; and

(c) whether or not Landlord shall have collected any
monthly Deficiency as aforesaid, Landlord shall be entitled to recover from
Tenant, and Tenant shall pay to Landlord, on demand, in lieu of any further
Deficiency as and for liquidated and agreed final damages, a sum equal to the
amount by which the Rent for the period which otherwise would have constituted
the unexpired portion of the Term exceeds the then fair and reasonable rental
value of the Premises for the same period, both discounted to present worth at
the rate of six percent (6%) per annum less the aggregate amount of
Deficiencies theretofore collected by Landlord pursuant to the provisions of
clause (1) (b) of Section B of this Article 17 for the same period; if, before
presentation of proof of such liquidated damages to any court, commission or
tribunal, the Premises, or any part thereof, shall have been relet by Landlord
for the period which otherwise would have constituted the unexpired portion of
the Term, or any part thereof, the amount of rent reserved upon such reletting
shall be deemed, prima facie, to be the fair and reasonable rental value for
the part or the whole of the Premises so relet during the term of the
reletting.

(2) If the Premises, or any part thereof, shall be
relet together with other space in the Building, the rents collected or
reserved under any such reletting and the expenses of any such reletting shall
be equitably apportioned for the purposes of this Section B. Tenant shall in
no event be entitled to any rents collected or payable under any reletting,
whether or not such rents shall exceed the Rent reserved in this Lease. Solely
for the purposes of this Article 17, the term "Rent" as used in clause (1) of
Section B of this Article 17 shall mean the Rent in effect immediately prior to
the date upon which this Lease and the Term shall have expired and come to an
end, or the date of re-entry upon the Premises by Landlord, as the case may be,
adjusted to reflect any increase pursuant to the provisions of Article 27
hereof for the Comparison Year (as defined in said Article 27) immediately
preceding such event. Nothing contained in Article 16 hereof or this Article
17 shall be deemed to limit or preclude the recovery by Landlord from Tenant of
the maximum amount allowed to be obtained as damages by any statute or rule of
law, or of any sums or damages to which Landlord may be entitled in addition to
the damages set forth in clause (1) of Section B of this Article 17.

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18. FEES AND EXPENSES. A. If Tenant shall default under this Lease
beyond any applicable grace period hereunder or if Tenant shall do or permit to
be done any act or thing upon the Premises which would cause Landlord to be in
default under any Superior Lease or Mortgage (provided Landlord shall have
given Tenant notice thereof and a reasonable period to cure such default) or if
Tenant shall fail to comply with its obligations under this Lease and the
preservation of property or the safety of any tenant, occupant or other person
is threatened, Landlord may (1) perform the obligation for the account of
Tenant if the same arises out of any obligation owed for the payment of money
in connection with any obligation by Tenant to a third party, or (2) make any
expenditure or incur any obligation for the payment of money in connection any
obligation owed to Landlord, including, but not limited to reasonable
attorneys' fees and disbursements in instituting, prosecuting or defending any
action of proceeding, with interest thereon at the Applicable Rate, shall be
deemed to be additional rent hereunder and shall be paid by Tenant to Landlord
within five (5) Business Days of rendition of any bill or statement to Tenant
therefor.

B. If Tenant shall fail to pay any installment of Rent within
three (3) days after the date when such payment is due or any additional rent
within ten (10) days after the date when such payment is due, Tenant shall pay
to Landlord, in addition to such installment of Rent or such additional rent,
as the case may be, as a late charge and as additional rent, a sum equal to the
Applicable Rate, of the amount unpaid computed from the date such payment was
due to and including the date of payment.

19. NO REPRESENTATIONS BY LANDLORD. Landlord and Landlord's
agents have made no representations or promises with respect to the Building,
the Real Property or the Premises except as herein expressly set forth, and no
rights, easements or licenses are acquired by Tenant by implication or
otherwise except as expressly set forth herein. Tenant has accepted possession
of each portion of the Premises in the condition which it existed on the date
such portion of the Premises was delivered pursuant to the Original Lease. All
references in this Lease to the consent or approval of Landlord shall be deemed
to mean the written consent or approval of Landlord and no consent or approval
of Landlord shall be effective for any purpose unless such consent or approval
is set forth in a written instrument executed by Landlord. The taking
possession of the Premises by Tenant is conclusive evidence as against Tenant,
that, at the time such possession was so taken, the Premises and the Building
were in good and satisfactory condition.

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20. END OF TERM. Upon the expiration or other termination of
this Lease, Tenant shall quit and surrender to Landlord the Premises, vacant,
in good order and condition, ordinary wear and tear and damage for which Tenant
is not responsible under the terms of this Lease excepted, and Tenant shall
remove all of its property as may be required pursuant to Article 3 hereof;
this obligation shall survive the expiration or sooner termination of the Term.
If the last day of the Term or any renewal thereof falls on Saturday or Sunday,
this Lease shall expire on the business day immediately succeeding. Tenant
expressly waives, for itself and for any person claiming through or under
Tenant, any rights which Tenant or any such person may have under the
provisions of Section 2201 of the New York Civil Practice Law and Rules and of
any successor law of like import then in force in connection with any holdover
summary proceedings which Landlord may institute to enforce the foregoing
provisions of this Article 20.

21. QUIET ENJOYMENT. Upon Tenant paying the Rent and
additional rent and observing and performing all of the terms, covenants and
conditions on Tenant's part to be observed and performed, Landlord covenants
that Tenant may peaceably and quietly enjoy the Premises subject, nevertheless,
to the terms and conditions of this Lease.

22. DIRECTORY. The lobby contains a computerized directory
wherein the Building's tenants are listed, which is and shall remain
prominently located, with a capacity for up to one thousand fifty (1,050)
listings for Tenant. From time to time, but not more frequently than once
every three (3) months, Landlord shall reprogram the computerized directory to
reflect such changes in the listings therein as Tenant shall request, and
Tenant promptly after request shall pay to Landlord a reasonable reprogramming
charge for each reprogramming Tenant requests. If such computerized directory
shall at any time be replaced by a standard directory, Tenant shall be entitled
to Tenant's Share of the total listings available on such standard directory.

23. NO WAIVER. A. No act or thing done by Landlord or
Landlord's agents during the Term shall be deemed an acceptance of a surrender
of the Premises, and no agreement to accept such surrender shall be valid
unless in writing signed by Landlord. No employee of Landlord or of Landlord's
agents shall have any power to accept the keys of the Premises prior to the
termination of this Lease. The delivery of keys to any employee of Landlord or
of Landlord's agents shall not operate as a termination of this Lease or a
surrender of the Premises. In the event Tenant at any time

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desires to have Landlord sublet the Premises for Tenant's account, Landlord or
Landlord's agents are authorized to receive said keys for such purpose without
releasing Tenant from any of the obligations under this Lease, and Tenant
hereby relieves Landlord of any liability for loss of or damage to any of
Tenant's effects in connection with such subletting.

B. The failure of Landlord or Tenant to seek redress for
violation of, or to insist upon the strict performance of, any covenant or
condition of this Lease, or any of the Rules and Regulations set forth or
hereafter adopted by Landlord, shall not prevent a subsequent act, which would
have originally constituted a violation, from having all of the force and
effect of an original violation. The receipt by Landlord of Rent or additional
rent with knowledge of the breach of any covenant of this Lease shall not be
deemed a waiver of such breach. The failure of Landlord to enforce any of the
Rules and Regulations set forth, or hereafter adopted, against Tenant or any
other tenant in the Building shall not be deemed a waiver of any such Rules and
Regulations. No provision of this Lease shall be deemed to have been waived by
Landlord or Tenant, unless such waiver be in writing signed by Landlord or
Tenant, as the case may be. No payment by Tenant or receipt by Landlord of a
lesser amount than the monthly Rent and additional rent herein stipulated shall
be deemed to be other than on account of the earliest stipulated Rent and
additional rent, or as Landlord may elect to apply same, nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment as Rent or additional rent be deemed an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance of such Rent or additional rent or pursue any other
remedy in this Lease provided. This Lease contains the entire agreement
between the parties and all prior negotiations and agreements are merged in
this Lease. Any executory agreement hereafter made shall be ineffective to
change, modify, discharge or effect an abandonment of this Lease in whole or in
part unless such executory agreement is in writing and signed by the party
against whom enforcement of the change, modification, discharge or abandonment
is sought.

24. WAIVER OF TRIAL BY JURY. The respective parties hereto
shall and they hereby do waive trial by jury in any action, proceeding or
counterclaim brought by either of the parties hereto against the other (except
for personal injury) on any matters whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, Tenant's
use or occupancy of the Premises, or for

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the enforcement of any remedy under any statute, emergency or otherwise. If
Landlord commences any summary proceeding against Tenant, Tenant will not
interpose any counterclaim of whatever nature or description in any such
proceeding, and will not seek to consolidate such proceeding with any other
action which may have been or will be brought in any other court by Tenant.

25. INABILITY TO PERFORM. This Lease and the obligation of
Tenant to pay rent hereunder and the obligation of Landlord and Tenant to
perform all of the other covenants and agreements hereunder on the part of
Landlord or Tenant to be performed shall in no wise be affected, impaired or
excused because Landlord or Tenant is unable to fulfill any of its obligations
under this Lease expressly or impliedly to be performed by Landlord or Tenant
or because Landlord or Tenant is unable to make, or is delayed in making any
repairs, additions, alterations, improvements or decorations, if Landlord or
Tenant is prevented or delayed from so doing by reason of strikes or labor
troubles or by accident, adjustment of insurance or by any cause whatsoever
reasonably beyond Landlord's or Tenant's control, including but not limited to,
laws, governmental preemption in connection with a national emergency or by
reason of any Requirements of any Governmental Authority or by reason of any
Requirements of any Governmental Authority or by reason of the conditions of
supply and demand which have been or are affected by war or other emergency.

26. BILLS AND NOTICES. Except as otherwise expressly
provided in this Lease, any bills, statements, consents, notices, demands,
requests or other communications given or required to be given under this Lease
shall be in writing and shall be deemed sufficiently given or rendered if sent
by registered or certified mail (return receipt requested) addressed (1) to
Tenant (a) at Tenant's address set forth in this Lease, Attn: Facilities
Department, Vice President, (b) at 1200 Harbor Boulevard, Weehawken, New Jersey
07087, Attn: Rodger Parker, Senior Vice President, or (c) at any place where
Tenant or any agent or employee of Tenant may be found if mailed subsequent to
Tenant's vacating, deserting, abandoning or surrendering the Premises, and (d)
with a copy to Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New
York, New York 10022, Attn: Benjamin Needell, Esq., or (2) to Landlord (a) at
Landlord's address set forth in this Lease, Attn: Realty Operations, with a
copy to (b) Shea & Gould, 1251 Avenue of the Americas, New York, New York
10020, Attn: Administrative Partner, Real Estate Department, (c) Equitable Real
Estate Investment Management, Inc., 3414 Peachtree Road, N.E., Atlanta, Georgia
30326, Attn: Property Management Center, and (d) any

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Mortgagee which shall have requested same, by notice given in accordance with
the provisions of this Article 26 at the address designated by such Mortgagee,
or (3) to such other address(es) as either Landlord or Tenant may designate as
its new address(es) for such purpose by notice given to the other in accordance
with the provisions of this Article 26. Any such bill, statement, consent,
notice, demand, request or other communication shall be deemed to have been
rendered or given on the earlier of three (3) days after the date it shall have
been mailed as provided in this Article 26 or actual receipt thereof.

27. ESCALATION. A. In a determination of any increase or
decrease in the Rent under the provisions of this Article 27:

(1) "Assessed Valuation" shall mean the amount for
which the Real Property is assessed pursuant to applicable provisions of the
New York City Charter and of the Administrative Code of The City of New York
for the purpose of imposition of Taxes.

(2) "Base Operating Expenses" shall mean $16,225,000.

(3) "Landlord's Statement" shall mean an instrument
or instruments containing a comparison of any increase or decrease in the Rent
for the preceding Operating Year pursuant to the provisions of this Article 27.

(4) (a) "Operating Expenses" shall mean the
aggregate of those costs and expenses (and taxes, if any, thereon) paid or
incurred by or on behalf of Landlord (whether directly or through independent
contractors) in respect of the Operation of the Property which, in accordance
with the accounting practice used by Landlord (and which is in accordance with
sound management principles respecting the operation of non-institutional first
class office buildings in New York City) are properly chargeable to the
Operation of the Property, together with and including (without limitation):
the costs of fuel, gas, oil, steam, water, sewer rental, electricity (for the
Building Systems and common areas of public portions of the Real Property and
the Building and the areas thereof not available for occupancy), HVAC and other
utilities furnished to the Building and utility taxes, Taxes and the financial
expenses incurred in connection with the Operation of the Property such as
insurance premiums, attorneys' fees and disbursements (exclusive of any such
fees and disbursements incurred in applying for any abatement of Taxes) and
auditing and other professional fees and expenses,

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but specifically excluding, (i) franchise or income taxes imposed upon Landlord
(except as the same may be included in Taxes), (ii) mortgage interest and
amortization, (iii) leasing commissions, (iv) the cost of electrical energy
furnished directly to tenants of the Building to the space occupied by such
tenants, (v) the cost of tenant installations and decorations incurred in
connection with preparing space for a new tenant, (vi) ground rent, if any,
(vii) financing costs, (viii) salaries of personnel above the grade of building
manager and such building manager's supervisor, (ix) capital improvements
(except as hereinafter provided), (x) any expense for which Landlord is
otherwise compensated through the proceeds of insurance or is otherwise
compensated or has the right to be compensated by any tenant (including Tenant)
of the Building, and (xi) legal fees incurred in connection with the
negotiation of, or disputes arising out of, any space lease in the Building;
except, however, that if any capital improvement (except for any capital
improvement made by Landlord to convert the Building to "primary service" as
more particularly set forth in Article 13 of this Lease) is made and Landlord
reasonably expects such improvement to reduce Operating Expenses (as, for
example, a labor-saving improvement), then, with respect to the Operating Year
in which the improvement is made, the cost of such improvement shall be
included in Operating Expenses; provided however, to the extent the cost of
such improvement is required to be capitalized for Federal income tax purposes,
such costs shall be amortized over the same useful life as Landlord actually
establishes for income tax purposes for such improvement pursuant to the
Internal Revenue Code of 1954, as amended, and the annual amortization,
together with interest thereon at the then prime rate being charged by
Citibank, N.A. or its successor, of such improvement shall be deemed an
Operating Expense in each of the Operating Years during which such cost of the
improvement is amortized and Landlord's Statement with respect to the Operating
Year in which the improvement is made shall include the analysis utilized by
Landlord in connection with the decision to make such improvement. If Landlord
is not furnishing any particular work or service (the cost of which if
performed by Landlord would constitute an Operating Expense) to a tenant who
has undertaken to perform such work or service in lieu of the performance
thereof by Landlord, Operating Expenses shall be determined to be increased by
an amount equal to the lesser of (i) the additional Operating Expenses which
reasonably would have been incurred during such period by Landlord if it had at
its own expense furnished such work or services to such tenant and (ii) the
amount of any rent credit, abatement or offset granted to such tenant on
account of the nonperformance of such work or services by Landlord.

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(b) In determining the amount of Operating
Expenses for any Operating Year, if less than ninety-five percent (95%) of the
Building rentable area shall have been occupied by tenant(s) (including
Landlord) at any time during any such Operating Year, Operating Expenses shall
be determined for such Operating Year to be an amount equal to the like
expenses which would normally be expected to be incurred had such occupancy
been ninety-five percent (95%) throughout such Operating Year.

(c) If any capital improvement is made during any
Operating Year in compliance with any Requirements whether or not such
Requirement is valid or mandatory, then the cost of such improvement shall be
amortized over the same useful life as Landlord actually establishes for income
tax purposes for such improvement pursuant to the Internal Revenue Code of
1954, as amended, with interest at the then prime rate being charged by
Citibank (N.A.) or its successor, shall be deemed an Operating Expense in each
of the Operating Years during which the cost of the improvement is amortized.

(5) "Operating Year" shall mean the calendar year 1984
and each subsequent calendar year for any part or all of which there is an
increase or decrease in the Rent pursuant to Section B of this Article 27.

(6) "Taxes" shall mean the aggregate amount of real
estate taxes and any general or special assessments (exclusive of penalties and
interest thereon) imposed upon or with respect to the Real Property (including,
without limitation, (i) assessments made upon or with respect to any "air and
development rights" appurtenant to or affecting the Real Property, (ii) any
fee, tax or charge imposed by any Governmental Authority for any vaults, vault
space or other space within or outside the boundaries of the Real Property, and
(iii) any assessments levied after the date of the original Lease for public
benefits to the Real Property or the Building (excluding an amount equal to the
assessments payable in whole or in part during or for the first Tax Year, which
assessments, if payable in installments, shall be deemed payable in the maximum
number of permissible installments) in the manner in which such taxes and
assessments are imposed); provided, that if because of any change in the
taxation of real estate, any other tax or assessment however denominated
(including, without limitation, any franchise, income, profit, sales, use,
occupancy, gross receipts or rental tax) is imposed upon Landlord or the owner
of the Real Property or the Building, or the occupancy, rents or income
therefrom, in substitution for or in addition to, any of the foregoing Taxes,
such other tax or assessment

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shall be deemed part of Taxes computed as if Landlord's sole asset were the
Real Property. With respect to any Tax Year, all expenses, including
attorneys' fees and disbursements, experts' and other witnesses' fees, incurred
in contesting the validity or amount of any Taxes or in obtaining a refund of
Taxes shall be considered as part of the Taxes for such Tax Year. Anything
contained herein to the contrary notwithstanding, Taxes shall not be deemed to
include (i) any taxes on Landlord's income, (ii) franchise taxes, (iii) estate
or inheritance taxes or (iv) any similar taxes imposed on Landlord, unless such
taxes are levied, assessed or imposed in lieu of or as a substitute for the
whole or any part of the taxes, assessments, levies, impositions which now
constitute Taxes. In determining the amount of Taxes for any Operating Year
(or for the partial calendar years in which the Term shall commence or expire),
Taxes payable in such Operating Year shall be apportioned for that portion of
the Tax Year occurring within the Operating Year.

B. (a) If the Operating Expenses for any Operating
Year (any part or all of which falls within the Term) shall be greater than the
Base Operating Expenses, then the Rent for such Operating Year and continuing
thereafter until a new Landlord's Statement is rendered to Tenant, shall be
increased (or decreased, as the case may be, if the Operating Expenses for such
Year shall be less than those for the preceding Operating Year) by Tenant's
Share of such increase (or decrease). Tenant's Share of operating Expenses
shall be adjusted to account for any modification(s) to Tenant's Share during
any Operating Year.

(b) (i) Anything contained in this Article
27 to the contrary notwithstanding, Tenant, until September 1, 1989, shall be
entitled to a credit against Tenant's Share of increases in Operating Expenses
due to an increase in Taxes directly attributable to any sale of the Real
Property prior to September 1, 1989 in an aggregate amount (the "Tax Credit")
equal to (x) $1,000,000 less (y) $200,000 (or a pro rata portion thereof) for
each year (or a pro rata portion thereof) which shall have elapsed from
September 1, 1984 to the commencement of the first full Tax Year subsequent to
the date of such sale. To the extent that Tenant's Share of increases in
Operating Expenses due to any aggregate increase in Taxes directly attributable
to any sale of the Real Property prior to September 1, 1989 shall be less than
the Tax Credit, Tenant shall not be entitled to any credit for an amount in
excess of Tenant's Share of such increase; to the extent Tenant's Share of any
such aggregate increase shall be more than the Tax Credit, Tenant shall not be
entitled to any additional credit; and in no event shall

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Tenant be entitled to any credit against Tenant's Share of Operating Expenses
subsequent to September 1, 1989.

(ii) The amount of any increase in
Taxes directly attributable to any sale of the Real Property prior to September
1, 1989 shall be calculated taking into account whether or not a "transitional"
Assessed Valuation shall have been used in calculating Taxes in the Tax Year
prior to such sale, taking into account whether or not the, Real Property shall
have been reassessed subsequent to the sale using a "transitional" Assessed
Valuation, taking into account any reassessment of the Real Property subsequent
to any Tax Year subsequent to the date of such sale and giving due
consideration to the amount by which Taxes would have increased even if the
sale had not taken place based upon the historic rate of increase of the
Assessed Valuation during the five (5) Tax Years prior to the sale and any
stated policy of any Governmental Authority with respect to the reassessment of
real-property in general.

C. (1) At any time during or after the Term Landlord
may render to Tenant, either in accordance with the provisions of Article 26
hereof or by personal delivery at the Premises, Attn: Facilities Department,
Vice President, a Landlord's Statement or Statements, together with a copy of
the applicable tax bill, showing a comparison of the actual Operating Expenses
for an Operating Year with the Base Operating Expenses, and the amount of the
increase or decrease in the Rent resulting from such comparison. Landlord's
failure to render a Landlord's Statement during or with respect to any
Operating Year shall not prejudice Landlord's right to render a Landlord's
Statement during or with respect to any subsequent operating Year, and shall
not eliminate or reduce Tenant's obligation to pay increases in the Rent
pursuant to this Article 27 for such Operating Year. If Landlord shall fail to
furnish Tenant a Landlord's Statement for any operating Year and such failure
shall continue for six (6) months after the last day of such Operating Year,
Tenant may suspend payment of the monthly payments required under Section
C(2)(a) or Section C(3) of this Article 27, until such time as a Landlord's
Statement shall be delivered for the Operating Year in question, but Tenant
shall nevertheless remain liable for the payments of Rent based upon increases
in Operating Expenses during such Operating Year which payments shall be paid
to Landlord in accordance with the provisions of Section C(2)(b) hereof upon
delivery of such Statement. Notwithstanding the foregoing, Landlord shall be
deemed to have waived its right to collect the increases in Rent pursuant to
this Article 27 for an Operating Year, if Landlord shall have failed to deliver
any Landlord's Statement by the

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third (3rd) anniversary of the expiration of the operating Year in question.

