<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM _________TO________
COMMISSION FILE NUMBER 1-7367
PAINE WEBBER GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-2760086
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1285 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10019
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 713-2000
---------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ----------------
<S> <C>
Common Stock, $1 Par Value New York Stock Exchange, Inc.
Pacific Stock Exchange, Inc.
AMEX Hong Kong 30 Index Call Warrants,
expiring October 27, 1995 American Stock Exchange, Inc.
AMEX Hong Kong 30 Index Put Warrants,
expiring October 27, 1995 American Stock Exchange, Inc.
AMEX Hong Kong 30 Index Call Warrants,
expiring January 17, 1996 American Stock Exchange, Inc.
AMEX Hong Kong 30 Index Put Warrants,
expiring January 17, 1996 American Stock Exchange, Inc.
U.S. Dollar Increase Warrants on the Major Market
Currency Index, expiring January 18, 1996 American Stock Exchange, Inc.
U.S. Dollar Increase Warrants on the Japanese Yen,
expiring March 6, 1996 American Stock Exchange, Inc.
U.S. Dollar Increase Warrants on the Japanese Yen,
expiring July 31, 1996 American Stock Exchange, Inc.
Stock Index Return Securities on the S&P
MidCap 400 Index due June 2, 2000 American Stock Exchange, Inc.
</TABLE>
-------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[ X ]
-------------------------
The aggregate market value of voting stock held by non-affiliates of the
Registrant was $1,177,997,204 as of March 16, 1995. (See Item 12.)
On March 16, 1995, the Registrant had outstanding 100,016,513 shares of common
stock of $1 par value, which is Registrant's only class of common stock.
Parts I, II and IV incorporate information by reference from the Registrant's
1994 Annual Report to Stockholders. Part I and Part III incorporate
information by reference from the Registrant's definitive proxy statement for
the annual meeting to be held on May 4, 1995.
<PAGE> 2
PART I
ITEM 1. BUSINESS
In addition to the detailed information set forth below, incorporated herein by
reference is the general business description information on Paine Webber Group
Inc. ("PWG") and its operating subsidiaries (collectively, the "Company"),
under the caption "Management's Discussion and Analysis" on page 30 in the 1994
Annual Report to Stockholders.
BROKERAGE TRANSACTIONS
A portion of the Company's revenues are generated from commissions or fees
earned as a broker for individual and institutional clients in the purchase and
sale of corporate securities (listed and over-the-counter securities), mutual
funds, insurance products, options, commodities, financial futures, and direct
investments. The Company also earns commissions or fees for services provided
in the areas of employee benefits, managed accounts and personal trusts.
Securities transactions. The Company holds memberships in all major securities
exchanges in the United States in order to provide services to its brokerage
clients in the purchase and sale of listed securities. A major portion of the
Company's revenues is derived from commissions from individual and
institutional clients on brokerage transactions in listed securities and in
over-the-counter ("OTC") markets. The largest portion of the Company's
commission revenue (52%) is derived from brokerage transactions in listed
securities. The Company also acts as broker for investors in the purchase and
sale of U.S. government and municipal securities. The Company has established
commission rates for brokerage transactions which vary with the size and
complexity of the transaction and with the activity level of the client's
account.
Mutual funds. The Company distributes shares of mutual funds for which it
serves as investment advisor and sponsor as well as shares of funds sponsored
by others. Income from the sale of mutual funds is derived from standard
dealers' discounts, which are determined by terms of the selling agreement and
the size of the transaction. In addition, the Company distributes shares of
proprietary mutual funds for which it serves as investment advisor and
administrator. Income from these proprietary mutual funds is also derived from
management and distribution fees. Mutual funds include both taxable and
tax-exempt funds and front-load, reverse-load, and level-load funds.
Insurance. Through subsidiaries, PaineWebber Incorporated ("PWI") acts as agent
for several life insurance companies and sells deferred annuities and life
insurance. Additionally, variable annuities are issued by PaineWebber Life
Insurance Company.
Managed accounts. The Company acts in a consulting capacity to both individuals
and institutions in the selection of professional money managers. Services
provided in this consulting capacity may include client profiling, asset
allocation, manager selection and performance measurement. Money managers
recommended may be either affiliated with the Company or non affiliated
managers. Compensation for services is in the form of commissions or
established fees.
Options. The Company's options related services include the purchase and sale
of options on behalf of clients, and the delivery and receipt of the underlying
securities upon exercise of the options. In addition, the Company utilizes its
securities research capabilities in the formulation of options strategies and
recommendations for its clients.
Commodities and financial futures. The Company provides transaction services
for clients in the purchase and sale of futures contracts, including metals,
currencies, interest rates, stock indexes and agricultural products.
Transactions in futures contracts are on margin and are subject to individual
exchange regulations. The risk to the Company's clients in futures
transactions, and the resulting credit risk to the Company, is greater than the
risk in cash securities transactions, principally due to the low initial margin
requirements relative to the
<PAGE> 3
nominal value of the actual futures contract. Additionally, commodities
exchange regulations governing daily price movements can have the effect of
precluding clients from taking actions to mitigate adverse market conditions.
These factors may increase the Company's risk of loss on collections of amounts
due from clients. However, net worth requirements and other credit standards
for customer accounts are utilized to limit this exposure.
Employee benefit plans. PW Trust Company, a wholly owned subsidiary of PWG,
offers and administers 401(K) plans for corporations and acts as trustee,
custodian or investment manager of retirement assets for approximately 1,400
corporate retirement plans.
Personal trust services. The Company offers its clients a full range of
domestic and international personal trust services, including self trustee and
corporate trustee options. Investment choices are broad and flexible. The
Company serves its international clients through a trust company located in
Guernsey, Channel Islands, and may serve its domestic clients through third
party trustees.
Direct investments. The Company has originated and marketed a select number of
private placements and publicly registered limited partnerships in the past.
Market conditions have significantly reduced the demand for such investments at
this time.
DEALER TRANSACTIONS
The Company regularly makes a market in OTC securities and as a block
positioner, acts as market-maker in certain listed securities, U.S. government
and agency securities, investment-grade and high-yield corporate debt, and a
full range of mortgage-backed securities.
Equity. The Company effects transactions in large blocks of securities, usually
with institutional investors, generally involving 5,000 or more shares of
listed stocks. Such transactions are handled on an agency basis to the extent
possible, but the Company may take a long or short position as principal to the
extent that no buyer or seller is immediately available. By engaging in block
positioning, the Company places a portion of its capital at risk to facilitate
transactions for clients. Where possible, the Company seeks to reduce such
risks by hedging with option positions. Despite the risks involved in block
positioning, the aggregate brokerage commissions generated by the Company's
willingness to commit a portion of its capital in repositioning, including
commissions on other orders from the same clients, justifies such activities.
The Company makes markets, buying and selling as principal, in common stocks,
convertible preferred stocks, warrants and other securities traded on the
Automated Quotation System of the National Association of Securities Dealers
or in other OTC markets. The unlisted equity securities in which the Company
makes markets are principally those in which there is substantial continuing
client interest and include securities which the Company has underwritten.
Fixed Income. The Company provides clients access to a multitude of fixed
income products including: U.S. government and agency securities; mortgage
related securities including those issued through Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA") and
Federal Home Loan Mortgage Corp. ("FHLMC"); corporate investment-grade and
high-yield bonds; and options and futures contracts on these products. The
Company's capital can be at risk to the extent significant price fluctuations
occur. This risk is lessened by hedging inventory positions.
As a "primary dealer" in U.S. government securities, the Company actively
participates in the distribution of United States treasury securities and
reports its inventory positions and market transactions to the Federal Reserve
Bank on a weekly basis. The Company takes positions in government and
government agency securities to facilitate transactions for its clients on a
principal basis. Profits or losses are recognized from fluctuations in the
value of securities in which it maintains positions. Additionally, trading
activities include the purchase of securities under agreements to resell at
future dates (reverse repurchase agreements) and the sale of the same or
similar securities under agreements to repurchase at future dates (repurchase
agreements).
<PAGE> 4
Profits and losses on the repurchase transactions result from the interest rate
differentials.
The Company actively participates in the mortgage-backed securities markets
through the purchase or sale of GNMA, FNMA, FHLMC, mortgage pass-through
securities, Collateralized Mortgage Obligations ("CMOs") and other mortgage
related securities, in order to meet client needs on a principal basis. As a
means of financing its trading, the Company enters into repurchase agreements.
The Company also structures and underwrites CMOs. Additionally, the Company
serves as principal and financier in the purchase, sale, securitization and
resale of first mortgage notes and the related servicing rights.
The Company is an active participant in the corporate bond markets. Through
the fixed income debt syndicate desk and institutional sales force, the Company
distributes and markets new issuances of corporate debt securities. The
corporate bond trading desk supports this effort as a dealer in the secondary
markets by effecting transactions on behalf of clients or for the Company's own
account. Revenues generated from these activities include underwriting fees on
syndicate transactions and trading gains or losses.
The Company also underwrites, makes markets, and facilitates trades for clients
in the high-yield securities markets. High-yield securities refer to companies
whose debt is rated as non-investment grade. The Company continually monitors
its risk positions associated with high-yield debt securities and establishes
limits with respect to overall market exposure, industry group and individual
issuer.
Municipal securities. Through its municipal bond department, the Company is a
dealer in both the primary and secondary markets, buying and selling securities
for its own account and for clients. Revenues derived from all these
activities include underwriting and management fees, selling concessions and
trading profits.
Derivatives. The Company is engaged in activities, primarily on behalf of
clients, in equity derivative products, including listed and OTC options,
warrants, futures and underlying equity securities. The Company has also
engaged in creating structured products, which are sold to retail and
institutional clients, that are based on baskets of securities and currencies,
primary foreign and domestic market indexes and other equity and debt-based
products. The Company generally hedges positions taken in these structured
products based on option and other valuation models. Through the institutional
options and futures group, the Company engages in interest rate, stock index,
commodity options and futures contract transactions in connection with the
Company's principal trading activities. In addition, the Company's mortgage
and foreign currency businesses enter into forward and option purchase and sale
agreements.
Derivative financial instruments are subject to varying degrees of market and
credit risk. The Company has developed a control environment, encompassing
both its derivative-based and other businesses, that involves the interaction
of a number of risk management and control groups. See "Management's
Discussion and Analysis - Risk Management" on page 38 in the 1994 Annual Report
to Stockholders for a discussion of these groups and their functions.
The extent to which derivative financial instruments pose credit risk is
determined by the market in which they are exchanged, provisions of the
agreements regarding termination, collateral and counterparty creditworthiness.
Credit risks are minimized for instruments traded on exchanges. The various
futures markets are highly regulated and impose strict margin and other
financial requirements on the Company and its clients. Transactions in futures
and certain option contracts are conducted through regulated exchanges which
clear and guarantee performance of counterparties. However, in the event that
members of clearinghouses default on material obligations to such
clearinghouses, the Company may have financial exposure. The Company is also
subject to credit risk on derivatives not traded on formal exchanges,
principally forward agreements and over-the counter options. These risks are
controlled by use of standard documentation whenever possible providing for
early termination and collateral calls. The Company's risk of credit loss is
mitigated further by adherence to formal credit control procedures which
include approved customer and counterparty credit limits, periodic monitoring
of customer and counterparty creditworthiness, and continuous assessment of
credit exposure by comparing market value to contract value. Potential credit
exposure on equity derivatives is also measured by simulating increases or
decreases in each contract's
<PAGE> 5
underlying index. The Credit Department independently evaluates call and
termination situations and makes recommendations to management. See also
"Notes to Consolidated Financial Statements - Note 10: Financial Instruments
with Off-Balance-Sheet Risk and Note 11: Risk Management", beginning on page 51
and page 53, respectively, in the 1994 Annual Report to Stockholders.
As a principal trader, the Company is exposed to market risk in the event of
unfavorable changes in interest rates, volatility, foreign currency exchange
rates or the market values of the securities underlying the instruments. The
Company monitors its exposure to market risk through a variety of control
procedures including a review of trading positions and hedging strategies, and
establishing limits by the Risk Management Committee. Market risk monitoring
is based on estimating loss exposure through daily stress testing. These
results are compared to daily limits and exceptions are subject to review and
approval by senior management.
INVESTMENT BANKING
The Company is a leading manager of public offerings of corporate securities.
In addition, the Company participates as an underwriter in syndicates of public
offerings managed by others. Management of an underwriting account is
generally more profitable than participation as a syndicate member since the
managing underwriters receive a management fee and have more control over the
allocation of securities available for distribution. The Company is invited to
participate in many syndicates of negotiated public offerings managed by
others.
The Investment Banking group manages and underwrites public and private
offerings of debt and equity securities, arranges private placements and
provides financial advice in connection with mergers and acquisitions,
divestitures and other corporate reorganizations and restructurings.
Significant risks are involved in the underwriting of securities. Underwriting
syndicates agree to purchase securities at a discount from the public offering
price. If the securities are ultimately sold below the cost to the syndicate,
an underwriter will experience losses on the securities which it has purchased.
In addition, losses may be incurred on stabilization activities taken during
such underwriting.
The Company is an industry leader in the management of tax-exempt bond
offerings. Through its Municipal Securities Group, the Company provides
financial advice to, and raises capital for, issuers of municipal securities to
finance the construction and maintenance of a broad range of public-related
facilities, including healthcare, housing, education, public power, water and
sewer, airports, highways and other public finance infrastructure needs. The
group also provides a secondary market for these securities and develops and
markets various derivative products.
The Company, through certain subsidiaries, may participate as an equity
investor or provide bridge financing in connection with specific transactions.
ASSET MANAGEMENT
Asset management activities are conducted principally by Mitchell Hutchins
Asset Management Inc. ("MHAM") and Mitchell Hutchins Institutional Investors
Inc., ("MHII"). MHAM and MHII provide investment advisory and portfolio
management services to individuals and pension, endowment and mutual funds.
Mutual funds, for which MHAM serves as an investment advisor, include both
taxable and tax-exempt funds and front-load, reverse-load, and level-load
funds. At December 31, 1994, total assets under management were $34.4 billion
including approximately $22.2 billion of proprietary mutual funds sponsored by
PWI.
MARGIN LENDING
Client securities transactions are executed on either a cash or margin basis.
In a margin transaction, the
<PAGE> 6
Company extends credit to a client for the purchase of securities, using the
securities purchased and/or other securities in the client's account as
collateral for amounts loaned. The Company receives income from interest
charged on such extensions of credit. Amounts loaned are limited by margin
requirements which are subject to the Company's credit review and daily
monitoring procedures and are generally more restrictive than the margin
regulations of the Federal Reserve Board and other regulatory authorities.
The Company may lend to other brokers or use as collateral a portion of the
margin securities to the extent permitted by applicable margin regulations.
The financing of margin purchases can be an important source of revenue to the
Company since the interest rate paid by the client on funds loaned by the
Company exceeds the Company's cost of short-term funds. The amount of the
Company's gross interest revenues is affected not only by prevailing interest
rates, but also by the volume of business conducted on a margin basis. To
finance margin loans to clients, the Company utilizes both interest-bearing and
non-interest-bearing funds generated from a variety of sources in the course of
its operations, including bank loans, free credit balances in client accounts,
sale of securities under agreements to repurchase, the lending of securities
and sales of securities not yet purchased. No interest is paid on a
substantial portion of clients' free credit balances.
By permitting a client to purchase on margin, the Company takes the risk that
market declines could reduce the value of the collateral below the principal
amount loaned, plus accrued interest, before the collateral could be sold.
INTERNATIONAL
Portions of the Company's core business activities are conducted through
PaineWebber International Inc. and its subsidiaries, and PaineWebber Asia Ltd.,
(collectively, the "foreign subsidiaries") which also function as introducing
broker-dealers to PWI for U.S. market products and are members of various
international exchanges. The foreign subsidiaries are also active in the
sales, trading and underwriting of U.S. dollar denominated and non-U.S. dollar
denominated Eurobonds.
RESEARCH
Research provides investment advice to institutional and individual clients and
guidance for investment strategies. More than 890 companies in 62 industry
sectors are covered by the division's 67 analysts. In addition to fundamental
company and industry research, the Company offers research products and
services in the following areas: asset allocation, economics, fixed income and
high yield issues, convertible and closed-end bond funds, country funds and
derivatives.
OTHER ACTIVITIES
PaineWebber Specialists Inc. ("PWSI") maintains trading posts on the Pacific,
Boston and Cincinnati stock exchanges and an affiliation on the Chicago stock
exchange. Specialists are responsible for executing transactions and
maintaining an orderly market in certain securities. In this function, the
specialist firm acts as an agent in executing orders entrusted to it and/or
acts as a dealer. PWSI acts as a specialist for approximately 520 equity
issues.
Correspondent Services Corporation ("CSC"), a registered broker-dealer,
provides execution and clearing services of securities for more than 100
broker-dealers on a fully disclosed and omnibus basis. CSC also provides
margin loans to the clients of its correspondent brokers.
PaineWebber Life Insurance Company ("PW Life") issues variable annuities which
are sold by PWI as agent. PW Life also assumes reinsurance of variable
annuities issued by other insurance companies.
The Real Estate Group provides a full range of capital markets services to its
real estate clients, including underwriting of debt and equity securities,
principal lending activity, debt restructuring, property sales and
<PAGE> 7
bulk sales services, and other advisory services.
Incorporated herein by reference is the information set forth under the caption
"Revenues" in the "Five Year Financial Summary" on page 62 in the 1994 Annual
Report to Stockholders, which summarizes the major sources of consolidated
revenues.
KIDDER, PEABODY ACQUISITION
As of October 17, 1994, the Company entered into an agreement, as thereafter
supplemented, with General Electric Company ("GE") and Kidder, Peabody Group
Inc. ("Kidder"), whereby the Company agreed to purchase certain assets and
liabilities (the "net assets"), and specific businesses of Kidder, in a series
of transactions in December 1994 and early 1995. Net assets of $2,379.8
million were acquired offset by $513.7 million of liabilities assumed.
The consideration given in exchange for the net assets acquired included cash
and the issuance of the Company's common and preferred stock. Cash
consideration of $1,352.7 million was obtained from various funding sources.
On December 16, 1994, the Company issued 21.5 million shares of common stock
valued at $318.5 million, 2.5 million shares of 20 year 9% Cumulative
Redeemable Preferred Stock, Series C with a stated value and liquidation
preference of $100.00 per share and a fair value of $185.0 million at the date
of issuance, and 1.0 million shares of 20 year 6% Cumulative Convertible
Redeemable Preferred Stock, Series A with a fair value of $100.0 million. As a
result of this transaction, GE owns approximately 25% of the common stock of
the Company on a fully diluted basis and is restricted from increasing its
ownership of the Company pursuant to a stockholders agreement among the
Company, GE and Kidder.
The acquisition has been accounted for under the purchase method of accounting.
The excess of the purchase price over the fair value of the net assets acquired
resulted in the Company recording approximately $90 million in goodwill.
REGULATION
The securities and commodities industry is one of the nation's most
extensively regulated industries. The Securities and Exchange Commission
("SEC") is responsible for carrying out the federal securities laws and serves
as a supervisory body over all national securities exchanges and associations.
The regulation of broker-dealers has to a large extent been delegated, by the
federal securities laws, to self-regulatory organizations ("SROs"). These SROs
include all the national securities and commodities exchanges, the National
Association of Securities Dealers, and the Municipal Securities Rulemaking
Board. Subject to approval by the SEC and the Commodity Futures Trading
Commission ("CFTC"), these SROs adopt rules that govern the industry and
conduct periodic examinations of the operations of certain subsidiaries of the
Company. The New York Stock Exchange ("NYSE") has been designated by the SEC
as the primary regulator of certain of the Company's subsidiaries including PWI
and other broker-dealer subsidiaries. In addition, certain of these
subsidiaries are subject to regulation of the laws of the 50 states, the
District of Columbia, Puerto Rico and certain foreign countries in which they
are registered to conduct securities, banking, insurance or commodities
business.
Broker-dealers are subject to regulations which cover all aspects of the
securities business, including sales methods, trade practices among
broker-dealers, use and safekeeping of customers' funds and securities, capital
structure of securities firms, record-keeping, and the conduct of directors,
officers and employees. Violation of applicable regulations can result in the
revocation of broker-dealer licenses, the imposition of censures or fines, and
the suspension or expulsion of a firm, its officers or employees.
As a registered broker-dealer and member firm of the NYSE, PWI is subject to
the Net Capital Rule (Rule 15c3-1 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")), which also has been adopted through
incorporation by reference in NYSE Rule 325. The Net Capital Rule, which
specifies minimum net capital requirements for registered broker-dealers, is
designed to measure the financial
<PAGE> 8
soundness and liquidity of broker-dealers.
The Net Capital Rule, as defined, prohibits registered broker-dealers from
making substantial distributions of capital by means of dividends or similar
payments, or unsecured advances and loans to certain related persons, including
stockholders, without giving at least two business days prior or post
notification to the SEC. Pre-notification requirement applies to any proposed
withdrawal of capital if the aggregate of such withdrawals, on a net basis,
within any 30 calendar day period would exceed 30% of the broker-dealer's
excess net capital, as defined. Post notification requirement applies if the
aggregate of such withdrawals, on a net basis, would exceed 20% of the
broker-dealer's excess net capital, as defined. The rule permits the SEC, by
order to restrict, for up to 20 business days, withdrawing of equity capital or
making unsecured advances or loans to related persons under certain limited
circumstances. Finally, broker-dealers are prohibited from making any
withdrawal of capital that would cause the broker-dealer's net capital to be
less than 25% of the deductions from net worth required by the Net Capital Rule
as to readily marketable securities ("haircuts").
Under the Market Reform Act of 1990, the SEC adopted regulations requiring
registered broker-dealers to maintain, preserve and report certain information
concerning the organizational structure, risk management policies and financial
condition of any affiliate of the Company whose activities are reasonably
likely to have a material impact on the financial and operational condition of
the broker-dealer. Securities broker-dealers are also required to file with
the SEC, specified information on a quarterly and annual basis.
Under the Futures Trading Practices Act of 1992, the CFTC adopted regulations
requiring futures commission merchants ("FCM's") to maintain, preserve and
report certain information concerning the organizational structure, risk
management policies and financial condition of any affiliate of the Company
whose activities are reasonably likely to have a material impact on the
financial and operational condition of the FCM. FCM's are also required to
file with the CFTC, specified information on a quarterly and annual basis.
COMPETITION
All aspects of the business of the Company are highly competitive. The Company
competes directly with numerous other brokers and dealers, investment banking
firms, insurance companies, investment companies, banks, commercial banks and
other financial institutions.
In recent years, competitive pressures from discount brokerage firms and
commercial banks, increased investor sophistication and an increase in the
variety of investment products have resulted, primarily through mergers and
acquisitions, in the emergence of a few well capitalized national firms. The
Company believes that the principal factors affecting competition in the
securities industry are available capital, and the quality and prices of
services and products offered.
ITEM 2. PROPERTIES
The principal executive offices of the Company are located at 1285 Avenue of
the Americas, New York, New York under leases expiring through August 30, 2001.
The Company is currently leasing approximately 584,000 square feet at 1285
Avenue of the Americas comprising the offices of its investment banking, asset
management, institutional sales and trading, and corporate headquarters staff,
as well as two branch offices for retail investment executives.
The Company leases approximately 900,000 square feet of space at Lincoln Harbor
in Weehawken, New Jersey under leases expiring December 31, 2013. The Lincoln
Harbor facility houses retail sales and marketing headquarters, systems,
operations, administrative services, and finance and training divisions.
As of early 1995, the Company maintained 338 offices worldwide, including those
obtained through the Kidder, Peabody Group Inc. acquisition, under leases
expiring between 1995 and 2014. In addition, the Company leases various
furniture and equipment.
<PAGE> 9
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in a number of proceedings concerning matters arising
in connection with the conduct of its business. Certain actions, in which
compensatory damages of $153 million or more appear to be sought, are described
below. The Company is also involved in numerous proceedings in which
compensatory damages of less than $153 million appear to be sought, or in which
punitive or exemplary damages, together with the apparent compensatory damages
alleged, appear to exceed $153 million. The Company had denied, or believes it
has legitimate defenses and will deny, liability in all significant cases
pending against it, including those described below, and intends to defend
actively each such case.
NORTHVIEW CORPORATION LITIGATION
In March 1992, PaineWebber Incorporated ("PaineWebber") as well as other
individuals and entities including, inter alia, certain former officers and
directors of Northview Corporation ("Northview"), Calmark Holding Corporation
and Calmark Financial Corporation and their respective officers and directors,
were named as defendants in a purported class action filed by Northview in the
Superior Court of the State of California for the County of Los Angeles.
The Complaint sought to set aside as fraudulent and illegal certain transfers
of funds and distributions of cash, and to recover damages allegedly caused by
the defendants for breach of contract, impairment of capital, unjust
enrichment, breach of fiduciary duty, gross negligence and looting of corporate
assets.
As to PaineWebber, Plaintiff alleged that in November 1987, Northview retained
PaineWebber to render an opinion respecting the fair market value of the common
stock of Calmark Financial Corporation which Northview was to receive in
exchange for issuing its own stock to Calmark Holding Corporation, the parent
corporation of Calmark Financial Corporation. The Complaint asserted that
PaineWebber issued a valuation opinion which allegedly overstated the value of
Calmark Financial Corporation's assets, which enabled the transaction at issue
in the form of a self-tender and merger to go forward. Plaintiff contends that
as a result of PaineWebber's allegedly overstating the value of the assets of
Calmark Financial Corporation, Northview's assets were improperly transferred
to Calmark, whose principals depleted the assets subsequent to the merger. On
March 16, 1990, Northview filed for protection under Chapter XI of the
Bankruptcy Law.
The Complaint sought damages in an amount to be proven at trial, the imposition
of a constructive trust of at least $100 million, punitive damages, interest,
costs and attorneys fees from all the defendants.
The Complaint was amended three times before January 12, 1994. On February 8,
1994, Plaintiff filed a motion for leave to file a Fourth Amended Complaint,
which motion was granted on March 15, 1994. The Fourth Amended Complaint added
a new cause of action for negligent misrepresentation against PaineWebber and
claims for professional negligence and breach of fiduciary duty against the law
firm of Troy & Gould and certain of its principals who acted as outside counsel
to both Northview and Calmark in connection with their merger.
At the time of the filing of the Fourth Amended Complaint, the caption of said
Complaint was amended to reflect that Northview Corporation is now known as
Vagabond Inns Inc. and a new party plaintiff, Thomas Sydorick as Trustee for
the Northview/Vagabond Creditor Trust, was added. On July 13, 1994, the trial
court overruled the demurrer filed by PaineWebber to Plaintiff's Fourth Amended
Complaint. On August 29, 1994, PaineWebber served its answer to Plaintiffs'
latest pleading. The parties are currently engaged in discovery.
GENERAL DEVELOPMENT CORPORATION SECURITIES LITIGATION
On or about June 10, 1991, PaineWebber Incorporated ("PaineWebber") was served
with a "First Amended Complaint" in an action captioned Rolo v. City Investing
Liquidating Trust, et al., Civ. Action 90-4420 D.N.J., filed on or about May
13, 1991 naming it and other entities and individuals as
<PAGE> 10
defendants. The First Amended Complaint alleges conspiracy and aiding and
abetting violations of: (1) one or more provisions of the Racketeer Influenced
and Corrupt Organization Act ("RICO"); (2) one or more provisions of the
Interstate Land Sales Full Disclosure Act; and (3) the common law, on behalf of
all persons (excluding defendants) who purchased lots and/or houses from
General Development Corporation ("GDC") or one of its affiliates and who are
members of an association known as the North Port Out-of-State Lot Owners
Association.
The secondary liability claims in the First Amended Complaint relating to
PaineWebber are premised on allegations that PaineWebber served as (1) the
co-lead underwriter in connection with the April 8, 1988 offering by GDC of 12
7/8% senior subordinated notes pursuant to a Registration Statement and
Prospectus and (2) the underwriter for a 1989 offering of Adjustable Rate
General Development Residential Mortgage Pass-Through Certificates, Series
1989-A, which Plaintiffs contend enabled GDC to acquire additional financial
resources for the perpetuation of (and/or aided and abetted) an alleged scheme
to defraud purchasers of GDC lots and/or houses. The First Amended Complaint
requests certain declaratory relief, equitable relief, compensatory damages of
not less than $500 million, punitive damages of not less than three times
compensatory damages, treble damages with respect to the RICO count,
pre-judgment and post-judgment interest on all sums awarded, and attorney's
fees, costs, disbursement and expert witness fees.
On December 27, 1993, the District Court entered an order dismissing
Plaintiffs' First Amended Complaint against PaineWebber and the majority of the
other defendants for failure to state a claim upon which relief can be granted.
On November 8, 1994, the United States Court of Appeals for the Third Circuit
affirmed the District Court's order dismissing this action against PaineWebber.
On November 18, 1994, Plaintiffs filed a Petition for Rehearing and Suggestion
for Rehearing En Banc with the Third Circuit. This petition is pending.
IN RE NASDAQ MARKET-MAKER ANTITRUST AND SECURITIES LITIGATION
In July 1994, PaineWebber Incorporated ("PaineWebber"), together with numerous
unrelated firms, were named as defendants in a series of purported class action
complaints that have since been consolidated for pretrial purposes in the
United States District Court for the Southern District of New York under the
caption In Re NASDAQ Market-Maker Antitrust and Securities Litigation, MDL
Docket No. 1023. The amended complaint in these actions alleges that the
defendant firms engaged in activities as market makers on the NASDAQ over the
counter market that violated the federal antitrust laws. The Plaintiffs seek
declaratory and injunctive relief, damages in an amount to be determined and
subject to trebling and additional relief. Defendants have filed motions to
dismiss these complaints.
In addition, in November 1994, PaineWebber together with another broker-dealer,
were named as defendants in a purported class action complaint filed in the
United States District Court for the District of New Jersey under the caption
Newton et al. v. Merrill Lynch, et al., Civ. No. 94-5343 (DRD). The complaint
alleges that the defendants violated the securities laws in connection with
their actions as market makers on the NASDAQ over the counter market. The
Plaintiffs seek damages in an unspecified amount and injunctive, declaratory
and other relief. PaineWebber's time to answer or otherwise move has not yet
expired.
LIMITED PARTNERSHIP CLASS ACTIONS
A series of purported class actions concerning PaineWebber Incorporated's sale
and sponsorship of various limited partnership investments have been filed
against PaineWebber and Paine Webber Group Inc. (together "PaineWebber") among
others, by allegedly dissatisfied partnership investors since November 1994.
Several such actions (the "Federal Court Limited Partnership Actions") were
filed in the United States District Court for the Southern District of New
York, one was filed in the United States District Court for the Southern
District of Florida and one complaint (the "New York Limited Partnership
Action") was filed in the Supreme Court of the State of New York. The time to
answer or otherwise move with respect to these complaints has not yet expired.
<PAGE> 11
The complaints in all of these cases make substantially similar allegations
that, in connection with the sale of interests in approximately 50 limited
partnerships between 1980 and 1992, PaineWebber (1) failed to provide adequate
disclosure of the risks involved with each partnership; (2) made false and
misleading representations about the safety of the investments and the
anticipated performance of the partnerships; and (3) marketed the partnerships
to investors for whom such investments were not suitable. The plaintiffs, who
purport to be suing on behalf of all persons who invested in limited
partnerships sold by PaineWebber between 1980 and 1992, also allege that,
following the sale of the partnership units, PaineWebber misrepresented
financial information about the partnerships' value and performance. The
Federal Court Limited Partnership Actions also allege that PaineWebber violated
the Racketeer Influenced and Corrupt Organization Act ("RICO"), and certain of
them also claim that PaineWebber violated the federal securities laws. The
plaintiffs seek unspecified damages, including reimbursement for all sums
invested by them in the partnerships, as well as disgorgement of all fees and
other income derived by PaineWebber from the limited partnerships. In the
Federal Court Limited Partnership Actions, the plaintiffs also seek treble
damages under RICO.
In addition, PaineWebber and several of its present or former officers were
sued in two other purported class actions (the "Geodyne Limited Partnership
Actions") filed in the state court in Harris County, Texas. Those cases,
Nedick v. Geodyne Resources, Inc. et al. and Wolff v. Geodyne Resources, Inc.
et al., are similar to the other Limited Partnership Actions except that the
plaintiffs purport to sue only on behalf of those investors who bought
interests in the Geodyne Energy Partnerships, which were a series of oil and
gas partnerships that PaineWebber sold over several years. The plaintiffs in
the Geodyne Limited Partnership Actions allege that PaineWebber committed fraud
and misrepresentation, breached its fiduciary obligations to its investors and
brokerage customers, and breached certain contractual obligations. The
complaints seek unspecified damages, including reimbursement for all sums
invested by them in the partnerships, as well as disgorgement of all fees and
other income derived by PaineWebber from the Geodyne partnerships. PaineWebber
has filed an answer denying the allegations in plaintiffs' complaint.
Another purported class action was filed in the state court in Brazoria County,
Texas on behalf of investors in the Pegasus aircraft leasing partnerships. In
this case, Mallia et al. v. PaineWebber Incorporated et al., the plaintiffs
allege that PaineWebber committed fraud and mispresentation in connection with
the sale of these limited partnership interests. The complaint seeks
unspecified damages.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference is the Company's definitive proxy statement
for the annual meeting of stockholders to be held on May 4, 1995 ("Proxy
Statement") to be filed with the Commission not later than 120 days after the
end of the fiscal year.
