<PAGE> 1
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED OCTOBER 14, 1993)
4,100,000 WARRANTS
PAINE WEBBER GROUP INC.
AMEX HONG KONG 30 INDEX* PUT WARRANTS
EXPIRING JANUARY 17, 1996
------------------------
Each Warrant will entitle the holder thereof to receive from Paine Webber
Group Inc. (the "Company"), upon exercise (including automatic exercise), an
amount in U.S. dollars computed by reference to decreases in the American Stock
Exchange Hong Kong 30 Index (the "AMEX Hong Kong 30 Index"). Such amount (the
"Cash Settlement Value") will equal the quotient (rounded down to the nearest
cent) of (A) the amount, if any, by which the Strike AMEX Hong Kong 30 Index (as
defined herein) exceeds the Spot AMEX Hong Kong 30 Index (as defined herein) for
the applicable Valuation Date (as defined herein) following exercise, divided by
(B) three, divided by (C) a fixed Hong Kong dollar/U.S. dollar exchange rate of
H.K.$7.726 per U.S.$1.00. If the Spot AMEX Hong Kong 30 Index for such Valuation
Date equals or exceeds the Strike AMEX Hong Kong 30 Index, the Cash Settlement
Value will be zero; in which case, the Warrantholder will be permitted, subject
to certain exceptions, to re-exercise such Warrant prior to the Expiration Date
or the Delisting Date (as defined herein). The Strike AMEX Hong Kong 30 Index is
541.73, which was the closing level of the AMEX Hong Kong 30 Index on January
14, 1994. As of January 14, 1994, the Spot AMEX Hong Kong 30 Index is 541.73 and
the Cash Settlement Value of the Warrants is zero. The AMEX Hong Kong 30 Index
was established on June 25, 1993, on which date it was set at a value of 350.00.
The Warrants are unsecured contractual obligations of the Company and will
rank on a parity with the Company's other unsecured contractual obligations and
with the Company's unsecured and unsubordinated debt.
THE WARRANTS INVOLVE A HIGH DEGREE OF RISK, INCLUDING THE RISK OF EXPIRING
WORTHLESS IF THE LEVEL OF THE AMEX HONG KONG 30 INDEX DOES NOT DECLINE PRIOR TO
THE EXPIRATION DATE. PURCHASERS SHOULD BE PREPARED TO SUSTAIN A TOTAL LOSS OF
THE PURCHASE PRICE OF THEIR WARRANTS AND ARE ADVISED TO CONSIDER CAREFULLY THE
INFORMATION UNDER "CERTAIN IMPORTANT INFORMATION CONCERNING THE WARRANTS" HEREIN
AND "RISK FACTORS" IN THE PROSPECTUS, AS WELL AS THE OTHER INFORMATION HEREIN
AND IN THE PROSPECTUS.
The Warrants have been approved for listing on the American Stock Exchange
(the "AMEX"), subject to official notice of issuance. The AMEX symbol for the
Warrants is HPW.WS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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Price to Underwriting Discounts Proceeds to
Public and Commissions(1) Company(2)
- ---------------------------------------------------------------------------------------------------------
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Per Warrant......................... $5.125 $0.25 $4.875
- ---------------------------------------------------------------------------------------------------------
Total............................... $21,012,500 $1,025,000 $19,987,500
- ---------------------------------------------------------------------------------------------------------
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(1) See "Underwriting" herein.
(2) Before deducting expenses estimated at $130,000, which are payable by the
Company.
------------------------
The Warrants are offered by the Underwriters, subject to prior sale, when,
as and if delivered to and accepted by the Underwriters, and subject to their
right to reject any order in whole or in part. It is expected that delivery of
the Warrants will be made in New York City on or about January 24, 1994.
------------------------
PAINEWEBBER INCORPORATED
OPPENHEIMER & CO., INC.
KEMPER SECURITIES, INC.
------------------------
* The use of and reference to the term "AMEX Hong Kong 30 Index" herein has
been consented to by the American Stock Exchange, Inc. The "AMEX Hong Kong 30
Index" is a service mark of the American Stock Exchange, Inc.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS JANUARY 14, 1994.
<PAGE> 2
The valuation of and payment for any exercised Warrant (including in the
case of automatic exercise) may be postponed as a result of an Exercise
Limitation Event or an Extraordinary Event or as a result of the exercise of a
number of Warrants exceeding the limits on exercise described herein under
"Description of the Warrants -- Maximum Exercise Amount", in which case the
Warrantholder will receive a Cash Settlement Value or, under certain
circumstances, the Alternative Settlement Amount (as defined herein) for such
Warrant, in either case determined as of a later date. See "Description of the
Warrants -- Extraordinary Events and Exercise Limitation Events" and "-- Maximum
Exercise Amount" herein.
The Warrants will be exercisable immediately upon issuance and may be
exercised until 3:00 P.M., New York City time, on the New York Business Day (as
defined herein) immediately preceding the Expiration Date for the Warrants,
which is January 17, 1996, or until their earlier expiration on the last New
York Business Day prior to the effective date of their delisting from, or
permanent suspension from trading on, the AMEX and failure to list on another
United States national securities exchange (the "Delisting Date"). Any Warrant
not exercised at or before 3:00 P.M., New York City time, on such New York
Business Day will be automatically exercised on such date. A Warrantholder may
exercise no fewer than 500 Warrants at any one time, except in the case of
automatic exercise. A Warrantholder tendering Warrants for exercise will have
the option of specifying that, unless an Alternative Settlement Amount is
payable in respect of such Warrants, such Warrants are not to be exercised if
the Spot AMEX Hong Kong 30 Index as of the applicable Valuation Date is 20 or
more points higher than the most recent closing level of the AMEX Hong Kong 30
Index prior to exercise. All exercises of Warrants (other than on the Expiration
Date, the Delisting Date or upon the occurrence of certain extraordinary
circumstances) are subject, at the Company's option, to the limitation that not
more than 1,000,000 Warrants in total may be exercised on any Exercise Date (as
defined herein) and not more than 250,000 Warrants may be exercised by or on
behalf of any person or entity, either individually or in concert with any other
person or entity, on any Exercise Date. See "Certain Important Information
Concerning the Warrants" and "Description of the Warrants" herein and
"Description of Warrants" in the Prospectus.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE WARRANTS
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
------------------
FOR NORTH CAROLINA INVESTORS ONLY: THE COMMISSIONER OF INSURANCE OF THE
STATE OF NORTH CAROLINA HAS NOT APPROVED OR DISAPPROVED THIS OFFERING, NOR HAS
THE COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS.
------------------
S-2
<PAGE> 3
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in the Prospectus and this Prospectus Supplement
and in the documents incorporated therein and herein by reference. Appendix B
hereto (the "Index of Key Terms") contains a listing of defined terms and pages
on which they are defined in this Prospectus Supplement.
PAINE WEBBER GROUP INC.
Paine Webber Group Inc. (the "Company") is a holding company which,
together with its operating subsidiaries, forms one of the largest full-service
securities firms in the industry. Founded in 1879, the Company has offices
located throughout the United States and in many major foreign cities. 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 ("PaineWebber"), and
other specialized subsidiaries. The Company is comprised of four interrelated
core business groups -- Retail Sales and Marketing, Asset Management,
Institutional Sales and Trading, and Investment Banking.
See "Selected Consolidated Financial Data" in the Prospectus for
information concerning the Company's earnings and financial condition.
THE OFFERING
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SECURITIES OFFERED...................... AMEX Hong Kong 30 Index Put Warrants Expiring
January 17, 1996 (the "Warrants"). Each Warrant
will entitle the beneficial owner thereof to
receive from the Company, upon exercise (including
automatic exercise), an amount in U.S. dollars
computed by reference to decreases in the American
Stock Exchange Hong Kong 30 Index (the "AMEX Hong
Kong 30 Index"). Such amount (the "Cash Settlement
Value") will equal the quotient (rounded down to
the nearest cent) of (A) the amount, if any, by
which the Strike AMEX Hong Kong 30 Index (as
hereinafter defined) exceeds the Spot AMEX Hong
Kong 30 Index (as hereinafter defined) for the
applicable Valuation Date (as hereinafter defined)
following exercise, divided by (B) three, divided
by (C) a fixed Hong Kong dollar/U.S. dollar
exchange rate of H.K.$7.726 per U.S.$1.00. If the
Spot AMEX Hong Kong 30 Index for a Valuation Date
equals or exceeds the Strike AMEX Hong Kong 30
Index, the corresponding Cash Settlement Value will
be zero; in which case, the Warrantholder will be
permitted, subject to certain exceptions, to
re-exercise such Warrant prior to the Expiration
Date or the Delisting Date (as hereinafter
defined). The Strike AMEX Hong Kong 30 Index is
541.73, which was the closing level of the AMEX
Hong Kong 30 Index on January 14, 1994. As of
January 14, 1994, the Spot AMEX Hong Kong 30 Index
is 541.73 and the Cash Settlement Value of the
Warrants is zero.
PRICE................................... U.S.$5.125 per Warrant.
THE AMEX HONG KONG 30 INDEX............. The AMEX Hong Kong 30 Index is a new
capitalization-weighted stock index designed,
developed, maintained and operated by, and is a
service mark of, the American Stock Exchange (the
"AMEX"). The AMEX Hong Kong 30 Index is being used
by the Company with the permission of the
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AMEX. The AMEX Hong Kong 30 Index measures the
composite price performance of 30 selected stocks
trading on The Stock Exchange of Hong Kong Ltd.
(the "HKSE"), and is designed to represent a
substantial segment of the Hong Kong stock market.
Business sector representation in the AMEX Hong
Kong 30 Index consists primarily of finance,
property development, utilities and conglomerates
and also includes food retailing, hotel/leisure,
property investment, airlines and luxury retailing.
The AMEX Hong Kong 30 Index was established on June
25, 1993, on which date it was set at a value of
350.00.
Stocks that comprise the AMEX Hong Kong 30 Index
may be changed or substituted by the AMEX based on
certain criteria. The AMEX is under no obligation
to continue the calculation or the dissemination of
the AMEX Hong Kong 30 Index. See "The AMEX Hong
Kong 30 Index" herein. If the AMEX discontinues
publication of the AMEX Hong Kong 30 Index or any
Successor Index (as hereinafter defined), the
Determination Agent (as hereinafter defined) shall
determine the applicable Cash Settlement Value
based on the formula and method used in calculating
the AMEX Hong Kong 30 Index or any Successor Index
as in effect on the date the AMEX Hong Kong 30
Index or such Successor Index was last published.
See "Certain Important Information Concerning the
Warrants" herein.
EXERCISE OF WARRANTS.................... The Warrants will be immediately exercisable upon
issuance (subject to postponement as described
herein under "Description of the
Warrants -- Extraordinary Events and Exercise
Limitation Events") and may be exercised until 3:00
P.M., New York City time, on the earlier of (i) the
New York Business Day (as hereinafter defined)
immediately preceding the Expiration Date for the
Warrants, which is January 17, 1996 (the
"Expiration Date"), or (ii) the last New York
Business Day prior to the effective date of their
delisting from, or permanent suspension from
trading on (within the meaning of the Securities
Exchange Act of 1934 and the rules and regulations
thereunder), the AMEX and failure to list on
another United States national securities exchange
(the "Delisting Date"). See "Description of the
Warrants -- Exercise and Settlement of Warrants"
herein.
EXERCISE AMOUNT......................... A Warrantholder may exercise no fewer than 500
Warrants at any one time, except in the case of
automatic exercise. See "Description of the
Warrants -- Minimum Exercise Amount" herein. All
exercises of Warrants (other than on the Expiration
Date or the Delisting Date or upon the cancellation
of Warrants as described herein under "Description
of the Warrants -- Extraordinary Events and
Exercise Limitation Events") are subject, at the
Company's option, to the limitation that not more
than 1,000,000 Warrants in total may be exercised
on any Exercise Date and not more than 250,000
Warrants may be exercised by or on behalf of any
person or entity, either individually or in concert
with any
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other person or entity, on any Exercise Date. See
"Description of the Warrants -- Maximum Exercise
Amount" herein.
EXTRAORDINARY EVENTS AND EXERCISE
LIMITATION EVENTS..................... See "Description of the Warrants -- Extraordinary
Events and Exercise Limitation Events" herein for a
description of such Events and the consequences of
the declaration of such an Event by the Company.
CERTAIN RISK FACTORS.................... The Warrants involve a high degree of risk,
including risks arising from fluctuations in the
prices of the Underlying Stocks (as hereinafter
defined), risks relating to the AMEX Hong Kong 30
Index and general risks applicable to the HKSE (the
exchange on which the Underlying Stocks are
traded), such as for example, market disruption
events, suspensions and trading halts. Prospective
purchasers of the Warrants should recognize that
their Warrants may expire worthless. Purchasers
should be prepared to sustain a total loss of the
purchase price of their Warrants. The Warrants are
appropriate investments only for investors with
options approved accounts who are able to
understand and bear the risk of a speculative
investment in the Warrants.
It is not possible to predict how the Warrants will
trade in the secondary market or whether such
market will be liquid or illiquid.
The Warrants have been approved for listing on the
AMEX, subject to official notice of issuance. In
the event that the Warrants are delisted from, or
permanently suspended from trading on, the AMEX,
and not accepted at the same time for listing on
another United States national securities ex-
change, Warrants not previously exercised will be
deemed automatically exercised on the last New York
Business Day prior to the effective date of such
delisting or suspension, and the Cash Settlement
Value, if any, shall be calculated and settled as
provided below under "Description of the War-
rants -- Automatic Exercise". See "Description of
the Warrants -- Delisting of Warrants" herein. In
the event of a delisting or suspension of trading
on the AMEX, the Company will use its best efforts
to list the Warrants on another United States
national securities exchange. To the extent
Warrants are exercised, the number of Warrants
outstanding will decrease, resulting in a decrease
in the liquidity of the Warrants.
The AMEX Hong Kong 30 Index has experienced
significant movements in the past, and it is
impossible to predict its future direction. See
"The AMEX Hong Kong 30 Index -- Historical Data on
the AMEX Hong Kong 30 Index" herein.
Potential investors should be aware that
PaineWebber, in its capacity as Determination
Agent, is under no obligation to take the interests
of the Company or the Warrantholders into
consideration in the event it determines, composes
or calculates the Cash Settlement Value. However,
PaineWebber is an affiliate of the Company, and
certain conflicts of interest
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may arise in connection with PaineWebber performing
its role as Determination Agent. PaineWebber, as a
registered broker-dealer, is required to maintain
policies and procedures regarding the handling and
use of confidential proprietary information, and
such policies and procedures will be in effect
throughout the term of the Warrants to restrict the
use of information relating to the calculation of
the Cash Settlement Value prior to its
dissemination. Moreover, PaineWebber is obligated
to carry out its duties and functions as
Determination Agent in good faith and using its
reasonable judgment. See "Description of the
Warrants -- Exercise and Settlement of Warrants".
Except for cases of automatic exercise, a
Warrantholder must tender at least 500 Warrants at
any one time in order to exercise its Warrants.
Thus, except in such cases, Warrantholders with
fewer than 500 Warrants will need either to sell
their Warrants or to purchase additional Warrants,
incurring transaction costs in each case, in order
to realize upon their investment.
A Warrantholder will not be able to determine, at
the time of exercise of a Warrant, the Spot AMEX
Hong Kong 30 Index that will be used in calculating
the Cash Settlement Value of such Warrant (and will
thus be unable to determine such Cash Settlement
Value). In addition, the Valuation Date for
exercised Warrants may be postponed upon the
occurrence and continuation of an Extraordinary
Event or an Exercise Limitation Event (see
"Description of the Warrants -- Extraordinary
Events and Exercise Limitation Events" herein) or
as a result of the exercise of a number of Warrants
exceeding the limits on exercise described below
under "Description of the Warrants -- Maximum
Exercise Amount". Any upward movement in the level
of the AMEX Hong Kong 30 Index between the time a
Warrantholder submits an Exercise Notice and the
time the Spot AMEX Hong Kong 30 Index for such
exercise is determined (which period will, at a
minimum, represent an entire Hong Kong Business Day
(as hereinafter defined) and, in the case of a
Valuation Date that is postponed following an
Extraordinary Event or an Exercise Limitation Event
or in the case of a postponement resulting from the
exercise of a number of Warrants exceeding the
limits on exercise described below under
"Description of the Warrants -- Maximum Exercise
Amount", may be substantially longer) will result
in such Warrantholder receiving a Cash Settlement
Value or Alternative Settlement Amount (as
hereinafter defined) (including a zero Alternative
Settlement Amount) that is less than the Cash
Settlement Value anticipated by such Warrantholder
based on the level of the AMEX Hong Kong 30 Index
most recently reported prior to exercise. The AMEX
will calculate the AMEX Hong Kong 30 Index once
each Index Calculation Day (as hereinafter defined)
based upon the most recent official closing prices
of each of the Underly-
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ing Stocks as reported by the HKSE. Due to time
differences, trading on the HKSE occurs when the
AMEX is closed for business.
If the Company determines that on a Valuation Date
an Extraordinary Event or Exercise Limitation Event
has occurred and is continuing, then the Cash
Settlement Value may be calculated on the basis
that the Valuation Date shall be later than the
date otherwise provided herein. Circumstances
existed from October 20 through October 23, 1987
(prior to the inception of the AMEX Hong Kong 30
Index), on July 22, 1992 and on September 17, 1993,
that would have constituted an Extraordinary Event
and an Exercise Limitation Event. See "Description
of the Warrants -- Extraordinary Events and
Exercise Limitation Events" herein.
Investors are advised to consider carefully the
foregoing risk factors and the risks and other
matters discussed under "Risk Factors" in the
Prospectus and "Certain Important Information
Concerning the Warrants", "Description of the War-
rants" and "Certain United States Federal Income
Tax Considerations" herein prior to purchasing the
Warrants.
WHO SHOULD INVEST....................... The AMEX requires that the Warrants be sold only to
investors whose accounts have been approved for
options trading. In addition, the AMEX requires
that its members and member organizations and
registered employees thereof make certain
suitability determinations before recommending
transactions in Warrants.
Investment decisions relating to international
stock index warrants require an investor to predict
the direction of movements in the underlying index
as well as the amount and timing of those
movements. International stock index warrants may
change substantially in value, or lose all of their
value, with relatively small movements in the
underlying index. Moreover, an index warrant is a
"wasting asset" in that, in the absence of
countervailing factors, such as an offsetting
movement in the level of the index, the market
value of an index warrant will tend to decrease
over time and the warrant will have no market value
after the time for exercise has expired.
Accordingly, international stock index warrants
involve a high degree of risk and are not
appropriate for every investor. Investors who are
considering purchasing the Warrants must have an
options approved account, be able to understand and
bear the risk of a speculative investment in the
Warrants, be experienced with respect to options
and option transactions and understand the risks of
stock index transactions. Such investors should
reach an investment decision only after careful
consideration with their advisers of the
suitability of the Warrants in light of their
particular financial circumstances and the
information set forth in this Prospectus Supplement
and the Prospectus. See "Certain Important
Information Concerning the Warrants" herein. As
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indicated above, investors should be prepared to
sustain a total loss of the purchase price of the
Warrants.
LISTING................................. American Stock Exchange
WARRANT TRADING SYMBOL.................. HPW.WS
WARRANT AGENT........................... Citibank, N.A.
DETERMINATION AGENT..................... PaineWebber Incorporated
THE AMEX HONG KONG 30 INDEX QUOTATION
SYMBOL................................ HKX
</TABLE>
S-8
<PAGE> 9
CERTAIN IMPORTANT INFORMATION
CONCERNING THE WARRANTS
The registered or beneficial owner of a Warrant (a "Warrantholder") will
receive a cash payment upon exercise (including automatic exercise) only if such
Warrant has a Cash Settlement Value (or, if applicable, upon the occurrence of
an Extraordinary Event or an Exercise Limitation Event as described under
"Description of the Warrants -- Extraordinary Events and Exercise Limitation
Events" herein, an Alternative Settlement Amount, as hereinafter defined)
greater than zero at such time. Prospective purchasers of the Warrants should
recognize that their Warrants may expire worthless and they should be prepared
to sustain a total loss of the purchase price of their Warrants. The Cash
Settlement Value of a Warrant will be an amount in U.S. dollars equal to the
quotient (rounded down to the nearest cent) of (A) the amount, if any, by which
the Strike AMEX Hong Kong 30 Index exceeds the Spot AMEX Hong Kong 30 Index for
the applicable Valuation Date, divided by (B) three, divided by (C) a fixed Hong
Kong dollar/U.S. dollar exchange rate of H.K.$7.726 per U.S.$1.00. See
"Description of the Warrants -- Cash Settlement Value" herein.
The "Strike AMEX Hong Kong 30 Index" is 541.73, which was the closing level
of the AMEX Hong Kong 30 Index on January 14, 1994. The "Spot AMEX Hong Kong 30
Index" for any date means the closing level on such date of the AMEX Hong Kong
30 Index as compiled and published by the AMEX. See "The AMEX Hong Kong 30
Index" herein. In the event that the AMEX Hong Kong 30 Index is not published by
the AMEX but is published by another person not affiliated with, but acceptable
to, the Company (the "Third Party"), then the Spot AMEX Hong Kong 30 Index for
any date thereafter will be determined based on the closing level of the AMEX
Hong Kong 30 Index as published by such Third Party. If the AMEX or any Third
Party discontinues publication of the AMEX Hong Kong 30 Index and publishes a
successor or substitute index that the Company determines, in its sole
discretion, to be comparable to the AMEX Hong Kong 30 Index (any such index
being a "Successor Index"), then the Spot AMEX Hong Kong 30 Index for any date
thereafter will be determined by the Determination Agent on behalf of the
Company based on the closing level of the Successor Index on such date. If the
AMEX or any Third Party makes a material change in the formula for, or the
method of calculating, the AMEX Hong Kong 30 Index or any Successor Index, the
Determination Agent shall make such calculations as may be required to determine
the applicable Cash Settlement Value using the formula and method of calculating
the Index or any Successor Index as in effect prior to such change or
modification. If the AMEX and/or any Third Party discontinues publication of the
AMEX Hong Kong 30 Index and/or any Successor Index, the Company will cause the
Determination Agent to determine the applicable Cash Settlement Value based on
the formula and method used in calculating the AMEX Hong Kong 30 Index or any
Successor Index as in effect on the date the AMEX Hong Kong 30 Index or such
Successor Index was last published.
Except under the circumstances described in the next paragraph, the
Valuation Date for an exercised Warrant will be the first Index Calculation Day
after the related Exercise Date. The Exercise Date for an exercised Warrant,
subject to certain exceptions described under "-- Exercise and Settlement of the
Warrants", "-- Limit Option" and "-- Automatic Exercise" under "Description of
the Warrants" herein, will be the New York Business Day on which such Warrant
and an Exercise Notice (as hereinafter defined) in proper form are received by
the Warrant Agent (as hereinafter defined) if received at or prior to 3:00 P.M.,
New York City time, on such day; if such Warrant and Exercise Notice are
received after such time, the Exercise Date will be the next succeeding New York
Business Day. See "Description of the Warrants -- Exercise and Settlement of
Warrants" herein.