(2) (a) On the first day of the month following the
furnishing to Tenant of a Landlord's Statement, Tenant, in case of an increase,
shall pay to Landlord, as additional rent, a sum equal to 1/12th of such
increase in the Rent multiplied by the number of months (and any fraction
thereof) of the Term then elapsed since the commencement of such Operating Year
for which the increase is applicable; and in case of a decrease, shall be
entitled to a credit against the next monthly installment or installments of
the Rent of a sum equal to 1/12th of such decrease multiplied by the number of
months (and any fraction thereof) of the Term then elapsed since the
commencement of the Operating Year for which the decrease is applicable; and
thereafter, commencing with the then current monthly installment of Rent and
continuing monthly thereafter until rendition of the next succeeding Landlord's
Statement, the monthly installments of Rent shall be increased or decreased, as
the case may be, by an amount equal to 1/12th of such increase or decrease.
Any increase in the Rent shall be collectible by Landlord in the same manner as
Rent. Landlord shall deliver a landlord's Statement at least fifteen (15) days
prior to the date on which any payment hereunder shall be required to be made.

(b) Following each Landlord's Statement, a
reconciliation shall be made as follows: Tenant shall be debited with any
increase in the Rent shown on such Landlord's Statement and credited with (i)
the aggregate, if any, paid by Tenant on account in accordance with the
provisions of subsection C(2)(a) for the Operating Year in question, and (ii)
any decrease in the Rent shown on such Landlord's Statement; Tenant shall pay
any debit balance to Landlord within fifteen (15) days next following rendition
by Landlord, either in accordance with the provisions of Article 26 hereof or
by personal delivery to the Premises, of an invoice for such debit balance; any
credit balance shall be applied against the next accruing monthly installment
of Rent. Any amount owing to Tenant subsequent to the Term shall be paid to
Tenant within ten (10) Business Days after a final determination has been made
of the amount due to Tenant.

(3) (a) As used in this subsection C(3), (i)
"Tentative Monthly Escalation Charge" shall mean a sum equal to 1/12th of
Tenant's Share multiplied by the difference between (x) the Base Operating
Expenses and (y) Landlord's is reasonable estimate of Operating Expenses for
such Current Year, and (ii) "Current Year" shall mean the Operating Year

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in which a demand is made upon Tenant for payment of a Tentative Monthly
Escalation Charge.

(b) At any one time in any Operating
Year (any part or all of which falls within the Term), Landlord, at its option,
in lieu of the payments required under subsection C(2)(a) of this Article 27,
may demand and collect from Tenant, as additional rent, a sum equal to the
Tentative Monthly Escalation Charge multiplied by the number of months in said
Operating Year preceding the demand and Tenant shall pay said amount to
Landlord within ten (10) Business Days after said demand, and thereafter,
commencing with the month in which the demand is made and continuing thereafter
for each month remaining in said Operating Year, the monthly installments of
Rent shall be deemed increased by the Tentative Monthly Escalation Charge. Any
amount due to Landlord under this subsection C(3) may be included by Landlord
in any Landlord's Statement rendered to Tenant as provided in subsection C(1)
of this Article 27.

(c) After the end of the Current Year
and at any time that Landlord renders a Landlord's Statement or Statements to
Tenant as provided in subsection C(1) of this Article 27 with respect to the
comparisons of the Operating Expenses for said Current Year (i.e., an Operating
Year), with the Base Operating Expenses, the amounts, if any, collected by
Landlord from Tenant under this subsection C(3) on account of the Tentative
Monthly Escalation Charge shall be adjusted, and, if the amount so collected is
less than or exceeds the amount actually due under said Landlord's
Statement for the Operating Year, a reconciliation shall be made in the same
manner as provided in subsection C(2)(b) of this Article 27, except that if the
aggregate Tentative Monthly Escalation Charges for any Operating Year shall
have exceeded the actual increase in Operating Expenses for such Operating Year
by more than fifteen percent (15%), the amount of the overpayment together with
interest at the then prime rate charged by Citibank, N.A. or its successor
shall be applied against the next accruing monthly installments of Rent.

D. (1) In the event that, after a Landlord's
Statement has been sent to Tenant, an Assessed Valuation which had been
utilized in computing the Taxes for an Operating Year is reduced (as a result
of settlement, final determination of legal proceedings or otherwise), and as a
result thereof a refund of Taxes is actually received by or on behalf of
Landlord, then, promptly after receipt of such refund, Landlord shall send
Tenant a statement adjusting the Taxes for such Operating Year (taking into
account the expenses mentioned in the third to last sentence of Section

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A(6) of this Article 27) and setting forth Tenant's Share of such refund and
Tenant shall be entitled to receive such Tenant's Share by way of a credit
against the Rent next becoming due after the sending of such Statement;
provided, however, that Tenant's Share of such refund shall be limited to the
amount, if any, which Tenant had theretofore paid to Landlord as increased Rent
as a result of an increase in Operating Expenses for such Operating Year on the
basis of the Assessed Valuation before it had been reduced, taking into account
any Tax Credit received by Tenant. Any payment owing to Tenant subsequent to
the Term shall be paid to Tenant within ten (10) Business Days after a final
determination has been made of the amount due to Tenant.

(2) Any Landlord's Statement sent to Tenant shall be
conclusively binding upon Tenant unless, within ninety (90) days after such
statement is sent, Tenant shall send a written notice to Landlord objecting to
such statement and specifying the respects in which such statement is claimed
to be incorrect (provided that such Landlord's Statement is prepared in detail
enough to permit Tenant to specify the respects in which such Statement is
incorrect). If such notice is sent, Tenant may examine Landlord's books and
records to determine the accuracy of Landlord's Statement. Tenant recognizes
the confidential nature of such books and records and agrees to maintain the
information obtained from such examination in strict confidence. If after such
examination, Tenant still disputes such Landlord's Statement, either party may
refer the decision of the issues raised to a reputable independent firm of
certified public accountants not engaged on a regular basis by either Landlord
or Tenant, selected by Landlord and approved by Tenant, which approval shall
not be unreasonably withheld or delayed as long as such certified public
accounting firm is one of the so-called "big-eight" public accounting firms,
and the decision of such accountants shall be conclusively binding upon the
parties. The fees and expenses involved in such decision shall be borne by the
unsuccessful party (and if both parties are partially unsuccessful, the
accountants shall apportion the fees and expenses between the parties based on
the degree of success of each party). Notwithstanding the giving of such
notice by Tenant, and pending the resolution of any such dispute, Tenant shall
pay to Landlord when due the amount shown on any such Landlord's Statement, as
provided in section C hereof.

(3) Anything in this Article 27 to the contrary
notwithstanding, under no circumstances shall the rent payable under this Lease
be less than the Rent set forth in Article 1 hereof (as adjusted pursuant to
Articles 40 and 41

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hereof) nor shall any decreases in the Rent pursuant to this Article 27 result
in a decrease in Base Operating Expenses.

(4) The expiration or termination of this Lease during
any Operating Year or any calendar year for any part or all of which there is
an increase or decrease in the Rent under this Article shall not affect the
rights or obligations of the parties hereto respecting such increase or
decrease and any Landlord's Statement or comparative statement relating to such
increase or decrease may, on a pro rata basis, be sent to Tenant subsequent to,
and all such rights and obligations shall survive, any such expiration or
termination. Any payments due under such Landlord's Statement shall be payable
within fifteen (15) days after such Statement is sent to Tenant.

28. SERVICES. A. Landlord shall provide
elevator facilities on Business Days from 8:00 a.m. to 6:00 p.m. and have an
elevator subject to call at all other times. Tenant shall have the exclusive
use of the elevator which operates only between the 38th and 39th floors of the
Building. Landlord shall maintain and repair such elevator, and Tenant shall
pay to Landlord as additional rent, any charge for such maintenance and repair
within fifteen (15) days of rendition of a bill therefor, to the extent such
charge would be includable in Operating Expenses pursuant to Article 27 hereof
if such maintenance or repair had not been performed exclusively for the
benefit of Tenant. In addition, Tenant, at Tenant's sole cost and expense,
shall comply with all requirements of law, the New York Board of Fire
Underwriters or any similar body applicable to such elevator to the extent such
requirements would be includable as Requirements if they were applicable to the
Premises.

B. (i) Landlord, at Landlord's expense (but subject
to recoupment pursuant to Article 27 hereof), shall furnish and distribute to
the Premises (other than the Subconcourse Space, the 39th Floor Storage Space,
the Concourse Space, the Bank Vault Space and the 39th Floor Space) through the
HVAC System, when required for the comfortable occupancy of the Premises, HVAC
meeting the specifications set forth on Schedule B annexed hereto and for the
Subconcourse Space, the 39th Floor Storage Space, the Concourse Space, the Bank
Vault Space and the 39th Floor Space, HVAC meeting the specifications set forth
on Schedule B-1 annexed hereto, on a year round basis from 8:00 a.m. to 6:00
p.m. on Business Days and shall maintain such HVAC System in good working order
and keep the same in good repair. In addition, Landlord is currently providing
building chilled water to the fan-coil units installed by

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Tenant in the trading areas of the Premises located on the ninth (9th) through
thirteenth (13th) floors of the Building, through the HVAC System from 8:00
a.m. to 6:00 p.m. on Business Days. Additional chilled water shall be supplied
to Tenant, at Tenant's request, in such amounts as Landlord (taking into
consideration the potential needs of present and future tenants of the Building
and of the Building itself) determines is practicable. Tenant shall pay
Landlord, as additional rent, for the supply of chilled water within ten (10)
business days after rendition to Tenant of a bill therefor, an annual charge of
$1,400 per ton of chilled water provided to Tenant in accordance herewith.
Such annual charge shall be increased on March 1, 1990 and every 5th
anniversary of such date to an amount equal to $1,400 per ton multiplied by the
percentage difference between the Operating Expenses for the Operating Year in
which such anniversary falls and the Base Operating Expenses.

(ii) Should Tenant, upon compliance with all of
the provisions of this Lease applicable thereto (including without limitation
Articles 3 and 13 hereof), install supplementary HVAC Systems to service the
Premises (other than the Subconcourse Space, the 39th Floor Storage Space, the
Concourse Space, the Bank Vault Space and the 39th Floor Space), Landlord shall
furnish to the floor(s) of the Premises serviced by any such Systems, by means
of the existing condenser water conduits and risers, condenser water to service
such Systems. Condenser water shall be supplied in such amounts as Landlord
(taking into consideration the potential needs of present and future tenants of
the Building and of the Building itself) determines is practicable. Any
installations required to connect Tenant's supplementary HVAC Systems to the
condenser water conduits and risers shall be made by Landlord at Tenant's
expense and shall be chargeable and paid to Landlord as additional rent
together with a one time "tap-in" fee equal to $1,000 per ton of cooling
requirements of the supplemental HVAC Systems so connected within ten (10)
Business Days after the rendition to Tenant of a bill therefor. Landlord shall
not be liable to Tenant for any failure or defect in the supply or character of
condenser water supplied to Tenant. Tenant shall pay Landlord, as additional
rent, for the supply of condenser water within ten (10) Business Days after
rendition to Tenant of a bill therefor, an annual charge of $400 per ton of
cooling requirements of the supplemental HVAC Systems so connected. Such
annual charge shall be increased on (i) March 1, 1990, and (ii) on every fifth
(5th) anniversary thereof to an amount equal to $400 per ton multiplied by the
percentage difference between the Operating Expenses for the

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Operating Year in which such anniversary falls and the Base Operating Expenses.

C. The Rent does not reflect or include any charge to
Tenant for the furnishing or distributing of any necessary elevator facilities,
HVAC or chilled water to the Premises during periods ("Overtime Periods") other
than the hours and days set forth above. Accordingly, if Landlord shall
furnish any such elevator facilities (other than the elevator subject to call),
HVAC or chilled water to the Premises at the request of Tenant during Overtime
Periods, Tenant shall pay Landlord additional rent for such services at
Landlord's cost thereof plus an amount equal to ten percent (10%) of such cost
as Landlord's administrative charge for supervision and overhead. Landlord
shall not be required to furnish any such services during any Overtime Periods
unless Landlord has received advance notice (which notice may be oral and shall
otherwise be exempt from the notice provisions set forth in Article 26 hereof)
from Tenant requesting such services prior to 2:00 p.m. of the day upon which
such services are requested, or by 2:00 p.m. of the last preceding Business Day
if such Overtime Periods are to occur on a day other than a Business Day. In
no event shall Landlord be required to furnish any such services to the
Subconcourse Space, the 39th Floor Storage Space, the Concourse Space, the Bank
Vault Space or the 39th Floor Space during any Overtime Period. If Tenant
fails to give Landlord such advance notice, then, failure by Landlord to
furnish or distribute any such services during such Periods shall not
constitute an actual or constructive eviction, in whole or in part, or entitle
Tenant to any abatement or diminution of rent, or relieve Tenant from any of
its obligations under this Lease, or impose any liability upon Landlord or its
agents by reason of inconvenience or annoyance to Tenant, or injury to or
interruption of Tenant's business or otherwise. If more than one tenant
utilizing the same system as Tenant requests the same Overtime Periods for the
same services as Tenant, the charge to Tenant shall be adjusted pro rata.

D. Provided Tenant shall keep the Premises in order,
Landlord, at Landlord's expense, shall cause the Premises, excluding the
Subconcourse Space, the 39th Floor Storage Space, the Concourse Space, the Bank
Vault Space and any portions of the Premises used for the storage, preparation,
service or consumption of food or beverages, to be cleaned substantially in
accordance with the standards set forth in Schedule C annexed hereto. If any
additional cleaning of the Premises is required or desired to be done by
Tenant, it shall be done at Tenant's sole expense, in a manner satisfactory to
Landlord and no one other than persons

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approved by Landlord shall be permitted to enter the Premises or the Building
for such purpose. Tenant shall pay to Landlord the cost of removal of any of
Tenant's refuse and rubbish from the Premises and the Building to the extent
that the same exceeds the refuse and rubbish usually attendant upon the use of
such Premises as offices. Bills for the same shall be rendered by Landlord to
Tenant at such time as Landlord may elect and shall be due and payable when
rendered and the amount of such bills shall be deemed to be, and shall be paid
as, additional rent. Tenant shall, however, have the option of independently
contracting for the removal of such refuse and rubbish in the event that Tenant
does not wish to have same done by employees or contractors of Landlord. Under
such circumstances, however, the removal of such refuse and rubbish by others
shall be subject to such Rules and Regulations as, in the judgment of Landlord,
are necessary for the proper operation of the Building and shall be performed
by contractors approved by Landlord. Tenant, at Tenant's expense, shall cause
the Subconcourse Space, the Concourse Space, the Bank Vault Space and the 39th
Floor Space and any other portions of the Premises used for the storage,
preparation, service or consumption of food or beverages to be cleaned daily in
a manner satisfactory to Landlord, and to be exterminated against infestation
by vermin, rodents or roaches regularly and, in addition, whenever there shall
be evidence of any infestation. Tenant shall not permit any person to enter
the Premises or the Building for the purpose of providing such extermination
services, other than persons first approved by Landlord, such approval not to
be withheld unreasonably.

E. If there shall be installed in the Building a
"sprinkler system," and if such system or any of its appliances shall be
damaged or injured or not in proper working order by reason of any act or
omission of Tenant, Tenant's agents, servants, employees, licensees or
visitors, Tenant shall forthwith restore the same to good working condition at
its own expense; and if the New York Board of Fire Underwriters or the New York
Fire Insurance Rating Organization or any Governmental Authority shall require
or recommend that any changes, modifications, alterations or additional
sprinkler heads or other equipment be made or supplied by reason of Tenant's
business, or the location of the partitions, trade fixtures, or other contents
of the Premises, Landlord shall, at Tenant's reasonable expense, promptly make
and supply such changes, modifications, alterations, additional sprinkler heads
or other equipment.

F. Landlord may install a water meter, at Tenant's sole
cost and expense, to measure Tenant's water

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consumption in the 39th Floor Space. In addition, if Tenant requires, uses or
consumes water in any other portion of the Premises for any purpose in addition
to ordinary drinking, cleaning or lavatory purposes, Landlord may install a
water meter and thereby measure Tenant's water consumption for all such
additional purposes. Tenant shall pay to Landlord as additional rent the cost
of any meters and the installation thereof within fifteen (15) days of
rendition of a bill therefor. Tenant shall (1) keep any meters and equipment,
installed by Landlord hereunder in good working order and repair at Tenant's
own cost and expense; (2) pay for water consumed, as shown on said meters as
and when bills are rendered, and on default in making such payment Landlord may
pay such charges and collect the same from Tenant; (3) pay the sewer rent,
charge or any other tax, rent, levy or charge which now or hereafter is
assessed, imposed or shall become a lien upon the Premises or the realty of
which they are a part pursuant to any Requirement made or issued in connection
with any such metered use, consumption, maintenance or supply of water, water
system, or sewage or sewage connection or system; and (4) Tenant shall pay to
Landlord as additional rent for such service an amount equal to five percent
(5%) of the cost of water consumed as Landlord's administrative charge for
overhead and supervision. The bill rendered by Landlord for the above shall be
based upon Tenant's consumption and shall be payable by Tenant as additional
rent within fifteen (15) days of rendition.

G. Landlord reserves the right to stop the service of
the HVAC System or the other Building Systems or facilities in the Building
when necessary, by reason of accident or emergency, or for repairs, additions,
alterations, replacements or improvements in the judgment of Landlord desirable
or necessary to be made, until said repairs, alterations, replacements or
improvements shall have been completed. Landlord shall have no responsibility
or liability for interruption, curtailment or failure to supply HVAC or the
services provided by other Building Systems or facilities when prevented by
exercising its right to stop service or by strikes, labor troubles or
accidents, inability to obtain labor or materials, acts of God, enemy action,
civil commotion, fire, unavoidable casualty or other similar causes beyond
Landlord's control, or by failure of independent contractors to perform or by
any Requirement or by failure of suitable fuel supply, or inability after
exercise of reasonable diligence to obtain suitable fuel or by reason of
governmental preemption in connection with a national emergency or by reason of
the conditions of supply and demand which have been or are affected by war or
other emergency or for any other cause reasonably beyond Landlord's control.
The

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exercise of such right or such failure by Landlord shall not constitute an
actual or constructive eviction, in whole or in part, or entitle Tenant to any
compensation or to any abatement or diminution of rent, or relieve Tenant from
any of its obligations under this Lease, or impose any liability upon Landlord
or its agents by reason of inconvenience or annoyance to Tenant, or injury to
or interruption of Tenant's business, or otherwise. Upon cessation of the
condition which prevented Landlord from supplying HVAC or the services provided
by the other Building Systems or facilities, Landlord shall promptly commence
and diligently pursue the restoration of such services.

29. PARTNERSHIP TENANT. If Tenant is a partnership (or
is comprised of two (2) or more persons, individually or as co-partners of a
partnership) or if Tenant's interest in this Lease shall be assigned to a
partnership (or to two (2) or more persons, individually or as co-partners of a
partnership) pursuant to Article 12 (any such partnership and such persons are
referred to in this Article 29 as "Partnership Tenant"), the following
provisions shall apply to such Partnership Tenant: (a) the liability of each of
the parties comprising Partnership Tenant shall be joint and several, and (b)
each of the parties comprising Partnership Tenant hereby consents in advance
to, and agrees to be bound by (x) any written instrument which may hereafter be
executed by Partnership Tenant or any successor partnership, changing,
modifying, extending or discharging this Lease, in whole or in part, or
surrendering all or any part of the Premises to Landlord, and (y) any notices,
demands, requests or other communications which may hereafter be given by
Partnership Tenant or by any of the parties comprising Partnership Tenant, and
(c) any bills, statements, notices, demands, requests or other communications
given or rendered to Partnership Tenant or to any of such parties shall be
binding upon Partnership Tenant and all such parties, and (d) if Partnership
Tenant shall admit new partners, all of such new partners shall, by their
admission to Partnership Tenant, be deemed to have assumed joint and several
liability for the performance of all of the terms, covenants and conditions of
this Lease on Tenant's part to be observed and performed, and (e) Partnership
Tenant shall give prompt notice to Landlord of the admission of any such new
partners, and upon demand of Landlord, shall cause each such new partner to
execute and deliver to Landlord an agreement in form satisfactory to Landlord,
wherein each such new partner shall assume joint and several liability for the
performance of all the terms, covenants and conditions of this Lease on
Tenant's part to be observed and performed (but neither Landlord's failure to
request any such agreement nor the failure of any such new

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partner to execute or deliver any such agreement to Landlord shall vitiate the
provisions of clause (d) of this Article 29).