Set forth below, in addition to information contained in the Proxy Statement,
is certain information concerning the executive officers of PWG who do not also
serve as directors of PWG:
Regina A. Dolan, 40, is Vice President and Chief Financial Officer of PWG, a
position she has held since February 3, 1994. Prior thereto, she was the
principal financial and accounting officer of PWG from October 1992 to February
3, 1994. Ms. Dolan is also Senior Vice President and has been Chief Financial
Officer of PWI since February 3, 1994. From October 1992 to February 3, 1994,
she was Director of Finance and Controls of PWI. Prior to joining the Company,
Ms. Dolan was with Ernst & Young LLP from September 1975 to September 1992,
where she rose to the position of Partner and served as Director of the firm's
Securities Industry Practice.
Theodore A. Levine, 50, is General Counsel, Vice President and Secretary of
PWG, and is an Executive Vice
<PAGE> 12
President of PWI, positions he has held since June 15, 1993. Prior to joining
the Company, Mr. Levine was a partner at the Washington D.C.- based law firm of
Wilmer, Cutler and Pickering from February 1984 to June 1993. He was with the
Securities and Exchange Commission from 1969 to 1984 where he rose to the
position of Associate Director in the Division of Enforcement.
Pierce R. Smith, 51, has been Treasurer of PWG since February 16, 1988,
Executive Vice President and Treasurer of PWI since February 2, 1988 and was
appointed Controller of PWI as of February 15, 1993. He was Senior Vice
President and Treasurer of Norwest Corporation from August 1982 to December
1987.
Executive Officers are elected annually to serve until their successors are
elected and qualify or until they sooner die, retire, resign or are removed.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information set forth under the captions "Market for Common Stock" and
"Common Stock Dividend History" in the 1994 Annual Report to Stockholders is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Financial Highlights" in the 1994
Annual Report to Stockholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information set forth under the caption "Management's Discussion and
Analysis" beginning on page 30 in the 1994 Annual Report to Stockholders is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, schedules and supplementary financial information
required by this item and included in this report or incorporated herein by
reference are listed in the index appearing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE> 13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the age and principal occupation of each director is set
forth under the caption "Information Concerning the Nominees and Directors" in
the Proxy Statement and is incorporated herein by reference. Information
concerning executive officers of the Registrant, who do not serve as directors,
is given at the end of Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning compensation of directors and executive officers of the
Registrant is set forth under the captions "Compensation of Directors,"
"Executive Compensation," "Other Benefit Plans and Agreements" and "Certain
Transactions and Arrangements" in the Proxy Statement and is incorporated
herein by reference.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security ownership of executive officers, directors and certain beneficial
owners is set forth under the caption "Security Ownership" in the Proxy
Statement and is incorporated herein by reference.
Solely for the purpose of calculating the aggregate market value of the voting
stock held by non-affiliates of the Registrant as set forth on the cover of
this report, it has been assumed that directors and executive officers of the
Registrant are affiliates.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information related to certain transactions with directors of the
Registrant is set forth under the captions "Certain Agreements with Directors"
and "Certain Transactions and Arrangements" in the Proxy Statement and is
incorporated herein by reference.
PART IV
ITEM 14. FINANCIAL STATEMENTS, FINANCIAL SCHEDULES, EXHIBITS AND REPORTS ON
FORM 8-K
(a) Documents filed as a part of this Report:
(1) Financial Statements
The financial statements required to be filed hereunder are listed
on page F-1 hereof.
(2) Financial Statement Schedules
The financial statement schedules required to be filed hereunder
are listed on page F-1 hereof.
(3) Exhibits
Certain of the following exhibits, as indicated parenthetically,
were previously filed as exhibits to other reports or registration
statements filed by the Registrant under the Securities Act of 1933
or to reports or registration statements by the Registrant under
the Securities Exchange Act of 1934, respectively and are
incorporated herein by reference to such reports.
1 - Distribution Agreement dated November 30, 1993 between
Registrant, PWI and The First Boston Corporation
(incorporated by reference to Exhibit 1 to Registrant's
Form 10-K for the year ended December 31, 1993).
<PAGE> 14
3.1 - Certificate of Amendment to the Restated Certificate of
Incorporation of Registrant as filed with the office of
the Secretary of State of the State of Delaware on June
6, 1994 (incorporated by reference to Registrant's
Current Report on Form 8-K dated June 15, 1994).
3.2 - Certificate of Designations for the 6% Cumulative
Convertible Redeemable Preferred Stock, Series A, of the
Registrant as filed with the Secretary of State of the
State of Delaware on December 15, 1994 (incorporated by
reference to Exhibit 3.1 to Registrant's Current Report
on Form 8-K dated December 27, 1994).
3.3 - Certificate of Designations for the 9% Cumulative
Convertible Redeemable Preferred Stock, Series C, of the
Registrant as filed with the Secretary of State of the
State of Delaware on December 15, 1994 (incorporated by
reference to Exhibit 3.2 to Registrant's Current Report
on Form 8-K dated December 27, 1994).
3.4 - Restated Certificate of Incorporation of Registrant, as
filed with the Office of the Secretary of State of the
State of Delaware on May 4, 1987 (incorporated by
reference to Registrant's Form 10-Q for the quarter ended
March 31, 1987).
3.5 - Certificate of Amendment to the Restated Certificate of
Incorporation of Registrant as filed with the Office of
the Secretary of State of the State of Delaware on June
3, 1988 (incorporated by reference to Exhibit 3.2 of
Registrant's Form 10-Q for the quarter ended June 30,
1988).
3.6 - Certificate of Powers, Designations, Preferences and
Rights relating to Registrant's 7.5% Convertible
Preferred Stock as filed with the Office of the Secretary
of State of Delaware on January 16, 1992 (incorporated by
reference to Exhibit 3.1 of Registrant's Form 10-K for
the year ended December 31, 1991).
3.7 - Certificate of Powers, Designations, Preferences and
Rights relating to Registrant's 7.5% Convertible
Preferred Stock, Series B, as filed with the Office of
the Secretary of State of Delaware on January 16, 1992
(incorporated by reference to Exhibit 3.2 to Registrant's
Form 10-K for the year ended December 31, 1991).
3.8 - Certificate of Designation, Preference and Rights
relating to Registrant's Cumulative Participating
Convertible Voting Preferred Stock, Series A as filed
with the Office of the Secretary of State of the State of
Delaware on November 5, 1992 (incorporated by reference
to Exhibit 3 of Registrant's Form 10-Q for the quarter
ended September 30, 1992).
3.9 - By-laws of the Registrant as amended March 1, 1988
(incorporated by reference to Exhibit 3.1 of Registrant's
Form 10-K for the year ended December 31, 1987).
3.10 - Certificate of Stock Designation (elimination) relating
to Registrant's 7% Cumulative Convertible Exchangeable
Voting Preferred Stock, Series A as filed with the office
of the Secretary of State of the State of Delaware on
November 5, 1992 (incorporated by reference to Exhibit
3.1 of Registrant's Form 10-K for the year ended December
31, 1992).
3.11 - Certificate of Powers, Designations, Preferences and
Rights relating to the Company's 6% Convertible Preferred
Stock as filed with the Office of the Secretary of State
of the State of Delaware on February 8, 1994
(incorporated by reference to Registrant's Form 8-K dated
February 10, 1994).
<PAGE> 15
4.1* - Form of Debt Securities (6-1/2% Notes due 2005).
4.2* - Form of Debt Securities (7-5/8% Notes due 2014).
4.3* - Form of Debt Securities (7-3/4% Notes due 2002).
4.4 - Stockholders Agreement dated December 16, 1994 among the
Registrant, General Electric Company and Kidder, Peabody
Group Inc. (incorporated by reference to Exhibit 4.1 to
Registrant's Current Report on Form 8-K dated December
27, 1994).
4.5 - Copy of form of certificate of common stock to reflect a
new signatory (incorporated by reference to Exhibit 4.1
of Registrant's Form 10-K for the year ended December 31,
1993).
4.6 - Third Supplemental Indenture dated as of November 30,
1993 between Registrant and Chemical Bank (Delaware), as
Trustee, relating to the Subordinated Debt Securities
(incorporated by reference to Exhibit 4.2 of Registrant's
Form 10-K for the year ended December 31, 1993).
4.7 - Indenture dated as of March 15, 1988 between Registrant
and Chemical Bank (Delaware), as Trustee, relating to
Registrant's Medium-Term Subordinated Notes, Series B and
Series D (incorporated by reference to Exhibit 4.2b of
Registrant's Registration Statement No. 33-29253 on Form
S-3 filed with the SEC on June 14, 1989).
4.8 - Supplemental Indenture dated as of September 22, 1989, to
the Indenture dated as of March 15, 1988, between
Registrant and Chemical Bank (Delaware), as Trustee,
Relating to Subordinated Debt Securities (incorporated by
reference to Exhibit 4.2d of Registrant's Form 8-K dated
September 30, 1989).
4.9 - Supplemental Indenture dated as of March 22, 1991 between
Registrant and Chemical Bank (Delaware), as Trustee,
relating to Subordinated Debt Securities (incorporated by
reference to Exhibit 4.2f of Registrant's Registration
Statement No. 33-39818 on Form S-3 filed with the SEC on
April 5, 1991).
4.10 - Form of Debt Securities (Medium-Term Subordinated Note,
Series B, Floating Rate) -- Additional alternate form
providing for the payment of additional amounts in
certain circumstances to United States aliens
(incorporated by reference to Exhibit 4.1 of Registrant's
Form 8-K dated December 20, 1989).
4.11 - Indenture dated as of March 15, 1988 between Registrant
and Chemical Bank, as Trustee, relating to Registrant's
Medium-Term Senior Notes, Series A and Series C
(incorporated by reference to Exhibit 4.2a of
Registrant's Registration Statement No. 33-239253 on Form
S-3 filed with the SEC on June 14, 1989).
4.12 - Supplemental Indenture dated as of September 22, 1989, to
the Indenture dated as of March 15, 1988 between
Registrant and Chemical Bank, as Trustee, relating to
Senior Debt Securities (incorporated by reference to
Exhibit 4.2c of Registrant's Form 8-K dated September 30,
1989).
_______________________
* Filed herewith.
<PAGE> 16
4.13 - Supplemental Indenture dated as of March 22, 1991 between
Registrant and Chemical Bank, as Trustee, relating to
Senior Debt Securities (incorporated by reference to
Exhibit 4.2c of Registrant's Registration Statement No.
33-39818 on Form S-3 filed with the SEC on April 5,
1991).
4.14 - Form of Debt Securities (9-1/4% Notes Due 2001)
(incorporated by reference to Exhibit 4.1 of Registrant's
Form 8-K dated December 17, 1991 filed with the SEC).
4.15 - Form of Debt Securities (9-5/8% Senior Note Due 1995)
(incorporated by reference to Exhibit 4.1 of Registrant's
Form 8-K dated April 25, 1991 filed with the SEC).
4.16 - Form of 8% Convertible Debentures Due 1998 issued in
connection with Registrant's Key Executive Equity Program
(incorporated by reference to Exhibit 4.1 of Registrant's
Form 10-K for the year ended December 31, 1988).
4.17 - Form of 8% Convertible Debentures Due 2000 issued in
connection with Registrant's Key Executive Equity Program
(incorporated by reference to Exhibit 4.1 of Registrant's
Form 10-K for the year ended December 31, 1991).
4.18 - Form of 6.5% Convertible Debentures Due 2002 issued in
connection with Registrant's Key Executive Equity Program
(incorporated by reference to Exhibit 4.1 of Registrant's
Form 10-K for the year ended December 31, 1992).
4.19 - Form of Debt Securities (7% Notes Due 2000) (incorporated
by Reference to Exhibit 4.2 of Registrant's Form 10-K
for the year ended December 31, 1992).
4.20 - Form of Debt Securities (7-7/8% Notes Due 2003)
(incorporated by reference to Exhibit 4.1f of
Registrant's Form 8-K dated February 11, 1993).
4.21 - Form of Book-Entry Global Security relating to Stock
Index Return Securities on the S&P MidCap 400 Index due
June 2, 2000 (incorporated by reference to Exhibit 4.1g
of Registrant's Form 8-K dated May 25, 1993).
4.22 - Warrant Agreement dated as of January 27, 1993 between
Registrant, Citibank, N.A., as Warrant Agent and
PaineWebber Incorporated as Determination Agent relating
to the Registrant's U.S. Dollar Increase Warrants on the
Major Market Currency Index (incorporated by Reference to
Exhibit 4.3 of Registrant's Form 10-K for the year ended
December 31, 1992).
4.23 - Warrant Agreement, dated as of November 2, 1993, among
Registrant, Citibank, N.A. as Warrant Agent and
PaineWebber Incorporated as Determination Agent, relating
to the Registrant's 2,400,000 AMEX Hong Kong 30 Index Put
Warrants Expiring October 27, 1995 (incorporated by
reference to Exhibit 4.1 of Registrant's Form 8-K dated
October 26, 1993).
4.24 - Warrant Agreement, dated as of November 2, 1993, among
Registrant, Citibank, N.A. as Warrant Agent and
PaineWebber Incorporated as Determination Agent, relating
to Registrant's 2,600,000 AMEX Hong Kong 30 Index Call
Warrants Expiring October 27, 1995 (incorporated by
reference to Exhibit 4.2 of Registrant's Form 8-K dated
October 26, 1993).
4.25 - Warrant Agreement, dated as of January 24, 1994, among
Registrant, Citibank, N.A. as Warrant Agent and
PaineWebber Incorporated as Determination Agent, relating
to Registrant's 4,100,000 AMEX Hong Kong 30 Index Put
Warrants Expiring January 17, 1996 (incorporated by
reference to Exhibit 4.1 of Registrant's Form 8-K dated
January 14, 1994).
<PAGE> 17
4.26 - Warrant Agreement, dated as of January 24, 1994, among
Registrant, Citibank, N.A. as Warrant Agent and
PaineWebber Incorporated as Determination Agent, relating
to Registrant's 2,200,000 AMEX Hong Kong 30 Index Call
Warrants Expiring January 17, 1996 (incorporated by
reference to Exhibit 4.2 of Registrant's Form 8-K dated
January 14, 1994).
4.27 - Warrant Agreement dated as of March 16, 1994 among
Registrant, Citibank, N.A., as Warrant Agent and
PaineWebber Incorporated as Determination Agent relating
to the Registrant's U.S. Dollar Increase Warrants on the
Japanese Yen Expiring March 6, 1996 (incorporated by
reference to Registrant's Current Report on Form 8-K
dated March 17, 1994).
4.28 - Form of Registrant's Medium-Term Senior Note, Series A,
Floating Rate Due March 15, 1994 (incorporated by
reference to Exhibit 4.4 of Registrant's Form 10-K for
the year ended December 31, 1990).
4.29 - Form of Registrant's Medium-Term Subordinated Note,
Series B, Floating Rate Due December 20, 1994
(incorporated by reference to Exhibit 4.5 of Registrant's
Form 10-K for the year ended December 31, 1990).
4.30 - Proposed forms of Medium-Term Registered Notes, Series C
and Series D (incorporated by reference to Exhibits 4.1a,
4.1b, 4.1c and 4.1d to Registrant's Registration
Statement No. 33-39818 on Form S-3 filed with the
SEC on April 5, 1991).
The credit agreements listed below have not been registered under the
Securities Act of 1933 or the Securities Exchange Act of 1934, nor does the
long-term indebtedness that they represent exceed, in the aggregate, 10% of the
total assets of Registrant and its subsidiaries on a consolidated basis.
Consequently, these instruments have not been filed as an exhibit with this
report, but copies will be furnished to the Securities and Exchange Commission
upon request.
Credit Agreement dated as of December 20, 1994 among Registrant, the
Initial Lenders named therein, and The Bank of New York and Citibank,
N.A., as Co-Administrative Agents, relating to the $1.2 billion credit
facility.
Credit Agreement dated as of December 20, 1994 among Registrant, the
Initial Lenders named therein, and The Bank of New York and Citibank,
N.A., as Co-Administrative Agents, relating to the $800 million credit
facility.
10.1* - Limited Partnership Agreement of PW Partners 1993
Dedicated L.P. dated as of January 6, 1994.
10.2* - Limited Partnership Agreement of PW Partners 1993 L.P.
dated as of February 2, 1994.
10.3* - Registrant's 1994 Executive Incentive Compensation Plan.
10.4* - Registrant's 1994 Senior Officer Deferred Compensation
Plan.
10.5* - Registrant's 1994 Senior Officer Deferred Compensation
Plan Grantor Trust Agreement on behalf of Donald B.
Marron.
10.6* - Registrant's 1994 Senior Officer Deferred Compensation
Plan Grantor Trust Agreement on behalf of Paul B.
Guenther.
10.7* - Registrant's 1994 Senior Officer Deferred Compensation
Plan Grantor Trust Agreement on behalf of Joseph J.
Grano.
____________________
* Filed herewith.
<PAGE> 18
10.8* - Registrant's 1994 Senior Officer Deferred Compensation
Plan Grantor Trust Agreement on behalf of Regina A.
Dolan.
10.9* - Lease dated December 7, 1994 between IBM Credit
Corporation and PWI (IBM 9032-003, 9076-303 and
9672-E02).
10.10* - Lease dated November 23, 1994 between AT&T Capital
Corporation and PWI (IBM 9021-962).
10.11 - Asset Purchase Agreement dated as of October 17, 1994
between Paine Webber Group Inc., General Electric Company
and Kidder, Peabody Group Inc. relating to the purchase
of certain assets and businesses of Kidder, Peabody Group
Inc. and its subsidiaries (incorporated by reference to
Registrant's Form 10-Q for the quarter ended September
30, 1994).
10.12 - Warrant Agreement, dated as of August 5, 1994, among the
Registrant, Citibank, N.A., as Warrant Agent, and
PaineWebber Incorporated, as Spot Rate Reference Agent
relating to the Registrant's U.S. Dollar Increase
Warrants on the Japanese Yen Expiring July 31, 1996
(incorporated by reference to Exhibit 4.1 of Registrant's
Current Report on Form 8-K dated August 5, 1994).
10.13 - Supplemental Agreement dated as of December 9, 1994 among
the Registrant, General Electric Company and Kidder,
Peabody Group Inc. (incorporated by reference to Exhibit
4.2 to Registrant's Current Report on Form 8-K dated
December 27, 1994).
10.14 - Second Supplemental Agreement dated as of December 16,
1994 among the Registrant, General Electric Company and
Kidder, Peabody Group Inc. (incorporated by reference to
Exhibit 4.3 to Registrant's Current Report on Form 8- K
dated December 27, 1994).
10.15 - Third Supplemental Agreement dated as of January 27, 1995
among the Registrant, General Electric Company and
Kidder, Peabody Group Inc. (incorporated by reference to
Exhibit 10.3 to Registrant's Form 8-K/A dated February
24, 1995 which amended Registrant's Form 8-K dated
December 27, 1994).
10.16 - Fourth Supplemental Agreement dated as of February 10,
1995 among the Registrant, General Electric Company and
Kidder, Peabody Group Inc. (incorporated by reference to
Exhibit 10.3 to Registrant's Form 8-K/A dated February
24, 1995 which amended Registrant's Form 8-K dated
December 27, 1994).
10.17 - Registrant's 1994 Stock Award Plan (incorporated by
reference to Exhibit 4.1 of Registrant's Registration
Statement No. 33-55457 on Form S-8 filed with the
Securities and Exchange Commission on September 13,
1994).
10.18 - Registrant's 1994 Executive Stock Award Plan
(incorporated by reference to Exhibit 4.1 of Registrant's
Registration Statement No. 33-55451 on Form S-8 filed
with the Securities and Exchange Commission on September
13, 1994).
10.19 - Registrant's 1994 Non-Employee Director Stock Plan
(incorporated by reference to Exhibit 4.1 of Registrant's
Registration Statement No. 33-53489 on Form S-8 filed
with the Securities and Exchange Commission on May 5,
____________________ 1994).
* Filed herewith.
<PAGE> 19
10.20 - Limited Partnership Agreement of PW Partners 1992
Dedicated L.P. dated as of September 2, 1992
(incorporated by reference to Exhibit 10.1 of
Registrant's Form 10-K for the year ended December 31,
1993).
10.21 - Employment agreement dated as of May 4, 1993 between
Registrant, PWI and Theodore A. Levine (incorporated by
reference to Exhibit 10.2 of Registrant's Form 10-K for
the year ended December 31, 1993).
10.22 - Restated and Amended Agreement of Lease, dated as of
January 1, 1989, between The Equitable Life Assurance
Society of the United States and Registrant relating to
property located at 1285 Avenue of the Americas, New
York, New York (incorporated by reference to Exhibit 10.3
of Registrant's Form 10-K for the year ended December 31,
1993).
10.23 - Amended and Restricted Investment Agreement dated as of
November 5, 1992 by and between Registrant and The Yasuda
Mutual Life Insurance Company ("Yasuda") relating to the
repurchase by Registrant of 1,685,394 shares of
Registrant's 7% Cumulative Convertible Exchangeable
Voting Preferred Stock, Series A ("7% Preferred Shares")
and the replacement of the remaining 3,370,786 7%
Preferred Shares for 7,758,632 shares of Registrant's
Cumulative Participating Convertible Voting Preferred
Stock, Series A (incorporated by reference to Exhibit 10
of Registrant's Form 10-Q for the quarter ended September
30, 1992).
10.24 - Employment Agreement dated as of January 2, 1987 between
Registrant, PaineWebber Incorporated and Donald B.
Marron (incorporated by reference to Exhibit 10.2 of
Registrant's Form 10-K for the three months ended
December 31, 1986).
10.25 - Employment Agreement dated as of January 2, 1987 between
Registrant, PWI and Paul B. Guenther (incorporated by
reference to Exhibit 10.10 of Registrant's Form 10-K for
the three months ended December 31, 1986).
10.26 - Employment Agreement dated as of January 2, 1987 between
Registrant, PWI and John A. Bult (incorporated by
reference to Exhibit 10.2 of Registrant's Form 10-K for
the fiscal year ended December 31, 1988).
10.27 - Registrant's Supplemental Employee's Retirement Plan For
Certain Senior Officers dated August 4, 1988
(incorporated by reference to Exhibit 10.4 of
Registrant's Form 10-K for the year ended December 31,
1988).
10.28 - Deferred Compensation Agreement dated as of August 29,
1988 between Registrant and Donald B. Marron relating to
the Supplemental Employees Retirement Plan (incorporated
by reference to Exhibit 10.6 of Registrant's Form 10-K
for the year ended December 31, 1988).
10.29 - Deferred Compensation Agreement dated as of August 29,
1988 between Registrant and Paul B. Guenther relating to
the Supplemental Employees Retirement Plan (incorporated
by reference to Exhibit 10.8 of Registrant's Form 10-K
for the year ended December 31, 1988).
10.30 - Deferred Compensation Agreement dated as of August 29,
1988 between Registrant and John A. Bult relating to the
Supplemental Employees Retirement Plan (incorporated by
reference to Exhibit 10.9 of Registrant's Form 10-K for
the year ended December 31, 1988).
10.31 - Agreement and Declaration of Trust for Supplemental
Employees Retirement Plan dated as of January 1, 1990
between Registrant and Chase Manhattan Bank, N.A. as
Trustee (incorporated by reference to Exhibit 10.3 of
Registrant's Form 10-K for the year ended December 31,
1990).
<PAGE> 20
10.32 - Form of Consulting Agreement dated as of February 21,
1989 between PWI and E. Garrett Bewkes, Jr.
(incorporated by reference to Exhibit 10.10 of
Registrant's Form 10-K for the year ended December 31,
1988).
10.33 - Registrant's 1983 Stock Option Plan (incorporated by
reference to Exhibit 4 of Registrant's Registration
Statement No. 2-81554 on Form S-8 filed with the SEC on
January 28, 1983).
10.34 - Registrant's 1984 Stock Award Plan (incorporated by
reference to Exhibit 4(a) of Registrant's Registration
Statement No. 2-92770 on Form S-8 filed with the SEC on
August 15, 1984).
10.35 - Registrant's 1984 Stock Appreciation Rights Plan
(incorporated by reference to Exhibit 4(a) of
Registrant's Registration Statement No. 2-92770 on Form
S-8 filed with the SEC on August 15, 1984).
10.36 - Registrant's Stock Award Plan (incorporated by reference
to Exhibit 4 of Registrant's Registration Statement No.
33-22265 on Form S-8 Filed with the SEC on June 1, 1988).
10.37 - Registrant's 1986 Stock Award Plan (incorporated by
reference to Registrant's Registration Statement
No. 33-2959 on Form S-8 filed with the SEC on February 4,
1986).
10.38 - Registrant's 1990 Stock Award and Option Plan
(incorporated by reference to Exhibit 10.1 of
Registrant's Form 10-K for the year ended December 31,
1990).
10.39 - Registrant's Savings Investment Plan (incorporated by
reference to Exhibit 4.1 to Registrant's Post-Effective
Amendment No. 1 on Form S-8, No. 33-20240, filed with the
SEC on October 31, 1990).
10.40 - Master Agreement between PWI and Quotron Systems Inc.
dated February 11, 1991 (incorporated by reference to
Exhibit 10.4 of Registrant's Form 10-K for the year ended
December 31, 1990).
10.41 - Third-Party Master Lease Agreement between PWI and AT&T
Systems Leasing Corporation dated as of October 21, 1991
(incorporated by reference to Exhibit 10.3 of
Registrant's Form 10-K for the year ended December 31,
1991).
10.42 - Lease dated December 14, 1983 between Oliver Wendell
Realty Trust and Paine, Webber, Jackson & Curtis
Incorporated relating to property located at 265 Franklin
Street, Boston, Massachusetts (incorporated by reference
to Exhibit 10.3 of Registrant's Report on Form 10-K for
the fiscal year ended September 30, 1985).
10.43 - Lease dated May 17, 1985 between Rosehaugh Greycoat
Estates Limited and PaineWebber International Inc.
relating to property located at 1 Finsbury Avenue, London
EC2M 2PA, England (incorporated by reference to Exhibit
10.4 of Registrant's Report on Form 10-K for the fiscal
year ended September 30, 1985).
10.44 - Lease Agreement dated as of April 14, 1986, between PWI
(as Tenant) and Hartz-PW Limited Partnership (as
Landlord) relating to the Lincoln Harbor Project
(Operations Center) located in Weehawken, New Jersey
(incorporated by reference to Exhibit 10.1 of
Registrant's Form 10-K for the fiscal year ended
September 30, 1986).
<PAGE> 21
10.45 - Lease Agreement dated as of April 14, 1986, between PWI
(as Tenant) and Hartz-PW Limited Partnership (as
Landlord) relating to the Lincoln Harbor Project (Data
Processing Center) located in Weehawken, New Jersey
(incorporated by reference to Exhibit 10.2 of
Registrant's Form 10-K for the fiscal year ended
September 30, 1986).
10.46 - Lease Agreement dated as of April 14, 1986, between PWI
(as Tenant) and Hartz-PW Tower B Limited Partnership, as
successor in interest to Hartz-PW Hotel Limited
Partnership relating to the Lincoln Harbor Project
(Tower B/Office Building) located in Weehawken, New Jersey
(incorporated by reference to Exhibit 10.3 of
Registrant's Form 10-K for the fiscal year ended
September 30, 1986).
10.47 - Agreement of Limited Partnership of Hartz-PW Limited
Partnership dated April 14, 1986 relating to the Lincoln
Harbor Project (Operation Center and Data Processing
Center) located in Weehawken, New Jersey
(incorporated by reference to Exhibit 10.3 of
Registrant's 10-K for the year ended December 31, 1987).
10.48 - Ground lease between Hartz Mountain Industries and
Hartz-PW Limited Partnership dated April 14, 1986
relating to the Operations Center at the Lincoln Harbor
Project in Weehawken, New Jersey (incorporated by
reference to Exhibit 10.4 of Registrant's 10-K for the
year ended December 31, 1987).
10.49 - Ground lease between Hartz Mountain Industries and
Hartz-PW Limited Partnership dated April 14, 1986
relating to the Data Processing Center at Lincoln Harbor
Project in Weehawken, New Jersey (incorporated by
reference to Exhibit 10.5 of Registrant's 10-K for the
year ended December 31, 1987).
10.50 - Lease Acquisition Agreement between Hartz-PW Limited
Partnership and PWI dated April 14, 1986 relating to the
Lincoln Harbor Project in Weehawken, New Jersey
(incorporated by reference to Exhibit 10.6 of
Registrant's 10-K for the year ended December 31, 1987).
10.51 - Transportation and Completion Agreement between Hartz-PW
Limited Partnership and PWI dated April 14, 1986 relating
to the Lincoln Harbor Project in Weehawken, New Jersey
(incorporated by reference to Exhibit 10.7 of
Registrant's 10-K for the year ended December 31, 1987).
10.52 - Guarantee between Hartz Mountain Industries, as
Guarantor, and PWI, as Beneficiary, dated April 14, 1986
relating to the Lincoln Harbor Project in Weehawken, New
Jersey (incorporated by reference to Exhibit 10.8 of
Registrant's 10-K for the year ended December 31, 1987).
10.53 - General Partner Guarantee, between Hartz Mountain
Industries, as Guarantor, and PWI, as Beneficiary, dated
April 14, 1986 relating to the Lincoln Harbor Project in
Weehawken, New Jersey (incorporated by reference to
Exhibit 10.9 of Registrant's 10-K for the year ended
December 31, 1987).
10.54 - Agreement of Limited Partnership of River-PW Hotel
Limited Partnership relating to the Ramada Suites Hotel,
Weehawken, New Jersey (incorporated by reference to
Exhibit 10.4 of Registrant's Form 10-K for the year ended
December 31, 1991).
10.55 - Hotel Rental Guarantee between PWI as Guarantor and
River-PW Hotel Limited Partnership relating to the Ramada
Suite Hotel, Weehawken, New Jersey (incorporated by
reference to Exhibit 10.5 of Registrant's Form 10-K for
the year ended December 31, 1991).
10.56 - First Amendment to Lease Agreement between 700 Louisiana
Limited, successor to RBC Limited, and Rotan Mosle Inc.,
as of December 24, 1991 (incorporated by reference to
Exhibit 10.6 of Registrant's Form 10-K for the year ended
December 31, 1991).
<PAGE> 22
10.57 - Joint Venture Agreement dated as of November 30, 1987
between Registrant and The Yasuda Mutual Life Insurance
Company (incorporated by reference to Exhibit 10.1 of
Registrant's Form 10-K for the year ended December 31,
1988).
10.58 - Lease dated as of September 27, 1988 between PWI and
American National Bank & Trust Company of Chicago
relating to property located at 181 West Madison Street,
Chicago, Illinois (incorporated by reference to Exhibit
10.12 of Registrant's Form 10-K for the year ended
December 31, 1988).
10.59 - Directors and Officers Liability and Corporation
Reimbursement insurance policy with Fiduciary Liability
Rider with National Union Fire Insurance Company
(incorporated by reference to Exhibit 10.2 of
Registrant's Form 10-K for the year ended December 31,
1990).
10.60 - Limited Partnership Agreement of PW Partners 1991
Dedicated L.P. dated as of October 7, 1991 (incorporated
by reference to Exhibit 10.2 of Registrant's Form 10-K
for the year ended December 31, 1992).
10.61 - Letter Agreement dated as of March 9, 1993 between
Registrant and The Yasuda Mutual Life Insurance Company
(incorporated by reference to Exhibit 10.3 of
Registrant's Form 10-K for the year ended December 31,
1992).
10.62 - Form of License Agreement between Standard and Poor's
Corporation and Registrant (incorporated by reference to
Exhibit 10.1 of Registrant's Form 8-K dated June 1,
1993).
Executive Compensation Plans and Arrangements
- Employment Agreement dated as of January 2, 1987 between
Registrant, PaineWebber Incorporated and Donald B. Marron
(incorporated by reference to Exhibit 10.2 of Registrant's
Form 10-K for the three months ended December 31, 1986).
- Employment Agreement dated as of January 2, 1987 between
Registrant, PWI and Paul B. Guenther (incorporated by
reference to Exhibit 10.10 of Registrant's Form 10-K for the
three months ended December 31, 1986).
- Employment Agreement dated as of January 2, 1987 between
Registrant, PWI and John A. Bult (incorporated by reference to
Exhibit 10.2 of Registrant's Form 10-K for the fiscal year
ended December 31, 1988).
- Employment Agreement dated as of May 4, 1993 between
Registrant, PWI and Theodore A. Levine (filed as Exhibit 10.2
to this Form 10-K for the year ended December 31, 1993).
- Registrant's Supplemental Employee's Retirement Plan for
Certain Senior Officers dated August 4, 1988 (incorporated by
reference to Exhibit 10.4 of Registrant's Form 10-K for the
year ended December 31, 1988).
- Deferred Compensation Agreement dated as of August 29, 1988
between Registrant and Donald B. Marron relating to the
Supplemental Employees Retirement Plan (incorporated by
reference to Exhibit 10.6 of Registrant's Form 10-K for the
year ended December 31, 1988).
