<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-----------------------------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 9, 1994
---------------------
PAINE WEBBER GROUP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 1-7367 13-2760086
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1285 Avenue of the Americas, New York, New York 10019
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 713-2000
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Not Applicable
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Former name or address, if changed since last report
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<PAGE> 2
THIS FORM 8-K/A AMENDS ITEM 7(A) AND (B) OF THE PAINE WEBBER GROUP INC. (THE
"COMPANY") CURRENT REPORT ON FORM 8-K DATED DECEMBER 9, 1994 (FILED DECEMBER
27, 1994)
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
- ------- ---------------------------------
The following documents are filed as part of this report:
(a) Historical Financial Statements
Real Estate, Eurobond, Retail Brokerage and
Asset Management Businesses of Kidder, Peabody
Group Inc.
PAGE
----
Combined Statement of Operations for the
nine months ended September 29, 1994
(unaudited) 4
Combined Statement of Operations for the years
ended December 27, 1993, December 28, 1992
and December 30, 1991 12
Combined Statement of Assets Acquired and
Liabilities Assumed December 26, 1994 or prior
date of transfer 20
(b) Proforma Financial Information
Paine Webber Group Inc. Proforma Consolidated Financial
Statements (unaudited)
PAGE
----
Proforma Condensed Consolidated Statement of
Financial Condition as of September 30, 1994 31
Proforma Consolidated Statement of Income for the
nine months ended September 30, 1994 32
Proforma Consolidated Statement of Income for the
year ended December 31, 1993 33
Notes to Proforma Consolidated Financial
Statements 34 - 35
(c) Exhibits 36
Third Supplemental Agreement dated as of January 27, 1995 among
the Company, General Electric Company and Kidder, Peabody
Group Inc.
Fourth Supplemental Agreement dated as of February 10, 1995
among the Company, General Electric Company and Kidder, Peabody
Group Inc.
Consent of KPMG Peat Marwick LLP
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAINE WEBBER GROUP INC.
By: /s/ Regina A. Dolan
-------------------
Regina A. Dolan
Vice President, Chief Financial Officer
Dated: February 24, 1995
<PAGE> 4
REAL ESTATE, EUROBOND, RETAIL BROKERAGE AND
ASSET MANAGEMENT BUSINESSES OF
KIDDER, PEABODY GROUP INC.
COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 29, 1994
(UNAUDITED)
<PAGE> 5
REAL ESTATE, EUROBOND, RETAIL BROKERAGE AND
ASSET MANAGEMENT BUSINESSES OF
KIDDER, PEABODY GROUP INC.
INDEX TO COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 29, 1994
(UNAUDITED)
Combined Statement of Operations 1
Notes to Combined Statement of Operations 2 to 6
<PAGE> 6
REAL ESTATE, EUROBOND, RETAIL BROKERAGE AND
ASSET MANAGEMENT BUSINESSES OF KIDDER, PEABODY GROUP INC.
COMBINED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 29, 1994
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<Captions>
September 29,
1994
-------------
<S> <C>
Revenues
Investment Banking $ 92.2
Commissions 155.4
Trading and Interest (net) 129.0
Sales Credits and Selling Concessions (net) 79.1
Investment Advisory 46.4
Other 10.0
-------------
Total Revenues 512.1
-------------
Expenses
Employee compensation and benefits 276.4
Rent and occupancy 18.7
Communications 24.1
Clearing fees 28.1
Professional fees 9.6
Other 141.4
-------------
Total Expenses 498.3
-------------
Income before charge in lieu of taxes 13.8
Charge in lieu of taxes 6.1
-------------
Net Income $ 7.7
=============
</TABLE>
See accompanying notes to combined financial statement.
<PAGE> 7
REAL ESTATE, EUROBOND, RETAIL BROKERAGE AND
ASSET MANAGEMENT BUSINESSES OF KIDDER, PEABODY GROUP INC.
NOTES TO COMBINED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 29, 1994
(UNAUDITED)
1. BACKGROUND AND BASIS OF PRESENTATION
Pursuant to an Asset Purchase Agreement dated October 17, 1994, as amended
("The Purchase Agreements"), among PaineWebber Group Inc. ("PaineWebber"),
Kidder, Peabody Group Inc. and subsidiaries ("Kidder, Peabody") and General
Electric Company ("General Electric"), PaineWebber agreed to purchase certain
assets and liabilities associated with certain businesses of Kidder, Peabody.
Significant businesses of which substantial portions were acquired (which are
not legal entities) comprise: Real Estate - real estate whole loan
underwriting and trading activities; Eurobonds - eurobond trading activities,
including related repurchase agreement and reverse repurchase agreement matched
book trading activities; Retail Brokerage - retail brokerage activities; and
Asset Management - mutual fund management and investment advisory activities
("Purchased Businesses").
At closing, selected assets and liabilities of the Purchased Businesses were
purchased or assumed by PaineWebber. Substantially all assets and liabilities
transferred consist of securities trading inventories (long and short
positions), securities borrowed and securities loaned, mortgage loans held for
sale, customers receivable and payable balances, and fixed assets. Reverse
repurchase and repurchase agreements employed in the Eurobond business were not
transferred pursuant to the Purchase Agreement. In addition, selected Kidder,
Peabody employees associated with the Purchased Businesses became employees of
PaineWebber, and selected employees of other Kidder, Peabody businesses also
became employees of PaineWebber. PaineWeber paid a
2
<PAGE> 8
combination of cash and PaineWebber common and preferred stock for the
Purchased Businesses. The closing dates for the sale of each of the businesses
are as follows: Real Estate - December 9, 1994; Eurobond - December 16, 1994;
Retail Brokerage - January 30, 1995 and Asset Management - January 30, 1995 and
February 13, 1995.
Kidder, Peabody has agreed to indemnify and hold harmless PaineWebber from any
losses, damages or claims incurred with respect to any liability relating to
the conduct of a Purchased Business (and not otherwise assumed by PaineWebber)
arising out of any event or condition existing prior to the relevant closing
date.
The accompanying Combined Statement of Operations reflects the historical
revenue and expenses attributable to the Purchased Businesses for the nine
months ended September 29, 1994 (unaudited), based upon the assets and
liabilities giving rise to such revenues and expenses at those dates, and not
on the assets and liabilities transferred to or assumed by PaineWebber. For
example, the revenues and expenses related to the managed futures and
structured products portions of the Asset Management business have been
included in the Combined Statement of Operations, while the related assets and
liabilities have not been acquired or assumed by PaineWebber, nor has that
portion of the Asset Management business been acquired by PaineWebber. A small
number of the customer accounts of the Retail Brokerage business were not
transferred to PaineWebber. The revenues and expenses of the Purchased
Businesses as reported in the accompanying Combined Statement of Operations
therefore differ from the revenues and expenses associated with the assets and
liabilities transferred to PaineWebber.
Included in the Combined Statement of Operations are revenue and expense items
allocated to the Purchased Businesses. Revenues include sales credits and
selling concessions for distributing securities owned or originated in an
underwriting by Kidder, Peabody to customers of the Purchased Businesses.
These sales credits and selling concessions are based upon
3
<PAGE> 9
arrangements between the Purchased Businesses and other businesses of Kidder,
Peabody. Costs related to compensation, communication, travel and
entertainment, professional services and other expenses are charged directly to
the Purchased Businesses as incurred. Occupancy, rent and depreciation and
certain employee benefits are charged based on usage or allocation surveys.
Corporate overhead representing centralized payroll, operations, finance,
research, treasury, human resources, legal, accounts payable, systems and other
administrative functions are allocated to the Purchased Businesses based on
time spent, standard cost, headcount or usage, depending on the nature of the
overhead being allocated. The accompanying Combined Statement of Operations
also reflects an allocation of corporate provisions for certain litigation
expenses, inventory reserves, corporate headquarters relocation costs, certain
EDP system expenses and various other corporate charges. These other corporate
charges were approximately $5.3 million, for the nine months ended September
29, 1994. Total corporate overhead costs allocated, which are included in
other expenses, were approximately $81.7 million for the nine months ended
September 29, 1994, and includes the other corporate charges described above.
Kidder, Peabody finances the operations of all its businesses, including those
of the Purchased Businesses. Interest allocated to the Purchased Businesses
includes interest expense from the financing of all assets, and represents a
blended average of Kidder, Peabody's actual short term and long-term financing
costs. These allocations do not necessarily represent the amounts that would
have been incurred by the Purchased Businesses had they operated on a separate
company basis or had they operated as divisions of a different company.
However, management of Kidder, Peabody believes such allocations are reasonable
in the circumstances.
No attempt has been made to identify any respect in which the operations of the
Purchased Businesses would have differed had they operated as divisions of
PaineWebber or any other company instead of Kidder, Peabody. The Combined
Statement of Operations is therefore not indicative of future results of the
Purchased Businesses.
4
<PAGE> 10
The Combined Statement of Operations reflects all normal recurring adjustments
which are, in opinion of Kidder, Peabody's management, necessary for a fair
presentation of the results of the Purchased Businesses for the interim period
presented. Pursuant to the rules and regulations of the Securities and
Exchange Commission applicable to such interim financial statements, certain
footnote disclosures which are normally required under generally accepted
accounting principles have been omitted. It is recommended that this combined
financial statement be read in conjunction with the Purchased Businesses'
combined financial statements for each of the three years ended December 27,
1993.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SECURITIES TRANSACTIONS
Proprietary securities transactions are recorded on a trade date basis.
Trading securities are valued at market. Mortgage loans held for sale are
recorded on a trade date basis and are valued at the lower of the aggregate
cost or the estimated market value. Unrealized gains and losses are
reflected in the Combined Statement of Operations. Investment banking revenues
from management fees, underwriting fees and selling concessions are recognized
on settlement date. Advisory fee revenues are recorded when services are
substantially complete and revenues are reasonably determinable.
CHARGE IN LIEU OF TAXES
The results of operations for the Purchased Businesses are included as part of
Kidder, Peabody's results and are included in the General Electric
consolidated Federal income tax return. State and local tax returns are filed
separately. The Purchased Businesses have been allocated a charge in lieu of
income taxes at an effective rate on income before Charge in Lieu of Taxes of
43.9% for
5
<PAGE> 11
the nine months ended September 29, 1994, which represents the effective income
tax rate for Kidder, Peabody for that period.
3. FINANCIAL INSTRUMENTS
TRADING AND INTEREST (NET)
The Purchased Businesses combine trading and interest revenues and expenses.
The individual amounts are as follows: interest revenue $326.7 million,
interest expense $262.7 million and net gains on principal transactions $65
million for the nine months ended September 29, 1994.
6
<PAGE> 12
REAL ESTATE, EUROBOND, RETAIL BROKERAGE AND
ASSET MANAGEMENT BUSINESSES OF
KIDDER, PEABODY GROUP INC.