30. VAULT SPACE. Notwithstanding anything contained in
this Lease or indicated on any sketch, blueprint or plan, any vaults, vault
space or other space outside the boundaries of the Real Property are not
included in the Premises. Landlord makes no representation as to the location
of the boundaries of the Real Property. All vaults and vault space and all
other space outside the boundaries of the Real Property which Tenant may be
permitted to use or occupy are to be used or occupied under a revocable
license, and if any such license shall be revoked, or if the amount of such
space shall be diminished or required by any Governmental Authority or by any
public utility company, such revocation, diminution or requisition shall not
constitute an actual or constructive eviction, in whole or in part, or entitle
Tenant to any abatement or diminution of rent, or relieve Tenant from any of
its obligations under this Lease, or impose any liability upon Landlord. Any
fee, tax or charge imposed by any governmental authority for any such vaults,
vault space or other space occupied by Tenant shall be paid by Tenant.

31. SECURITY. If at any time during the Term, Tenant's
net worth shall be less than Twenty-five Million Dollars ($25,000,000), as
determined in accordance with generally accepted accounting principles
consistently applied (provided that all subordinated debt shall be treated as a
credit and not a debit in any such calculation), Tenant shall deposit with
Landlord an amount equal to such deficiency (rounded to the nearest $50,000),
or at Tenant's option, a "clean," unconditional, irrevocable letter of credit
(the "Letter of Credit") in a like amount, issued by and drawn on a bank which
is a member of the New York Clearing House for the account of Landlord, for a
term of not less than one (1) year, as security for the faithful performance
and observance by Tenant of the terms, conditions and provisions of this Lease,
including without limitation the surrender of possession of the Premises to
Landlord as herein provided. If Tenant defaults in respect of any of the
terms, provisions and conditions of this Lease, including, but not limited to,
the payment of Rent and additional rent, Landlord may apply or retain the whole
or any part of the security so deposited, or present the Letter of Credit for
payment and apply or retain the whole or any part of the proceeds thereof, as
the case may be, to the extent required for the payment of any Rent and
additional rent or any other sum as to which Tenant is in default or for any
sum which Landlord may expend or may be required to expend by reason of
Tenant's default in respect

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of any of the terms, covenants and conditions of this Lease, including but not
limited to, any damages or deficiency in the reletting of the Premises, whether
such damages or deficiency accrue or accrues before or after summary
proceedings or other re- entry by Landlord. If Landlord applies or retains any
part of the proceeds of the Letter of Credit or the security so deposited, as
the case may be, Tenant, upon demand, shall deposit with Landlord the amount so
applied or retained so that Landlord shall have the full deposit on hand at all
times during the Term. If Tenant shall fully and faithfully comply with all of
the terms, provisions, covenants and conditions of this Lease, the Letter of
Credit or the security, as the case may be, shall be returned to Tenant after
the Expiration Date within five (5) Business Days after demand and after
delivery of possession of the entire Premises to Landlord. In the event of a
sale of the Real Property or the Building or leasing of the Building, Landlord
shall have the right to transfer the Letter of Credit or security to the vendee
or lessee and upon the acceptance thereof by such vendee or lessee, Landlord
shall be released by Tenant from all liability for the return of such Letter of
Credit or security, as the case may be, and Tenant shall cause the bank which
issued the Letter of Credit to issue an amendment to the Letter of Credit or
issue a new Letter of Credit naming the vendee or lessee as the beneficiary
thereunder and Tenant agrees to look solely to the new Landlord for the return
of the Letter of Credit or security, as the case may be; the provisions hereof
shall apply to every transfer or assignment made of the security to a new
Landlord. Tenant will not assign or encumber or attempt to assign or encumber
the monies deposited herein as security and neither Landlord nor its successors
or assigns shall be bound by any such assignment, encumbrance, attempted
assignment or attempted encumbrance. Tenant shall renew any Letter of Credit
from time to time, at least thirty (30) days prior to the expiration thereof,
and deliver to Landlord a new Letter of Credit, or an endorsement to the Letter
of Credit, and any other evidence required by Landlord that such renewal has
been made. If Tenant shall fail to renew the Letter of Credit as aforesaid,
Landlord may present the Letter of Credit for payment and retain the proceeds
thereof as security in lieu of the Letter of Credit. During the Term, Tenant
shall furnish to Landlord an audited annual financial statement of Tenant
within one hundred-twenty (120) days after the end of its fiscal Year and its
semi-annual financial statement, certified as correct by its chief financial
officer, within sixty (60) days after the end of the second quarter of Tenant's
fiscal year. The amount of the security required to be deposited with Landlord
pursuant to this Article 31 shall be

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adjusted based on the net worth of Tenant shown on such statements and
calculated in accordance herewith.

32. CAPTIONS. The captions are inserted only as a matter
of convenience and for reference and in no way define, limit or describe the
scope of this Lease nor the intent of any provision thereof.

33. BUILDING NAME. On the date hereof, Landlord and
Tenant acknowledge that the Building has been named "The PaineWebber Building";
provided, however, that in order to continue to have the Building named "The
PaineWebber Building," during the balance of the Term, PaineWebber Incorporated
must be the tenant hereunder and must occupy for the operation of its business
at least eighty percent (80%) of the Premises (which for the purposes of this
sentence shall not include any additional space demised pursuant to any
amendment hereto). In connection therewith, Tenant has been permitted, subject
to compliance with applicable Requirements and agreements to which Equitable is
a party as of the date of this Lease and subject to the approval of all
Government Authorities, including without limitation, the local community
board, to erect signs on the exterior of the Building, at the locations at
which such signs are presently located. As long as Tenant shall be entitled to
have the Building named "The PaineWebber Building" the name of no entity other
than Equitable shall appear on the Building.

34. PARTIES BOUND. The covenants, conditions and
agreements contained in this Lease shall bind and inure to the benefit of
Landlord and Tenant and their respective heirs, distributees, executors,
administrators, successors, and, except as otherwise provided in this Lease,
their assigns.

35. BROKER. Each party represents and warrants to the
other party that it has not dealt directly with any broker in connection with
this Lease or the Original Lease, and that insofar as such party knows no
broker negotiated this Lease or the Original Lease or is entitled to any
commission in connection therewith and the execution and delivery of this Lease
by such party shall be conclusive evidence that such party has relied upon the
foregoing representation and warranty. Each party shall indemnify and hold the
other party harmless from and against any and all claims for commission, fee or
other compensation by any person who shall claim to have dealt with the other
party in connection with this Lease or the Original Lease and for any and all
costs incurred by such party in connection with such claims, including, without
limitation, reasonable attorneys'

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fees and disbursements. The parties acknowledge that Tishman Speyer Properties
has acted as a consultant in connection with this Lease and the Original Lease
and Landlord shall pay Tishman Speyer Properties any fee or other compensation
to which Tishman Speyer Properties may be entitled for such services. This
provision shall survive the cancellation or expiration of this Lease.

36. INDEMNITY. A. Tenant shall not do or permit any act
or thing to be done upon the Premises which may subject Landlord to any
liability or responsibility for injury, damages to persons or property or to
any liability by reason of any violation of law or of any Requirement, but
shall exercise such control over the Premises as to fully protect Landlord
against any such liability. Tenant shall indemnify and save the Indemnitees
harmless from and against (a) all claims of whatever nature against the
Indemnitees arising from any act, omission or negligence of Tenant, its
contractors, licensees, agents, servants, employees, invitees or visitors, (b)
all claims against the Indemnitees arising from any accident, injury or damage
whatsoever caused to any person or to the property of any person and occurring
during the Term in or about the Premises or occurring during the Term in
connection with any art exhibited by Tenant in the lobby of the Building
pursuant to a letter agreement of even date herewith, (c) all claims against
the Indemnitees arising from any accident, injury or damage occurring outside
of the Premises but anywhere within or about the Real Property where such
accident, injury or damage results or is claimed to have resulted from an act,
omission or negligence of Tenant or Tenant's agents, employees, invitees or
visitors, and (d) any breach, violation or non-performance of any covenant,
condition or agreement in this Lease set forth and contained on the part of
Tenant to be fulfilled, kept, observed and performed. This indemnity and hold
harmless agreement shall include indemnity from and against any and all
liability, fines, suits, demands, costs and expenses of any kind or nature
(including, without limitation, attorneys' fees and disbursements) incurred in
or in connection with any such claim or proceeding brought thereon, and the
defense thereof, but shall be limited to the extent any insurance proceeds
collectible by Landlord under policies owned by Landlord or such injured party
with respect to such damage or injury are insufficient to satisfy same. Tenant
shall have no liability for any consequential damages suffered either by
Landlord or by any party claiming through Landlord.

B. Except as provided in Articles 4, 9, 10, 13, 28 and
37 hereof and otherwise as expressly provided herein, Landlord shall indemnify
and save Tenant, its shareholders,

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directors, officers, partners, employees and agents harmless from and against
all claims against Tenant arising from any direct damage to the Premises and
any bodily injury to the Tenant's employees, agents or invitees resulting from
the acts, omissions or negligence of Landlord, its licensees, servants,
employees or agents. This indemnity and hold harmless agreement shall include
indemnity from and against any and all liability, fines, suits, demands, costs
and expenses of any kind or nature (including, without limitation reasonable
attorneys' fees and disbursements) incurred in or in connection with any such
claim or proceeding brought thereon, but shall be limited to the extent any
insurance proceeds collectible by Tenant under policies owned by Tenant or such
injured party with respect to such damage or injury are insufficient to satisfy
same. Landlord shall have no liability for any consequential damages suffered
either by Tenant or by any party claiming through Tenant.

37. ADJACENT EXCAVATION-SHORING. If an excavation shall
be made upon land adjacent to the Premises, or shall be authorized to be made,
Tenant shall, upon reasonable advance notice, afford to the person causing or
authorized to cause such excavation, license to enter upon the Premises for the
purpose of doing such work as said person shall deem necessary to preserve the
wall or the Building from injury or damage and to support the same by proper
foundations without any claim for damages or indemnity against Landlord, or
diminution or abatement of Rent, provided that Tenant shall continue to have
access to the Premises and the Building. If Landlord is causing or authorized
to cause such excavation, the provisions of Article 14 of this Lease shall be
operative with respect to such access and work or installations done in
connection therewith.

38. MISCELLANEOUS. A. This Lease is offered for
signature by Tenant and it is understood that this Lease shall not be binding
upon Landlord or Tenant unless and until Landlord and Tenant shall have
executed and delivered a fully executed copy of this Lease to each other.

B. The obligations of Landlord under this Lease shall
not be binding upon Landlord named herein (or upon any member thereof) after
the bona fide sale, conveyance, assignment or transfer by such Landlord (or
upon any subsequent landlord after the sale, conveyance, assignment or transfer
by such subsequent landlord) of its interest in the Building or the Real
Property (or such member's interest in Landlord), as the case may be, and in
the event of any such sale, conveyance, assignment or transfer, Landlord (or
such member) shall be and hereby is entirely freed and relieved of

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all covenants and obligations of Landlord hereunder, provided that such
transferee assumes the obligations of Landlord under this Lease (subject to the
terms hereof); and provided further that Landlord shall not be relieved of its
obligation with respect to the application of insurance or condemnation
proceeds, any refund of Taxes or the return of the security deposited hereunder
to the extent that such obligations have not been assigned to and assumed by
such transferee. Neither the partners comprising Landlord, nor the
shareholders directors or officers of Landlord (collectively, the "Parties")
shall be liable for the performance of Landlord's obligations under this Lease.
Tenant shall look solely to Landlord to enforce Landlord's obligations
hereunder and shall not seek any damages against any of the Parties. The
liability of Landlord for any judgment obtained by Tenant against Landlord
shall not exceed and shall be limited to Landlord's interest in the Real
Property and Tenant shall not look to any other property or assets of Landlord
or to any of the property or assets of any of the Parties in seeking either to
enforce Landlord's obligations under this Lease or to satisfy a judgment for
Landlord's failure to perform such obligations.

C. Notwithstanding anything contained in this Lease to
the contrary, all amounts payable by Tenant to or on behalf of Landlord under
this Lease, whether or not expressly denominated Rent or additional rent, shall
constitute rent for the purposes of Section 502(b)(7) of the Bankruptcy Code.

D. Tenant shall reimburse Landlord as additional rent,
within five (5) Business Days after rendition of a statement, for all
expenditures made by, or damages or fines sustained or incurred by, Landlord,
due to any default by Tenant under this Lease, with interest thereon at the
Applicable Rate.

E. This Lease shall not be recorded, however, at the
request of either party, Landlord and Tenant shall promptly execute,
acknowledge and deliver a memorandum with respect to the Lease sufficient for
recording.

F. The words "re-enter" and "re-entry" as used in this
Lease are not restricted to their technical legal meaning.

G. This Lease shall amend, restate and supersede in
their entirety the Original Lease and the Letter Agreements. Notwithstanding
the foregoing, all of the obligations of the parties hereto which have accrued
prior to the date hereof under the foregoing documents (including without
limitation the obligation of Tenant to pay Rent for

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any period prior to the date of this Lease), and which have not been performed,
shall survive the amendment, restatement and supersession of such documents,
and the execution and delivery of this Lease shall not release either party or
constitute any waiver by either party with respect to the obligations of the
other party under the foregoing documents. Failure by Tenant to perform any of
such obligations within the time periods required by, and after any notice and
grace periods provided in, the Original Lease or the Letter Agreements shall
constitute, without any further notice or grace period, an Event of Default
hereunder. Landlord and Tenant expressly acknowledge that Landlord has fully
disbursed the Tenant Fund, the First Additional Tenant Fund, and the Second
Additional Tenant Fund (as such terms are defined in the Original Lease) and
Tenant has received the benefit of the credits against Fixed Rent pursuant to
Article 40 of the Original Lease.

39. RENT CONTROL. If at the commencement of, or at any
time or times during the Term of this Lease, the rents reserved in this Lease
shall not be fully collectible by reason of any Requirement, Tenant shall enter
into such agreement and take such other steps (without additional expense to
Tenant) as Landlord may request and as may be legally permissible to permit
Landlord to collect the maximum rents which may from time to time during the
continuance of such legal rent restriction be legally permissible (and not in
excess of the amounts reserved therefor under this Lease). Upon the
termination of such legal rent restriction prior to the expiration of the Term,
(a) the rents shall become and thereafter be payable hereunder in accordance
with the amounts reserved in this Lease for the periods following such
termination and (b) Tenant shall pay to Landlord, if legally permissible, an
amount equal to (i) the rents which would have been paid pursuant to this Lease
but for such legal rent restriction less (ii) the rents paid by Tenant to
Landlord during the period or periods such legal rent restriction was in
effect.

40. RIGHT OF FIRST OFFER A. If at any time during the
Term, Landlord shall desire to sell the Real Property, then, provided that
PaineWebber Incorporated shall be the Tenant hereunder and provided no Event of
Default exists hereunder, Landlord shall offer ("Landlord's Offer") to sell the
Real Property to Tenant prior to offering the same to any other individual or
entity other than a subsidiary or affiliate of Landlord (provided that the
purpose of such transfer to such affiliate or subsidiary shall not be the
circumvention of the obligations of Landlord hereunder, and provided further
that such transferee shall

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assume the obligations of Landlord hereunder subject to the limitations
contained herein). Landlord's Offer shall be in writing and shall set forth
the terms and conditions upon which the Real Property is to be sold. Landlord
shall deliver to Tenant, together with Landlord's offer, a schedule which shall
show therein the annual base rentals payable to Landlord for space in the
Building, lease expiration dates, the escalation charges payable and any
renewal options, together with the most recent income and expense statement
with respect to the Real Property. In no event shall Landlord be required to
disclose the names of tenants of the Building and the number of square feet
leased by each tenant individually or the specific space to which the foregoing
information relates until the Letter of Intent shall have been delivered to
Landlord as provided below.

B. Landlord and Tenant shall endeavor in good faith to
execute and deliver to each other, within thirty (30) days after delivery by
Landlord to Tenant of Landlord's Offer, a mutually satisfactory, non-binding
letter setting forth Tenant's intention (the "Letter of Intent") to purchase
the Real Property.

C. If (a) the Letter of Intent is not executed and
delivered, as aforesaid, or (b) the Letter of Intent is executed and delivered,
as aforesaid, but a contract of sale for the Real Property, mutually
satisfactory to both Landlord and Tenant, is not executed and delivered
(together with any payment required to be made thereunder by Tenant to
Landlord) to each other within thirty (30) days after execution and delivery of
the Letter of Intent, or (c) Tenant advises Landlord that it does not desire to
purchase the Real Property, then Landlord shall be free to sell the Real
Property to any other individual or entity, except as provided herein. Until
the Letter of Intent has been executed, Tenant, recognizing the confidential
nature of Landlord's decision to offer the Real Property for sale and any
information furnished to Tenant in connection therewith, shall not disclose to
any third party the fact of Landlord's Offer or any of the information or
materials furnished to it in connection with Landlord's Offer nor shall Tenant
offer or reoffer the Real Property for sale or seek debt or equity financing in
connection with Tenant's acquisition of the Real Property.

D. If, after the occurrence of any of the events set
forth in clauses (a), (b), or (c) of Section C hereof, Landlord proposes to
sell the Real Property the consideration for which is less than ninety-five
percent (95%) of the purchase price set forth in Landlord's Offer, then,
subject to the provisions of Section E hereof, Landlord shall deliver to

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Tenant a letter of intent or contract, if any, proposed to be entered into by
Landlord with respect to such sale or a statement of the terms and conditions
of such proposed sale (together with a statement of any material changes with
respect to the information supplied by Landlord to Tenant pursuant to the
provisions of Section A above) and Tenant shall thereupon have ten (10)
Business Days in which to execute and deliver to Landlord any such letter of
intent or contract (together with any payment required to be made thereunder),
or if there shall be no such letter of intent or contract, Tenant shall
thereupon have ten (10) Business Days in which to execute and deliver to
Landlord a letter of intent acceptable to Landlord for the sale of the Real
Property at the consideration then proposed by Landlord. If Tenant shall fail
to execute and deliver any such letter of intent or contract, as aforesaid (or,
having executed any such letter of intent shall fail to execute a contract as
required thereby, or having executed such contract shall fail to consummate the
acquisition of the Real Property in accordance therewith), then Landlord shall
be free to sell the Real Property for ninety-five percent (95%) of the
consideration then proposed by Landlord, or such lower amount if Landlord
complies with provisions of this Section D.

E. If Landlord fails to transfer title to the Real
Property within eighteen (18) month after having delivered Landlord's Offer to
Tenant or within eighteen (18) months of complying with the provisions of
Section D hereof, whichever is later, then, prior to any sale thereof, Landlord
shall once again offer the Real Property to Tenant and the aforesaid procedures
shall be repeated.

F. Upon any sale of the Real Property as provided
herein, the rights of Tenant under this Article shall terminate so that no
Landlord other than Equitable shall be bound hereby.

41. RENEWAL TERM. A. Tenant shall have the option (the
"Renewal Option") to extend the term of this Lease for two (2) additional
periods of five (5) years each (the "Renewal Terms"), which Renewal Terms shall
(i) commence on April 1, 2000 and end on March 31, 2005 (the "First Renewal
Term"), and (ii) commence on April 1, 2005 and end on March 31, 2010 (the
"Second Renewal Term"), provided that this Lease shall not have been previously
terminated, no Event of Default shall exist, and Tenant shall occupy at least
fifty percent (50%) of the Premises (exclusive of the Concourse Space, the
Subconcourse Space, the 39th Floor Storage Space and the Bank Vault Space) for
the operation of its business, (x) on the date Tenant gives Landlord written

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notice (the "Renewal Notice") of Tenant's election to exercise each Renewal
Option, and (y) on the Expiration Date, or the last day of the First Renewal
Term, as the case may be. Each such Renewal Option may be exercised with
respect to the entire Premises only and shall be exercisable by Tenant
delivering the Renewal Notice to Landlord (i) with respect to the First Renewal
Term at least two (2) years prior to the Expiration Date (the "First Exercise
Date"); and (ii) with respect to the Second Renewal Term at least two (2) years
prior to the fifth (5th) anniversary of the Expiration Date (the "Second
Exercise Date"). Time is of the essence with respect to the giving of the
applicable Renewal Notice. Tenant may not renew the term of this Lease for the
Second Renewal Term unless it shall have exercised its option to renew the Term
for the First Renewal Term. Upon the giving of the Renewal Notice with respect
to the Second Renewal Term, Tenant shall have no further right or option to
extend or renew the Term.

B. If Tenant exercises the Renewal Option, each Renewal
Term shall be upon the same terms, covenants and conditions as those contained
in this Lease, except that (i) the Rent shall be deemed to mean the Rent as
determined pursuant to Section C of this Article, (ii) Tenant shall not be
entitled to any further Tax Credit as provided in Section B(1) of Article 27
and (iii) the provisions of Section A of this Article relative to Tenant's
right to renew the term of the Lease shall not be applicable during the,Second
Renewal Term. It is expressly understood that during the First Renewal Term,
Tenant shall have the right as set forth in Section A only with respect to the
Second Renewal Term, and that during the Second Renewal Term, Tenant shall have
no further right to renew this Lease.