- Deferred Compensation Agreement dated as of August 29, 1988
between Registrant and Paul B. Guenther relating to the
Supplemental Employees Retirement Plan (incorporated by
reference to Exhibit 10.8 of Registrant's Form 10-K for the
year ended December 31, 1988).
- Deferred Compensation Agreement dated as of August 29, 1988
between Registrant and John A.
<PAGE> 23
Bult relating to the Supplemental Employees Retirement Plan
(incorporated by reference to Exhibit 10.9 of Registrant's
Form 10-K for the year ended December 31, 1988).
- Agreement and Declaration of Trust for Supplemental Employees
Retirement Plan dated as of January 1, 1990 between Registrant
and Chase Manhattan Bank, N.A. as Trustee (incorporated by
reference to Exhibit 10.3 of Registrant's Form 10-K for the
year ended December 31, 1990).
- Registrant's 1980 Employee Stock Option Plan (incorporated by
reference to Registrant's Registration Statement No. 2-78627
on Form S-8 filed with the SEC on June 30, 1982).
- Registrant's 1983 Stock Option Plan (incorporated by reference
to Exhibit 4 of Registrant's Registration Statement No.
2-81554 on Form S-8 filed with the SEC on January 28, 1983).
- Registrant's 1984 Stock Award Plan (incorporated by reference
to Exhibit 4(a) of Registrant's Registration Statement No.
2-92770 on Form S-8 filed with the SEC on August 15, 1984).
- Registrant's 1984 Stock Appreciation Rights Plan (incorporated
by reference to Exhibit 4(a) of Registrant's Registration
Statement No. 2-92770 on Form S-8 filed with the SEC on August
15, 1984).
- Registrant's Stock Award Plan (incorporated by reference to
Exhibit 4 of Registrant's Registration Statement No. 33-22265
on Form S-8 filed with the SEC on June 1, 1988).
- Registrant's 1986 Stock Award Plan (incorporated by reference
to Registrant's Registration Statement No. 33-2959 on Form S-8
filed with the SEC on February 4, 1986).
- Registrant's 1990 Stock Award and Option Plan (incorporated by
reference to Exhibit 10.1 of Registrant's Form 10-K for the
year ended December 31, 1990).
- Form of 8% Convertible Debenture Due 1998 issued in connection
with Registrant's Key Executive Equity Program (incorporated
by reference to Exhibit 4.1 of Registrant's Form 10-K for the
year ended December 31, 1988).
- Form of 8% Convertible Debentures Due 2000 issued in
connection with Registrant's Key Executive Equity Program
(incorporated by reference to Exhibit 4.1 of Registrant's Form
10-K for the year ended December 31, 1991).
- Form of 6.5% Convertible Debenture Due 2002 issued in
connection with Registrant's Key Executive Equity Program
(incorporated by reference to Exhibit 4.1 of Registrant's Form
10-K for the year ended December 31, 1992).
- Limited Partnership Agreement of PW Partners 1991 Dedicated
L.P. dated as of October 7, 1991 (incorporated by reference to
Exhibit 10.2 of Registrant's Form 10-K for the year ended
December 31, 1992).
- Limited Partnership Agreement of PW Partners 1992 Dedicated
L.P. dated as of September 2, 1992 (filed as Exhibit 10.1 to
Registrant's Form 10-K for the year ended December 31, 1993).
-* Limited Partnership Agreement of PW Partners 1993 Dedicated
L.P. dated as of January 6, 1994.
-* Limited Partnership Agreement of PW Partners 1993 L.P. dated
as of February 2, 1994.
-* Registrant's 1994 Executive Incentive Compensation Plan.
-* Registrant's 1994 Senior Officer Deferred Compensation Plan.
____________________
* Filed herewith.
<PAGE> 24
-* Registrant's 1994 Senior Officer Deferred Compensation Plan
Grantor Trust Agreement on behalf of Donald B. Marron.
-* Registrant's 1994 Senior Officer Deferred Compensation Plan
Grantor Trust Agreement on behalf of Paul B. Guenther.
-* Registrant's 1994 Senior Officer Deferred Compensation Plan
Grantor Trust Agreement on behalf of Joseph J. Grano.
-* Registrant's 1994 Senior Officer Deferred Compensation Plan
Grantor Trust Agreement on behalf of Regina A. Dolan.
11* - Computation of Earnings per Common Share.
12.1* - Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends.
12.2* - Computation of Ratio of Earnings to Fixed Charges.
13* - 1994 Annual Report to Stockholders of Registrant.
21* - Subsidiaries of the Registrant.
23* - Consent of Independent Auditors.
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K dated December 27, 1994
with the SEC reporting under Item 2 ("Acquisition or Disposition of
Assets") and Item 7 ("Financial Statements and Exhibits") in
connection with the purchase of certain assets and liabilities, and
specific businesses of Kidder, Peabody Group Inc.
The Company filed an amendment on Form 8-K/A dated February 24, 1995
to its Current Report on Form 8-K dated December 27, 1994 with the
SEC which amended item 7(a) (Historical Financial Statements) and 7(b)
(Proforma Financial Information) of the Current Report on Form 8-K
dated December 27, 1994 in connection with the purchase of certain
assets and liabilities, and specific businesses of Kidder, Peabody
Group Inc.
____________________
* Filed herewith.
<PAGE> 25
PAINE WEBBER GROUP INC.
ITEMS 8, 14(a)(1) AND (2) AND 14(d)
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Financial Statements
Incorporated herein by reference are the following financial statements
included in the 1994 Annual Report to Stockholders. With the exception of the
following financial statements and the information incorporated by reference on
items 1, 5, 6 and 7, the 1994 Annual Report to Stockholders is not to be deemed
filed as part of this report.
<TABLE>
<CAPTION>
1994 Annual
Report
Description (Page)
----------- ------------
<S> <C>
Report of independent auditors 61
Consolidated statements of financial
condition at December 31, 1994 and 1993 41
For the years ended December 31, 1994,
1993 and 1992:
Consolidated statements of income 40
Consolidated statements of changes in
stockholders' equity 42-43
Consolidated statements of cash flows 44
Notes to consolidated financial statements 45-60
Quarterly financial information (unaudited) 64
</TABLE>
Schedules
---------
<TABLE>
<CAPTION>
Form 10-K
Description (Page)
----------- -----------
<S> <C>
Report of independent auditors F-2
I - Condensed financial information F-3 - F-6
</TABLE>
All other schedules have been omitted since the required information is not
present in amounts sufficient to require submission of the schedules, or
because the information required is included in the respective consolidated
financial statements or notes thereto.
F-1
<PAGE> 26
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
PAINE WEBBER GROUP INC.
We have audited the consolidated financial statements of Paine Webber Group
Inc. as of December 31, 1994 and 1993, and for each of the three years in the
period ended December 31, 1994, and have issued our report thereon dated
January 31, 1995. Our audits also included the financial statement schedules
listed in the Index to Financial Statements and Financial Statement Schedules
at Item 14(a). These schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic consolidated financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.
/s/ ERNST & YOUNG LLP
New York, New York
January 31, 1995
F-2
<PAGE> 27
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PAINE WEBBER GROUP INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1994 1993 1992
----------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Interest $ 192,008 $ 104,600 $ 63,378
Other 1,677 1,231 -
-------- --------- ---------
Total revenues 193,685 105,831 63,378
Interest expense 237,871 138,627 87,933
-------- --------- ---------
Net revenues (44,186) (32,796) (24,555)
-------- --------- ---------
NON-INTEREST EXPENSES 10,350 17,004 14,848
--------- --------- ---------
Loss before income taxes and
equity in income of affiliates (54,536) (49,800) (39,403)
Benefit for income taxes 22,852 20,143 15,333
--------- --------- ---------
Loss before equity in net income
of affiliates (31,684) (29,657) (24,070)
Equity in income of affiliates 63,315 275,840 237,245
--------- --------- ---------
NET INCOME $ 31,631 $246,183 $213,175
======== ======== ========
</TABLE>
See Notes to Condensed Financial Information of Registrant.
F-3
<PAGE> 28
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PAINE WEBBER GROUP INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
December 31, December 31,
1994 1993
------------ -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 196 $ 55
Trading inventories, at fair value 66,162 60,024
Loans to and receivables from affiliates 4,222,553 3,334,572
Investment in affiliates 1,460,296 1,355,283
Other assets 228,751 132,459
---------- ----------
$5,977,958 $4,882,393
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $1,606,649 $1,707,645
Commitments for securities sold but not yet
purchased, at fair value 66,162 59,924
Payables to affiliates 24,401 514
Other liabilities and accrued expenses 127,955 53,522
---------- ----------
1,825,167 1,821,605
Long-term borrowings 2,336,323 1,865,741
---------- ----------
4,161,490 3,687,346
---------- ----------
Commitments and contingencies
Redeemable Preferred Stock 185,969 -
Stockholders' Equity:
Convertible Preferred Stock 100,000 -
Common stock, $1 par value, 200,000,000
shares authorized; issued 100,613,737 shares
and 83,603,262 shares in 1994 and 1993, 100,614 83,603
respectively
Additional paid-in capital 784,974 568,487
Retained earnings 715,052 721,115
---------- ----------
1,700,640 1,373,205
Treasury stock, at cost; 1,297,081 shares and
6,568,433 shares in 1994 and 1993, respectively (21,981) (112,390)
Unamortized cost of restricted stock (51,803) (60,980)
Foreign currency translation adjustment 3,643 (4,788)
---------- ----------
1,630,499 1,195,047
---------- ----------
$5,977,958 $4,882,393
========== ==========
</TABLE>
See Notes to Condensed Financial Information of Registrant.
F-4
<PAGE> 29
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PAINE WEBBER GROUP INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1994 1993 1992
--------- ----------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 31,631 $ 246,183 $ 213,175
Adjustments to reconcile net income to cash
provided by (used for) operating activities:
Noncash items included in net income:
Equity in income of affiliates (63,315) (275,840) (237,245)
Depreciation and amortization 388 362 821
Deferred income taxes (25,940) (20,255) (16,588)
Other 15,855 2,812 2,785
(Increase) decrease in assets:
Trading inventories (6,138) 74,098 (37,071)
Loans to and receivables from affiliates 483,700 (1,740,163) (124,056)
Investment in affiliates (58,300) (12,875) (104,486)
Other assets (70,617) 50,595 (41,617)
Increase (decrease) in liabilities:
Payables to affiliates 23,887 200 314
Commitments for securities sold but
not yet purchased 6,238 (74,098) 36,971
Other liabilities and accrued expenses 70,662 14,638 7,165
Proceeds from:
Dividends received from subsidiaries 19,102 169,339 65,000
--------- ----------- ---------
Cash provided by (used for) operating activities 427,153 (1,565,004) (234,832)
--------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for:
Net assets acquired in business acquisition (726,217) - -
Office equipment and leasehold improvements (144) (327) (171)
--------- ----------- ---------
Cash used for investing activities (726,361) (327) (171)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments on) short-term borrowings (100,996) 994,802 130,347
Proceeds from:
Long-term borrowings 637,379 1,035,507 384,149
Employee stock transactions 11,078 21,121 16,556
Payments for:
Long-term borrowings (168,505) (243,012) (49,600)
Repurchases of common stock (43,133) (116,627) (32,016)
Preferred stock transactions - (104,425) (167,220)
Repurchase of warrant - - (1,687)
Dividends (36,474) (30,973) (36,876)
--------- ----------- ---------
Cash provided by financing activities 299,349 1,556,393 243,653
--------- ----------- ---------
Increase (decrease) in cash and cash equivalents 141 (8,938) 8,650
Cash and cash equivalents, beginning of year 55 8,993 343
--------- ----------- ---------
Cash and cash equivalents, end of year $ 196 $ 55 $ 8,993
========= =========== =========
</TABLE>
See Notes to Condensed Financial Information of Registrant.
F-5
<PAGE> 30
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PAINE WEBBER GROUP INC.
(PARENT COMPANY ONLY)
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(IN THOUSANDS OF DOLLARS EXCEPT SHARE AMOUNTS)
GENERAL
The condensed financial information of Paine Webber Group Inc. (Parent Company
Only) should be read in conjunction with the consolidated financial statements
of Paine Webber Group Inc. and the notes thereto incorporated by reference in
this report.
STATEMENT OF CASH FLOWS
Interest payments for the years ended December 31, 1994, 1993 and 1992
approximated $232,526, $122,073 and $84,323, respectively. Income tax payments
(consolidated) totaled $68,455, $128,089 and $96,941 for the years ended
December 31, 1994, 1993 and 1992, respectively.
The Condensed Statement of Cash Flows does not reflect noncash investing and
financing activities relating to the purchase of certain assets and liabilities
and specific businesses of Kidder, Peabody Group Inc., as discussed in Part I of
this report.
COMMITMENTS AND CONTINGENCIES
The Company has guaranteed certain of its subsidiaries' unsecured lines of
credit and contractual obligations.
F-6
<PAGE> 31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized on March 24, 1995.
PAINE WEBBER GROUP INC.
-----------------------
(Registrant)
BY: /s/ Donald B. Marron
-------------------------------------
Donald B. Marron
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on March 25, 1994.
/s/ Donald B. Marron
-------------------------------------
Donald B. Marron
Chairman of the Board,
Chief Executive Officer
and Director (principal executive
officer)
/s/ Regina A. Dolan
-------------------------------------
Regina A. Dolan
Vice President,
Chief Financial Officer
/s/ T. Stanton Armour
-------------------------------------
T. Stanton Armour
Director
/s/ E. Garrett Bewkes, Jr.
-------------------------------------
E. Garrett Bewkes, Jr.
Director
/s/ Reto Braun
-------------------------------------
Reto Braun
Director
-------------------------------------
John A. Bult
Director
<PAGE> 32
SIGNATURES
/s/ Frank P. Doyle
-------------------------------------
Frank P. Doyle
Director
-------------------------------------
Naoshi Kiyono
Director
/s/ Joseph J. Grano, Jr.
-------------------------------------
Joseph J. Grano, Jr.
Director
/s/ Paul B. Guenther
-------------------------------------
Paul B. Guenther
Director
/s/ John E. Kilgore, Jr.
-------------------------------------
John E. Kilgore, Jr.
Director
/s/ James W. Kinnear
-------------------------------------
James W. Kinnear
Director
/s/ Robert M. Loeffler
-------------------------------------
Robert M. Loeffler
Director
/s/ Edward Randall, III
-------------------------------------
Edward Randall, III
Director
/s/ Henry Rosovsky
-------------------------------------
Henry Rosovsky
Director
-------------------------------------
Yoshinao Seki
Director
<PAGE> 33
EXHIBIT INDEX
4.1 - Form of Debt Securities (6-1/2% Notes due 2005).
4.2 - Form of Debt Securities (7-5/8% Notes due 2014).
4.3 - Form of Debt Securities (7-3/4% Notes due 2002).
10.1 - Limited Partnership Agreement of PW Partners 1993
Dedicated L.P. dated as of January 6, 1994.
10.2 - Limited Partnership Agreement of PW Partners 1993 L.P.
dated as of February 2, 1994.
10.3 - Registrant's 1994 Executive Incentive Compensation Plan.
10.4 - Registrant's 1994 Senior Officer Deferred Compensation
Plan.
10.5 - Registrant's 1994 Senior Officer Deferred Compensation
Plan Grantor Trust Agreement on behalf of Donald B.
Marron.
10.6 - Registrant's 1994 Senior Officer Deferred Compensation
Plan Grantor Trust Agreement on behalf of Paul B.
Guenther.
10.7 - Registrant's 1994 Senior Officer Deferred Compensation
Plan Grantor Trust Agreement on behalf of Joseph J.
Grano.
10.8 - Registrant's 1994 Senior Officer Deferred Compensation
Plan Grantor Trust Agreement on behalf of Regina A.
Dolan.
10.9 - Lease dated December 7, 1994 between IBM Credit
Corporation and PWI (IBM 9032-003, 9076-303 and
9672-E02).
10.10 - Lease dated November 23, 1994 between AT&T Capital
Corporation and PWI (IBM 9021-962).
<PAGE> 34
11 - Computation of Earnings per Common Share.
12.1 - Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends.
12.2 - Computation of Ratio of Earnings to Fixed Charges.
13 - 1994 Annual Report to Stockholders of Registrant.
21 - Subsidiaries of the Registrant.
23 - Consent of Independent Auditors.
27 - Financial Data Schedule
<PAGE> 1
Exhibit 4.1
PAINE WEBBER GROUP INC.
6-1/2% NOTE DUE 2005
REGISTERED REGISTERED
NUMBER
R $
CUSIP 695629 AP 0
SEE REVERSE FOR CERTAIN DEFINITIONS
Paine Webber Group Inc., a Delaware corporation (the "Company"), promises to
pay to
6-1/2% 6-1/2%
DUE DUE
2005 2005
, or registered assigns, DOLLARS ON NOVEMBER 1, 2005
the principal sum of
INTEREST PAYMENT DATES: November 1 and May 1
RECORD DATES: October 15 and April 15
Additional provisions of this Note and certain definitions are set forth on
the reverse hereof.
This Note shall not be valid or become obligatory for any purpose until the
certificate of authentication hereon shall have been signed by the Trustee
under the Indenture referred to on the reverse hereof.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed
under its corporate seal.
Dated:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.
CHEMICAL BANK,
as Trustee
By
-------------------------
Authorized Officer
[PAINE WEBBER GROUP INC.
CORPORATE SEAL 1973 DELAWARE]
PAINE WEBBER GROUP INC.,
Attest:
By /s/ Theodore A. Levine
----------------------------
Secretary
/s/ Donald B. Marron
----------------------------
Chairman of the Board
<PAGE> 2
PAINE WEBBER GROUP INC.
6-1/2% NOTE DUE 2005
1. INDENTURE
This Note is one of a series of unsecured debentures, notes or other
evidence of indebtedness (collectively, the "Securities") of Paine Webber Group
Inc., a Delaware corporation (the "Company"), issued and to be issued under an
Indenture dated as of March 15, 1988, between the Company and the Trustee, as
amended by a supplemental indenture dated as of September 22, 1989 and by a
supplemental indenture dated as of March 22, 1991 (as so amended, the
"Indenture"). The Indenture permits the issuance of an unlimited number of
series of Securities in an unlimited aggregate principal amount. This Note is
one of a series designated the 6-1/2% Notes Due 2005 (the "Notes"), which series
is limited in aggregate principal amount to $200,000,000. The Notes are subject
to the terms stated in the Indenture, and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (the "Act"), and
holders of Notes are referred to the Indenture and the Act for a statement of
those terms.
2. INTEREST
The Company promises to pay interest on the principal amount of this Note
at the rate per annum shown above. The Company will pay interest semiannually
on November 1 and May 1 of each year. Interest on the Notes will accrue from
the most recent date to which interest has been paid or if no interest has been
paid from October 26, 1993. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.
3. METHOD OF PAYMENT
The Company will pay interest on the Notes (except defaulted interest) to
the persons who are registered holders of Notes at the close of business on
October 15 or April 15 next preceding the interest payment date. Holders must
surrender Notes to a Paying Agent to collect principal payments. The Company
will pay principal and interest in money of the United States that at the time
of payment is legal tender for payment of public and private debts. However,
the Company may pay interest by its check payable in such money. It may mail an
interest check to a holder's registered address.
4. PAYING AGENT AND REGISTRAR
Initially, Chemical Bank (the "Trustee") will act as Paying Agent and
Registrar. The Company may change the Paying Agent or Registrar without
notice.
5. DENOMINATIONS; TRANSFER; EXCHANGE
The Notes are in registered form without coupons in denominations of $1,000
and any multiple of $1,000. A holder may transfer or exchange Notes in
accordance with the Indenture. The Registrar may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay
any taxes and fees required by law or permitted by the Indenture.
6. PERSONS DEEMED OWNERS
The registered holder of this Note may be treated as the owner of it for
all purposes.
7. UNCLAIMED MONEY
If money for the payment of principal of or interest on the Notes remains
unclaimed for two years after such principal or interest has become due and
payable, it shall be repaid by the Trustee or Paying Agent to the Company at its
request. Thereafter, holders entitled to the money must look only to the
Company and not to the Trustee or Paying Agent for payment.
8. AMENDMENT; SUPPLEMENT; WAIVER
The Company and the Trustee may, without the consent of any holders of
Securities, agree to amend or supplement the Indenture or the Securities to,
among other things, add to the covenants of the Company for the benefit of
holders of all or any series of Securities, add to the Events of Default with
respect to all or any series of the Securities and, provided that such action
shall not adversely affect the interests of the holders of any series of
Securities in any material respect, cure ambiguities, defects or inconsistencies
in the Indenture or make other provisions. Subject to certain exceptions, the
holders of not less than a majority in principal amount of the outstanding
Securities of any series may waive any past default by the Company, with respect
to such series, on behalf of all holders of Securities of such series. Subject
to certain exceptions, the Company and the Trustee may agree to amend or
supplement the Indenture or the Securities of any series in any manner with the
consent of holders of not less than 66-2/3% in principal amount of the
outstanding Securities of each series to be affected.
9. OBLIGATIONS OF THE COMPANY
The Notes are direct, unsecured obligations of the Company. The Indenture
does not limit the amount of the Company's other unsecured debt.
10. SUCCESSOR CORPORATION
Any successor corporation resulting from a consolidation or merger
involving the Company, or from a conveyance, transfer or lease of the assets of
the Company substantially as an entirety, shall succeed to all rights and
obligations of the Company under the Notes and the Indenture, and thereafter,
except in the case of a lease, the predecessor corporation will be relieved of
all such obligations.
11. DEFAULTS AND REMEDIES
An Event of Default is: default for 30 days in payment of any interest on
the Notes; default in payment of any principal on the Notes; default in the
performance or breach by the Company of any covenant or warranty under the
Indenture for the benefit of the Notes and the continuance of the default or
breach for a period of 60 days following receipt of notice of such default or
breach; and certain events of bankruptcy or insolvency affecting the Company. If
an Event of Default occurs and is continuing, the Trustee of the holders of at
least 25% in principal amount of the Notes may declare the principal amount of
the Notes to be due and payable immediately. Holders of Notes may not enforce
the Indenture or the Notes except as provided in the Indenture. The Trustee may
refuse to enforce the Indenture or the Notes unless it receives indemnity
satisfactory to it. Subject to the above and other limitations, holders of a
majority in principal amount of the Notes may direct the Trustee in its exercise
of any trust or power with respect to the Notes. The Trustee may withhold from
holders of Notes notice of a default by the Company (except a default in payment
of principal or interest) if it is determined that withholding notice is in the
interest of such holders.
12. TRUSTEE DEALINGS WITH THE COMPANY
Chemical Bank, the Trustee under the Indenture, in its individual or other
capacity may make loans to, accept deposits from and perform services for the
Company or its affiliates, and may otherwise deal with the Company or its
affiliates, as if it were not Trustee.
13. NO RECOURSE AGAINST OTHERS
A director, officer, employee or stockholder of the Company, as such, shall
not have any liability for any obligations of the Company under the Notes or the
Indenture or for any claim based on, in respect of or by reason of such
obligations of their creation. Each holder of a Note by accepting such Note
waives all such claims and releases such directors, officers, employees and
stockholders from all such liability. Such waiver and release are part of the
consideration for the issue of the Notes.
14. COPIES OF INDENTURE
The Company will furnish to any holder of Notes upon written request and
without charge a copy of the Indenture. Requests may be made to: Secretary,
PaineWebber Group Inc., 1285 Avenue of the Americas, New York, New York 10019.
15. GOVERNING LAW
The Notes shall be governed by and construed in accordance with the laws of
the State of New York.
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - __________Custodian__________
(Cust) (Minor)
under Uniform Gifts to Minors
Act__________________________
(State)
Additional abbreviations may also be used though not in the above list.
----------------------------------------
FOR VALUE RECEIVED the undersigned hereby sell(s),
assign(s) and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
-----------------------
--------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of
assignee
--------------------------------------------------------------------------------
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing _____________________________________________ attorney to transfer
said Note on the books of the Company, with full power of substitution in the
premises.
Dated:_____________________________
--------------------------------------------
<PAGE> 1
Exhibit 4.2
PAINE WEBBER GROUP INC.
7-5/8% NOTE DUE 2014
REGISTERED REGISTERED
NUMBER
R $
CUSIP 695629 AQ 8
SEE REVERSE FOR CERTAIN DEFINITIONS
Paine Webber Group Inc., a Delaware corporation (the "Company"), promises to
pay to
7-5/8% 7-5/8%
DUE DUE
2014 2014
, or registered assigns, DOLLARS ON FEBRUARY 15, 2014
the principal sum of
REGISTERED
INTEREST PAYMENT DATES: February 15 and August 15
RECORD DATES: February 1 and August 1
Additional provisions of this Note and certain definitions are set forth on
the reverse hereof.
This Note shall not be valid or become obligatory for any purpose until the
certificate of authentication hereon shall have been signed by the Trustee
under the Indenture referred to on the reverse hereof.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed
under its corporate seal.
Dated:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.
CHEMICAL BANK,
as Trustee
By
-------------------------
Authorized Officer
[PAINE WEBBER GROUP INC.
CORPORATE SEAL 1973 DELAWARE]
PAINE WEBBER GROUP INC.,
Attest:
By /s/ Theodore A. Levine
---------------------------
Secretary
/s/ Donald B. Marron
-------------------------
Chairman of the Board
<PAGE> 2
PAINE WEBBER GROUP INC.
7-5/8% NOTE DUE 2014
1. INDENTURE
This Note is one of a series of unsecured debentures, notes or other
evidence of indebtedness (collectively, the "Securities") of Paine Webber Group
Inc., a Delaware corporation (the "Company"), issued and to be issued under an
Indenture dated as of March 15, 1988, between the Company and the Trustee, as
amended by a supplemental indenture dated as of September 22, 1989 and by a
supplemental indenture dated as of March 22, 1991 (as so amended, the
"Indenture"). The Indenture permits the issuance of an unlimited number of
series of Securities in an unlimited aggregate principal amount. This Note is
one of a series designated the 7-5/8% Notes Due 2014 (the "Notes"), which
series is limited in aggregate principal amount to $200,000,000. The Notes are
subject to the terms stated in the Indenture, and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"Act"), and holders of Notes are referred to the Indenture and the Act for a
statement of those terms.
2. INTEREST
The Company promises to pay interest on the principal amount of this Note
at the rate per annum shown above. The Company will pay interest semiannually
on February 15 and August 15 of each year. Interest on the Notes will accrue
from the most recent date to which interest has been paid or if no interest has
been paid from February 15, 1994. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
3. METHOD OF PAYMENT
The Company will pay interest on the Notes (except defaulted interest) to
the persons who are registered holders of Notes at the close of business on
February 1 or August 1 next preceding the interest payment date. Holders must
surrender Notes to a Paying Agent to collect principal payments. The Company
will pay principal and interest in money of the United States that at the time
of payment is legal tender for payment of public and private debts. However,
the Company may pay interest by its check payable in such money. It may mail an
interest check to a holder's registered address.
4. PAYING AGENT AND REGISTRAR
Initially, Chemical Bank (the "Trustee") will act as Paying Agent and
Registrar. The Company may change the Paying Agent or Registrar without
notice.
5. DENOMINATIONS; TRANSFER; EXCHANGE
The Notes are in registered form without coupons in denominations of
$1,000 and any multiple of $1,000. A holder may transfer or exchange Notes in
accordance with the Indenture. The Registrar may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay
any taxes and fees required by law or permitted by the Indenture.
6. PERSONS DEEMED OWNERS
The registered holder of this Note may be treated as the owner of it for
all purposes.
7. UNCLAIMED MONEY
If money for the payment of principal of or interest on the Notes remains
unclaimed for two years after such principal or interest has become due and
payable, it shall be repaid by the Trustee or Paying Agent to the Company at its
request. Thereafter, holders entitled to the money must look only to the
Company and not to the Trustee or Paying Agent for payment.
8. AMENDMENT; SUPPLEMENT; WAIVER
The Company and the Trustee may, without the consent of any holders of
Securities, agree to amend or supplement the Indenture or the Securities to,
among other things, add to the covenants of the Company for the benefit of
holders of all or any series of Securities, add to the Events of Default with
respect to all or any series of the Securities and, provided that such action
shall not adversely affect the interests of the holders of any series of
Securities in any material respect, cure ambiguities, defects or inconsistencies
in the Indenture or make other provisions. Subject to certain exceptions, the
holders of not less than a majority in principal amount of the outstanding
Securities of any series may waive any past default by the Company, with respect
to such series, on behalf of all holders of Securities of such series. Subject
to certain exceptions, the Company and the Trustee may agree to amend or
supplement the Indenture or the Securities of any series in any manner with the
consent of holders of not less than 66-2/3% in principal amount of the
outstanding Securities of each series to be affected.
9. OBLIGATIONS OF THE COMPANY
The Notes are direct, unsecured obligations of the Company. The Indenture
does not limit the amount of the Company's other unsecured debt.
10. SUCCESSOR CORPORATION
Any successor corporation resulting from a consolidation of merger
involving the Company, or from a conveyance, transfer or lease of the assets of
the Company substantially as an entirety, shall succeed to all rights and
obligations of the Company under the Notes and the Indenture, and thereafter,
except in the case of a lease, the predecessor corporation will be relieved of
all such obligations.
11. DEFAULTS AND REMEDIES
An Event of Default is: default for 30 days in payment of any interest on
the Notes; default in payment of any principal on the Notes; default in the
performance or breach by the Company of any covenant or warranty under the
Indenture for the benefit of the Notes and the continuance of the default or
breach for a period of 60 days following receipt of notice of such default or
breach; and certain events of bankruptcy or insolvency affecting the Company. If
an Event of Default occurs and is continuing, the Trustee of the holders of at
least 25% in principal amount of the Notes may declare the principal amount of
the Notes to be due and payable immediately. Holders of Notes may not enforce
the Indenture of the Notes except as provided in the Indenture. The Trustee may
refuse to enforce the Indenture or the Notes unless it receives indemnity
satisfactory to it. Subject to the above and other limitations, holders of a
majority in principal amount of the Notes may direct the Trustee in its exercise
of any trust or power with respect to the Notes. The Trustee may withhold from
holders of Notes notice of a default by the Company (except a default in payment
of principal or interest) if it is determined that withholding notice is in the
interest of such holders.
12. TRUSTEE DEALINGS WITH THE COMPANY
Chemical Bank, the Trustee under the Indenture, in its individual or other
capacity may make loans to, accept deposits from and perform services for the
Company or its affiliates, and may otherwise deal with the Company or its
affiliates, as if it were not Trustee.
13. NO RECOURSE AGAINST OTHERS
A director, officer, employee or stockholder of the Company, as such, shall
not have any liability for any obligations of the Company under the Notes or the
Indenture or for any claim based on, in respect of or by reason of such
obligations of their creation. Each holder of a Note by accepting such Note
waives all such claims and releases such directors, officers, employees and
stockholders from all such liability. Such waiver and release are part of the
consideration for the issue of the Notes.
14. COPIES OF INDENTURE
The Company will furnish to any holder of Notes upon written request and
without charge a copy of the Indenture. Requests may be made to: Secretary,
Paine Webber Group Inc., 1285 Avenue of the Americas, New York, New York, 10019.
15. GOVERNING LAW
The Notes shall be governed by and construed in accordance with the laws of
the State of New York.
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - __________Custodian__________
(Cust) (Minor)
under Uniform Gifts to Minors
Act__________________________
(State)
Additional abbreviations may also be used though not in the above list.
---------------------------------
FOR VALUE RECEIVED the undersigned hereby sell(s),
assign(s) and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
-----------------------
--------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of
assignee
--------------------------------------------------------------------------------
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing _____________________________________________ attorney to transfer
said Note on the books of the Company, with full power of substitution in the
premises.
Dated:_____________________________
--------------------------------------------
<PAGE> 1
Exhibit 4.3
PAINE WEBBER GROUP INC.
7-3/4% SUBORDINATED NOTE DUE 2002
REGISTERED REGISTERED
NUMBER
R $
CUSIP 695629 AK 1
SEE REVERSE FOR CERTAIN DEFINITIONS
Paine Webber Group Inc., a Delaware corporation (the "Company"), promises to
pay to
7-3/4% 7-3/4%
DUE DUE
2002 2002
, or registered assigns, DOLLARS ON SEPTEMBER 1, 2002.
the principal sum of
INTEREST PAYMENT DATES: March 1 and September 1
RECORD DATES: February 15 and August 15
Additional provisions of this Note and certain definitions are set forth on
the reverse hereof.
This Note shall not be valid or become obligatory for any purpose until the
certificate of authentication hereon shall have been signed by the Trustee under
the Indenture referred to on the reverse hereof.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed
under its corporate seal.
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.
Dated:
CHEMICAL BANK DELAWARE CHEMICAL BANK DELAWARE
As Trustee As Trustee
By or
------------------------- By Chemical Bank
Authorized Officer As Authenticating Agent
By
-------------------------
Authorized Officer
[Paine Webber Group Inc.,
CORPORATE SEAL 1973 DELAWARE]
PAINE WEBBER GROUP INC.,
Attest:
By /s/ James C. Treadway, Jr.