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 27, 1993,
DECEMBER 28, 1992, AND DECEMBER 30, 1991
<PAGE> 13
REAL ESTATE, EUROBOND, RETAIL BROKERAGE AND
ASSET MANAGEMENT BUSINESSES OF
KIDDER, PEABODY GROUP INC.
INDEX TO COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 27, 1993,
DECEMBER 28, 1992, AND DECEMBER 30, 1991
Independent Auditor's Report 1
Combined Statements of Operations 2
Notes to Combined Statements of Operations 3 to 6
<PAGE> 14
Independent Auditors' Report
The Board of Directors and Stockholder of
Kidder, Peabody Group Inc.:
We have audited the accompanying combined statements of operations of the Real
Estate, Eurobond, Retail Brokerage and Asset Management Businesses ("Purchased
Businesses") of Kidder, Peabody Group Inc. ("Kidder, Peabody") and subsidiaries
for the years ended December 27, 1993, December 28, 1992, and December 30,
1991, which, as described in note 1, are prepared pursuant to a purchase
agreement, dated October 17, 1994, as amended. These financial statements are
the responsibility of Kidder, Peabody's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined statements of operations
are free of material misstatement. An audit of a combined statement of
operations includes examining, on a test basis, evidence supporting the amounts
and disclosures in that combined statement of operations. An audit of a
combined statement of operations also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the combined statement of operations.
We believe that our audits of the combined statement of operations provide a
reasonable basis for our opinion.
In our opinion, the combined statements of operations referred to above present
fairly, in all material respects, the results of operations of the Purchased
Businesses for the years ended December 27, 1993, December 28, 1992, and
December 30, 1991, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
February 8, 1995
New York, New York
<PAGE> 15
REAL ESTATE, EUROBOND, RETAIL BROKERAGE AND
ASSET MANAGEMENT BUSINESSES OF KIDDER, PEABODY GROUP INC.
COMBINED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 27, 1993, DECEMBER 28, 1992, AND DECEMBER 30, 1991
(IN MILLIONS)
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Revenues
Investment Banking $ 122.0 $ 47.2 $ 29.6
Commissions 209.5 190.6 182.7
Trading and Interest (net) 228.8 152.1 70.5
Sales Credits and Sellig Concessions (net) 179.4 167.4 146.5
Investment Advisory 55.1 48.1 40.0
Other 9.5 6.7 4.0
------- ------ ------
Total Revenues 804.3 612.1 473.3
------- ------ ------
Expenses
Employee compensation and benefits 388.6 302.3 245.7
Rent and occupancy 21.9 19.9 20.3
Communications 28.1 23.6 22.6
Clearing Fees 29.8 20.0 9.1
Professional fees 7.1 7.2 7.4
Other 188.2 123.0 134.8
------- ------ ------
Total Expenses 663.7 496.0 439.9
------- ------ ------
Income before charge in lieu of taxes 140.6 116.1 33.4
Charge in lieu of taxes 62.0 48.9 16.7
------- ------ ------
Net income $ 78.6 $ 67.2 $ 16.7
======= ====== ======
</TABLE>
See accompanying notes to combined financial statements.
<PAGE> 16
REAL ESTATE, EUROBOND, RETAIL BROKERAGE AND
ASSET MANAGEMENT BUSINESSES OF KIDDER, PEABODY GROUP INC.
NOTES TO COMBINED STATEMENTS OF OPERATIONS FOR
THE YEARS ENDED DECEMBER 27, 1993, DECEMBER 28, 1992, AND DECEMBER 30, 1991
1. BACKGROUND AND BASIS OF PRESENTATION
Pursuant to an Asset Purchase Agreement dated October 17, 1994, as amended
("The Purchase Agreements"), among PaineWebber Group Inc. ("PaineWebber"),
Kidder, Peabody Group Inc. and subsidiaries ("Kidder, Peabody") and General
Electric Company ("General Electric"), PaineWebber agreed to purchase certain
assets and liabilities associated with certain businesses of Kidder, Peabody.
Significant businesses of which substantial portions were acquired (which are
not legal entities) comprise: Real Estate - real estate whole loan underwriting
and trading activities; Eurobonds - eurobond trading activities, including
related repurchase agreement and reverse repurchase agreement matched book
trading activities; Retail Brokerage - retail brokerage activities; and Asset
Management - mutual fund management and investment advisory activities
("Purchased Businesses").
At closing, selected assets and liabilities of the Purchased Businesses were
purchased or assumed by PaineWebber. Substantially all assets and liabilities
transferred consist of securities trading inventories (long and short
positions), securities borrowed and securities loaned, mortgage loans held for
sale, customers receivable and payable balances, and fixed assets. Reverse
repurchase and repurchase agreements employed in the Eurobond business were not
transferred pursuant to the Purchase Agreement. In addition, selected Kidder,
Peabody employees associated with the Purchased Businesses became employees of
PaineWebber, and selected employees of other Kidder, Peabody businesses also
became employees of PaineWebber. PaineWebber paid a combination of cash and
PaineWebber common and preferred stock for the Purchased Businesses. The
closing dates for the sale of each of the businesses are as follows: Real
Estate - December 9,
3
<PAGE> 17
1994; Eurobond - December 16, 1994; Retail Brokerage - January 30, 1995 and
Asset Management - January 30, 1995 and February 13, 1995.
Kidder, Peabody has agreed to indemnify and hold harmless PaineWebber from any
losses, damages or claims incurred with respect to any liability relating to
the conduct of a Purchased Business (and not otherwise assumed by PaineWebber)
arising out of any event or condition existing prior to the relevant closing
date.
The accompanying Combined Statements of Operations reflect the historical
revenue and expenses attributable to the Purchased Businesses for each of the
years ended December 27, 1993, December 28, 1992, and December 30, 1991, based
upon the assets or liabilities giving rise to such revenues and expenses at
those dates, and not based on the assets and liabilities acquired or assumed by
PaineWebber. For example, the revenues and expenses related to the managed
futures and structured products portions of the Asset Management business have
been included in the Combined Statements of Operations, while the related
assets and liabilities have not been acquired or assumed by PaineWebber, nor
has that portion of the Asset Management business been acquired or assumed by
PaineWebber. A small number of the customer accounts of the Retail Brokerage
business were not transferred to PaineWebber. The revenues and expenses of the
Purchased Businesses as reported in the accompanying Combined Statements of
Operations therefore differ from the revenues and expenses associated with the
assets and liabilities transferred to PaineWebber.
Included in the Combined Statements of Operations are revenue and expense items
allocated to the Purchased Businesses. Revenues include sales credits and
selling concessions for distributing securities owned or originated in an
underwriting by Kidder, Peabody to customers of the Purchased Businesses.
These sales credits and selling concessions are based upon arrangements between
the Purchased Businesses and other businesses of Kidder, Peabody. Costs
related to compensation, communication, travel and entertainment, professional
services and other
4
<PAGE> 18
expenses are charged directly to the Purchased Businesses as incurred.
Occupancy, rent and depreciation and certain employee benefits are charged
based on usage or allocation surveys. Corporate overhead representing
centralized payroll, operations, finance, research, treasury, human resources,
legal, accounts payable, systems and other administrative functions are
allocated to the Purchased Businesses based on time spent, standard cost, head
count or usage, depending on the nature of the overhead being allocated. The
accompanying Combined Statements of Operations also include an allocation of
corporate provisions for certain litigation expenses, inventory reserves,
corporate headquarters relocation costs, certain EDP system expenses and
various other corporate charges. These other corporate charges (credits) were
approximately $34.8 million, $(10.5) million, and $17.0 million for the years
ended 1993, 1992 and 1991, respectively. Total corporate overhead costs
allocated, and are included in Other Expenses, were approximately $138.5
million, $83.1 million, and $97.7 million for the years ended 1993, 1992 and
1991, respectively, which includes the other corporate charges described above.
Kidder, Peabody finances the operations of all its businesses, including those
of the Purchased Businesses. Interest allocated to the Purchased Businesses
includes interest expense from the financing of all assets, and represents a
blended average of Kidder, Peabody's actual short term and long-term financing
costs. These allocations do not necessarily represent the amounts that would
have been incurred by the Purchased Businesses had they operated on a separate
company basis or had they operated as divisions of a different company; however,
management of Kidder, Peabody believes such allocations are reasonable in the
circumstances.
No attempt has been made to identify any respect in which the operations of the
Purchased Businesses would have differed had they operated as divisions of
PaineWebber or any other company instead of Kidder, Peabody. The Combined
Statements of Operations are therefore not indicative of future results of the
Purchased Businesses.
5
<PAGE> 19
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SECURITIES TRANSACTIONS
Trading securities are valued at market. Mortgage loans held for sale are
recorded on a trade date basis and are valued at the lower of the aggregate
cost or the estimated market value. Unrealized gains and losses are included
in the Combined Statements of Operations. Investment banking revenues from
management fees, underwriting fees and selling concessions are recognized on
settlement date. Advisory fee revenues are recorded when services are
substantially complete and revenues are reasonably determinable.
CHARGE IN LIEU OF TAXES
The results of operations for the Purchased Businesses are included as part of
Kidder, Peabody's results and are included in the General Electric consolidated
Federal income tax return. State and local tax returns of Kidder, Peabody are
filed separately. The Purchased Businesses have been allocated a charge in
lieu of income taxes at an effective rate on Income Before Charge in Lieu of
Taxes of 44.1%, 42.1% and 50.0% for 1993, 1992 and 1991, respectively, which
represents the effective income tax rates for Kidder, Peabody in those
respective years.
3. FINANCIAL INSTRUMENTS
TRADING AND INTEREST (NET)
The Purchased Businesses combine trading and interest revenues and expenses.
The individual amounts for the three years ended 1993 are as follows (in
millions):
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Interest Revenue $349.1 $302.5 $152.2
Interest Expense (272.8) (239.3) (118.9)
Net Gains on Principal Transactions 152.5 88.9 37.2
----- ---- ----
$228.8 $152.1 $70.5
====== ====== =====
</TABLE>
6
<PAGE> 20
REAL ESTATE, EUROBOND, RETAIL BROKERAGE AND
ASSET MANAGEMENT BUSINESSES OF
KIDDER, PEABODY GROUP INC.
COMBINED STATEMENT OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
DECEMBER 26, 1994 OR PRIOR DATE OF TRANSFER
<PAGE> 21
REAL ESTATE, EUROBOND, RETAIL BROKERAGE AND
ASSET MANAGEMENT BUSINESSES OF
KIDDER, PEABODY GROUP INC.
INDEX TO COMBINED STATEMENT OF ASSETS ACQUIRED
AND LIABILITIES ASSUMED
DECEMBER 26, 1994 OR PRIOR DATE OF TRANSFER
Independent Auditors' Report 1
Combined Statement of Assets Acquired and Liabilities
Assumed 2
Notes to Combined Statement of Assets Acquired
and Liabilities Assumed 3 to 8
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder of
Kidder, Peabody Group Inc.:
We have audited the accompanying combined statement of assets acquired and
liabilities assumed of the Real Estate, Eurobond, Retail Brokerage and Asset
Management Businesses ("Purchased Businesses") of Kidder, Peabody Group Inc.