The Valuation Date for an exercised Warrant will occur after the Exercise
Date (see "Description of the Warrants -- Exercise and Settlement of Warrants"
herein). Therefore, a Warrantholder will not be able to determine, at the time
of exercise of a Warrant, the Spot AMEX Hong Kong 30 Index that will be used in
calculating the Cash Settlement Value of such Warrant (and will thus be unable
to determine such Cash Settlement Value). In addition, the Valuation Date for
exercised Warrants may be postponed upon the occurrence and continuation of an
Extraordinary Event or an Exercise Limitation Event (see "Description of
- ---------------
* Refer to "Index of Key Terms" attached hereto as Appendix B for a listing of
defined terms and pages on which they are defined in this Prospectus
Supplement.
S-9
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the Warrants -- Extraordinary Events and Exercise Limitation Events" herein) or
as a result of the exercise of a number of Warrants exceeding the limits on
exercise described below under "Description of the Warrants -- Maximum Exercise
Amount." Any upward movement in the level of the AMEX Hong Kong 30 Index between
the time a Warrantholder submits an Exercise Notice and the time the Spot AMEX
Hong Kong 30 Index for such exercise is determined (which period will, at a
minimum, represent an entire Hong Kong Business Day and, in the case of a
Valuation Date postponed following an Extraordinary Event or an Exercise
Limitation Event or as a result of there being exercised a number of Warrants
exceeding the maximum permissible amount, may be substantially longer) will,
subject to the Limit Option described below and under "Description of the
Warrants -- Limit Option" herein, result in such Warrantholder receiving a Cash
Settlement Value or Alternative Settlement Amount (including a zero Alternative
Settlement Amount) that is less than the Cash Settlement Value anticipated by
such Warrantholder based on the closing level of the AMEX Hong Kong 30 Index
most recently reported prior to exercise. The AMEX will calculate the AMEX Hong
Kong 30 Index once each Index Calculation Day based upon the most recent
official closing prices of each of the Underlying Stocks as reported by the
HKSE. Due to time differences, trading on the HKSE occurs when the AMEX is
closed for business.
The Warrants will originally be issued as certificates in registered form.
Accordingly, a beneficial owner of Warrants holding such Warrants indirectly
(for instance, through a broker that holds such Warrants in "street name") may
exercise such Warrants only through such owner's registered holder. In the case
of a beneficial owner holding Warrants through his broker in "street name" who
wishes to exercise his Warrants, such beneficial owner must direct his broker,
who may in turn need to direct another intermediary, to deliver an Exercise
Notice and the related Warrants to the Warrant Agent. To ensure that an Exercise
Notice and the related Warrants will be delivered to the Warrant Agent before
3:00 P.M., New York City time, on a particular New York Business Day, a
beneficial holder of Warrants may need to give exercise instructions to his
broker or other intermediary substantially earlier than 3:00 P.M., New York City
time, on such day. Different brokerage firms may have different cut-off times
and other exercise mechanics. See "-- Exercise and Settlement of Warrants" and
"-- Limit Option" under "Description of the Warrants" herein.
Forty-five calendar days after the closing of the offering (which closing
date is expected to be January 24, 1994), each Warrantholder will have the
option to convert the form in which such Warrantholder holds his Warrants from
certificated to book-entry form (the "Conversion Option"). Such conversion will
occur through the facilities of The Depository Trust Company, New York, New York
("DTC", which term, as used herein and in the Prospectus, includes any successor
depository selected by the Company). In addition, Warrant certificates held
through the facilities of CEDEL or Euroclear (as such terms are hereinafter
defined) will automatically be exchanged into book-entry form by CEDEL or
Euroclear, as the case may be, pursuant to the Conversion Option on the last day
of the Conversion Option Period (as hereinafter defined) without action of, or
consent by, the beneficial owner of the related Warrants. Accordingly,
Warrantholders holding their Warrants through CEDEL or Euroclear who do not wish
to convert the form in which they hold such Warrants to book-entry form must
arrange to transfer their Warrants out of the CEDEL or Euroclear systems, as the
case may be, prior to the last day of the Conversion Option Period. See
"Description of the Warrants -- Book-Entry Conversion" and "-- CEDEL and
Euroclear" herein and "Description of the Warrants -- Book-Entry Procedures and
Settlement" in the Prospectus. To exercise Warrants, a Warrantholder who has
utilized the Conversion Option must direct a broker, who may in turn need to
direct a Participant (as defined in the Prospectus under "Description of
Warrants -- Book-Entry Procedures and Settlement"), to transfer Warrants held by
DTC on behalf of such Warrantholder and to submit an Exercise Notice to the
Warrant Agent. A Warrantholder may desire that the New York Business Day on
which his Warrants and an Exercise Notice are delivered on his behalf to the
Warrant Agent will constitute the Exercise Date for the Warrants being exercised
(for example, to utilize the Limit Option most effectively). To achieve such
objective, the Warrantholder must cause such Warrants to be transferred free on
the records of DTC to, and such Exercise Notice to be received by, the Warrant
Agent at or prior to 3:00 P.M., New York City time, on such New York Business
Day; provided, however, that in the case of Warrants held through CEDEL or
Euroclear, the Warrants must be transferred to the Warrant Agent prior to 3:00
P.M., New York City time, on the relevant Valuation Date. To ensure that such
Warrants and Exercise Notice will be received by the Warrant Agent at or prior
to such time, such Warrantholder must give the appropriate directions to his
broker
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<PAGE> 11
before such broker's (and, if such broker is not a Participant, the applicable
Participant's) cut-off time for accepting exercise instructions from customers
for that day. Different brokerage firms may have different cut-off times for
accepting and implementing exercise instructions from their customers.
Therefore, Warrantholders holding their Warrants in book-entry form should
consult with their brokers or other intermediaries, if applicable, as to
applicable cut-off times and other exercise mechanics. See "-- Exercise and
Settlement of Warrants" and "-- Limit Option" under "Description of the
Warrants" herein. FORMS OF EXERCISE NOTICE FOR WARRANTS HELD IN BOOK-ENTRY FORM
MAY BE OBTAINED AT THE WARRANT AGENT'S OFFICE (AS HEREINAFTER DEFINED), DURING
THE WARRANT AGENT'S NORMAL BUSINESS HOURS. SEE "DESCRIPTION OF THE WARRANTS
- -- GENERAL" HEREIN.
If the Company determines that an Extraordinary Event or an Exercise
Limitation Event has occurred and is continuing on any day that would otherwise
be a Valuation Date for any exercised Warrant, then the Valuation Date for such
Warrant will be postponed to the next Index Calculation Day following the Hong
Kong Business Day on which there is no Extraordinary Event or Exercise
Limitation Event; provided that if the postponed Valuation Date has not occurred
on or prior to the Expiration Date or the Delisting Date, the Warrantholders
will receive the Alternative Settlement Amount (as described below) in lieu of
the Cash Settlement Value; provided, further, that, in the case of an
Extraordinary Event, if the Company determines that such Extraordinary Event is
expected to continue and the Company notifies the Warrant Agent that it is
cancelling the Warrants, then the date on which such notice is given (whether or
not such date is a New York Business Day) will become the Valuation Date for
such Warrant, in which case such Warrantholder will receive, in lieu of the Cash
Settlement Value of such Warrant, the Alternative Settlement Amount thereof,
which is equal to the greater of (a) the average of the last sale prices, if
available, of the Warrants on the AMEX (or any successor United States
securities exchange on which the Warrants are listed) on the 30 trading days
preceding the date on which such Extraordinary Event was declared and (b) an
amount equal to the sum of the Cash Settlement Value of the Warrants on such
Valuation Date and a ratable portion of the initial offering price of the
Warrants, in each case subject to certain exceptions and adjustments. The Cash
Settlement Value or the Alternative Settlement Amount of a Warrant determined as
of any such postponed Valuation Date may be substantially lower (including zero)
than the otherwise applicable Cash Settlement Value thereof. See "Description of
the Warrants -- Extraordinary Events and Exercise Limitation Events" herein,
which includes a description of events, circumstances or causes constituting
Extraordinary Events and Exercise Limitation Events.
The level of the AMEX Hong Kong 30 Index will determine whether the
Warrants have a Cash Settlement Value greater than zero on any given day. The
Warrants will be "at-the-money" (i.e., their Cash Settlement Value will be zero)
when initially offered and will be "in-the-money" (i.e., their Cash Settlement
Value will be greater than zero) on any given day only if the level of the AMEX
Hong Kong 30 Index decreases so that the Spot AMEX Hong Kong 30 Index is below
the Strike AMEX Hong Kong 30 Index (i.e., if the level of the AMEX Hong Kong 30
Index is below 541.73). A decrease in the level of the AMEX Hong Kong 30 Index
will result in a greater Cash Settlement Value, and an increase in the level of
the AMEX Hong Kong 30 Index will result in a lesser or zero Cash Settlement
Value. Potential profit or loss upon exercise (including automatic exercise) of
a Warrant will be a function of the Cash Settlement Value (or, if applicable,
the Alternative Settlement Amount) of such Warrant upon exercise, the purchase
price of such Warrant and any related transaction costs.
If a Warrant is not exercised prior to 3:00 P.M., New York City time, on
(i) the New York Business Day preceding the Expiration Date (as hereinafter
defined) or (ii) the Delisting Date and if the Spot AMEX Hong Kong 30 Index
equals or exceeds the Strike AMEX Hong Kong 30 Index on the appropriate
Valuation Date, such Warrant will expire worthless and the Warrantholder will
have sustained a total loss of the purchase price of such Warrant. See "Risk
Factors" in the Prospectus.
Investment decisions relating to international stock index warrants require
the investor to predict the direction of movements in the underlying index as
well as the amount and timing of those movements. International stock index
warrants may change substantially in value, or lose all of their value, with
relatively small movements in the underlying index. Moreover, an index warrant
is a "wasting asset" in that, in the absence of countervailing factors, such as
an offsetting movement in the level of the index, the market value of
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an index warrant will tend to decrease over time and the warrant will have no
market value after the time for exercise has expired. Accordingly, international
stock index warrants involve a high degree of risk and are not appropriate for
every investor. Investors who are considering purchasing the Warrants must be
able to understand and bear the risk of a speculative investment in the Warrants
and be experienced with respect to options and option transactions and
understand the risks of stock index transactions. Such investors should reach an
investment decision only after careful consideration, with their advisers, of
the suitability of the Warrants in light of their particular financial
circumstances and the information set forth in this Prospectus Supplement and in
the Prospectus. The AMEX requires that the Warrants be sold only to investors
whose accounts have been approved for options trading. In addition, the AMEX
requires that its members and member organizations and registered employees
thereof make certain suitability determinations before recommending transactions
in Warrants. Before making any investment in the Warrants, it is important that
a prospective investor become informed about and understand the nature of the
Warrants in general, the specific terms of the Warrants and the nature of the
underlying international stock index. An investor should understand the
consequences of liquidating his investment in an index warrant by exercising it
as opposed to selling it. It is especially important for an investor to be
familiar with the procedures governing the exercise of international stock index
warrants, since a failure to properly exercise a warrant prior to its expiration
could result in the loss of his entire investment. This includes knowing when
warrants are exercisable and how to exercise them.
Except in the case of automatic exercise, a Warrantholder may be able to
limit to some extent the risk associated with any such upward movement in the
AMEX Hong Kong 30 Index between an Exercise Date and the applicable Valuation
Date if such Warrantholder, in connection with an exercise of Warrants, elects
the Limit Option. Pursuant to the Limit Option, Warrants tendered for exercise
will not be exercised if the Spot AMEX Hong Kong 30 Index as of the applicable
Valuation Date is 20 or more points higher than the closing level of the AMEX
Hong Kong 30 Index on the applicable Exercise Date or, if such date is not an
Index Calculation Day, on the immediately preceding Index Calculation Day. See
"Description of the Warrants -- Limit Option" herein. However, in the event of
the occurrence of an Extraordinary Event resulting in the payment to
Warrantholders of an Alternative Settlement Amount in lieu of the Cash
Settlement Value, the Limit Option will not preclude the exercise of Warrants as
described herein under "Description of the Warrants -- Extraordinary Events and
Exercise Limitation Events".
A Warrantholder may exercise no fewer than 500 Warrants at any time, except
in the case of automatic exercise. Accordingly, except in the case of automatic
exercise of the Warrants, Warrantholders with fewer than 500 Warrants will need
either to sell their Warrants or to purchase additional Warrants, thereby
incurring transaction costs, in order to realize upon their investment.
Potential investors should be aware that PaineWebber, in its capacity as
Determination Agent, is under no obligation to take the interests of the Company
or the Warrantholders into consideration in the event it determines, composes or
calculates the Cash Settlement Value. PaineWebber and its affiliates may from
time to time engage in transactions involving the Underlying Stocks for their
proprietary accounts and for other accounts under their management, which may
influence the value of such Underlying Stocks. PaineWebber and its affiliates
will also be the writers of the hedge of the Company's obligations under the
Warrants and will be obligated to pay to the Company upon exercise of the
Warrants an amount equal to the value of the Warrants. Accordingly, under
certain circumstances, conflicts of interest may arise between PaineWebber's
responsibilities as Determination Agent with respect to the Warrants and its
obligations under its hedge. In addition, because PaineWebber is an affiliate of
the Company, certain conflicts of interest may arise in connection with
PaineWebber performing its role as Determination Agent. PaineWebber, as a
registered broker-dealer, is required to maintain policies and procedures
regarding the handling and use of confidential proprietary information, and such
policies and procedures will be in effect throughout the term of the Warrants to
restrict the use of information relating to the calculation of the Cash
Settlement Value prior to its dissemination. PaineWebber is also obligated to
carry out its duties and functions as Determination Agent in good faith and
using its reasonable judgment.
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<PAGE> 13
THE INITIAL OFFERING PRICE OF THE WARRANTS MAY BE IN EXCESS OF THE PRICE
THAT A COMMERCIAL USER OF OPTIONS ON THE AMEX HONG KONG 30 INDEX MIGHT PAY FOR A
COMPARABLE OPTION IN A PRIVATE, LESS LIQUID TRANSACTION.
Since the Cash Settlement Value of a Warrant will be determined using a
fixed Hong Kong dollar/U.S. dollar exchange rate, prospective purchasers
intending to utilize the Warrants to hedge a Hong Kong stock portfolio against
currency risk should recognize that the effect of changes in the Hong Kong
dollar/U.S. dollar exchange rate on the value of such portfolio may not be fully
hedged by holding the Warrants. On October 17, 1983, after a period of
instability in the exchange rate of the Hong Kong dollar, a revised exchange
rate system was introduced. Under this system, any bank in Hong Kong which is
authorized by law to issue Hong Kong dollar bank notes is required to hold, as
cover for such issuance, certificates of indebtedness issued by the Hong Kong
Government. Such certificates of indebtedness are issued and redeemed by the
Hong Kong Government against payments in U.S. dollars at a fixed exchange rate
of H.K.$7.80 to U.S.$1.00. There can be no assurance as to whether such fixed
exchange rate between the Hong Kong dollar and the U.S. dollar will remain in
effect or be changed. Since January 29, 1988, the market exchange rate between
the U.S. dollar and the Hong Kong dollar has varied within H.K.$7.82 and
H.K.$7.72 per U.S.$1.00 (based on data from The Federal Reserve Bank of New
York). See also "Risk Factors -- Certain Considerations Regarding Hedging" in
the Prospectus.
On January 14, 1994, the closing level of the AMEX Hong Kong 30 Index was
541.73.
References herein to "U.S. dollar", "U.S.$" or "$" are to the lawful
currency of the United States of America. References to "Hong Kong dollar" or
"H.K.$" are to the lawful currency of Hong Kong. As used herein, "New York
Business Day" means any day other than a Saturday or a Sunday or a day on which
either the AMEX or the New York Stock Exchange is not open for securities
trading or commercial banks in New York City are required or authorized by law
or executive order to remain closed, and "Hong Kong Business Day" means any day
other than a Saturday or a Sunday or a day on which commercial banks in Hong
Kong are not open for a full day of business. As used herein, "Index Calculation
Day" means any day on which the AMEX Hong Kong 30 Index or any Successor Index
is calculated and published.
CERTAIN IMPORTANT INFORMATION RELATING TO CHINA
Although the AMEX has represented that none of the companies whose stocks
comprise the AMEX Hong Kong 30 Index is or will be organized under the laws of
the People's Republic of China ("China"), the level of the AMEX Hong Kong 30
Index nonetheless can be affected by developments in China. China currently
indirectly influences political and economic developments in various parts of
Asia, including Hong Kong, and its influence is expected to continue to grow.
Political, economic or social developments in, and diplomatic and other
developments associated with, China could affect economic conditions in Hong
Kong and on the market prices and liquidity of securities traded on the HKSE,
including the Underlying Stocks. Moreover, many of the issuers of the Underlying
Stocks have substantial investments in China, which investments could be
affected by political, economic, market and other developments in or affecting
China. Accordingly, political or economic developments in China could affect the
level of the AMEX Hong Kong 30 Index and thus the value of the Warrants.
On December 19, 1984, the Government of the United Kingdom and the
Government of China signed a Joint Declaration under which sovereignty over Hong
Kong will be transferred from the United Kingdom to China on July 1, 1997.
Pursuant to the Joint Declaration, China promulgated on April 4, 1990 the Basic
Law (the "Basic Law") setting out the terms under which Hong Kong will operate
from 1997 as a Special Administrative Region of China.
It is not clear how future developments in Hong Kong and China may affect
the implementation of the Basic Law after the transfer of sovereignty in 1997.
As a result of this political and legal uncertainty, the economic prospects of
Hong Kong and the companies whose stocks comprise the AMEX Hong Kong 30 Index
are uncertain. Accordingly, the HKSE has been, and can be expected to remain,
volatile and sensitive to political developments with regard to Hong Kong's
future and perceptions of actual or potential political developments of that
kind. For this reason, among others, the AMEX Hong Kong 30 Index and the value
of the Warrants can also be expected to be volatile.
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USE OF PROCEEDS
A substantial portion of the proceeds to be received by the Company from
the sale of the Warrants will be used by the Company or one or more of its
subsidiaries in connection with hedging the Company's obligations under the
Warrants. Such hedging activities are expected to include purchasing or
maintaining positions in a variety of financial instruments relating to the AMEX
Hong Kong 30 Index and the Underlying Stocks and the Hong Kong dollar/U.S.
dollar exchange rate (which may include certain types of instruments that entail
only potential payments upon closeout but not up-front acquisition costs). The
conduct of such hedging activities will not be limited to any particular
securities or futures exchange. Depending on future market conditions and the
actual number of Warrants outstanding from time to time, among other things, the
aggregate amount and the composition of such positions are likely to vary over
time. The remainder of the proceeds, if any, will be used for general corporate
purposes.
DESCRIPTION OF THE WARRANTS
GENERAL
The Warrants will be issued pursuant to a Warrant Agreement (the "Warrant
Agreement"), to be dated as of January 24, 1994 among the Company, Citibank,
N.A., as Warrant Agent (the "Warrant Agent"), and PaineWebber Incorporated as
Determination Agent. The following summaries of certain provisions of the
Warrants and the Warrant Agreement do not purport to be complete and are subject
to, and qualified in their entirety by reference to, all of the provisions of
the Warrant Agreement (including the form of Warrant certificate and form of
global Warrant certificate attached as exhibits thereto). The Warrant Agreement
will be available for inspection by any Warrantholder at the office of the
Warrant Agent (the "Warrant Agent's Office"), which is currently located at 111
Wall Street, 5th Floor, New York, New York 10043, during the Warrant Agent's
normal business hours. See "Description of Warrants" in the Prospectus.
The aggregate number of Warrants to be issued will be 4,100,000, subject to
the right of the Company to "reopen" the issue of Warrants and issue additional
Warrants with substantially identical terms at a later time. See "Underwriting".
A Warrant will not require or entitle a Warrantholder to sell or deliver
any shares of any component stock underlying the AMEX Hong Kong 30 Index or any
Successor Index (an "Underlying Stock") or any other securities to the Company.
Upon exercise of a Warrant, the Company will make only a U.S. dollar cash
payment in the amount of the Cash Settlement Value or Alternative Settlement
Amount, if any and as applicable, of such Warrant. The Company is under no
obligation to, nor will it, purchase or take delivery of any shares of any
Underlying Stock or any other securities from Warrantholders in connection with
the exercise of any Warrants. Warrantholders will not receive any interest on
any Cash Settlement Value or Alternative Settlement Amount, and the Warrants
will not entitle the Warrantholders to any of the rights of holders of any
Underlying Stock or any other securities.
The AMEX has advised the Company that the Warrants shall, for margin
purposes, be treated as if they were option contracts subject to AMEX Rule
462(d) relating to Minimum Margins.
CASH SETTLEMENT VALUE
Each Warrant will entitle the Warrantholder to receive, upon exercise
(including automatic exercise), the Cash Settlement Value of such Warrant,
except that, under the circumstances described under "-- Extraordinary Events
and Exercise Limitation Events" below, such Warrantholder may instead receive
the Alternative Settlement Amount for such Warrant. The Cash Settlement Value of
a Warrant will be an amount in U.S. dollars equal to the quotient (rounded down
to the nearest cent) of (A) the amount, if any, by which the Strike AMEX Hong
Kong 30 Index exceeds the Spot AMEX Hong Kong 30 Index for the
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Valuation Date for such Warrant, divided by (B) three, divided by (C) a fixed
Hong Kong dollar/U.S. dollar exchange rate of H.K.$7.726 per U.S.$1.00, as
indicated in the following formula:
541.73 - Spot AMEX Hong Kong 30 Index
Cash Settlement Value = (--------------------------------------- ) / H.K. $7.726
3
HYPOTHETICAL WARRANT VALUES ON EXERCISE
Set forth below is a hypothetical example demonstrating the Cash Settlement
Values of a Warrant at the Strike AMEX Hong Kong 30 Index and at various levels
of the Spot AMEX Hong Kong 30 Index. The Cash Settlement Value numbers in the
table have been rounded to two decimal places.
<TABLE>
<CAPTION>
HYPOTHETICAL APPROXIMATE
SPOT CASH SETTLEMENT VALUE
AMEX HONG KONG (ALSO KNOWN AS "INTRINSIC
30 INDEX VALUE") OF PUT WARRANTS
--------------- ----------------------------
<S> <C> <C>
Equal to or greater than 541.73(Strike) U.S.$ 0.00
500 1.80
450 3.96
400 6.11
350 8.27
300 10.43
</TABLE>
WARRANT CERTIFICATES
The Warrants will be issued as certificates in registered form (each, a
"Warrant Certificate"). The Warrant Agent will from time to time register the
transfer of any outstanding Warrant Certificate upon surrender thereof at the
Warrant Agent's Office duly endorsed by, or accompanied by a written instrument
or instruments of transfer in form satisfactory to the Warrant Agent and the
Company duly executed by the registered holder thereof, a duly appointed legal
representative or a duly authorized attorney. Such signature must be guaranteed
by a bank or trust company having a correspondent office in New York City or a
member of a national securities exchange. A new Warrant Certificate will be
issued to the transferee upon any such registration of transfer.
At the option of a Warrantholder, Warrant Certificates may be exchanged for
other Warrant Certificates representing a like number of Warrants upon surrender
to the Warrant Agent at the Warrant Agent's Office of the Warrant Certificates
to be exchanged. The Company will thereupon execute, and the Warrant Agent will
countersign and deliver, one or more new Warrant Certificates representing such
like number of Warrants.