-----------------------------
Secretary
/s/ Donald B. Marron
----------------------
Chairman of the Board
<PAGE> 2
PAINE WEBBER GROUP INC.
7-3/4% SUBORDINATED NOTE DUE 2002
1. INDENTURE
This Note is one of a series of unsecured debentures, notes or other
evidences of indebtedness (collectively, the "Securities") of Paine Webber
Group Inc., a Delaware corporation (the "Company"), issued and to be issued
under an Indenture dated as of March 15, 1988, between the Company and
Chemical Bank Delaware, a Delaware corporation, as Trustee (the "Trustee"), as
amended by a supplemental indenture dated as of September 22, 1989 and by a
supplemental indenture dated as of March 22, 1991 (as so amended, the
"Indenture"). The Indenture permits the issuance of an unlimited number of
series of Securities in an unlimited aggregate principal amount. This Note
is one of a series designated the 7-3/4% Subordinated Notes Due 2002 (the
"Notes"), which series is limited in aggregate principal amount to
$175,000,000. The Notes are subject to the terms stated in the Indenture,
and those made part of the Indenture by reference to the Trust Indenture Act
of 1939, as amended (the "Act"), and holders of Notes are referred to the
Indenture and the Act for a statement of those terms.
2. INTEREST
The Company promises to pay interest on the principal amount of this Note
at the rate per annum shown above. The Company will pay interest semiannually
on March 1 and September 1 of each year. Interest on the Notes will accrue from
the most recent date to which interest has been paid or if no interest has been
paid from September 1, 1992. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
3. METHOD OF PAYMENT
The Company will pay interest on the Notes (except defaulted interest) to
the persons who are registered holders of Notes at the close of business on
February 15 or August 15 next preceding the interest payment date. Holders
must surrender Notes to a Paying Agent to collect principal payments. The
Company will pay principal and interest in money of the United States that at
the time of payment is legal tender for payment of public and private debts.
However, the Company may pay interest by its check payable in such money. It
may mail an interest check to a holder's registered address.
4. PAYING AGENT AND REGISTRAR
Initially, Chemical Bank will act as Paying Agent and
Registrar. The Company may change the Paying Agent or Registrar without
notice.
5. DENOMINATIONS; TRANSFER; EXCHANGE
The Notes are in registered form without coupons in denominations of $1,000
and any multiple of $1,000. A holder may transfer or exchange Notes in
accordance with the Indenture. The Registrar may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay
any taxes and fees required by law or permitted by the Indenture.
6. PERSONS DEEMED OWNERS
The registered holder of this Note may be treated as the owner of it for
all purposes.
7. UNCLAIMED MONEY
If money for the payment of principal of or interest on the Notes remains
unclaimed for two years after such principal or interest has become due and
payable, it shall be repaid by the Trustee or Paying Agent to the Company at its
request. Thereafter, holders entitled to the money must look only to the
Company and not to the Trustee or Paying Agent for payment.
8. AMENDMENT; SUPPLEMENT; WAIVER
The Company and the Trustee may, without the consent of any holders of
Securities, agree to amend or supplement the Indenture or the Securities to,
among other things, add to the covenants of the Company for the benefit of
holders of all or any series of Securities, add to the Events of Default with
respect to all or any series of the Securities and, provided that such action
shall not adversely affect the interests of the holders of any series of
Securities in any material respect, cure ambiguities, defects or inconsistencies
in the Indenture or make other provisions. Subject to certain exceptions, the
holders of not less than a majority in principal amount of the outstanding
Securities of any series may waive any past default by the Company, with respect
to such series, on behalf of all holders of Securities of such series. Subject
to certain exceptions, the Company and the Trustee may agree to amend or
supplement the Indenture or the Securities of any series in any manner with the
consent of holders of not less than 66-2/3% in principal amount of the
outstanding Securities of each series to be affected.
9. OBLIGATIONS OF THE COMPANY
The Notes are direct, unsecured obligations of the Company. The Indenture
does not limit the amount of the Company's other unsecured debt.
The indebtedness evidenced by the Notes is, to the extent and in the
manner set forth in the Indenture, expressly subordinated and subject in right
of payment to the prior payment in full of all Superior Indebtedness (as
defined in the Indenture) and this Note is issued subject to such provisions of
the Indenture, and each holder of this Note by accepting the same, agrees to
and shall be bound by such provision and authorizes and directs the Trustee on
his behalf to take such action as may be necessary or appropriate to
acknowledge or effectuate such subordination as provided in their Indenture and
appoints the Trustee his attorney-in-fact for any and all such purposes.
10. SUCCESSOR CORPORATION
Any successor corporation resulting from a consolidation or merger
involving the Company, or from a conveyance, transfer or lease of the assets of
the Company substantially as an entirety, shall succeed to all rights and
obligations of the Company under the Notes and the Indenture, and thereafter,
except in the case of a lease, the predecessor corporation will be relieved of
all such obligations.
11. DEFAULTS AND REMEDIES
An Event of Default is: default for 30 days in payment of any interest on
the Notes; default in payment of any principal on the Notes; default in the
performance or breach by the Company of any covenant or warranty under the
Indenture for the benefit of the Notes and the continuance of the default or
breach for a period of 60 days following receipt of notice of such default or
breach; and certain events of bankruptcy or insolvency affecting the Company. If
an Event of Default occurs and is continuing, the Trustee or the holders of at
least 25% in principal amount of the Notes may declare the principal amount of
the Notes to be due and payable immediately. Holders of Notes may not enforce
the Indenture or the Notes except as provided in the Indenture. The Trustee
may refuse to enforce the Indenture or the Notes unless it receives indemnity
satisfactory to it. Subject to the above and other limitations, holders of a
majority in principal amount of the Notes may direct the Trustee in its exercise
of any trust or power with respect to the Notes. The Trustee may withhold from
holders of Notes notice of a default by the Company (except a default in payment
of principal or interest) if it is determined that withholding notice is in the
interest of such holders.
12. DEALINGS WITH THE COMPANY
Chemical Bank Delaware, the Trustee under the Indenture, or Chemical Bank,
the Paying Agent and Registrar under the Indenture, each in its individual or
other capacity may make loans to, accept deposits from and perform services for
the Company or its affiliates, and may otherwise deal with the Company or its
affiliates, as if it were not Trustee, Paying Agent or Registrar.
13. NO RECOURSE AGAINST OTHERS
A director, officer, employee or stockholder of the Company, as such, shall
not have any liability for any obligations of the Company under the Notes or the
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each holder of a Note by accepting such Note
waives all such claims and releases such directors, officers, employees and
stockholders from all such liability. Such waiver and release are part of the
consideration for the issue of the Notes.
14. COPIES OF INDENTURE
The Company will furnish to any holder of Notes upon written request and
without charge a copy of the Indenture. Requests may be made to: Secretary,
Paine Webber Group Inc., 1285 Avenue of the Americas, New York, New York, 10019.
15. GOVERNING LAW
The Notes shall be governed by and construed in accordance with the laws of
the State of New York.
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - __________Custodian__________
(Cust) (Minor)
under Uniform Gifts to Minors
Act__________________________
(State)
Additional abbreviations may also be used though not in the above list.
----------------------------------------
FOR VALUE RECEIVED the undersigned hereby sell(s),
assign(s) and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
-----------------------
--------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of
assignee
--------------------------------------------------------------------------------
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing _____________________________________________ attorney to transfer
said Note on the books of the Company, with full power of substitution in the
premises.
Dated:_____________________________
--------------------------------------------
<PAGE> 1
EXHIBIT 10.1
--------------------------------------------------------------------------------
LIMITED PARTNERSHIP AGREEMENT
of
PW PARTNERS 1993 DEDICATED L.P.
Among
THE PARTIES NAMED HERETO
Dated as of January 6, 1994
--------------------------------------------------------------------------------
THE LIMITED PARTNERSHIP INTERESTS EVIDENCED BY THIS PARTNERSHIP AGREEMENT AND
THE SECURITIES TO BE HELD BY THE PARTNERSHIP HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES LAW AND MUST BE HELD
INDEFINITELY UNLESS SOLD IN COMPLIANCE WITH ALL APPLICABLE SECURITIES LAWS.
<PAGE> 2
LIMITED PARTNERSHIP AGREEMENT
of
PW PARTNERS 1993 DEDICATED L.P.
Table of Contents
-----------------
<TABLE> Page
<CAPTION> ----
<S> <C> <C>
ARTICLE I. DEFINITIONS AND TERMS........... 1
Section 1.01. Definitions..................... 1
Section 1.02. Terms Generally................. 9
ARTICLE II. THE PARTNERSHIP................. 10
Section 2.01. Name............................ 10
Section 2.02. Term............................ 10
Section 2.03. Principal Place of Business..... 11
Section 2.04. Registered Office in Delaware... 11
Section 2.05. Names and Addresses of the
Partners...................... 11
Section 2.06 Transfer of PWG Common
and Option................... 11
ARTICLE III. PURPOSE AND POWERS.............. 11
Section 3.01. Purpose and Powers.............. 11
ARTICLE IV. MANAGEMENT AND CONTROL.......... 14
Section 4.01. Authority of General Partner.... 14
Section 4.02. Expenses........................ 15
Section 4.03. No Compensation to General
Partner....................... 15
ARTICLE V. CAPITAL CONTRIBUTIONS........... 15
Section 5.01. Capital Contributions........... 15
ARTICLE VI. ALLOCATIONS AND DISTRIBUTIONS... 16
Section 6.01. Allocation of Income and Loss... 16
Section 6.02. Liability of General and
Limited Partners.............. 17
Section 6.03. Allocations for Tax Purposes.... 18
Section 6.04. Valuation....................... 19
Section 6.05. Distributions................... 21
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE VII. PARTNERS......................... 24
Section 7.01. Designation of Limited Partners.. 24
Section 7.02. Acceleration of Applicable
Date; Purchase of a Limited
Partners's Interest............ 25
Section 7.03. Transfer of a Limited Partner's
Interest....................... 27
Section 7.04. Admission or Substitution of
New Limited Partners........... 28
Section 7.05. Admission of Substitute or
Additional General Partners.... 29
Section 7.06. Withdrawal of a Limited or
General Partner................ 30
Section 7.07. Final Events With Respect to a
Partner........................ 31
Section 7.08. Continuation of Partnership...... 32
Section 7.09. Removal of General Partner....... 32
Section 7.10. Compliance with Law.............. 33
ARTICLE VIII. WINDING-UP AND DISSOLUTION OF
THE PARTNERSHIP................ 34
Section 8.01. Winding-Up and Dissolution....... 34
Section 8.02. Amounts Reserved................. 35
ARTICLE IX. REPORTS TO PARTNERS.............. 36
Section 9.01. Books of Account................. 36
Section 9.02. Audit and Report................. 36
Section 9.03. Fiscal Year...................... 37
ARTICLE X. MISCELLANEOUS.................... 38
Section 10.01. Governing Law.................... 38
Section 10.02 Understanding of Limited
Partners....................... 38
Section 10.03. Indemnification and Related
Matters........................ 38
Section 10.04. Notice........................... 39
Section 10.05 Counterparts..................... 40
Section 10.06. Completeness and Amendments...... 40
Section 10.07. Power of Attorney................ 40
</TABLE>
<PAGE> 4
1
PW PARTNERS 1993 DEDICATED L.P.
LIMITED PARTNERSHIP AGREEMENT dated as of
January 6, 1994 among PAINEWEBBER PARTNERS INC., a
Delaware corporation, as General Partner, and the
persons signing this Agreement as Limited Partners.
The Partners, in consideration of their mutual covenants herein
contained, hereby agree to become partners and to form a limited partnership
(the "Partnership") under the Delaware Revised Uniform Limited Partnership Act
(the "Delaware Act") upon the filing for record of the Certificate of Limited
Partnership in the office of the Secretary of State as required by Section 17-
201 of the Delaware Act, for the purpose and duration, and upon the terms and
conditions, hereinafter set forth, and further hereby mutually covenant and
agree as follows:
ARTICLE I
Definitions and Terms
1.01. Definitions. For the purposes of this Agreement, the
following terms have the corresponding meanings, except as otherwise
specifically provided herein:
"Acquiring Person" means any "person," as such term is used in
Sections 13(d) and 14(d)(2) of the Exchange Act, other than PWG, PWI or
any employee benefit plan
<PAGE> 5
2
sponsored by PWG or PWI, who becomes a "beneficial owner," as such term
is used in Rule 13d-3 promulgated under the Exchange Act, of 20% or more
of the Voting Stock of PWG or PWI; provided, however, that in the case of
any "person" who on the date of this Agreement owned 5% or more of the
Voting Stock of PWG, only acquisitions by such "person" occurring after
such date shall be taken into account in determining whether or not such
"person" is an Acquiring Person.
"Affiliate" means, with respect to a Person, any other Person
who, directly or indirectly through one or more intermediaries, controls,
is controlled by, or is under common control with, the first Person.
"Applicable Date" means December 10, 1997, unless accelerated
pursuant to Section 7.02.
"Bankruptcy" means, with respect to a Person, the occurrence of
any of the following events: (i) the filing of an application by such
Person for, or a consent to, the appointment of a trustee or custodian of
his assets; (ii) the filing by such Person of a voluntary petition in
bankruptcy or the seeking of relief under Title 11 of the United States
Code, as now constituted or hereafter amended, or the filing of a
pleading in any court of record admitting in writing his inability to pay
his debts as they become due; (iii) the inability of such Person to pay
his debts as such debts become due; (iv) the making by such Person of a
general assignment for the benefit of creditors; (v) the filing by such
Person of an
<PAGE> 6
3
answer admitting the material allegations of, or his consenting to, or
defaulting in answering, a bankruptcy petition filed against him in any
bankruptcy proceeding or petition seeking relief under Title 11 of the
United States Code, as now constituted or as hereafter amended; or (vi)
the entry of an order, judgment or decree by any court of competent
jurisdiction adjudicating such Person a bankrupt or insolvent or
appointing a trustee or custodian of his assets and the continuance of
such order, judgment or decree unstayed and in effect for a period of 60
consecutive days.
"Bonus Compensation Payment" means a payment equal to the cash
dividend per share declared and payable on PWG Common multiplied by the
number of shares of PWG Common subject to the Option on the record date
for such cash dividend.
"Capital Account" means, with respect to a Partner, an account
maintained for such Partner to which is credited such Partner's
contributions to the Partnership and any net income allocated to such
Partner pursuant to Section 6.01 and from which is debited any
distributions to such Partner and any net losses allocated to such
Partner pursuant to Section 6.01. In the case of any distribution in
kind, Capital Accounts will be adjusted as if the asset distributed had
been sold and the proceeds distributed in cash, and any resulting gain or
loss on such sale will be allocated pursuant to Section 6.01.
"Capital Contribution" means, with respect to a
<PAGE> 7
4
Partner, the contribution of capital to the Partnership made by such
Partner in accordance with Section 5.01.
"Capital Gain (Loss)" means, with respect to the sale or other
disposition of PWG Common, the Option or any other Investment or asset,
the amount, if any, by which: (i) the proceeds of such sale or other
disposition, plus any interest, dividends or other income received with
respect to such Investment or other asset (unless such amounts previously
have been distributed to the Partners entitled thereto), exceed (are less
than) (ii) the cost or other basis of such Investment or other asset to
the Partnership, plus any expenses incurred with respect thereto.
"Capital Percentage" means, with respect to a Partner, the
percentage that the Capital Account of such Partner bears to the sum of
all Capital Accounts.
"Capital Schedule" means a capital schedule distributed pursuant
to Section 5.01(a).
"Certificate of Limited Partnership" means the Certificate of
Limited Partnership dated and filed with respect to the Partnership for
record in the Office of the Secretary of State of Delaware on January 6,
1994 pursuant to Section 17-201 of the Delaware Act.
A "Change in Control" shall be deemed to have occurred if:
(i) any Person becomes an Acquiring Person;
(ii) a majority of the Board of Directors of PWG
("PWG Board") at any time consists of individuals
<PAGE> 8
5
elected to membership at a PWG Board meeting or a PWG
shareholders' meeting other than individuals nominated or
approved by a majority of the Disinterested Directors;
(iii) PWG adopts any plan of liquidation providing for the
distribution of all or substantially all of its assets;
(iv) all or substantially all the business of PWI is
disposed of pursuant to a merger, consolidation or other
transaction (other than a merger, consolidation or other
transaction with a company of which 50% or more of the Voting
Stock is owned, directly or indirectly, by PWG both before and
immediately after the merger, consolidation or other transaction)
in which PWI is not the surviving corporation or PWG is
materially or completely liquidated; or
(v) PWG or PWI combines with another company and is the
surviving corporation but, immediately after the combination, the
Persons who were shareholders of PWG immediately prior to the
combination hold, directly or indirectly, 50% or less of the
Voting Stock of the combined company (there being excluded from
the number of shares held by such shareholders, but not from the
Voting Stock of the combined company, any shares received by
Affiliates of such other company in exchange for stock of such
other company).
<PAGE> 9
6
"Code" means the Internal Revenue Code of 1986, as from time
to time amended and in effect.
"Compensation Committee" means the Compensation Committee of
the PWG Board.
"Contribution Date" means the date falling in January 1994,
fixed by the General Partner in its discretion, on which Capital
Contributions are to be made by the Limited Partners.
"Disinterested Director" means any member of the PWG Board
who (i) is not an officer or employee of PWG, PWI or any of
their subsidiaries, (ii) is not an Acquiring Person or an
affiliate or associate of an Acquiring Person or a nominee or
representative of an Acquiring Person or of any such affiliate
or associate, and (iii) was a member of the PWG Board prior to
the date of this Agreement or was recommended for election or
elected by a majority of the Disinterested Directors then on the
PWG Board.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Final Event" means the death, adjudication of incompetency,
Bankruptcy, liquidation, dissolution or withdrawal from the
Partnership of any Partner.
"General Partner" means the Person named herein as General
Partner or any Person admitted as an additional or substitute
General Partner, so long as such Person shall remain a General
Partner.
"Investments" means PWG Common, the Option, any
<PAGE> 10
7
securities other than PWG Common delivered upon exercise of the
Option, any securities or other property distributed in respect
of PWG Common or that may be acquired pursuant to rights
distributed in respect of PWG Common, short-term investments
commonly regarded as moneymarket investments, bank deposits and
cash.
"Limited Partner" means any of the Persons named herein as
Limited Partners or any other Person admitted as an additional
or substitute Limited Partner, as long as such Person remains a
Limited Partner.
"Limited Partnership Percentage" means, with respect to any
Limited Partner, the Capital Account of such Limited Partner
divided by the Capital Accounts of all the Limited Partners.
For the purpose of this definition, all Limited Partnership
Interests held by the General Partner shall be excluded.
"Net Capital Gain" means the sum of all Capital Gains
realized by the Partnership on or prior to a given date, less
the sum of the following:
(i) all Capital Losses or, without duplication, other
losses realized by the Partnership on or prior to such date;
plus
(ii) a reserve established by the General Partner in
its discretion for unrealized losses; plus
(iii) the aggregate amount of all cash distributions
previously made to the Limited Partners in accordance with
Section 6.05(a).
"Net Value" means, with respect to any Investment as
<PAGE> 11
8
of any date: (i) the value of the Investment on such date,
as determined in accordance with Section 6.04, minus (ii)
the sum of the indebtedness incurred by the Partnership with
respect to such Investment, whether or not secured by the
Investment and with or without recourse to the Partnership.
"Operative Date" means the date, if any, following a
Change in Control that has been designated in a resolution
adopted by a majority of the Disinterested Directors, in
their sole discretion, as the Operative Date.
"Option" means the contractual right to be granted by
PWG to the Partnership to acquire up to 1,000,000 shares of
PWG Common at $28.00 per share, to be exercisable in whole
or in part at any time on or after the Applicable Date
through December 31, 2003.
"PaineWebber" means PWG or any Affiliate of PWG.
"Partner" means any Person who is a partner in the
Partnership, whether a General Partner or a Limited Partner.
"Person" means any individual, corporation,
partnership, association, trust, joint stock company or
unincorporated organization.
"PWG" means Paine Webber Group Inc., a Delaware
corporation.
"PWG Common" means the common stock, par value $1.00,
of PWG.
"PWI" means PaineWebber Incorporated, a Delaware
corporation.
<PAGE> 12
9
"Senior Limited Partners" means the three individual
Limited Partners who have the largest Limited Partnership
Percentages on the Operative Date. If more than three
individuals have such Limited Partnership Percentages (e.g.,
two or more individual Limited Partners hold the third
highest interest), then all such individuals shall be Senior
Limited Partners. If three or fewer individuals are Limited
Partners on the Operative Date, then such remaining
individual Limited Partners shall be Senior Limited
Partners.
"Successor in Interest" means, with respect to a
Partner (whether such position is acquired or held by
operation of law or otherwise), any (i) trustee, custodian,
receiver or other Person acting in any bankruptcy or
reorganization proceeding with respect to such Partner; (ii)
assignee for the benefit of the creditors of such Partner;
(iii) trustee, receiver or other fiduciary acting for or
with respect to the dissolution, liquidation or termination
of such Partner; (iv) executor, administrator, committee or
other legal representative of such Partner; or (v) other
successor or assign of such Partner.
"Voting Stock" means the capital stock of any class
or classes of a corporation having general voting power
under ordinary circumstances, in the absence of
contingencies, to elect the directors of such corporation.
1.02. Terms Generally. Any definition in Section 1.01 applies
equally to both the singular and plural forms of
<PAGE> 13
10
the terms defined. If the context requires, any pronoun includes its masculine,
feminine and neuter forms. Each of the words "include," "includes" and
"including" is deemed to be followed by the phrase "without limitation." All
terms herein that relate to accounting matters are to be interpreted in
accordance with generally accepted accounting principles as in effect from time
to time. All references to "Sections" and "Articles" refer to Sections and
Articles of this Agreement, unless otherwise specified. The words "hereof,"
"herein" and similar terms relate to this Agreement.
ARTICLE II
The Partnership
2.01. Name. The Partnership will conduct its activities under
the name "PW Partners 1993 Dedicated L.P." The General Partner will have the
power at any time to change the name of the Partnership. The General Partner
will give prompt notice of any such change to each Limited Partner.
2.02. Term. The Partnership will commence upon the filing of
the Certificate of Limited Partnership in the Office of the Secretary of State
of Delaware and will continue in existence through the close of business on
December 31, 2003, unless sooner terminated pursuant to the provisions Section
7.08 or Section 8.01(a). At any time on or prior to December 31, 2003, the
General Partner may extend the Partnership for up to five years if the General
Partner deems such extension desirable to permit the orderly liquidation of the
Partnership or otherwise to further the purposes of the
<PAGE> 14
11
Partnership.
2.03. Principal Place of Business. The principal place of
business of the Partnership will be 1285 Avenue of the Americas, New York, New
York 10019, or such other place, within or without the State of Delaware, as may
be designated by the General Partner from time to time. The General Partner
will give prompt notice of any change to each Limited Partner.
2.04. Registered Office in Delaware. The address of the
Partnership's registered office in Delaware is 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of the Partnership's registered
agent at such address is The Corporation Trust Company.
2.05. Names and Addresses of the Partners. The name and
residence address of each Partner is as set forth opposite his signature.
2.06. Transfer of PWG Common and Option. By signing this
Agreement each Limited Partner acknowledges his instructions to PWG that the
shares of PWG Common and the interest in the Option issued for the account of
such Limited Partner be transferred directly to the Partnership in lieu of being
issued to such Limited Partner and subsequently transferred by such Limited
Partner to the Partnership.
ARTICLE III
Purpose and Powers
3.01. Purpose and Powers. The purpose of the Partnership is (a)
to acquire and hold shares of PWG Common, the Option and, upon exercise of the
Option, the securities to
<PAGE> 15
12
be delivered upon such exercise, (b) to realize Capital Gains upon an increase
in the market price of PWG Common, and (c) to distribute to the Limited Partners
the Option, fractional interests in the Option and any and all shares of PWG
Common remaining after the whole or partial exercise of the Option and payment
of the exercise price of the Option. In furtherance of this purpose, the
Partnership will have all powers necessary, suitable or convenient to accomplish
this purpose, alone or with others, as principal or agent, including the
following:
(i) to buy or otherwise acquire, hold and sell the Option, PWG
Common, any other securities to be delivered upon exercise of the Option
and any other Investments, or any combination thereof, whether any of the
foregoing are readily marketable or not;
(ii) to exercise the Option, in whole or in part, at any time
during the term thereof and to pay or cause the payment of the exercise
price of the Option in whole or in part;
(iii) to distribute to the Limited Partners PWG Common, or any
dividends or other distributions received by the Partnership in respect
thereof, fractional interests in the Option, any other securities
received upon exercise of the Option and any other Investments or assets
of the Partnership, or any combination thereof;
(iv) to invest and reinvest any cash assets of the Partnership in
Investments;
(v) to borrow money from time to time, issue
<PAGE> 16
13
promissory notes or other evidences of indebtedness and secure payment of
the principal of any such indebtedness and the interest thereon by
mortgage, pledge or the granting of a security interest in any of the
property of the Partnership;
(vi) to lend any of its property or funds, either with or without
security, at any legal rate of interest or without interest;
(vii) to have and maintain one or more offices within or without the
State of Delaware, and in connection therewith, to rent or acquire office
space, engage personnel and compensate them and do such other acts and
things as may be advisable or necessary in connection with the
maintenance of such office or offices;
(viii) to open, maintain, effect transactions in, and close
securities, commodities and futures accounts, including both cash and
margin accounts, with brokers, dealers, merchants and any other person
authorized to conduct any such business;
(ix) to open, maintain and close bank accounts and draw checks and
other orders for the payment of monies;
(x) to engage and compensate accountants, custodians, investment
advisers, attorneys and any and all other advisers, agents and
assistants, both professional and nonprofessional, as may be necessary or
advisable;
(xi) to enter into, make and perform all contracts, agreements and
other undertakings as may be necessary or
<PAGE> 17
14
advisable or incident to carrying out its purpose; and
(xii) to sue and be sued, to prosecute, settle or compromise all
claims against third parties, to compromise, settle or accept judgment
with respect to claims against the Partnership, and to execute all
documents and make all representations, admissions and waivers in
connection therewith.
ARTICLE IV
Management and Control
4.01. Authority of General Partner. (a) The management and
operation of the Partnership and the formulation and execution of investment
policy will be vested exclusively in the General Partner. In its sole
discretion, the General Partner will exercise all powers necessary or convenient
for the purposes of the Partnership, including those enumerated in or implied by
Section 3.01, on behalf and in the name of the Partnership. If at any time the
Partnership has two or more General Partners, each such General Partner will
have the full authority of the General Partner under this Agreement; provided,
however, that any controversy among the General Partners will be resolved in
favor of the General Partner or Partners having the greater interest in the
Partnership (based upon Capital Contributions).
(b) A Limited Partner will have no right to, and will not, take
part in the management or control of the Partnership's business or act or bind
the Partnership, and
<PAGE> 18
15
will have only the rights and powers granted to Limited Partners herein.
(c) No provision of this Agreement precludes any Partner or any
Affiliate of any Partner from engaging in any activity whatsoever, including
receiving compensation from issuers of securities for investment banking
services, managing or advising with respect to investments, participating in
investments, brokerage, consulting or advisory arrangements, or acting as an
adviser to or a participant in any corporation, partnership, trust or other
business entity or from receiving compensation or profit therefor.
4.02. Expenses. The General Partner will bear and pay all the
expenses of the Partnership, excluding (i) costs and expenses directly related
to the purchase or sale of the Option, PWG Common, or other Investments by the
Partnership (including brokerage fees and commissions, transfer taxes and costs
relating to the registration or qualification for sale of the Option, PWG Common
or any other Investments); and (ii) any Federal, state, local or other taxes of
the Partnership.
4.03. No Compensation to General Partner. The General Partner
will not receive any fees or other compensation for serving as such pursuant to
this Agreement.
ARTICLE V
Capital Contributions
5.01. Capital Contributions. (a) Prior to the Contribution
Date, the General Partner will prepare and
<PAGE> 19
16
distribute to each prospective Limited Partner designated pursuant to Section
7.01 a Capital Schedule stating the Capital Contribution of such prospective
Limited Partner. The General Partner will promptly notify each such prospective
Limited Partner of any change in such Capital Schedule.
(b) On or before the Contribution Date, (i) the General Partner
will make a Capital Contribution to the Partnership in accordance with its
Capital Schedule and (ii) each Limited Partner will make a Capital Contribution
to the Partnership of the shares of PWG Common and the interest in the Option
issued to him immediately prior thereto for an amount equal to the amount
provided on his Capital Schedule in accordance with Section 2.06.
ARTICLE VI
Allocations and Distributions
6.01. Allocation of Income and Loss. (a) The net income (or
net loss) of the Partnership will be determined in each fiscal year in
accordance with the accounting methods followed by the Partnership for Federal
income tax purposes and will be allocated among the Partners and credited to (or
debited from) their respective Capital Accounts in accordance with their
respective Capital Percentages.
(b) The net loss allocated pursuant to Section 6.01(a) shall not
exceed the maximum amount of net loss that can be so allocated and considered to
have economic effect under Treasury Regulation Section 1.704-1(b)(2)(ii)(d).
(c) If, during any fiscal year or other period of
<PAGE> 20
17
the Partnership, any Limited Partner unexpectedly receives an adjustment,
allocation or distribution described in Treasury Regulation Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6) that causes or increases a deficit in such
Limited Partner's Capital Account balance (as defined for purposes of Treasury
Regulation Section 1.704-1(b)(2)(ii)(d) and as determined after all other
allocations provided for in this Section 6.01 have been tentatively made as if
this Section 6.01(c) were not in this Agreement), there shall be allocated to
such Partner a pro rata portion of each item of Partnership income, including
gross income, and gain for such year in an amount and manner sufficient to
eliminate such Partner's deficit Capital Account balance as quickly as possible.
Notwithstanding any other provision of this Section 6.01, the General Partner
shall make such offsetting special allocations of Partnership income, gain, loss
or deduction in whatever manner it determines appropriate so that, after such
offsetting allocations are made, each Partner's Capital Account balance is, to
the extent possible, equal to the Capital Account balance such Partner would
have had if the preceding sentence were not part of the Agreement and all
Partnership items were allocated pursuant to Sections 6.01(b) and (c).
6.02. Liability of General and Limited Partners. (a) The
General Partner will have unlimited liability for the satisfaction and discharge
of all losses, liabilities and expenses of the Partnership.
(b) Each Limited Partner and former Limited Partner
<PAGE> 21
18
will be liable for the satisfaction and discharge of all losses, liabilities and
expenses of the Partnership allocable to him pursuant to Section 6.03, but only
to the extent of his Capital Contribution. In no event will any Limited Partner
or former Limited Partner be obligated to make any additional capital
contribution to the Partnership in excess of his initial Capital Contribution,
or have any liability in excess of his Capital Contribution for the satisfaction
and discharge of the losses, liabilities and expenses of the Partnership.
(c) Except as set forth in Section 6.01, a Partner will not have
any obligation to the Partnership or to any other Partner to restore any
negative balance in the Capital Account of such Partner. Until distribution of
any such Partner's interest in the Partnership upon the dissolution of the
Partnership, neither his Capital Account nor any part thereof will be subject to
withdrawal or redemption except with the consent of the General Partner.
6.03. Allocations for Tax Purposes. (a) All items of income,
deduction and credit realized by or allowable to the Partnership will be
determined and allocated among the Partners for Federal, state and local income
tax purposes in the same manner as set forth in Section 6.01.
(b) The General Partner will be the "tax matters partner" for
all purposes of the Code and will have the power and authority to effect the
allocations provided for in this Section 6.03 and to take such actions as the
tax matters partner is required or permitted to take under the Code and to take
all other actions that, in the good faith opinion of the
<PAGE> 22
19
General Partner, are necessary or convenient for the Partnership to take to
ensure compliance with the Code or any other applicable law or regulation.
Notwithstanding any other provision of this Agreement to the contrary, if in the
good faith opinion of the General Partner any of the allocations provided for in
this Section 6.03 are prohibited by the Code or other applicable law or
regulation or may subject the Partnership or any Partner to legal penalty or
onerous condition, the General Partner will have the power and authority to
modify any such allocation to the extent necessary to comply with the Code or
other applicable law or regulation or to avoid such legal penalty or onerous
condition.
6.04. Valuation. For the purpose of determining Net Value, the
value of the Option, any fractional interest in the Option, PWG Common, any
other Investment or any other asset of the Partnership as of any date (or in the
event such date is not a business day, as of the next preceding business day)
will be determined as follows:
(a) except as provided in clause (d) below, marketable
Investments listed on a national securities exchange or as a "National
Market Issue" in the National Association of Securities Dealers'
Automated Quotation System will be valued at the last sales price on the
date of valuation, or in the absence of a sale on such date, at the last
bid price on the date of valuation;
(b) except as provided in clause (d) below, marketable
Investments traded in the over-the-counter
<PAGE> 23
20
market, but which are not "National Market Issues," will be valued at the
last bid price as reported for the date of valuation;
(c) the option (or fractional interest therein) will be valued
(i) prior to the Applicable Date, at $1.00, and (ii) on and after the
Applicable Date, at the aggregate value on the valuation date of the
securities to be delivered upon exercise of the Option (or fractional
interest therein) (determined as provided in this Section 6.04), less the
aggregate exercise price of the Option;
(d) notwithstanding anything in this Section 6.04 to the
contrary, any asset required to be sold by the Partnership at a specified
price upon the occurrence of a contingent event will be valued at such
price upon and after the occurrence of such event;
(e) all other assets will be valued at fair market value; and
(f) prior to the Applicable Date, except as provided in clause
(d) above, any share of PWG Common held by the Partnership will be valued
at a price per share equal to the lesser of (A) the original purchase
price per share (i.e., $28.00) and (B) the fair market price of a share
of PWG Common at the time of valuation, reduced, in either case, (but not
less than zero) by the amount of the Bonus Compensation Payments or cash
dividends previously paid on such shares.