("Kidder, Peabody") and subsidiaries as of December 26, 1994 or prior date of
transfer (see note 1), which, as described in note 1, is prepared pursuant to a
purchase agreement, dated October 17, 1994, as amended. This financial
statement is the responsibility of Kidder, Peabody's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined statement of assets
acquired and liabilities assumed is free of material misstatement. An audit of
a combined statement of assets acquired and liabilities assumed includes
examining, on a test basis, evidence supporting the amounts and disclosures in
that combined statement of assets acquired and liabilities assumed. An audit
of a combined statement of assets acquired and liabilities assumed also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
combined statement of assets acquired and liabilities assumed. We believe that
our audit of the combined statement of assets acquired and liabilities assumed
provides a reasonable basis for our opinion.
In our opinion, the combined statement of assets acquired and liabilities
assumed referred to above presents fairly, in all material respects, the
combined assets acquired and liabilities assumed of the Purchased Businesses as
of December 26, 1994 or prior date of transfer (see note 1), in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
February 8, 1995
New York, New York
<PAGE> 23
REAL ESTATE, EUROBOND, RETAIL BROKERAGE AND
ASSET MANAGEMENT BUSINESSES OF KIDDER, PEABODY GROUP INC.
COMBINED STATEMENT OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
DECEMBER 26, 1994 OR PRIOR DATE OF TRANSFER (SEE NOTE 1)
(IN THOUSANDS)
<TABLE>
<S> <C>
Assets Acquired
- ---------------
Securities Borrowed $ 292,529
Receivable From Customers 1,069,647
Securities Owned 833,121
Mortgage Loans Held for Sale 639,812
Other 58,705
----------
$2,893,814
==========
Liabilities Assumed
- -------------------
Securities Loaned $ 13,517
Payable to Customers 827,968
Securities Sold, but not yet Purchased 172,201
Other 66,289
----------
$1,079,975
==========
</TABLE>
See accompanying notes to combined statement of assets acquired and liabilities
assumed.
<PAGE> 24
REAL ESTATE, EUROBOND, RETAIL BROKERAGE AND
ASSET MANAGEMENT BUSINESSES OF KIDDER, PEABODY GROUP INC.
NOTES TO COMBINED STATEMENT OF ASSETS ACQUIRED
AND LIABILITIES ASSUMED
DECEMBER 26, 1994 OR PRIOR DATE OF TRANSFER (SEE NOTE 1)
1. BACKGROUND AND BASIS OF PRESENTATION
Pursuant to an Asset Purchase Agreement dated October 17, 1994, as amended,
("The Purchase Agreements"), among PaineWebber Group Inc. ("PaineWebber"),
Kidder, Peabody Group Inc. and subsidiaries ("Kidder, Peabody") and General
Electric Company ("General Electric"), PaineWebber agreed to purchase certain
assets and liabilities associated with certain businesses of Kidder, Peabody.
Significant businesses of which substantial portions were acquired (which are
not legal entities) comprise: Real Estate - real estate whole loan underwriting
and trading activities; Eurobonds - eurobond trading activities, including
related repurchase agreement and reverse repurchase agreement matched book
trading activities; Retail Brokerage - retail brokerage activities; and Asset
Management - mutual fund management and investment advisory activities
("Purchased Businesses").
At closing, selected assets and liabilities of the Purchased Business were
purchased or assumed by PaineWebber. Substantially all assets and liabilities
transferred consist of securities trading inventories (long and short
positions), securities borrowed and securities loaned, mortgage loans held for
sale, customers receivable and payable balances, and fixed assets. Reverse
repurchase and repurchase agreements employed in the Eurobond business were not
transferred pursuant to the Purchase Agreement. In addition, selected Kidder,
Peabody employees associated with the Purchased Businesses became
employees of PaineWebber, and selected employees of
3
<PAGE> 25
other Kidder, Peabody businesses also became employees of PaineWebber.
PaineWebber paid a combination of cash and PaineWebber common and preferred
stock for the Purchased Businesses. The closing dates for the sale of each of
the businesses are as follows: Real Estate - December 9, 1994; Eurobond -
December 16, 1994; Retail Brokerage - January 30, 1995 and Asset Management -
January 30, 1995 and February 13, 1995.
Kidder, Peabody has agreed to indemnify and hold harmless PaineWebber from any
losses, damages or claims incurred with respect to any liability relating to
the conduct of a Purchased Business (and not otherwise assumed by PaineWebber)
arising out of any event or condition existing prior to the relevant closing
date.
The Combined Statement of Assets Acquired and Liabilities Assumed presents the
assets acquired and liabilities assumed for the Purchased Businesses; the
Statement presents those assets and liabilities transferred as of December 9,
1994 for the Real Estate business, December 16, 1994 for the Eurobond business
and December 26, 1994 (Kidder, Peabody's fiscal 1994 year end) for the Retail
Brokerage and Asset Management businesses for which those transactions closed
on January 30, 1995 and February 13, 1995. The assets acquired and
liabilities transferred related to the Retail Brokerage and Asset Management
businesses included in this Statement may therefore not be representative of
the actual assets and liabilities transferred at closing. In addition, a small
number of the customer accounts of the Retail Brokerage business were not
transferred to PaineWebber.
4
<PAGE> 26
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SECURITIES TRANSACTIONS
Proprietary securities transactions are recorded on a trade date basis. Trading
securities are valued at market. Mortgage loans held for sale are recorded on
a trade date basis and are valued at the lower of the aggregate cost or the
estimated market value.
SECURITIES LENDING ACTIVITIES
Securities borrowed and securities loaned are recorded at the amount of cash
collateral advanced or received. Securities borrowed transactions require the
Purchased Businesses to deposit cash, letters of credit or other collateral
with the lender. With respect to securities loaned, the Purchased Businesses
receive cash or other collateral in an amount generally in excess of the market
value of the securities loaned. The Purchased Businesses monitor the market
value of securities borrowed and loaned on a daily basis with additional
collateral obtained or refunded as necessary.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign operations are translated at year-end rates
of exchange in accordance with Statement of Financial Accounting Standards No.
52, Foreign Currency Translation.
FIXED ASSETS
Fixed assets are valued at net realizable value at amounts established in the
Purchase Agreements for those assets transferred.
5
<PAGE> 27
3. NET CAPITAL AND OTHER REGULATORY REQUIREMENTS
The assets acquired and liabilities assumed are part of the Purchased
Businesses which do not represent a separate legal entity. Kidder, Peabody
and certain of the subsidiaries of which the Purchased Businesses are part of
are, however, subject to various regulatory rules. At December 26, 1994,
Kidder, Peabody and subsidiaries were in compliance with the minimum capital
required by its various regulatory agencies.
4. SECURITIES
Securities owned at December 26, 1994, consist of $832.4 million of Eurobonds
and $0.7 million of investments in mutual funds. Securities sold, but not yet
purchased are comprised of $54.8 million of U.S. Treasuries and $117.4 million
of Eurobonds.
Securities sold, but not yet purchased represent obligations of the Purchased
Businesses to deliver the specified security at the contracted price, and
thereby, create a liability to purchase the security in the market at
prevailing prices.
5. EMPLOYEE BENEFITS
Substantially all of the employees of the Purchased Businesses participate in
a funded defined benefit retirement plan of Kidder, Peabody. In addition,
Kidder, Peabody has an unfunded supplemental plan covering certain executives.
Since Kidder, Peabody has not transferred any pension obligation to PaineWebber
no obligation has been included in the Combined Statement of Assets Acquired and
Liabilities Assumed. PaineWebber has included the former Kidder, Peabody
employees into the PaineWebber pension plan providing them credit for their
service based upon
6
<PAGE> 28
their history of service at Kidder, Peabody. The assets of Kidder, Peabody's
retirement plan will not be transferred to PaineWebber. Kidder, Peabody
sponsors a defined benefit postretirement health care plan that covers
substantially all full time employees. Pursuant to the Purchase Agreement,
PaineWebber has agreed to pay an aggregate amount of $5 million in four equal
installments payable on January 30, 1995-1998, to Kidder, Peabody for certain
post-retirement medical benefits. No payment shall be due in 1997-1998 unless
40 or more of the transferred employees are employed by PaineWebber as of
January 30, 1997.
6. COMMITMENTS AND CONTINGENT LIABILITIES
LEASES
Pursuant to the Purchase Agreements, certain operating leases for office
premises and equipment associated with the Purchased Businesses will be assumed
by PaineWebber. The aggregate minimum annual rental commitments related to the
leases at December 26, 1994 which expire at various dates through 2005 amounted
to $118.8 million.
7. FINANCIAL INSTRUMENTS
CUSTOMER CREDIT RISK
The assets acquired and liabilities assumed are part of the Purchased
Businesses whose customer activities involve the execution, settlement, custody
and financing of various securities and commodities transactions on behalf of
customers. Customer securities activities are transacted on either a cash or
margin basis.
The Purchased Businesses' customer activities may expose it to
off-balance-sheet credit risk. The Purchased Businesses may have to purchase
or sell financial instruments at prevailing market
7
<PAGE> 29
prices in the event of failure of a customer to settle a trade on its original
terms, or in the event cash and securities in customer margin accounts are not
sufficient to fully cover customer losses. The Purchased Businesses seek to
control the risk associated with customer activities by requiring customers to
maintain margin collateral in compliance with various regulations and Kidder,
Peabody policies.
COUNTERPARTY CREDIT RISK
The Purchased Businesses' principal activities are also subject to the risk of
counterparty non-performance. As part of these activities, the Purchased
Businesses enter into collateralized securities lending arrangements which may
result in significant credit exposure in the event the counterparty to the
transaction is unable to fulfill its contractual obligations. In accordance
with industry practice, securities borrowing arrangements are generally
collateralized by cash or securities with a market value in excess of the
Purchased Businesses obligation or rights under the contract. The Purchased
Businesses attempt to minimize credit risk associated with these activities by
screening customers and monitoring customer credit exposure and collateral
values on a daily basis and requiring additional collateral to be deposited
with or returned to the Purchased Businesses when deemed necessary.
FAIR VALUE OF FINANCIAL INSTRUMENTS
In December 1991, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 107, Disclosures about Fair Value of
Financial Instruments. This statement requires all entities to disclose the
fair value of financial instruments (as defined), both assets and liabilities
recognized and not recognized in the Combined Statement of Assets Acquired and
Liabilities Assumed. At December 26, 1994, securities inventories are valued
at fair value. The carrying value of mortgage loans held for sale and customer
receivable and payables, due to their short term nature, are considered to be
approximate fair value.