In the event that, after any exercise of Warrants evidenced by a Warrant
Certificate, the number of Warrants exercised is fewer than the total number of
Warrants evidenced by such certificate, a new Warrant Certificate evidencing the
number of Warrants not exercised will be issued to the registered holder or his
assignee. See "-- Minimum Exercise Amount" below.
If any Warrant Certificate is mutilated, lost, stolen or destroyed, the
Company may in its discretion execute, and the Warrant Agent may countersign and
deliver, in exchange and substitution for such mutilated Warrant Certificate, or
in replacement for such lost, stolen or destroyed Warrant Certificate, a new
Warrant Certificate representing a like number of Warrants, but only (in the
case of loss, theft or destruction) upon receipt of evidence satisfactory to the
Company and the Warrant Agent of loss, theft or destruction of such Warrant
Certificate and security or indemnity, if requested, satisfactory to them.
Warrantholders requesting replacement Warrant Certificates must also comply with
such other reasonable regulations and pay such
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reasonable charges as the Company or the Warrant Agent may prescribe. In case
all of the Warrants represented by any such mutilated, lost, stolen or destroyed
Warrant Certificate have been or are about to be exercised (including automatic
exercise), the Company in its discretion may, instead of issuing a new Warrant
Certificate, direct the Warrant Agent to treat such Warrant Certificate the same
as if the Warrant Agent had received an Exercise Notice in proper form in
respect thereof or as being subject to automatic exercise, as the case may be.
No service charge will be made for any registration of transfer or exchange
of Warrant Certificates, but the Company may require the payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
relation thereto, other than exchanges not involving any transfer. In the case
of the replacement of mutilated, lost, stolen or destroyed Warrant Certificates,
the Company may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Warrant Agent) connected
therewith.
Warrant Certificates held through CEDEL will be held by Citibank, N.A.
("Citibank"), as custodian for CEDEL, and Warrant Certificates held through
Euroclear will be held by Morgan Guaranty Trust Company of New York ("Morgan"),
as custodian for Euroclear. After the last day of the Conversion Option Period,
Warrantholders may no longer hold certificated positions through CEDEL or
Euroclear. See "-- Book-Entry Conversion" herein.
BOOK-ENTRY CONVERSION
Forty-five calendar days after the closing of the offering (which closing
date is expected to be January 24, 1994), each Warrantholder will have the
option to convert the form in which such Warrantholder holds his Warrants from
definitive to book-entry form by utilizing the Conversion Option. The Conversion
Option will be available for 45 calendar days (the "Conversion Option Period")
and is expected to run from March 10, 1994 through April 23, 1994.
In order to be exchanged for a Warrant in book-entry form, a Warrant
Certificate must be delivered to DTC, in proper form for deposit, by a
Participant. Accordingly, a Warrantholder who is not a Participant (other than a
Warrantholder holding Warrants through CEDEL or Euroclear) must deliver his
Warrant Certificate, in proper form for deposit, to a Participant, either
directly or through an indirect participant (such as a bank, brokerage firm,
dealer or trust company that clears through, or maintains a custodial
relationship with, a Participant) or brokerage firm which maintains an account
with a Participant, in order to have its Warrant Certificate exchanged for a
Warrant in book-entry form. Such Warrantholders who desire to exchange their
Warrant Certificates for Warrants in book-entry form should contact their
brokers or other Participants or indirect participants to obtain information on
procedures for submitting their Warrant Certificates to DTC, including the
proper form for submission and (during the Conversion Option Period) the cut-off
times for same day and next day exchange. Warrant Certificates which are held by
the Warrantholder in nominee or "street" name may be automatically exchanged
into book-entry form by the broker or other entity in whose name such Warrant
Certificates are registered, without action of, or consent by, the beneficial
owner of the related Warrant. In addition, Warrant Certificates held through the
facilities of CEDEL or Euroclear will automatically be exchanged into book-entry
form by CEDEL or Euroclear, as the case may be, pursuant to the Conversion
Option on the last day of the Conversion Option Period without action of, or
consent by, the beneficial owner of the related Warrants. Accordingly,
Warrantholders holding their Warrants through CEDEL or Euroclear who do not wish
to convert the form in which they hold such Warrants to book-entry form must
arrange to transfer their Warrants out of the CEDEL or Euroclear systems, as the
case may be, prior to the last day of the Conversion Option Period. Thereafter,
Warrantholders may no longer hold certificated Warrants through the facilities
of CEDEL or Euroclear.
Warrant Certificates received by DTC for exchange during the Conversion
Option Period will be exchanged for Warrants in book-entry form by the close of
business on the New York Business Day that such Certificates are received by DTC
(if received by DTC at its then applicable cut-off time for same day credit) or
on the following New York Business Day (if received by DTC at its then
applicable cut-off time for next day credit). After the last day of the
Conversion Option Period, DTC will not be required to accept delivery of Warrant
Certificates in exchange for book-entry Warrants, but may permit Warrant
Certificates to be so
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<PAGE> 17
exchanged on a case-by-case basis. However, there can be no assurance that such
Warrant Certificates will be accepted for exchange. Warrants surrendered at any
time for exchange for book-entry Warrants may not be exercised or delivered for
settlement or transfer until such exchange has been effected. Accordingly, if a
decrease in the value of the AMEX Hong Kong 30 Index were to occur after a
Warrant Certificate had been surrendered for exchange into book-entry form, a
Warrantholder would not be able to take advantage of the decrease by exercising
his Warrant until such exchange had been effected. Since Warrant Certificates
are not required to be exchanged for Warrants in book-entry form, it is likely
that not all Warrant Certificates will be so exchanged. Accordingly,
Warrantholders purchasing Warrants in secondary market trading after
commencement of the Conversion Option Period may wish to make specific
arrangements with brokers or other Participants or indirect participants if they
wish to purchase Warrants in book-entry form only and not Warrant Certificates.
The Company has been informed by CEDEL and Euroclear that such clearing agencies
will only clear Warrants in book-entry form after the Conversion Option Period.
Once a Warrantholder has elected the Conversion Option, such Warrantholder
may hold his Warrants only in book-entry form and will not be able to change his
election or withdraw from the book-entry system during the Conversion Option
Period or thereafter. Accordingly, except in certain limited circumstances
described in the Prospectus under "Description of Warrants -- Book-Entry
Procedures and Settlement", ownership of the Warrants in certificated form will
no longer be available to investors who have elected the Conversion Option.
CEDEL AND EUROCLEAR
Warrantholders may hold their Warrants in either book-entry or certificated
form through CEDEL or Euroclear if they are participants of such systems, or
indirectly through organizations which are participants in such systems. The
common security registration number used by CEDEL and Euroclear for the Warrants
is 4843088. While Warrantholders may initially hold their Warrants in
certificated form through CEDEL or Euroclear, as described above under
"-- Book-Entry Conversion", it is anticipated that Warrant Certificates held
through such systems will be converted into book-entry form on the last day of
the Conversion Option Period and, accordingly, certificated ownership of
Warrants will no longer be available through such systems after such day.
CEDEL and Euroclear will hold omnibus certificated positions and omnibus
book-entry positions on behalf of their participants through customers'
securities accounts in CEDEL's and Euroclear's names on the books of their
respective depositaries which in turn will, in the case of certificated
positions only, hold such positions in customers' securities accounts in the
depositaries' names on the books of DTC. Citibank will act as depositary for
CEDEL and Morgan will act as depositary for Euroclear (in such capacities, the
"Depositaries"). All securities in CEDEL or Euroclear are held on a fungible
basis without attribution of specific certificates to specific securities
clearance accounts.
Exercises of certificated Warrants by persons holding through CEDEL or
Euroclear participants will be effected through Citibank or Morgan, as the case
may be; however, such transactions will require delivery of exercise
instructions to the relevant European international clearing system by the
participant in such system in accordance with its rules and procedures and
within its established deadlines (European time). The relevant European
international clearing system will, if the exercise meets its requirements,
deliver instructions to its Depositary to take action to effect the exercise of
the Warrants on its behalf by delivering Warrants to the Warrant Agent, and
receiving payment in accordance with its normal procedures for next-day funds
settlement. Payments with respect to the certificated Warrants held through
CEDEL or Euroclear will be credited to the cash accounts of CEDEL participants
or Euroclear participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depositary. See "-- Exercise and
Settlement of the Warrants" herein.
Exercises of book-entry Warrants by persons holding through CEDEL or
Euroclear participants will be effected through DTC, in accordance with DTC
rules, on behalf of the relevant European international clearing system by its
Depositary; however, such transactions will require delivery of exercise
instructions to the relevant European international clearing system by the
participant in such system in accordance with its
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rules and procedures and within its established deadlines (European time). The
relevant European international clearing system will, if the exercise meets its
requirements, deliver instructions to its Depositary to take action to effect
its exercise of the Warrants on its behalf by delivering Warrants through DTC
and receiving payment in accordance with its normal procedures for next-day
funds settlement. Payments with respect to the Warrants held through CEDEL or
Euroclear will be credited to the cash accounts of CEDEL participants or
Euroclear participants in accordance with the relevant system's rules and
procedures, to the extent received by its Depositary. See "-- Exercise and
Settlement of the Warrants" herein.
Centrale de Livraison de Valeurs Mobilieres S.A. ("CEDEL") is incorporated
under the laws of Luxembourg as a professional depository. CEDEL holds
securities for its participating organizations and facilitates the clearance and
settlement of securities transactions between CEDEL participants through
electronic book-entry changes in accounts of CEDEL participants, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled in CEDEL in any of 28 currencies, including U.S. dollars. CEDEL provides
to its participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. CEDEL interfaces with domestic markets in
several countries. As a professional depository, CEDEL is subject to regulation
by the Luxembourg Monetary Institute. CEDEL participants are recognized
financial institutions around the world, including underwriters, securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations and may include the Underwriters. Indirect access to CEDEL
is also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a CEDEL
participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants in the Euroclear System and to clear and settle transactions
between Euroclear participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 27 currencies, including U.S.
dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in several
countries generally similar to the arrangements for cross-market transfers with
DTC described above. The Euroclear System is operated by Morgan's Brussels,
Belgium office (the "Euroclear Operator" or "Euroclear"), under contract with
Euroclear Clearance System S.C., a Belgian cooperative corporation (the
"Cooperative"). Morgan is a member bank of the United States Federal Reserve
System. All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for the Euroclear System on behalf of Euroclear participants. Euroclear
participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
Underwriters. Indirect access to the Euroclear System is also available to other
firms that clear through or maintain a custodial relationship with a Euroclear
participant, either directly or indirectly.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System, and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipt of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear participants, and has no record
of or relationship with persons holding through Euroclear participants.
All information herein on CEDEL and Euroclear is derived from CEDEL or
Euroclear, as the case may be, and reflects the policies of such organizations;
such policies are subject to change without notice.
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EXERCISE AND SETTLEMENT OF WARRANTS
The Warrants will be immediately exercisable upon issuance, subject to
postponement upon the occurrence of an Extraordinary Event or an Exercise
Limitation Event as described under "-- Extraordinary Events and Exercise
Limitation Events" herein, and will expire on January 17, 1996 (the "Expiration
Date"). Warrants not exercised (including by reason of any such postponed
exercise) at or before 3:00 P.M., New York City time, on the earlier of (i) the
New York Business Day immediately preceding the Expiration Date and (ii) the
Delisting Date, will be automatically exercised as described under "-- Automatic
Exercise" below. See "-- Minimum Exercise Amount" and "-- Maximum Exercise
Amount" below.
A Warrantholder may exercise certificated Warrants on any New York Business
Day during the period from the date of issuance of such Warrants until 3:00
P.M., New York City time, on the earlier of (i) the New York Business Day
immediately preceding the Expiration Date and (ii) the Delisting Date, by
delivering or causing to be delivered to the Warrant Agent the Warrant
Certificate representing such Warrants with the irrevocable notice of exercise
on the reverse thereof (or a notice of exercise in substantially identical form
delivered therewith) (such notice, an "Exercise Notice") duly completed and
executed. The Warrant Agent's telephone number and facsimile transmission number
for this purpose are (212) 657-7269 and (212) 825-3483, respectively.
In the case of Warrants held through the facilities of DTC, a Warrantholder
may exercise such Warrants on any New York Business Day during the period from
the date of issuance of such Warrants until 3:00 P.M., New York City time, on
the earlier of (i) the New York Business Day immediately preceding the
Expiration Date and (ii) the Delisting Date, by causing (x) such Warrants to be
transferred free to the Warrant Agent on the records of DTC and (y) a duly
completed and executed Exercise Notice to be delivered by a Participant on
behalf of the Warrantholder to the Warrant Agent. Forms of Exercise Notice for
Warrants held through the facilities of DTC may be obtained from the Warrant
Agent at the Warrant Agent's Office. The Warrant Agent's telephone number and
facsimile transmission number for this purpose are (201) 262-5444 and (201)
262-7521, respectively.
In the case of book-entry Warrants held through the facilities of CEDEL or
Euroclear, a Warrantholder may exercise such Warrants on any New York Business
Day during the period from the date of issuance of such Warrants until 3:00
P.M., New York City time, on the earlier of (i) the New York Business Day
immediately preceding the Expiration Date and (ii) the Delisting Date by causing
(x) such Warrants to be transferred to the Warrant Agent, by giving appropriate
instructions to the participant holding such Warrants in either the CEDEL or
Euroclear system, as the case may be, and (y) a duly completed and executed
Exercise Notice to be delivered on behalf of the Warrantholder by CEDEL, in the
case of Warrants held through CEDEL, or such participant, in the case of
Warrants held through Euroclear, to the Warrant Agent. Forms of Exercise Notice
for Warrants held through the facilities of either CEDEL or Euroclear may be
obtained from the Warrant Agent at the Warrant Agent's Office or from CEDEL or
Euroclear.
Except for Warrants subject to automatic exercise or held through the
facilities of CEDEL or Euroclear, and subject to the Limit Option, the "Exercise
Date" for a Warrant will be (i) the New York Business Day on which the Warrant
Agent receives the Warrant and Exercise Notice in proper form with respect to
such Warrant, if received at or prior to 3:00 P.M., New York City time, on such
day, or (ii) if the Warrant Agent receives such Warrant and Exercise Notice
after 3:00 P.M., New York City time, on a New York Business Day, then the New
York Business Day next succeeding such New York Business Day.
In the case of Warrants held through the facilities of CEDEL or Euroclear,
except for Warrants subject to automatic exercise, and subject to the Limit
Option, the "Exercise Date" for a Warrant will be (i) the New York Business Day
on which the Warrant Agent receives the Exercise Notice in proper form with
respect to such Warrant if such Exercise Notice is received at or prior to 3:00
P.M., New York City time, on such day, provided that the Warrant is received by
the Warrant Agent by 3:00 P.M., New York City time, on the Valuation Date, or
(ii) if the Warrant Agent receives such Exercise Notice after 3:00 P.M., New
York City time, on a New York Business Day, then the New York Business Day
succeeding such New York Business Day, provided that the Warrant is received by
3:00 P.M., New York City time, on the Valuation Date relating to exercises of
Warrants on such succeeding New York Business Day. In the event that the Warrant
is
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<PAGE> 20
received after 3:00 P.M., New York City time, on the Valuation Date, then the
Exercise Date for such Warrants will be the day on which such Warrants are
received or, if such day is not a New York Business Day, the next succeeding New
York Business Day. In the case of Warrants held through the facilities of CEDEL
or Euroclear, in order to ensure proper exercise on a given New York Business
Day, participants in CEDEL or Euroclear must submit exercise instructions to
CEDEL or Euroclear, as the case may be, by 10:00 A.M., Luxembourg time, in the
case of CEDEL and by 10:00 A.M., Brussels time (by telex), or 11:00 A.M.,
Brussels time (by EUCLID), in the case of Euroclear. In addition, in the case of
book-entry exercises by means of the Euroclear System, (i) participants must
also transmit, by facsimile (facsimile number 201-262-7521), to the Warrant
Agent a copy of the Exercise Notice submitted to Euroclear by 3:00 P.M., New
York City time, on the desired Exercise Date and (ii) Euroclear must confirm by
telex to the Warrant Agent by 9:00 A.M., New York City time, on the Valuation
Date that the Warrants will be received by the Warrant Agent on such date;
provided, that if such telex communication is received after 9:00 A.M., New York
City time, on the Valuation Date, the Company will be entitled to direct the
Warrant Agent to reject the related Exercise Notice or waive the requirement for
timely delivery of such telex communication.
To ensure that an Exercise Notice and the related Warrants will be
delivered to the Warrant Agent before 3:00 P.M., New York City time, on a given
New York Business Day, a Warrantholder may need to give exercise instructions to
his broker or other intermediary substantially earlier than 3:00 P.M., New York
City time, on such day. Different brokerage firms may have different cut-off
times for accepting and implementing exercise instructions from their customers.
Therefore, Warrantholders should consult with their brokers and other
intermediaries, if applicable, as to applicable cut-off times and other exercise
mechanics. See "Certain Important Information Concerning the Warrants" above.
Except in the case of Warrants subject to automatic exercise and for
Warrants that upon exercise will entitle the holder thereof to receive an
Alternative Settlement Amount in lieu of the Cash Settlement Amount, if on any
Valuation Date the Cash Settlement Amount for any Warrants would be zero, then
the attempted exercise of any such Warrants will be void and of no effect and,
in the case of certificated Warrants, the Warrant Certificate evidencing such
Warrants will be returned to the registered holder by first class mail at the
Company's expense or, in the case of Warrants held through the facilities of
DTC, CEDEL or Euroclear, such Warrants will be transferred back to the
participant (including the Depositaries) that submitted them free on the records
of DTC, CEDEL or Euroclear, as the case may be, and, in any such case, such
Warrantholder will be permitted to re-exercise such Warrants prior to the
Expiration Date or the Delisting Date, as the case may be.
The "Valuation Date" for a Warrant will be the first Index Calculation Day
following the applicable Exercise Date, subject to postponement upon the
occurrence of an Extraordinary Event or an Exercise Limitation Event as
described below under "-- Extraordinary Events and Exercise Limitation Events"
or as a result of the exercise of a number of Warrants exceeding the limits on
exercise described below under "-- Maximum Exercise Amount". The AMEX will
calculate the AMEX Hong Kong 30 Index once on each Index Calculation Day based
upon the most recent official closing prices of each of the Underlying Stocks as
reported by the HKSE. Due to time differences, trading on the HKSE occurs when
the AMEX is closed for business. The following is an illustration of the timing
of an Exercise Date, the ensuing Valuation Date and the Limit Option Reference
Index (as hereinafter defined), assuming (i) that all relevant dates are New
York Business Days and Index Calculation Days, (ii) the absence of any
intervening Extraordinary Event or Exercise Limitation Event and (iii) the
number of exercised Warrants does not exceed the maximum permissible amount. If
the Warrant Agent receives a Warrantholder's Warrants and Exercise Notice in
proper form at or prior to 3:00 P.M., New York City time, on Wednesday, June 1,
1994, the Exercise Date for such Warrants will be June 1 and the Valuation Date
for such Warrants will be Thursday, June 2, 1994 (except that in the case of
Warrants held through the facilities of CEDEL or Euroclear, the Warrants must be
received by 3:00 P.M., New York City time, on the Valuation Date; if such
Warrants are received after such time, then the Exercise Date for such Warrants
will be the day on which such Warrants are received or, if such day is not a New
York Business Day, the next succeeding New York Business Day, and the Valuation
Date for such Warrants will be the first Index Calculation Day following such
Exercise Date and the Limit Option Reference Index will be determined by
reference to such Exercise Date and Valuation Date). The Spot
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<PAGE> 21
AMEX Hong Kong 30 Index used to determine the Cash Settlement Value of such
Warrants will be the closing level of the AMEX Hong Kong 30 Index on June 2
(i.e., the level of the AMEX Hong Kong 30 Index calculated using values for the
Underlying Stocks as of the close of the HKSE on June 2 (assuming such day is a
Hong Kong Business Day), which, because of time differences, will occur at 2:30
A.M., New York City time, on June 2 (or 3:30 A.M., New York City time, during
the months in which Eastern Daylight Savings Time is in effect)). If the
Warrantholder elected the Limit Option in connection with the exercise of such
Warrants, the Limit Option Reference Index would be the closing level of the
AMEX Hong Kong 30 Index on June 1. If the Warrant Agent were to receive such
Warrantholder's Warrants and Exercise Notice after 3:00 P.M., New York City
time, on June 1, 1994 (except that in the case of Warrants held through the
facilities of CEDEL or Euroclear, the Warrants must be received by 3:00 P.M.,
New York City time, on December 2), then the Exercise Date for such Warrants
would instead be June 2, the Valuation Date would be June 3 and the applicable
Limit Option Reference Index would be the closing level of the AMEX Hong Kong 30
Index on June 2 (which will not have occurred at the time such Warrantholder
tendered his Exercise Notice on June 1).
Following receipt of Warrants and the related Exercise Notice in proper
form, the Warrant Agent will, not later than 5:00 P.M., New York City time, on
the applicable Valuation Date (or, if such Valuation Date is not a New York
Business Day, on the next succeeding New York Business Day) (i) obtain the Spot
AMEX Hong Kong 30 Index (which will be the level of the AMEX Hong Kong 30 Index
on such Valuation Date), (ii) determine the Cash Settlement Value of such
Warrants and (iii) advise the Company of the aggregate Cash Settlement Value of
the exercised Warrants. Except in the case of Warrants held through the
facilities of DTC, CEDEL or Euroclear, if the Company has made adequate funds
available to the Warrant Agent in a timely manner as required by the Warrant
Agreement, the Warrant Agent will thereafter be responsible for making payment
available to each registered holder of a Warrant on the fifth New York Business
Day following the Valuation Date (or, if the Valuation Date is not a New York
Business Day, on the fifth New York Business Day following the New York Business
Day next succeeding the Valuation Date) in the form of a cashier's check or
official bank check or (in the case of payments of at least U.S.$100,000) by
wire transfer to a U.S. dollar bank account maintained by such holder in the
United States (at such holder's election as specified in the applicable Exercise
Notice), in an amount equal to the aggregate Cash Settlement Value of such
holder's exercised Warrants. In the case of Warrants held through the facilities
of DTC, CEDEL or Euroclear, the Company will be required to make available to
the Warrant Agent, no later than 3:00 P.M, New York City time, on the sixth New
York Business Day following the Valuation Date (or, if the Valuation Date is not
a New York Business Day, on the sixth New York Business Day following the New
York Business Day next succeeding the Valuation Date), funds in an amount
sufficient to pay such aggregate Cash Settlement Value. If the Company has made
such funds available by such time, the Warrant Agent will thereafter be
responsible for making funds available to each appropriate Participant
(including Citibank and Morgan, who, in turn, will disburse payments to CEDEL
and Euroclear, as the case may be, who will be responsible for disbursing such
payments to each of their respective participants, who, in turn, will be
responsible for disbursing payments to the Warrantholders it represents), and
such Participant will be responsible for disbursing such payments to the
Warrantholders it represents and to each brokerage firm for which it acts as
agent. Each such brokerage firm will be responsible for disbursing funds to the
Warrantholders it represents.