All valuation decisions made pursuant to this Section
<PAGE> 24
21
6.04 will be made by the General Partner.
6.05. Distributions. (a) All cash receipts of the Partnership
with respect to any Capital Gain will be distributed as soon as practicable
after the receipt thereof to the Partners in proportion to their respective
Capital Accounts; provided, however, that the amount to be so distributed may
not exceed the Net Capital Gain of the Partnership at the time of such
distribution; and provided further that cash receipts needed for the payment of
the exercise price of the Option will be used for that purpose and not
distributed. Notwithstanding the previous sentence, prior to the Applicable
Date, the General Partner will have authority to withhold any distribution
provided for in this Section 6.05(a).
(b) The General Partner will make distributions of cash, to the
extent of the amount of cash then held by the Partnership, to the Partners for
payment of applicable Federal, state and local taxes on any substantial amount
of net realized taxable income not otherwise distributed to the Partners for any
fiscal year of the Partnership. Such distributions will be disbursed as soon as
possible after preparation and mailing of the report provided for in Section
9.02. The aggregate amount of any such distribution will be determined by the
General Partner, except that, subject to the limitation in the first sentence of
this Section 6.05(b), the minimum aggregate amount of such distribution will be
the taxes that would be payable if the taxable income of the Partnership were
all allocated to an individual subject to the
<PAGE> 25
22
then-prevailing maximum Federal, New York State and New York City tax rates
(taking into account the extent to which the taxable income allocated by the
Partnership was composed of long-term capital gains and the deductibility of
state and local income taxes for Federal income tax purposes). Each such
distribution will be allocated among the Partners in accordance with their
respective Capital Percentages.
(c) Upon the exercise of the Option in whole or in part and
payment of the exercise price thereof, the General Partner will either (i)
distribute to the Partners the shares of PWG Common then held by the Partnership
or (ii) sell some or all such shares and distribute to the Partners the net cash
received on account of such sale and any remaining shares of PWG Common then
held by the Partnership.
(d) Any cash dividends on PWG Common or Bonus Compensation
Payments received by the Partnership will be distributed to the Partners in
proportion to their respective Capital Accounts promptly after the receipt
thereof by the Partnership.
(e) In addition to distributions required by Sections 6.05(a)
through 6.05(d), inclusive, the General Partner at any other time may make
distributions to the Partners of cash, PWG Common, the Option, fractional
interests in the Option or other Investments or assets or any combination
thereof. Each such distribution will be allocated to the Partners in accordance
with their respective Capital Accounts.
(f) If a Limited Partner receives a distribution of
<PAGE> 26
23
PWG Common, the Option or a fractional interest in the Option prior to the
Applicable Date, he will, as a condition to receiving such distribution, agree
in writing that (i) he will not pledge, sell or otherwise dispose of such
securities prior to the Applicable Date, except for transfers by will or
pursuant to the laws of descent and distribution and (ii) if his employment by
PaineWebber terminates prior to the Applicable Date for any reason whatsoever
(other than death, permanent disability as determined by the Board of Directors
of PWI, retirement pursuant to any then existing pension or retirement plan of
PaineWebber or otherwise with the prior approval of the Compensation Committee),
he will sell all such securities to the Partnership within 120 calendar days
following such termination. The purchase price for such securities will be
determined as follows: (x) for shares of PWG Common, the lesser of (A) the
original purchase price per share (i.e., $28.00) and (B) the fair market price
of a share of PWG Common at the time of repurchase, reduced, in either case,
(but not less than zero), by the amount of the Bonus Compensation Payments or
cash dividends previously paid on such shares, and (y) for the Option or a
fractional interest in the Option, $1.00. All such securities will bear
appropriate legends reflecting the foregoing provisions. Dissolution of the
Partnership prior to the Applicable Date will not affect such Limited Partner's
obligations under this Section 6.05(f).
(g) In no event will any distribution be made to any Limited
Partner in an amount greater than the amount in such
<PAGE> 27
24
Limited Partner's Capital Account.
ARTICLE VII
Partners
7.01. Designation of Limited Partners. (a) At any time prior
to the Contribution Date, the General Partner may invite any other Person to
become a Limited Partner by delivery of a Capital Schedule prepared in
accordance with Section 5.01. Any Person so invited who agrees in writing prior
to the Contribution Date to make the Capital Contribution set forth on such
Capital Schedule will have the opportunity to do so, but no Person will be
deemed to be a Limited Partner until he has made a Capital Contribution and been
admitted to the Partnership pursuant to Section 7.04.
(b) At the request of any employee of PaineWebber who has been
invited by the General Partner to become a Limited Partner, the General Partner,
in its sole discretion, may permit a trust designated by such employee to make
the Capital Contribution for such person and to become a Limited Partner of the
Partnership. If such a trust is admitted as a Limited Partner, all references
herein to the termination of employment of a Limited Partner or to any Final
Event with respect to a Limited Partner will be deemed to refer both to such
trust and to the employee of PaineWebber who designated such trust. All
references herein to an employee of PaineWebber will include consultants to
PaineWebber and all references herein to employment by PaineWebber will include
employment by PaineWebber as a consultant.
<PAGE> 28
25
(c) The General Partner's right to designate all the Limited
Partners will be exercised in its sole discretion and will not be subject to
challenge by any Limited Partner. The fact that a Limited Partner was a limited
partner with respect to a previous partnership sponsored or established by
PaineWebber does not confer upon him any right to be a Limited Partner of this
Partnership.
7.02. Acceleration of Applicable Date; Purchase of a Limited
Partner's Interest. (a) The General Partner (acting unanimously, in the case
of multiple General Partners), with the consent of the Compensation Committee,
may at any time or from time to time accelerate the Applicable Date with respect
to the Capital Accounts (in whole or in part) of all (but not less than all) of
the Limited Partners.
(b) Notwithstanding anything in Section 7.02(a) to the contrary,
the Applicable Date will be automatically accelerated with respect to all of the
Capital Accounts upon the occurrence of either of the following events:
(i) a Change in Control and the declaration of an Operative
Date; or
(ii) the commencement of a tender offer to acquire 20% or more of
the outstanding shares of PWG Common if such tender offer has not been
approved by a majority of the Disinterested Directors.
(c) If the employment of a Limited Partner by PaineWebber
terminates for any reason whatsoever (other than death, permanent disability as
determined by the Board of Directors of PWI, retirement pursuant to any then
existing
<PAGE> 29
26
pension or retirement plan of PaineWebber or otherwise with the prior approval
of the Compensation Committee) on or after the Applicable Date, the General
Partner will have the right, but not the obligation, exercisable in its sole
discretion and on written notice given within 120 calendar days of such
termination, to purchase for cash such Limited Partner's interest in the
Partnership (or if such Person has ceased to be a Limited Partner, his rights or
the rights of his Successor in Interest, if any, to receive allocations and
distributions with respect thereto) and any fractional interest in the Option
distributed to such Limited Partner or his Successor in Interest, to the extent
not exercised prior to the date such notice is given, for an amount equal to the
sum of (A) such Limited Partner's share (based on his Capital Percentage) of the
Net Value of all assets then held by the Partnership, plus (B) the value of any
fractional interest in the Option held by such Limited Partner determined as
provided in Section 6.04(c), calculated in each case as of the last business day
of the Partnership's fiscal quarter in which such termination occurred.
(d) If the employment of a Limited Partner by PaineWebber
terminates for any reason whatsoever (other than death, permanent disability as
determined by the Board of Directors of PWI, retirement pursuant to any then
existing pension or retirement plan of PaineWebber or otherwise with the prior
approval of the Compensation Committee) prior to the Applicable Date, the
Partnership will purchase, and the Limited Partner agrees to sell, for cash such
Limited
<PAGE> 30
27
Partner's interest in the Partnership (or if such Person has ceased to be a
Limited Partner, his rights or the rights of his Successor in Interest, if any,
to receive distributions and allocations with respect thereto) within 120
calendar days following such termination for an amount equal to such Limited
Partner's share (based on his Capital Percentage) of the assets then held by the
Partnership, such share of assets to be valued at its Net Value.
(e) Notwithstanding anything in this Agreement to the contrary,
upon the purchase by the General Partner or the Partnership of a Limited
Partner's interest in the Partnership (or his rights or the rights of his
Successor in Interest, if any, to receive allocations and distributions with
respect thereto) pursuant to Section 7.02(c) or (d), the General Partner shall
have no interest in the Option in respect of such interest and the Option shall
be allocated among the Partners without regard to such interest.
7.03. Transfer of a Limited Partner's Interest. A Limited
Partner may not sell, assign, mortgage, pledge or otherwise dispose of or
transfer all or any part of his interest in the Partnership to any Person
without the prior written consent of the General Partner; provided, however,
that such consent will not be required in the case of a Successor in Interest
described in clauses (i) through (iv) of the definition of "Successor in
Interest" set forth in Section 1.01. No Person acquiring any Limited Partner's
interest in the Partnership will become a Partner of the Partnership, or acquire
such Limited Partner's right to participate in the
<PAGE> 31
28
affairs of the Partnership to the extent permitted herein, unless and until such
person is admitted as a Limited Partner pursuant to Section 7.04. Such Person
will, however, to the extent of the interest transferred to him, be entitled to
such Limited Partner's share of allocations and distributions pursuant to
Article VI and VIII (subject to the rights of the General Partner or the
Partnership to purchase such interest pursuant to Section 7.02(c) or 7.02(d) and
to purchase certain securities distributed to such Limited Partner or such
Person pursuant to Section 6.05(f)).
7.04. Admission or Substitution of New Limited Partners. (a)
The General Partner will admit as an additional Limited Partner any Person not
already a Limited Partner who makes a Capital Contribution in accordance with
Section 5.01. The General Partner also has the right, in its sole discretion,
to admit as a substitute or additional Limited Partner any Person who acquires
in accordance with this Agreement the interest in the Partnership, or any part
thereof, of a Limited Partner. The admission of any Person as a substitute or
additional Limited Partner must be in writing signed by the General Partner and
will not be effective until such Person's written acceptance and adoption of all
the terms and provisions of this Agreement is received by the General Partner.
The General Partner's failure or refusal to admit a transferee (as to whom the
General Partner has given his written consent pursuant to Section 7.03) as a
substitute or additional Limited Partner will not affect the right of such
<PAGE> 32
29
transferee to receive allocations and distributions pursuant to Articles VI and
VIII to which his predecessor in interest was entitled.
(b) If the General Partner permits a Limited Partner to transfer
all or part of such Limited Partner's interest to a trust designated by such
Limited Partner, and the General Partner admits such trust into the Partnership
as a Limited Partner, all references herein to the termination of employment of
a Limited Partner or to any Final Event with respect to a Limited Partner will
be deemed to refer both to such trust and to the employee of PaineWebber who
transferred such interest to such trust.
(c) A transferee who is admitted as a substitute or additional
Limited Partner pursuant to this Section 7.04 will reimburse the General Partner
for any out-of-pocket expenses incurred by it directly as a result of such
transferee's admission to the Partnership.
7.05. Admission of Substitute or Additional General Partners.
(a) Except as otherwise provided in this Article VII, a Person other than
PaineWebber will be admitted to the Partnership as a General Partner only if (i)
such admission will not cause the termination of the Partnership or result in
the Partnership being classified as other than a partnership for Federal income
tax purposes, and (ii) such Person is designated in writing by Limited Partners
having a 66-2/3% interest in the Partnership (based upon Limited Partnership
Percentages).
(b) Subject to Section 7.05(a), the admission of a
<PAGE> 33
30
Person to the Partnership as a General Partner will become effective when such
Person has agreed in writing to adopt and accept this Agreement and to be bound
by all its terms and provisions as a General Partner.
(c) Notwithstanding any other provision of this Agreement, on
the Operative Date the then General Partner(s) automatically will be deemed to
have been removed as such without any further action of any nature whatsoever by
the Limited Partners or such General Partner(s), and each such former General
Partner will thereupon cease to be a Partner, and the then Senior Limited
Partners, upon compliance with Section 7.05(b), will automatically be deemed to
have become General Partners immediately prior to such automatic removal without
any further action of any nature whatsoever by the Limited Partners or the
former General Partner(s). All rights and interests of such Senior Limited
Partners as Limited Partners of the Partnership will continue in effect without
change even though such Senior Limited Partners will also be General Partners.
(d) Within 30 days after the admission of a General Partner
pursuant to this Section 7.05, the General Partner will cause the Certificate of
Limited Partnership of the Partnership to be amended in accordance with Section
17-202 of the Delaware Act.
7.06. Withdrawal of a Limited or General Partner. (a) A
Limited Partner may not withdraw from the Partnership without the consent of the
General Partner, which may be withheld for any reason whatsoever or for no
reason.
<PAGE> 34
31
(b) A General Partner may withdraw from the Partnership as of
the end of any fiscal year by delivery to each of the Limited Partners of
written notice of such withdrawal not less than 50 days before the effective
date thereof.
(c) The withdrawal of any Partner will be a Final Event with
respect to such Partner, within the meaning of Section 7.07.
7.07. Final Events with Respect to a Partner. Upon the
occurrence of a Final Event with respect to any Partner, such Partner thereupon
will cease to be a Partner and no Successor in Interest to any such Partner
will, for any purpose hereof, become or be deemed to become a Partner. The sole
right, as against the Partnership and the remaining Partners, acquired hereunder
by, or resulting hereunder to, a Successor in Interest to any Partner will be to
receive any distributions and allocations pursuant to Articles VI and VIII
(subject to any purchase by the General Partner or the Partnership of the
interest of such former Partner pursuant to Section 7.02(c) or 7.02(d) or
certain securities distributed to such former Partner or his Successor in
Interest pursuant to Section 6.05(f)) to the extent, at the time, in the manner
and in the amount otherwise payable to such Partner had such Final Event not
occurred, and no other right will be acquired hereunder by, or will result
hereunder to, a Successor in Interest to such Partner, whether by operation of
law or otherwise. Until distribution of any such Partner's interest in the
Partnership upon the dissolution of the Partnership as
<PAGE> 35
32
provided in Article VIII, neither his Capital Account nor any part thereof will
be subject to withdrawal or redemption without the consent of the General
Partner. The Partnership will be entitled to treat any Successor in Interest to
such Partner as the only Person entitled to receive distributions and
allocations hereunder with respect to such Partner's interest in the
Partnership.
7.08. Continuation of Partnership. If a Final Event occurs with
respect to one or more Limited Partners, no dissolution or termination of the
Partnership will be effected thereby, and the remaining Partners will continue
the Partnership and its business until the dissolution or termination thereof as
provided herein. If a Final Event occurs with respect to a General Partner and
there is no other General Partner in the Partnership, the Partnership will
terminate and will be dissolved by the Limited Partners in accordance with
Article VIII, unless, within 30 days after the occurrence of any such Final
Event, (i) all the Limited Partners elect to continue the business of the
Partnership, and (ii) all the obligations of the General Partner hereunder are
assumed by a successor General Partner approved in writing by such Limited
Partners, in which case the Partnership will not be dissolved but will continue.
7.09. Removal of General Partner. At any time, the Partners
may, by the action of Limited Partners having a 66-2/3% interest in the
Partnership (based upon Limited Partnership Percentages), remove the General
Partner, which thereupon will cease to be a Partner, provided that, prior to
<PAGE> 36
33
such removal, Limited Partners having a 66-2/3% interest in the Partnership
(based upon Limited Partnership Percentages) shall have designated a new General
Partner. The sole right, as against the Partnership and the remaining Partners,
of a General Partner removed pursuant to this Section 7.09 or pursuant to
Section 7.05(c) will be to receive any distributions and allocations pursuant to
Articles VI and VIII, to the extent, in the manner and in the amount otherwise
payable to it had it not been so removed, and no other rights will be acquired
hereunder by, or will result hereunder to, such removed General Partner, whether
by operation of law or otherwise. The Partnership will be entitled to treat
such removed Partner as the only person entitled to receive distributions and
allocations hereunder with respect to such General Partner's interest in the
Partnership. Until distribution of such removed General Partner's interest in
the Partnership upon the dissolution of the Partnership as provided in Article
VIII, neither its Capital Account nor any part thereof will be subject to
withdrawal or redemption.
7.10. Compliance with Law. Notwithstanding any provision hereof
to the contrary, no sale or other disposition of an interest in the Partnership
may be made except in compliance with all Federal, state and other applicable
laws, including Federal and state securities laws.
ARTICLE VIII
Winding-Up and Dissolution of the Partnership
<PAGE> 37
34
8.01. Winding-Up and Dissolution. (a) The General Partner will
dissolve the Partnership as soon as practicable following the exercise of the
Option in full.
(b) The General Partner may in its sole discretion dissolve the
Partnership effective as of the end of any fiscal year by written notice
delivered to the Limited Partners not less than 30 days before the end of such
fiscal year.
(c) When the Partnership is dissolved, whether by expiration of
its full term (subject to any extension as provided in Section 2.02) or
otherwise, the business and property of the Partnership will be wound up and
liquidated by the General Partner or, in the event of the unavailability of the
General Partner, such Limited Partners or other Persons as may be named by
Limited Partners having a majority interest in the Partnership (based upon
Limited Partnership Percentages).
(d) Within 60 days after the effective date of dissolution of
the Partnership, the Partnership's assets (except, in the case of clause (iii)
below, for amounts reserved pursuant to Section 8.02) will be distributed in the
following manner and order:
(i) first, all debts and liabilities to creditors of the
Partnership who are not Partners will be paid and discharged or provision
therefor will be made (through reserve accounts or otherwise);
(ii) second, the claims of all creditors of the Partnership who
are Partners will be paid and discharged or provision therefor will be
made (through reserve
<PAGE> 38
35
accounts or otherwise); and
(iii) third, the remaining assets of the Partnership will be paid
to the Partners in cash or Investments pro rata in accordance with the
Partners' Capital Accounts. Investments divisible only into shares or
other units will be distributed pro rata to the extent practicable;
leftover shares will be sold and the cash distributed unless reserved in
accordance with Section 8.02.
8.02. Amounts Reserved. (a) If, in the judgment of the General
Partner (or of any other appropriate party selected pursuant to Section
8.01(c)), any Investment cannot be sold, or properly distributed in kind in the
case of dissolution, without sacrificing a significant portion of the value
thereof, the value of a Partner's interest in each such investment may be
excluded from the amount distributed to such Partner pursuant to Section
8.01(d)(iii). Any Partner's interest, including his pro rata interest in any
gains, losses or distributions, in any Investment so excluded will not be paid
or distributed until such time as the General Partner (or any other appropriate
party selected pursuant to Section 8.01(c)) determines.
(b) If there is any pending transaction or claim by or against
the Partnership as to which the interest or obligation of any Partner therein
cannot, in the judgment of the General Partner (or any other appropriate party
selected pursuant to Section 8.01(c)), be then ascertained, the value thereof or
probable loss therefrom may be deducted from the amount distributable to such
Partner pursuant to Section
<PAGE> 39
36
8.01(d)(iii). No amount will be paid or charged to any such Partner on account
of any such transaction or claim until its final settlement or such earlier time
as the General Partner (or any other appropriate party selected pursuant to
Section 8.01(c)) shall determine. The Partnership may retain from other sums
due such Partner an amount which the General Partner (or any other appropriate
party selected pursuant to Section 8.01(c)) estimates to be sufficient to cover
the share of such Partner in any probable loss or liability on account of such
transaction or claim.
(c) Upon determination by the General Partner (or any other
appropriate party selected pursuant to Section 8.01(c)) that circumstances no
longer require the retention of sums as provided in Section 8.02(a), the General
Partner (or any other appropriate party selected pursuant to Section 8.01(c))
will, at the earliest practicable time, pay such sums to each Partner from whom
such sums have been withheld.
ARTICLE IX
Reports to Partners
9.01. Books of Account. Appropriate books of account will be
kept, on a cash basis, at the principal place of business of the Partnership,
and each Partner will have access to all books, records and accounts and the
right to make copies thereof under such conditions and restrictions as the
General Partner may reasonably prescribe.
9.02. Audit and Report. (a) The books and records of the
Partnership will be audited and reported on as of the
<PAGE> 40
37
end of each fiscal year by accountants selected by the General Partner. Within
60 days after the end of each fiscal year, the Partnership will cause to be
mailed to each Partner a written report, which shall include:
(i) a statement prepared by the Partnership setting forth such
Partner's Capital Account and the amount of such Partner's allocable share of
the Partnership's items of income and deduction, capital gain and loss or credit
for such year, in sufficient detail to enable him to prepare his Federal, state
and other tax returns; and
(ii) a balance sheet and a statement of income and expense of the
Partnership for such fiscal year.
(b) Promptly after becoming available, the Partnership will
cause to be mailed to each Limited Partner a copy of the Partnership's Federal,
state and local income tax returns for each year.
(c) The General Partner also will cause to be delivered to each
Limited Partner such other information as such Limited Partner may reasonably
request for the purpose of enabling him to comply with any reporting or filing
requirements imposed by any governmental agency or authority pursuant to any
statute, rule, regulation or otherwise.
9.03. Fiscal Year. The fiscal year of the Partnership will end
on December 31 of each calendar year unless otherwise determined by the General
Partner.
ARTICLE X
<PAGE> 41
38
Miscellaneous
10.01. Governing Law. The terms of this Agreement and all
rights and obligations of the Partners hereunder will be governed by the laws of
the State of Delaware.
10.02. Understanding of Limited Partners. Each Limited Partner
hereby acknowledges and agrees that he has read, understands, and is bound by
each and every provision of this Agreement, and that the General Partner's right
to exercise discretionary power granted under this Agreement will not be subject
to challenge by any Limited Partner or any other Person. Without limiting the
foregoing, the General Partner will have the sole discretion to determine (a)
whether or not to exercise the Option in whole or in[K2/34]part[K2/34]at any
time after it becomes exercisable and (b) whether or not to dissolve the
Partnership pursuant to Section 8.01(b). In making such determinations, the
General Partner need not [K2/34]consider the needs or desires of the Limited
Partners.
10.03. Indemnification and Related Matters. The General Partner
will not be liable to any Partner for any action taken or not taken by it or for
any action taken or not taken by any other Partner or other person with respect
to the Partnership. Without limiting the foregoing, if the General Partner has
obtained the consent of Limited Partners having a majority interest in the
Partnership (based on Limited Partnership Percentages) to any action taken or
not taken by the General Partner, the General Partner will be conclusively
<PAGE> 42
39
presumed to have taken such action or not taken such action in good faith and in
conformity with its fiduciary obligations to the Partnership and the Limited
Partners. No negative inference may be drawn from the failure of the General
Partner to obtain such consent in any instance. The Partnership will indemnify
the General Partner and each of its officers and directors against any losses,
claims, damages or liabilities, or threats thereof (including legal or other
expenses reasonably incurred in investigating or defending against any such
loss, claim, damages or liability, or threats thereof), joint or several, to
which it may become subject by reason of its being the General Partner.
Notwithstanding the above, the General Partner shall not be exculpated or
exonerated from liability, and the General Partner and each of its officers and
directors shall not be indemnified against loss, for violations of Federal or
state securities laws, or for any other intentional or criminal wrongdoing.
Limited Partners will not be personally obligated with respect to
indemnification pursuant to this Section 10.03.
10.04. Notice. All notices hereunder must be in writing and
will be deemed to have been duly given when personally delivered or mailed by
registered or certified mail, return receipt requested, to the Partnership, at
1285 Avenue of the Americas, New York, New York 10019, Attention of PaineWebber
Partners Inc., or such other address or addresses as to which the Partners will
have been given notice, and to the Partners at the addresses as to which the
Partnership has
<PAGE> 43
40
been given notice.
10.05. Counterparts. This Agreement may be executed in any
number of counterparts, all of which together will constitute a single
instrument. It will not be necessary for any counterpart to be signed by all
the parties as long as all counterparts signed by each Limited Partner also are
signed by the General Partner.
10.06. Completeness and Amendments. This Agreement sets forth
the entire understanding of all the parties. The provisions of this Agreement
cannot be amended except by an instrument in writing executed by the General
Partner and Limited Partners having a majority in interest of the Partnership
(based upon Limited Partnership Percentages), except that any provision of this
Agreement requiring action by more than a majority in interest of Limited
Partners may not be amended except by an instrument in writing executed by
Limited Partners having the percentage in interest of the Partnership required
by such provision.
10.07. Power of Attorney. The Limited Partners hereby appoint
the Person who from time to time shall be a General Partner, including without
limitation a successor General Partner pursuant to Section 7.05(c), as their
true and lawful representative and attorney-in-fact, in their name, place and
stead to make, execute, sign and file all instruments, documents and
certificates which, from time to time, may be required by this Agreement
(including without limitation Section 7.05(d)) or by the laws of the United
States of America, the State of Delaware or any other state in
<PAGE> 44
41
which the Partnership shall determine to do business, or any other political
subdivision or agency thereof, to execute, implement and continue the valid and
subsisting existence of the Partnership. The General Partner, as representative
and attorney-in-fact, however, will not have any rights, powers or authority to
amend or modify this Agreement when acting in such capacity except as expressly
provided herein. Such power of attorney is coupled with an interest and will
continue in full force and effect notwithstanding the subsequent occurrence of a
Final Event with respect to any Limited Partner.
IN WITNESS WHEREOF, the parties hereto have hereunto executed
this Agreement as of the date first above written.
Address of General Partner: GENERAL PARTNER:
1285 Avenue of the Americas PAINEWEBBER PARTNERS INC.
New York, New York 10019
By:
---------------------
Authorized Officer
Name and Business Address: LIMITED PARTNERS:
---------------------
[LIMITED PARTNER]
By
-------------------
<PAGE> 45
42
THE LIMITED PARTNERSHIP INTERESTS EVIDENCED BY THIS
PARTNERSHIP AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES LAW AND
MUST BE HELD INDEFINITELY UNLESS SOLD IN COMPLIANCE WITH ALL
APPLICABLE SECURITIES LAWS.
<PAGE> 1
EXHIBIT 10.2
-------------------------------------------------------------------------------
LIMITED PARTNERSHIP AGREEMENT
of
PW PARTNERS 1993 L.P.
Among
THE PARTIES NAMED HERETO
Dated as of February 2, 1994
-------------------------------------------------------------------------------
THE LIMITED PARTNERSHIP INTERESTS EVIDENCED BY THIS PARTNERSHIP AGREEMENT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE
SECURITIES LAW AND MUST BE HELD INDEFINITELY UNLESS SOLD IN COMPLIANCE WITH ALL
APPLICABLE SECURITIES LAWS.
<PAGE> 2
LIMITED PARTNERSHIP AGREEMENT
of
PW PARTNERS 1993 L.P.
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I. DEFINITIONS AND TERMS ................ 1
Section 1.01. Definitions .......................... 1
Section 1.02. Terms Generally ...................... 11
ARTICLE II. THE PARTNERSHIP ...................... 12
Section 2.01. Name ................................. 12
Section 2.02. Term ................................. 12
Section 2.03. Principal Place of Business .......... 13
Section 2.04. Registered Office in Delaware ........ 13
Section 2.05. Names and Addresses of the Partners .. 13
ARTICLE III. PURPOSE AND POWERS ................... 13
Section 3.01. Purpose and Powers ................... 13
ARTICLE IV. MANAGEMENT AND CONTROL ............... 16
Section 4.01. Authority of General Partner ......... 16
Section 4.02. Expenses ............................. 17
Section 4.03. No Compensation to General Partner ... 18
ARTICLE V. CAPITAL CONTRIBUTIONS AND LOANS ...... 18
Section 5.01. Capital Contributions ................ 18
Section 5.02. Loans ................................ 19
ARTICLE VI. ALLOCATIONS AND DISTRIBUTIONS ........ 21
Section 6.01. Allocation of Income and Loss ........ 21
Section 6.02. Liability of General and
Limited Partners ................... 23
Section 6.03. Allocations for Tax Purposes ......... 25
Section 6.04. Valuation ............................ 26
Section 6.05. Distributions ........................ 26
</TABLE>
-ii-
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE VII. PARTNERS ............................. 29
Section 7.01. Designation of Limited Partners ...... 29
Section 7.02. Vesting of Interests;
Purchase of a Limited Partner's
Interest ........................... 30
Section 7.03. Transfer of a Limited Partner's
Interest ........................... 32
Section 7.04. Transfer of General Partner's
Interest ........................... 33
Section 7.05. Admission or Substitution of New
Limited Partners ................... 33
Section 7.06. Admission of Substitute or Additional
General Partners ................... 34
Section 7.07. Withdrawal of a Limited or General
Partner ............................ 36
Section 7.08. Final Events with Respect to
a Partner .......................... 36
Section 7.09. Continuation of Partnership .......... 37
Section 7.10. Removal of General Partner ........... 38
Section 7.11. Compliance with Law .................. 39
ARTICLE VIII. DISSOLUTION OF THE PARTNERSHIP ....... 39
Section 8.01. Dissolution .......................... 39
Section 8.02. Amounts Reserved ..................... 41
ARTICLE IX. REPORTS TO PARTNERS .................. 43
Section 9.01. Books of Account ..................... 43
Section 9.02. Audit and Report ..................... 43
Section 9.03. Fiscal Year .......................... 44
ARTICLE X. MISCELLANEOUS ........................ 44
Section 10.01. Governing Law ........................ 44
Section 10.02. Indemnification ...................... 45
Section 10.03. Notice ............................... 45
Section 10.04. Counterparts ........................ 46
Section 10.05. Completeness and Amendments .......... 46
Section 10.06. Power of Attorney .................... 47
</TABLE>
-ii-
<PAGE> 4
PW PARTNERS 1993 L.P.
LIMITED PARTNERSHIP AGREEMENT, dated as of February 2, 1994,
among PAINEWEBBER PARTNERS II, INC., a Delaware corporation, as General
Partner, and the persons signing this Agreement as Limited Partners.
The Partners, in consideration of their mutual covenants herein
contained, hereby agree to become partners and to form a limited partnership
(the "Partnership") under the Delaware Revised Uniform Limited Partnership Act
(the "Delaware Act") upon the filing for record of the Certificate of Limited
Partnership in the office of the Secretary of State as required by Section 17-
201 of the Delaware Act, for the purposes and duration, and upon the terms and
conditions, hereinafter set forth, and further hereby mutually covenant and
agree as follows:
ARTICLE I
Definitions and Terms
1.01. Definitions. For the purposes of this Agreement, the
following terms shall have the corresponding meanings, except as otherwise
specifically provided herein:
"Affiliate" with respect to another Person shall mean any Person
directly, or indirectly through one or more intermediaries, controlling,
controlled by or under common control with, such other Person.
"Bankruptcy" shall mean, with respect to any Person,
<PAGE> 5
2
the occurrence of any of the following events: (i) the filing of an
application by such Person for, or a consent to, the appointment of a
trustee or custodian of his assets; (ii) the filing by such Person of a
voluntary petition in bankruptcy or the seeking of relief under Title 11
of the United States Code, as now constituted or hereafter amended, or
the filing of a pleading in any court of record admitting in writing his
inability to pay his debts as they become due; (iii) the failure of such
Person to pay his debts as such debts become due; iv) the making by
such Person of a general assignment for the benefit of creditors; (v)
the filing by such Person of an answer admitting the material
allegations of, or his consenting to, or defaulting in answering, a
bankruptcy petition filed against him in any bankruptcy proceeding or
petition seeking relief under Title 11 of the United States Code, as now
constituted or as hereafter amended; or (vi) the entry of an order,
judgment or decree by any court of competent jurisdiction adjudicating
such Person a bankrupt or insolvent or for relief in respect of such
Person or appointing a trustee or custodian of his assets and the
continuance of such order, judgment or decree unstayed and in effect for
a period of 60 consecutive days.
"Capital Account" shall mean, with respect to any
<PAGE> 6
3
Partner, an account maintained for such Partner to which is credited
such Partner's contributions to the Partnership and any net income
allocated to such Partner pursuant to Section 6.01 and from which is
debited any distributions to such Partner and any net losses allocated
to such Partner pursuant to Section 6.01. In the case of any
distribution in kind, Capital Accounts shall be adjusted as if the asset
distributed had been sold in a taxable transaction and the proceeds
distributed in cash, and any resulting gain or loss on such sale shall
be allocated pursuant to Section 6.01.
"Capital Contribution" shall mean, with respect to any Partner,
all contributions of capital to the Partnership made by such Partner in
accordance with Section 5.01.