C. For each Renewal Term the Rent shall be as follows:

(1) The Rent for the Premises for the First
Renewal Term, or Second Renewal Term, as the case may be, shall be the greater
of the (a) (i) annual fair market rental value of the Premises (the "Fair
Market Rent") on the First Exercise Date or the Second Exercise Date, as the
case may be, plus (ii) an amount equal to the Fair Market Rent determined as of
the First Exercise Date or Second Exercise Date, as the case may be, multiplied
by the percentage increase in the Consumer Price Index, if any, from the First
Exercise Date or the Second Exercise Date, as the case may be, to the
commencement of the First Renewal Term or Second Renewal Term, as the case may
be and (b) the Rent payable by Tenant on the Expiration Date, or the last day
of the First

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Renewal Term, as the case may be, (the greater of (a) and (b) being hereinafter
referred to as the "Rental Value"). The Fair Market Rent shall be determined
as if the Premises were available in the then rental market for comparable
buildings in midtown Manhattan and assuming that Landlord has had a reasonable
time to locate a tenant who rents with the knowledge of the uses to which the
Premises can be adapted, and that neither Landlord nor the prospective tenant
is under any compulsion to rent, taking into account:

(i) the fact that the Base Operating Expenses
provided herein shall not change for the purpose of calculating the escalation
payments payable pursuant to Article 27 hereof which payments shall continue to
be made during each Renewal Term;

(ii) the fact that as of the commencement of the
Renewal Term, Tenant shall not be required to pay, in addition to the
escalation payments presently provided for under this Lease, Tenant's Share of
such other escalation payments which Landlord is then charging tenants under
other leases signed within the last twelve (12) months in the Building or if no
such leases were signed within the last twelve (12) months, such other
escalation payments which Landlord is then charging tenants under leases signed
within the last twelve (12) months in other office buildings which are
comparable to the Building;

(iii) as to the First Renewal Term, the fact that
the First Renewal Term is for a five (5) year term and Tenant has the further
right to renew this Lease for the Second Renewal Term of five (5) years, and as
to the Second Renewal Term, the fact that the Second Renewal Term is for five
(5) years and that Tenant has no further right to renew;

(iv) the fact that the Building shall remain named
for Tenant subject to the provisions of Article 33 hereof;

(v) the fact that Landlord shall not be obligated
to perform any work in the Premises to prepare the same for Tenant's occupancy;
and

(vi) the fact that Tenant shall not be entitled to
any credit against the Rent.

During the Renewal Term the Rent shall continue to be subject to escalation as
provided in Article 27 hereof.

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(2) For purposes of determining the Fair Market
Rent, the following procedure shall apply:

(a) the Fair Market Rent shall be
determined by Landlord on the basis of the highest and best use of the Premises
assuming that the Premises are free and clear of all leases and tenancies
(including this Lease), and, at the election of Landlord, that the Premises are
occupied by one (1) tenant or are subdivided and occupied by more than one (1)
tenant, whether improved or unimproved.

(b) Landlord shall give Tenant written
notice (the "Rent Notice") (i) with respect to the First Renewal Period, within
sixty (60) days after the First Exercise Date and (ii) with respect to the
Second Renewal Period, within sixty (60) days after the Second Exercise Date,
which Rent Notice shall set forth Landlord's determination of the Fair Market
Rent ("Landlord's Determination"). If Landlord shall fail or refuse to give
such notice as aforesaid, the Fair Market Rent shall be deemed to be the Rent
then payable by Tenant on the First Exercise Date, or the Second Exercise Date,
as the case may be.

(c) If Landlord's Determination exceeds
the Rent expected to be payable by Tenant on the Expiration Date, or the last
day of the First Renewal Term, as the case may be, Tenant shall give Landlord
written notice ("Tenant's Notice"), within sixty (60) days after Tenant's
receipt of the Rent Notice of whether Tenant accepts or disputes Landlord's
Determination. If Tenant in Tenant's Notice accepts Landlord's Determination
or if Tenant fails or refuses to give Tenant's Notice as aforesaid, Tenant
shall be deemed to have accepted Landlord's Determination for the applicable
Renewal Term in accordance with the terms of this Article. If Tenant in
Tenant's Notice disputes Landlord's Determination, Tenant shall deliver to
Landlord, within thirty (30) days after Tenant's receipt of the Rent Notice (or
the expiration of said sixty (60) days if Landlord fails or refuses to give
such Notice), Tenant's determination of the Fair Market Rent ("Tenant's
Determination") as determined by an independent real estate appraiser
("Tenant's Appraiser") together with a copy of the appraisal prepared by
Tenant's Appraiser.

(d) Landlord shall give Tenant written
notice ("Landlord's Notice"), within sixty (60) days after Landlord's receipt
of Tenant's Determination, of whether Landlord accepts or disputes Tenant's
Determination. If Landlord in Landlord's Notice accepts Tenant's Determination
or if Landlord fails or refuses to give Landlord's Notice as

-83-
<PAGE> 87
aforesaid, Landlord shall be deemed to have accepted Tenant's Determination.
If Landlord in Landlord's Notice disputes Tenant's Determination, Landlord
shall appoint an independent real estate appraiser ("Landlord's Appraiser").
If within thirty (30) days after Tenant's receipt of Landlord's Notice in
dispute, Landlord's Appraiser and Tenant's Appraiser shall mutually agree upon
the determination (the "Mutual Determination") of the Fair Market Rent, their
determination shall be final and binding upon the parties. If Landlord's
Appraiser and Tenant's Appraiser shall be unable to reach a Mutual
Determination within said thirty (30) day period, both of the Appraisers shall
jointly select a third independent real estate appraiser ("Third Appraiser")
whose fee shall be borne equally by Landlord and Tenant. In the event that
Landlord's Appraiser and Tenant's Appraiser shall be unable to jointly agree on
the designation of the Third Appraiser within five (5) Business Days after they
are requested to do so by either party, then the parties agree to allow the
American Arbitration Association or any successor organization to designate the
Third Appraiser in accordance with the rules, regulations and/or procedures
then obtaining of the American Arbitration Association or such successor
organization to make such determination.

(e) The Third Appraiser shall conduct
such hearings and investigations as he may deem appropriate and shall, within
thirty (30) days after the date of designation of the Third Appraiser choose
either Landlord's or Tenant's Determination, and that choice by the Third
Appraiser shall be conclusive and binding upon Landlord and Tenant. Each party
shall pay its own counsel fees and expenses, if any, in connection with any
arbitration under this Section, including the expenses and fees of any
Appraiser selected by it in accordance with the provisions of this Article.
Any Appraiser appointed pursuant to this Article shall be an independent real
estate appraiser with at least ten (10) years' experience in leasing and
valuation of properties which are similar in character to the Building and a
member of the American Institute of Appraisers of the National Association of
Real Estate Boards and a member of the Society of Real Estate Appraisers. The
Appraisers shall not have the power to add to, modify or change any of the
provisions of this Lease.

(f) It is expressly understood that any
determination of the Fair Market Rent pursuant to this Article shall be based
on the criteria stated in Section C of this Article including the assumptions
set forth in clause (2)(a) thereof.

-84-
<PAGE> 88
(3) After a final determination has been made of
the Rental Value for a Renewal Term, Tenant may, within ten (10) Business Days
after said determination, rescind the Renewal Option by giving notice to
Landlord, in which event this Lease shall terminate on the Expiration Date or
the Fifth Anniversary of the Expiration Date, as the case may be. If Tenant
fails to rescind the Renewal Option as aforesaid, Tenant shall be deemed to
have waived its right to rescind the Renewal Option and the Renewal Option
shall be deemed to have been exercised in accordance with the provisions of
this Article.

(4) If Tenant shall rescind the Renewal Option
pursuant to the provisions of Section C(3) hereof, Tenant shall pay to
Landlord, within fifteen (15) days after demand, an amount equal to all
reasonable out-of-pocket costs and expenses incurred by Landlord in connection
with the determination of the Fair Market Rent, including without limitation
reasonable attorneys' and appraisers' fees.

(5) After a determination has been made of the
Rental Value for the Renewal Term, the parties shall execute and deliver to
each other an instrument setting forth the Rental Value as hereinbefore
determined.

(6) On the first day of the First Renewal Term
and the Second Renewal Term, as the case may be, the parties shall execute and
deliver to each other an instrument setting forth the Rent for such Renewal
Term as hereinbefore determined.

IN WITNESS WHEREOF, Landlord and Tenant have respectively
executed this Lease as of the day and year first above written.

THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES,
Landlord

By: /s/
-----------------------------
Investment Officer
PAINEWEBBER INCORPORATED, Tenant

By: /s/
-----------------------------
Senior (Vice) President

-85-
<PAGE> 89
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )

On the _____ day of __________, 1989, before me personally came
_______________, to me known who, being by me duly sworn did depose and say
that he resides at ___________________________________________________; that he
is a ______________________ of The Equitable Life Assurance Society of the
United States, the corporation described in and which executed the foregoing
instrument; that he had authority to sign the same and he acknowledged to me
that he executed the same as the act and deed of said corporation for the uses
and purposes therein mentioned.

___________________
Notary Public

STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )

On the ______ day of ________________, 1989, before me personally came
________________, to me known who, being duly sworn did depose and say that he
resides at _____________________________________, New York, New York; that he
is a ________________ of PaineWebber Incorporated, the corporation described in
and which executed the foregoing instrument; that he had authority to sign the
same and he acknowledged to me that he executed the same as the act and deed of
said corporation for the uses and purposes therein mentioned.

___________________
Notary Public
<PAGE> 90
Schedule A

RULES AND REGULATIONS

1. The sidewalks, entrances, passages, courts,
elevators, vestibules, stairways, corridors, or halls shall not be obstructed
or encumbered by Tenant or used for any purpose other than ingress and egress
to and from the Premises and for delivery of merchandise and equipment in
prompt and efficient manner, using elevators and passageways designated for
such delivery by Landlord.

2. No awnings, air-conditioning units, fans or other
projections shall be attached to the outside walls of the Building. No
curtains, blinds, shades, or screens shall be attached to or hung in, or used
in connection with, any window or door of the Premises, without the prior
written consent of Landlord. Such awnings, projections, curtains, blinds,
shades, screens or other fixtures must be of a quality, type, design and color,
and attached in the manner approved by Landlord. All electrical fixtures hung
in offices or spaces along the perimeter of the Premises must be fluorescent,
of a quality, type, design and bulb color approved by Landlord, which consent
shall not be withheld or delayed unreasonably unless the prior consent of
Landlord has been obtained for other lamping.

3. No sign, advertisement, notice or other lettering
shall be exhibited, inscribed, painted or affixed by Tenant on any part of the
outside of the Premises or Building or on the inside of the Premises if the
same can be seen from the outside of the Premises without the prior written
consent of Landlord except that the name of Tenant may appear on the entrance
door of the Premises. In the event of the violation of the foregoing by
Tenant, if Tenant has refused to remove same after reasonable notice from
Landlord, Landlord may remove same without any liability, and may charge the
expense incurred by such removal to Tenant. Interior signs on doors and any
directory tablet shall be of a size, color and style reasonably acceptable to
Landlord.

4. The exterior windows and doors that reflect or admit
light and air into the Premises or the halls, passageways or other public
places in the Building, shall not be covered or obstructed by Tenant, nor shall
any articles be placed on the windowsills.

5. No showcases or other articles shall be put in front
of or affixed to any part of the exterior of the Build-

A-1
<PAGE> 91
ing, nor placed in the halls, corridors or vestibules, nor shall any article
obstruct any air-conditioning supply or exhaust without the prior written
consent of Landlord.

6. The water and wash closets and other plumbing
fixtures shall not be used for any purposes other than those for which they
were constructed, and no sweepings, rubbish, rags, acids or other substances
shall be deposited therein. All damages resulting from any misuse of the
fixtures shall be borne by Tenant.

7. Subject to the provisions of Article 3 of this Lease,
Tenant shall not mark, paint, drill into, or in any way deface any part of the
Premises or the Building. No boring, cutting or stringing of wires shall be
permitted, except with the prior written consent of Landlord, which consent
shall not be unreasonably withheld or delayed, and as Landlord may direct.
Tenant shall not lay floor tile, or other similar floor covering, so that the
same shall come in direct contact with the floor of the Premises, and, if such
floor covering is desired to be used an interlining of builder's deadening felt
shall be first affixed to the floor, by a paste or other material, soluble in
water, the use of cement or other similar adhesive material being expressly
prohibited.

8. No space in the Building shall be used for
manufacturing, for the storage of merchandise, or for the sale of merchandise,
goods or property of any kind at auction or otherwise.

9. Tenant shall not make, or permit to be made, any
unseemly or disturbing noises or disturb or interfere with occupants of this or
neighboring buildings or premises or those having business with them whether by
the use of any musical instrument, radio, television set, talking machine,
[unmusical noise], whistling, singing, or in any other way.

10. Tenant, or any of Tenant's servants, employees,
agents, visitors or licensees, shall not at any time bring or keep upon the
Premises any inflammable, combustible or explosive fluid, chemical or substance
except such as are incidental to usual office occupancy.

11. No additional locks or bolts of any kind shall be
placed upon any of the doors or windows by Tenant, nor shall any changes be
made in existing locks or the mechanism thereof, unless Tenant promptly
provides Landlord with the key or combination thereto (except with respect to
Security Areas). Tenant must, upon the termination of its tenancy,

A-2
<PAGE> 92
return to Landlord all keys of stores, offices and toilet rooms, and in the
event of the loss of any keys furnished at Landlord's expense, Tenant shall pay
to Landlord the cost thereof.

12. No bicycles, vehicles or animals of any kind except
for seeing eye dogs shall be brought into or kept by Tenant in or about the
Premises or the Building.

13. All removals, or the carrying in or out of any safes,
freight, furniture or bulky matter of any description must take place in the
manner and during the hours which Landlord or its agent reasonably may
determine from time to time. Landlord reserves the right to inspect all safes,
freight or other bulky articles to be brought into the Building and to exclude
from the Building all safes, freight or other bulky articles which violate any
of these Rules and Regulations or the Lease of which these Rules and
Regulations are a part.

14. Tenant shall not occupy or permit any portion of the
Premises demised to it to be occupied as an office for a public stenographer or
typist, or for the possession, storage, manufacture, or sale of liquor,
narcotics, dope, or as a barber or manicure shop, or as an employment bureau.
Tenant shall not engage or pay any employees on the Premises, except those
actually working for Tenant at the Premises, nor advertise for labor giving an
address at the Premises.

15. Tenant shall not purchase spring water, ice, towels
or other like service, or accept barbering or bootblacking services in the
Premises, from any company or persons not approved by Landlord, which approval
shall not be withheld or delayed unreasonably and at hours and under
regulations other than as reasonably fixed by Landlord.

16. Landlord shall have the right to prohibit any
advertising by Tenant which, in Landlord's reasonable opinion, tends to impair
the reputation of the Building or its desirability as a building for offices,
and upon written notice from Landlord, Tenant shall refrain from or discontinue
such advertising.

17. Landlord reserves the right to exclude from the
Building between the hours of 6 P.M. and 8 A.M. and at all hours on Saturdays,
Sundays and legal holidays all persons who do not present a pass to the
Building signed or approved by Landlord. Tenant shall be responsible for all
persons for whom a pass shall be issued at the request of

A-3
<PAGE> 93
Tenant and shall be liable to Landlord for all acts of such persons.

18. Tenant shall, at its expense, provide artificial light for the
employees of Landlord while doing janitor servies or other cleaning, and in
making repairs of alterations in the Premises.

19. the requirements of Tenant will be attended to only upon written
application at the office of the Building. Employees shall not perform any work
or do anything outside of the regular duities, unless under special
instructions from the office of Landlord.

20. Canvassing, soliciting and peddling in the Building is prohibited
and Tenant shall co-operate to prevent the same.

21. There shall not be used in any space, or in the public halls of
the Building, either by Tenant or by jobbers or others, in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber
tires and side guards.

22. Execpt as specifically provided in Section B of Article 2 of this
Lease, Tenant shall not do any cooking, conduct any restaurant, luncheonette or
cafeteria for the others, or cause or permit any odors of cooking or other
processes or any unusual or objectionable odors to emanate from the Premises.
Tenant may, at its sole cost and expense and subject to compliance with all
applicable Requirements and the provisions of Articles 3 and 4 of this lease,
install and maintain vending machines for the exclusive use by Tenant, its
officers, employees and business guests, provided that each vending machine,
where necessary, shall have a waterproof mat thereunder and be connected to a
drain; Tenant shall not permit the delivery of any food or beverage to the
Premises, except by such persons delivering the same as shall be approved by
Landlord, which approval shall not be unreasonably withhheld or delayed.

23. Tenant shall keep the entrance door to the Premises closed at all
times.

A-4
<PAGE> 94
Schedule B

HVAC SPECIFICATIONS

The HVAC System shall be capable of maintaining 78 degrees
when outdoor conditions are 95 degrees dry bulb and 75 degrees wet bulb. The
HVAC System shall be capable of maintaining 72 degrees at outdoor temperature 0
degrees F. The HVAC System is designed upon (i) consumption of 4 watts per
square foot lighting and 1/2 watt per square foot for miscellaneous power load
(ii) occupancy rate of one (1) person per 100 square feet, and (iii) mecho
shades drawn.
<PAGE> 95
Schedule B-1

HVAC SPECIFICATIONS FOR
CONCOURSE, SUBCONCOURSE, BANK
VAULT SPACE AND 39TH FLOOR SPACE

HVAC SPECIFICATION FOR THE CONCOURSE SPACE

This space is served by Air Handling Unit No. BL-SC-13. It is a constant volume
unit capable of cooling and electrical load of 8 watts/sq. ft. It provides 980
cfm to this space in addition to serving the adjacent areas.

Smoke exhaust for this area can be provided by Exhaust Fan EXH-SC-10.

HVAC SPECIFICATION FOR THE SUBCONCOURSE SPACE

This area is served by Air Handling Unit Number BL-SC-12. It is a constant
volume unit capable of cooling an electrical load of 3 watts/sq. ft. It
provides 4,350 cfm to this space and the adjacent areas.

HVAC SPECIFICATION FOR THE BANK VAULT SPACE

The Bank Vault Space is served by Air Handling Unit Number BL-SC-14. This is a
constant volume unit capable of handling an electrical load in the vault of 5
watts/sq. ft. It provides the area with 1800 cfm of supply air, which is
distributed through 12 ceiling diffusers. Air is exhausted from the vault
itself and into the work area through the main vault door. This door should be
open when the system is operating. Once in the work area, the air is exhausted
by Fan EXH-SC-11.

HVAC SPECIFICATION FOR THE 39TH FLOOR SPACE

The HVAC system shall be capable of providing 60 air changes per hour to the
kitchen area, providing 12,500 cfm of conditioned air and removing 19,360 cfm.
There is no air conditioning or heating provided to the storage areas.
<PAGE> 96
Schedule C

CLEANING SPECIFICATIONS

GENERAL CLEANING

NIGHTLY

General Offices:

1. All hardsurfaced flooring to be swept using approved dustdown
preparation.

2. Carpet sweep all carpets, moving only light furniture (desks,
file cabinets, etc. not to be moved).

3. Hand dust and wipe clean all furniture, fixtures and window
sills.

4. Empty and damp wipe and clean all ash trays and screen all
sand urns.

5. Empty all waste receptacles and remove wastepaper.

6. Dust interiors of all waste disposal cans and baskets.

7. Wash clean all water fountains and coolers.

8. Sweep all private stairways.

Lavatories:

1. Sweep and wash all floors, using proper disinfectants.

2. Wash and polish all mirrors, shelves, bright work and enameled
surfaces.

3. Wash and disinfect all basins, bowls and urinals.

4. Wash all toilet seats (both sides).

5. Hand dust and clean all partitions, tile walls, dispensers and
receptacles in lavatories and restrooms.
<PAGE> 97
6. Empty paper receptacles and remove wastepaper.

7. Fill toilet tissue, soap dispenser and paper towel holders
using materials supplied by Tenant.

8. Empty and clean sanitary disposal receptacles.

WEEKLY

1. Vacuum clean all carpeting and rugs.

2. Dust all door louvres and other ventilating louvres within a
person's reach.

3. Wipe clean all brass and other bright work.

MONTHLY

High dust premises complete including the following:

1. Dust all pictures, frames, charts, graphs and similar wall
hangings not reached in nightly cleaning.

2. Dust clean all vertical surfaces, such as walls, partitions,
doors, bucks and other surfaces not reached in nightly
cleaning.

3. Dust all pipes, ventilating and air-conditioning louvres,
ducts, high mouldings and other high areas not reached in
nightly cleaning.

4. Dust all venetian blinds.

PERIODICALLY

Wash all windows at least four (4) times per year.
<PAGE> 98
Exhibit "A"

PROPERTY DESCRIPTION

ALL that certain lot, piece or parcel of land, situate, lying and being in the
Borough of Manhattan, City, County and State of New York bounded and described
as follows:

BEGINNING at the southwest corner of West 52nd Street and Avenue of the
Americas;

RUNNING THENCE southerly along the westerly side of Avenue of the Americas, 200
feet 10 inches to the northwesterly corner of West 51st Street and Avenue of
the Americas;

THENCE westerly along the northerly side of West 51st Street, 400 feet to a
point;

THENCE northerly parallel with the easterly side of Seventh Avenue, 200 feet 10
inches to the southerly side of West 52nd Street.