"Determination Agent" means PaineWebber or, in lieu thereof, another firm
selected by the Company to perform the functions of the Determination Agent in
connection with the Warrants. PaineWebber, in its capacity as Determination
Agent, will have no obligation to take the interests of the Company or the
Warrantholders into consideration in the event it determines, composes or
calculates the Cash Settlement Value. PaineWebber and its affiliates may from
time to time engage in transactions involving the Underlying Stocks for their
proprietary accounts and for other accounts under their management, which may
influence the value of such Underlying Stocks. PaineWebber and its affiliates
will also be the writers of the hedge of the Company's obligations under the
Warrants and will be obligated to pay to the Company upon exercise of the
Warrants an amount equal to the value of the Warrants. Accordingly, under
certain circumstances, conflicts of interest may arise between PaineWebber's
responsibilities as Determination Agent with respect to the Warrants and its
obligations under its hedge. In addition, because PaineWebber is an affiliate of
the Company,
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certain conflicts of interest may arise in connection with PaineWebber
performing its role as Determination Agent. PaineWebber, as a registered
broker-dealer, is required to maintain policies and procedures regarding the
handling and use of confidential proprietary information, and such policies and
procedures will be in effect throughout the term of the Warrants to restrict the
use of information relating to any calculation of the Cash Settlement Value
prior to its dissemination. PaineWebber is also obligated to carry out its
duties and functions as Determination Agent in good faith and using its
reasonable judgment.
MINIMUM EXERCISE AMOUNT
No fewer than 500 Warrants may be exercised by a Warrantholder at any one
time, except in the case of automatic exercise or exercise upon cancellation of
the Warrants as described under "--Extraordinary Events and Exercise Limitation
Events" below. Accordingly, except in the case of automatic exercise of the
Warrants or upon cancellation of the Warrants, Warrantholders with fewer than
500 Warrants will need either to sell their Warrants or to purchase additional
Warrants, thereby incurring transaction costs, in order to realize upon their
investment. Warrantholders must satisfy the minimum exercise amount requirement
described above separately with respect to both certificated and book-entry
Warrants, even if both kinds of Warrants are to be exercised at the same time.
Thus, a Warrantholder seeking to exercise both certificated and book-entry
Warrants at the same time must still exercise a minimum of 500 of each kind of
Warrant in order to satisfy such requirement. In addition, book-entry Warrants
held through one Participant (including participants in CEDEL or Euroclear) may
not be combined with book-entry Warrants held through another Participant in
order to satisfy the minimum exercise requirement.
MAXIMUM EXERCISE AMOUNT
All exercises of Warrants (other than on the Expiration Date or the
Delisting Date or upon cancellation of the Warrants as described under
"--Extraordinary Events and Exercise Limitation Events" herein) are subject, at
the Company's option, to the limitation that not more than 1,000,000 Warrants in
total may be exercised on any Exercise Date and not more than 250,000 Warrants
may be exercised by or on behalf of any person or entity, either individually or
in concert with any other person or entity, on any Exercise Date. If any New
York Business Day would otherwise, under the terms of the Warrant Agreement, be
the Exercise Date in respect of more than 1,000,000 Warrants, then at the
Company's election 1,000,000 of such Warrants shall be deemed exercised on such
Exercise Date (selected by the Warrant Agent on a pro rata basis, but if, as a
result of such pro rata selection, any registered holders of Warrants would be
deemed to have exercised fewer than 500 Warrants, then the Warrant Agent shall
first select additional of such holders' Warrants so that no holder shall be
deemed to have exercised fewer than 500 Warrants), and the remainder of such
Warrants (the "Remaining Warrants") shall be deemed exercised on the following
New York Business Day (subject to successive applications of this provision);
provided, that any Remaining Warrant for which an Exercise Notice was delivered
on a given Exercise Date shall be deemed exercised before any other Warrants for
which an Exercise Notice was delivered on a later Exercise Date. If any
individual Warrantholder attempts to exercise more than 250,000 Warrants on any
New York Business Day, then at the Company's election 250,000 of such Warrants
shall be deemed exercised on such New York Business Day and the remainder shall
be deemed exercised on the following New York Business Day (subject to
successive applications of this provision). As a result of any such postponed
exercise, Warrantholders will receive a Cash Settlement Value determined as of a
date later than the otherwise applicable Valuation Date. In any such case, as a
result of any such postponement, the Cash Settlement Value actually received by
Warrantholders may be lower than the otherwise applicable Cash Settlement Value
if the Valuation Date of the Warrants had not been postponed.
LIMIT OPTION
Except for Warrants subject to automatic exercise and except as described
below with respect to payments of any Alternative Settlement Amount, each
Warrantholder, in connection with any exercise of Warrants (including a
postponed exercise following an Extraordinary Event or an Exercise Limitation
Event), will have the option (the "Limit Option") to specify that such Warrants
are not to be exercised if the Spot AMEX Hong Kong 30 Index that would otherwise
be used to determine the Cash Settlement Value of such
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Warrants is 20 or more points higher than the closing level of the AMEX Hong
Kong 30 Index for the day specified below (such closing level, the "Limit Option
Reference Index"). A Warrantholder's election of the Limit Option must be
specified in the applicable Exercise Notice delivered to the Warrant Agent. The
Limit Option Reference Index will be the closing level of the AMEX Hong Kong 30
Index on the relevant Exercise Date (or, if such date is not an Index
Calculation Day, on the immediately preceding Index Calculation Day). If an
Exercise Notice and the related Warrants are received after 3:00 P.M., New York
City time, on a given day, the applicable Limit Option Reference Index will be
determined as of the next day that is also a New York Business Day (or, if such
day is not an Index Calculation Day, as of the immediately preceding Index
Calculation Day).
To ensure that the Limit Option will have its intended effect of limiting
the risk of any upward movement in the level of the AMEX Hong Kong 30 Index
between the date on which a Warrantholder submits an Exercise Notice and the
related Valuation Date, such Exercise Notice and the related Warrants generally
must be received by the Warrant Agent not later than 3:00 P.M., New York City
time, on the New York Business Day on which it is submitted and the Exercise
Date must also be an Index Calculation Day. See the illustration under
"-- Exercise and Settlement of Warrants" above and "Certain Important
Information Concerning the Warrants" herein.
Following receipt of an Exercise Notice and the related Warrants subject to
the Limit Option, the Warrant Agent will obtain the applicable Limit Option
Reference Index and will determine whether such Warrants will not be exercised
because of the Limit Option. Warrants that are not exercised will be treated as
not having been tendered for exercise, and either the Warrant Certificate
evidencing such Warrants will be returned to the registered holder by
first-class mail at the Company's expense or, in the case of Warrants held
through the facilities of DTC, CEDEL or Euroclear, such Warrants will be
transferred to the account at DTC, CEDEL or Euroclear, as the case may be, from
which they were transferred to the Warrant Agent. To exercise such Warrants, a
Warrantholder will be required to cause the Warrants and a related Exercise
Notice to be submitted again to the Warrant Agent.
Once elected by a Warrantholder in connection with an exercise of Warrants,
the Limit Option will continue to apply, on the basis of the Limit Option
Reference Index as initially determined for such Warrants, even if the Valuation
Date for such Warrants is postponed, except when such Valuation Date is
postponed until the Expiration Date, the Delisting Date or the Cancellation Date
(as hereinafter defined) as described under "-- Extraordinary Events and
Exercise Limitation Events" below. Pursuant to the Limit Option, such Warrants
will either (i) be exercised on a delayed basis if the applicable Spot AMEX Hong
Kong 30 Index on the postponed Valuation Date does not exceed the Limit Option
Reference Index by 20 or more points or (ii) be excluded from being exercised
if, on any applicable postponed Valuation Date, the applicable Spot AMEX Hong
Kong 30 Index exceeds the Limit Option Reference Index by 20 or more points.
In connection with any exercise of 500 or more Warrants, a Warrantholder
may elect to subject the exercise of only a portion of such Warrants to the
Limit Option, provided that the number of Warrants subject to the Limit Option
and the number of Warrants not subject to the Limit Option shall in each case
not be less than 500. A Warrantholder may not combine certificated and
book-entry Warrants in order to meet the 500-Warrant minimum requirement. See
"-- Minimum Exercise Amount" herein.
AUTOMATIC EXERCISE
All Warrants for which the Warrant Agent has not received a valid Exercise
Notice at or prior to 3:00 P.M., New York City time, on (i) the New York
Business Day immediately preceding the Expiration Date or (ii) the Delisting
Date, as the case may be, or for which the Warrant Agent has received a valid
Exercise Notice but with respect to which timely delivery of the relevant
Warrants has not been made, together with any Warrants the Valuation Date for
which has at such time been postponed as described under "-- Extraordinary
Events and Exercise Limitation Events" below, will be automatically exercised on
such date. The
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Exercise Date for such Warrants will be the Expiration Date or the Delisting
Date, as the case may be, or, if such date is not a New York Business Day, the
next succeeding New York Business Day. The Warrant Agent will obtain the Spot
AMEX Hong Kong 30 Index (determined as of the first Index Calculation Day
following such date, which will be the Valuation Date for such Warrants, except
in the case of a postponed exercise following the occurrence of an Extraordinary
Event or an Exercise Limitation Event as described under "-- Extraordinary
Events and Exercise Limitation Events" below), and will determine the Cash
Settlement Value, if any, of such Warrants.
Except in the case of a postponed exercise following the occurrence of an
Extraordinary Event or an Exercise Limitation Event as described under
"-- Extraordinary Events and Exercise Limitation Events" below, or in the case
of Warrants held through the facilities of DTC, CEDEL or Euroclear, if the
Company has made adequate funds available to the Warrant Agent in a timely
manner as required by the Warrant Agreement, the Warrant Agent will thereafter
be responsible for making a payment available to each registered holder of a
Warrant in the form of a cashier's check or official bank check, or (in the case
of payments of at least $100,000) by wire transfer to a U.S. dollar account
maintained by such holder in the United States (at such holder's election) after
3:00 P.M., New York City time, on the fourth New York Business Day after such
Valuation Date (or, if such Valuation Date is not a New York Business Day, on
the fourth New York Business Day following the New York Business Day next
succeeding such Valuation Date) against receipt by the Warrant Agent at the
Warrant Agent's Office of such holder's Warrant Certificates. Such payment will
be in an amount equal to the aggregate Cash Settlement Value of the Warrants
evidenced by such Warrant Certificates.
In the case of Warrants held through the facilities of DTC, CEDEL or
Euroclear, and, except in the case of a postponed exercise following the
occurrence of an Extraordinary Event or an Exercise Limitation Event as
described under "Extraordinary Events and Exercise Limitation Events" below, the
Company will be required to make available to the Warrant Agent, no later than
3:00 P.M., New York City time, on the fourth New York Business Day after such
Valuation Date (or, if such Valuation Date is not a New York Business Day, on
the fourth New York Business Day following the New York Business Day next
succeeding such Valuation Date), funds in an amount sufficient to pay such
aggregate Cash Settlement Value. If the Company has made such funds available by
such time, the Warrant Agent will thereafter be responsible for making funds
available to DTC in an amount sufficient to pay the aggregate Cash Settlement
Value of the Warrants. DTC will be responsible for disbursing such funds to each
appropriate Participant (including Citibank and Morgan, who, in turn, will
disburse payments to CEDEL and Euroclear, as the case may be, who will be
responsible for disbursing such payments to each of their respective
participants, who, in turn, will be responsible for disbursing payments to the
Warrantholders it represents) and such Participant will be responsible for
disbursing such payments to the Warrantholders it represents and to each
brokerage firm for which it acts as agent. Each such brokerage firm will be
responsible for disbursing funds to the Warrantholders it represents.
EXTRAORDINARY EVENTS AND EXERCISE LIMITATION EVENTS
Extraordinary Events. The Warrant Agreement will provide that if the
Company determines that an Extraordinary Event has occurred and is continuing on
the Hong Kong Business Day with respect to which the Spot AMEX Hong Kong 30
Index on a Valuation Date is to be determined (the "Applicable Hong Kong
Business Day"), then the Cash Settlement Value in respect of an exercise shall
be calculated on the basis that the Valuation Date shall be the next Index
Calculation Day following an Applicable Hong Kong Business Day on which there is
no Extraordinary Event or Exercise Limitation Event; provided that if the
Valuation Date has not occurred on or prior to the Expiration Date or the
Delisting Date, the Warrantholders will receive the Alternative Settlement
Amount in lieu of the Cash Settlement Value which shall be calculated as if the
Warrants had been cancelled on the Expiration Date or the Delisting Date, as the
case may be. The Company shall promptly give notice to Warrantholders, by
publication in a United States newspaper with a national circulation (currently
expected to be The Wall Street Journal), if an Extraordinary Event shall have
occurred.
S-24
<PAGE> 25
"Extraordinary Event" means any of the following events:
(i) a suspension or absence of trading on the HKSE of all the
Underlying Stocks which then comprise the AMEX Hong Kong 30 Index or a
Successor Index;
(ii) the enactment, publication, decree or other promulgation of any
statute, regulation, rule or order of any court or any other U.S. or
non-U.S. governmental authority which would make it unlawful for the
Company to perform any of its obligations under the Warrant Agreement or
the Warrants; or
(iii) any outbreak or escalation of hostilities or other national or
international calamity or crisis (including, without limitation, natural
calamities which in the opinion of the Company may materially and adversely
affect the economy of Hong Kong or the trading of securities generally on
the HKSE) which has or will have a material adverse effect on the ability
of the Company to perform its obligations under the Warrants or to modify
the hedge of its position with respect to the AMEX Hong Kong 30 Index.
For the purposes of determining whether an Extraordinary Event has
occurred: (1) a limitation on the hours or number of days of trading will not
constitute an Extraordinary Event if it results from an announced change in the
regular business hours of the HKSE and (2) an "absence of trading" on the HKSE
will not include any time when the HKSE itself is closed for trading under
ordinary circumstances.
To the Company's knowledge, no circumstances have arisen since the
inception of the AMEX Hong Kong 30 Index that could have constituted an
Extraordinary Event, except that on July 22, 1992 and on September 17, 1993
trading on the HKSE and The Hong Kong Futures Exchange Ltd. (the "HK Futures
Exchange") was suspended due to typhoons (severe storms) in Hong Kong (the
"Typhoon Suspensions"). Prior to the inception of the AMEX Hong Kong 30 Index,
and based on the information published by the HKSE, trading on the HKSE was
suspended during the time of other world market breaks from October 20 through
October 23, 1987. Trading in Hang Seng Index Futures on the HK Futures Exchange
also was suspended during the same four-day period (collectively, the "October
1987 Suspension"). The existence of such circumstances, however, is not
necessarily indicative of the likelihood of such circumstances arising or not
arising in the future. See "The AMEX Hong Kong 30 Index -- The HKSE" below.
If the Company determines that an Extraordinary Event has occurred and is
continuing, and if the Extraordinary Event is expected by the Company to
continue, the Company may immediately cancel the Warrants by notifying the
Warrant Agent of such cancellation (the date such notice is given being the
"Cancellation Date"), and each Warrantholder's rights under the Warrants and the
Warrant Agreement shall thereupon cease; provided that each Warrant shall be
exercised (even if such Warrant would not otherwise be exercisable on such date
because of the Limit Option) on the basis that the Valuation Date for such
Warrant shall be the Cancellation Date and the holder of each such Warrant will
receive, in lieu of the Cash Settlement Value of such Warrant, an amount (the
"Alternative Settlement Amount"), determined by the Determination Agent, which
is the greater of (i) the average of the last sale prices, as available, of the
Warrants on the AMEX (or any successor securities exchange on which the Warrants
are listed) on the 30 trading days preceding the date on which such
Extraordinary Event was declared; provided that, if the Warrants were not traded
on the AMEX (or such successor securities exchange) on at least 20 of such
trading days, no effect will be given to this clause (i) for the purpose of
determining the Alternative Settlement Amount, and (ii) the amount "X"
calculated using the formula set forth below:
T A
X = I + { -- X --- }
2 B
where
I = the Cash Settlement Value of the Warrants determined as described under
"-- Cash Settlement Value" above, but subject to the following modifications:
(1) if the Cancellation Date for such Warrants is a date on which the
AMEX Hong Kong 30 Index or a Successor Index is calculated and published,
for the purpose of determining such Cash Settlement Value, the Spot AMEX
Hong Kong 30 Index will be determined as of such Cancellation Date except
S-25
<PAGE> 26
that, if the Spot AMEX Hong Kong 30 Index as of such day is less than 90%
of the Spot AMEX Hong Kong 30 Index as of the immediately preceding Index
Calculation Day, then the Spot AMEX Hong Kong 30 Index will be deemed to be
90% of the Spot AMEX Hong Kong 30 Index on such preceding Index Calculation
Day; or
(2) if the Cancellation Date for such Warrants is a date on which the
AMEX Hong Kong 30 Index or a Successor Index is not calculated or
published, for the purpose of determining such Cash Settlement Value, the
Spot AMEX Hong Kong 30 Index will be deemed to be the lesser of (i) the
Spot AMEX Hong Kong 30 Index as of the first Index Calculation Day
immediately preceding the Cancellation Date except that, if the Spot AMEX
Hong Kong 30 Index as of such day is less than 90% of the Spot AMEX Hong
Kong 30 Index as of the second Index Calculation Day immediately preceding
such Cancellation Date, 90% of the Spot AMEX Hong Kong 30 Index as of such
second Index Calculation Day and (ii) the arithmetic average of four
amounts, being (a) the Spot AMEX Hong Kong 30 Index at each of the three
successive Index Calculation Days immediately preceding the Cancellation
Date and (b) the Spot AMEX Hong Kong 30 Index at the next Index Calculation
Day; provided that if an Extraordinary Event described in clause (i) of the
definition of Extraordinary Event continues for 30 consecutive days
immediately following such Cancellation Date, then the Determination Agent
shall calculate an amount which, in its reasonable opinion, fairly reflects
the value of the Underlying Stocks on the Index Calculation Day immediately
following such Cancellation Date which, subject to approval by the Company
(such approval not to be unreasonably withheld), shall for purposes of
calculating the amount under this clause (2)(ii) be treated as the figure
arrived at under clause (2)(ii)(b);
T = U.S.$5.125, the initial offering price per Warrant;
A = the total number of days from but excluding the Cancellation Date for
such Warrants to and including the Expiration Date; and
B = the total number of days from but excluding the date the Warrants were
initially sold to and including the Expiration Date.
For the purposes of determining "I" in the above formula, in the event that
the Determination Agent and the Company are required, but have not, after good
faith consultation with each other and within five days following the first day
upon which such Alternative Settlement Amount may be calculated in accordance
with the above formula, agreed upon a figure under clause (2)(ii)(b) which
fairly reflects the value of the Underlying Stocks on the Cancellation Date,
then the Determination Agent shall promptly nominate a third party, subject to
approval by the Company (such approval not to be unreasonably withheld), to
determine such figure and calculate the Alternative Settlement Amount in
accordance with the above formula. Such party shall act as an independent expert
and not as an agent of the Company or the Determination Agent, and its
calculation and determination of the Alternative Settlement Amount shall, absent
manifest error, be final and binding on the Company, the Warrant Agent, the
Determination Agent and the Warrantholders. Any such calculations will be made
available to a Warrantholder for inspection at the Warrant Agent's Office.
Neither the Company nor such third party shall have any responsibility for good
faith errors or omissions in calculating the Alternative Settlement Amount.
Exercise Limitation Events. The Warrant Agreement will provide that if the
Company determines that on an Applicable Hong Kong Business Day an Exercise
Limitation Event has occurred and is continuing, then the Cash Settlement Value
in respect of an exercise shall be calculated on the basis that the Valuation
Date shall be the next Index Calculation Day following an Applicable Hong Kong
Business Day on which there is no Exercise Limitation Event or Extraordinary
Event; provided that, if the Valuation Date has not occurred on or prior to the
Expiration Date or the Delisting Date, the Warrantholders will receive the
Alternative Settlement Amount in lieu of the Cash Settlement Value which shall
be calculated as if the Warrants had been cancelled on the Expiration Date or
the Delisting Date, as the case may be. The Company shall promptly give notice
to Warrantholders, by publication in a United States newspaper with a national
circulation (currently expected to be The Wall Street Journal), if an Exercise
Limitation Event shall have occurred.
S-26
<PAGE> 27
"Exercise Limitation Event" means either of the following events:
(i) a suspension or absence of trading on the HKSE of (a) 20% or more
of the Underlying Stocks which then comprise the AMEX Hong Kong 30 Index or
a Successor Index, and/or (b) the stocks of any three of the four most
highly capitalized companies included in the Underlying Stocks which then
comprise the AMEX Hong Kong 30 Index or a Successor Index; or
(ii) the suspension or material limitation on the HK Futures Exchange
or any other major futures or securities market (which as of the date of
this Prospectus Supplement includes only the HK Futures Exchange, but which
in the Company's judgment may change in the future) of trading in futures
or options contracts related to the Hang Seng Index (for a brief
description of the Hang Seng Index, see "The AMEX Hong Kong 30 Index -- The
HKSE" herein), the AMEX Hong Kong 30 Index or a Successor Index.
For purposes of determining whether an Exercise Limitation Event has
occurred: (1) a limitation on the hours or number of days of trading will not
constitute an Exercise Limitation Event if it results from an announced change
in the regular business hours of the relevant exchange, (2) a decision to
permanently discontinue trading in the relevant contract will not constitute an
Exercise Limitation Event, (3) a suspension in trading in a futures or options
contract on the Hang Seng Index, the AMEX Hong Kong 30 Index or a Successor
Index by the HK Futures Exchange or other major futures or securities market
(which as of the date of this Prospectus Supplement includes only the HK Futures
Exchange, but which in the Company's judgment may change in the future) by
reason of (x) a price change violating limits set by the HK Futures Exchange or
such futures or securities market, (y) an imbalance of orders relating to such
contracts or (z) a disparity in bid and ask quotes relating to such contracts
will constitute a suspension or material limitation of trading in futures or
options contracts related to the Hang Seng Index, the AMEX Hong Kong 30 Index or
such Successor Index, (4) an "absence of trading" on the HK Futures Exchange or
a major futures or securities market on which futures or options contracts
relating to the Hang Seng Index, the AMEX Hong Kong 30 Index or a Successor
Index are traded will not include any time when the HK Futures Exchange or such
futures or securities market, as the case may be, itself is closed for trading
under ordinary circumstances and (5) the occurrence of an Extraordinary Event
described in clause (i) of the definition of Extraordinary Event will not
constitute, and will supersede the occurrence of, an Exercise Limitation Event.
Based on information provided to the Company by HKSE and the HK Futures
Exchange, it is the Company's understanding that during the past six years there
have been no suspensions of trading on the HKSE and no suspensions of trading on
the HK Futures Exchange under circumstances that could have constituted an
Exercise Limitation Event, except for the Typhoon Suspensions and the October
1987 Suspension. The lack of such suspensions over the period indicated is not
necessarily indicative of the number or frequency of any future suspensions. See
"The AMEX Hong Kong 30 Index -- The HKSE" below.