"Capital Gain (Loss)" shall mean, with respect to the sale or
other disposition of an Investment, the amount, if any, by which (i) the
proceeds of such sale or other disposition exceed (are less than) (ii)
the cost or other basis of such Investment to the Partnership, plus any
interest on indebtedness or other expenses incurred with respect
thereto, less any interest, dividends or other income received with
respect thereto.
"Capital Percentage" shall mean, with respect to any Partner,
the percentage that the Capital Contribution of
<PAGE> 7
4
such Partner bears to the sum of all Capital Contributions.
"Capital Schedule" shall mean a capital schedule distributed
pursuant to Section 5.01(a).
"Certificate of Limited Partnership" shall mean the Certificate
of Limited Partnership dated and filed for record in the Office of the
Secretary of State of Delaware on February 2, 1994, pursuant to Section
17-201 of the Delaware Act.
A "Change in Control" shall be deemed to have occurred if:
(i) any "person", as such term is used in Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934 (the
"Act"), becomes a beneficial owner, as such term is used in Rule
13d-3 promulgated under the Act, of securities of PWG or PWI
representing 20% or more of the combined voting power of the
outstanding securities of PWG or PWI, as the case may be, having
the right to vote in the election of directors (any such owner
being herein referred to as an "Acquiring Person");
(ii) a majority of the Board of Directors of PWG ("PWG
Board") at any time consists of individuals elected to
membership at a PWG Board meeting or a PWG shareholders' meeting
other than individuals
<PAGE> 8
5
nominated or approved by a majority of the Disinterested
Directors;
(iii) all or substantially all the business of PWI is
disposed of pursuant to a merger, consolidation or other
transaction (other than a merger, consolidation or other
transaction with a company of which 50% or more of the combined
voting power of the outstanding securities having a right to
vote at the election of directors is owned, directly or
indirectly, by PWG both before and immediately after the merger,
consolidation or other transaction) in which PWI is not the
surviving corporation or PWG is materially or completely
liquidated; or
(iv) PWG or PWI combines with another company and is the
surviving corporation (other than a merger, consolidation or
other transaction with a company of which 50% or more of the
combined voting power of the outstanding securities having a
right to vote at the election of directors is owned, directly or
indirectly, by PWG both before and immediately after the merger,
consolidation or other transaction) but, immediately after the
combination, the shareholders of PWG hold, directly or
indirectly, less than 50% of the total outstanding securities of
the combined company having the right to vote in the
<PAGE> 9
6
election of directors.
"Code" shall mean the Internal Revenue Code of 1986, as from
time to time amended and in effect.
"Compensation Committee" shall mean the Compensation Committee
of the Board of Directors of PWG.
"Contribution Date" shall mean each date, fixed by the General
Partner in its discretion, on which Capital Contributions shall be made
by the Limited Partners.
"Designated Investment Receipts" shall mean the cash receipts
received by the Partnership in connection with the sale, transfer or
other disposition of an Investment (other than an Investment described
in Section 3.01(b)) and the amount of any dividend, interest,
distribution or other income received with respect to an Investment
(other than an Investment described in Section 3.01(b)), reduced by (i)
the amount thereof applied to the repayment of interest (including any
accrued but unpaid interest) on any loan described in Section 5.02(a)
and (ii) the amount thereof that the General Partner distributes (or
reserves for distribution) to the Partners in accordance with Section
6.05(b); provided, however, that Designated Investment Receipts shall
not include the cash amount of any income distribution (but not a
capital gain distribution) received prior to December 31, 1998 by the
Partnership in connection with
<PAGE> 10
7
the Partnership's initial investment in the Blackstone Partners
Investment Fund L.P. (or on any amounts reinvested prior to such date)
which the General Partner elects to reinvest in such fund on or prior to
such date.
"Disinterested Director" shall mean any member of the PWG Board
(i) who is not an officer or employee of PWG, PWI or any of their
subsidiaries, (ii) who is not an Acquiring Person or an affiliate or
associate of an Acquiring Person or a nominee or representative of an
Acquiring Person or of any such affiliate or associate and (iii) who was
a member of the PWG Board prior to the date of this Agreement or was
recommended for election or elected by a majority of the Disinterested
Directors then on the PWG Board.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Final Event" shall mean the death, adjudication of incompetency,
Bankruptcy, liquidation, dissolution or withdrawal from the Partnership
of any Person who is a Partner.
"General Partner" shall mean the Person named herein as General
Partner and any Person admitted as additional or substitute General
Partner, so long as such Person shall remain a General Partner.
"Investments" shall mean and include common and
<PAGE> 11
8
preferred stock (including warrants, rights, put and call options and
other options relating thereto or any combination thereof), notes,
bonds, debentures, trust receipts and other obligations, instruments or
evidences of indebtedness, choses in action, other property or interests
commonly regarded as securities, interests in real property, whether
improved or unimproved, interests in oil and gas properties and mineral
properties, interests in "hedge funds" or similar investment vehicles,
whether or not registered under the Investment Company Act of 1940, as
amended, short-term investments commonly regarded as money-market
investments, bank deposits, interests in personal property of all kinds,
whether tangible or intangible, and cash.
"Limited Partner" shall mean any of the Persons named herein as
Limited Partners or any other Person admitted as an additional or
substitute Limited Partner, so long as such Person shall remain a
Limited Partner.
"Limited Partnership Percentage" shall mean, with respect to any
Limited Partner, the Capital Contribution of such Limited Partner
divided by the Capital Contributions of all the Limited Partners. For
the purpose of this definition, all Limited Partnership interests held
by the General Partner shall be excluded.
"Net Capital Gain" shall mean the sum of all Capital
<PAGE> 12
9
Gains realized by the Partnership on or prior to a given date, less the
sum of the following:
(i) all Capital Losses or, without duplication, other
losses realized by the Partnership on or prior to such date;
(ii) a reserve established by the General Partner in its
discretion for unrealized losses and, subject to clause (iii)
below, for the repayment of indebtedness of the Partnership;
(iii) the amount of any payment of interest or principal
with respect to any loan of the Partnership that will become due
and payable within 12 months after such date; and
(iv) the value of all distributions previously made to
the Limited Partners in accordance with Section 6.05 (valued, in
the case of noncash distributions, at the time of such
distribution).
"Net Value" shall mean, with respect to any Investment as of any
date, the value of the Investment on such date, as determined in Section
6.04, minus the sum of the Partnership's liabilities incurred with
respect to such Investment. For the purpose of determining Net Value,
the loans borrowed by the Partnership pursuant to Section 5.02 shall be
deemed to have been incurred with respect to each of the Investments of
the Partnership in
<PAGE> 13
10
proportion with the relative cost of each such Investment.
"Operative Date" shall mean the date, if any, following a Change
in Control that has been designated in a resolution adopted by a
majority of the Disinterested Directors, in their sole discretion, as
the Operative Date.
"PaineWebber" shall mean PWG or any Affiliate of PWG.
"Partner" shall mean any Person who is a partner in the
Partnership, whether the General Partner or a Limited Partner.
"Person" shall include any individual, corporation, partnership,
association, trust, joint stock company or unincorporated organization.
"PWG" shall mean Paine Webber Group Inc., a Delaware
corporation.
"PWI" shall mean PaineWebber Incorporated, a Delaware
corporation.
"Senior Limited Partners" shall mean the three individuals who
are the Limited Partners who have the three largest Limited Partnership
Percentages on the Operative Date. If more than three Limited Partners
have Limited Partnership Percentages equal to or greater than the third
largest Limited Partnership Percentage, then all such persons shall be
Senior Limited Partners. If three or fewer persons are Limited Partners
on the Operative
<PAGE> 14
11
Date, then such remaining Limited Partners shall be Senior Limited
Partners.
"Successor in Interest" shall mean any (i) shareholder of; (ii)
trustee, custodian, receiver or other Person acting in any bankruptcy or
reorganization proceeding with respect to; (iii) assignee for the
benefit of the creditors of; (iv) officer, director or partner of; (v)
trustee or receiver, or former officer, director or partner, or other
fiduciary acting for or with respect to the dissolution, liquidation or
termination of; or (vi) other executor, administrator, committee, legal
representative or other successor or assign of, any Partner, whether by
operation of law or otherwise.
1.02. Terms Generally. The definitions in Section 1.01 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All the terms herein that relate to accounting matters shall be interpreted in
accordance with generally accepted accounting principles from time to time in
effect. All references to "Sections" and "Articles" shall refer to Sections
and Articles of this Agreement unless otherwise specified. The words "hereof"
and "herein" and
<PAGE> 15
12
similar terms shall relate to this Agreement.
ARTICLE II
The Partnership
2.01. Name. The Partnership shall conduct its activities under
the name of PW Partners 1993 L.P. The General Partner shall have the power at
any time to change the name of the Partnership. The General Partner shall give
prompt notice of any such change to each Limited Partner.
2.02. Term. The Partnership commenced upon the filing of the
Certificate of Limited Partnership in the Office of the Secretary of State of
Delaware on February 2, 1994, and shall continue through the close of business
on December 31, 2006, unless sooner terminated pursuant to the provisions of
Section 7.09 or Section 8.01(a). The General Partner may, at any time on or
prior to December 31, 2006, extend the term of the Partnership for up to five
years if such extension is deemed desirable to permit the orderly liquidation
of the Partnership or otherwise to further the purposes of the Partnership.
2.03. Principal Place of Business. The principal place of
business of the Partnership shall be at 1285 Avenue of the Americas, New York,
New York 10019, or such other place, either within or without the State of
Delaware, as may be designated by the General Partner from time to time. The
<PAGE> 16
13
General Partner shall give prompt notice of any change in its principal place
of business to each Limited Partner.
2.04. Registered Office in Delaware. The address of the
Partnership's registered office in Delaware is 1209 Orange Street in the City
of Wilmington, County of New Castle. The name of the Partnership's registered
agent at such address is The Corporation Trust Company.
2.05. Names and Addresses of the Partners. The name and
business address of each Partner is as set forth opposite his signature.
ARTICLE III
Purpose and Powers
3.01. Purpose and Powers. The purpose of the Partnership is to
acquire Investments that, in the opinion of the General Partner, present
opportunities for exceptional Capital Gains and to engage in such other
businesses and activities as the General Partner may, in its discretion,
determine. In furtherance of this purpose, the Partnership shall have all
powers necessary, suitable or convenient for the accomplishment of this
purpose, alone or with others, as principal or agent, including the following:
(a) to buy, sell and otherwise acquire Investments, whether
such Investments are readily marketable or not, except that no such
Investment may be acquired with
<PAGE> 17
14
Designated Investment Receipts;
(b) to invest and reinvest the cash assets of the
Partnership in money-market or other short-term Investments pending (i)
the identification by the General Partner of Investments with suitable
Capital Gains opportunities, (ii) the payment of interest on a loan
described in Section 5.02(a), (iii) the repayment of principal on a loan
described in Section 5.02(a) with Designated Investment Receipts or (iv)
a distribution permitted under Section 6.05 or Article VIII;
(c) to hold, receive, mortgage, pledge, lease, transfer,
exchange or otherwise dispose of or grant options with respect to and
otherwise deal in and exercise all rights, powers, privileges and other
incidents of ownership or possession with respect to all property held
or owned by the Partnership;
(d) to borrow or raise money from time to time and to issue
promissory notes, drafts, bills of exchange, warrants, bonds, debentures
and other negotiable and nonnegotiable instruments and evidences of
indebtedness, to secure payment of the principal of any such
indebtedness and the interest thereon by mortgage, pledge, conveyance or
assignment in trust of, or the granting of a security interest in, the
whole or any part of the property of the Partnership, whether at the
time owned or
<PAGE> 18
15
thereafter acquired, to guarantee the obligations of others and to buy,
sell, pledge or otherwise dispose of any such instrument or evidence of
indebtedness;
(e) to lend any of its property or funds, either with or
without security, at any legal rate of interest or without interest;
(f) to have and maintain one or more offices within or
without the State of Delaware, and in connection therewith, to rent or
acquire office space, engage personnel and compensate them and do such
other acts and things as may be advisable or necessary in connection
with the maintenance of such office or offices;
(g) to open, maintain and close accounts, including margin
accounts, with brokers;
(h) to open, maintain and close bank accounts and draw
checks and other orders for the payment of moneys;
(i) to engage accountants, custodians, investment advisers,
attorneys and any and all other agents and assistants, both
professional and nonprofessional, and to compensate them as may be
necessary or advisable;
(j) to form or cause to be formed and to own the stock of
one or more corporations, whether foreign or domestic, and to form or
cause to be formed and to participate in partnerships and joint ventures,
whether foreign or domestic;
<PAGE> 19
16
(k) to enter into, make and perform all contracts,
agreements and other undertakings as may be necessary or advisable or
incident to carrying out its purpose;
(l) to sue and be sued, to prosecute, settle or compromise
all claims against third parties, to compromise, settle or accept
judgment to claims against the Partnership, and to execute all documents
and make all representations, admissions and waivers in connection
therewith; and
(m) to distribute, subject to the limitations hereinafter set
forth in Sections 5.02 and 6.05 or otherwise, at any time and from time
to time to all the Partners cash or Investments or other property of the
Partnership or any combination thereof.
ARTICLE IV
Management and Control
4.01. Authority of General Partner. (a) The management and
operation of the Partnership and the formulation and execution of investment
policy shall be vested exclusively in the General Partner. The General Partner
shall, in its sole discretion, exercise all powers necessary or convenient for
the purposes of the Partnership, including those enumerated in Section 3.01, on
behalf and in the name of the Partnership. If at any time the Partnership
shall have
<PAGE> 20
17
two or more General Partners, then each such General Partner shall have the
full authority of the General Partner under this Agreement; provided, however,
that any controversy among the General Partners shall be resolved in favor of
the General Partners having the greater interest in the Partnership (based upon
Capital Contribution).
(b) A Limited Partner shall have no right to, and shall not,
take part in the management or control of the Partnership's business or act for
or bind the Partnership, and shall have only the rights and powers granted to
Limited Partners herein.
(c) No provision of this Agreement shall be construed to
preclude any Partner, or any Affiliate of any Partner, from engaging in any
activity whatsoever, including receiving compensation from issuers of
Investments for investment banking services, managing Investments,
participating in Investments, brokerage or consulting arrangements or acting as
an adviser to or participant in any corporation, partnership, trust or other
business entity or from receiving compensation or profit therefor.
4.02. Expenses. To the extent not paid by PaineWebber, the
General Partner shall pay all the expenses of the Partnership, excluding (i)
costs and expenses directly related to the purchase or sale of Investments by
the Partnership (including brokerage fees and commissions,
<PAGE> 21
18
transfer taxes and costs relating to the registration or qualification for sale
of such Investments); (ii) any Federal, state, local or other taxes of the
Partnership; and (iii) interest expense.
4.03. No Compensation to General Partner. The General Partner
shall not receive any fees or other compensation for serving as such pursuant
to this Agreement.
ARTICLE V
Capital Contributions and Loans
5.01. Capital Contributions. (a) Prior to any Contribution
Date, the General Partner shall prepare and distribute to each prospective
Limited Partner designated pursuant to Section 7.01 a Capital Schedule for such
date stating the current and cumulative Capital Contribution of the General
Partner and of such prospective Limited Partner. The General Partner shall
promptly notify each prospective Limited Partner of any change in such Capital
Schedule relating to the General Partner or such prospective Limited Partner.
(b) On or before each Contribution Date, the General Partner
and each Limited Partner shall make a Capital Contribution to the Partnership
in the amount and in the manner provided on the Capital Schedule for such
Contribution Date.
(c) The General Partner may, in its sole discretion,
<PAGE> 22
19
determine that Capital Contributions shall be made in any number of
installments. If, for any Contribution Date, the General Partner shall
determine that Capital Contributions shall be made in installments, the Capital
Schedule shall provide the amount of the first installment, which shall be due
on the Contribution Date, and each subsequent installment shall be due in the
amount and on the date determined by the General Partner upon not less than
five business days' prior written notice to each Limited Partner. Any
installments paid in the amount and on the date so determined shall be deemed
to have been made as of the applicable Contribution Date.
5.02. Loans. (a) Subject to the conditions in Section
5.02(b), promptly after any Contribution Date, the General Partner shall make
an unsecured loan to the Partnership in an amount equal to five times the
aggregate amount of capital contributed by the General Partner and the Limited
Partners on such Contribution Date, such loan to bear interest at a variable
rate equal to the greater of (i) the rate of interest set forth on the Reuters
Screen LIBO Page which is offered for an amount substantially equal to the
unpaid principal amount of the loan and for the six-month interest period of
the loan plus thirty-five basis points and (ii) the Applicable Federal Rate
promulgated under Section 1274(d) of the Code for short-term loans with
semiannual
<PAGE> 23
20
compounding originating in the month in which (A) the loan is made (in the case
of the initial period) and (B) the day on which each subsequent interest period
commences (in the case of subsequent interest periods), all as set forth more
fully in the form of a promissory note executed and delivered by the
Partnership to the General Partner. The interest period of the loan shall be
six months and the interest rate on the loan shall be redetermined by the
General Partner for each interest period in accordance with the previous
sentence. Interest on the loan shall be payable semiannually and at maturity.
Overdue amounts of principal or interest on the loan shall bear interest
payable on demand at a rate per annum equal at all times to two percent per
annum above the interest rate described in the previous sentence. Designated
Investment Receipts shall be
<PAGE> 24
21
applied within three days following the Partnership's receipt thereof to the
repayment of the principal on any loan from the General Partner described in
this Section 5.02(a) which is then outstanding, regardless of the portion of
such outstanding loan allocable to such investment. If there is more than one
loan from the General Partner outstanding at the time the Partnership receives
any Designated Investment Receipts, such receipts shall be applied first to the
outstanding principal amount of the loan which originated earliest in time, and
any remaining portion of such Designated Investment Receipts shall be applied
to the repayment of the outstanding principal amount of the other loans in the
order of their origination. To the extent not previously repaid, any principal
amount of a loan described in this Section 5.03 shall be due and payable in
full on December 31, 2006.
(b) The obligation of the General Partner to make the loans
referred to in Section 5.02(a) is subject in the case of each such loan to the
conditions that (i) funds are available therefor, (ii) such loan may be made
without jeopardizing the statutory requirements or loan covenants of
PaineWebber and (iii) the General Partner, in the exercise of its own sound
business judgment, shall not have concluded that such loan is inconsistent with
the best interests of PaineWebber at the time such loan is to be made.
(c) The General Partner shall not have the authority to make
any change in the terms of any loan theretofore made by it pursuant to this
Section 5.02 except with the prior written approval of a majority in interest
of the Limited Partners (based upon Limited Partnership Percentages).
ARTICLE VI
Allocations and Distributions
6.01. Allocation of Income and Loss. (a) The net income (or
net loss) of the Partnership shall be determined in
<PAGE> 25
22
each fiscal year in accordance with the accounting methods followed by the
Partnership for Federal income tax purposes and shall be allocated among the
Partners and credited to (or debited from) their respective Capital Accounts in
accordance with their respective Capital Percentages; provided, however, that
if Partners are deemed (in accordance with any reasonable convention
permissible for Federal income tax purposes and selected by the General
Partner) to be admitted to the Partnership at different times, no Partner shall
be allocated items of net income or net loss allocable to periods prior to such
Partner's admission to the partnership, but the Partners shall be specially
allocated items of net income or net loss in the year in which Partners are
admitted to the Partnership or in subsequent years so that, as rapidly as
possible, the proportion that any Partner's Capital Account represents of the
aggregate Capital Accounts of all Partners equals the proportion such Partner's
Capital Contribution represents of all Capital Contributions.
(b) The net loss allocated pursuant to Section 6.01(a) shall
not exceed the maximum amount of net loss that can be so allocated and
considered to have economic effect under Treasury Regulation Section
1.704-1(b)(2)(ii)(d).
(c) If, during any fiscal year or other period of the
Partnership, any Limited Partner unexpectedly receives an adjustment,
allocation or distribution described in Treasury
<PAGE> 26
23
Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) that causes or
increases a deficit in such Limited Partner's Capital Account balance (as
defined for purposes of Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and
as determined after all other allocations provided for in this Section 6.01
have been tentatively made as if this Section 6.01(c) were not in this
Agreement), there shall be allocated to such Partner a pro rata portion of each
item of Partnership income, including gross income, and gain for such year in
an amount and manner sufficient to eliminate such Partner's deficit Capital
Account balance as quickly as possible. Notwithstanding any other provision of
this Section 6.01, the General Partner shall make such offsetting special
allocations of Partnership income, gain, loss or deduction in whatever manner
it determines appropriate so that, after such offsetting allocations are made,
each Partner's Capital Account balance is, to the extent possible, equal to the
Capital Account balance such Partner would have had if the preceding sentence
were not part of the Agreement and all Partnership items were allocated
pursuant to Sections 6.01(b) and (c).
6.02. Liability of General and Limited Partners. (a) The
General Partner shall have unlimited liability for the satisfaction and
discharge of all losses, liabilities and expenses of the Partnership.
(b) Each Limited Partner and former Limited Partner
<PAGE> 27
24
shall be liable for the satisfaction and discharge of all losses, liabilities
and expenses of the Partnership allocable to him pursuant to Section 6.03, but
only to the extent of his aggregate Capital Contribution. In no event shall
any Limited Partner or former Limited Partner be obligated to make any
additional capital contribution to the Partnership in excess of his initial
Capital Contribution, or have any liability in excess of his aggregate Capital
Contribution for the satisfaction and discharge of the losses, liabilities and
expenses of the Partnership. However, after any Limited Partner or former
Limited Partner has received the return in whole or in part of any Capital
Contribution, he shall nevertheless be liable to the Partnership for the amount
of cash, Investments or other assets (valued as of the date of distribution
thereof) so received necessary to discharge any losses, liabilities and
expenses of the Partnership to creditors who extended credit or whose claims
arose before such distribution was made, to the extent that the assets of the
Partnership are not sufficient to discharge such losses, liabilities and
expenses. Notwithstanding the foregoing, if the General Partner has purchased
the partnership interest of a former Limited Partner pursuant to Section
7.02(b), the purchase price received by such former Limited Partner on such
sale shall not be deemed to be a return of any of such former Limited Partner's
Capital Contribution.
<PAGE> 28
25
(c) A Partner shall not have any obligation to the Partnership
or to any other Partner to restore any negative balance in the Capital Account
of such Partner. Until distribution of any such Partner's interest in the
Partnership upon the dissolution of the Partnership, neither his Capital
Account nor any part thereof shall be subject to withdrawal or redemption
except with the consent of the General Partner.
6.03. Allocations for Tax Purposes. (a) All items of income,
deduction and credit realized by or allowable to the Partnership shall be
determined and allocated among the Partners for Federal, state and local income
tax purposes in the same manner as set forth in Section 6.01.
(b) The General Partner shall be the "tax matters partner" for
all purposes of the Code and shall have the power and authority to effect the
allocations provided for in this Section 6.03 and to take such actions as the
tax matters partner is required or permitted to take under the Code and to take
all other actions that in the good faith opinion of the General Partner are
necessary or convenient for the Partnership to take to ensure compliance with
the Code or any other applicable law or regulation. Notwithstanding any other
provision of this Agreement to the contrary, if in the good faith opinion of
the General Partner any of the allocations provided for in this Section 6.03
shall be prohibited by the Code or other applicable law or regulation or shall
subject
<PAGE> 29
26
the Partnership or any Partner to legal penalty or onerous condition, the
General Partner shall have the power and authority to modify any such
allocation to the extent necessary to comply with the Code or other applicable
law or regulation or to avoid such legal penalty or onerous condition.
6.04. Valuation. For the purpose of determining Net Value, the
value of any Investment as of any date (or in the event such date is not a
business day, as of the next preceding business day) shall be determined as
follows:
(a) marketable Investments listed on a national securities
exchange shall be valued at the last sales price on the date of
valuation, or in the absence of a sale on such date, at the last bid
price on the date of valuation;
(b) marketable Investments traded in the over-the-counter
market and reported in the National Association of Securities Dealers'
Automated Quotation System will be valued at the closing bid price as
reported by such system; and
(c) all other Investments shall be valued at fair market
value.
All valuation decisions pursuant to this Section 6.04 shall be
made by the General Partner.
6.05. Distributions. (a) Following the date that
<PAGE> 30
27
the Limited Partners become fully vested in their interests in the Partnership
in accordance with Section 7.02(a) (the "Vesting Date"), all cash receipts of
the Partnership not required to be applied to the repayment of the loan or
loans from the General Partner by Section 5.02(a) above (i) with respect to any
Capital Gain realized on or after the Vesting Date shall be distributed as soon
as practicable after the receipt thereof to the Partners and (ii) with respect
to any Capital Gain realized prior to the Vesting Date for which a distribution
has been delayed by the General Partner in accordance with the next sentence
shall be distributed as soon as practicable after such Vesting Date, in either
case in proportion to their respective Capital Accounts. Prior to the Vesting
Date and except as otherwise required by Section 6.05(b), the cash receipts of
the Partnership with respect to any Capital Gain realized prior to the Vesting
Date which are not required to be applied to the repayment of the loan or loans
from the General Partner by Section 5.02(a) above may, in the sole discretion
of the General Partner, (i) be distributed in whole or in part in one or more
installments prior to the Vesting Date to the Partners in proportion to their
Capital Accounts or (ii) be retained in whole or in part by the Partnership
until such time (and in such manner) as such cash receipts are required to be
distributed to the Partners in accordance with the preceding sentence.
Anything
<PAGE> 31
28
in this Section 6.05 to the contrary notwithstanding, in no event shall (A) a
distribution be made under this Section 6.05(a) while there is outstanding a
loan described in Section 5.02(a) or (B) the amount to be distributed to the
Partners under this Section 6.05 exceeds the Net Capital Gain of the
Partnership at the time of such distribution.
(b) The General Partner shall make distributions of cash to the
Partners for payment of applicable Federal, state and local taxes on any
substantial amount of net realized taxable income not otherwise distributed to
the Partners for any fiscal year of the Partnership. Such distributions shall
be disbursed as soon as possible after preparation and mailing of the report
provided for in Section 9.02. The aggregate amount of any such distribution
shall be determined by the General Partner, subject to the limitation that the
minimum aggregate amount of such distribution be the tax that would be payable
if the taxable income of the Partnership were all allocated to an individual
subject to the then-prevailing maximum Federal, New York State and New York
City tax rates (taking into account the extent to which the taxable income
allocated by the Partnership was composed of long-term capital gains and the
extent to which state and local income taxes may be deductible for Federal
income tax purposes). Each such distribution shall be allocated among the
Partners in accordance with the allocation of taxable income to the
<PAGE> 32
29
Partners pursuant to Section 6.03.
(c) In addition to distributions required by Section
6.05(a) and Section 6.05(b), the General Partner may, in its sole discretion,
at any other time make distributions to the Partners of cash, Investments or
other assets or any combination thereof; provided, however, that no
distribution may be made under this Section 6.05(c) while there is outstanding
a loan described in Section 5.02(a). Each such distribution shall be allocated
to the Partners in accordance with their respective Capital Accounts.
ARTICLE VII
Partners
7.01. Designation of Limited Partners. (a) The General
Partner may at any time invite any Person to become a Limited Partner by
delivery of a Capital Schedule prepared in accordance with Section 5.01. Any
Person so invited who agrees in writing prior to the Contribution Date to make
the Capital Contribution set forth on such Capital Schedule shall have the
opportunity to do so, but no Person shall be deemed to be a Limited Partner
until he has made a Capital Contribution and been admitted to the Partnership
pursuant to Section 7.05.
(b) At the request of any employee of PaineWebber who has been
invited by the General Partner to become a
<PAGE> 33
30
Limited Partner, the General Partner may, in its sole discretion, permit a
trust designated by such employee to make the Capital Contribution for such
person and to become a Limited Partner of the Partnership. If under such
circumstances a trust is admitted as a Limited Partner, all references herein
to the termination of employment of a Limited Partner or to any Final Event
with respect to a Limited Partner shall be deemed to refer both to such trust
and to the employee of PaineWebber who designated such trust. All references
herein to an employee of PaineWebber shall include consultants to PaineWebber
and all references herein to employment by PaineWebber shall include employment
by PaineWebber as a consultant.
(c) The General Partner's right to designate all the Limited
Partners shall be exercised in its sole discretion and shall not be subject to
challenge by any Limited Partner. The fact that a Limited Partner was a
limited partner with respect to a previous partnership sponsored or established
by PaineWebber shall not confer upon him any right to be a Limited Partner of
this Partnership.
7.02. Vesting of Interests; Purchase of a Limited Partner's
Interest. (a) Prior to the fifth anniversary of the first Contribution Date
on which a Limited Partner makes a contribution to the Partnership, such
Limited Partner shall be entirely unvested in his interest in the Partnership.
On and
<PAGE> 34
31
after the fifth anniversary of such Contribution Date, such Limited Partner
shall be entirely vested in his interest in the Partnership. Notwithstanding
anything in this Section 7.02(a) to the contrary, the General Partner (acting
unanimously, in the case of multiple General Partners), with the consent of the
Compensation Committee (or, after an Operative Date has been declared, without
such consent), may at any time or from time to time accelerate, in whole or in
part, the vesting of all (but not less than all) of the Limited Partners.
(b) In the event the employment of a Limited Partner by
PaineWebber shall terminate for any reason whatsoever (other than death,
permanent disability as determined by the Board of Directors of PWI, retirement
pursuant to any then existing pension or retirement plan of PaineWebber or
otherwise with the prior approval of the Compensation Committee), the General
Partner shall have the right, exercisable in its sole discretion and on written
notice given within the one hundred twenty (120) calendar day period beginning
on the day following the date of such termination, to purchase for cash such
Limited Partner's interest in the Partnership (or if such Person has ceased to
be a Limited Partner, his rights or the rights of his Successor in Interest, if
any, to receive allocations and distributions with respect thereto) at a price
determined as follows:
<PAGE> 35
32
(i) If such termination occurs on or after such Limited Partner
becomes entirely vested in his interest in the Partnership, an amount
equal to the sum of (A) such Limited Partner's Capital Account
(calculated as of the last business day of the Partnership's fiscal
quarter in which such Limited Partner ceased to be employed by
PaineWebber) plus (or minus) (B) such Limited Partner's share (based on
his Capital Percentage) of any unrealized appreciation (or depreciation)
in the Net Value of each Investment held by the Partnership;
(ii) If such termination occurs before such Limited Partner
becomes entirely vested in his interest in the Partnership, an amount
equal to the lesser of (A) the sum calculated as set forth in
subparagraph (i) above or (B) the sum of such Limited Partner's Capital
Contribution.
7.03. Transfer of a Limited Partner's Interest. Each Limited
Partner shall have the right to sell, assign, mortgage, pledge or otherwise
dispose of or transfer all or any part of the interest in the Partnership to
which such Limited Partner is entitled, but only with the prior written consent
of the General Partner. No Person acquiring any Limited Partner's interest in
the Partnership shall become a Partner of the Partnership, or acquire such
Limited Partner's right to participate in the affairs of the Partnership to the
<PAGE> 36
33
extent permitted herein, unless such person shall be admitted as a Limited
Partner pursuant to Section 7.05. Such Person, however, shall, to the extent
of the interest transferred to him, be entitled to such Limited Partner's share
of allocations and distributions pursuant to Articles VI and VIII (subject to
the right of the General Partner to purchase such interest pursuant to Section
7.02(b)).
7.04. Transfer of General Partner's Interest. The General
Partner may not transfer or assign its interest as General Partner of the
Partnership to any Person other than PaineWebber, and no such transfer or
assignment shall be effective unless and until the transferee or assignee shall
have been admitted to the Partnership as a General Partner in accordance with
Section 7.06.
7.05. Admission or Substitution of New Limited Partners. (a)
The General Partner shall admit as an additional Limited Partner any person not
already a Limited Partner who shall make a Capital Contribution in accordance
with Section 5.01. The General Partner also shall have the right, in its sole
discretion, to admit as a substitute or additional Limited Partner any Person
who acquires in accordance with this Agreement the interest in the Partnership,
or any part thereof, of a Limited Partner. The admission of any Person as a
substitute or additional Limited Partner shall be in writing signed by the
General Partner but
<PAGE> 37
34
shall not be effective until such Person's written acceptance and adoption of
all the terms and provisions of this Agreement. The General Partner's failure
or refusal to admit a transferee (as to whom the General Partner has given his
written consent pursuant to Section 7.03) as a substitute or additional Limited
Partner shall not affect the right of such transferee to receive allocations
and distributions pursuant to Articles VI and VIII to which his predecessor in
interest was entitled.
(b) If the General Partner permits a Limited Partner to
transfer all or part of such Limited Partner's interest to a trust designated
by such Limited Partner, and the General Partner admits such trust into the
Partnership as a Limited Partner, all references herein to the termination of
employment of a Limited Partner or to any Final Event with respect to a Limited
Partner shall be deemed to refer both to such trust and to the employee of
PaineWebber who transferred such interest to such trust.
(c) A transferee who is admitted as a substitute or
additional Limited Partner pursuant to this Section 7.05 shall reimburse the
General Partner or PaineWebber, as necessary, for any out-of-pocket expenses
incurred by it directly as a result of such transferee's admission to the
Partnership.