8
<PAGE> 30
PROFORMA CONSOLIDATED FINANCIAL DATA
The following unaudited proforma consolidated statements of income of Paine
Webber Group Inc. (the "Company") for the nine months ended September 30, 1994
and for the year ended December 31, 1993 present consolidated operating results
for the Company as if the Company's purchase of certain assets and assumption
of certain liabilities of Kidder, Peabody Group Inc.'s ("Kidder") retail, asset
management, international fixed income and real estate businesses had occurred
as of January 1, 1994 and 1993, respectively. In addition, the Company's
unaudited proforma consolidated statements of income give effect to additions
of selected Kidder personnel for investment banking and institutional equity
and fixed income sales and trading departments. The following unaudited
proforma condensed consolidated statement of financial condition as of
September 30, 1994 gives effect to the acquisition of such businesses and
related transactions as if they had occurred as of September 30, 1994. The
proforma consolidated financial data does not purport to represent what the
Company's financial position or results of operations actually would have been
had the acquisition and related transactions in fact occurred on the dates
indicated, or to project the Company's financial position or results of
operations for any future period. The proforma adjustments are based upon
available information and certain assumptions that the Company believes are
reasonable in the circumstances. The proforma consolidated financial data
should be read in conjunction with the accompanying notes thereto, the
combined historical financial statements of the businesses acquired from Kidder
contained elsewhere in this Amendment to the Form 8-K of the Company filed
December 27, 1994 and the separate historical financial statements of the
Company included in its filings on Form 10-K and Form 10-Q for the year ended
December 31, 1993 and the quarter ended September 30, 1994, respectively.
Proforma adjustments are applied to the historical consolidated financial
statements of the Company to account for the acquisition under the purchase
method of accounting. Under purchase accounting, the total purchase costs will
be allocated to assets and liabilities acquired based on their relative fair
values. Allocations are based on valuation information as of the date of
acquisition, not all of which is final. Accordingly, the final allocations may
be different from the amounts reflected herein, however, such differences are
not expected to have a material impact on results of operations.
<PAGE> 31
PAINE WEBBER GROUP INC.
UNAUDITED PROFORMA CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
AS OF SEPTEMBER 30, 1994
(IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADJUSTMENTS
FROM
PAINE WEBBER KIDDER HISTORICAL FINANCING & OTHER PROFORMA
HISTORICAL HISTORICAL TO ACTUAL FAIR VALUE ADJUSTMENTS PAINE WEBBER
-------------- ------------ ------------- ------------- ------------ ------------
(A) (B) (C)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $249,621 $249,621
Cash and securities segregated 329,554 329,554
Trading inventories 8,792,481 $1,472,933 ($43) ($635) 10,264,736
Securities borrowed or purchased
under agreements to resell 21,477,707 292,529 (217,794) 5,021,000 26,573,442
Receivables:
Clients 4,132,408 1,069,647 (298,325) 4,903,730
Other 816,391 21,163 837,554
Other assets 1,101,876 58,705 2,156 $90,000 69,971 1,322,708
------------ ----------- ---------- ---------- ---------- -----------
Total assets $36,900,038 $2,893,814 ($514,006) $90,000 $5,111,499 $44,481,345
============ =========== ========== ========== ========== ===========
LIABILITIES, REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY
Short-term borrowings $1,265,922 $452,672 $89,549 $1,808,143
Securities sold but not yet purchased 6,725,179 $172,201 (754) 6,896,626
Securities loaned or sold under
agreements to repurchase 20,323,238 13,517 $26,633 900,000 5,021,000 26,284,388
Payables:
Clients 3,528,841 827,968 (616,529) 3,740,280
Others 1,391,387 66,289 (41,974) 65,562 37,704 1,518,968
------------ ----------- ---------- ---------- ---------- -----------
33,234,567 1,079,975 (631,870) 1,418,234 5,147,499 40,248,405
Long-term borrowings 2,440,339 2,440,339
------------ ----------- ---------- ---------- ---------- -----------
35,674,906 1,079,975 (631,870) 1,418,234 5,147,499 42,688,744
Redeemable preferred stock 185,000 185,000
Stockholders' equity
Convertible preferred stock 100,000 100,000
Common stock 84,101 14,000 98,101
Additional paid in capital 574,428 177,374 751,802
Retained earnings 744,593 (36,000) 708,593
------------ ---------- ---------- -----------
1,403,122 291,374 (36,000) 1,658,496
Treasury stock (145,489) 127,095 (18,394)
Other (32,501) (32,501)
------------ ---------- ---------- -----------
1,225,132 418,469 (36,000) 1,607,601
------------ ---------- ---------- -----------
Excess of assets acquired over
liabilities assumed 1,813,839 117,864 (1,931,703)
Total liabilities, redeemable preferred ------------ ----------- ---------- ---------- ---------- -----------
stock and stockholders' equity $36,900,038 $2,893,814 ($514,006) $90,000 $5,111,499 $44,481,345
============ =========== ========== ========== ========== ===========
</TABLE>
See accompanying notes to unaudited Proforma Consolidated Financial Statements
<PAGE> 32
PAINE WEBBER GROUP INC.
UNAUDITED PROFORMA CONSOLIDATED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1994
(IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PROFORMA ADJUSTMENTS
-------------------------------------------------
COST
REDUCTIONS
PAINE WEBBER KIDDER BUSINESS AND REVENUE PURCHASE PROFORMA
HISTORICAL HISTORICAL SCOPE TRANSFERS ACCOUNTING OTHER PAINE WEBBER
------------ ---------- -------- --------- ---------- ----- ------------
(D) (E) (F) (G)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Commissions $ 742,062 $ 155,400 ($9,474) $ 0 $ $ $ 887,988
Principal Transactions 386,526 115,000 30,632 10,820 542,978
Investment Banking 221,598 121,300 4,551 4,363 351,812
Asset Management 268,056 46,400 (3,068) 0 311,388
Other 102,814 10,000 (4,859) 0 107,955
Interest 1,203,790 326,700 (6,588) 0 1,523,902
---------- --------- ---------- ------- -----------
TOTAL REVENUES 2,924,846 774,800 11,194 15,183 3,726,023
Interest Expenses 1,003,989 262,700 4,614 (19,557) 1,251,746
---------- --------- ---------- ------- -----------
NET REVENUES 1,920,857 512,100 6,580 34,740 2,474,277
NON-INTEREST EXPENSES
Compensation and Benefits 1,138,727 276,400 889 (1,405) 17,062 1,431,673
Office & Equipment 168,445 18,700 1,467 3,060 7,825 199,497
Communications 97,542 24,100 2,354 1,944 125,940
Business Development 63,167 0 2,764 97 8,500 74,528
Brokerage, Clearing &
Exchange Fees 61,965 28,100 1,015 3,479 94,559
Professional Services 58,777 9,600 295 (1,734) 66,938
Other Expenses 247,350 141,400 2,716 (79,219) 1,928 (18,910) 295,265
---------- --------- ---------- -------- -------- -------- -----------
TOTAL NON-INTEREST EXPENSES 1,835,973 498,300 11,500 (73,778) 1,928 14,477 2,288,400
EARNINGS BEFORE INCOME TAXES 84,884 13,800 (4,920) 108,518 (1,928) (14,477) 185,877
PROVISIONS FOR INCOME TAXES 33,954 6,100 (1,968) 43,407 (771) (6,371) 74,351
---------- --------- ---------- -------- -------- -------- -----------
NET EARNINGS $ 50,930 $ 7,700 ($2,952) $65,111 ($1,157) ($8,106) $ 111,526
========== ========= ========== ======= ======== ======== ===========
EARNINGS APPLICABLE TO COMMON
SHARES $ 53,429 $ 92,062
========== ===========
EARNINGS PER SHARE
PRIMARY $ 0.67 $ 0.91
========== ===========
FULLY DILUTED $ 0.67 $ 0.90
========== ===========
WEIGHTED AVERAGE COMMON SHARE
PRIMARY 79,320,000 100,820,000
========== ===========
FULLY DILUTED 80,726,000 107,742,000
========== ===========
</TABLE>
See accompanying notes to unaudited ProForma Consolidated Financial
Statements.
<PAGE> 33
PAINE WEBBER GROUP INC.
UNAUDITED PROFORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PROFORMA ADJUSTMENTS
-------------------------------------
COST
REDUCTIONS
PAINE WEBBER KIDDER BUSINESS AND REVENUE PURCHASE PROFORMA
HISTORICAL HISTORICAL SCOPE TRANSFERS ACCOUNTING OTHER PAINE WEBBER
------------- ---------- --------- ------------- ---------- ---------- ------------
(D) (E) (F) (G)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Commissions $996,127 $209,500 (2,065) $1,203,562
Principal Transactions 779,444 296,000 60,781 19,883 1,156,108
Investment Banking 413,643 157,900 (3,675) 5,084 572,952
Asset Management 325,690 55,100 (4,094) 376,696
Other 113,253 9,500 (2,841) 119,912
Interest 1,376,560 349,100 (5,731) 1,719,929
---------- ---------- --------- ------------- ------------
TOTAL REVENUES 4,004,717 1,077,100 42,375 24,967 5,149,159
Interest Expense 1,130,712 272,800 9,296 (20,976) 1,391,832
---------- ---------- --------- ------------- ------------
NET REVENUES 2,874,005 804,300 33,079 45,943 3,757,327
NON-INTEREST EXPENSES
Compensation and Benefits 1,628,889 388,600 13,570 (3,231) 22,750 2,050,578
Office & Equipment 211,880 21,900 2,240 3,902 9,500 249,422
Communications 123,601 28,100 3,382 1,948 157,031
Business Development 93,962 0 3,689 319 10,100 108,070
Brokerage, Clearing, &
Exchange Fees 79,752 29,800 1,883 4,028 115,463
Professional Services 66,825 7,100 454 (1,695) 72,684
Other Expenses 261,520 188,200 2,494 (103,388) 2,571 (6,450) 344,947
---------- ---------- --------- ------------- ---------- --------- ------------
TOTAL NON-INTEREST EXPENSES 2,466,429 663,700 27,712 (98,117) 2,571 35,900 3,098,195
EARNINGS BEFORE INCOME TAXES 407,576 140,600 5,367 144,060 (2,571) (35,900) 659,132
PROVISION FOR INCOME TAXES 161,393 62,000 2,125 57,045 (1,018) (20,540) 261,005
---------- ---------- --------- ------------- ---------- --------- ------------
NET EARNINGS $246,183 $78,600 $3,242 $87,015 ($1,553) ($15,360) $398,127
========== ========== ========= ============= ========== ========= ============
EARNINGS APPLICABLE TO COMMON
SHARES $244,349 $366,997
========== ============
EARNINGS PER SHARE
PRIMARY $3.11 $3.66
========== ============
FULLY DILUTED $2.95 $3.39
========== ============
WEIGHTED AVERAGE COMMON SHARES
PRIMARY 78,690,000 100,190,000
========== ============
FULLY DILUTED 84,327,000 111,343,000
========== ============
</TABLE>
See accompanying notes to unaudited ProForma Consolidated Financial Statements.