In the case of a postponed Valuation Date resulting from an Extraordinary
Event or an Exercise Limitation Event, if the Company has made adequate funds
available to the Warrant Agent by 3:00 P.M., New York City time, on the third
New York Business Day following the date on which the Cash Settlement Value or
Alternative Settlement Amount, as the case may be, has been calculated, the
Warrant Agent will thereafter be responsible for making payment available to
each registered holder who holds Warrants in certificated form in the form of a
cashier's check or official bank check, or (in the case of payments of at least
$100,000) by wire transfer to a U.S. dollar bank account maintained by such
holder in the United States (at such holder's election), in an amount equal to
the aggregate Cash Settlement Value or Alternative Settlement Amount, as
applicable, of such holder's exercised Warrants. In the case of Warrants held
through the facilities of DTC, CEDEL or Euroclear, if the Company has made such
funds available by such time as noted above, the Warrant Agent will thereafter
be responsible for making funds available to DTC in an amount sufficient to pay
the Cash Settlement Value or Alternative Settlement Amount of the Warrants. DTC
will be responsible for disbursing such funds to each appropriate Participant
(including Citibank and Morgan who in turn will disburse payments to CEDEL and
Euroclear, as the case may be, who will be responsible for disbursing such
payments to their respective participants who, in turn, will be responsible for
disbursing such payments to the Warrantholders it represents) and such
Participant will be responsible for disbursing such payments to the
S-27
<PAGE> 28
Warrantholders it represents and to each brokerage firm for which it acts as
agent. Each such brokerage firm will be responsible for disbursing funds to the
Warrantholders it represents.
Certain of the Extraordinary Events and Exercise Limitation Events may be
events that would tend to decrease the level of the AMEX Hong Kong 30 Index and
accordingly increase the Cash Settlement Value for the Warrants following the
occurrence of any such Extraordinary Event or Exercise Limitation Event.
However, as a result of any postponed exercise as described above,
Warrantholders would not receive such Cash Settlement Value, but would receive
instead a Cash Settlement Value (or, if applicable, an Alternative Settlement
Amount) determined as of a later date. In any such case, any immediate impact of
the related Extraordinary Event or Exercise Limitation Event on the AMEX Hong
Kong 30 Index may have been negated by interim market and other developments
and, as a result of any such postponement, the Cash Settlement Value (or
Alternative Settlement Amount) actually received by Warrantholders may be
substantially lower (including zero) than the otherwise applicable Cash
Settlement Value if the valuation of the Warrants had not been postponed.
LISTING
The Warrants have been approved for listing on the AMEX, subject to
official notice of issuance. The AMEX symbol for the Warrants is HPW.WS. The
AMEX expects to cease trading the Warrants on such Exchange as of the close of
business on the Expiration Date.
DELISTING OF WARRANTS
In the event that the Warrants are delisted from, or permanently suspended
from trading (within the meaning of the Securities Exchange Act of 1934 and the
rules and regulations thereunder) on the AMEX, and not accepted at the same time
for listing on another United States national securities exchange, Warrants not
previously exercised will be deemed automatically exercised on the last New York
Business Day prior to the effective date of such delisting or trading suspension
(the "Delisting Date") and the Cash Settlement Value, if any, shall be
calculated and settled as provided above under "-- Automatic Exercise." The
Company will notify Warrantholders as soon as practicable of such delisting or
trading suspension. However, if the Company first receives notice of the
delisting or suspension on the same day on which the Warrants are delisted or
suspended, such day will nevertheless be deemed to be the Delisting Date. The
Company will covenant in the Warrant Agreement that it will not seek delisting
of the Warrants from, or suspension of their trading on, the AMEX unless the
Company has, at the same time, arranged for listing of the Warrants on another
United States national securities exchange.
THE AMEX HONG KONG 30 INDEX
Unless otherwise stated, all information herein on the AMEX Hong Kong 30
Index is derived from the AMEX or other publicly available sources. Such
information reflects the policies of the AMEX as stated in such sources and such
policies are subject to change by the AMEX.
The AMEX Hong Kong 30 Index is a new capitalization-weighted stock index
designed, developed, maintained and operated by, and is a service mark of, the
AMEX that measures the market value performance (share price times the number of
shares outstanding) of selected HKSE listed stocks. The AMEX Hong Kong 30 Index
currently is based on the capitalization of 30 Underlying Stocks trading on the
HKSE and is designed to represent a substantial segment of the Hong Kong stock
market. The HKSE is the primary trading market for 25 of the 30 Underlying
Stocks. The primary trading market for all of the Underlying Stocks is either
Hong Kong or London. Business sector representation of the Underlying Stocks
comprising the AMEX Hong Kong 30 Index as of January 14, 1994 was as follows:
(1) property development (31.97%); (2) utilities (10.53%); (3) conglomerates
(19.40%); (4) finance (29.21%); (5) hotel/leisure (4.61%); (6) property
investment (0.68%); (7) airlines (2.03%); (8) food retailing (1.29%); and (9)
luxury retailing (0.28%). The AMEX Hong Kong 30 Index was established on June
25, 1993. (See Appendix A hereto for a list of the Underlying Stocks as of
January 14, 1994.) As of January 14, 1994, the five largest Underlying Stocks
accounted for approximately 42.12% of the market capitalization of the AMEX Hong
S-28
<PAGE> 29
Kong 30 Index, with the largest being HSBC Holdings plc (10.17%), followed by
Hong Kong Telecommunications Ltd. (9.47%), Sun Hung Kai Properties Ltd. (7.74%),
Hang Seng Bank Ltd. (7.72%) and Hutchison Whampoa Ltd. (7.01%). The lowest
weighted Underlying Stock, as of January 14, 1994, was Dickson Concepts
(International) Ltd. (0.28%).
The AMEX Hong Kong 30 Index will be maintained by the AMEX and will contain
at least 30 Underlying Stocks at all times. In addition, the Underlying Stocks
must meet certain listing and maintenance standards as discussed below. The AMEX
may change the composition of the AMEX Hong Kong 30 Index at any time in order
to more accurately reflect the composition and track the movement of the Hong
Kong stock market. Any replacement Underlying Stock must also meet the
Underlying Stock listing and maintenance standards as discussed below. Further,
the AMEX may replace Underlying Stocks in the event of certain corporate events,
such as takeovers, or mergers, that change the nature of the security.
The AMEX will select Underlying Stocks on the basis of their market weight,
trading liquidity, and representation of the business industries reflected on
the HKSE. The AMEX will require that each Underlying Stock be one issued by an
entity with major business interests in Hong Kong, listed for trading on the
HKSE, and have its primary trading market located in a country that the AMEX has
an effective surveillance sharing agreement with. The AMEX will remove any
Underlying Stock failing to meet the above listing and maintenance criteria
within 30 days after such failure occurs. In order to ensure that the AMEX Hong
Kong 30 Index does not contain a large number of thinly-capitalized, low-priced
securities with small public floats and low trading volumes, the AMEX has also
established additional qualification criteria for the inclusion and maintenance
of Underlying Stocks, based on the following standards: (1) all Underlying
Stocks selected for inclusion in the AMEX Hong Kong 30 Index must have, and
thereafter maintain, an average daily capitalization, as calculated by the total
number of shares outstanding times the latest price per share (in Hong Kong
dollars), measured over the prior 6-month period, of at least H.K.$3,000,000,000
(approximately U.S.$388,229,249 on the date hereof); (2) all Underlying Stocks
selected for inclusion in the AMEX Hong Kong 30 Index must have, and thereafter
maintain, an average daily closing price, measured over the prior 6-month
period, not lower than H.K.$2.50 (approximately U.S.$0.32 on the date hereof);
(3) all Underlying Stocks selected for inclusion in the AMEX Hong Kong 30 Index
must have, and thereafter maintain, an average daily trading volume, measured
over the prior 6-month period, of more than 1,000,000 shares per day, although
up to, but no more than, three Underlying Stocks may have an average daily
trading volume, measured over the prior 6-month period, of less than 1,000,000
shares per day, but in no event less than 500,000 shares per day; and (4) all
Underlying Stocks selected for inclusion in the AMEX Hong Kong 30 Index must
have, and thereafter maintain, a minimum "free float" value (total freely
tradeable outstanding shares minus insider holdings), based on a monthly average
measured over the prior 3-month period, of U.S.$238,000,000, although up to, but
no more than, three Underlying Stocks may have a free float value of less than
U.S.$238,000,000 but in no event less than U.S.$150,000,000, measured over the
same period. The AMEX will review and apply the above qualification criteria
relating to the Underlying Stocks on a quarterly basis, conducted the last
business day in January, April, July, and October (beginning January 1994). Any
Underlying Stock failing to meet the above listing and maintenance criteria will
be reviewed on the second Friday of the second month following the quarterly
review to again determine compliance with the above criteria. Any Underlying
Stock failing this second review will be replaced by a "qualified" Underlying
Stock effective upon the close of business on the following Friday provided,
however, that if such Friday is not a New York Business Day, the replacement
will be effective at the close of business on the first preceding New York
Business Day. For example, if an Underlying Stock was found to be below the
maintenance criteria on Monday, January 31, 1994, it would be reviewed again on
March 11 and, if ineligible, would be replaced by a qualified security at the
close of business on March 18, 1994. If March 18 happened not to be a New York
Business Day, the replacement would be effective at the close of business on the
preceding Thursday, March 17, 1994, assuming that Thursday was a New York
Business Day. The AMEX will notify its membership immediately after it
determines to replace an Underlying Stock.
The annual reports and prospectuses of the companies listed on the HKSE are
available for investors' inspection in the City Hall Library (a public library
in Hong Kong, Central). The HKSE library also has information for each listed
company but it is available only to members of the HKSE.
S-29
<PAGE> 30
A company whose stock is included in the AMEX Hong Kong 30 Index is not
required to be incorporated under the laws of Hong Kong. As of the date of this
Prospectus Supplement eight of the thirty companies whose stocks comprise the
Underlying Stocks are not incorporated in Hong Kong. They are (country of
incorporation shown within parentheses): Dairy Farm International Holdings Ltd.
(Bermuda), Dickson Concepts (International) Ltd. (Bermuda), Great Eagle Holdings
Ltd. (Bermuda), Hong Kong Land Holdings Ltd. (Bermuda), HSBC Holdings plc
(England), Jardine Matheson Holdings Ltd. (Bermuda), Jardine Strategic Holdings
Ltd. (Bermuda) and Tai Cheung Holdings Ltd. (Bermuda).
The AMEX Hong Kong 30 Index is a capitalization-weighted index. A company's
market capitalization is calculated by multiplying the number of shares
outstanding by the company's current share price (in Hong Kong dollars). For
valuation purposes unrelated to the Warrants, one AMEX Hong Kong 30 Index unit
(1.0) is assigned a fixed value of one U.S. dollar. The AMEX Hong Kong 30 Index
measures the average changes in price of the Underlying Stocks, weighted
according to their respective market capitalizations, so that the effect of a
percentage price change in an Underlying Stock will be greater the larger the
Underlying Stock's market capitalization. The AMEX Hong Kong 30 Index was
established by the AMEX on June 25, 1993, on which date the AMEX Hong Kong 30
Index value was set at 350.00. The daily calculation and public dissemination by
the AMEX of the AMEX Hong Kong 30 Index value commenced on September 1, 1993.
The data relating to the AMEX Hong Kong 30 Index was back-calculated by the AMEX
from January 2, 1989 to August 31, 1993. The AMEX Hong Kong 30 Index is
calculated by (i) adding the market capitalization of each Underlying Stock and
(ii) dividing such sum by an adjusted base market capitalization or divisor. On
June 25, 1993, the market value of the Underlying Stocks was approximately
H.K.$1,152,829,149,500 (equivalent to approximately U.S.$148,656,241,000) and
the divisor used to calculate the AMEX Hong Kong 30 Index was 3,293,797,570. The
AMEX selected that particular divisor number in order, among other things, to
ensure that the AMEX Hong Kong 30 Index was set at a general price level
consistent with other well recognized stock markets. The divisor is subject to
periodic adjustments as set forth below. The AMEX Hong Kong 30 Index is
calculated once every Index Calculation Day by the AMEX based on the most recent
official closing prices of each of the Underlying Stocks reported by the HKSE.
Pricing of the AMEX Hong Kong 30 Index will be performed each day and be
disseminated before the opening of trading via the Consolidated Tape Authority
Network-B continuously during each New York Business Day. The dissemination
value, however, will remain the same throughout the trading day because the
trading hours of the HKSE do not overlap with AMEX trading hours. Accordingly,
updated price information will be unavailable. At the close of the market on
January 14, 1994, the AMEX Hong Kong 30 Index level was 541.73.
In order to maintain continuity in the level of the AMEX Hong Kong 30 Index
in the event of certain changes due to non-market factors affecting the
Underlying Stocks, such as the addition or deletion of stocks, substitution of
stocks, stock dividends, stock splits, distributions of assets to stockholders
or other capitalization events, the divisor used in calculating the AMEX Hong
Kong 30 Index is adjusted in a manner designed to prevent any instantaneous
change or discontinuity in the level of the AMEX Hong Kong 30 Index and in order
that the value of the AMEX Hong Kong 30 Index immediately after such change will
equal the level of the AMEX Hong Kong 30 Index immediately prior to the change.
Thereafter, the divisor remains at the new value until a further adjustment is
necessary as the result of another change. Nevertheless, changes in the
identities and characteristics of the Underlying Stocks may significantly affect
the behavior of the AMEX Hong Kong 30 Index over time.
The AMEX is under no obligation to continue the calculation and
dissemination of the AMEX Hong Kong 30 Index and the method by which the AMEX
Hong Kong 30 Index is calculated and the name "The AMEX Hong Kong 30 Index" may
be changed at the discretion of the AMEX. The Warrants are not sponsored,
endorsed, sold or promoted by the AMEX. No inference should be drawn from the
information contained in this Prospectus Supplement that the AMEX makes any
representation or warranty, implied or express, to the Company, the
Warrantholders or any member of the public regarding the advisability of
investing in securities generally or in the Warrants in particular or the
ability of the AMEX Hong Kong 30 Index to track general stock market
performance. The AMEX has no obligation to take the needs of the Company or the
Warrantholders into consideration in determining, composing or calculating the
AMEX Hong Kong 30 Index. The AMEX is not responsible for, and has not
participated in the determination of the
S-30
<PAGE> 31
timing of, prices for, or quantities of, the Warrants to be issued or in the
determination or calculation of the equation by which the Warrants are to be
settled in cash. The AMEX has no obligation or liability in connection with the
administration, marketing or trading of the Warrants.
The use of and reference to the AMEX Hong Kong 30 Index in connection with
the Warrants have been consented to by the AMEX.
Except with respect to the responsibility of the Determination Agent to
make certain calculations under certain circumstances as described herein, none
of the Company, the Warrant Agent, the Determination Agent or the Underwriters
accepts any responsibility for the calculation, maintenance or publication of
the AMEX Hong Kong 30 Index or any Successor Index. The AMEX disclaims all
responsibility for any inaccuracies in the data on which the AMEX Hong Kong 30
Index is based, or any mistakes or errors or omissions in the calculation or
dissemination of the AMEX Hong Kong 30 Index or for the manner in which such
index is applied in determining any Cash Settlement Value or Alternative
Settlement Amount upon exercise of the Warrants.
HISTORICAL DATA ON THE AMEX HONG KONG 30 INDEX
The following table sets forth the closing level of the AMEX Hong Kong 30
Index at the end of each month in the period from January 1989 through January
14, 1994. All historical data presented in the following table relating to
periods before September 1, 1993 (the date the AMEX commenced the daily
calculation and public dissemination of the AMEX Hong Kong 30 Index) is
presented as if the AMEX Hong Kong 30 Index had existed during such periods,
based on the Underlying Stocks contained in the AMEX Hong Kong 30 Index as of
June 25, 1993, and such closing levels have been calculated hypothetically on
the same basis that the AMEX 30 Hong Kong Index is calculated, but without
making certain of the adjustments referred to above to take account of
non-market factors. All historical data presented in the following table
relating to periods after September 1, 1993 are based on actual data from the
AMEX Hong Kong 30 Index. Certain of the Underlying Stocks currently comprising
the AMEX Hong Kong 30 Index may not have met the AMEX's criteria for inclusion
in the AMEX Hong Kong 30 Index at all times during the period covered by the
table. In addition, there is no reason to believe that other stocks would not
have been included in the AMEX Hong Kong 30 Index had it been established at an
earlier date. Accordingly, the monthly closing levels set forth below are not
necessarily indicative of the levels that would have been in existence had the
AMEX calculated and disseminated the AMEX Hong Kong 30 Index beginning in
January 1989 applying the criteria set forth above to determine which Underlying
Stocks would be included in such index. These historical data on the AMEX Hong
Kong 30 Index are not necessarily indicative of the future performance of the
AMEX Hong Kong 30 Index or what the value of the Warrants may be. Any historical
upward or downward trend in the closing level of the AMEX Hong Kong 30 Index
during any period set forth below is not any indication that the level of the
AMEX Hong Kong 30 Index is more or less likely to increase or decrease at any
time during the term of the Warrants.
<TABLE>
<CAPTION>
MONTH-END
CLOSING LEVEL
-------------
<S> <C>
1989:
January............................................................... 149.88
February.............................................................. 147.27
March................................................................. 146.46
April................................................................. 152.01
May................................................................... 133.76
June.................................................................. 110.46
July.................................................................. 125.78
August................................................................ 123.02
September............................................................. 135.71
October............................................................... 135.04
November.............................................................. 136.23
December.............................................................. 140.32
</TABLE>
S-31
<PAGE> 32
<TABLE>
<CAPTION>
MONTH-END
CLOSING LEVEL
-------------
<S> <C>
1990:
January............................................................... 136.29
February.............................................................. 146.44
March................................................................. 149.57
April................................................................. 146.77
May................................................................... 156.58
June.................................................................. 164.36
July.................................................................. 172.48
August................................................................ 154.24
September............................................................. 137.78
October............................................................... 149.74
November.............................................................. 148.38
December.............................................................. 151.46
1991:
January............................................................... 162.42
February.............................................................. 177.56
March................................................................. 187.39
April................................................................. 179.85
May................................................................... 186.43
June.................................................................. 184.68
July.................................................................. 201.91
August................................................................ 201.49
September............................................................. 200.42
October............................................................... 204.76
November.............................................................. 209.96
December.............................................................. 217.58
1992:
January............................................................... 233.06
February.............................................................. 250.01
March................................................................. 249.71
April................................................................. 271.89
May................................................................... 308.30
June.................................................................. 309.67
July.................................................................. 296.24
August................................................................ 282.96
September............................................................. 276.67
October............................................................... 311.14
November.............................................................. 291.86
December.............................................................. 276.73
1993:
January............................................................... 287.74
February.............................................................. 318.99
March................................................................. 319.68
April................................................................. 341.75
May................................................................... 369.20
June.................................................................. 354.06
</TABLE>
S-32
<PAGE> 33
<TABLE>
<CAPTION>
MONTH-END
CLOSING LEVEL
-------------
<S> <C>
July.................................................................. 348.06
August................................................................ 374.08
September............................................................. 382.05
October............................................................... 467.64
November.............................................................. 458.93
December.............................................................. 598.98
1994:
January (through January 14).......................................... 541.73
</TABLE>
The following graph sets forth the historical performance of the AMEX Hong
Kong 30 Index at the end of each month from January 1989 through January 14,
1994. Past movements of the AMEX Hong Kong 30 Index are not necessarily
indicative of the future AMEX Hong Kong 30 Index values. The January 14, 1994
closing level of the AMEX Hong Kong 30 Index was 541.73.
AMEX HONG KONG 30 INDEX--HISTORICAL PERFORMANCE
MONTH-END VALUES THROUGH JANUARY 14, 1994
Source: Prepared by the Company from data obtained from the AMEX.
S-33
<PAGE> 34
THE HKSE
As of November 30, 1993, the HKSE was the world's 9th largest stock
exchange based on U.S. dollar market capitalization. The HKSE market is a
continuous market where trading is order-based through a computer-assisted
system. Transactions are generally conducted by telephone. However,
broker-dealers continue to operate from the stock exchange floor, and trading is
therefore occasionally face-to-face. There are no market-makers in Hong Kong,
but exchange dealers may act as dual capacity broker-dealers. All of the
Underlying Stocks of the AMEX Hong Kong 30 Index are traded through the
computerized trading system. Trading is undertaken from 10:00 A.M. to 12:30 P.M.
and then from 2:30 P.M. to 3:30 P.M. (Hong Kong time) every Hong Kong day except
Saturdays, Sundays and other days on which the HKSE is closed. Hong Kong time is
12 hours ahead of Eastern Daylight Savings Time and 13 hours ahead of Eastern
Standard Time. Settlement of trades is required within 48 hours and requires
either delivery of share certificates or book-entry delivery through the Central
Clearing and Settlement System.
Due to the time differences between New York City and Hong Kong, on any
normal trading day, trading on the HKSE of the Underlying Stocks currently will
cease at 2:30 A.M. or 3:30 A.M., New York City time. Using the last reported
closing prices of the Underlying Stocks on the HKSE, the closing level of the
AMEX Hong Kong 30 Index on any such trading day generally will be calculated,
published and disseminated by the AMEX in the United States shortly prior to the
opening of trading on the AMEX in New York on the same calendar day.
The HKSE has adopted certain measures intended to prevent any extreme
short-term price fluctuations resulting from order imbalances or market
volatility. Where the HKSE considers it necessary for the protection of the
investor or the maintenance of an orderly market, it may at any time suspend
dealings in any securities or cancel the listing of any securities in such
circumstances and subject to such conditions as it thinks fit, whether requested
by the listed issuer or not. The HKSE may also do so where: (1) an issuer fails,
in a manner which the HKSE considers material, to comply with the HKSE Listing
Rules or its Listing Agreement; or (2) the HKSE considers there are insufficient
securities in the hands of the public; or (3) the HKSE considers that the listed
issuer does not have a sufficient level of operations or sufficient assets to
warrant the continued listing of the issuer's securities; or (4) the HKSE
considers that the issuer or its business is no longer suitable for listing.
Investors should also be aware that the HKSE may suspend the trading of
individual stocks in certain limited and extraordinary circumstances, until
certain price-sensitive information has been disclosed to the public. For
instance, dealing on a listed company's shares will normally be suspended when
information about an intention to make a private placing, or a very substantial
transaction compared to the net asset value of the company, has been leaked
through an improper channel. Trading will not be resumed until after a formal
announcement has been made. Trading of a company's shares may also be suspended
if there is unusual trading activity in that stock.
An issuer may apply for suspension on its own accord. A suspension request
will normally only be acceded to in the following circumstances: (1) where, for
a reason acceptable to the HKSE, price-sensitive information cannot at that time
be disclosed; (2) where the issuer is subject to an offer, but only where terms
have been agreed in principle and require discussion with, and agreement by, one
or more major shareholders (suspensions will only normally be appropriate where
no previous announcement has been made); (3) to maintain an orderly market; (4)
where there is an occurrence of certain levels of notifiable transactions, such
as substantial changes in the nature, control or structure of the issuer, where
publication of full details is necessary to permit a realistic valuation to be
made of the securities concerned, or the approval of shareholders is required;
(5) where the issuer is no longer suitable for listing, or becomes a "cash"
company; or (6) for issuers going into receivership or liquidation.
As a result of the foregoing, variations in the AMEX Hong Kong 30 Index may
be limited by suspension of trading of individual stocks which comprise the AMEX
Hong Kong 30 Index which may, in turn, adversely affect the value of the
Warrants. In addition, a suspension in trading of (a) 20% or more of the
Underlying Stocks and/or (b) stocks of any three of the four most highly
capitalized companies included in the Underlying Stocks would result in an
Exercise Limitation Event and a halt in trading of all of the Underlying Stocks
would result in an Extraordinary Event, if such Events were declared by the
Company. As a result, the
S-34
<PAGE> 35
Valuation Date of exercised Warrants would be postponed and the Cash Settlement
Value (or Alternative Settlement Amount) actually received by Warrantholders may
be substantially lower (including zero) than the otherwise applicable Cash
Settlement Value if the valuation of the Warrants had not been postponed. See
"Description of the Warrants -- Extraordinary Events and Exercise Limitation
Events" herein.