7.06. Admission of Substitute or Additional General Partners.
(a) No Person other than PaineWebber shall be
<PAGE> 38
35
admitted to the Partnership as a General Partner unless such Person shall have
been designated in writing by the Limited Partners. Except where this
Agreement provides otherwise, the Limited Partners may designate a Person to be
admitted as a General Partner by the action of two-thirds in interest of the
Limited Partners (based upon Limited Partnership Percentages).
(b) Subject to Section 7.06(a), the admission of a Person
to the Partnership as General Partner shall become effective when such Person
shall have agreed in writing to adopt and accept this Agreement and to be bound
by all its terms and provisions as a General Partner.
(c) Notwithstanding any other provision of this Agreement,
on the Operative Date the then General Partner(s) shall automatically be deemed
to have been removed as such without any further action of any nature
whatsoever by the Limited Partners or such General Partner(s), and each such
former General Partner shall thereupon cease to be a Partner, and the then
Senior Limited Partners shall thereupon automatically become the only General
Partners without any further action of any nature whatsoever by the Limited
Partners or the former General Partner(s). All rights and interests of such
Senior Limited Partners as limited partners of the Partnership shall continue
in effect without change even though such Senior Limited Partners shall also be
General
<PAGE> 39
36
Partners.
(d) Within 30 days after the admission of a General Partner
pursuant to this Section 7.06, the General Partner shall cause the Certificate
of Limited Partnership of the Partnership to be amended in accordance with
Section 17-202 of the Delaware Act.
7.07. Withdrawal of a Limited or General Partner.
(a) A Limited Partner may not withdraw from the Partnership without the
consent of the General Partner, which may be withheld for any reason whatsoever
or for no reason.
(b) Subject to Section 7.07(c), a General Partner may
withdraw from the Partnership as of the end of any fiscal year by delivery to
each of the Limited Partners of written notice of such withdrawal not less than
50 days before the effective date thereof.
(c) The withdrawal of any Partner shall be a Final Event
with respect to such Partner, within the meaning of Section 7.08.
7.08. Final Events with Respect to a Partner. Upon the
occurrence of a Final Event with respect to any Partner, such Partner shall
thereupon cease to be a Partner. If such a Final Event shall occur, no
Successor in Interest to any such Partner shall for any purpose hereof become
or be deemed to become a Partner. The sole right, as against the Partnership
and the remaining Partners, acquired hereunder by, or
<PAGE> 40
37
resulting hereunder to, a Successor in Interest to any Partner shall be to
receive any distributions and allocations pursuant to Articles VI and VIII
(subject to the right of the General Partner to purchase the interest of such
former Partner pursuant to Section 7.02(b)) to the extent, at the time, in the
manner and in the amount otherwise payable to such Partner had such a Final
Event not occurred, and no other right shall be acquired hereunder by, or shall
result hereunder to, a Successor in Interest to such Partner, whether by
operation of law or otherwise. Until distribution of any such Partner's
interest in the Partnership upon the dissolution of the Partnership as provided
in Article VIII, neither his Capital Account nor any part thereof shall be
subject to withdrawal or redemption without the consent of the General Partner.
The Partnership shall be entitled to treat any Successor in Interest to such
Partner as the only Person entitled to receive distributions and allocations
hereunder.
7.09. Continuation of Partnership. If a Final Event shall
occur with respect to one or more Limited Partners, no dissolution or
termination of the Partnership shall be effected thereby, and the remaining
Partners shall continue the Partnership and its business until the dissolution
or termination thereof as provided herein. If a Final Event shall occur with
respect to a General Partner and there is no other General Partner in the
Partnership, the Partnership
<PAGE> 41
38
shall terminate and shall be dissolved by the Limited Partners in accordance
with Article VIII, unless, within 30 days after the occurrence of any such
Final Event, (i) all the Limited Partners elect to continue the business of the
Partnership, and (ii) all the obligations of the General Partner hereunder are
assumed by a successor General Partner approved in writing by all the Limited
Partners, in which case the Partnership shall not be dissolved but shall
continue.
7.10. Removal of General Partner. At any time after all loans
made to the Partnership by the General Partner pursuant to Section 5.02 have
been paid in full, the Partners may, by the action of Limited Partners having a
majority interest in the Partnership (based upon Limited Partnership
Percentages), remove the General Partner, which shall thereupon cease to be a
Partner, and in such case the Limited Partners, by the action of Limited
Partners having a majority interest in the Partnership (based upon Limited
Partnership Percentages) shall designate a new General Partner which shall have
the right to manage the affairs of the Partnership and to vote as a Partner to
the extent of any interest in the Partnership. The sole right, as against the
Partnership and the remaining Partners, of a General Partner removed pursuant
to this Section 7.10 or pursuant to Section 7.06(c) shall be to receive any
distributions and allocations pursuant to Articles VI and VIII, to the extent,
in the
<PAGE> 42
39
manner and in the amount otherwise payable to it had it not been so removed,
and no other rights shall be acquired hereunder by, or shall result hereunder
to, such removed General Partner, whether by operation of law or otherwise.
The Partnership shall be entitled to treat such removed General Partner as the
only person entitled to receive distributions and allocations hereunder. Until
distribution of such removed General Partner's interest in the Partnership upon
the dissolution of the Partnership as provided in Article VIII, neither its
capital account nor any part thereof shall be subject to withdrawal or
redemption. The Limited Partners shall have the right at any time to require,
by the action of Limited Partners having a majority interest in the Partnership
(based upon Limited Partnership Percentages), the General Partner to cause the
Partnership to pay in full all loans made pursuant to Section 5.02.
7.11. Compliance with Law. Notwithstanding any provision
hereof to the contrary, no sale or other disposition of an interest in the
Partnership may be made except in compliance with all Federal, state and other
applicable laws, including Federal and state securities laws.
ARTICLE VIII
Dissolution of the Partnership
8.01. Dissolution. (a) The General Partner may, at
<PAGE> 43
40
any time prior to the occurrence of a Change of Control, dissolve the
Partnership effective as of the end of the fiscal year during which such notice
is given by written notice delivered to the Limited Partners not less than 30
days before the effective date of such dissolution. After the occurrence of a
Change of Control, the General Partner shall not have the power or authority to
dissolve the Partnership without the consent of 80% of the Limited Partners
(based upon Limited Partnership Percentages).
(b) When the Partnership is dissolved, whether by
expiration of its full term (subject to extension as provided in Section 2.02)
or otherwise, the business and property of the Partnership shall be wound up
and liquidated by the General Partner or, in the event of the unavailability of
the General Partner, such Limited Partners or other Persons as shall be named
by a majority in interest (based upon Limited Partnership Percentages).
(c) Within 60 days after the effective date of dissolution
of the Partnership, the Partnership's assets (except, in the case of clause
(iii) below, for amounts reserved pursuant to Section 8.02) shall be
distributed in the following manner and order:
(i) first, all debts and liabilities to creditors of the
Partnership who are not Partners shall be paid and discharged or
provision therefor shall be made (through
<PAGE> 44
41
reserve accounts or otherwise);
(ii) second, the claims of all creditors of the Partnership
who are Partners shall be paid and discharged or provision therefor
shall be made (through reserve accounts or otherwise); and
(iii) third, the remaining assets of the Partnership shall be
paid to the Partners in cash or Investments pro rata in accordance with
the Partners' Capital Accounts. Investments divisible only into shares
or other units shall be distributed pro rata to the extent practicable;
leftover shares shall be sold and the cash distributed unless reserved
in accordance with Section 8.02.
8.02. Amounts Reserved. (a) If there are any Investments
which, in the judgment of the General Partner (or any other appropriate party
selected pursuant to Section 8.01(b)), cannot be sold, or properly distributed
in kind in the case of dissolution, without sacrificing a significant portion
of the value thereof, the value of a Partner's interest in each such Investment
may be excluded from the amount distributed to such Partner pursuant to Section
8.01(c)(iii). Any Partner's interest, including his pro rata interest in any
gains, losses or distributions, in Investments so excluded, shall not be paid
or distributed until such time as the General Partner (or any other appropriate
party selected pursuant to Section 8.01(b)) shall determine.
<PAGE> 45
42
(b) If there is any pending transaction, or claim by or
against the Partnership, as to which the interest or obligation of any Partner
therein cannot, in the judgment of the General Partner (or any other
appropriate party selected pursuant to Section 8.01(b)), be then ascertained,
the value thereof or probable loss therefrom may be deducted from the amount
distributable to such Partner pursuant to Section 8.01(c)(iii). No amount
shall be paid or charged to any such Partner on account of any such transaction
or claim until its final settlement or such earlier time as the General Partner
(or any other appropriate party selected pursuant to Section 8.01(b)) shall
determine. The Partnership may meanwhile retain from other sums due such
Partner an amount which the General Partner (or any other appropriate party
selected pursuant to Section 8.01(b)) estimates to be sufficient to cover the
share of such Partner in any probable loss or liability on account of such
transaction or claim.
(c) Upon determination by the General Partner (or any other
appropriate party selected pursuant to Section 8.01(b)) that circumstances no
longer require the exclusion of Investments or retention of sums as provided in
Section 8.02(b) and (c), the General Partner (or any other appropriate party
selected pursuant to Section 8.01(b)) shall, at the earliest practicable time,
pay such sums or distribute such Investments or the proceeds realized from the
sale of such
<PAGE> 46
43
Investments to each Partner from whom such sums or Investments have been
withheld.
ARTICLE IX
Reports to Partners
9.01. Books of Account. Appropriate books of account shall be
kept, on a cash basis, at the principal place of business of the Partnership,
and each Partner shall have access to all books, records and accounts and the
right to make copies thereof under such conditions and restrictions as the
General Partner may reasonably prescribe.
9.02. Audit and Report. (a) The books and records of the
Partnership shall be audited and reported on as of the end of each fiscal year
by accountants selected by the General Partner for this purpose. Within 60
days after the end of each fiscal year, the Partnership will cause to be mailed
to each Partner a written report, which shall include (i) a statement prepared
by the Partnership setting forth such Partner's Capital Account and the amount
of such Partner's allocable share of the Partnership's items of income and
deduction, capital gain and loss or credit for such year, in sufficient detail
to enable him to prepare his Federal, state, local and other tax returns and
(ii) a balance sheet, a statement of income and expense and a statement of
changes in financial position of the Partnership for such fiscal year.
<PAGE> 47
44
(b) At the same time as financial statements are furnished
pursuant to Section 9.02(a), the Partnership shall cause to be mailed to each
Partner a written report setting forth a brief description of each Investment
held by the Partnership as of the end of such fiscal year, the cost and value
of each such Investment as determined by the General Partner and a brief
description of the nature of the business of the issuer of each such
Investment.
(c) The Partnership shall cause to be mailed to each
Limited Partner a copy of the Partnership's Federal, state and local income tax
returns for each year promptly after such returns become available.
(d) The General Partner shall also cause to be delivered to
each Limited Partner such other information as such Limited Partner may
reasonably request for the purpose of enabling him to comply with any reporting
or filing requirements imposed by any governmental agency or authority pursuant
to any statute, rule, regulation or otherwise.
9.03. Fiscal Year. The fiscal year of the Partnership shall
end on December 31 of each calendar year unless otherwise determined by the
General Partner.
ARTICLE X
Miscellaneous
10.01. Governing Law. The terms of this Agreement
<PAGE> 48
45
and all rights and obligations of the Partners hereunder shall be governed by
the laws of the State of Delaware.
10.02. Indemnification. The General Partner shall not be
liable to any Partner for any action taken or not taken by it or for any action
taken or not taken by any other Partner or other person with respect to the
Partnership. The Partnership shall indemnify the General Partner and each of
its officers and directors against any losses, claims, damages or liabilities
(including legal or other expenses reasonably incurred in investigating or
defending against any such loss, claim, damages or liability), joint or
several, to which it the General Partner may become subject by reason of its
being the General Partner or to which such officers and directors may become
subject by reason of their being officers and directors of the General Partner.
Notwithstanding the above, the General Partner shall not be exculpated or
exonerated from liability, and the General Partner and each of its officers and
directors shall not be indemnified against loss, for violations of Federal or
state securities laws, or for any other intentional or criminal wrongdoing.
Limited Partners will not be personally obligated with respect to
indemnification pursuant to this Section 10.02.
10.03. Notice. All notices hereunder shall be in writing and
shall be deemed to have been duly given when
<PAGE> 49
46
personally delivered or mailed by registered or certified mail, return receipt
requested, to the Partnership, at 1285 Avenue of the Americas, New York, New
York 10019, Attention of PaineWebber Partners II, Inc., or such other address
or addresses as to which the Partners shall have been given notice, and to the
Partners at the addresses as to which the Partnership shall have been given
notice.
10.04. Counterparts. This Agreement may be executed in any
number of counterparts, all of which together shall constitute a single
instrument. It shall not be necessary that any counterpart be signed by all
the parties so long as all counterparts signed by each Limited Partner shall
also be signed by the General Partner.
10.05. Completeness and Amendments. This Agreement sets forth
the entire understanding of all the parties. The provisions of this Agreement
shall not be amended except by an instrument in writing executed (i) by the
General Partner (or if there is more than one General Partner, by the General
Partner or Partners entitled to act for the Partnership in accordance with the
proviso to the last sentence of Section 4.01(a)) and (ii) by a majority in
interest of the Limited Partners (based upon Limited Partnership Percentages),
except that any provision of this Agreement requiring the approval or consent
of greater than a majority in interest of the Limited Partners shall not be
amended except by an instrument in
<PAGE> 50
47
writing executed by the percentage in interest of Limited Partners whose
approval or consent would be required by such provision; provided, however,
that no amendment of any provision of this Agreement shall, unless the same
shall be in writing and signed by a lender described in Section 5.02 above,
adversely affect the rights and duties of such lender under any promissory note
delivered in connection with a loan made by it to the Partnership pursuant to
Section 5.02.
10.06. Power of Attorney. The Limited Partners hereby appoint
the person who from time to time shall be a General Partner, including a
successor General Partner pursuant to Section 7.06(c), as their true and lawful
representative and attorney-in-fact, in their name, place and stead to make,
execute, sign and file all instruments, documents and certificates which, from
time to time, may be required by this Agreement (including Section 7.06(d)) or
by the laws of the United States of America, the State of Delaware or any other
state in which the Partnership shall determine to do business, or any political
subdivision or agency thereof, to execute, implement and continue the valid and
subsisting existence of the Partnership. The General Partner, as
representative and attorney-in-fact, however, shall not have any rights, powers
or authority to amend or modify this Agreement when acting in such capacity,
except as expressly provided herein. Such power of attorney is coupled
<PAGE> 51
48
with an interest and shall continue in full force and effect notwithstanding
the subsequent occurrence of a Final Event with respect to any Limited Partner.
IN WITNESS WHEREOF, the parties hereto have hereunto executed
this Agreement as of the date first above written.
Address of General Partner: GENERAL PARTNER:
1285 Avenue of the Americas PAINEWEBBER PARTNERS II, INC.,
New York, N.Y. 10019
By:
----------------------------
Name: Ronald M. Schwartz
Title: President
LIMITED PARTNERS:
THE LIMITED PARTNERSHIP INTERESTS EVIDENCED BY THIS PARTNERSHIP AGREEMENT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE
SECURITIES LAW AND MUST BE HELD INDEFINITELY UNLESS SOLD IN COMPLIANCE WITH ALL
APPLICABLE SECURITIES LAWS.
<PAGE> 52
EXHIBIT A
Limited Partnership Agreement
of
PW Partners 1993 L.P.
<PAGE> 1
Exhibit 10.3
PAINE WEBBER GROUP INC.
1994 EXECUTIVE INCENTIVE COMPENSATION PLAN
1. Purposes. The purposes of this 1994 Executive Incentive Compensation
Plan are to provide an incentive to executive officers and other selected key
executives of Paine Webber Group Inc. ("PaineWebber") to contribute to the
growth and annual profitability of PaineWebber and its subsidiaries, to
encourage such executives to remain in the employ of PaineWebber, and to
endeavor to qualify the compensation paid under the Plan for tax deductibility
under Section 162(m) of the Code to the extent deemed appropriate by the
Compensation Committee of the Board of Directors of PaineWebber.
2. Definitions. For purposes of the Plan, the following terms shall be
defined as set forth below:
(a) "Annual Profits" shall mean the annual consolidated pre-tax
operating income of PaineWebber for the Performance Period before
accounting for incentive compensation and corporate charges and the cost of
restructuring and discontinued operations.
(b) "Award" shall mean a portion of the Award Pool payable to a
Participant as determined pursuant to Section 4. Awards may be paid in
cash, common stock of PaineWebber, and/or other awards authorized by
PaineWebber's 1994 Executive Stock Award Plan and 1994 Stock Award Plan, as
determined by the Committee. To the extent Awards are paid in a form other
than cash, such payments shall count against the number of shares or awards
reserved under the 1994 Executive Stock Award Plan or the 1994 Stock Award
Plan.
(c) "Award Pool" shall mean a pool of funds specified by the
Committee, in accordance with Section 4, out of which Awards may be made
to Participants.
(d) "Board" shall mean PaineWebber's Board of Directors.
(e) "Change in Control" shall mean the occurrence of any of the
following events:
(i) Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than PaineWebber, a subsidiary, any
trustee or other fiduciary holding securities under an employee
benefit plan of PaineWebber or a subsidiary, or any corporation
owned, directly or indirectly, by the stockholders of
PaineWebber in substantially the same proportions as their
contemporaneous ownership of voting securities of PaineWebber,
is or becomes a "20% Beneficial Owner." For purposes of this
provision, a "20% Beneficial Owner" shall mean a person who is
or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities
of PaineWebber representing 20% or more of the combined voting
power of PaineWebber's then-outstanding voting securities
(a "20% Beneficial Owner"); provided that (A) the term
"20% Beneficial Owner" shall not include any Beneficial Owner
who has crossed such 20% threshold solely as a result of an
acquisition of securities directly from PaineWebber, or solely
as a result of an acquisition by PaineWebber of PaineWebber
securities, until such time thereafter as such person acquires
additional voting securities other than directly from
PaineWebber and, after giving effect to such acquisition, such
person would constitute a 20% Beneficial Owner and (B) with
respect to any person who is and remains eligible to file a
Schedule 13G pursuant to Rule 13d-1(b)(1) under the Exchange Act
with respect to PaineWebber securities, there shall be excluded
from the number of securities deemed to be beneficially owned by
such person for purposes of determining whether such person is
a 20% Beneficial Owner a number of securities representing 10%
of the combined voting power of PaineWebber's then-outstanding
voting securities;
(ii) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors
of PaineWebber, together with any new
<PAGE> 2
director (other than a director designated by a person who has
entered into an agreement with PaineWebber to effect a
transaction described in paragraph (i), (iii), or (iv) hereof)
whose election by the Board or nomination for election by
PaineWebber's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose
election or nomination for election was previously so approved
(the "Continuing Directors"), cease for any reason to constitute
at least a majority thereof;
(iii) the stockholders of PaineWebber approve a merger, consolidation,
recapitalization, or reorganization of PaineWebber, or a reserve
stock split of any class of voting securities of PaineWebber, or
the consummation of any such transaction if stockholder approval
is not obtained, other than any such transaction which would
result in at least 80% of the total voting power represented by
the voting securities of PaineWebber or the surviving entity
outstanding immediately after such transaction being
beneficially owned by persons who together beneficially owned at
least 80% of the combined voting power of the voting securities
of PaineWebber outstanding immediately prior to such
transaction, with the relative voting power of each such
continuing holder compared to the voting power of each other
continuing holder not substantially altered as a result of the
transaction; provided that, for purposes of this paragraph
(iii), such continuity of ownership (and preservation of
relative voting power) shall be deemed to be satisfied if the
failure to meet such 80% threshold (or to substantially preserve
such relative voting power) is due solely to the acquisition of
voting securities by an employee benefit plan of PaineWebber or
such surviving entity or of any subsidiary of PaineWebber or
such surviving entity;
(iv) the stockholders of PaineWebber approve a plan of complete
liquidation of PaineWebber or an agreement for the sale or
disposition by PaineWebber of all or substantially all of
PaineWebber's assets (or any transaction having a similar
effect); or
(v) any other event which the Board of Directors (or the
Compensation Committee of the Board of Directors, if and to the
extent that the Compensation Committee must exercise sole
discretion under the matter in order to comply with applicable
requirements of Rule 16b-3 under the Exchange Act) determines
shall constitute a Change in Control for purposes of this Plan;
provided that a Change in Control shall not be deemed to have occurred if,
prior to the occurrence of a specified event that would otherwise
constitute a Change in Control under paragraphs (i) through (iv) hereof,
the Continuing Directors of PaineWebber then in office, by a majority vote
thereof, determine that the occurrence of such specified event shall not be
deemed to be a Change in Control hereunder or shall not be deemed to be a
Change in Control with respect to a particular Participant under this Plan
if the Change in Control results from actions or events in which such
Participant is a participant in a capacity other than solely as an officer,
employee or director of PaineWebber or its subsidiaries.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, including regulations thereunder and successor
provisions and regulations thereto.
(g) "Committee" shall mean the Compensation Committee of the Board,
or such other Board committee as may be designated by the Board to
administer the Plan; provided that the Committee shall consist solely of
two or more directors, each of whom is a "disinterested person" within the
meaning of Rule 16b-3 under the Exchange Act.
(h) "Eligible Employee" shall mean each executive officer of
PaineWebber, including those employed by subsidiaries, and other key
executives selected by the Committee.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time, including rules thereunder and successor
provisions and rules thereto.
(j) "PaineWebber" shall mean Paine Webber Group Inc. and shall
include any corporation which is or hereafter becomes a subsidiary
corporation of Paine Webber Group Inc. within the meaning of Section 424(f)
of the Code.
<PAGE> 3
(k) "Participant" shall mean an Eligible Employee designated by the
Committee to participate in the Plan for a designated Performance Period.
(l) "Plan" shall mean this Paine Webber Group Inc. 1994 Executive
Incentive Compensation Plan.
(m) "Performance Period" shall mean the calendar year or such other
shorter or longer period designated by the Committee, performance during
all or part of which a Participant's entitlement to receive a payment of an
Award is based.
3. Administration. The Plan shall be administered by the Committee, no
member of which shall be eligible to participate in the Plan. The Committee is
authorized, subject to the provisions of the Plan, in is discretion, from time
to time to select Participants; to grant Awards under the Plan; to establish,
modify, or rescind such rules and regulations as it deems necessary for the
proper administration of the Plan; and to make such determination and
interpretations and to take such steps in connection with the Plan or the Awards
granted thereunder as it deems necessary or advisable. All such actions by the
Committee under the Plan or with respect to the Awards granted thereunder shall
be final and binding on all persons. No member of the Committee shall be liable
for any action taken, or determination made, in good faith.
4. Awards.
(a) Creation of Award Pool. The Award Pool for each Performance
Period shall equal 4.5% of Annual Profits in excess of $100 million and up
to $870 million plus 5.5% of Annual Profits in excess of $870 million.
(b) Allocation of Award Pool. Prior to the commencement of each
Performance Period, the Committee shall allocate in writing, on behalf of
each Participant, a portion of the Award Pool (not to exceed 33% on behalf
of each Participant) to be paid for such Performance Period; provided that
the allocation of the Award Pool for the 1994 Performance Period may occur
no later than March 31, 1994.
(c) Adjustments. The Committee is authorized at any time during or
after a Performance Period, in its sole and absolute discretion, to reduce
or eliminate the Award Pool or the portion of the Award Pool allocated to
any Participant, for any reason, including changes in the position or
duties of any Participant with PaineWebber or any subsidiary during a
Performance Period, whether due to any termination of employment (including
death, disability, retirement, or termination with or without cause) or
otherwise. In addition, the Committee is authorized at any time during or
after a Performance Period, in its sole and absolute discretion, to adjust
or modify the calculation of Annual Profits, the Award Pool, and
allocations thereunder, in order to prevent dilution or enlargement of the
rights of the Participants, (i) in the event of any dividend or other
distribution (whether in the form of cash, securities, or other property),
recapitalization, reorganization, merger, consolidation, spin off,
combination, repurchase, share exchange, liquidation, dissolution, or other
similar corporate transaction or event, (ii) in recognition of any other
unusual or nonrecurring events affecting PaineWebber, any subsidiary, or
any business division or unit or the financial statements of PaineWebber or
any subsidiary, or in response to changes in applicable laws, regulation,
accounting principles, tax rates and regulations or business conditions,
and (iii) in view of the Committee's assessment of the business strategy of
the Company and divisions and subsidiaries thereof, performance of
comparable organizations, economic and business conditions, personal
performance of the Participant, and any other circumstances deemed
relevant; provided that, unless otherwise determined by the Committee in
its sole discretion, no such adjustment shall be authorized or made if and
to the extent that such authority or the making of such adjustment would
cause Awards to fail to quality as "performance-based compensation" under
Section 162(m)(4)(C) of the Code and regulations thereunder (including
Proposed Regulation 1.162-27(e)(2)).
(d) Payment of Awards.
(i) Following the completion of each Performance Period, the
Committee shall certify in writing the amount of the Award Pool
and the Awards payable to Participants.
<PAGE> 4
(ii) Except as provided below, each Participant shall receive
payment, in a cash lump sum, of his or her Award as soon as
practicable following the determination in respect thereof made
pursuant to this Section 4(d).
(iii) The Committee may specify, either before or after completion of
any Performance Period, that all or a portion of any Award
shall be paid by issuance or delivery of shares of
PaineWebber's common stock or other awards, including
restricted stock and/or restricted units, as authorized by
PaineWebber's 1994 Executive Stock Award Plan or 1994 Stock
Award Plan, having a fair market value equal to the cash value
of the Award that would otherwise have been payable. Such
shares or other awards shall be subject to such conditions,
including deferral of delivery, restrictions on
transferability, and other terms and conditions as shall be
specified by the Committee. The fair market value of any
stock-based payment shall be determined by the Committee or
under procedures established by the Committee. Unless otherwise
determined by the Committee, the fair market value of
PaineWebber common stock as of any given date shall be the mean
between the high and low sales prices of PaineWebber common
stock on the stock exchange or market on which the stock is
primarily traded on the date as of which such value is being
determined, or if there shall be no sale on that date, then on
the basis of the average of the high and low sales prices of
PaineWebber common stock on the nearest date before and the
nearest date after the date on which such value is being
determined.
(iv) Each Participant shall have the right to defer receipt of part
or all of any payment due with respect to an Award, subject to
the terms, conditions and administrative guidelines of the
PaineWebber Senior Officer Deferred Compensation Plan or other
applicable deferred compensation plan of PaineWebber or its
subsidiaries.
(v) In the event a Participant terminates employment for any reason
during a Performance Period or prior to Award payment, he or
she (or his or her beneficiary, in the case of death) shall not
be entitled to receive any Award for such Performance Period
unless the Committee, in its sole and absolute discretion,
elects to pay an Award to such Participant.
(vi) In the event of the death of a Participant, any payments
hereunder due to such Participant shall be paid to his or her
beneficiary as designated in writing to the Committee or,
failing such designation, to his or her estate, unless
otherwise provided in an irrevocable deferral election form
filed by the Participant. No beneficiary designation shall be
effective unless it is in writing and received by the Committee
prior to the death of the Participant.
(vii) In the event of a Change in Control, the Award Pool shall be
computed as if the Performance Period ended immediately prior
to the Change in Control, and the Award Pool shall be computed
by annualizing the amount of the Annual Profits achieved during
the Performance Period. Notwithstanding Section 4(c), in the
event of a Change in Control, the Committee shall not be
authorized to reduce or eliminate the Award Pool or the portion
of the Award Pool allocated to any Participant; provided that a
Participant's Award to which he or she would otherwise be
entitled shall be multiplied by a fraction, the numerator of
which is the number of days in the Performance Period prior to
the Change in Control and the denominator of which is 365. Any
resulting amount hereunder due to a Participant shall be paid
in a cash lump sum no later than fifteen (15) days after a
Change in Control unless otherwise provided in an irrevocable
deferral election form filed by the Participant prior to such
event.
5. General Provisions.
(a) Taxes. PaineWebber or any subsidiary is authorized to withhold from any
Award granted, any payment relating to an Award under the Plan, including from a
distribution of PaineWebber common stock, or any payroll or other payment to a
Participant, amounts of withholding and other taxes due in connection with any
transaction involving an Award, and to take such other action as the Committee
may deem advisable to enable PaineWebber and Participants to satisfy obligations
for the payment of withholding taxes and other tax obligations
<PAGE> 5
relating to any Award. This authority shall include authority for PaineWebber to
withhold or receive PaineWebber common stock or other property and to make cash
payments in respect thereof in satisfaction of a Participant's tax obligations,
either on a mandatory or elective basis in the discretion of the Committee.
(b) Limitations on Rights Conferred under Plan and Beneficiaries. Neither
status as a Participant nor receipt nor completion of a deferral election form
shall be construed as a commitment that any Award will become payable under the
Plan. Nothing contained in the Plan or in any documents related to the Plan or
to any Award shall confer upon any Eligible Employee or Participant any right to
continue as an Eligible Employee, Participant or in the employ of PaineWebber or
a subsidiary or constitute any contract or agreement of employment, or interfere
in any way with the right of PaineWebber or a subsidiary to reduce such person's
compensation, to change the position held by such person or to terminate the
employment of such Eligible Employee or Participant, with or without cause, but
nothing contained in this Plan or any document related thereto shall affect any
other contractual right of any Eligible Employee or Participant. No benefit
payable under, or interest in, this Plan shall be transferable by a Participant
except by will or the laws of descent and distribution or otherwise be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge.
(c) Changes to the Plan and Awards. Notwithstanding anything herein to the
contrary, the Board may, at any time, terminate or, from time to time, amend,
modify or suspend the Plan and the terms and provisions of any Award theretofore
awarded to any Participant which has not been settled (either by payment or
deferral). No Award may be granted during any suspension of the Plan or after
its termination. Any such amendment may be made without stockholder approval.
(d) Unfunded Status of Awards; Creation of Trusts. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any amounts payable to a Participant pursuant to an Award, nothing
contained in the Plan (or in any documents related thereto), nor the creation or
adoption of the Plan, the grant of any Award, or the taking of any other action
pursuant to the Plan shall give any such Participant any rights that are greater
than those of a general creditor of PaineWebber; provided that the Committee may
authorize the creation of trusts and deposit therein cash, stock, or other
property or make other arrangements, to meet PaineWebber's obligations under the
Plan. Such trusts or other arrangements shall be consistent with the "unfunded"
status of the Plan unless the Committee otherwise determines with the consent of
each affected Participant. The trustee of such trusts may be authorized to
dispose of trust assets and reinvest the proceeds in alternative investments,
subject to such terms and conditions as the Committee may specify in accordance
with applicable law.
(e) Non-Exclusivity of the Plan. Neither the adoption of the Plan by the
Board not its submission to the stockholders of PaineWebber for approval shall
be construed as creating any limitations on the power of the Board to adopt such
other incentive arrangements as it may deem necessary.
(f) Governing Law. The validity, construction, and effect of the Plan, any
rules and regulations relating to the Plan, and any Award shall be determined in
accordance with the laws of the State of Delaware, without giving effect to
principles of conflicts of laws, and applicable federal law.
(g) Effective Date. The Plan shall become effective on January 1, 1994,
subject to subsequent approval thereof by PaineWebber's stockholders at the 1994
annual meeting and shall remain in effect until it has been terminated pursuant
to Section 5(f).
<PAGE> 1
Exhibit 10.4
PAINE WEBBER GROUP INC.
SENIOR OFFICER DEFERRED COMPENSATION PLAN
2/28/94
<PAGE> 2
PAINE WEBBER GROUP INC.
SENIOR OFFICER DEFERRED COMPENSATION PLAN
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(a) General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(b) Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4. Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5. Deferrals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(a) Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(b) Date of Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6. Deferral Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(a) Establishment; Crediting of Amounts Deferred . . . . . . . . . . . . . . . . . . 5
(b) Hypothetical Investment Vehicles . . . . . . . . . . . . . . . . . . . . . . . . 5
(c) Allocation and Reallocation of Hypothetical Investments . . . . . . . . . . . . 5
(d) Rabbi Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(e) Investment Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7. Deferral of Certain Stock-Denominated Awards; Rabbi Trusts . . . . . . . . . . . . . . . 6
(a) Establishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(b) Investment of Rabbi Trust Assets . . . . . . . . . . . . . . . . . . . . . . . . 6
(c) Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8. Settlement of Deferral Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(a) Form of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(b) Timing of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(c) Financial Emergency and Other Payments . . . . . . . . . . . . . . . . . . . . . 7
(d) Tax Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(e) Investment Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9. Provisions Relating to Participants Subject to Section 16 of the
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
<PAGE> 3
PAINE WEBBER GROUP INC.
SENIOR OFFICER DEFERRED COMPENSATION PLAN
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10. Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
11. Amendments to the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
12. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(a) Limits on Transfer of Awards; Beneficiaries . . . . . . . . . . . . . . . . . . 9
(b) Receipt and Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(c) Unfunded Status of Awards; Creation of Trusts . . . . . . . . . . . . . . . . . 9
(d) Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(e) Other Participant Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(f) Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
13. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
<PAGE> 4
PAINE WEBBER GROUP INC.