<PAGE> 34
PAINE WEBBER GROUP INC.
NOTES TO UNAUDITED PROFORMA CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands of dollars)
THE PROFORMA ADJUSTMENTS TO THE CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL
CONDITION ARE AS FOLLOWS:
(A.) Adjustments from Historical to Actual reflect the activity in the net
assets actually acquired subsequent to December 26, 1994 through the
closing dates of those respective businesses.
(B.) Financing and fair value adjustments are to reflect the acquisition of
certain assets and assumption of certain liabilities of Kidder and the
allocation of the purchase price on the basis of the fair values of
the assets acquired and liabilities assumed. The amounts reflected
in the Kidder Historical column are comprised of the net assets
transferred as of the closing dates occurring in 1994 and the balances
as of December 26, 1994 of those net assets transferred subsequently.
The purchase was actually completed in four separate closing held on
December 9, 1994; December 16, 1994; January 30, 1995 and February
13, 1995. In the aggregate, the Company purchased net assets of
$1,866,141 in exchange of the following consideration, resulting in
goodwill of $90,000.
<TABLE>
<S> <C>
Financing of purchased assets
with repurchase agreements $ 900,000
Cash from short term borrowings 452,672
Redeemable preferred stock
(redemption value) 250,000
Convertible preferred stock 100,000
Common stock 318,469
---------
2,021,141
Less: Fair value adjustment on
Redeemable preferred stock (65,000)
---------
$1,956,141
==========
</TABLE>
(C.) Other adjustments include an adjustment of $5,021,000 to reflect
securities purchased under agreements to resell and securities sold
under agreements to repurchase at levels estimated to be maintained
by the acquired International Fixed Income business subsequent to the
acquisition. Specific repurchase agreements held by Kidder were not
transferred to the Company and are not included in the Kidder Combined
Statement of Assets Acquired and Liabilities Assumed.
Other adjustments also include an after-tax charge of $36,000 to
reflect acquisition related costs recorded by the Company in the
fourth quarter of 1994. These acquisition costs consist primarily of
branch consolidation and severance costs. Additionally, deferred
compensation paid in the form of employee forgivable loans to former
Kidder employees has been reflected. Other adjustments relate to
reclassifications of amounts to conform to the Company's basis of
financial presentation.
<PAGE> 35
PAINE WEBBER GROUP INC.
NOTES TO UNAUDITED PROFORMA CONSOLIDATED
FINANCIAL STATEMENTS (CONT'D)
(in thousands of dollars)
THE PROFORMA ADJUSTMENTS TO THE CONSOLIDATED STATEMENTS OF OPERATIONS ARE AS
FOLLOWS:
The unaudited proforma consolidated statements of operations for the year ended
December 31, 1993 and for the nine months ended September 30, 1994 do not
include the nonrecurring $36,000 after-tax effect of acquisition costs deducted
from the Company's results in the fourth quarter of 1994.
(D.) Business Scope
To include immaterial Kidder businesses acquired but not included in
the Historical Combined Statements of Operations and to exclude
elements of businesses included in the Historical Combined Statements
of Operations that were not acquired. This adjustment also reflects
a.) the estimated effect on revenues and expenses of excluding
employees of the acquired Kidder businesses who did not accept an
offer of employment from the Company, and of including employees
joining the Company from areas of Kidder not constituting an acquired
business and b.) the estimated effect on operations of closing
duplicate retail offices.
(E.) Cost Reductions and Revenue Transfers
To eliminate from other expenses the allocated cost of certain Kidder
support services and to provide for the estimated additional costs of
providing such services through the Company's support service
divisions. This adjustment also records the effect of differing
interdivisional revenue transfer policies and the effect on
compensation expense of Company employees severed as a result of the
acquisition.
(F.) Purchase Accounting
To amortize the excess of purchase cost over the fair value of the net
assets acquired over thirty-five years.
(G.) Other
To give effect to a.) deferred compensation paid in the form of
employee forgivable loans b.) the additional net cost of office space
and equipment and c.) certain reclassifications among expense
categories for consistency with the Company's presentation. Also
income tax expense is adjusted to reflect the income tax effects at
the Company's effective tax rate. The adjustment to net income
applicable to common shares gives effect to the dividend requirements
of the Redeemable Preferred Stock and Convertible Preferred Stock,
when dilutive, issued in connection with the acquisition and accretion
of the related valuation discount. Proforma earnings per common share
reflect the incremental common and common equivalent shares issued in
connection with the acquisition as if issued at the beginning of the
period.
<PAGE> 36
EXHIBIT INDEX
A) The following Exhibits are filed herewith:
10.3) Third Supplemental Agreement dated as of January 27, 1995 among
the Company, General Electric Company and Kidder, Peabody Group,
Inc.
10.4) Fourth Supplemental Agreement dated as of February 10, 1995 among
the Company, General Electric Company and Kidder, Peabody Group,
Inc.
23) Consent of KPMG Peat Marwick LLP
<PAGE> 1
EXHIBIT 10.3)
THIRD SUPPLEMENTAL AGREEMENT
THIRD SUPPLEMENTAL AGREEMENT dated as of January 27, 1995 among Paine
Webber Group Inc., a Delaware corporation (the "Purchaser"), General Electric
Company, a New York corporation (the "Parent"), and Kidder, Peabody Group Inc.,
a Delaware corporation (the "Seller").
WHEREAS, the parties hereto have previously entered into an Asset
Purchase Agreement dated as of October 17, 1994 (as amended and supplemented,
the "Asset Purchase Agreement") and a Restructuring Agreement dated as of
October 17, 1994 (as amended and supplemented, the "Restructuring Agreement");
WHEREAS, the parties hereto have previously entered into a
Supplemental Agreement dated as of December 9, 1994 (the "First Supplemental
Agreement");
WHEREAS, the parties hereto have previously entered into a Second
Supplemental Agreement dated as of December 16, 1994 (the "Second Supplemental
Agreement"); and
WHEREAS, the parties hereto desire to further supplement the
provisions of the Asset Purchase Agreement, the Restructuring Agreement, the
First Supplemental Agreement and the Second Supplemental Agreement in the
manner set forth in this Agreement;
NOW THEREFORE, in consideration of the mutual agreements contained
herein and other good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 Definitions. (a) Terms used herein and not
-----------
otherwise defined herein shall have the meanings set forth in the Asset
Purchase Agreement, the Restructuring Agreement, the First Supplemental
Agreement and the Second Supplemental Agreement, as the case may be.
(b) As used in this Agreement, the following terms shall have the
following meanings:
"Contemplated Payment" has the meaning set forth in Section 4.07.
"First Asset Management Closing" has the meaning set forth in Section
3.01.
<PAGE> 2
"First Asset Management Closing Date" has the meaning set forth in
Section 3.01.
"KPAM" has the meaning set forth in Section 4.07.
"MHAM" has the meaning set forth in Section 4.07.
"Physical Securities" has the meaning set forth in Section 4.02.
"Related Retail Brokerage Closing Date" has the meaning set forth in
Section 2.01(a).
"Reorganization Transactions" has the meaning set forth in Section
2.03.
(c) This Agreement shall be deemed to be a Transaction Document
and each reference in any of the Transaction Documents to the Transaction
Documents shall be deemed to include this Agreement.
SECTION 1.02 Rules of Interpretation. The rules of interpretation
-----------------------
specified in Section 1.02 of the Asset Purchase Agreement shall be applicable
to this Agreement.
ARTICLE II
RELATED RETAIL BROKERAGE
SECTION 2.01 Related Retail Brokerage Closing. (a) The
--------------------------------
Related Retail Brokerage Closing shall take place at the offices of Paine
Webber at 1000 Harbor Boulevard, Weehawken, New Jersey at 12:00 noon, or as
soon as practicable thereafter, on January 29, 1995. The Related Retail
Brokerage Closing shall be effective as of 12:01 a.m. on January 30, 1995 (the
"Related Retail Brokerage Closing Date").
(b) The payment to be made by the Purchaser at the Related Retail
Brokerage Closing shall be made in the form of a cashier's check to the seller
on behalf of the members of the Seller Group. The parties hereto acknowledge
that the amount of the cashier's check shall have been determined on January
27, 1995 based on an estimated valuation as of the close of business on January
26, 1995 and that the actual amount to be paid by the Purchaser to the members
of the Seller Group at the Related Retail Brokerage Closing shall be determined
based on an estimated valuation as of the close of business on January 29,
1995. To the extent that the amount of the cashier's check is less than the
actual amount to be paid by the Purchaser to the members of the Seller Group,
the Purchaser shall make a wire transfer to the Seller on behalf of the members
of the
2
<PAGE> 3
Seller Group on January 30, 1995, or such other date as shall be agreed upon by
the parties, in the amount of such difference. To the extent that the amount
of the cashier's check is greater than the actual amount to be paid by the
Purchaser to the members of the Seller Group, the Seller on behalf of the
members of the Seller Group shall make a wire transfer to the Purchaser on
January 30, 1995, or such other date as shall be agreed upon by the parties,
in the amount of such difference.
SECTION 2.02 Margin and Cash Accounts. (a) With regard to any
------------------------
margin accounts with debit balances maintained by the Seller Group that are
transferred to the Purchaser at the Related Retail Brokerage Closing, the
following conditions shall apply:
(i) During the 30-day period following the Related
Retail Brokerage Closing Date, the Purchaser may return for cash any
such account that fails to meet New York Stock Exchange margin
requirements as of the Related Retail Brokerage Closing Date or
differs materially and adversely from the representations made by the
Seller with respect to such account on or prior to the Related Retail
Brokerage Closing; and
(ii) during the 90-day period following the Related
Retail Brokerage Closing Date, the Purchaser may return for cash any
such account that lacks an executed margin agreement or other
documentation authorizing trading in the account on margin after a
reasonable effort to obtain such agreement or documentation.
(b) With regard to cash accounts maintained by the Seller
Group that are proposed to be transferred to the Purchaser at the Related
Retail Brokerage Closing the following conditions shall apply:
(i) no accounts with unsecured debits will be accepted;
and
(ii) within 15 business days of the Related Retail
Brokerage Closing Date, the Purchaser will verify the validity and
collectibility of those accounts with debit balances. If a dispute
exists as to the validity of the claims between the Seller and the
Purchaser with respect to any debit balance, the Purchaser may return
for cash the account that includes such balance to the Seller Group.