In 1977, the Hong Kong government authorized futures trading in
commodities. The HK Futures Exchange currently provides for trading in gold,
sugar and soybeans in addition to Hang Seng Index and Hong Kong Interbank
Offered Rate contracts.
The stock index futures contracts traded on the HK Futures Exchange are
based upon the Hang Seng Index ("HSI") and its four sub-indices: properties,
utilities, finance, and commerce and industry. The HSI is a value-weighted index
of 33 stocks and every stock in the HSI is represented in one of the four
sub-indices. The following Underlying Stocks of the AMEX Hong Kong 30 Index (as
of January 14, 1994) are not constituent securities of the HSI: Amoy Properties
Ltd., Dickson Concepts (International) Ltd., Henderson Investment Ltd. and Tai
Cheung (Holdings) Ltd. The following constituent securities of the HSI (as of
January 14, 1993) are not Underlying Stocks of the AMEX Hong Kong 30 Index: Hong
Kong Aircraft Eng. Co. Ltd., Lai Sun Garment International Ltd., Mandarin
Oriental International Ltd., Mirmar Hotel and Inv. Co. Ltd., Shun Tak Holdings
Ltd., Television Broadcasts Ltd. and Winsor Industrial Corporation Ltd. The AMEX
Hong Kong 30 Index also differs from the HSI in that, among other things, the
selection, maintenance and replacement criteria for the constituent securities
of the two indices are not the same and that they are operated and governed by
the rules of different entities.
Currently, the contracts listed on the HK Futures Exchange are HSI futures,
HSI sub-indices futures, HSI options, gold and Hong Kong Interbank Offered Rate
futures. There is a daily maximum fluctuation limit of 300 points imposed on the
HSI contracts (not applicable to spot mark contracts). Once the limit is
touched, orders cannot be transacted above (the upside limit) or below (the
downside limit) but orders within the range can continue to trade.
The foregoing discussion reflects the current rules governing the HKSE and
the HK Futures Exchange, which are subject to change.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
U.S. FEDERAL INCOME TAX CONSEQUENCES OF OWNERSHIP OF A WARRANT BY A U.S. HOLDER
The following is a summary of certain anticipated U.S. federal income tax
consequences of an investment in Warrants and represents the views of Sullivan &
Cromwell, special tax counsel to the Company. This summary deals only with "U.S.
Holders" (as defined below) that will hold Warrants as capital assets and as to
which the Underlying Stocks, if acquired by such holders, would be capital
assets, and does not deal with Warrantholders in special tax situations, such as
dealers in options, securities or currencies. A U.S. Holder means a
Warrantholder who or which is (i) a citizen or resident of the United States,
(ii) a domestic corporation, or (iii) a person otherwise subject to U.S. federal
income taxation on a net income basis in respect of the Warrant.
This summary does not address every U.S. federal income tax issue raised by
the ownership of Warrants. In particular, this summary does not consider either
(i) the U.S. federal income tax consequences of holding Warrants as a hedge
against, or hedged against, currency or security price risks, or (ii) the
possible application of the "straddle" rules of the Internal Revenue Code of
1986, as amended (the "Code"), to a Warrantholder as a result of holding other
"positions" (within the meaning of Section 1092 of the Code). Either of these
factors might substantially alter the tax consequences described below and may
require specific identification of positions in the Warrants before the close of
the date on which they are acquired. In particular, if the "straddle rules" were
to apply, a Warrantholder might be required to defer all or a portion of any
loss realized upon the sale, transfer, exercise, cancellation or lapse of a
Warrant. Accordingly, prospective purchasers of Warrants are urged to consult
their own tax advisors before any such acquisition concerning the U.S. federal,
state and local tax consequences, in light of their own particular
circumstances, of owning Warrants.
S-35
<PAGE> 36
A U.S. Holder will generally recognize capital gain or loss only upon the
sale, transfer, exercise, cancellation or lapse of a Warrant, which gain or loss
will be long-term capital gain or loss if the U.S. Holder has held the Warrant
for more than one year.
Notwithstanding the foregoing, assuming the Warrants remain traded on or
subject to the rules of a "qualified board or exchange" (as defined in Section
1256(g)(7) of the Code), they will become "nonequity options" subject to the
"mark-to-market" rules of Section 1256 of the Code at such time as either (i)
the Commodity Futures Trading Commission (the "CFTC") designates a contract
market for a contract based on the AMEX Hong Kong 30 Index or (ii) the Secretary
of the Treasury otherwise determines that the Warrants meet the requirements of
law for such a designation. No such designation or determination has yet
occurred. Nevertheless, an application is currently pending with the CFTC for a
designation of a contract market for a contract based on the Hang Seng Index
which is an index that is calculated on the basis of a substantially similar
weighting of a substantial number of identical securities as, and whose
performance is highly correlated to, the AMEX Hong Kong 30 Index. It is not
clear what effect such a designation would have on the classification of the
Warrants as "nonequity options". If the mark-to-market rules of Section 1256
were to apply to the Warrants, a U.S. Holder of an unexercised Warrant would
generally be required (a) to treat the Warrant as if it were sold for its fair
market value on the last day of each taxable year during which the U.S. Holder
owned the Warrant and (b) to recognize gain or loss as 60% long-term and 40%
short-term capital gain or loss. Thus, a U.S. Holder of a Warrant that is
subject to the mark-to-market rules of Section 1256 might incur federal income
tax liability on an annual basis in respect of an increase in the value of a
Warrant without a corresponding receipt of cash. Under the mark-to-market rules,
any gain or loss realized by a U.S. Holder upon the sale, transfer, exercise,
cancellation or lapse of a Warrant would also be treated as 60% long-term and
40% short-term capital gain or loss.
Regardless of whether the Warrants are treated as "nonequity options", no
portion of gain or loss in respect of a Warrant will be treated as foreign
currency gain or loss for U.S. federal income tax purposes.
U.S. FEDERAL INCOME TAX CONSEQUENCES OF OWNERSHIP OF A WARRANTY BY A NON-U.S.
HOLDER
In general, a Warrantholder who or which is (i) a nonresident alien
individual or (ii) a foreign corporation, partnership, estate or trust, in
either case not subject to U.S. federal income tax on a net income basis in
respect of a Warrant (a "non-U.S. Holder"), will not be subject to U.S. federal
withholding tax with respect to amounts received, if any, with respect to a
Warrant.
BACKUP WITHHOLDING
In general, the proceeds received from a sale, transfer, cancellation or
exercise of a Warrant by a U.S. Holder will be subject to information reporting,
and may be subject to a U.S. "backup" withholding at a rate of 31% if the U.S.
Holder thereof fails to supply an accurate taxpayer identification number or
otherwise comply with applicable U.S. information reporting or certification
requirements. Such payments made to a non-U.S. Holder will not be subject to
information reporting or back-up withholding if the non-U.S. Holder certifies
its status as a non-U.S. Holder under penalty of perjury, provided that the
payor does not have actual knowledge that the holder is a United States person.
Any amounts so withheld would be refundable or allowed as a credit against such
holder's U.S. federal income tax liability.
S-36
<PAGE> 37
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to each of the Underwriters named
below, and each of the Underwriters has severally agreed to purchase, the number
of Warrants set forth opposite its name.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS WARRANTS
------------ ---------
<S> <C>
PaineWebber Incorporated.................................................. 1,366,670
Oppenheimer & Co., Inc.................................................... 1,366,665
Kemper Securities, Inc.................................................... 1,366,665
---------
Total........................................................... 4,100,000
---------
---------
</TABLE>
The Underwriters have advised the Company that they propose to offer the
Warrants to the public initially at the offering price set forth on the cover
page of this Prospectus Supplement, and to certain dealers at such price less a
concession not in excess of $0.15 per Warrant. The Underwriters may allow and
such dealers may reallow a concession not in excess of $0.10 per Warrant to
certain other dealers. After the initial public offering, the public offering
price and such concessions may be changed.
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the Warrants if any are purchased.
The Company has agreed to indemnify the Underwriters against, and to
contribute to losses arising out of, certain liabilities, including liabilities
under the Securities Act of 1933, as amended.
PaineWebber Incorporated is a wholly owned subsidiary of the Company. The
participation of PaineWebber Incorporated in the offer and sale of the Warrants
complies with the requirements of Schedule E of the By-Laws of the National
Association of Securities Dealers, Inc. (the "NASD") regarding underwriting
securities of an affiliate. Under the provisions of Schedule E, when a NASD
member such as PaineWebber Incorporated distributes warrants of an affiliate,
the price of the warrants can be no higher than that recommended by a "qualified
independent underwriter", as such term is defined in Schedule E, meeting certain
standards. In accordance with such requirements, Oppenheimer & Co., Inc. has
agreed to serve as a "qualified independent underwriter" and has conducted due
diligence and has recommended a price for the Warrants in compliance with the
requirements of Schedule E.
Each Underwriter has represented that (i) it has complied and will comply
with all applicable provisions of the Financial Services Act 1986 with respect
to anything done by it in relation to the Warrants in, from or otherwise
involving the United Kingdom and (ii) it has only issued or passed on, and will
only issue or pass on, in the United Kingdom any document received by it in
connection with the issue of the Warrants to a person who is of a kind described
in Article 9(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1988 or is a person to whom the document may otherwise
lawfully be issued or passed on.
No person (other than a person permitted to do so under the securities laws
of Hong Kong) may distribute this document or any other offering material
relating to the Warrants or issue any advertisement or invitation relating to
the Warrants in or from Hong Kong except with respect to Warrants which are
intended to be disposed of to persons outside Hong Kong or only to persons whose
business involves the acquisition, disposal or holding of securities, whether as
principal or as agent.
VALIDITY OF THE WARRANTS
The validity of the Warrants will be passed upon for the Company by
Cravath, Swaine & Moore, New York, New York, and for the Underwriters by
Sullivan & Cromwell, New York, New York.
S-37
<PAGE> 38
APPENDIX A
AMEX HONG KONG 30 INDEX--UNDERLYING STOCKS
The following is a list of the issuers of the 30 stocks constituting the
AMEX Hong Kong 30 Index as of January 14, 1994. Such information was obtained
from the AMEX. The AMEX may delete, add or substitute any stock underlying the
AMEX Hong Kong 30 Index. See "The AMEX Hong Kong 30 Index" in this Prospectus
Supplement.
STOCKS INCLUDED IN THE AMEX HONG KONG 30 INDEX AS OF JANUARY 14, 1994,
TOGETHER WITH THEIR PERCENTAGE WEIGHT (ROUNDED TO THE NEAREST .01%) IN THE AMEX
HONG KONG 30 INDEX AS OF JANUARY 14, 1994, ARE SET FORTH BELOW:
<TABLE>
<CAPTION>
STOCK PERCENTAGE WEIGHT
----- -----------------
<S> <C>
Amoy Properties Ltd........................................................ 1.53%
The Bank of East Asia, Ltd................................................. 1.84%
Cathay Pacific Airways Ltd................................................. 2.03%
Cheung Kong (Holdings) Ltd................................................. 5.43%
China Light & Power Co., Ltd............................................... 5.53%
CITIC Pacific Ltd.......................................................... 2.46%
Dairy Farm International Holdings Ltd...................................... 1.29%
Dickson Concepts (International) Ltd....................................... 0.28%
Great Eagle Holdings Ltd................................................... 0.68%
Hang Lung Development Co. Ltd.............................................. 1.24%
Hang Seng Bank Ltd......................................................... 7.72%
Henderson Investment Ltd................................................... 0.96%
Henderson Land Development Co. Ltd......................................... 4.44%
The Hong Kong & China Gas Co. Ltd.......................................... 1.86%
The Hong Kong and Shanghai Hotels, Ltd..................................... 0.71%
Hong Kong Electric Holdings Ltd............................................ 3.14%
Hong Kong Land Holdings Ltd................................................ 3.78%
Hong Kong Telecommunications Ltd........................................... 9.47%
Hopewell Holdings Ltd...................................................... 2.07%
HSBC Holdings plc.......................................................... 10.17%
Hutchison Whampoa Ltd...................................................... 7.01%
Hysan Development Co. Ltd.................................................. 1.42%
Jardine Matheson Holdings Ltd.............................................. 2.79%
Jardine Strategic Holdings Ltd............................................. 1.65%
New World Development Co., Ltd............................................. 2.93%
Sun Hung Kai Properties Ltd................................................ 7.74%
Swire Pacific Ltd. 'A'..................................................... 3.20%
Tai Cheung Holdings Ltd.................................................... 0.43%
The Wharf (Holdings) Ltd................................................... 3.90%
Wheelock and Co. Ltd. (formerly World International (Holdings) Ltd.)....... 2.29%
-------
Total................................................................. 100.00%
-------
-------
</TABLE>
As of January 14, 1994, the total capitalization of the AMEX Hong Kong 30
Index was U.S.$231.602 billion.
A-1
<PAGE> 39
APPENDIX B
INDEX OF KEY TERMS
<TABLE>
<CAPTION>
PAGE ON WHICH
TERM TERM IS DEFINED
---- -----------------
<S> <C>
Alternative Settlement Amount.............................................. S-25
AMEX....................................................................... front cover, S-3
AMEX Hong Kong 30 Index.................................................... front cover, S-3
Applicable Hong Kong Business Day.......................................... S-24
Cancellation Date.......................................................... S-25
Cash Settlement Value...................................................... front cover, S-3
CEDEL...................................................................... S-18
CFTC....................................................................... S-36
China...................................................................... S-13
Citibank................................................................... S-16
Code....................................................................... S-35
Company.................................................................... front cover, S-3
Conversion Option.......................................................... S-10
Conversion Option Period................................................... S-16
Cooperative................................................................ S-18
Delisting Date............................................................. S-2, S-4, S-28
Depositaries............................................................... S-17
Determination Agent........................................................ S-21
DTC........................................................................ S-10
Euroclear.................................................................. S-18
Euroclear Operator......................................................... S-18
Exercise Date.............................................................. S-19
Exercise Notice............................................................ S-19
Expiration Date............................................................ S-4, S-19
Extraordinary Event........................................................ S-25
HK Futures Exchange........................................................ S-25
HKSE....................................................................... S-4
Hong Kong Business Day..................................................... S-13
Index Calculation Day...................................................... S-13
Limit Option............................................................... S-22
Limit Option Reference Index............................................... S-23
Morgan..................................................................... S-16
NASD....................................................................... S-37
New York Business Day...................................................... S-13
Non-U.S. Holder............................................................ S-36
PaineWebber................................................................ S-3
Spot AMEX Hong Kong 30 Index............................................... S-9
Strike AMEX Hong Kong 30 Index............................................. S-9
Successor Index............................................................ S-9
Terms and Conditions....................................................... S-18
Third Party................................................................ S-9
U.S. Holder................................................................ S-35
Underlying Stock........................................................... S-14
Valuation Date............................................................. S-20
Warrants................................................................... S-3
Warrant Agent.............................................................. S-14
Warrant Agent's Office..................................................... S-14
Warrant Agreement.......................................................... S-14
Warrant Certificate........................................................ S-15
Warrantholder.............................................................. S-9
</TABLE>
B-1
<PAGE> 40
PROSPECTUS
PAINE WEBBER GROUP INC.
STOCK INDEX WARRANTS
------------------
Paine Webber Group Inc. (the "Company") intends to issue from time to time
warrants ("Warrants") entitling the holders to receive, upon exercise, an amount
in cash determined by reference to decreases (such Warrants, "Put Warrants") or
increases (such Warrants, "Call Warrants") in the level of a specified stock
index (the "Stock Index") which may be based on United States or foreign stocks
or a combination thereof (the "Underlying Stocks"). No shares of any Underlying
Stock will be delivered upon exercise of the Warrants. Unless otherwise
specified in the accompanying Prospectus Supplement (the "Prospectus
Supplement"), the Stock Index will be an established, broadly-based index
related to a major domestic or foreign equity trading market. The Warrants will
have an aggregate initial public offering price or purchase price of up to U.S.
$346,242,000 or the equivalent thereof if the offering price or purchase price
of the Warrants is denominated in a foreign currency or composite currency.
Unless otherwise specified in the Prospectus Supplement, payments, if any, on
the Warrants will be made in U.S. dollars. The Warrants will be offered on terms
to be determined at the time of sale.
With regard to the Warrants in respect of which this Prospectus is being
delivered, the Prospectus Supplement sets forth the aggregate amount and
offering price of such Warrants, certain information regarding the applicable
Stock Index and the Underlying Stocks, whether such Warrants are Put Warrants or
Call Warrants, the date on which the right to exercise such Warrants commences
and the expiration date of such Warrants, the manner in which such Warrants may
be exercised and any restrictions on, or other special provisions relating to,
the exercise of such Warrants, whether and under what circumstances such
Warrants may be cancelled by the Company prior to their expiration date, the
method of determining the amount payable in connection with the exercise or
cancellation of such Warrants, including the predetermined amount to which the
level of the Stock Index upon exercise of such Warrants is compared, the method
of translating movements in the Stock Index into a cash amount in the currency
in which such Warrants are payable, including, for Warrants relating to a Stock
Index for which the trading prices of Underlying Stocks are expressed in a
foreign currency (a "Foreign Stock Index"), the method of converting amounts in
such foreign currency into U.S. dollars (or such other currency in which such
Warrants are payable), the amount payable on cancellation of such Warrants, if
applicable (the "Cancellation Amount"), and the predetermined sum or range of
sums (the "Minimum Expiration Value"), if any, payable in certain circumstances
upon expiration or exercise of such Warrants, any national securities exchange
on which such Warrants will be listed, certain U.S. federal income tax
consequences relating to such Warrants and any other specific terms of, or
information regarding, such Warrants.
The Warrants involve a high degree of risk, including risks arising from
fluctuations in the values of the Underlying Stocks, risks relating to the Stock
Index, general risks applicable to the stock market (or markets) on which the
Underlying Stocks are traded and, in the case of Warrants relating to a Foreign
Stock Index and settled based on then-current currency exchange rates, foreign
exchange risks. Purchasers should recognize that their Warrants, other than
Warrants having a Minimum Expiration Value, may expire worthless. Purchasers
should be prepared to sustain a total loss of the purchase price of their
Warrants, and are advised to consider carefully the information under "Risk
Factors" herein and the information regarding the Warrants and the Stock Index
set forth in the Prospectus Supplement.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Warrants may be sold by the Company directly to purchasers, through
agents designated from time to time, through underwriting syndicates led by one
or more managing underwriters or through one or more underwriters. Any such
managing underwriters, underwriters or agents may include PaineWebber
Incorporated ("PaineWebber"). If underwriters or agents are involved in the
offering of any Warrants, the names of such underwriters or agents will be set
forth in the Prospectus Supplement. If an underwriter, agent or dealer is
involved in the offering of any Warrants, the underwriter's discount, agent's
commission or dealer's purchase price will be set forth in, or may be calculated
from the information set forth in, the Prospectus Supplement, and the net
proceeds to the Company from such offering will be the public offering price of
the Warrants less such discount in the case of an offering through an
underwriter or the purchase price of the Warrants less such commission in the
case of an offering through an agent, and less, in each case, the other expenses
of the Company associated with the issuance and distribution of the Warrants.
PaineWebber expects to offer and sell previously issued Warrants from time
to time in the course of its business as a broker-dealer. PaineWebber may act as
principal or agent in such transactions. See "Plan of Distribution".
------------------
PAINEWEBBER INCORPORATED
------------------
The date of this Prospectus is October 14, 1993.
<PAGE> 41
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information concerning the Company can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
at Seven World Trade Center, 13th Floor, New York, New York 10048, and North
Western Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can be obtained upon written request addressed to
the Commission, Public Reference Section, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. In addition, reports, proxy statements and
other information concerning the Company may be inspected at the offices of The
New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10004, and
the Pacific Stock Exchange, 115 Sansome Street,
San Francisco, California 94104.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the Warrants. This Prospectus does not contain
all of the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission (File No.
1-7367) pursuant to Section 13 of the Exchange Act are incorporated herein by
reference: (i) the Annual Report on Form 10-K (including the portions of the
Company's annual report to stockholders incorporated by reference therein) for
the year ended December 31, 1992 (the "1992 Form 10-K"); (ii) the Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1993 and June 30, 1993;
and (iii) the Current Reports on Form 8-K dated February 10, 1993, May 25, 1993,
August 19, 1993 and October 14, 1993.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Warrants shall be deemed to be
incorporated by reference in this Prospectus.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, on the written
or oral request of any such person, a copy of any or all of the documents
incorporated herein by reference, except the exhibits to such documents (unless
such exhibits are specifically incorporated by reference in such documents).
Requests for such copies should be directed to Assistant Secretary, Paine Webber
Group Inc., 1285 Avenue of the Americas, New York, New York 10019; telephone
(212) 731-2722.
------------------
References herein to "U.S. dollar", "dollar", "U.S.$" or "$" are to the
lawful currency of the United States of America.
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RISK FACTORS
The Warrants involve a high degree of risk, including risks arising from
fluctuations in the prices of the Underlying Stocks, risks relating to the Stock
Index, general risks applicable to the stock market (or markets) on which the
Underlying Stocks are traded and, in the case of Warrants relating to a Foreign
Stock Index and settled based on then-current currency exchange rates, foreign
exchange risks. Prospective purchasers of the Warrants should recognize that
their Warrants, other than Warrants having a Minimum Expiration Value, may
expire worthless. Purchasers should be prepared to sustain a total loss of the
purchase price of their Warrants. Prospective purchasers of the Warrants should
be experienced with respect to options and options transactions and understand
the risks of stock index (and, if applicable, foreign currency) transactions and
should reach an investment decision only after careful consideration, with their
advisers, of the suitability of the Warrants in light of their particular
financial circumstances, the information set forth below and under "Description
of Warrants" herein and the information regarding the Warrants and the Stock
Index set forth in the Prospectus Supplement.
POSSIBLE ILLIQUIDITY OF SECONDARY MARKET
It is not possible to predict how the Warrants will trade in the secondary
market or whether such market will be liquid or illiquid. The Company intends to
list the Warrants of each issue on a national securities exchange. In the event
of a delisting or suspension of trading on such exchange, the Company will use
its best efforts to list the Warrants on another national securities exchange.
If the Warrants are not listed or traded on any securities exchange, pricing
information for the Warrants may be more difficult to obtain and the liquidity
of the Warrants may be adversely affected. To the extent Warrants are exercised,
the number of Warrants outstanding will decrease, resulting in a lessening of
the liquidity of the Warrants.