THENCE easterly along the southerly side of West 52nd Street, 400 feet to the
corner as aforesaid, the point or place of BEGINNING.
<PAGE> 99
Exhibit "B"

Concourse Space

Blueprint of Floorplan (sender)

[GRAPHIC]
<PAGE> 100
Exhibit -1"

Blueprint of floor plan (sender)

[GRAPHIC]
<PAGE> 101
Exhibit "C-2"

Blueprint of floor plan (sender)

[GRAPHIC]
<PAGE> 102
Exhibit "C-3"
TYPICAL FLOOR PLAN
16-24

[GRAPHIC]
<PAGE> 103
EXHIBIT "D"
39th Floor Space

[GRAPHIC]
<PAGE> 104
Exhibit "E"
Bank Vault Space
&
Subconcourse Space

[GRAPHIC]
<PAGE> 105
EXHIBIT "F"
39th Floor Storage Space

[GRAPHIC]

<PAGE> 1

EXHIBIT 11
PAINE WEBBER GROUP INC.
COMPUTATION OF EARNINGS PER COMMON SHARE (1)
(IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1993 1992 1991
---------- ---------- -----------
<S> <C> <C> <C>

PRIMARY:

Weighted average common shares outstanding 68,535,178 61,956,106 56,542,322

Weighted average effect of stock options and awards 5,824,821 5,611,289 4,203,352

Weighted average effect of Participating Preferred Stock 4,329,959 1,812,468 -
---------- ---------- -----------

Weighted average common and common equivalent shares 78,689,958 69,379,863 60,745,674
========== ========== ===========

Net income $ 246,183 $ 213,175 $ 150,716

Preferred dividend requirements (1,834) (17,065) (23,132)
---------- ---------- -----------

Earnings available for common shares $ 244,349 $ 196,110 $ 127,584
========== ========== ===========

Earnings per common share $ 3.11 $ 2.83 $ 2.10
========== ========== ===========

FULLY DILUTED:

Weighted average common shares outstanding 68,535,178 61,956,106 56,542,322

Weighted average effect of stock options and awards 6,785,963 6,710,424 8,229,031

Weighted average effect of Participating Preferred Stock 4,329,959 1,812,468 -

Weighted average common shares issuable assuming conversion
of 8% Convertible Debentures and equity securities 4,676,191 21,886,440 30,406,822
---------- ---------- -----------

Weighted average common and common equivalent shares 84,327,291 92,365,438 95,178,175
========== ========== ===========

Net income $ 246,183 $ 213,175 $ 150,716

Interest savings on convertible debentures 3,004 6,300 7,666
---------- ---------- -----------

Earnings available for common shares $ 249,187 $ 219,475 $ 158,382
========== ========== ===========

Earnings per common share $ 2.95 $ 2.37 $ 1.67
========== ========== ===========
</TABLE>

(1) Common share and per share amounts have been retroactively adjusted to
reflect the three-for-two common stock split in the form of a 50% stock
dividend effective March 10, 1994 to stockholders of record on February 17,
1994.

<PAGE> 1

EXHIBIT 12.1

PAINE WEBBER GROUP INC.
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK
DIVIDENDS
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income (loss) before taxes $ 407,576 $ 339,115 $ 226,247 $ (102,633) $ 82,568
---------- ---------- ---------- ---------- ----------

Preferred stock dividends 5,828 27,789 34,732 23,174 37,564
---------- ---------- ---------- ---------- ----------

Fixed charges:

Interest 1,130,712 879,242 1,056,124 1,242,151 1,198,640

Interest factor in rents 50,133 45,962 43,804 42,223 40,360
---------- ---------- ---------- ---------- ----------

Total fixed charges 1,180,845 925,204 1,099,928 1,284,374 1,239,000
---------- ---------- ---------- ---------- ----------

Total fixed charges and preferred
stock dividends 1,186,673 952,993 1,134,660 1,307,548 1,276,564
---------- ---------- ---------- ---------- ----------

Income before taxes and fixed charges $1,588,421 $1,264,319 $1,326,175 $1,181,741 $1,321,568
========== ========== ========== ========== ==========

Ratio of earnings to fixed charges
and preferred stock dividends 1.3 1.3 1.2 - ** 1.0
========== ========== ========== ========== ==========
</TABLE>

For purposes of computing the ratio of earnings to combined fixed charges and
preferred stock dividends (tax effected), "earnings" consist of income (loss)
before taxes and fixed charges. "Fixed charges" consist of interest expense
incurred on securities sold under agreements to repurchase, short-term
borrowings, long-term borrowings and that portion of rental expense estimated
to be representative of the interest factor.

** Earnings were inadequate to cover fixed charges and would have had to
increase approximately $125,807 in order to cover the deficiency.

<PAGE> 1

EXHIBIT 12.2

PAINE WEBBER GROUP INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income (loss) before taxes $ 407,576 $ 339,115 $ 226,247 $ (102,633) $ 82,568
---------- ---------- ---------- ---------- ----------

Fixed charges:

Interest 1,130,712 879,242 1,056,124 1,242,151 1,198,640

Interest factor in rents 50,133 45,962 43,804 42,223 40,360
---------- ---------- ---------- ---------- ----------

Total fixed charges 1,180,845 925,204 1,099,928 1,284,374 1,239,000
---------- ---------- ---------- ---------- ----------

Income before taxes and
fixed charges $1,588,421 $1,264,319 $1,326,175 $1,181,741 $1,321,568
========== ========== ========== ========== ==========

Ratio of earnings to fixed charges 1.3 1.4 1.2 - ** 1.1
========== ========== ========== ========== ==========
</TABLE>

For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of income (loss) before taxes and fixed charges. "Fixed charges"
consist of interest expense incurred on securities sold under agreements to
repurchase, short-term borrowings, long-term borrowings and that portion of
rental expense estimated to be representative of the interest factor.

** Earnings were inadequate to cover fixed charges and would have had to
increase approximately $102,633 in order to cover the deficiency.

<PAGE> 1
FINANCIAL HIGHLIGHTS

PER COMMON SHARE(1)
Primary earnings (loss) $ 3.11 $ 2.83 $ 2.10 $ (1.44) $ 0.47
Fully diluted earnings (loss) $ 2.95 $ 2.37 $ 1.67 $ (1.44) $ 0.47
Dividends declared $ 0.38 $ 0.31 $ 0.24 $ 0.23 $ 0.23
Book value $ 16.29 $ 14.24 $ 12.23 $ 10.03 $ 11.58
----------- ----------- ----------- ----------- -----------

FINANCIAL CONDITION
Total assets $37,026,909 $26,508,982 $22,621,763 $18,150,539 $22,075,292
Long-term borrowings $ 1,936,082 $ 1,150,553 $ 815,728 $ 656,993 $ 521,929
Stockholders' equity $ 1,195,047 $ 1,080,667 $ 1,050,478 $ 895,916 $ 1,001,202
Total capitalization $ 3,131,129 $ 2,231,220 $ 1,866,206 $ 1,552,909 $ 1,523,131
----------- ---------- ----------- ----------- -----------
</TABLE>

(1) Per common share data has been retroactively adjusted to reflect the
three-for-two common stock split in the form of a 50% stock dividend
effective March 10, 1994 to stockholders of record on February 17, 1994,
in addition to the three-for-two common stock split in December 1991.
(2) The 1990 results reflect an after-tax charge of $95,452 ($149,128 before
income taxes) for restructuring and merchant banking reserves.

[CHARTS -- SEE EDGAR APPENDIX]

THREE
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS

GENERAL
Paine Webber Group Inc. ("PWG") is a holding company which, together with its
operating subsidiaries (collectively, the "Company"), forms one of the largest
full-service securities and commodities firms in the industry. Founded in
1879, the Company employs approximately 14,400 people in 281 offices worldwide.
The Company's principal line of business is to serve the investment and capital
needs of individual, corporate, institutional and public agency clients through
its broker-dealer subsidiary, PaineWebber Incorporated ("PWI"), and other
specialized subsidiaries. The Company holds memberships in all major securities
and commodities exchanges in the United States, and makes a market in many
securities traded on the Automated Quotation System of the National Association
of Securities Dealers ("NASDAQ") or in other over-the-counter markets.
Additionally, PWI is a primary dealer in U.S. government securities.
The Company is comprised of four interrelated core business groups --
Retail Sales and Marketing, Institutional Sales and Trading, Investment Banking
and Asset Management -- which utilize common operational and administrative
personnel and facilities.
Retail Sales and Marketing consists primarily of a domestic branch office
system and consumer product groups through which PWI and certain other
subsidiaries provide clients with financial services and products, including
the purchase and sale of securities, option contracts, commodity and financial
futures contracts, direct investments, selected insurance products, fixed
income instruments and mutual funds. The Company may act as principal or agent
in providing these services. Fees charged vary according to the size and
complexity of a transaction, and the activity level of a client's account.
Institutional Sales and Trading is comprised of five businesses: Fixed
Income, U.S. Equity, International, Derivatives and Research. The Company
places securities with, and executes trades on behalf of, institutional clients
both domestically and internationally. In addition, the Company takes positions
in both listed and unlisted equity and fixed income securities to facilitate
client transactions or for the Company's own account.
Through the Investment Banking group, the Company provides financial advice
to, and raises capital for, a broad range of domestic and international
corporate clients. Corporate Finance manages and underwrites public offerings,
participates as an underwriter in syndicates of public offerings managed by
others, and provides advice in connection with mergers and acquisitions, lease
financings and debt restructurings. The Municipal Securities group originates,
underwrites, sells and trades taxable and tax-exempt issues for municipal and
public agency clients.
The Asset Management group is comprised of Mitchell Hutchins Asset
Management Inc. ("MHAM"), Mitchell Hutchins Institutional Investors Inc.
("MHII") and Mitchell Hutchins Investment Advisory division ("MHIA"). MHAM and
MHII provide investment advisory and portfolio management services to pension
and endowment funds. MHAM also provides investment advisory and portfolio
management services to individuals and mutual funds. MHIA provides portfolio
management services to individuals, trusts and institutions.
The securities business is one of the nation's most highly regulated
industries. Violations of applicable regulations can result in the revocation
of broker-dealer licenses, the imposition of censures or fines, and the
suspension or expulsion of a firm, its officers or employees. The Company's
securities business is regulated by various agencies, including the Securities
and Exchange Commission ("SEC"), the New York Stock Exchange ("NYSE"), the
Commodity Futures Trading Commission ("CFTC") and the National Association of
Securities Dealers.

TWENTY-NINE
<PAGE> 3
The Company's principal business activities are, by their nature, affected
by many factors, including general economic and financial conditions, the level
and volatility of interest rates, currency and security valuations, competitive
conditions, counterparty risk, transactional volume, and market liquidity. As a
result, revenues and profitability are subject to fluctuations reflecting the
impact of these factors.

RESULTS OF OPERATIONS
Market conditions continued to be favorable during 1993. Generally lower
interest rates, along with a strong equity market, led to higher trading
volume. The Dow Jones Industrial Average closed on December 31, 1993 at 3,754,
an increase of 14% during the year. The NYSE daily volume averaged 265 million
shares, an increase of 31% over 1992. Trading volume on the American Stock
Exchange and the NASDAQ also increased significantly during 1993. The decline
in interest rates during the year contributed to increased underwriting
activity in mortgage backed securities, as well as corporate debt and equity
issuances. Individual investors continued to transfer assets to mutual funds,
which experienced record net sales.

1993 COMPARED WITH 1992
Net income for the year ended December 31, 1993 was a record $246.2 million, a
15% increase over the $213.2 million earned during the year ended December 31,
1992. Total revenues of $4.0 billion rose 19% from those reported in 1992,
while revenues, net of interest expense, rose $389.5 million to $2.9 billion.
Net earnings per common share, after giving retroactive effect to the
three-for-two common stock split, effective March 10, 1994 to stockholders of
record as of February 17, 1994, were $3.11 primary ($2.95 fully diluted)
compared with earnings per common share of $2.83 primary ($2.37 fully diluted)
in 1992. This increase was attributable to improved performance by all major
business groups, continued growth in recurring fees and client-centered
revenues, and favorable debt and equity market conditions. Fully diluted
earnings per common share were also favorably impacted by changes in the
Company's capital structure.
Commission revenues improved 21% to $996.1 million during 1993 as a result
of higher market volume and an increase of over 250 investment executives, or
5%, from the previous year. Commissions from listed securities rose $90.6
million, or 21%, mutual fund commissions rose $34.2 million, or 27%, and
commissions from over-the-counter securities rose $23.6 million, or 44%. In
addition, insurance commissions increased $44.7 million, or 85%, as a result of
increased sales of deferred annuity contracts. These gains were partially
offset by decreases in commissions earned from commodities and direct
investments.
Principal transactions revenues increased $59.7 million, or 8%, during
1993, reflecting improved results in corporate securities and municipal
obligations offset by a decline in U.S. government and agency obligations. In
early 1993, the Company exited the risk arbitrage business.
Investment banking revenues for the year ended December 31, 1993 increased
8% to $413.6 million as compared to the $384.3 million earned during 1992. This
increase reflects increased common and preferred equity, and high-yield debt
securities issues. These gains were partially offset by declines in merger and
acquisition and private placement fees.
Asset management fees, which are generally recurring in nature, increased
$58.6 million, or 22%, during 1993 primarily due to a 42% increase in client
assets in managed or wrap fee accounts and a 51% increase in client assets in
long-term mutual funds. Total assets under management grew 11% to $38.9 billion
as of December 31, 1993. This increase was led by the introduction of
additional Premier priced funds and the PaineWebber Short-Term U.S. Government
Income Fund.

THIRTY
<PAGE> 4
Net interest increased $30.5 million, or 14%, due to increased margin
lending to clients, a reflection of favorable equity market conditions, and
higher fixed income inventory levels.
Other income rose $37.1 million, or 49%, primarily due to increased
dividend income on higher equity inventory. Also reflected in other income is
an increase in revenues from Resource Management Accounts as the number of
accounts grew by 17% to 271,000.
Compensation and benefit expenses rose $196.0 million, or 14%, during 1993
primarily due to higher revenue driven compensation paid to retail investment
executives and institutional sales personnel, as well as increased incentive
compensation associated with improved firm-wide performance. The increase also
reflects salary increases related to strategic hiring and normal increases.
Compensation and benefits as a percentage of net revenues decreased to 56.7%
during 1993 as compared to 57.7% during 1992.
All other operating expenses increased $125.1 million, or 18%, over 1992.
This increase reflects the costs of technology initiatives, including the
rollout of the new broker workstations to the retail branches, higher business
development and litigation-related expenses, and general increases related to
retail branch expansion.

1992 COMPARED WITH 1991
Net income for the year ended December 31, 1992 was $213.2 million, increasing
41% from $150.7 million for the year ended December 31, 1991. Total revenues of
$3.4 billion rose 6% from those reported in 1991. Revenues, net of interest
expense, increased 18% compared to 1991 while total expenses, excluding
interest expense, increased only 14% for the same period. Net earnings per
common share, after giving retroactive effect to the three-for-two common stock
split, effective March 10, 1994 to stockholders of record as of February 17,
1994, were $2.83 primary ($2.37 fully diluted) in 1992 compared with earnings
per common share of $2.10 primary ($1.67 fully diluted) in 1991. The
improvement in 1992 was attributable to strong performances by all major
business groups and reflects continued growth in recurring fees and
client-centered revenues, as well as continued control over costs.
Commission revenues rose 14% to $821.9 million due to a combination of
higher market volumes, increased individual investor activity, market share
gains and a growing sales force. During 1992, the Company added over 400 retail
brokers. Commissions from listed securities increased $44.5 million, or 11%,
mutual fund commissions rose $23.3 million, or 22%, option commissions
increased $18.5 million, or 39%, and over-the-counter commissions improved
$11.6 million, or 28%. These gains were partially offset by a decline in direct
investment commissions of $9.6 million, or 39%. The Institutional Sales and
Trading business contributed significantly to the improvement in commissions,
comprising 51% of the firm-wide increase.
Principal transaction revenues increased 11% to $719.8 million, reflecting
increased revenues from U.S. government and agency obligations, and municipal
securities. These increases reflect both favorable market conditions and market
share gains in several of the Company's Institutional Sales and Trading
businesses. Partially offsetting the increases were declines in corporate
equity securities, corporate debt securities and risk arbitrage.
Investment banking revenues for the period rose 29% to $384.3 million. The
increase was due to the significant increase in new issue volume of common
equity, municipal and investment grade corporate debt securities, coupled with
increased private placement fees. The gains were partially offset by reduced
merger and acquisition fees.

THIRTY-ONE
<PAGE> 5
Asset management fees, which are largely recurring in nature, increased
$49.7 million, or 23%, due to a substantial increase in client assets in
managed or wrap fee accounts in addition to increased mutual fund distribution
and advisory fees. Assets under management grew 5% to $35.2 billion, up from
$33.6 billion in 1991. Contributing to the increase was the PaineWebber
Dividend Growth Fund and the introduction of two debt funds, the Strategic
Global Income Fund and PaineWebber Premier Tax-Free Income Fund.
Other revenues increased by $11.8 million, or 18%, from the prior year
principally due to increased transaction fee revenue on higher trading volume.
Net interest grew $57.2 million, or 36%, reflecting significantly higher
fixed income inventory levels and better spreads. Declining interest rates
resulted in the overall reduction in gross interest revenue and interest
expense.
Compensation and benefit expenses increased by $204.9 million, or 17%. The
increase resulted from higher revenue driven compensation paid to retail
investment executives and institutional sales personnel, and increased
incentive compensation associated with improved firm-wide performance.
Compensation and benefits as a percentage of net revenues declined slightly
from 58.2% in 1991 to 57.7% in 1992.
All other operating expenses increased $57.0 million, or 9%. The increase
is primarily due to higher brokerage, clearing and exchange fees resulting from
the increase in trading volume, as well as higher business development and
litigation expenses.

INCOME TAXES
The effective tax rate for the year ended December 31, 1993 was 39.6% as
compared to 37.1% for 1992. The increase in the effective rate is due in part
to a change in the federal statutory rate from 34% to 35%, which was
retroactive to January 1, 1993. The effective tax rate in 1992 was higher
compared to the 1991 rate of 33.4% due to higher state and local income taxes
and lower nontaxable dividends and interest for the year.

LIQUIDITY AND CAPITAL RESOURCES
The primary objectives of the Company's funding policies are to ensure ample
liquidity at all times and a strong capital base. These objectives are met by
maximization of self-funded assets, diversification of funding sources,
maintenance of prudent liquidity and capital ratios, and contingency planning.

LIQUIDITY
The Company maintains a highly liquid balance sheet with the majority of its
assets consisting of inventories, securities borrowed or purchased under
agreements to resell, and receivables from clients, and brokers and dealers,
which are readily converted into cash. The nature of the Company's business as
a securities dealer results in its carrying significant levels of securities
inventories in order to meet its client and proprietary trading needs. The
Company's total assets may fluctuate from period to period as a result of
changes in the level of trading positions held to facilitate client
transactions, the volume of resale and repurchase transactions, and proprietary
trading strategies. These fluctuations depend significantly upon economic and
market conditions, and transactional volume.
The Company's total assets at December 31, 1993 increased to $37.0 billion
from $26.5 billion at December 31, 1992. This increase reflects the growth in
securities purchased under agreements to resell and inventory levels, primarily
first mortgage notes held for resale and U.S. government and agency
obligations. The majority of the Company's assets are financed by daily
operations

THIRTY-TWO
<PAGE> 6
such as securities sold under agreements to repurchase, free credit balances in
client accounts and securities lending activity. Additional financing sources
are available through bank loans and commercial paper, committed and
uncommitted lines of credit, and the issuance of long-term senior and
subordinated debt. The Company's ability to obtain short-term secured and
unsecured funding as well as long-term capital enables the Company to support
the increased level of total assets. Cash flows provided by financing activities
were approximately $4.0 billion for the year ended December 31, 1993. The
increased levels of borrowings were used primarily to finance higher inventory
levels.
The Company maintains committed and uncommitted credit facilities from a
diverse group of banks. At December 31, 1993, the Company had two revolving
credit agreements to provide up to $500.0 million, of which $275.0 million
expires in May 1994 with provisions for renewal through November 1996, and
$225.0 million expires in March 1995. There were no outstanding borrowings
under these facilities at December 31, 1993. Additionally, the Company had more
than $5.0 billion in uncommitted lines of credit at December 31, 1993.
The Company maintains with the SEC public shelf registration statements for
the issuance of debt securities. During 1993, the Company filed two shelf
registration statements with the SEC providing for the issuance of an
additional $2,367.9 million of debt securities. The Company issued $700.0
million in fixed rate debt and $325.9 million in medium-term senior and
subordinated debt during 1993 under these registration statements. At December
31, 1993, the Company had $1,552.6 million in debt securities available for
issuance. On February 8, 1994, the Company issued an additional $200.0 million
of 7 5/8% Notes Due 2014.