SECTION 2.03 Omnibus Account. The Seller shall maintain
---------------
an omnibus account for 30 business days following the Related Retail Brokerage
Closing Date in respect of
3
<PAGE> 4
failed trades and short inventory positions and securities transactions handled
by the Reorganization Department of any member of the Seller Group
("Reorganization Transactions"), in each case arising out of Related Retail
Brokerage, as of the Related Retail Brokerage Closing Date and use its
reasonable efforts during such period of time to resolve any such failed
trades, short inventory positions or Reorganization Transactions. Within 30
days following the Related Retail Brokerage Closing Date, the Seller and the
Purchaser shall commence negotiation in good faith to reach an agreement
pursuant to which, at the end of the 30 business day period, (i) the Seller
Group shall transfer to the Purchaser all the rights of the Seller Group, and
the Purchaser shall assume the obligations, related to any remaining such
failed trades, short inventory positions or Reorganization Transactions, (ii)
the Seller on behalf of the members of the Seller Group shall compensate the
Purchaser therefor (which compensation may, to the extent agreed, take into
account illiquidity and market risk) and (iii) to the extent the Purchaser is
subsequently able to resolve any such failed trade or short inventory position
following such transfer or realize any amount in respect of a Reorganization
Transaction, the Purchaser shall make an appropriate cash payment to the Seller
on behalf of the members of the Seller Group in respect thereof. Unless and
until such transfer and assumption occurs pursuant to such an agreement between
the Purchaser and the Seller, such rights shall not be Acquired Assets and such
obligations shall not be Assumed Liabilities. Following any such transfer, the
Purchaser shall use its reasonable efforts on an ongoing basis to resolve such
failed trades, short inventory positions or Reorganization Transactions.
SECTION 2.04 Retail Branch Offices. (a) The Purchaser
---------------------
hereby represents and warrants that the Office Closure Costs that would
actually be incurred by the Seller or the Purchaser and their respective
subsidiaries in connection with the closure of the 14 retail brokerage branches
previously identified to the Seller pursuant to Section 4.01 of the
Restructuring Agreement and the Relocation and Refurbishment Costs and Office
Closure Costs in connection with the retail brokerage operations of Hanover
Square would exceed $10,000,000. The $10,000,000 amount payable by the Seller
to the Purchaser pursuant to Section 4.01 of the Restructuring Agreement shall
be paid at the Related Retail Brokerage Closing. The parties hereto agree
that, in connection with the Restructuring, the Purchaser shall be responsible
for the actual closing of any retail brokerage branches and that the Purchaser
may substitute other retail brokerage branches for the 14 retail brokerage
branches previously identified the Seller.
4
<PAGE> 5
(b) In connection with the assignment to the Purchaser of the
leases of the retail branch offices of the Seller Group, the Purchaser and the
Seller have agreed as to certain special arrangements with respect to the
Atlanta, Chicago and Los Angeles offices of the Seller Group, as set forth in
Schedule 1.
(c) Following the Retail Brokerage Closing Date (and without
prejudice to the rights of the Purchaser under the Asset Purchase Agreement),
to the extent that the Purchaser uses services pursuant to any Contracts that
the Purchaser has not yet made a determination whether to assume or to reject,
and to the extent that the Purchaser subsequently determines to reject any such
Contracts, the Purchaser shall pay the Seller on behalf of the members of the
Seller Group reasonable compensation (determined by the reference to the
relevant Contract) for the use of such services to the extent the Seller Group
has liability therefor; provided that (i) the Continuing Employees of Related
Retail Brokerage shall be entitled to use the work stations (i.e., branch
office computing equipment) of the Seller Group and (ii) the Purchaser shall
have reasonable access to the mainframe computer of the Seller Group, in each
case, for a period of 45 days (which may be extended by the Seller) following
the Related Retail Brokerage Closing Date and without any obligation of the
Purchaser to pay for the use thereof.
SECTION 2.05 CBOT. The parties hereto agree that the third seat
----
on the Chicago Board of Trade to be transferred to the Purchaser on the Related
Retail Brokerage Closing Date referred to in Section 3.10(b) of the Second
Supplemental Agreement is in fact a Government Instrument Market Membership.
The purchase price to be paid by the Purchaser for such Membership shall be
$200,000 and shall be made by the Purchaser directly to the Chicago Board of
Trade for the account of the Seller Group.
SECTION 2.06 Insurance and Annuities Commissions Receivable.
----------------------------------------------
The Purchaser shall reimburse the Seller on behalf of the members of the Seller
Group for any insurance commissions advanced to investment executives of the
Seller Group prior to the Related Retail Brokerage Closing Date that will
subsequently be recovered by the Purchaser from third-party insurance
companies. If any such amounts cannot be recovered from such third-party
insurance companies within 90 days of the Related Retail Brokerage Closing
Date, the Seller shall reimburse the Purchaser for such amounts. To the extent
not otherwise recoverable through reasonable efforts by the Purchaser from
Continuing Employees, the Seller shall reimburse the Purchaser for all
commission charge-backs demanded from the Purchaser by third-party insurance
companies whose annuities and insurance contracts
5
<PAGE> 6
were sold through the investment executives of the Seller Group, which
annuities or insurance contracts are cancelled within the one-year period
subsequent to the date the relevant annuity or insurance contract was initially
sold. An estimate of the amount to be paid to the Seller on behalf of members
of the Seller Group for advanced commissions (subject to later adjustments as
referred to above) shall be included in the Related Retail Brokerage Interim
Balance Sheet and any difference from the actual amount shall be adjusted on
the Closing Balance Sheet. The Seller Group shall have no rights with respect
to any future cyclical trailing commissions for such products for the period
following the Related Retail Brokerage Closing Date.
SECTION 2.07 Market Data Services Contracts. The parties hereto
------------------------------
agree that certain market data services Contracts shall be Assigned Contracts
within the meaning of Section 2.07(c) of the Agreement; provided that the
Seller Group will remain liable for any liquidated damages payable (whether
before or after the Related Retail Brokerage Closing) under any such Contract
arising prior to the first renewal of or time for giving notice not to renew
such Contract by the Purchaser. The Purchaser and the Seller hereby agree to
use their reasonable efforts to prepare, within 30 days of the Related Retail
Brokerage Closing Date, an agreed upon list of all such market data services
Contracts, the dates by which the appropriate vendors are required to be given
notice of renewal or termination, the renewal dates and the liquidated damages
provisions of each such Contract. The Purchaser hereby agrees to act in good
faith in taking any actions under such Contracts that would give rise to
liquidated damages.
SECTION 2.08 FORMS 1099. The Seller hereby agrees, as
----------
required by Applicable Law, to prepare IRS Forms 1099 for the customers of the
Seller Group whose accounts are transferred to the Purchaser and to send such
Forms 1099 to such customers between September 1, 1995 and January 31, 1996.
The Seller further agrees, until June 30,1996, to respond to questions from
such customers regarding these Forms 1099.
ARTICLE III
ASSET MANAGEMENT
SECTION 3.01 Asset Management. In the event that an exemptive
----------------
order, effective on or prior to January 30, 1995, in form and substance
reasonably satisfactory to each of the parties hereto, concerning the Funds is
received from the Commission:
6
<PAGE> 7
(i) the Seller Group shall transfer to the Purchaser (or
its designee) the Acquired Assets of the portion of Asset Management
that relates to the management of investment companies and managed
accounts identified on Schedule 2 hereto and the Purchaser shall
assume the Assumed Liabilities arising out of such portion of Asset
Management (the consummation of such transfer and assumption, The
"First Asset Management Closing");
(ii) the First Asset Management Closing shall take place at
the same time as the Related Retail Brokerage Closing and the First
Asset Management Closing Date (the "First Asset Management Closing
Date") and the Related Retail Brokerage Closing Date shall be the same
date;
(iii) the Related Retail Brokerage Interim Balance Sheet and
the Related Retail Brokerage Interim Net Book Value Statement shall
include the Acquired Assets and Assumed Liabilities of that portion of
Asset Management Referred to in clause (i) above; and
(iv) the Acquired Assets being transferred to, and the
Assumed Liabilities being assumed by, the Purchaser shall include the
Acquired Assets and Assumed Liabilities of that portion of Asset
Management referred to in clause (i) above.
SECTION 3.02 FCI. The Seller hereby agrees to keep in existence
Financial Counselors, Inc. (whose name is expected to be changed to Broad
Street Advisors Inc.) or a successor corporation (by merger or otherwise)
thereto for a period of not less than six years from the First Asset Management
Closing Date. For such period of time, the Seller shall cause Financial
Counselors, Inc. to maintain an errors and omissions insurance policy in an
amount of not less than $5,000,000 covering claims accruing prior to the First
Asset Management Closing Date, and the Purchaser shall reimburse the Seller on
behalf of the members of the Seller Group for the cost of such insurance.
SECTION 3.03 ASSET MANAGEMENT OFFICES. The Seller hereby agrees to
------------------------
enter into arrangements with the Purchaser on terms substantially similar to
those in the Revocable License Agreement previously entered into between the
Purchase and the Seller to permit the Purchaser to use and occupy for a period
of time not to exceed two months certain space owned and leased by the Seller
Group and used in connection with Asset Management.
7
<PAGE> 8
ARTICLE IV
SUPPLEMENTAL MATTERS
SECTION 4.01 In Treatment Status. The parties hereto agree that
-------------------
the amount payable by the Seller to the Purchaser pursuant to Section 4.02 of
the Second Supplemental Agreement shall be $1,398,257. Such Amount shall be
paid by the Seller on behalf of the members of the Seller Group to the
Purchaser at the Related Retail Brokerage Closing.
SECTION 4.02 Physical Securities. With respect to the transfer of
-------------------
certain Securities in physical, certificated form (the "Physical Securities")
from the Seller to the Purchaser, the parties hereto have agreed as follows:
(i) During the weekend of January 28-29, 1995, at the
offices of the Seller at 2 Broadway, New York, New York, the Seller
shall conduct a review and accounting of the Physical Securities at
which the Purchaser shall be present and observe, following which the
Physical Securities shall be placed in appropriate storage containers,
sealed and placed in the Seller's vault at such address.
(ii) The Physical Securities shall be transported in sealed
storage containers by armored car to the offices of the Purchaser at
1000 Harbor Boulevard, Weehawken, New Jersey, in three one-car
shipments on each of January 30, January 31 and February 1, 1995,
respectively. The cost of such transportation, including insurance,
shall be shared equally by the Purchaser and the Seller on behalf of
the members of the Seller Group.
(iii) The Purchaser shall receive the Physical Securities at
its offices at 1000 Harbor Boulevard, Weehawken, New Jersey, at which
time the Purchaser shall be deemed to have accepted the Physical
Securities and risk of loss shall have passed to the Purchaser and the
Seller Group shall have no further obligations of any kind to the
Purchaser with respect to the custody of the Physical Securities and
the safe-keeping thereof; provided that, immediately following the
arrival of each of the one-car shipments referred to in clause
(ii) above, the Purchaser shall conduct a review of the Physical
Securities and a reconciliation of the accounting referred to in
clause (i) above, at which the Seller shall be present and observe,
and the Purchaser shall have twelve hours following the arrival of
each such shipment to notify the Seller in writing
8
<PAGE> 9
as to any discrepancies in the reconciliation of such shipment of
Physical Securities.