RELATIONSHIP BETWEEN CASH SETTLEMENT VALUE AND STOCK INDEX LEVEL
Each Warrant will entitle the Warrantholder to receive from the Company
upon exercise thereof a cash value (the "Cash Settlement Value") that (i) in the
case of a Put Warrant, will be determined by reference to the amount, if any, by
which a predetermined level or range of levels of the Stock Index (the "Strike
Index") exceeds the then-current level of the Stock Index (the "Spot Index") at
the close of business on the relevant exchange or exchanges, and (ii) in the
case of a Call Warrant, will be determined by reference to the amount, if any,
by which the Spot Index at the time of exercise of such Warrant exceeds the
Strike Index. However, a Warrantholder will receive a cash payment upon exercise
only if the Warrants are "in-the-money" -- that is, have a Cash Settlement Value
greater than zero at the time -- except that, in the case of Warrants having a
Minimum Expiration Value, in certain circumstances the Warrantholder will
receive upon expiration or exercise a cash payment in an amount equal to the
greater of the applicable Cash Settlement Value and such Minimum Expiration
Value. The Cash Settlement Value of a Put Warrant will be greater than zero only
if the Spot Index at the time of exercise is less than the Strike Index for such
Put Warrant (that is, if the level of the Stock Index drops below the
predetermined Strike Index). The Cash Settlement Value of a Call Warrant will be
greater than zero only if the Strike Index for such Call Warrant is less than
the Spot Index at the time of exercise (that is, if the level of the Stock Index
rises above the predetermined Strike Index).
EXTRAORDINARY EVENTS; EXERCISE LIMITATION EVENTS; CANCELLATION OF WARRANTS;
DELAYED EXERCISE
If so specified in the Prospectus Supplement, the Warrants of an issue may
be cancelled by the Company upon the occurrence of one or more events
("Extraordinary Events") described in the Prospectus Supplement. In such event,
Warrantholders will have the right to receive only the Cancellation Amount,
which may be a predetermined amount, or an amount to be determined in accordance
with a predetermined formula, specified in such Prospectus Supplement. Certain
events that may constitute Extraordinary Events and therefore lead to
cancellation of the Warrants of an issue may be events that would tend to
increase the Cash Settlement Value otherwise applicable to the Warrants of such
issue. In addition, if so specified in the Prospectus Supplement, any exercise
of the Warrants may be suspended by the Company, and the valuation of and
payment for such Warrants may be postponed and/or the determination of the Cash
Settlement Amount thereof may be made on a different basis, upon the occurrence
of an Extraordinary Event or certain other events ("Exercise Limitation Events")
specified in the Prospectus Supplement.
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CERTAIN FACTORS AFFECTING VALUE AND TRADING PRICE OF WARRANTS
Unless otherwise specified in the Prospectus Supplement, the Warrants of
each issue will have a Cash Settlement Value of zero at the time of the initial
public offering of such Warrants. The Cash Settlement Value of the Warrants at
any time prior to expiration is expected typically to be less than the trading
price of the Warrants at that time. The difference between the trading price and
the Cash Settlement Value will reflect, among other things, a "time value" for
the Warrants. The "time value" of the Warrants will depend partly upon the
length of the period remaining to expiration and expectations concerning the
level of the Stock Index as compared to the Strike Index during the period. In
the case of Warrants relating to a Foreign Stock Index and settled based on
then-current currency exchange rates, such "time value" will also depend in part
on expectations concerning the value of the related foreign currency as compared
to the U.S. dollar (or such other currency in which such Warrants are payable)
during such period. Before exercising or selling Warrants, Warrantholders should
carefully consider, among other things, (i) the trading price of the Warrants,
(ii) the level of the Stock Index at such time, (iii) the time remaining to
expiration, (iv) in the case of Warrants relating to a Foreign Stock Index and
settled based on then-current currency exchange rates, the exchange rate between
the related foreign currency and the U.S. dollar (or such other currency in
which such Warrants are payable) at such time, (v) the probable range of Cash
Settlement Values, (vi) any Minimum Expiration Value and (vii) any related
transaction costs.
The trading price of a Warrant at any time is expected to be dependent on
(i) the relationship between the Strike Index and the level of the Stock Index
at such time, (ii) in the case of Warrants relating to a Foreign Stock Index and
settled based on then-current currency exchange rates, the exchange rate between
the related foreign currency and the U.S. dollar (or such other currency in
which such Warrants are payable) at such time, (iii) any Minimum Expiration
Value and (iv) a number of other interrelated factors, including those listed
below. The relationship among these factors is complex. However, the expected
effect on the trading price of a Warrant of each of the factors listed below,
assuming in each case that all other factors are held constant, is as follows:
(1) The prevailing level of the Stock Index. If the level of the
Stock Index falls in relation to the Strike Index, the trading price of a
Put Warrant is expected to increase and the trading price of a Call Warrant
is expected to decrease; if the level of the Stock Index rises in relation
to the Strike Index, the trading price of a Put Warrant is expected to
decrease and the trading price of a Call Warrant is expected to increase.
However, as a result of other factors, the trading price of a Warrant may
decline significantly even if, in the case of a Put Warrant, there is a
decrease in the level of the Stock Index as compared to the Strike Index
or, in the case of a Call Warrant, there is an increase in the level of the
Stock Index as compared to the Strike Index.
(2) The volatility of the Stock Index. If volatility increases, the
trading price of both Put and Call Warrants is expected to increase; if
volatility decreases, the trading price of both Put and Call Warrants is
expected to decrease.
(3) The time remaining to the expiration date of the Warrants. As the
time remaining to the expiration date of the Warrants decreases, the
trading price of both Put and Call Warrants is expected to decrease.
(4) The prevailing interest rates. If interest rates in the country
where the Underlying Stocks trade increase, the trading value of a Put
Warrant is expected to decrease and the trading value of a Call Warrant is
expected to increase. If such interest rates decrease, the trading value of
a Put Warrant is expected to increase and the trading value of a Call
Warrant is expected to decrease. Increases and decreases in other interest
rates may also affect the value of the Warrants.
(5) Dividend rates. If dividend rates on the Underlying Stocks
increase, the trading value of a Put Warrant is expected to increase and
the trading value of a Call Warrant is expected to decrease; however,
increased dividend rates may positively affect the value of the Stock
Index, and the trading value of a Put Warrant could then be expected to
decrease and the trading value of a Call Warrant could then be expected to
increase. If such dividend rates decrease, the trading value of a Put
Warrant is expected to decrease and the trading value of a Call Warrant is
expected to increase; however, decreased dividend
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<PAGE> 44
rates may adversely affect the value of the Stock Index, and the trading
value of a Put Warrant could then be expected to increase and the trading
value of a Call Warrant could then be expected to decrease.
(6) The prevailing currency exchange rate. In the case of Warrants
relating to a Foreign Stock Index and settled based on then-current
currency exchange rates, if the value of the U.S. dollar (or such other
currency in which such Warrants are payable) falls in relation to the
related foreign currency, the trading price of both Put and Call Warrants
is expected to increase; if the value of the U.S. dollar (or such other
currency) rises in relation to the related foreign currency, the trading
price of both Put and Call Warrants is expected to decrease.
Some of the factors referred to above are in turn influenced by various
political, economic and other factors referred to herein and in the
Prospectus Supplement that can affect trading prices of the Underlying
Stocks and the level of the applicable Stock Index (and, if applicable,
currency exchange rates).
TIME LAG AFTER EXERCISE AND POTENTIAL INTERIM CHANGES IN STOCK INDEX
Unless otherwise specified in the Prospectus Supplement, in the case of any
exercise of Warrants, there will be a time lag between the time a Warrantholder
gives instructions to exercise and the time the Spot Index relating to such
exercise and, in the case of Warrants relating to a Foreign Stock Index and
settled based on then-current currency exchange rates, the applicable currency
exchange rate, are determined. The delay will, at a minimum, amount to almost an
entire day and could be much longer, particularly in the case of a delay in
exercise of Warrants arising from any daily maximum exercise limitation as
described in the immediately following paragraph or following the occurrence of
an Extraordinary Event or an Exercise Limitation Event as described under
"Extraordinary Events; Exercise Limitation Events; Cancellation of Warrants;
Delayed Exercise" above. The level of the Stock Index and, if applicable, the
exchange rate between the related foreign currency and the U.S. dollar (or such
other currency in which the Warrants are payable) may change significantly
during any such period, and such movement or movements could decrease the Cash
Settlement Value of the Warrants being exercised and may result in such Cash
Settlement Value being zero.
LIMITATIONS ON EXERCISE
If so indicated in the Prospectus Supplement, the Company will have the
option to limit the number of Warrants exercisable on any date to the maximum
number specified in the Prospectus Supplement and, in conjunction with such
limitation, to limit the number of Warrants exercisable by any person or entity
on such date. In the event that the total number of Warrants being exercised on
any date exceeds such maximum number and the Company elects to limit the number
of Warrants exercisable on such date, a Warrantholder may not be able to
exercise on such date all Warrants that such holder desires to exercise.
Warrants to be exercised on such date will be selected on a pro rata basis or in
any other manner specified in the Prospectus Supplement. Unless otherwise
specified in the Prospectus Supplement, the Warrants tendered for exercise but
not exercised on such date will be automatically exercised on the next date on
which Warrants may be exercised, subject to the same daily maximum limitation
and delayed exercise provisions described in this paragraph. Unless otherwise
specified in the Prospectus Supplement, any such limitation will not apply to
cases of automatic exercise, including at expiration.
MINIMUM EXERCISE AMOUNT
If so indicated in the Prospectus Supplement, a Warrantholder must tender a
specified minimum number of Warrants at any one time in order to exercise
(except for cases of automatic exercise, including at expiration). Thus, except
in such cases, Warrantholders with fewer than the specified minimum number of
Warrants will either have to sell their Warrants or purchase additional
Warrants, incurring transaction costs in each case, in order to realize upon
their investment. Furthermore, such Warrantholders incur the risk that there may
be differences between the trading price of the Warrants and the Cash Settlement
Value of such Warrants.
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<PAGE> 45
OFFERING PRICE OF WARRANTS
The initial offering price of the Warrants may be in excess of the price
that a commercial user of options might pay for a comparable option in a
private, less liquid transaction.
CERTAIN RISK CONSIDERATIONS
The purchaser of a Warrant may lose his entire investment except to the
extent of any Minimum Expiration Value that such Warrant may have. This risk
reflects the nature of a Warrant as an asset which, other factors held constant,
tends to decline in value over time and which may, depending on the prevailing
level of the Stock Index as compared to the Strike Index, become worthless when
it expires (except to the extent of any Minimum Expiration Value). Assuming all
other factors are held constant, the more a Warrant is "out-of-the-money" and
the shorter its remaining term to expiration, the greater the risk that a
purchaser of the Warrant will lose all or part of his investment. This means
that a Warrantholder who does not either exercise or sell his Warrant prior to
expiration will necessarily lose his entire investment in the Warrant upon
expiration (except to the extent of any Minimum Expiration Value) if, in the
case of a Put Warrant, the Spot Index at expiration is greater than or equal to
the Strike Index or, in the case of a Call Warrant, such Spot Index is less than
or equal to the Strike Index.
The risk of the loss of some or all of the purchase price of a Warrant upon
expiration means that a purchaser of a Warrant must generally be correct about
both the direction and magnitude of an anticipated change in the level of the
Stock Index in relation to the Strike Index and must also be correct about when
such change will occur. In the case of Warrants relating to a Foreign Stock
Index and settled based on then-current currency exchange rates, purchasers
should also consider expected changes in the value of the related foreign
currency as compared to the U.S. dollar (or such other currency in which such
Warrants are payable). If the level of the Stock Index as compared to the Strike
Index does not decline, in the case of a Put Warrant, or does not rise, in the
case of a Call Warrant, before the Warrant expires to an extent sufficient
(giving effect to currency exchange rate movements in the case of a Warrant
relating to a Foreign Stock Index and settled based on then-current currency
exchange rates) to cover a purchaser's cost of the Warrant (i.e., the purchase
price plus transaction costs, if any), the purchaser will lose all or part of
his investment in such Warrant upon expiration.
CERTAIN FACTORS AFFECTING STOCK INDEX
The Cash Settlement Value of a Warrant at any time will depend primarily on
the level of the Stock Index at such time in relation to the Strike Index, which
level in turn will be based primarily on the trading prices of the Underlying
Stocks. Prospective purchasers of Warrants should familiarize themselves with
the basic features of the relevant Stock Index, including the Underlying Stocks
and the general method of calculation of such Stock Index. Unless otherwise
specified in the Prospectus Supplement, the Stock Index will be an established,
broadly-based index related to a major domestic or foreign equity trading
market. The general method of calculation of a Stock Index can significantly
influence the relationship between changes in the level of such Stock Index and
price movements in the Underlying Stocks. For example, a "price-weighted" Stock
Index reflects only the prevailing prices of the Underlying Stocks, while a
"value-weighted" Stock Index is based on both the price and the number of
outstanding shares of each Underlying Stock (i.e., total market capitalization).
Thus, in a "value-weighted" Stock Index (in contrast to a "price-weighted" Stock
Index), changes in the stock price of a corporation with a large market
capitalization will generally have a greater influence on the level of the Stock
Index than changes in the stock price of a corporation with a small market
capitalization. Prospective purchasers are advised to consider carefully the
information set forth in the Prospectus Supplement regarding the Stock Index,
the Underlying Stocks and the method of calculation of the Stock Index.
The trading prices of the Underlying Stocks will determine the level of the
related Stock Index. Prospective purchasers of the Warrants should recognize
that it is impossible to predict whether the level of a Stock Index will rise or
fall. Trading prices of the Underlying Stocks will be influenced by both the
complex and interrelated political, economic, financial and other factors that
can affect the capital markets generally and/or the equity trading market on
which the Underlying Stocks are trading and by the various circum-
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<PAGE> 46
stances that can influence the values of Underlying Stocks in a specific market
segment or particular Underlying Stocks.
The levels of major market Stock Indexes are typically updated continually
during each trading day for the applicable equity trading market, with updated
levels disseminated at frequent intervals. However, Stock Index levels
ordinarily continue to be reported on a current basis even when trading is
interrupted in some or all of the Underlying Stocks. In that event, the reported
Stock Index level will be based on the current market prices of those Underlying
Stocks that are still being traded (if any) and the last reported prices of
those Underlying Stocks that are not currently trading. As a result, reported
Stock Index levels may at times be based on non-current price information with
respect to some or even all of the Underlying Stocks.
Certain trading strategies involving purchases and sales of options on a
Stock Index, futures contracts on such Stock Index, options on such futures
contracts and portfolios of certain of the related Underlying Stocks can affect
the level of such Stock Index and, therefore, the trading price and Cash
Settlement Value of the related Warrants. These transactions and the resulting
changes in the Stock Index can occur at any time, but may occur more frequently
at or shortly before the regular expiration dates of the related options or
futures contracts.
CERTAIN RISKS RELATING TO FOREIGN STOCK INDEX
In the case of a Foreign Stock Index where the Underlying Stocks are those
of non-U.S. issuers, the factors and circumstances that can affect the level of
such Stock Index will include foreign political, economic, financial and other
developments. Prospective purchasers of Warrants relating to a Foreign Stock
Index should consider such developments, which may not be as well known or as
rapidly or thoroughly reported in the U.S. as comparable U.S. developments.
Prospective purchasers of such Warrants should be aware of such possible lack of
availability of important information that can affect the level of the Foreign
Stock Index and must be prepared to make special efforts to obtain such
information on a timely basis.
Special risks may also be presented in the case of Warrants relating to a
Foreign Stock Index where, because of differences in time zones between the
United States and the related foreign market, the Underlying Stocks are traded
on a foreign exchange that is not open when the trading market for the Warrants
in the United States is open and/or where trading occurs in the Underlying
Stocks during times when the trading market for the Warrants in the United
States is closed. In such cases, prospective purchasers of and holders of
Warrants may have to make investment and exercise decisions at times when
current pricing information regarding the Underlying Stocks comprising such
Foreign Stock Index is not available, and changes in the level of the Foreign
Stock Index may take place when the trading market for the Warrants in the
United States is closed. Such difference in time zones may also lengthen the
delay between the time when a Warrantholder is required to make a decision to
exercise Warrants and the time of calculation of the Spot Index. In addition,
the relevant equity trading market for a Foreign Stock Index will not be subject
to regulation by the Commission or any U.S. securities exchange.
POTENTIAL MODIFICATIONS OF STOCK INDEX
The policies of the publisher of the Stock Index concerning additions,
deletions and substitutions of Underlying Stocks and the manner in which Stock
Index calculations take account of certain changes affecting the Underlying
Stocks (such as stock dividends and stock splits) can also significantly affect
the performance of such Stock Index. Additions, deletions or substitutions may
be necessary due to the disappearance of one or more Underlying Stocks as a
result of liquidations, mergers or other business combinations, or may be
occasioned by the publisher's view that a particular Underlying Stock is, for
example, no longer representative of a particular industry category. Although
Stock Indexes are normally calculated in a manner (typically involving
adjustments to the "base" of the Stock Index) intended to ensure that such
additions, deletions, substitutions and changes do not, by themselves,
instantaneously change the level of the Stock Index, the level of the Stock
Index over time may be influenced by changes in the composition and
characteristics of the Underlying Stocks. Whether to add, delete or substitute
Underlying Stocks, and the method of adjusting the "base" of the Stock Index in
respect of changes affecting the Underlying Stocks, are typically solely within
the discretion of the publisher of the Stock Index. In contrast to standardized
stock index options of the type issued by The Options Clearing Corporation
("OCC"), the terms of which may be
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<PAGE> 47
adjusted if the publisher of the related stock index changes the composition or
method of calculation of such stock index in a manner that causes a significant
discontinuity in the index level, the terms of the Warrants will not be adjusted
as a result of changes in the related Stock Index.
The publisher of a Stock Index may replace such Stock Index with a
successor index or may cease publishing such Stock Index entirely. The
Prospectus Supplement specifies how the Cash Settlement Value of the related
Warrants will be determined in such circumstances. Although the method used will
generally be intended to enable Cash Settlement Values to be determined on as
consistent a basis as practicable, discontinuities may arise in such
circumstances. Moreover, information regarding the current level of certain
substitute indexes may not be readily available to Warrantholders, which may
adversely affect the trading market for their Warrants.
CERTAIN CONSIDERATIONS REGARDING HEDGING
Prospective purchasers intending to purchase Warrants to hedge against the
market risk associated with investing in one or more individual Underlying
Stocks and/or other stocks should recognize the complexities of utilizing
Warrants in this manner. Historically, the prices of some stocks have tended to
be highly sensitive to factors influencing the market generally; others less so.
In addition, a stock's sensitivity to broad market influences may change over
time. Prospective purchasers intending to use Warrants in this manner should
also understand that they remain subject to issuer risk -- that is, the risk
that factors affecting a particular issuer, such as its market position or the
quality of its management, may cause its stock to perform differently than the
market as a whole. In addition, prospective purchasers intending to utilize
Warrants to hedge a stock portfolio against market risk should understand that
unless the stocks in the portfolio exactly mirror the Underlying Stocks, the
portfolio and the Stock Index may respond differently to a given market
influence (including in different directions and to different extents). For this
reason, the use of Warrants for hedging purposes involves special risks that are
not present with "true" hedges -- i.e., hedges composed of options on the
specific stocks in the hedged position. These risks are greatest when Warrants
relating to a broadly-based Stock Index are used to hedge a non-diversified
stock position. In addition, in the case of Warrants relating to a Foreign Stock
Index, the effect of changes in the relevant currency exchange rate on the Cash
Settlement Value of such Warrants could complicate any hedging strategy.
CERTAIN FOREIGN CURRENCY EXCHANGE RISKS
In the case of Warrants relating to a Foreign Stock Index and settled based
on then-current currency exchange rates, the Cash Settlement Value upon exercise
(assuming that such Cash Settlement Value is otherwise greater than zero) will
depend in part on the then-current exchange rate between the applicable foreign
currency and the U.S. dollar (or such other currency in which such Warrants are
payable). Purchasers of such Warrants are thus subject to foreign currency
exchange risks. Accordingly, such Warrants are not an appropriate investment for
prospective purchasers who are not experienced with respect to foreign currency
transactions. Foreign currency exchange risks include, among other things, the
possibility of significant changes in rates of exchange between the applicable
foreign currency and the U.S. dollar (or such other currency in which such
Warrants are payable) and the possibility of the imposition or modification of
exchange controls with respect to such foreign currency. Such risks generally
depend on the supply of and demand for the relevant currencies and economic and
political events. In recent years, rates of exchange for certain currencies have
been highly volatile, and such volatility may be expected in the future.
Fluctuations in any particular exchange rate that have occurred in the past are
not necessarily indicative, however, of fluctuations that may occur during the
term of any Warrant. Assuming all other factors are held constant, depreciation
in the value of the related foreign currency against the U.S. dollar (or such
other currency in which the Warrants are payable) can be expected to result in a
decrease in the trading price of Warrants relating to a Foreign Stock Index and
settled based on then-current currency exchange rates and a decrease in the Cash
Settlement Value otherwise payable upon exercise of such Warrants.
WARRANTS ARE UNSECURED OBLIGATIONS
The Warrants are unsecured contractual obligations of the Company and will
rank on a parity with the Company's other unsecured contractual obligations and
with the Company's unsecured and unsubordinated
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<PAGE> 48
debt. The Company expects to issue several issues of Warrants relating to
various Stock Indexes. At any given time the number of Warrants outstanding may
be substantial. The Warrants are not standardized stock index options of the
type issued by the OCC. For example, unlike purchasers of OCC standardized
options who have the credit benefits of guarantees and margin and collateral
deposits by OCC clearing members to protect the OCC from a clearing member's
failure, purchasers of Warrants must look solely to the Company for performance
of its obligations to pay the Cash Settlement Value and, if applicable, the
Minimum Expiration Value upon the exercise or expiration of the Warrants.
Further, the market for the Warrants is not expected to be generally as liquid
as the market for some OCC standardized options.
COMPARISON WITH OTHER TYPES OF WARRANTS OR OPTIONS
Options and warrants provide opportunities for investment and pose risks to
investors as a result of fluctuations in the value of the underlying investment
interests. Certain of the risks associated with the Warrants are similar to
those generally applicable to other options or warrants of private corporate
issuers. However, unlike options or warrants on equity or debt securities, which
are priced primarily on the basis of the present and expected value of a single
underlying security, the trading price of a Warrant is likely to reflect
primarily (i) the current and expected level of the Stock Index, (ii) the time
remaining until expiration, (iii) in the case of Warrants relating to a Foreign
Stock Index and settled based on then-current currency exchange rates, the spot
and forward currency exchange rates between the applicable foreign currency and
the U.S. dollar (or such other currency in which such Warrants are payable) and
(iv) if applicable, the Minimum Expiration Value.
PAINE WEBBER GROUP INC.
Paine Webber Group Inc. is a holding company which, together with its
operating subsidiaries, forms one of the largest full-service securities and
commodities firms in the industry. Founded in 1879, the Company employs
approximately 14,200 people in 272 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 ("PaineWebber"), 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 Quotations System of the National Association
of Securities Dealers, Inc. ("NASD") or in other over-the-counter markets.
Additionally, PaineWebber is a primary dealer in U.S. government securities.
The Company is comprised of four interrelated core business
groups -- Retail Sales and Marketing, Asset Management, Institutional Sales and
Trading and Investment Banking -- 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 PaineWebber 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.
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.
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.
9
<PAGE> 49
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 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 Commission, the New
York Stock Exchange, Inc., the Commodity Futures Trading Commission and the
NASD.
The Company's principal executive offices are located at 1285 Avenue of the
Americas, New York, New York 10019 (Telephone: (212) 713-2000).
For purposes of the foregoing description, all references to the "Company"
refer collectively to Paine Webber Group Inc. and its operating subsidiaries
unless the context otherwise requires.