CAPITAL RESOURCES AND CAPITAL ADEQUACY
At December 31, 1993, the Company's total capital base, which includes
stockholders' equity and long-term borrowings, was $3.1 billion, an increase of
40%, or $899.9 million, from the prior year. Total common equity of the Company
increased 34% from $891.9 million at December 31, 1992 to $1.2 billion at
December 31, 1993. During 1993, the Company completed several capital-related
transactions which eliminated all its outstanding preferred stock, increased
its long-term borrowing base and took advantage of the historically low
interest rates.
Long-term borrowings of the Company increased $785.5 million reflecting
both the availability of long-term financing opportunities at lower interest
rates and growth in the Company's balance sheet and liquidity needs. The
Company expanded its long-term borrowing base through the issuance, in four
separate offerings, of fixed rate notes in an aggregate principal amount of
$700.0 million and the issuance of over $300 million of medium-term senior and
subordinated notes. The four issues of fixed rate notes were comprised of
$100.0 million 7 7/8% Notes Due 2003, $200.0 million 7% Notes Due 2000, $200.0
million 6 1/2% Notes Due 2005, and $200.0 million 6 1/4% Notes Due 1998.
Offsetting these increases in long-term borrowings were the redemption of the
entire $75.0 million of the Company's 9 3/8% Subordinated Notes Due 1996 and the
maturity of the Company's $125.0 million Subordinated Floating Rate Notes Due
1993.
The Company completed three significant transactions during 1993 that
eliminated both outstanding series of preferred stocks. On April 1, 1993, The
Yasuda Mutual Life Insurance Company ("Yasuda") converted $96.7 million, or 5.0
million shares, of the Company's Cumulative Participating Convertible Voting
Preferred Stock, Series A ("Participating Preferred Stock") into 7.5 million
shares (5.0 million shares pre-split) of the Company's common stock. During the
third quarter, the Company repurchased the remaining $53.3 million, or 2.8
million shares, of Participating Preferred Stock from Yasuda for $75.9 million.
During the fourth quarter, the

THIRTY-THREE
<PAGE> 7
Company called for redemption of the entire outstanding issue of its $1.375
Convertible Exchangeable Preferred Stock ("$1.375 Preferred Stock"). Holders of
the $1.375 Preferred Stock were entitled to convert the Preferred Stock into
common stock prior to the redemption date. The majority of the shares of $1.375
Preferred Stock were remitted for redemption at a redemption price of $25.76,
which included accrued dividends. The preferred stock repurchase transactions
will result in an annual dividend savings of over $3 million.
During 1993, the Company issued 9.0 million shares of common stock related
to employee compensation programs, which included 3.6 million shares of
restricted stock granted to key employees. In addition to the restricted stock
granted, the Company issued 2.4 million shares related to the exercise of stock
options and 2.8 million shares of common stock upon conversion of the Company's
8% Convertible Debentures which were issued to certain key employees. The
issuance of common shares related to these programs increased equity capital by
over $70 million.
In accordance with the Company's repurchase program, 6.0 million shares of
common stock were repurchased during the year for $116.6 million. At December
31, 1993, the remaining shares of common stock authorized by the Company's
Board of Directors to be repurchased were 11.5 million.
Earnings per share on a fully diluted basis were favorably impacted in 1993
by the Company's repurchases of common and preferred shares. The full year
impact of the repurchases will be realized in 1994 as weighted average common
equivalent shares on a fully diluted basis will decline by over 5 million
shares.
The Board of Directors declared quarterly cash dividends on the Company's
common stock during 1993 in addition to dividends on the $1.375 Preferred Stock
and the Participating Preferred Stock for the respective periods outstanding.
On February 3, 1994, the Company's Board of Directors approved a three-for-two
common stock split in the form of a 50% stock dividend, effective March 10,
1994 to stockholders of record on February 17, 1994. Also on February 3, 1994,
the Board approved a 20% increase in the dividend payout from $.10 per share to
$.12 per share, payable on April 18, 1994 to stockholders of record on March
28, 1994.
PWI is subject to the net capital requirements of the SEC, the NYSE and the
CFTC which are designed to measure the financial soundness and liquidity of
broker-dealers. PWI has consistently maintained net capital in excess of the
minimum requirements as imposed by these agencies. In addition, the Company has
other banking and securities subsidiaries, both domestic and foreign, which
have also consistently maintained net regulatory capital in excess of
requirements.

MERCHANT BANKING AND HIGHLY LEVERAGED TRANSACTIONS
In connection with its merchant banking activities, the Company has provided
financing and made investments in companies, some of which are involved in
highly leveraged transactions. Positions taken or commitments made by the
Company may involve credit or market risk from any one issuer or industry.
At December 31, 1993, the Company had investments in merchant banking
transactions which were affected by liquidity, reorganization or restructuring
issues of $52.1 million, net of reserves, compared to $61.7 million, net of
reserves, at December 31, 1992. Included in the portfolio at December 31, 1993
was an investment of $45.7 million in a limited partnership which specializes
in investments in corporate restructurings and special situations.

THIRTY-FOUR
<PAGE> 8
The Company's trading activities include market-making transactions in
high-yield debt securities. At December 31, 1993, the Company held in inventory
approximately $155 million of high-yield debt securities with no one issuer
accounting for more than 13% of the total amount. These securities generally
involve greater risks than investment-grade corporate debt securities, because
these issuers usually have high levels of indebtedness and lower credit
ratings and are, therefore, more vulnerable to general economic conditions.
Historically, the Company's high-yield portfolio has not been material to the
Company's financial condition. The Company continually monitors its risk
positions associated with high-yield debt securities and establishes limits
with respect to overall market exposure, industry group and individual issuer.
The Company accounts for these positions at market value, with unrealized
gains and losses reflected in revenues.

RISK MANAGEMENT
The Company monitors its exposure to market and counterparty risk on a daily
basis through a variety of financial, security position and credit exposure
reporting and control procedures.
Each department's trading positions, exposures, profits and losses, and
trading strategies are reviewed by the Company's Risk Management Committee. The
Risk Management Committee is comprised of senior trading and business managers
who meet daily to review the Company's risk profile. Trading position and
exposure limits, as well as credit policy, are established by the
Asset/Liability Management Committee which generally meets between two and four
times a month and is comprised of senior corporate and business unit managers.
Credit risk is substantially reduced by the industry practice of obtaining
and maintaining adequate collateral until the commitments are settled. In
addition, the Company monitors its exposure to counterparty risk on a daily
basis through the use of credit exposure information and monitoring of
collateral values. The Credit department establishes and reviews credit limits
for clients and other counterparties seeking margin, resale and repurchase
agreement facilities, securities borrowed and securities loaned arrangements,
and various other products. Although the Company closely monitors the
creditworthiness of its clients, the debtors' ability to discharge amounts owed
is dependent upon, among other things, general market conditions. However, the
Company is not materially dependent upon any single client.
In addition to the above procedures, the Company has in place committees
and management controls to review inventory positions and other asset accounts
and agings on a regular basis.

INFLATION
Because the Company's assets are, to a large extent, liquid in nature, they are
not significantly affected by inflation. However, inflation may result in
increases in the Company's expenses, such as employee compensation and office
space leasing costs, which may not be readily recoverable in the price of
services offered. To the extent inflation results in rising interest rates and
has other negative effects upon the securities markets, it may adversely affect
the Company's financial condition and results of operations.

SEGMENT INFORMATION
The Company's business activities encompass several classes of highly
integrated services, primarily those of a full-line securities broker-dealer,
and are considered a single business segment for purposes of Statement of
Financial Accounting Standards No. 14.

THIRTY-FIVE
<PAGE> 9
CONSOLIDATED STATEMENTS OF INCOME

REVENUES
Commissions $ 996,127 $ 821,878 $ 723,048
Principal transactions 779,444 719,789 649,292
Investment banking 413,643 384,321 297,603
Asset management 325,690 267,088 217,433
Other 113,253 76,114 64,271
Interest 1,376,560 1,094,541 1,214,248
---------- ---------- ----------

Total revenues 4,004,717 3,363,731 3,165,895
INTEREST EXPENSE 1,130,712 879,242 1,056,124
---------- ---------- ----------

Net revenues 2,874,005 2,484,489 2,109,771
---------- ---------- ----------

NON-INTEREST EXPENSES
Compensation and benefits 1,628,889 1,432,930 1,228,070
Office and equipment 211,880 192,948 187,985
Communications 123,601 112,255 113,780
Business development 93,962 75,061 67,420
Professional services 66,825 59,820 52,479
Brokerage, clearing and exchange fees 79,752 75,689 63,219
Other expenses 261,520 196,671 170,571
---------- ---------- ----------

Total non-interest expenses 2,466,429 2,145,374 1,883,524
---------- ---------- ----------

INCOME BEFORE TAXES 407,576 339,115 226,247
Income taxes 161,393 125,940 75,531
---------- ---------- ----------

NET INCOME $ 246,183 $ 213,175 $ 150,716
========== ========== ==========
EARNINGS APPLICABLE TO COMMON SHARES $ 244,349 $ 196,110 $ 127,584
========== ========== ==========
EARNINGS PER COMMON SHARE:
Primary * $ 3.11 $ 2.83 $ 2.10
Fully Diluted * $ 2.95 $ 2.37 $ 1.67
---------- ---------- ----------
</TABLE>

* Retroactively adjusted to reflect a three-for-two common stock split in the
form of a 50% stock dividend effective March 10, 1994 to stockholders of
record on February 17, 1994. (See "Subsequent Event" note on page 52.)

See Notes to Consolidated Financial Statements.

THIRTY-SIX
<PAGE> 10
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------------
(In thousands of dollars except share and per share amounts) 1993 1992
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 241,038 $ 282,990
Cash and securities segregated and on deposit for
Federal and other regulations 327,172 476,932
Securities inventory, at market value 14,847,229 8,923,384
Securities borrowed or purchased under agreements to resell 16,190,818 12,647,726
Receivables:
Clients 3,417,093 2,789,312
Brokers and dealers 908,468 556,484
Dividends and interest 205,296 159,102
Fees and other 155,289 201,685
Office equipment and leasehold improvements, net of
accumulated depreciation and amortization of $209,738
in 1993 and $202,583 in 1992 228,441 161,709
Other assets 506,065 309,658
----------- -----------
$37,026,909 $26,508,982
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 2,779,213 $ 1,320,207

Securities sold but not yet purchased, at market value 7,365,877 4,724,043
Securities loaned or sold under agreements to repurchase 19,029,553 14,245,482
Payables:
Clients 2,745,209 2,282,717
Brokers and dealers 664,260 623,714
Dividends and interest 265,975 199,208
Other liabilities and accrued expenses 693,947 503,716
Income taxes 62,174 59,235
Accrued compensation and benefits 289,572 319,440
----------- -----------
33,895,780 24,277,762
Long-term borrowings 1,936,082 1,150,553
----------- -----------
35,831,862 25,428,315
----------- -----------
Commitments and contingencies
Stockholders' Equity
Preferred stock, 20,000,000 shares authorized:
Cumulative Participating Convertible Voting Preferred Stock,
Series A, $19.3333 liquidation value; 7,758,632 shares
authorized, issued and outstanding in 1992 -- 150,000
$1.375 Convertible Exchangeable Preferred Stock, $25
liquidation value; 4,000,000 shares authorized; 1,550,395
shares issued and outstanding in 1992 -- 38,760
Common stock, $1 par value, 100,000,000 shares authorized;
issued 83,603,262 shares in 1993; 78,518,729 shares in 1992* 83,603 78,519
Additional paid-in capital* 568,487 470,315
Retained earnings 721,115 529,049
----------- -----------
1,373,205 1,266,643
Common stock held in treasury, at cost: 6,568,433 shares in 1993;
12,476,834 shares in 1992 * (112,390) (149,462)
Unamortized cost of restricted stock (60,980) (30,709)
Foreign currency translation adjustment (4,788) (5,805)
----------- -----------
1,195,047 1,080,667
----------- -----------
$37,026,909 $26,508,982
=========== ===========
</TABLE>

See Notes to Consolidated Financial Statements.

THIRTY-SEVEN
<PAGE> 11
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
7%
Preferred
Stock
- -------------------------------------------------------------------------------------------------
(In thousands of dollars except share and per share amounts)
- -------------------------------------------------------------------------------------------------
<S> <C>
Balance at December 31, 1990 $ 300,000
- -------------------------------------------------------------------------------------------------
Three-for-two stock split
Stock options exercised, 2,525,609 shares
Restricted stock awards, 5,244,741 shares
Restricted stock amortization
Tax benefit related to employee compensation programs
Foreign currency translation
Other changes, including the issuance of 168,863 common shares
Net income
Dividends declared:
Common stock, $.24 per share
7% Preferred Stock, $3.115 per share
$1.375 Preferred Stock, $1.375 per share
- -------------------------------------------------------------------------------------------------
Balance at December 31, 1991 300,000
- -------------------------------------------------------------------------------------------------
Redemption of 1,685,394 shares and conversion of 1,685,394 shares of 7% Preferred
Stock into 5,818,977 common shares, which were simultaneously repurchased (150,000)
Replacement of 3,370,786 shares of 7% Preferred Stock with 7,758,632 shares
of Participating Preferred Stock (150,000)
Stock options exercised, 2,155,972 shares
Restricted stock awards, 1,925,978 shares
Restricted stock amortization
Conversion of debentures into 867,546 common shares
Tax benefit related to employee compensation programs
Adjustment to record minimum pension liability
Other changes
Common stock repurchases, 2,298,041 shares
Foreign currency translation
Net income
Dividends declared:
Common stock, $.31 per share
7% Preferred Stock, $2.336 per share
$1.375 Preferred Stock, $1.375 per share
Participating Preferred Stock, $.053 per share
- -------------------------------------------------------------------------------------------------
Balance at December 31, 1992 0
- -------------------------------------------------------------------------------------------------
Redemption of 2,758,632 shares and conversion of 5,000,000 shares of
Participating Preferred Stock into 7,500,000 common shares
Redemption or conversion of 1,550,395 shares of $1.375
Preferred Stock, 551,154 common shares issued
Stock options exercised, 2,425,546 shares
Restricted stock awards, 3,628,205 shares
Restricted stock amortization
Conversion of debentures into 2,771,672 common shares
Tax benefit related to employee compensation programs
Adjustment to reverse minimum pension liability
Other changes, including the issuance of 152,357 common shares
Common stock repurchases, 6,036,000 shares
Foreign currency translation
Net income
Dividends declared:
Common stock, $.38 per share
$1.375 Preferred Stock, $1.241 per share
Participating Preferred Stock, $.33 per share
- -------------------------------------------------------------------------------------------------
Balance at December 31, 1993 $ 0
- -------------------------------------------------------------------------------------------------
</TABLE>

Common share and per share amounts and the balances for Common Stock and
Additional Paid-in Capital have been retroactively adjusted to reflect the
three-for-two common stock split in the form of a 50% stock dividend effective
March 10, 1994 to stockholders of record on February 17, 1994. (See "Subsequent
Event" note on page 52.)

THIRTY-EIGHT
<PAGE> 12

<TABLE>
<CAPTION>
Unamortized Foreign
Participating $1.375 Additional Cost of Currency
Preferred Preferred Common Paid-in Retained Treasury Restricted Translation
Stock Stock Stock Capital Earnings Stock Stock Adjustment
- --------------------------------------------------------------------------------------------------------------

- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0 $ 38,760 $ 44,790 $ 367,614 $ 239,607 $ (96,238) $ (381) $ 1,764
- --------------------------------------------------------------------------------------------------------------
22,395 (22,395)
2,526 15,827
5,244 36,325 (41,569)
19,727
2,589
(1,136)
497 1,389
150,716

(14,441)
(21,000)
(2,132)
- --------------------------------------------------------------------------------------------------------------
0 38,760 74,955 400,457 352,750 (94,849) (22,223) 628
- --------------------------------------------------------------------------------------------------------------

20,402 (37,622)

150,000
1,638 8,848 6,070
1,926 30,781 (32,707)
24,221
(1,055) 8,955
17,996
(4,635)
(2,479)
(32,016)
(6,433)
213,175

(19,397)
(14,933)
(2,132)
(414)
- --------------------------------------------------------------------------------------------------------------
150,000 38,760 78,519 470,315 529,049 (149,462) (30,709) (5,805)
- --------------------------------------------------------------------------------------------------------------

(150,000) 3,247 (22,529) 93,420

(38,760) 551 10,261 (615)
888 (1,195) 19,428
3,628 64,156 (67,784)
37,513
(13,912) 39,162
29,651
4,635
17 1,329 1,689
(116,627)
1,017
246,183

(27,454)
(1,833)
(1,686)
- --------------------------------------------------------------------------------------------------------------
$ 0 $ 0 $ 83,603 $ 568,487 $ 721,115 $(112,390) $ (60,980) $ (4,788)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.

THIRTY-NINE
<PAGE> 13
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Years Ended December 31,
- ------------------------------------------------------------------------------------------------
(In thousands of dollars) 1993 1992 1991
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 246,183 $ 213,175 $ 150,716
Adjustments to reconcile net income to cash
used for operating activities:
Noncash items included in net income:
Depreciation and amortization 31,034 29,156 31,848
Deferred income taxes 3,609 (8,129) 15,007
Amortization of deferred charges 90,923 94,241 96,572
Other 83,126 89,398 84,475
(Increase) decrease in operating receivables:
Clients (628,297) (722,646) (208,532)
Brokers and dealers (351,984) 338,214 (601,312)
Dividends and interest (45,449) (20,941) 61
Fees and other 75,898 (54,208) 2,345
Increase (decrease) in operating payables:
Clients 462,492 559,723 (328,630)
Brokers and dealers 40,546 (254,254) 615,123
Dividends and interest 66,767 34,586 (17,540)
Other 102,259 50,612 140,032
(Increase) decrease in:
Securities inventory (5,919,229) (1,197,608) (2,179,972)
Securities borrowed or purchased
under agreements to resell (821,417) (280,973) (2,031,927)
Cash and securities on deposit 149,760 (44,964) 170,041
Other assets (274,529) (54,823) (78,122)
Increase (decrease) in:
Securities sold but not yet purchased 2,641,834 1,186,233 (178,869)
Securities loaned or sold under
agreements to repurchase 81,063 (354,672) 2,998,653
----------- ----------- ----------
Cash used for operating activities (3,965,411) (397,880) (1,320,031)
----------- ---------- ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments on):
Short-term borrowings 1,459,006 219,908 (332,517)
Securities sold under agreements to
repurchase, net of securities purchased
under agreements to resell 1,981,333 17,987 1,390,532
Proceeds from:
Issuance of long-term borrowings 1,126,907 414,149 373,620
Employee stock transactions 21,121 16,556 20,239
Payments for:
Settlement of long-term borrowings (316,997) (76,186) (218,802)
Repurchases of common stock (116,627) (32,016) --
Preferred stock transactions (104,425) (167,220) --
Repurchase of warrant -- (1,687) --
Dividends (30,973) (36,876) (37,573)
----------- ---------- ----------
Cash provided by financing activities 4,019,345 354,615 1,195,499
----------- ---------- ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Net payments for:
Office equipment and leasehold improvements (95,886) (29,388) (15,419)
----------- ---------- ----------
Cash used for investing activities (95,886) (29,388) (15,419)
----------- ---------- ----------
Decrease in cash and cash equivalents (41,952) (72,653) (139,951)
Cash and cash equivalents, beginning of year 282,990 355,643 495,594
----------- ---------- ----------
Cash and cash equivalents, end of year $ 241,038 $ 282,990 $ 355,643
=========== ========== ==========
</TABLE>

See Notes to Consolidated Financial Statements.

FORTY
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars except share and per share amounts)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Paine Webber
Group Inc. and its wholly owned subsidiaries, including its principal
subsidiary PaineWebber Incorporated ("PWI") (collectively, the "Company"). All
material intercompany balances and transactions have been eliminated. Certain
reclassifications have been made in prior year amounts to conform to current
year presentations. The Company is engaged in one principal line of business,
that of serving the investment and capital needs of individual, corporate,
institutional and public agency clients.

SECURITIES TRANSACTIONS
Securities transactions are recorded in the Consolidated Statement of Financial
Condition on settlement date. Recording such transactions on a trade date basis
would not result in a material difference. Related revenues and expenses are
generally recorded in the accounts on trade date.
Securities inventory and securities sold but not yet purchased, contracts
for financial futures, forwards, options, caps and floors, and interest rate
swaps are principally recorded at market values, and unrealized gains and
losses are reflected in revenues. Market value is generally based upon quoted
market prices. If quoted market prices are not available, or if liquidating the
Company's position is reasonably expected to impact market prices, market value
is determined based upon other relevant factors, including dealer price
quotations, price activity of similar instruments and pricing models. Pricing
models consider the time value and volatility factors underlying the financial
instruments and other economic measurements.

COLLATERALIZED SECURITIES TRANSACTIONS
Securities purchased under agreements to resell and securities sold under
agreements to repurchase (principally U.S. government and agency securities)
are recorded at the amount at which the securities will be resold or reacquired
as specified in the respective agreements plus accrued interest. It is Company
policy to obtain possession or control of securities purchased under agreements
to resell, which have a market value in excess of the original principal amount
loaned. The Company monitors the market value of the securities daily. Should
the market value of the securities decline below the principal amount loaned,
plus accrued interest, additional collateral is requested when deemed
appropriate. Securities purchased under agreements to resell and securities
sold under agreements to repurchase for which the resale/repurchase date
corresponds to the maturity date of the underlying securities, are accounted
for as purchases and sales, respectively.
Securities borrowed and securities loaned are recorded at the amount of
cash collateral advanced or received in connection with the transaction.
Securities borrowed transactions require the Company to deposit cash or other
collateral with the lender. With respect to securities loaned, the Company
receives collateral. The initial collateral advanced or received has a market
value equal to or greater than the market value of the securities borrowed or
loaned. The Company monitors the market value of the securities borrowed and
loaned on a daily basis and requests additional collateral or returns excess
collateral, as appropriate.