SECTION 4.03 Custody Agreement. The Purchaser and the Seller have
-----------------
agreed to enter into a custody arrangement in the form of Exhibit 1 hereto with
respect to certain Books and Records.
SECTION 4.04 Foreign Leases. With respect to the office of the
--------------
Seller Group in Tokyo, Japan (the "Tokyo Office"), the parties hereto have
agreed as follows:
(a) The Purchaser shall take all action necessary as promptly as
practicable to close its office in Tokyo. The Seller of behalf of members of
the Seller Group shall be responsible for the Office Closure Costs (which shall
include for purposes of this Section 4.04(a) all rent paid by the Purchaser for
its existing Tokyo office space until such time as the Purchaser occupies the
Tokyo Office) actually incurred by the Purchaser in connection with the closure
of such office, up to an aggregate of $2,500,000. Any Office Closure Costs in
connection with such closure in excess of $2,500,000 shall be the
responsibility of the Purchaser.
(b) The Tokyo Office lease shall be treated as a Delayed Asset for
which the Required Consent could not be obtained and, in accordance with
Section 2.04(a) of the Asset Purchase Agreement, until at least January 31,
1996, the Purchaser shall be entitled to use and occupy the Tokyo Office and
the Seller Group shall provide the Purchaser with the benefits under or
applicable to such lease and the Purchaser shall assume and pay and perform all
liabilities relating to such lease. For the period from February 1, 1995
through January 31, 1996, (i) to the extent that the Purchaser uses and
occupies the Tokyo Office under the existing lease of the Seller Group, the
Purchaser shall not be responsible (in a manner consistent with customary rent
concession practices in Tokyo) for the payment of rent and the Seller Group
shall remain liable therefor and (ii) to the extent that the Purchaser uses and
occupies the Tokyo Office under a lease to the Purchaser, the Seller on behalf
of the members of the Seller Group shall pay an amount monthly to the Purchaser
equal to the monthly amount of the rent concession provided for pursuant to
clause (i).
(c) Effective February 1, 1995, leases of Equipment and Machinery
used in the Tokyo Office with aggregate lease payment obligations of $2,200,000
shall be assumed by the Purchaser. Such leases (which shall not include the
leases of the telephone equipment and the AS-400 mini-mainframe computer) shall
be selected by the Purchaser and shall be Assigned Contracts.
9
<PAGE> 10
(d) The Purchaser shall purchase from the Seller Group at Seller's
net book value (exclusive of any writedown effected as a result of the
transactions contemplated by the Transaction Documents) the Equipment and
Machinery (excluding any software and licenses) used by the Seller Group in the
operation of the Tokyo Office; provided that the Purchaser shall not be
--------
obligated to pay more than $1,900,000 for all such Equipment and Machinery.
(e) Effective February 1, 1995, all Contracts of the Seller Group
relating to the occupancy or maintenance of the Tokyo Office or office services
being provided to the Tokyo Office not otherwise described in Sections 4.04(a),
(b) and (c), shall be Assigned Contracts, to the extent that such Contracts
shall be useful to the Purchaser in connection with the conduct of its business
in the Tokyo Office.
(f) The Purchaser and the Seller shall jointly review the existing
agreements of the Purchaser and the Seller Group for the provision of market
data services in Tokyo and negotiate in good faith to agree on the action to be
taken to ensure that the Purchaser shall have reasonable access to the market
data services necessary to the conduct of its business in Tokyo and to minimize
the costs associated with the termination of any existing agreements of the
Purchaser and the Seller Group not necessary to provide the Purchaser with such
market data services. To the extent the Seller Group and the Purchaser have
existing agreements for market data services that are the same or nearly the
same, the Purchaser agrees to take assignment of the longer term agreement
(consistent with its existing business plan) and the Seller on behalf of the
members of the Seller Group agrees to assume financial responsibility for the
termination costs or expenses of the shorter term agreement; provided that the
--------
Seller Group's obligation in respect thereof shall not exceed the amount it
would have been obligated to pay under its existing agreement. Any costs
incurred by the Purchaser in connection with the termination of its
contractual obligations under its existing agreements may be deemed to be
Office Closure Costs for purposes of Section 4.04(a), or shall otherwise be for
the account of the Purchaser.
(g) Effective February 1, 1995, but subject to any necessary
Japanese regulatory approvals, the Purchaser shall permit the employees of the
Seller Group to use and occupy on a rent-free basis approximately 1,000 square
feet of office space in the Tokyo Office through December 31, 1995.
SECTION 4.05 Certain Post-Retirement Medical Benefits. The Seller
----------------------------------------
and the Purchaser have agreed as to
10
<PAGE> 11
the medical benefits to be made available to the Continuing Employees listed on
Schedule 3 hereto and, except as provided in the next succeeding sentence, the
Seller on behalf of the members of the Seller Group shall be responsible for
the costs associated with the providing of such medical benefits. The
Purchaser shall pay an aggregate amount of $5,000,000 to the Seller on behalf
of the members of the Seller Group in four equal installments of $1,250,000
payable on January 30th in each of 1995, 1996, 1997 and 1998; provided that no
--------
payment shall be due in each of 1997 and 1998 unless 40 or more of the
investment executives listed on Schedule 3 hereto are employed by the Purchaser
or any of its controlled Affiliates as of January 30th, 1997. For purposes of
determining the number of investment executives listed on Schedule 3 hereto
employed by the Purchaser as of January 30, 1997, any investment executive
listed on Schedule 3 hereto who is terminated without cause by the Purchaser
or any of its controlled Affiliates prior to January 30, 1997 shall be treated
as if such investment executive were employed by the Purchaser as of
January 30, 1997.
SECTION 4.06 Deferred Broker Production Bonus Programs. The parties
-----------------------------------------
hereto agree that payments to be made for any year by the Purchaser to
Continuing Employees pursuant to Section 3.08(a) of the Restructuring Agreement
under the Deferred Broker Production Bonus Programs shall be made no later than
the January 31st of the year following such year. The Purchaser shall be
responsible for any and all payroll taxes in connection therewith.
SECTION 4.07 Asset Management Indemnification. The Purchaser,
--------------------------------
PaineWebber Incorporated and Mitchell Hutchins Asset Management Inc. ("MHAM")
shall be fully indemnified, defended and held harmless, jointly and severally
by the Parent and the Seller, with respect to any amounts paid or advanced to
or in respect of any of the investment companies (or successors thereto)
listed on Schedule 2 hereto that are based on:
(a) an act or failure to act by Kidder Peabody Asset Management, Inc.
("KPAM"), or one of its agents, in the management of such investment company
prior to the First Asset Management Closing Data, as a result of which and to
the extent that:
(i) KPAM (or its agent) has legal liability to such investment
company or its shareholders including, without limitation, any liability
attributable to the failure of any such investment company to:
(A) comply with any applicable state securities or Blue Sky
registration requirements;
11
<PAGE> 12
(B) value any asset in its portfolio in accordance with such investment
company's policies or applicable law; or
(c) maintain its portfolio in material compliance with the terms,
conditions or descriptions thereof contained in any applicable registration
statement filed under the federal securities laws; or
(ii) Purchaser or MHAM has a reasonable belief that if such payment or
advance were not made, MHAM's business reputation as a manager of investment
companies would be materially injured; or
(b) an error (by act or omission) or oversight by KPAM, or one of its
agents, in the management of such investment company prior to the First Asset
Management Closing Date, as a result of which and to the extent that any Tax is
determined by the Internal Revenue Service or the independent accountants of
the investment company to be owing by such investment company or by any
shareholder of such company (other than income taxes payable by such
shareholder in the ordinary course), whether or not such Tax is yet due or
payable (so long as any decision by the Purchaser, PaineWebber Incorporated or
MHAM to pay in advance is made on a reasonable basis).
If the Purchaser is contemplating paying or advancing any amount to or
in respect of any investment company (or successor thereto) listed on Schedule
2 hereto with respect to which the Purchaser believes it may be entitled to
indemnification pursuant to this Section 4.07 (a "Contemplated Payment"), and a
purchase by the Parent or the Seller of Securities owned by such investment
company at a price above the then current market price would obviate the need
for such payment or advance;
(i) The Purchaser shall provide the Parent and the Seller with two
business days' prior written notice of such Contemplated Payment (or, if such
notice is not practicable, such lesser notice but in any event not less than 4
hours), which notice shall include a description of the relevant Securities,
the events relating to the Contemplated Payment, the amount of the Contemplated
Payment and current market price information concerning the relevant
Securities.
(ii) The Parent or the Seller shall have the option, exercisable
within such two business days (or lesser) period, subject to any necessary
Commission, investment company board and other approvals, to either (A) make
the Contemplated Payment in lieu of the Purchaser or (B) purchase the relevant
Securities from
12
<PAGE> 13
such investment company for any amount equal to the amount of the
Contemplated Payment plus the aggregate market price of the relevant
Securities set forth in the notice.
(iii) If the Parent or the Seller exercises its option
pursuant to clause (ii) above, neither the Parent nor the Seller shall
have any further obligations toward the Purchaser, PaineWebber
Incorporated and MHAM under Section 4.07(a) (ii) in respect of the
events relating to the Contemplated Payment.
The parties hereto acknowledge that this Section 4.07 shall not apply
to any investment company (or successor thereto) other than those listed on
Schedule 2 hereto.
ARTICLE V
MISCELLANEOUS
SECTION 5.01 Incorporation by Reference. The provisions of Article XI
---------------------------
or the First Supplemental Agreement shall be incorporated by reference herein
and each reference therein to the First Supplemental Agreement shall apply to
this Agreement as if this Agreement were referred to therein.
SECTION 5.02 Other References to Closing and Closing Date. The
--------------------------------------------
parties hereto acknowledge that each reference in the Asset Purchase Agreement
to the "Closing", the "Closing Date", the "Asset Management Closing" and the
"Asset Management Closing Date" shall, to the extent such reference relates to
the portion of Asset Management transferred at the First Asset Management
Closing, be construed as a reference to the First Asset Management Closing or
the First Asset Management Closing Date, as applicable.
13
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
PAINE WEBBER GROUP INC.
By /s/ REGINA A. DOLAN
------------------------
Name: Regina A. Dolan
Title: Chief Financial Officer and
Vice President
GENERAL ELECTRIC COMPANY
By
------------------------
Name:
Title:
KIDDER, PEABODY GROUP INC.
By
------------------------
Name:
Title:
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
PAINE WEBBER GROUP INC.
By
---------------------------
Name:
Title:
GENERAL ELECTRIC COMPANY
By /s/ DENNIS D. DAMMERMAN
---------------------------
Name: Dennis D. Dammerman
Title: Senior Vice
President-Finance
KIDDER, PEABODY GROUP INC.