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data have been derived from
the consolidated financial statements of the Company.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1992 1991 19901 1989 1988
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
Operating Results
Total revenues.......................... $3,363,731 $3,165,895 $2,978,505 $2,925,809 $2,512,261
Net revenues (including net interest)... $2,484,489 $2,109,771 $1,736,354 $1,727,169 $1,754,814
Earnings (loss) before income taxes..... $ 339,115 $ 226,247 $ (102,633) $ 82,568 $ 63,223
Net earnings (loss)..................... $ 213,175 $ 150,716 $ (57,351) $ 51,960 $ 42,360
Per Common Share2
Primary earnings (loss)................. $ 4.24 $ 3.15 $ (2.16) $ 0.70 $ 0.39
Fully diluted earnings (loss)........... $ 3.56 $ 2.50 $ (2.16) $ 0.70 $ 0.39
Dividends declared...................... $ 0.46 $ 0.36 $ 0.35 $ 0.35 $ 0.35
Book value.............................. $ 21.36 $ 18.34 $ 15.05 $ 17.37 $ 16.55
Financial condition
Total assets............................ $26,508,982 $22,621,763 $18,150,539 $22,075,292 $17,933,905
Long-term borrowings.................... $1,150,553 $ 815,728 $ 656,993 $ 521,929 $ 412,683
Stockholders' equity.................... $1,080,667 $1,050,478 $ 895,916 $1,001,202 $1,051,245
Total capitalization.................... $2,231,220 $1,866,206 $1,552,909 $1,523,131 $1,463,928
</TABLE>
- ---------------
1 The 1990 results reflect an after-tax charge of $95,452 ($149,128 before
income taxes) for restructuring and Merchant Banking reserves.
2 Per common share data has been retroactively adjusted to reflect the
three-for-two common stock split in December 1991.
USE OF PROCEEDS
As may be described in further detail in the Prospectus Supplement, a
substantial portion of the proceeds to be received by the Company from the sale
of each issue of Warrants may be used by the Company or one or more of its
subsidiaries to purchase or maintain positions in certain of the Underlying
Stocks on which the related Stock Index is based or options, futures contracts
or options on futures contracts relating to such Stock Index or Underlying
Stocks, as the case may be, and, if applicable, to pay the costs and expenses of
hedging any currency risk with respect to such Warrants. The remainder of such
proceeds will be used by the Company or its subsidiaries for general corporate
purposes.
10
<PAGE> 50
DESCRIPTION OF WARRANTS
The following description of the terms of the Warrants sets forth certain
general terms and provisions of the Warrants to which any Prospectus Supplement
may relate. The particular terms of the Warrants offered by any Prospectus
Supplement and the extent, if any, to which such general provisions do not apply
to the Warrants so offered will be described in such Prospectus Supplement.
Each issue of Warrants will be issued under a separate warrant agreement
(each, a "Warrant Agreement") to be entered into between the Company and a bank
or trust company, as warrant agent (the "Warrant Agent"), all as described in
the Prospectus Supplement relating to such Warrants. A single bank or trust
company may act as Warrant Agent for more than one issue of Warrants. The
Warrant Agent will act solely as the agent of the Company under the applicable
Warrant Agreement and will not assume any obligation or relationship of agency
or trust for or with any holders of such Warrants. A copy of the form of Warrant
Agreement, including the form of warrant certificate, is filed as an exhibit to
the Registration Statement. The following summaries of certain provisions of the
Warrants and the form of Warrant Agreement do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all of the
provisions of the Warrants and the Warrant Agreement.
The Company will have the right to "reopen" a previous issue of Warrants
and to issue additional Warrants of such issue.
GENERAL
Each Warrant will entitle the Warrantholder to receive from the Company
upon exercise the Cash Settlement Value of such Warrant, which will be an amount
in cash (i) in the case of a Put Warrant, determined by reference to the amount,
if any, by which the Strike Index exceeds the Spot Index at the time of exercise
and (ii) in the case of a Call Warrant, determined by reference to the amount,
if any, by which the Spot Index at the time of exercise exceeds the Strike
Index. The Prospectus Supplement for an issue of Warrants will set forth the
formula pursuant to which the Cash Settlement Value of such Warrants will be
determined. The Strike Index may either be a fixed level of the Stock Index or a
level that varies during the term of the Warrants in accordance with a schedule
or formula. Certain Warrants will, if specified in the Prospectus Supplement,
entitle the Warrantholder to receive from the Company, upon automatic exercise
at expiration and under any other circumstances specified in the Prospectus
Supplement, an amount equal to the greater of the applicable Cash Settlement
Value and the Minimum Expiration Value of such Warrants. In addition, if so
specified in the Prospectus Supplement, following the occurrence of an
Extraordinary Event, the Cash Settlement Value of a Warrant may, at the option
of the Company, be determined on a different basis, including in connection with
automatic exercise at expiration. Unless otherwise specified in the Prospectus
Supplement, the Stock Index will be an established, broadly-based index related
to a major domestic or foreign equity trading market, and the Cash Settlement
Value, if any (and, if applicable, the Minimum Expiration Value), of the
Warrants will be payable in U.S. dollars.
Unless otherwise indicated in the Prospectus Supplement, a Warrant will be
settled only in cash and, accordingly, will not require or entitle a
Warrantholder to sell, deliver, purchase or take delivery of any securities
(including the Underlying Stocks) to or from the Company, and the Company will
be under no obligation to, nor will it, purchase or take delivery of or sell or
deliver any securities (including the Underlying Stocks) from or to
Warrantholders pursuant to the Warrants.
Unless otherwise specified in the Prospectus Supplement, the Warrants will
be deemed to be automatically exercised upon expiration. Upon such automatic
exercise, Warrantholders will be entitled to receive the Cash Settlement Value
of the Warrants, except that holders of Warrants having a Minimum Expiration
Value will be entitled to receive an amount equal to the greater of such Cash
Settlement Value and the applicable Minimum Expiration Value. The Minimum
Expiration Value may be either a fixed amount or an amount that varies during
the term of the Warrants in accordance with a schedule or formula. Any Minimum
Expiration Value applicable to an issue of Warrants, as well as any additional
circumstances resulting in the automatic exercise of such Warrants, will be
specified in the related Prospectus Supplement.
If so specified in the Prospectus Supplement, the Warrants may be cancelled
by the Company upon the occurrence of an Extraordinary Event. Any Extraordinary
Events or Exercise Limitation Events relating to an
11
<PAGE> 51
issue of Warrants will be set forth in the related Prospectus Supplement. Upon
such cancellation, the related Warrantholders will be entitled to receive only
the applicable Cancellation Amount specified in such Prospectus Supplement. The
Cancellation Amount may be either a fixed amount or an amount that varies during
the term of the Warrants in accordance with a schedule or formula.
Reference is hereby made to the Prospectus Supplement relating to the
particular issue of Warrants offered thereby for the terms of such Warrants,
including, where applicable: (i) the aggregate amount of such Warrants; (ii) the
offering price of such Warrants; (iii) the Stock Index for such Warrants, which
may be based on United States or foreign stocks or a combination thereof and may
be a pre-existing U.S. or foreign stock index compiled and published by a third
party or an index based on a group of Underlying Stocks selected by the Company
solely in connection with the issuance of such Warrants, and certain information
regarding such Stock Index and the Underlying Stocks; (iv) whether such Warrants
are Put Warrants or Call Warrants; (v) the date on which the right to exercise
such Warrants commences and the date on which such right expires; (vi) the
manner in which such Warrants may be exercised; (vii) the minimum number, if
any, of such Warrants exercisable at any one time; (viii) the maximum number, if
any, of such Warrants that may, subject to the Company's election, be exercised
by all Warrantholders (or by any person or entity) on any day; (ix) any
provisions permitting a Warrantholder to condition an exercise notice on the
absence of certain specified changes in the Spot Index after the exercise date,
any provisions permitting the Company to suspend exercise of such Warrants or
redeem such Warrants based on market conditions or other circumstances and any
other special provisions relating to the exercise of such Warrants; (x) any
provisions for the automatic exercise of such Warrants other than at expiration;
(xi) any provisions permitting the Company to cancel such Warrants upon the
occurrence of certain events; (xii) the method of determining the amount payable
in connection with the exercise or cancellation of such Warrants, including the
Strike Index, the method of determining the Spot Index, the method of expressing
movements in the Stock Index as a cash amount in the currency in which the Cash
Settlement Value of such Warrants is payable, including, in the case of Warrants
relating to a Foreign Stock Index, the method of converting amounts in the
relevant foreign currency or currencies into U.S. dollars (or such other
currency in which such Warrants are payable), and any Cancellation Amount or
Minimum Expiration Value applicable to such Warrants; (xiii) the method of
providing for a substitute index or otherwise determining the amount payable in
connection with the exercise of such Warrants if the Stock Index changes or
ceases to be made available by its publisher; (xiv) the time or times at which
amounts will be payable in respect of such Warrants following exercise or
automatic exercise; (xv) any national securities exchange on which such Warrants
will be listed; (xvi) any provisions for issuing such Warrants in certificated
form from the perspective of Warrantholders; (xvii) if such Warrants are not
issued in book-entry form, the place or places at which payment of the Cash
Settlement Value, Cancellation Amount, if any, and Minimum Expiration Value, if
any, of such Warrants is to be made by the Company; and (xviii) any other terms
of such Warrants.
Prospective purchasers of Warrants should be aware of special United States
federal income tax considerations applicable to instruments such as the
Warrants. The Prospectus Supplement relating to each issue of Warrants will
describe such tax considerations. The summary of United States federal income
tax considerations contained in the Prospectus Supplement will be presented for
informational purposes only, however, and will not be intended as legal or tax
advice to prospective purchasers. Prospective purchasers of Warrants are urged
to consult their own tax advisors prior to any acquisition of Warrants.
BOOK-ENTRY PROCEDURES AND SETTLEMENT
Unless otherwise specified in the Prospectus Supplement, the Warrants
offered thereby will be issued in book-entry form from the perspective of
Warrantholders. Such Warrants will be issued in the form of a single global
certificate registered in the name of the nominee of the depository, The
Depository Trust Company ("DTC", which term, as used herein, includes any
successor depository selected by the Company).
DTC is a limited-purpose trust company which was created to hold securities
for its participating organizations (the "Participants") and to facilitate the
clearance and settlement of securities transactions between Participants in such
securities through electronic book-entry changes in accounts of its
Participants. Participants include securities brokers and dealers, banks and
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to others such as banks, brokers, dealers
12
<PAGE> 52
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly ("indirect participants"). Persons
who are not Participants may beneficially own securities held by DTC only
through Participants or indirect participants.
DTC's nominee for all purposes will be considered the sole owner or holder
of the Warrants under the related Warrant Agreement. Owners of beneficial
interests in the global certificate will not be entitled to have Warrants
registered in their names, will not receive or be entitled to receive physical
delivery of Warrants in definitive form, and will not be considered the holders
thereof under the related Warrant Agreement.
Neither the Company nor the Warrant Agent will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interest in the global certificate, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
A Warrantholder's ownership of a Warrant will be recorded on or through the
records of the brokerage firm or other entity that maintains such
Warrantholder's account. In turn, the total number of Warrants held by an
individual brokerage firm for its clients will be maintained on the records of
DTC in the name of such brokerage firm (or in the name of a Participant or
indirect participant that acts as agent for the Warrantholder's brokerage firm
if such firm is not a Participant or indirect participant). Therefore, a
Warrantholder must rely upon the foregoing procedures to evidence such
Warrantholder's ownership of a Warrant. Transfer of ownership of any Warrant may
be effected only through the selling Warrantholder's brokerage firm.
The Cash Settlement Value and, if applicable, the Cancellation Amount or
Minimum Expiration Value payable in respect of the Warrants will be paid by the
Warrant Agent to DTC. DTC will be responsible for crediting the amount of such
payments to the accounts of the Participants or indirect participants in
accordance with its standard procedures, which currently provide for payments in
next-day funds settled through the New York Clearing House. Each Participant or
indirect participant will be responsible for disbursing such payments to the
beneficial owners of the Warrants that it represents and to each brokerage firm
for which it acts as agent. Each such brokerage firm will be responsible for
disbursing funds to the owners of the Warrants that it represents. It is
suggested that any purchaser of Warrants with accounts at more than one
brokerage firm only effect transactions in the Warrants, including exercises,
through the brokerage firm or firms that hold such purchaser's Warrants.
If DTC is at any time unwilling or unable to continue as depository and a
successor depository is not appointed by the Company within 90 days, the Company
will issue Warrants in definitive form in exchange for the global certificate.
In addition, the Company may at any time determine not to have the Warrants
represented by a global certificate and, in such event, will issue Warrants in
definitive form in exchange for such global certificate. In either instance, an
owner of a beneficial interest in the global certificate will be entitled to
have Warrants equal in aggregate amount to such beneficial interest registered
in its name and will be entitled to physical delivery of such Warrants in
definitive form.
LISTING
Unless otherwise indicated in the Prospectus Supplement, the Warrants will
be listed on a national securities exchange as specified in the Prospectus
Supplement. It is expected that such exchange will cease trading an issue of
Warrants as of the close of business on the related expiration date of such
Warrants.
MODIFICATION
The Warrant Agreement and the terms of the related Warrants may be amended
by the Company and the Warrant Agent, without the consent of the holders of any
Warrants, for the purpose of curing any ambiguity, or of curing, correcting or
supplementing any defective or inconsistent provision contained therein,
maintaining the listing of such Warrants on any national securities exchange or
registration of such Warrants under the Exchange Act, permitting the issuance of
individual Warrant certificates to Warrantholders, reflecting the issuance by
the Company of additional Warrants of the same issue or reflecting the
appointment of a successor depository, or in any other manner which the Company
may deem necessary or desirable and which will not materially and adversely
affect the interests of the Warrantholders.
13
<PAGE> 53
The Company and the Warrant Agent also may modify or amend the Warrant
Agreement and the terms of the related Warrants, with the consent of the holders
of not less than a majority in number of the then outstanding Warrants affected
by such modification or amendment, for any purpose, provided that no such
modification or amendment that decreases the Strike Index (in the case of Put
Warrants) or increases the Strike Index (in the case of Call Warrants),
otherwise changes the determination of the Cash Settlement Value or Cancellation
Amount, if any, or Minimum Expiration Value, if any, of the Warrants (or any
aspects of such determination) so as to reduce the amount receivable upon
exercise, cancellation or expiration, shortens the period of time during which
the Warrants may be exercised, decreases the Minimum Expiration Value, if any,
or otherwise materially and adversely affects the exercise rights of the holders
of the Warrants or reduces the percentage of the number of outstanding Warrants
the consent of whose holders is required for modification or amendment of the
Warrant Agreement or the terms of the related Warrants, may be made without the
consent of each Warrantholder affected thereby.
MERGER, CONSOLIDATION, SALE OR OTHER DISPOSITIONS
If at any time there is a merger or consolidation involving the Company or
a sale, transfer, conveyance or other disposition of all or substantially all of
the assets of the Company, then the successor or assuming corporation will
succeed to and be substituted for the Company under the Warrant Agreement and
the related Warrants, with the same effect as if it had been named in such
Warrant Agreement and Warrants as the Company. The Company will thereupon be
relieved of any further obligation under such Warrant Agreement and Warrants
and, in the event of any such sale, transfer, conveyance (other than by way of
lease) or other disposition, the Company as the predecessor corporation may
thereupon or at any time thereafter be dissolved, wound up or liquidated.
ENFORCEABILITY OF RIGHTS BY WARRANTHOLDERS
Any Warrantholder may, without the consent of the Warrant Agent or any
other Warrantholder, enforce by appropriate legal action on his own behalf his
right to exercise, and to receive payment for, his Warrants.
PLAN OF DISTRIBUTION
The Company may sell the Warrants in any of three ways: (i) through
underwriters; (ii) directly to one or more purchasers; or (iii) through agents.
The Prospectus Supplement with respect to the Warrants being offered thereby
sets forth the terms of the offering of such Warrants, including the names of
any underwriters, the purchase price of such Warrants and the proceeds to the
Company from such sale, any underwriting discounts and other items constituting
underwriters' compensation, any initial public offering price, any discounts or
concessions allowed or reallowed or paid to dealers and any national securities
exchange on which such Warrants will be listed. Only underwriters so named in
the Prospectus Supplement are deemed to be underwriters in connection with the
Warrants offered thereby.
If underwriters are used in the sale, the Warrants will be acquired by the
underwriters for their own account and may be resold from time to time in one or
more transactions, including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of sale. The Warrants may be
offered to the public either through underwriting syndicates represented by
managing underwriters or by underwriters without a syndicate. Such managing
underwriters or underwriters may include PaineWebber. Unless otherwise set forth
in the Prospectus Supplement, the obligations of the underwriters to purchase
such Warrants will be subject to certain conditions precedent, and the
underwriters will be obligated to purchase all the Warrants offered by the
Prospectus Supplement if any of such Warrants are purchased. Any initial public
offering price and any discounts or concessions allowed or reallowed or paid to
dealers may be changed from time to time.
Warrants may also be sold directly by the Company or through agents
designated by the Company from time to time. Any agents involved in the offer or
sale of the Warrants will be named, and any commissions payable by the Company
to such agents will be set forth, in the Prospectus Supplement. Such agents may
include PaineWebber. Unless otherwise indicated in the Prospectus Supplement,
any such agent is acting on a best-efforts basis for the period of its
appointment.
14
<PAGE> 54
The Warrants, including additional Warrants of a previous issue, may be
sold on any national securities exchange on which the Warrants are listed.
Agents and underwriters may be entitled under agreements entered into with
the Company to indemnification by the Company against certain civil liabilities,
including liabilities under the Securities Act, or to contribution with respect
to payments which the agents or underwriters may be required to make in respect
thereof. Agents and underwriters may be customers of, engage in transactions
with, or perform services for, the Company or its affiliates in the ordinary
course of business.
PaineWebber expects to offer and sell previously issued Warrants from time
to time in the course of its business as a broker-dealer. PaineWebber may act as
principal or agent in such transactions. The Warrants may be offered or sold in
such transactions on any national securities exchange on which the Warrants are
listed. Sales will be made at prices related to prevailing prices at the time of
sale.
PaineWebber is a wholly owned subsidiary of the Company. The participation
of PaineWebber in the offer and sale of the Warrants will comply with the
requirements of Schedule E of the By-Laws of the NASD regarding underwriting
securities of an affiliate. Under the provisions of Schedule E, when a NASD
member such as PaineWebber distributes warrants of an affiliate, the price of
the warrants can be no higher than that recommended by a "qualified independent
underwriter", as such term is defined in Schedule E, meeting certain standards.
In accordance with such requirement, PaineWebber will select a "qualified
independent underwriter" in connection with each issue of Warrants to conduct
due diligence and recommend a price for such Warrants in compliance with the
requirements of Schedule E.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain restrictions on employee benefit plans ("Plans") which are
subject to ERISA, and on those persons who are fiduciaries with respect to such
Plans. In accordance with ERISA's general fiduciary requirements, a fiduciary
with respect to any such Plan who is considering the purchase of Warrants on
behalf of such Plan should determine whether such purchase is permitted under
the governing Plan documents, is prudent and is appropriate for the Plan in view
of its overall investment policy and the composition and diversification of its
portfolio. See "Risk Factors". Other provisions of ERISA and section 4975 of the
Internal Revenue Code of 1986, as amended (the "Code"), prohibit certain
transactions involving the assets of a Plan and persons who have certain
specified relationships to the Plan ("parties in interest" within the meaning of
ERISA or "disqualified persons" within the meaning of section 4975 of the Code).
Thus, a Plan fiduciary considering the purchase of Warrants should consider
whether such a purchase might constitute or result in a prohibited transaction
under ERISA or section 4975 of the Code.
The Company and PaineWebber may each be considered a "party in interest" or
a "disqualified person" with respect to many Plans. The purchase of Warrants by
a Plan that is subject to the fiduciary responsibility provisions of ERISA or
the prohibited transaction provisions of section 4975 of the Code (including
individual retirement arrangements and other plans described in section
4975(e)(1) of the Code) and with respect to which the Company or PaineWebber or
any of their affiliates is a service provider (or otherwise is a "party in
interest" or "disqualified person") may constitute or result in a non-exempt
prohibited transaction under ERISA or section 4975 of the Code, unless such
Warrants are acquired pursuant to and in accordance with an applicable
exemption, such as Prohibited Transaction Class Exemption ("PTCE") 90-1 (an
exemption for certain transactions involving insurance company pooled separate
accounts), PTCE 84-14 (an exemption for certain transactions determined by an
independent qualified professional asset manager) or PTCE 91-38 (an exemption
for certain transactions involving bank collective investment funds). Any
pension or other employee benefit plan proposing to acquire any Warrants should
consult with its counsel.
EXPERTS
The consolidated financial statements of the Company incorporated by
reference in the 1992 Form 10-K have been audited by Ernst & Young, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. The information under the caption "Selected Consolidated
15
<PAGE> 55
Financial Data" for each of the five years in the period ended December 31,
1992, included elsewhere herein, have been derived from consolidated financial
statements audited by Ernst & Young, as set forth in their report incorporated
herein by reference. Such financial statements and selected financial data have
been incorporated herein by reference and included herein, respectively, in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
LEGAL OPINIONS
The validity of the Warrants will be passed upon for the Company by
Cravath, Swaine & Moore, New York, New York.
16
<PAGE> 56
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATES AS OF
WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH AN OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Summary.................... S-3
Certain Important Information
Concerning the Warrants............. S-9
Use of Proceeds....................... S-14
Description of the Warrants........... S-14
The AMEX Hong Kong 30 Index........... S-28
Certain United States Federal Income
Tax Considerations.................. S-35
Underwriting.......................... S-37
Validity of the Warrants.............. S-37
Appendix A: AMEX Hong Kong 30
Index -- Underlying Stocks.......... A-1
Appendix B: Index of Key Terms........ B-1
PROSPECTUS
Available Information................. 2
Documents Incorporated by Reference... 2
Risk Factors.......................... 3
Paine Webber Group Inc. .............. 9
Selected Consolidated Financial
Data................................ 10
Use of Proceeds....................... 10
Description of Warrants............... 11
Plan of Distribution.................. 14
ERISA Considerations.................. 15
Experts............................... 15
Legal Opinions........................ 16
</TABLE>
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PAINEWEBBER TM
4,100,000 WARRANTS
PAINE WEBBER GROUP INC.
AMEX HONG KONG
30 STOCK INDEX*
PUT WARRANTS EXPIRING
JANUARY 17, 1996
---------------------------------
PROSPECTUS SUPPLEMENT
---------------------------------
PAINEWEBBER INCORPORATED
OPPENHEIMER & CO., INC.
KEMPER SECURITIES, INC.
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JANUARY 14, 1994
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* The use of and reference to the term "AMEX Hong Kong 30 Index" herein has been
consented to by the American Stock Exchange, Inc. The "AMEX Hong Kong 30
Index" is a service mark of the American Stock Exchange, Inc.
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<PAGE> 57
APPENDIX C
The following information is being furnished pursuant to Item 304 of
Regulation S-T promulgated by the Securities and Exchange Commission:
In the paper format version of this Prospectus Supplement there appears a
graph depicting the historical performance of the AMEX Hong Kong 30 Index at the
end of each month from January 1989 through January 14, 1994. The information
conveyed by such graphic information is described in tabular form in the
Prospectus Supplement on pages S-31, S-32 and S-33 under the heading "The AMEX
Hong Kong 30 Index -- Historical Data on the AMEX Hong Kong 30 Index".
C-1