OFFICE EQUIPMENT AND LEASEHOLD IMPROVEMENTS
The Company depreciates office equipment on the straight-line method over
estimated useful lives of three to ten years. Leasehold improvements are
amortized over the lesser of the estimated useful life of the asset or the
remaining term of the lease.

INCOME TAXES
The Company files a consolidated Federal income tax return. Deferred income
taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. The Company revised its annual effective
tax rate to reflect a change in the federal statutory rate from 34% to 35%,
which was retroactive to January 1, 1993. The effect of this change was not
material to the Company's financial condition and operating results.

TRANSLATION OF FOREIGN CURRENCIES
Assets and liabilities denominated in foreign currencies are translated at
year-end rates of exchange, and revenues and expenses are translated at average
rates of exchange for the year. Gains and losses resulting from translation
adjustments are accumulated in a separate component of stockholders' equity.
Gains or losses resulting from foreign currency transactions are included in
net income.

FORTY-ONE
<PAGE> 15
CASH FLOWS
Cash and cash equivalents are defined for purposes of the Consolidated
Statements of Cash Flows as highly liquid investments not held for resale, with
a maturity of three months or less when purchased. Total interest payments for
the years ended December 31, 1993, 1992 and 1991 were $1,063,945, $844,656 and
$1,073,663, respectively.

COMMON SHARE DATA
Common share, per share and stock option data for all periods presented have
been retroactively adjusted throughout the financial statements to reflect a
three-for-two stock split in the form of a 50% stock dividend effective March
10, 1994 to stockholders of record on February 17, 1994. (See "Subsequent
Event" note on page 52.)

FAIR VALUE OF FINANCIAL INSTRUMENTS
Substantially all of the Company's financial instruments are carried at fair
value or amounts approximating fair value. Assets, including cash and cash
equivalents, cash and securities segregated for regulatory purposes, securities
inventory, securities borrowed or purchased under agreements to resell, and
certain receivables are carried at fair value or contracted amounts which
approximate fair value. Similarly, liabilities including short-term borrowings,
securities sold but not yet purchased, securities loaned or sold under
agreements to repurchase, and payables are carried at amounts approximating
fair value.
The estimated fair value of the Company's long-term borrowings at December
31, 1993, based upon quoted market prices and pricing models, exceeded the
carrying value by approximately $81,552. However, for substantially all its
fixed rate debt, the Company enters into interest rate swap agreements to
convert its fixed rate payments into floating rate payments. The unrecognized
gains on the swap agreements hedging the Company's long-term borrowings
partially offsets the effect of changes in interest rates on the fair value of
the Company's long-term borrowings.

SECURITIES INVENTORY
Securities inventory and securities sold but not yet purchased, which consist
of the Company's trading accounts, are recorded at market value and are
comprised of:
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------------
1993 1992
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
SECURITIES INVENTORY
U.S. government and agency obligations $ 8,453,431 $6,162,692
First mortgage notes held for resale 3,125,445 636,544
State and municipal obligations 719,008 505,283
Commercial paper and other short-term debt 652,636 717,428
Corporate debt securities 864,293 478,809
Corporate equity securities 1,032,416 422,628
----------- ----------
$14,847,229 $8,923,384
=========== ==========
SECURITIES SOLD BUT NOT YET PURCHASED
U.S. government and agency obligations $6,395,861 $4,192,183
State and municipal obligations 25,653 14,672
Corporate debt securities 177,611 163,237
Corporate equity securities 766,752 353,951
---------- ----------
$7,365,877 $4,724,043
========== ==========
</TABLE>

Securities sold but not yet purchased commit the Company to deliver
specified securities at predetermined prices. To satisfy the obligation, the
Company must acquire the securities at market prices, which may differ from the
values reflected on the Consolidated Statement of Financial Condition.

FORTY-TWO
<PAGE> 16
SHORT-TERM BORROWINGS
The Company meets its short-term financing needs by obtaining bank loans on
either a secured or unsecured basis; by issuing commercial paper and
medium-term notes; by entering into repurchase agreements, whereby securities
are sold with a commitment to repurchase at a future date; and through
securities lending activity.
Included in short-term borrowings at December 31, 1993 and 1992 were:

Bank loans generally bear interest at rates based on either the Federal
Funds rate or LIBOR. The weighted average interest rates on bank loans
outstanding at December 31, 1993 and 1992 were 3.60% and 3.26%, respectively,
and the weighted average interest rates during 1993 and 1992 were 3.80% and
3.85%, respectively.
The interest rate on commercial paper fluctuates throughout the year.
The weighted average interest rates on commercial paper borrowings outstanding
at December 31, 1993 and 1992 were 3.57% and 4.02%, respectively, and during
the years ended 1993 and 1992 were 3.36% and 4.09%, respectively.
The Company has a Multiple Currency Medium-Term Note Program (the
"Program") under the terms of which the Company may offer for sale medium-term
senior and subordinated notes (collectively, the "Medium-Term Notes") due from
nine months to thirty years from date of issuance. The Medium-Term Notes may be
either fixed or variable with respect to interest rates. As of December 31,
1993, the Company had $25,000 of Medium-Term Notes outstanding with maturities
of nine months to one year from the date of issuance.
At December 31, 1993, the Company had committed and available revolving
credit facilities with two groups of banks aggregating $500,000, of which
$275,000 expires in May 1994 with provisions for renewal through November 1996,
and $225,000 expires in March 1995. Interest on borrowings under the terms of
the agreements is computed, at the option of the Company, at a rate based on
LIBOR or an alternate rate, based on the higher of a base rate or the Federal
Funds rate. The Company pays a fee on the commitments.

LONG-TERM BORROWINGS
Long-term borrowings at December 31, 1993 and 1992 consisted of the following:

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
1993 1992
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Fixed Rate Notes Due 1995 - 2005 $ 998,156 $ 296,000
Fixed Rate Subordinated Notes Due 1996 and 2002 174,236 233,747
Medium-Term Senior Notes 331,975 122,550
Medium-Term Subordinated Notes 298,650 248,000
Subordinated Floating Rate Notes Due 1993 -- 125,000
Bank Term Loans 70,000 70,000
Convertible Debentures 15,435 39,100
Other 47,630 16,156
---------- ----------
$1,936,082 $1,150,553
========== ==========
</TABLE>

FORTY-THREE
<PAGE> 17
During 1993, the Company issued, in four separate offerings, fixed rate
notes in an aggregate principal amount of $700,000 due 1998 through 2005 with
interest rates ranging from 6 1/4% to 7 7/8%. Interest rates on the remaining
fixed rate notes outstanding at December 31, 1993 range from 9 1/4% to 9 5/8%.
Interest on the Notes is payable semi-annually.
During 1993, the Company redeemed $75,000 of its 9 3/8% Subordinated Notes
Due 1996 which constituted the entire outstanding issue. The Fixed Rate
Subordinated Notes Due 2002 have an interest rate of 7 3/4%. Interest on the
Subordinated Notes is payable semi-annually.
As of December 31, 1993, the Company had $630,625 of Medium-Term Senior and
Subordinated Notes outstanding. The Medium-Term Notes mature one year to thirty
years from the date of issuance with an average maturity of 3.5 years. As of
December 31, 1993, the weighted average interest rate on the Medium-Term Notes
was 6.10%.
The Company has entered into interest rate swap agreements which
effectively convert substantially all its fixed rate notes and various
Medium-Term Notes into floating rate obligations. The floating interest rates
are based on LIBOR and adjust semi-annually.
The Company has entered into three term loan agreements with two banks in
an amount totaling $70,000. The loans mature in 1994 and bear interest at rates
based upon LIBOR.
Pursuant to an employee benefit plan, the Company has issued 8% Convertible
Debentures (the "8% Debentures") due December 1998 and 2000, and 6.5%
Convertible Debentures (the "6.5% Debentures") due December 2002 (collectively
referred to as "the Debentures"). The Debentures are shown net of receivables,
representing loans by the Company to employees to finance a portion of the
Debentures. A portion of the principal amount of the employee loans may be
forgiven at the end of a calendar year in which certain specified pre-tax
earnings are achieved by the Company.
The 8% Debentures are fully convertible, at the option of the holders, into
514,000 shares of 7.5% Convertible Preferred Stock, which are then convertible
into 1,405,552 shares of common stock. The 6.5% Debentures are convertible, at
the option of the holders, into 2,068,000 shares of 6.0% Convertible Preferred
Stock, which are then convertible into 3,505,084 shares of common stock. The
6.5% Debentures are convertible, on a cumulative basis, one-third annually
beginning on December 31, 1993. The Debentures are redeemable at the employees'
option, subject to certain conditions through 1998.
The aggregate amount of principal repayment requirements on long-term
borrowings for each of the five years subsequent to December 31, 1993, and the
total amounts due thereafter are:

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C>
1994 $ 238,845
1995 250,000
1996 57,200
1997 116,750
1998 246,508
Thereafter 1,026,779
----------
$1,936,082
==========
</TABLE>
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF CREDIT
RISK

MARKET RISK
In the normal course of business, the Company enters into transactions in a
variety of financial instruments as part of the Company's market risk
management, trading and financing activities, and to facilitate client
transactions. These financial instruments include forward and futures
contracts, option contracts, interest rate swaps and other contracts committing
the Company to purchase or deliver other instruments at specified future dates
and prices, or to make or receive payments based on notional amounts and
specified rates or indices.

FORTY-FOUR
<PAGE> 18
These financial instruments involve varying degrees of off-balance-sheet
market risk. Market risk is the potential change in value of the financial
instrument caused by unfavorable changes in interest rates, foreign currency
exchange rates or the market values of the securities underlying the
instruments. The Company monitors its exposure to market risk through a variety
of control procedures, including review of trading positions and hedging
strategies, and establishing limits by the Risk Management Committee.
These contracts are valued at market, and unrealized gains and losses are
reflected in the financial statements. The gross contract or notional amounts
of the financial instruments which are not reflected in the Consolidated
Statement of Financial Condition, are set forth in the table below and provide
only a measure of the Company's involvement in these contracts at December 31,
1993 and 1992. They do not represent amounts subject to market risks and, in
many cases, serve to reduce the Company's overall exposure to market and other
risks.
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------------
1993 1992
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage-backed securities, forward contracts and options written $54,803,708 $33,484,372
Foreign exchange forward contracts, futures contracts and options
written 2,819,063 1,180,818
Securities contracts including futures, forwards and options
written 7,832,106 5,612,747
Interest rate swaps, caps and floors 408,583 500,475
</TABLE>

In addition to forwards, futures, options and swap contracts, the Company
enters into agreements to sell securities, at predetermined prices, which have
not yet been purchased. To satisfy the obligation, the Company must acquire the
securities at market prices, which may exceed the values reflected on the
Consolidated Statement of Financial Condition.

CREDIT RISK IN PROPRIETARY AND CLIENT TRANSACTIONS
Counterparties to the Company's proprietary trading, hedging, financing and
arbitrage activities are primarily financial institutions including brokers
and dealers, banks and institutional clients. Credit losses could arise should
counterparties fail to perform and the value of any collateral obtained proves
inadequate. The Company manages credit risk by monitoring net exposure to
individual counterparties on a daily basis, monitoring credit limits and
requiring additional collateral where appropriate.
The Company's risk of loss in the event of counterparty default is
typically limited to the cost of replacing all contracts on which the Company
has recorded an unrealized gain or for purchased options, the net realizable
value. With respect to forward contracts and interest rate swaps, caps and
floors, the unrealized gain amounted to $131,962 at December 31, 1993. The net
realizable value of options purchased amounted to $128,918 at December 31,
1993. Transactions in futures contracts are conducted through regulated
exchanges which guarantee performance of counterparties and are settled in cash
on a daily basis, thereby, minimizing credit risk.
Receivables and payables with brokers and dealers, and agreements to resell
and repurchase securities are generally collateralized by cash, government and
government-agency securities, and letters of credit. The market value of the
initial collateral received is, at a minimum, equal to the contract value.
Additional collateral is requested when considered necessary.
Client transactions are entered on either a cash or margin basis. In a
margin transaction, the Company extends credit to a client for the purchase of
securities, using the securities purchased and/or other securities in the
client's account as collateral for amounts loaned. Amounts loaned are limited
by margin regulations of the Federal Reserve Board and other regulatory
authorities and are subject to the Company's credit review and daily monitoring
procedures. Market declines could, however, reduce the value of any collateral
below the principal amount loaned, plus accrued interest, before the collateral
can be sold.
Client transactions include positions in commodities and financial futures,
securities sold but not yet purchased and written options. The risk to the
Company's clients in these transactions can be substantial, principally due to
price volatility which can reduce the clients' ability to meet their
obligations. Margin deposit requirements pertaining to commodity futures and
options transactions are generally lower than

FORTY-FIVE
<PAGE> 19
those for exchange traded securities. To the extent clients are unable to meet
their commitments to the Company and margin deposits are insufficient to cover
outstanding liabilities, the Company may take market action and credit losses
could be realized.
Trades are recorded on a settlement date basis. Should either the client or
broker fail to perform, the Company may be required to complete the transaction
at prevailing market prices. Trades pending at December 31, 1993 were settled
without adverse effect on the Company's financial statements, taken as a whole.
The Company may pledge clients' securities as collateral in support of
securities loaned, bank loans or to satisfy margin requirements at clearing
organizations. The amounts loaned or pledged are limited to the extent
permitted by applicable margin regulations. Should the counterparty fail to
return the clients' securities, the Company may be required to replace them at
prevailing market prices. At December 31, 1993, the market value of client
securities loaned to other brokers approximated the amounts due or collateral
obtained.

CONCENTRATIONS OF CREDIT RISK
As a major securities firm, the Company's activities are executed primarily
with and on behalf of other financial institutions, including brokers and
dealers, banks and other institutional clients. Concentrations of credit risk
can be affected by changes in economic, industry or geographic factors. The
Company seeks to control its credit risk and the potential for risk
concentration through a variety of reporting and control procedures described
in the preceding discussion of credit risk.

COMMITMENTS AND CONTINGENCIES

LEASES
The Company leases office space, equipment and leasehold improvements under
noncancelable lease agreements which expire at various dates through 2014. As
of December 31, 1993, the aggregate minimum rental payments required by
operating leases with initial or remaining lease terms exceeding one year are
as follows:
<TABLE>
<CAPTION>

- --------------------------------------------------------------------
<S> <C>
1994 $125,256
1995 118,540
1996 101,931
1997 90,362
1998 80,836
Thereafter 427,724
--------
$944,649
========
</TABLE>
Rentals are subject to periodic escalation charges and do not include
amounts payable for insurance, taxes and maintenance. In addition, minimum
payments have not been reduced by future sublease rental income of $33,600.
For the years ended December 31, 1993, 1992 and 1991, the Company had rent
expense under operating leases of $143,120, $130,516 and $123,508,
respectively.

OTHER COMMITMENTS AND CONTINGENCIES
The Company is contingently liable as a guarantor of certain partnerships'
obligations for $25,378. In addition, certain of the Company's subsidiaries are
contingently liable as issuer of $89,410 of notes payable to managing general
partners of various limited partnerships pursuant to Internal Revenue Service
guidelines. In the opinion of management, these contingencies will have no
material adverse effect on the Company's financial statements, taken as a
whole. The Company has conditional commitments of $28,823 to contribute capital
to investment partnerships.
The Company has been named as defendant in numerous legal actions in the
ordinary course of business. While the outcome of such matters cannot be
predicted with certainty, in the opinion of management of the Company, after
consultation with various counsel handling such matters, these actions will be
resolved with no material adverse effect on the Company's financial statements,
taken as a whole.

FORTY-SIX
<PAGE> 20
As of December 31, 1993, securities with a market value of $448,280 had
been loaned or pledged as collateral for securities borrowed of approximately
equal market value.
As of December 31, 1993, the Company was contingently liable under
unsecured letter of credit agreements of $344,662.

STOCKHOLDERS' EQUITY

PREFERRED STOCK
The Company completed three transactions during 1993 that eliminated both the
Cumulative Participating Convertible Voting Preferred Stock, Series A
("Participating Preferred Stock") and the $1.375 Convertible Exchangeable
Preferred Stock ("$1.375 Preferred Stock").
On April 1, 1993, The Yasuda Mutual Life Insurance Company ("Yasuda")
converted $96,667, or 5,000,000 shares, of the Company's Participating
Preferred Stock into 7,500,000 shares (5,000,000 shares pre-split) of the
Company's common stock at a conversion price of $12.89 per share ($19.3333
pre-split). On August 5, 1993, the Company repurchased $53,333, or 2,758,632
shares, of Participating Preferred Stock from Yasuda for $75,862, or $27.50 per
share. As a result of these transactions, all outstanding shares of the
Participating Preferred Stock were repurchased and retired.
On October 13, 1993, the Company called for the redemption on November 8,
1993 of the entire outstanding issue of its $1.375 Preferred Stock. Holders of
the $1.375 Preferred Stock were entitled to convert the Preferred Stock into
common stock prior to the redemption date. The majority of the shares of $1.375
Preferred Stock were remitted for redemption at a redemption price of $25.76,
which included accrued dividends. As a result of this transaction, all
outstanding shares of this issue of Preferred Stock were retired.

COMMON STOCK
In accordance with the repurchase programs, as authorized by the Board of
Directors, the Company had available to repurchase, at December 31, 1993, a
maximum of 11,474,703 shares of common stock.
As of December 31, 1993, the Company had 14,610,847 authorized shares of
common stock reserved for issuance in connection with stock option and stock
award plans.

CAPITAL REQUIREMENTS
PWI is subject to the Securities and Exchange Commission ("SEC") Uniform Net
Capital Rule and New York Stock Exchange ("NYSE") Growth and Business Reduction
capital requirements. Under the method of computing capital requirements
adopted by PWI, minimum net capital shall not be less than 2% of combined
aggregate debit items arising from client transactions, plus excess margin
collected on securities purchased under agreements to resell, as defined. A
reduction of business is required if net capital is less than 4% of such
aggregate debit items. Business may not be expanded if net capital is less than
5% of such aggregate debit items. As of December 31, 1993, PWI's net capital of
$545,477 was 16% of aggregate debit balances and its net capital in excess of
the minimum required was $474,812.
Advances, dividend payments and other equity withdrawals by PWI and other
regulated subsidiaries are restricted by the regulations of the SEC, NYSE, and
international securities and banking agencies, as well as by covenants in
various loan agreements. At December 31, 1993, the equity of the Company's
subsidiaries totalled approximately $1,355,000. Of this amount, approximately
$409,088 was not available for payment of cash dividends and advances.
Under the terms of certain borrowing agreements, the Company is subject to
dividend payment restrictions and minimum net worth and net capital
requirements. At December 31, 1993, these restrictions did not effect the
Company's ability to pay dividends.

STOCK OPTIONS AND STOCK AWARDS
Under the Company's various Stock Option and Award Plans ("the Plans"),
officers and other key employees are granted options (both non-qualified stock
options and incentive stock options) to purchase shares of common stock at a
price not less than the fair market value of the stock on the date the option
is granted. Options for the Company's common stock have also been granted to
key employees through limited partnership participations. The rights generally
expire within ten years after the date of grant.

FORTY-SEVEN
<PAGE> 21
Options granted in 1991, 1992 or 1993 are exercisable as follows: at the date
of grant; 50% or 33% annually, on a cumulative basis; or fully exercisable on
the third or fourth anniversary from the date of grant.
Activity during the years ended December 31, 1991, 1992 and 1993 follows:
<TABLE>
<CAPTION>
Number Option price
of shares per share
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at December 31, 1990
(7,314,292 exercisable) 11,032,404 $ 6.55 - 16.27
Granted 3,584,967 9.11 - 11.11
Exercised (2,525,609) 6.55 - 12.20
Terminated (604,443) 6.55 - 16.27
---------- -------------
Options outstanding at December 31, 1991
(6,036,513 exercisable) 11,487,319 6.55 - 16.27
Granted 982,974 14.13 - 16.00
Exercised (2,155,972) 6.55 - 11.25
Terminated (318,017) 6.64 - 16.00
---------- -------------
Options outstanding at December 31, 1992
(4,501,062 exercisable) 9,996,304 6.55 - 16.27
Granted 5,244,957 14.75 - 20.42
Exercised (2,425,546) 6.55 - 19.47
Terminated (534,760) 7.22 - 19.47
---------- -------------
Options outstanding at December 31, 1993
(2,776,678 exercisable) 12,280,955 $ 6.55 - 20.42
========== =============
</TABLE>

The Plans provide for the granting of cash and restricted stock awards,
stock appreciation rights, restricted stock units, stock purchase rights and
performance units. The Company had no stock appreciation rights or stock
purchase rights outstanding at December 31, 1993. Restricted stock awards are
granted to key employees whereby shares of the Company's common stock are
awarded in the name of the employee, who has all rights of a stockholder,
subject to certain restrictions. The awards generally contain restrictions
ranging from one to three years. The restricted stock awards are subject to
forfeiture if the employee terminates prior to the prescribed restriction
period.
During the calendar years ended December 31, 1993, 1992 and 1991, the
Company awarded 3,628,205, 1,925,978 and 5,244,741 shares, respectively, of
restricted stock. The market value of the restricted shares awarded has been
recorded as unamortized cost of restricted stock awards and is shown as a
separate component of stockholders' equity. The unamortized cost of restricted
stock is being amortized over the restriction period. The charge to
compensation expense amounted to $37,513, $24,221 and $19,727 in the years
ended December 31, 1993, 1992 and 1991, respectively.
At December 31, 1993 and 1992, there were 2,329,992 and 228,912 shares,
respectively, available for future stock option and restricted stock awards
under these Plans.