By /s/ RICHARD W. O'DONNELL
---------------------------
Name: Richard W. O'Donnell
Title: Senior Vice President,
Chief Financial &
Administrative Officer
<PAGE> 1
EXHIBIT 10.4)
FOURTH SUPPLEMENTAL AGREEMENT
FOURTH SUPPLEMENTAL AGREEMENT dated as of February 10, 1995 among
Paine Webber Group, Inc., a Delaware corporation (the "Purchaser"), General
Electric Company, a New York corporation (the "Parent"), and Kidder, Peabody
Group Inc., a Delaware corporation (the "Seller").
WHEREAS, the parties hereto have previously entered into an Asset
Purchase Agreement dated as of October 17, 1994 (as amended and supplemented,
the "Asset Purchase Agreement") and a Restructuring Agreement dated as of
October 17, 1994 (as amended and supplemented, the "Restructuring Agreement");
WHEREAS, the parties hereto have previously entered into a
Supplemental Agreement dated as of December 9, 1994 (the "First Supplemental
Agreement");
WHEREAS, the parties hereto have previously entered into a Second
Supplemental Agreement dated as of December 16, 1994 (the "Second Supplemental
Agreement"); and
WHEREAS, the parties hereto have previously entered into a Third
Supplemental Agreement dated as of January 27, 1995 (the "Third Supplemental
Agreement"); and
WHEREAS, the parties hereto desire to further supplement the
provisions of the Asset Purchase Agreement, the First Supplemental Agreement,
the Second Supplemental Agreement and the Third Supplemental Agreement in the
manner set forth in this Agreement;
NOW THEREFORE, in consideration of the mutual agreements contained
herein and other good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 Definitions. (a) Terms used herein and not
-----------
otherwise defined herein shall have the meanings set forth in the Asset
Purchase Agreement, the First Supplemental Agreement, the Second Supplemental
Agreement and the Third Supplemental Agreement, as the case may be.
(b) As used in this Agreement, the following terms shall have the
following meanings:
<PAGE> 2
"Contemplated Payment" has the meaning set forth in Section 2.02.
"Second Asset Management Closing" has the meaning set forth in Section
2.01(a).
"Second Asset Management Closing Date" has the meaning set forth in
Section 2.01(a).
"Second Asset Management Interim Net Book Value Statement" has the
meaning set forth in Section 2.01(c).
(c) This Agreement shall be deemed to be a Transaction Document and
each reference in any of the Transaction Documents to the Transaction Documents
shall be deemed to include this Agreement.
SECTION 1.02 Rules of Interpretation. The rules of interpretation
specified in Section 1.02 of the Asset Purchase Agreement shall be applicable
to this Agreement.
ARTICLE II
ASSET MANAGEMENT
SECTION 2.01 Second Asset Management Closing. (a) The Second Asset
-------------------------------
Management Closing shall take place at the offices of Cravath, Swaine & Moore
at 825 Eighth Avenue, New York, New York at 1:00 p.m., or as soon as
practicable thereafter, on February 12, 1995. The Second Asset Management
Closing shall be effective as of 12:01 a.m. on February 13, 1995 (the "Second
Asset Management Closing Date").
(b) At the Second Asset Management Closing, the Seller Group shall
transfer to the Purchaser (or its designee) the Acquired Assets of the portion
of Asset Management that relates to the management of investment companies
identified on Schedule 1 and hereto the Purchaser shall assume the Assumed
Liabilities arising out of such portion of Asset Management.
(c) The Purchaser shall make a payment to the Seller on behalf of
the members of the Seller Group of an amount in cash equal to the excess, if
any, of (A) the Acquired Liquid Assets over (B) the Assumed Liabilities, each
as reflected on the Second Asset Management Interim Net Book Value Statement
(to be provided by the seller to the Purchaser at the Second Asset Management
Closing), payable in Federal funds by 11:00 a.m. on February 13, 1995.
SECTION 2.02 Asset Management Indemnification. The Purchaser,
--------------------------------
PaineWebber Incorporated and MHAM shall be
2
<PAGE> 3
fully indemnified, defended and held harmless, jointly and severally, by the
Parent and the Seller, with respect to any amounts paid or advanced to or in
respect of any of the investment companies (or successors thereto) listed on
Schedule 1 hereto that are based on:
(a) an act or failure to act by KPAM, or one of its agents
(including subadvisors), in the management of such investment company prior to
the Second Asset Management Closing Date, as a result of which and to the
extent that KPAM (or its agent) has legal liability to such investment company
or its shareholders including, without limitation, any liability attributable
to the failure of any such investment company to:
(i) comply with any applicable state securities or Blue Sky
registration requirements;
(ii) value any asset in its portfolio in accordance with such
investment company's policies or applicable law; or
(iii) maintain its portfolio in material compliance with the terms,
conditions or descriptions thereof contained in any applicable registration
statement filed under the federal securities laws; or
(b) an error (by act or omission) or oversight by KPAM, or one of
its agents (including subdivisors), in the management of such investment
company prior to the Second Asset Management Closing Date, as a result of which
and to the extent that any Tax is determined by the Internal Revenue Service
or the independent accountants of the investment company to be owing by such
investment company or by any shareholder of such company (other than income
taxes payable by such shareholder in the ordinary course), whether or not such
Tax is yet due or payable (so long as any decision by the Purchaser,
PaineWebber Incorporated or MHAM to pay in advance is made on a reasonable
basis).
If the Purchaser is contemplating paying or advancing any amount to or
in respect of any investment company (or successor thereto) listed on Schedule
1 hereto with respect to which the Purchaser believes it may be entitled to
indemnification pursuant to this Section 2.02 (a "Contemplated Payment"), and
a purchase by the Parent or the Seller of Securities owned by such investment
company at a price above the then current market price would obviate the need
for such Contemplated Payment:
(x) The Purchaser shall provide the Parent and the Seller
with two business days' prior written notice of such Contemplated
Payment (or, if such notice is not
3
<PAGE> 4
practicable, such lesser notice but in any event not less than 4
hours), which notice shall include a description of the relevant
Securities, the events relating to the Contemplated Payment, the
amount of the Contemplated Payment and current market price
information concerning the relevant Securities.
(y) The Parent or the Seller shall have the option,
exercisable within such two business day (or lesser) period, subject
to any necessary Commission, investment company board and other
approvals, to either (A) make the Contemplated Payment in lieu of the
Purchaser or (B) purchase the relevant Securities from such investment
company for an amount equal to the amount of the Contemplated Payment
plus the aggregate market price of the relevant Securities set forth
in the notice.
The parties hereto acknowledge that this Section 2.02 shall not apply
to any investment company (or successor thereto) other than those listed on
Schedule 1 hereto. Nothing contained in this Section 2.02 or in Section 4.07
of the Third Supplemental Agreement shall in any way be interpreted or
construed as limiting, diminishing or affecting in any adverse way the
indemnification provisions of the Asset Purchase Agreement as applied to the
Purchaser, which provisions shall remain applicable to the extent provided
therein and without duplication.
ARTICLE III
MISCELLANEOUS
SECTION 3.01 Incorporation by Reference. The provisions of Article
--------------------------
XI of the First Supplemental Agreement shall be incorporated by reference
herein and each reference therein to the First Supplemental Agreement shall
apply to this Agreement as if this Agreement were referred to therein.
SECTION 3.02 Other References to Closing and Closing Date. The
--------------------------------------------
parties hereto acknowledge that each reference in the Asset Purchase Agreement
to the "Closing", the "Closing Date", the "Asset Management Closing" and the
"Asset Management Closing Date" shall, to the extent such reference relates to
the portion of Asset Management transferred at the Second Asset Management
Closing, be construed as a reference to the Second Asset Management Closing or
the Second Asset Management Closing Date, as applicable.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
PAINE WEBBER GROUP INC.
By /s/ REGINA A. DOLAN
-----------------------
Name: Regina A. Dolan
Title: Chief Financial Officer
and Vice President
GENERAL ELECTRIC COMPANY
By
--------------------------
Name:
Title:
KIDDER, PEABODY GROUP INC.
By
--------------------------
Name:
Title:
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
PAINE WEBBER GROUP INC.
By
-------------------------
Name:
Title:
GENERAL ELECTRIC COMPANY
By /s/ PAMELA DALEY
-------------------------
Name: Pamela Daley
Title: Vice President and Senior
Counsel
KIDDER, PEABODY GROUP INC.
By
-------------------------
Name:
Title:
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
PAINE WEBBER GROUP INC.
By
-----------------------
Name:
Title:
GENERAL ELECTRIC COMPANY
By
--------------------------
Name:
Title:
KIDDER, PEABODY GROUP INC.
By /s/ RICHARD W. O'DONNELL
--------------------------
Name: Richard W. O'Donnell
Title: Senior Vice President
<PAGE> 8
SCHEDULE 1
Kidder, Peabody Equity Income Fund, Inc.
Kidder, Peabody Government Income Fund, Inc.
Kidder, Peabody Investment Trust, consisting of
Kidder, Peabody Global Equity Fund
Kidder, Peabody Intermediate Fixed Income Fund
Kidder, Peabody Asset Allocation Fund
Kidder, Peabody Adjustable Rate Government Fund
Kidder, Peabody Global Fixed Income Fund
Kidder, Peabody Investment Trust II, consisting of
Kidder, Peabody Municipal Bond Fund
Kidder, Peabody Emerging Markets Equity Fund
Kidder, Peabody Global High Income Fund
Kidder, Peabody Investment Trust III, consisting of
Kidder, Peabody Small Cap Equity Fund
Institutional Series Trust, consisting of
Institutional Adjustable Rate Government Portfolio
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Kidder, Peabody Group Inc.
We consent to the inclusion of our report dated February 8, 1995, with respect
to the combined statement of assets acquired and liabilities assumed of the
Real Estate, Eurobond, Retail Brokerage and Asset Management Businesses
("Purchased Businesses") of Kidder, Peabody Group Inc. as of December 26, 1994
or date prior to transfer (the Real Estate and Eurobond Businesses are combined
on their respective closing dates - December 9 and December 16, 1994), and our
report dated February 8, 1995, with respect to the combined statement of
operations of the Purchased Businesses for the years ended December 27, 1993,
December 28, 1992, and December 30, 1991, in the Form 8-K/A of Paine Webber
Group Inc. dated February 22, 1995, which is incorporated by reference in the
following registration statements of Paine Webber Group Inc. on Form S-8
(Registration Nos. 2-56284, 2-64984, 2-74819, 2-78627, 2-81554, 2-87418,
2-92770, 33-2959, 33-20240, 33-22265, 33-39539, 33-45583, 33-65296, 33-65298,
33-53489, 33-55451, and 33-55457) and on Form S-3 (Registration Nos. 2-99979,
2-80528, 33-1985, 33-7738, 33-29253, 33-33613, 33-38960, 33-39818, 33-45041,
33-45148, 33-47267, 33-56156, 33-58124, 33-53776, 33-51149, 33-52695 and
33-52695-01) and in the related prospectuses.
KPMG Peat Marwick LLP
February 24, 1995
New York, New York