EMPLOYEE BENEFIT PLANS

PENSION PLAN
The Company has a non-contributory defined benefit pension plan (the "Plan"),
which provides benefits to eligible employees. Pension expense for 1993, 1992
and 1991 for the Plan included the following components:
<TABLE>
<CAPTION>

- ------------------------------------------------------------------------------------------------
1993 1992 1991
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 9,906 $ 8,792 $ 7,676
Interest cost on projected benefit obligation 14,017 12,495 11,088
Actual return on Plan assets (20,203) (9,389) (13,593)
Net amortization and deferral 9,247 (739) 6,982
-------- -------- ---------
Net periodic pension cost $ 12,967 $ 11,159 $ 12,153
======== ======== ========
</TABLE>

FORTY-EIGHT
<PAGE> 22
The following table summarizes the funded status and the (prepaid pension
cost) pension liability included in the Company's Consolidated Statements of
Financial Condition at December 31, 1993 and 1992:
<TABLE>
<CAPTION>

- ------------------------------------------------------------------------------------------------
1993 1992
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested $192,910 $140,109
Non-vested 5,045 7,633
-------- --------
Accumulated benefit obligation 197,955 147,742
Effect of projected future compensation levels 11,087 7,140
-------- --------
Projected benefit obligation 209,042 154,882
Estimated market value of Plan assets 219,258 129,783
-------- --------
Projected benefit obligation (less than) in excess of Plan assets (10,216) 25,099
Unrecognized net assets existing at January 1, 1987
being recognized over fifteen years 7,045 7,885
Unrecognized prior service cost (9,892) (15,176)
Unrecognized net loss and actuarial experience (59,878) (22,383)
Adjustment required to recognize minimum liability -- 22,534
-------- --------
(Prepaid pension cost) pension liability at year-end $(72,941) $ 17,959
======== ========
</TABLE>

The projected benefit obligation for the Plan was determined, for 1993 and
1992, using an assumed discount rate of 7 3/4% and 9 1/4%, respectively, and
an assumed rate of compensation increase of 5%. The weighted average assumed
rate of return on Plan assets was 9 1/2% for 1993 and 11% for 1992 and 1991.
The Company's funding policy is to contribute to the Plan amounts that can
be deducted for Federal income tax purposes. The Company's contributions paid
for the Plan years 1993, 1992 and 1991 were $60,899, $33,322 and $21,082,
respectively. Plan assets consist primarily of equity securities and U.S.
government and agency obligations.

SAVINGS INVESTMENT PLAN
The PaineWebber Savings Investment Plan ("SIP") is a defined contribution plan
for eligible employees of the Company. Under SIP, employee contributions are
matched by the Company on a graduated scale, which is based, in part, on the
Company's pre-tax return on equity and the compensation of eligible employees.
The provision for Company contributions for amounts contributed or to be
contributed in cash or stock to SIP amounted to approximately $3,400, $3,000
and $900 for the years ended December 31, 1993, 1992 and 1991, respectively.

OTHER BENEFIT PLANS
The Company also provides certain life insurance and health care benefits to
employees. The costs of such benefits for the years ended December 31, 1993,
1992 and 1991 were $45,800, $41,000 and $36,400, respectively.

FORTY-NINE
<PAGE> 23
INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. For financial reporting
purposes, deferred tax assets are reflected without reduction for a valuation
allowance. Significant components of the Company's deferred tax assets and
liabilities as of December 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>

- ----------------------------------------------------------------------------------
1993 1992
- ----------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Employee benefits $ 57,489 $ 66,691
Accrued liabilities 30,735 28,167
Valuation of securities inventory 6,857 --
-------- --------
Total deferred tax assets 95,081 94,858
-------- --------

DEFERRED TAX LIABILITIES:
Tax over book depreciation 13,087 14,689
Accelerated deductions 24,608 13,944
Safe harbor leases 6,625 7,047
Other 12,674 16,395
Valuation of securities inventory -- 1,087
-------- --------
Total deferred tax liabilities 56,994 53,162
-------- --------
Net deferred tax assets $ 38,087 $ 41,696
======== ========
</TABLE>

For financial reporting purposes, income before taxes includes the
following components:
<TABLE>
<CAPTION>

- ------------------------------------------------------------------------------------------------
1993 1992 1991
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pre-tax income:
United States $359,042 $297,844 $203,328
Foreign 48,534 41,271 22,919
-------- -------- --------
$407,576 $339,115 $226,247
======== ======== ========
</TABLE>

Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Deferred
Liability Method Method
- ------------------------------------------------------------------------------------------------
1993 1992 1991
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $103,890 $ 89,510 $ 38,481
State 35,403 30,386 15,420
Foreign 18,491 14,173 6,623
-------- -------- --------
Total current $157,784 $134,069 $ 60,524
======== ======== ========

Deferred:
Federal $ 7,935 $ (6,605) $ 15,007
State (737) (1,524) --
Foreign (3,589) -- --
-------- -------- --------
Total deferred $ 3,609 $ (8,129) $ 15,007
======== ======== ========

</TABLE>
FIFTY
<PAGE> 24
The components of the provision for deferred income taxes for the year
ended December 31, 1991 are as follows:
<TABLE>
<CAPTION>

- ---------------------------------------------------------------------------------
1991
- ---------------------------------------------------------------------------------
<S> <C>
Valuation of securities inventory $ 25,566
Certain receivables and payables (8,549)
Employee benefits (2,251)
Depreciation (1,411)
Safe harbor leases 112
Other, net 1,540
---------
$ 15,007
=========
</TABLE>

The reconciliations of income tax, computed at the U.S. federal statutory
tax rates to income tax expense, are as follows:

<TABLE>
<CAPTION>
Liability Method Deferred Method
- --------------------------------------------------------------------------------------------------
1993 1992 1991
- --------------------------------------------------------------------------------------------------
Amount % Amount % Amount %
------------------ ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. statutory rates $ 142,652 35.0% $ 115,299 34.0% $ 76,924 34.0%
State, local and foreign
income taxes, net of
federal tax benefit 22,533 5.5 18,922 5.6 10,304 4.6
Foreign rate differential (4,636) (1.1) (2,220) (0.7) (1,372) (0.6)
Nontaxable dividends
and interest (2,383) (0.6) (2,599) (0.8) (7,506) (3.3)
Other, net 3,227 0.8 (3,462) (1.0) (2,819) (1.3)
--------- ---- --------- ---- -------- ----
$ 161,393 39.6% $ 125,940 37.1% $ 75,531 33.4%
========= ==== ========= ==== ======== ====
</TABLE>

Income taxes paid for the years ended December 31, 1993, 1992 and 1991 were
$128,089, $96,941 and $26,983, respectively.
The Company revised its annual effective tax rate to reflect a change in
the federal statutory rate from 34% to 35%, which was retroactive to January 1,
1993.

EARNINGS PER COMMON SHARE
Primary earnings per common share are computed based on the weighted average
number of common and common equivalent shares outstanding. Common equivalent
shares include the dilutive effect of shares issuable under the Company's stock
option and award plans and the assumed conversion of the Company's
Participating Preferred Stock which was issued during 1992. The 6.5% Debentures
issued during 1992 did not have a dilutive effect on primary or fully diluted
earnings per common share and therefore were excluded from the computations.
For the years ended December 31, 1993, 1992 and 1991, net income was reduced by
the preferred stock dividend on the $1.375 Preferred Stock. For the years ended
December 31, 1992 and 1991, net income was further reduced by the preferred
stock dividend requirements on the 7% Cumulative Convertible Exchangeable
Voting Preferred Stock, Series A ("7% Preferred Stock") in computing primary
earnings per common share.
Fully diluted earnings per common share for the years ended December 31,
1993, 1992 and 1991, in addition to the above, assumes the conversion of the
$1.375 Preferred Stock and the 8% Debentures. Fully diluted earnings per common
share for 1992 and 1991 also include the dilutive effect of the 7% Preferred
Stock. Net income used in computing fully diluted earnings per common share for
the years ended December 31, 1993, 1992 and 1991 was adjusted for the interest
savings, net of taxes, on the 8% Debentures.

FIFTY-ONE
<PAGE> 25
The Company had the following weighted average number of common and
dilutive common equivalent shares outstanding:

<TABLE>
<CAPTION>
Years Ended December 31,
- ------------------------------------------------------------------------------------------------
1993 1992 1991
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Primary:
Weighted average common shares outstanding 68,535,178 61,956,106 56,542,322
Weighted average effect of stock options and awards 5,824,821 5,611,289 4,203,352
Weighted average effect of Participating Preferred Stock 4,329,959 1,812,468 --
---------- ---------- ----------
Weighted average common and common equivalent shares 78,689,958 69,379,863 60,745,674
========== ========== ==========

Fully Diluted:
Weighted average common shares outstanding 68,535,178 61,956,106 56,542,322
Weighted average effect of stock options and awards 6,785,963 6,710,424 8,229,031
Weighted average effect of Participating Preferred Stock 4,329,959 1,812,468 --
Weighted average common shares issuable assuming
conversion of 8% Debentures and equity securities 4,676,191 21,886,440 30,406,822
---------- ---------- ----------
Weighted average common and common equivalent shares 84,327,291 92,365,438 95,178,175
========== ========== ==========
</TABLE>

The preferred stock transactions during 1993, which have been described in
the Stockholders' Equity note on page 47, have resulted in a change in the
weighted average common and common equivalent shares used for the computation
of earnings per share. Pro forma earnings per common share, giving effect to
these preferred stock transactions at the beginning of 1993, were $3.31 primary
and $3.18 fully diluted for the year ended December 31, 1993.

SUBSEQUENT EVENT
On February 3, 1994, the Board of Directors of the Company declared a
three-for-two common stock split in the form of a 50% stock dividend, effective
on March 10, 1994 to stockholders of record on February 17, 1994. All per
common share and share amounts have been retroactively adjusted throughout the
consolidated financial statements and the notes thereto, for all periods
presented.
On February 3, 1994, the Board of Directors also declared a 20% increase in
the common stock dividend to $.12 per share from $.10 per share, payable on
April 18, 1994 to stockholders of record on March 28, 1994.

FIFTY-TWO
<PAGE> 26
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Paine Webber Group Inc.

We have audited the accompanying consolidated statements of financial condition
of Paine Webber Group Inc. as of December 31, 1993 and 1992 and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Paine Webber
Group Inc. at December 31, 1993 and 1992 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.

/s/ ERNST & YOUNG
---------------------
ERNST & YOUNG

New York, New York
January 24, 1994
Except for the note as to the subsequent event, for which the date is
February 3, 1994

FIFTY-THREE
<PAGE> 27
FIVE YEAR FINANCIAL SUMMARY
(In thousands of dollars except share and per share amounts)

<TABLE>
<CAPTION>
Years Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------------------
Amount % Amount % Amount % Amount % Amount %
---------------- --------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
COMMISSIONS
Listed securities $ 525,541 18.3 $ 434,957 17.5 $ 390,434 18.5 $ 344,579 19.8 $ 374,993 21.7
Mutual funds 161,661 5.6 127,425 5.1 104,087 4.9 67,157 3.9 66,260 3.8
Options 74,058 2.6 65,615 2.6 47,092 2.2 46,372 2.7 49,694 2.9
Direct investments 4,553 0.2 15,288 0.6 24,937 1.2 39,326 2.3 52,273 3.0
Commodities 55,374 1.9 71,900 2.9 67,463 3.2 71,006 4.1 52,855 3.1
Over-the-counter
securities 77,471 2.7 53,874 2.2 42,250 2.0 28,626 1.6 36,699 2.1
Insurance 97,469 3.4 52,819 2.2 46,785 2.2 55,172 3.2 44,662 2.6
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
996,127 34.7 821,878 33.1 723,048 34.2 652,238 37.6 677,436 39.2
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
PRINCIPAL TRANSACTIONS
Corporate securities 345,360 12.0 293,422 11.8 365,815 17.4 240,122 13.8 239,266 13.9
U.S. government and
agency obligations 321,514 11.2 331,071 13.3 205,565 9.7 158,077 9.1 86,009 5.0
Municipal obligations 112,570 3.9 95,296 3.8 77,912 3.7 69,759 4.0 61,003 3.5
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
779,444 27.1 719,789 28.9 649,292 30.8 467,958 26.9 386,278 22.4
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
INVESTMENT BANKING
Selling concessions and
underwriting fees:
Corporate securities 223,745 7.8 217,180 8.8 160,950 7.6 101,540 5.9 83,994 4.9
Municipal obligations 55,573 1.9 40,705 1.6 30,288 1.4 28,849 1.7 24,619 1.4
Underwriting
management fees:
Corporate securities 70,510 2.4 51,394 2.1 37,485 1.8 25,091 1.4 20,872 1.2
Municipal obligations 13,303 0.5 9,385 0.4 6,033 0.3 6,965 0.4 7,275 0.4
Private placement and
other fees 50,512 1.8 65,657 2.6 62,847 3.0 72,995 4.2 122,860 7.1
---------- ----- --------- ------ ---------- ----- --------- ----- ---------- -----
413,643 14.4 384,321 15.5 297,603 14.1 235,440 13.6 259,620 15.0
---------- ----- --------- ------ ---------- ----- --------- ----- ---------- -----
ASSET MANAGEMENT 325,690 11.3 267,088 10.8 217,433 10.3 181,324 10.4 158,953 9.2
---------- ----- --------- ------ ---------- ----- --------- ----- ---------- -----
OTHER 113,253 3.9 76,114 3.1 64,271 3.1 47,038 2.7 32,574 1.9
---------- ----- --------- ----- ---------- ----- --------- ----- ---------- -----
INTEREST
Resale agreements 419,520 14.6 382,766 15.4 457,507 21.7 673,742 38.8 652,065 37.8
Securities inventory 621,828 21.6 463,956 18.7 443,114 21.0 369,265 21.3 345,639 20.0
Client margin accounts 158,440 5.5 132,388 5.3 133,711 6.4 160,151 9.2 181,529 10.5
Other 176,772 6.2 115,431 4.6 179,916 8.5 191,349 11.0 231,715 13.4
---------- ----- ---------- ----- ---------- ----- --------- ----- ---------- -----
1,376,560 47.9 1,094,541 44.0 1,214,248 57.6 1,394,507 80.3 1,410,948 81.7
---------- ----- ---------- ----- ---------- ----- --------- ----- ---------- -----
TOTAL REVENUES 4,004,717 139.3 3,363,731 135.4 3,165,895 150.1 2,978,505 171.5 2,925,809 169.4
INTEREST EXPENSE 1,130,712 (39.3) 879,242 (35.4) 1,056,124 (50.1) 1,242,151 (71.5) 1,198,640 (69.4)
---------- ----- ---------- ----- ---------- ----- --------- ----- ---------- -----
NET REVENUES $2,874,005 100.0 $2,484,489 100.0 $2,109,771 100.0 $1,736,354 100.0 $1,727,169 100.0
========== ===== ========== ===== ========== ===== ========== ===== ========== =====
</TABLE>

FIFTY-FOUR
<PAGE> 28
FIVE YEAR FINANCIAL SUMMARY
(In thousands of dollars except share and per share amounts)

* Retroactively adjusted to reflect a three-for-two common stock split in the
form of a 50% stock dividend effective March 10, 1994 to stockholders of
record on February 17, 1994, in addition to the three-for-two common stock
split in December 1991.

FIFTY-FIVE
<PAGE> 29
COMMON STOCK AND QUARTERLY INFORMATION

Per share data for all periods presented have been retroactively adjusted to
reflect a three-for-two common stock split in the form of a 50% stock dividend
effective March 10, 1994 to stockholders of record on February 17, 1994.

COMMON STOCK DIVIDEND HISTORY
During 1993, Paine Webber Group Inc. continued its policy of paying quarterly
common stock dividends. Dividends declared during the last twelve quarters
follow:
<TABLE>
<CAPTION>
Calendar Quarter
- ------------------------------------------------------------------------------------------------
1st 2nd 3rd 4th
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1993 $ .08 $ .10 $ .10 $ .10
1992 .067 .08 .08 .08
1991 .058 .058 .058 .067
</TABLE>

On February 3, 1994, Paine Webber Group Inc. declared its 1994 first
quarter dividend of $.12 per share, an increase of 20% over the fourth quarter
of 1993. However, there is no assurance that dividends will continue to be paid
in the future since they are dependent upon income, financial condition and
other factors, including the restrictions described under "Stockholders'
Equity" in the Notes to Consolidated Financial Statements.

MARKET FOR COMMON STOCK
The common stock of Paine Webber Group Inc. is listed on the New York Stock
Exchange ("NYSE") and the Pacific Stock Exchange. The following table
summarizes the high and low sales prices per share of the common stock as
reported on the Composite Tape for the periods indicated:
<TABLE>
<CAPTION>

- ------------------------------------------------------------------------------------------------
High Low
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
CALENDAR 1993
4th Quarter $ 23.09 $ 17.00
3rd Quarter 22.83 18.58
2nd Quarter 19.75 15.83
1st Quarter 18.17 14.08
======= =======
CALENDAR 1992
4th Quarter $ 16.67 $ 10.50
3rd Quarter 15.42 11.33
2nd Quarter 15.83 11.67
1st Quarter 17.83 14.67
======= =======
</TABLE>

On February 11, 1994, the last reported sale price per share of common
stock on the NYSE was $17.58. The approximate number of holders of record of
Paine Webber Group Inc. common stock as of the close of business on February
17, 1994 was 6,325. Included as one holder of record is PaineWebber
Incorporated which holds securities beneficially owned by approximately 4,612
clients.

QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(In thousands of dollars except per share amounts)

<TABLE>
<CAPTION>
Earnings per
Income common share
Total Net before Net Primary/Fully
Revenues Revenues taxes Income diluted
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CALENDAR 1993
4th Quarter $1,075,830 $754,037 $ 94,791 $56,875 $ .74/.72
3rd Quarter 1,043,250 736,755 99,367 59,123 .75/.72
2nd Quarter 954,936 686,463 97,215 59,301 .74/.69
1st Quarter 930,701 696,750 116,203 70,884 .89/.84
========== ======== ========= ======= =========
CALENDAR 1992
4th Quarter $ 836,037 $607,870 $ 66,809 $41,422 $ .52/.49
3rd Quarter 836,537 625,818 83,342 51,672 .71/.58
2nd Quarter 816,836 592,072 73,800 45,756 .62/.53
1st Quarter 874,321 658,729 115,164 74,325 1.02/.80
========== ======== ========= ======= ========
</TABLE>

The sum of the quarterly earnings per share amounts does not equal the
annual amounts reported, as per share amounts are computed independently for
each quarter and full year based on the respective weighted average common and
common equivalent shares outstanding during each period.

FIFTY-SIX

<PAGE> 1

EXHIBIT 21

PAINE WEBBER GROUP INC.
SUBSIDIARIES OF THE REGISTRANT

A list of significant subsidiaries, all of which are consolidated, of Paine
Webber Group Inc. as of December 31, 1993 and the state or jurisdiction in
which organized follows. In each case, 100% of the voting securities are
owned by the subsidiary's immediate parent as indicated by indentation.
Certain subsidiaries have been omitted because, in the aggregate, they do
not constitute a significant subsidiary.

<TABLE>
<CAPTION>
State or
jurisdiction of
Name organization
--- ---------------
<S> <C>
Paine Webber Group Inc. Delaware

PaineWebber Incorporated Delaware

Mitchell Hutchins Asset Management Inc. Delaware

PaineWebber Real Estate Securities Inc. Delaware
</TABLE>

<PAGE> 1

EXHIBIT 23

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in this Annual Report on Form
10-K of Paine Webber Group Inc. of our report dated January 24, 1994 except
for the note as to the subsequent event for which the date is February 3,
1994, included in the 1993 Annual Report to Stockholders of Paine Webber
Group Inc.

Our audits also included the consolidated financial statement schedules of
Paine Webber Group Inc. listed in item 14(a). These schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, the consolidated financial
statement schedules referred to above, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.

We also consent to the incorporation by reference in the registration
statements on Form S-8 (Registration Nos. 2-56284, 2-64984, 2-74819, 2-78627,
2-81554, 2-87418, 2-92770, 33-2959, 33-20240, 33-22265, 33-39539 and
33-45583) and on Form S-3(Registration Nos. 2-99979, 2-80528, 33-1985,
33-7738, 33-29253, 33-33613, 33-38960, 33-39818, 33-45041, 33-45148,
33-47267, 33-56156, 33-58124, 33- 53776 and 33-51149) of Paine Webber Group
Inc. and in the related prospectuses, of the Report with respect to the
consolidated financial statements and consolidated financial statement
schedules of Paine Webber Group Inc. included or incorporated by reference in
this 1993 Annual Report on Form 10-K for the year ended December 31, 1993.

ERNST & YOUNG
NEW YORK, NEW YORK
MARCH 25, 1994