SENIOR OFFICER DEFERRED COMPENSATION PLAN
Senior Officer Deferred Compensation Plan
1. PURPOSES. The purposes of this Senior Officer Deferred
Compensation Plan (the "Plan") are (a) to provide executive officers and other
selected key executives of Paine Webber Group Inc. ("PWG") with the opportunity
to elect to defer receipt of certain compensation and awards, and have such
deferred amounts deemed invested in specified investment vehicles, and (b) to
provide for mandatory deferral of payment of certain compensation and awards to
executive officers and other selected key executives in the best interests of
the PWG and its stockholders.
2. DEFINITIONS. In addition to terms defined elsewhere in the
Plan, the following terms shall be defined as set forth below:
(a) "Administrator" shall mean the Chief Administrative
Officer of PaineWebber Incorporated or other executive appointed by
the Committee to administer the Plan and any rabbi trust created
thereunder, except as may be otherwise required under Section 9.
(b) "Change in Control" shall mean the occurrence of any
of the following events:
(i) Any "person" (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act, other than PWG, a
subsidiary, any trustee or other fiduciary holding
securities under an employee benefit plan of PWG or a
subsidiary, or any corporation owned, directly or
indirectly, by the stockholders of PWG in
substantially the same proportions as their
contemporaneous ownership of voting securities of
PWG, is or becomes a "20% Beneficial Owner." For
purposes of this provision, a "20% Beneficial Owner"
shall mean a person who is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of PWG
representing 20% or more of the combined voting power
of PWG's then-outstanding voting securities (a "20%
Beneficial Owner"); provided that (A) the term "20%
Beneficial Owner" shall not include any Beneficial
Owner who has crossed such 20% percent threshold
solely as a result of an acquisition of securities
directly from PWG, or solely as a result of an
acquisition by PWG of PWG securities, until such time
thereafter as such person acquires additional voting
securities other than directly from PWG and, after
giving effect to such acquisition, such person would
constitute a 20% Beneficial Owner; and (B) with
respect to any person who is and remains eligible to
file a Schedule 13G pursuant to Rule 13d-1(b)(1)
under the Exchange Act with respect to PWG
securities, there shall be excluded from the number
of securities deemed to be beneficially owned by such
person for purposes of determining whether such
person is a 20% Beneficial Owner a number of
securities representing
<PAGE> 5
10% of the combined voting power of PWG's
then-outstanding voting securities;
(ii) during any period of two consecutive years,
individuals who at the beginning of such period
constitute the Board of Directors of PWG, together
with any new director (other than a director
designated by a person who has entered into an
agreement with PWG to effect a transaction described
in paragraph (i), (iii), or (iv) hereof) whose
election by the Board or nomination for election by
PWG's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of
the period or whose election or nomination for
election was previously so approved (the "Continuing
Directors"), cease for any reason to constitute at
least a majority thereof;
(iii) the stockholders of PWG approve a merger,
consolidation, recapitalization, or reorganization of
PWG, or a reverse stock split of any class of voting
securities of PWG, or the consummation of any such
transaction if stockholder approval is not obtained,
other than any such transaction which would result in
at least 80% of the total voting power represented by
the voting securities of PWG or the surviving entity
outstanding immediately after such transaction being
beneficially owned by persons who together
beneficially owned at least 80% of the combined
voting power of the voting securities of PWG
outstanding immediately prior to such transaction,
with the relative voting power of each such
continuing holder compared to the voting power of
each other continuing holder not substantially
altered as a result of the transaction; provided
that, for purposes of this paragraph (iii), such
continuity of ownership (and preservation of relative
voting power) shall be deemed to be satisfied if the
failure to meet such 80% threshold (or to
substantially preserve such relative voting power) is
due solely to the acquisition of voting securities by
an employee benefit plan of PWG or such surviving
entity or of any subsidiary of PWG or such surviving
entity;
(iv) the stockholders of PWG approve a plan of complete
liquidation of PWG or an agreement for the sale or
disposition by PWG of all or substantially all of
PWG's assets (or any transaction having a similar
effect); or
(v) any other event which the Board of Directors (or the
Compensation Committee of the Board of Directors, if
and to the extent that the Compensation Committee
must exercise sole discretion over the matter in
order to comply with applicable requirements of Rule
16b-3 under the Exchange Act) determines shall
constitute a Change in Control for purposes of this
Plan;
provided that a Change in Control shall not be deemed to have occurred
if, prior to the occurrence of a specified event that would otherwise
constitute a Change in Control under paragraphs (i) through (iv)
hereof, the Continuing Directors of PWG then
- 2 -
<PAGE> 6
in office, by a majority vote thereof, determine that the occurrence
of such specified event shall not be deemed to be a Change in Control
hereunder or shall not be deemed to be a Change in Control with
respect to a particular Participant under this Plan if the Change in
Control results from actions or events in which such Participant is a
participant in a capacity other than solely as an officer, employee or
director of PWG or its subsidiaries.
(c) "Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time, including regulations thereunder and
successor provisions and regulations thereto.
(d) "Committee" shall mean the Compensation Committee of
the Board of Directors of PWG; provided that, except as may be
otherwise required under Section 9 or by applicable law, any function
of the Committee may be delegated by it to the Administrator.
(e) "Deferral Account" shall mean a bookkeeping account
established and maintained by PaineWebber to record the deferrals by a
Participant, as described in Section 6(a), and any notional income,
gains or losses credited or debited with respect to such deferrals.
Deferral Accounts shall be maintained solely as bookkeeping entries to
evidence unfunded, non-transferable obligations of PaineWebber.
(f) "Disability" shall mean termination of employment due
to inability to perform assigned duties due to physical or mental
incapacity as determined by the Committee.
(g) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended from time to time, including rules thereunder and
successor provisions and rules thereto.
(h) "PaineWebber" shall mean PWG and its direct and
indirect subsidiaries.
(i) "Participant" shall mean any executive officer or
other key executive of PaineWebber selected by the Committee who
participates or makes an election to participate in the Plan.
(j) "Valuation Date" shall mean the close of business on
the last business day of each calendar quarter; provided that, in the
case of termination of employment for reasons other than normal
retirement, death, or Disability, the Valuation Date shall be the
close of business on the last business day of the month in which
employment terminates, and in the case of a Change in Control of PWG,
the Valuation Date shall be the date of such Change in Control; and
provided that, with respect to payments of a portion of the Deferral
Account notionally invested in any investment partnership, Valuation
Date shall mean the day immediately prior to the date of such payment.
- 3 -
<PAGE> 7
3. ADMINISTRATION.
(a) General. The Committee and the Administrator shall
administer the Plan in accordance with its terms, and will have all
powers necessary to accomplish such purpose, including the power to
specify rules, election forms and other forms, and instructions for
such forms. Any actions of the Committee and the Administrator with
respect to the Plan will be conclusive and binding upon all persons
interested in the Plan, except that any action of the Administrator
will not be binding on the Committee. The Committee and Administrator
may each appoint agents and delegate thereto powers and duties under
the Plan, except as otherwise limited by the Plan.
(b) Limitation of Liability. Each member of the
Committee and the Administrator shall be entitled to, in good faith,
rely or act upon any report or other information furnished to him or
her by any officer or other employee of PaineWebber, PaineWebber's
independent certified public accountants, consultants, legal counsel,
or other professional retained by PaineWebber to assist in the
administration of the Plan. Neither a member of the Committee, the
Administrator, nor any officer or employee of PaineWebber acting on
behalf of the Committee or Administrator shall be personally liable
for any action, determination, or interpretation taken or made in good
faith with respect to the Plan, and such persons shall, to the extent
permitted by law, be fully indemnified and protected by PaineWebber
with respect to any such action, determination, or interpretation.
4. PARTICIPATION. Employees of PaineWebber who are reporting
persons for purposes of Section 16(a) of the Exchange Act with respect to the
stock of PWG and other key executives of PaineWebber, in each case selected by
the Committee, will be eligible to become Participants in the Plan if such
employees receive or are to receive compensation or awards which are permitted
to be deferred under the Plan. The Administrator shall notify each employee of
his or her eligibility to participate in the Plan not later than 30 days (or
such lesser period as may be practicable in the circumstances) prior to any
deadline for filing an election form.
5. DEFERRALS. Subject to the approval of the Committee, a
Participant may elect to defer compensation or awards to be received from
PaineWebber, including salary, annual incentive, PWG common stock or
stock-based awards, shares received on stock option exercises, and other
compensation payable under plans and programs or otherwise, as may be provided
under the terms of such plans and programs or designated by the Committee;
provided, however, that a Participant may defer, with respect to a given year,
receipt of only that portion of the Participant's salary, annual incentive or
other compensation that exceeds the FICA maximum taxable wage base plus 1.45%
of all wages in excess of such FICA maximum of such Participant. In addition
to such limitation, and any terms and conditions of deferral set forth under
plans, programs or other arrangements from which receipt of compensation or
awards is deferred, the Committee may impose limitations on the amounts
permitted to be deferred and other terms and conditions on deferrals under the
Plan. Any such limitations, and other terms and conditions of deferral, shall
be set forth in the administrative guidelines relating to the Plan or election
forms, other forms, or instructions published by the Committee and/or the
Administrator. The Committee is authorized to permit, in its discretion,
further elective deferrals of amounts previously deferred under this Plan. In
addition, the Committee may mandate deferral of payment in accordance with the
Plan of all or a portion of the compensation or awards to be received from
PaineWebber, including
- 4 -
<PAGE> 8
salary, annual incentive, PWG common stock or stock-based awards, shares
received on stock option exercises, and other compensation payable under plans
and programs or otherwise, as may be provided under the terms of such plans and
programs or designated by the Committee.
(a) Elections. Once an election form, properly
completed, is received by PaineWebber, the elections of the
Participant shall be irrevocable; provided that the Committee may, in
its discretion, permit a Participant to change elections relating to a
Deferral Account by filing a later election form.
(b) Date of Election. An election to defer compensation
or awards hereunder must be received by PaineWebber by specified
deadlines or under other conditions set by the Administrator, in its
discretion, with respect to each element of compensation or type of
award.
6. DEFERRAL ACCOUNTS.
(a) Establishment; Crediting of Amounts Deferred. One or
more Deferral Accounts shall be established for each Participant, as
determined by the Administrator. The amount of compensation or awards
deferred with respect to each Deferral Account shall be credited to
such Account as of the date on which such amounts would have been paid
to the Participant but for the Participant's election to defer receipt
hereunder or on such other date as directed by the Committee in
connection with mandatorily deferred compensation or awards. The
amounts of hypothetical income and appreciation and depreciation in
value of such account will be credited and debited to such Account
from time to time. Unless otherwise determined by the Committee or
Administrator, cash amounts credited to a Deferral Account shall be
deemed invested in a hypothetical investment vehicle as of the date of
deferral.
(b) Hypothetical Investment Vehicles. Unless the
Committee determines otherwise, amounts credited to a Deferral Account
shall be deemed to be invested, at the Participant's direction, in one
or more investment vehicles as may be specified from time to time by
the Committee. The Committee may change or discontinue any
hypothetical investment vehicle available under the Plan in its
discretion, provided that each affected Participant is given the
opportunity, without limiting or otherwise impairing any other right
of such Participant regarding changes in investment directions, to
redirect the allocation of his or her Deferral Account deemed invested
in the discontinued investment vehicle among the other hypothetical
investment vehicles, including any replacement vehicle.
(c) Allocation and Reallocation of Hypothetical
Investments. Subject to Section 6(e) below, a Participant may
allocate amounts credited to his or her Deferral Account to one or
more of the hypothetical investment vehicles authorized under the
Plan. Subject to the rules established by the Administrator,
Participants may reallocate amounts credited to his or her Deferral
Account as of the Valuation Date following the Participant's election
to one or more of such hypothetical investment vehicles, by filing
with the Administrator a notice, in such form as may be specified by
the Administrator, not later than the 15th of the month preceding such
Valuation Date. The Committee or Administrator may, in its
discretion, restrict allocation into or reallocation by specified
- 5 -
<PAGE> 9
Participants into or out of specified investment vehicles or specify
minimum amounts that may be allocated or reallocated by Participants.
(d) Rabbi Trusts. The Committee may, in its discretion,
establish rabbi trusts, and deposit amounts therein to satisfy
PaineWebber's obligations with respect to a Participant's Deferral
Account established under this Section 6. In such case, the amounts
of hypothetical income and appreciation and depreciation in value of
such Deferral Account shall, unless the Committee determines
otherwise, equal the actual income on, appreciation and depreciation
of, the assets in such rabbi trust (including, unless otherwise
determined by the Committee, charges against such assets for
transaction costs and to reflect all or a specified portion, as
determined by the Committee, of PWG's costs resulting from the payment
of taxes on the income on and appreciation of trust assets prior to
the time PWG is entitled to a tax deduction for payment of the
Deferral Account). Other provisions of this Section 6
notwithstanding, the timing of allocations and reallocations of assets
in such a Deferral Account, and the investment vehicles available with
respect to such Deferral Account, may be varied to reflect the timing
of actual investments of the assets of such rabbi trust and the actual
investments available to such rabbi trust.
(e) Investment Partnerships. Anything in this Plan to
the contrary notwithstanding, a Participant will not be permitted to
reallocate portions of his or her Deferral Account which are deemed
invested in investment partnerships unless such reallocation is
permitted by the Committee. In making such determination, the
Committee may take into account (i) the extent to which cash or other
distributions have been made to limited partners who have made direct
investments in such investment partnerships, (ii) the restrictions on
transfers applicable to interests in the investment partnerships, and
(iii) such other factors as the Committee deems relevant. For
purposes of this Section 6(e), cash or other property which is deemed
to be distributed from investment partnerships as a result of
distributions made to partners in investment partnerships will not be
treated as invested in investment partnerships for purposes of
Deferral Accounts.
7. DEFERRAL OF CERTAIN STOCK-DENOMINATED AWARDS; RABBI TRUSTS.
(a) Establishment. If authorized by the Committee and
subject to any terms and conditions imposed by the Committee,
Participants may elect to defer, under the Plan, awards denominated in
PWG common stock specified by the Committee. At or after the time of
deferral of such a stock-denominated award, a separate sub-account in
the Deferral Account shall be established for such Participant that
shall be denominated in notional shares of stock corresponding to the
number of shares subject to the stock-based award that was deferred.
At the time of such deferral, the Executive Committee of the Board of
Directors of PWG may authorize the contribution to any rabbi trust
established under the Plan of that number of whole shares of PWG
common stock equal to the number of shares subject to the
stock-denominated award that has been deferred (and cash in lieu of
any fractional share thereof) plus cash equal to any other deferred
award.
(b) Investment of Rabbi Trust Assets. The trustee of
each rabbi trust, which shall be a party unaffiliated with
PaineWebber, shall be authorized, upon written instructions received
from the Administrator or investment manager appointed by
- 6 -
<PAGE> 10
PWG, to invest and reinvest the assets of the trust in accordance with
the trust agreement, including the disposition of shares of PWG common
stock and reinvestment of the proceeds in one or more investment
vehicles designated by the Committee or Administrator; provided that
no such disposition shall be made until the date that the shares of
stock subject to the deferred award would otherwise have been
transferable by the Participant. Unless otherwise determined by the
Committee, the Participant shall have no right to direct investments
of amounts credited to such sub-account of the Deferral Account.
(c) Settlement. Subject to Section 8, the Participant
shall be entitled to receive, in settlement of such sub- account of
the Deferral Account, a cash payment in an amount equal to the value
of the assets of such Deferral Account as of the applicable Valuation
Date; provided that the trustee may, at the direction of the Committee
or Administrator, distribute assets of the rabbi trust other than PWG
common stock to the Participant in settlement of PaineWebber's
obligations to the Participant under the Deferral Account.
8. SETTLEMENT OF DEFERRAL ACCOUNTS.
(a) Form of Payment. PaineWebber shall settle a
Participant's Deferral Account (including a sub-account of the
Deferral Account established under Section 7 hereof) and discharge all
of its obligations to pay deferred compensation under the Plan with
respect to such Deferral Account, by payment of cash or, in the
discretion of the Committee or Administrator, by delivery of other
assets other than PWG common stock.
(b) Timing of Payments. Payments in settlement of a
Deferral Account shall be made at the date(s) or events(s), and in
such number of installments, as may be directed by the Participant in
his or her election relating to such Deferral Account, or as may be
directed by the Committee in connection with mandatorily deferred
compensation or awards (but in either case no later than ten years
after termination of employment), or earlier in the following
circumstances:
(i) In the event of termination of employment for reasons
other than normal or early retirement, as defined
under the Supplemental Employee's Retirement Plan for
Certain Senior Officers, death, or Disability, a
single lump sum payment in settlement of any Deferral
Account (including a Deferral Account with respect to
which one or more installment payments have
previously been made) shall be made as promptly as
practicable following the next Valuation Date, unless
otherwise determined by the Administrator; or
(ii) In the event of a Change in Control, payments in
settlement of any Deferral Account (including a
Deferral Account with respect to which one or more
installment payments have previously been made) will
be made within fifteen business days following such
Change in Control.
(c) Financial Emergency and Other Payments. Other
provisions of the Plan (except Sections 6(e), 8(e) and 9)
notwithstanding, if the Committee or Administrator determines that a
Participant has a financial emergency of such a substantial nature
- 7 -
<PAGE> 11
and beyond the individual's control that payment of amounts previously
deferred under the Plan is warranted, the Committee or Administrator
may direct the payment to the Participant of all or a portion of the
balance of a Deferral Account and the time and manner of such payment,
and the Committee may direct such payments in other circumstances if,
in the exercise of its independent judgment, it determines that
circumstances beyond the individual's control warrant such action.
(d) Tax Withholding. PaineWebber is authorized and
permitted to withhold from amounts otherwise payable in settlement of
a Deferral Account amounts required to be withheld in order to satisfy
federal, state, and local tax withholding obligations with respect to
such payments. To the extent that payments under the Plan are made in
securities or other property, PaineWebber shall have the right, as a
condition to the payment of such amounts, to require the Participant
to make arrangements reasonably satisfactory to the Administrator for
the payment of such tax withholding obligations.
(e) Investment Partnerships. Anything in this Plan or a
Participant's deferral election to the contrary notwithstanding, the
Committee may defer the payment of the portion of a Participant's
Deferral Account which is deemed invested in investment partnerships
until such time as (i) the investments in the investment partnerships
made by PaineWebber through the rabbi trust established by PaineWebber
for the Participant is repurchased by the general partner of the
investment partnerships or otherwise disposed of by the trustee, or
(ii) the investment partnerships have terminated and the assets
thereof have been distributed to the partners therein.
9. PROVISIONS RELATING TO PARTICIPANTS SUBJECT TO SECTION 16 OF
THE EXCHANGE ACT. With respect to Participants who are subject to reporting
under Section 16(a) of the Exchange Act ("Section 16 Participants"):
(a) Any function of the Committee or Administrator under
the Plan relating to such Section 16 Participants shall be performed
by the Committee.
(b) The maximum number of notional amounts denominated in
shares of PWG common stock ("Notional Stock Units") that are credited
to the Deferral Accounts of Section 16 Participants under the Plan for
the first time in any calendar year shall not exceed one million
shares of PWG common stock.
(c) Notional Stock Units credited to the Deferral Account
of a Section 16 Participant at the time that amounts are to be paid to
such Participant under the terms of the Plan and the Participant's
deferral election shall be paid to the Participant in cash.
10. STATEMENTS. The Administrator will furnish statements to each
Participant reflecting the amount credited to a Participant's Deferral Accounts
and transactions therein not less frequently than once each calendar year.
11. AMENDMENTS TO THE PLAN. The Committee may amend, alter,
suspend, discontinue, or terminate the Plan without the consent of
Participants, stockholders, or any other person; provided that, without the
consent of a Participant, no such action shall materially and adversely affect
the rights of such Participant with respect to any previously deferred
compensation or award. Notwithstanding the foregoing, the Committee may, in
its
- 8 -
<PAGE> 12
sole discretion, terminate the Plan and distribute to Participants the amounts
credited to their Deferral Accounts.
12. GENERAL PROVISIONS.
(a) Limits on Transfer of Awards; Beneficiaries. No
right of a Participant under the Plan shall be pledged, encumbered,
hypothecated, or liable for or subject to any lien, obligation, or
liability of such Participant, or shall be assignable or transferable
by such Participant, otherwise than by will or the laws of descent and
distribution; provided that a Participant may designate beneficiaries
to receive any payment under the Plan in the event of death of the
Participant.
(b) Receipt and Release. Payments (in any form) to any
Participant or beneficiary in accordance with the provisions of the
Plan shall, to the extent thereof, be in full satisfaction of all
claims for the compensation or awards deferred and relating to the
Deferral Account to which the payments relate against PaineWebber, the
Committee, or the Administrator, and the Administrator may require
such Participant or beneficiary, as a condition to such payments, to
execute a receipt and release to such effect.
(c) Unfunded Status of Awards; Creation of Trusts. The
Plan is intended to constitute an "unfunded" plan for deferred
compensation. With respect to any payment not yet made to a
Participant under the Plan, nothing contained in the Plan shall give a
Participant any rights that are greater than those of a general
creditor of PaineWebber; provided that the Committee may authorize the
creation of trusts, including but not limited to the trusts referred
to in Sections 6 and 7 hereof, or make other arrangements to meet
PaineWebber's obligations under the Plan, which trusts or other
arrangements shall be consistent with the "unfunded" status of the
Plan.
(d) Compliance. A Participant in the Plan shall have no
right to receive payment (in any form) with respect to his Deferral
Account until legal and contractual obligations of PaineWebber
relating to establishment of the Plan and the making of such payments
shall have been complied with in full.
(e) Other Participant Rights. No Participant shall have
any of the rights or privileges of a stockholder of PWG under the
Plan, including as a result of the crediting of PWG common stock
equivalents or other amounts to a Deferral Account, or the creation of
any rabbi trust and deposit of such common stock therein. No
provision of the Plan or transaction thereunder shall confer upon any
Participant any right to be employed by PaineWebber, or interfere in
any way with the right of PaineWebber to increase or decrease the
amount of any compensation payable to such Participant. Subject to
the limitations set forth in Section 12(a) hereof, the Plan shall
inure to the benefit of, and be binding upon, the parties hereto and
their successors and assigns.
(f) Governing Law. The validity, construction, and
effect of the Plan and any rules and regulations relating to the Plan
shall be determined in accordance with the laws of the State of
Delaware, without giving effect to principles of conflicts of laws,
and applicable federal law.
- 9 -
<PAGE> 13
13. EFFECTIVE DATE. The Plan shall be effective as of December 8,
1993.
- 10 -
<PAGE> 1
EXHIBIT 10.5
PAINE WEBBER GROUP INC.
________________________________________________________________________________
Senior Officer Deferred Compensation Plan
Grantor Trust Agreement
________________________________________________________________________________
THIS AGREEMENT, made as of the 4th day of February, 1994, by and
between PAINE WEBBER GROUP INC., a Delaware corporation (hereinafter referred
to as "PWG"), and CHEMICAL BANK (hereinafter referred to as the "Trustee").
WITNESSETH:
WHEREAS, PWG or one or more of its direct or indirect subsidiaries is
obligated to pay Deferred Compensation to Donald Marron (the "Participant") and
his/her beneficiaries (the "Beneficiaries") under the PWG Senior Officer
Deferred Compensation Plan (the "Plan"); and
WHEREAS, PWG wishes to establish a trust (the "Trust") and to
contribute assets to the Trust that shall be held therein, subject to the
claims of the creditors of PWG or its Material Subsidiaries, as herein defined,
in the event of insolvency, as herein defined, until delivered to the
Participant or Beneficiaries in such manner and at such times as specified in
the Plan; and
<PAGE> 2
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement for purposes of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and the Internal Revenue
Code of 1986, as amended (the "Code");
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
1. ESTABLISHMENT OF TRUST
(a) The Trust shall consist of such property, as is acceptable to the
Trustee, as shall be deposited with the Trustee from time to time by PWG, which
shall be the principal of the Trust, to be held and administered as provided
herein.
(b) Such property may consist of shares of PWG common stock, par value
$1.00 ("Shares"). If any Shares are contributed to the Trust, PWG shall, by
virtue of such contribution, represent that the Shares are validly issued,
nonassessable and transferrable, subject to the requirements of applicable
federal and state securities laws. PWG represents the Shares have been
registered on Form S-8 filed with the Securities Exchange Commission. PWG shall
advise the Trustee of any limitations on sale of the Shares. PWG shall also use
its reasonable efforts to register or qualify such Shares covered by the Form
S-8 under the "blue sky" or securities laws of such jurisdictions within the
United States.
(c) The Trust hereby established shall be irrevocable.
(d) The Trust is intended to be a grantor trust, of which PWG is the
grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
2
<PAGE> 3
(e) The principal of the Trust, and any earnings thereon, shall be held
separate and apart from other assets of PWG and shall be used exclusively for
the uses and purposes of the Participant, Beneficiaries and the general
creditors of PWG and its Material Subsidiaries as herein set forth. The
Participant and Beneficiaries shall have no preferred claim on, or any
beneficial ownership interest in, any assets of the Trust. Any rights created
under the Plans and this Trust Agreement shall be mere unsecured contractual
rights of the Participant and Beneficiaries against PWG. Any assets held by the
Trust shall be subject to the claims of the general creditors of PWG and its
Material Subsidiaries under federal and state law in the event of insolvency,
as defined in Section 3(a) herein.
2. PAYMENTS TO THE PARTICIPANT OR BENEFICIARIES
(a) PWG shall deliver to the Trustee written schedules (the "Payment
Schedules") in a form acceptable to the Trustee that indicate the dates or
events on which the assets of the Trust are to be paid out to the Participant
or Beneficiaries; provided that it shall be the responsibility of the
Administrator (as defined in Section 2(b)) to determine if an event set forth
on the schedule has occurred and advise the Trustee of such event. Except as
otherwise provided herein, the Trustee shall make payments to the Participant
or Beneficiaries in accordance with such Payment Schedules.
(b) All payments shall be in cash except that the Trustee may, at the
direction of an administrator (the "Administrator") appointed for purposes of
this Trust by the Compensation Committee of PWG's Board of Directors (the
"Committee"), distribute assets held in the Trust other than Shares to the
Participant or Beneficiaries; provided that in the event of
3
<PAGE> 4
a distribution in kind, the Administrator shall advise the Trustee of the value
of the assets distributed and the Trustee may conclusively rely upon such
information without further inquiry.
(c) The Administrator shall advise the Trustee of the amount of
withholding of any federal, state or local taxes that may be required to be
withheld with respect to the payments of benefits pursuant to the terms of the
Plan. The Trustee shall pay amounts withheld to the appropriate taxing
authorities.
(d) For the purpose of making cash payments or to satisfy various
withholding or other obligations hereunder, if all or part of the principal of
the Trust shall consist of securities or other property, which do not have a
readily ascertainable market value, PWG may purchase from the Trust (or it may
substitute new assets for) such assets at its option for the amount it then
designates as the market value; provided that the Administrator certifies to
the Trustee that such market value has been determined on the same basis
utilized for trust reporting purposes pursuant to Section 7(a). The Trustee
shall be absolutely protected in relying upon the value determined by PWG and
the Administrator.
3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS WHEN COMPANY IS INSOLVENT
(a) The Trustee shall cease payment of benefits to the Participant or
Beneficiaries if PWG or any Material Subsidiary is Insolvent. PWG or any
Material Subsidiary shall be considered "insolvent" for purposes of this Trust
Agreement if (i) PWG or such Material Subsidiary is unable to pay its debts as
they become due, or (ii) PWG or such Material Subsidiary is subject to a
pending proceeding as a debtor under the United States Bankruptcy Code.
4
<PAGE> 5
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the assets of the Trust shall be subject to claims of
general creditors of PWG and its Material Subsidiaries under federal and state
law as set forth below.
(1) The Chief Financial Officer of PWG shall have the duty to
inform the Trustee in writing of the insolvency of PWG or any such
Material Subsidiary. If a person claiming to be a creditor of PWG or a
Material Subsidiary alleges in writing to the Trustee that PWG or such
Material Subsidiary has become insolvent, the Trustee shall, within 2
business days of delivery to the person authorized as the Trustee to
discontinue payments hereunder, request a certification from the Chief
Financial Officer of PWG as to whether or not PWG or such Material
Subsidiary is insolvent and, pending such certification, the Trustee
shall discontinue payment of benefits to the Participant or
Beneficiaries. The Trustee may conclusively, without further inquiry
rely, upon the certification that it receives.
(2) Unless the Trust Department of the Trustee has actual direct
written knowledge of the insolvency of PWG or any such Material
Subsidiary, or has received notice from PWG or a person claiming to be
a creditor alleging that PWG is insolvent, the Trustee shall have no
duty to inquire whether PWG or any such Material Subsidiary is
insolvent. The Trustee may in all events rely on the certification
concerning the solvency of PWG or any such Material Subsidiary as may
be furnished to the Trustee pursuant to Section 3(b)(1) without further
inquiry.
5
<PAGE> 6
(3) If at any time the Trustee has determined that PWG or any
such Material Subsidiary is insolvent pursuant to Section 3(b)(1) or
(b)(2), the Trustee shall discontinue payments to the Participant or
Beneficiaries and shall hold the assets of the Trust for the benefit
of the general creditors of PWG or any such Material Subsidiary.
Nothing in this Trust Agreement shall in any way diminish any rights
of the Participant or Beneficiaries to pursue their rights as general
creditors of PWG with respect to benefits due under the Plan or
otherwise.
(4) The Trustee shall resume the payment of benefits to the
participant or Beneficiaries in accordance with Section 2 of this
Trust Agreement only after the Trustee has received a certification
that PWG or any such Material Subsidiary is no longer insolvent. The
Trustee shall be entitled to rely on such certification without future
inquiry.
(c) Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Trust pursuant to Section 3(b)
hereof and subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to the
Participant or Beneficiaries under the terms of the Plan for the period of such
discontinuance, less the aggregate amount of any payments made to the
Participant or Beneficiaries by PWG in lieu of the payments provided for
hereunder during any such period of discontinuance. PWG shall certify to the
Trustee the amount of payments made to the Participant or Beneficiaries by PWG
during the discontinuance.
(d) As used herein, "Material Subsidiary" shall mean at any time any
significant subsidiary of PWG as determined in accordance with Regulation S-X
under the Securities
6
<PAGE> 7
Exchange Act of 1934. PWG shall from time to time provide the Trustee with a
list of Material Subsidiaries.
4. PAYMENTS TO COMPANY
Subject to Section 2(a) and Section 5(a), PWG shall have no right or
power to direct the Trustee to return to PWG or to divert to any other person
any of the Trust assets before all payment of benefits have been made to
the Participant or Beneficiaries pursuant to the terms of the Plan. The
Administrator shall certify to the Trustee in writing that all payments of
benefits under the Trust have been made. The trustee may conclusively rely
upon such certification.
5. INVESTMENT AUTHORITY
(a) The Trustee shall, upon written instructions received from the
Administrator or investment manager appointed by PWG, hold, dispose, invest and
reinvest the assets of the Trust (including the Shares), without distinction
between principal and income, in treasury bills, mutual funds available for
investment in connection with tax-qualified plans maintained by PWG or its
subsidiaries, hedge funds designated from time to time by the Administrator,
and marketable securities. Notwithstanding the foregoing, in no event may
assets of the Trust be invested in Shares except to the extent such Shares have
been deposited in the Trust pursuant to Section 1(a). PWG shall have the right
at any time, and from time to time, in its sole discretion, to substitute
assets of equal market value for any asset held by the Trust as provided in
Section 2(d). The right of PWG to purchase or substitute assets held in the
trust is exercisable by PWG in a nonfiduciary capacity.
7
<PAGE> 8
(b) Except as provided for in Section 5(d) with respect to Shares,
all rights associated with assets of the Trust shall be exercised by the
Trustee or the person designated by the Trustee, and shall in no event be
exercisable by or rest with PWG, the Participant or Beneficiaries.
(c) When disposing of assets held in the Trust, nothing shall
prevent the Trustee, upon the direction of Administrator, from selling such
assets to the Participant or Beneficiaries for the amount set forth in the
Trust accounting.
(d) The Trustee shall have the absolute discretion to vote or
abstain from voting the shares with respect to any matters brought before
shareholders. The Trustee shall tender or not tender any Shares as directed
by the Administrator.
(e) The Trustee may hold the assets of the Trust in nominee name.
(f) When the Trustee delivers property against payment, delivery
of the property and receipt of payment may not be simultaneous. The risk of
non-receipt of payment shall be the Trust's and the Trustee shall have no
liability therefore, unless such non-receipt of payment is a result of the
Trustee's (or its officers, directors, employees, nominees or agents) gross
negligence or willful misconduct. All credits to the Trust of the anticipated
proceeds of sales and redemptions of property and of anticipated income from
property shall be conditional upon receipt by the Trustee of final payment and
may be reversed to the extent final payment is not received. At the discretion
of the Trustee, the Trust may make use of such conditional credits. To the
extent such credits do not become unconditional by receipt of final payment,
the Trust shall reimburse the Trustee upon demand for the amount of such
conditional credits so used. When the Trustee is to receive property, it is
authorized to accept documents in lieu of
8
<PAGE> 9
such property as long as such documents contain the agreement of the issuer
thereof to hold such property subject to the Trustee's sole order. The Trustee
may, in its discretion, advance funds to the Trust to facilitate the settlement
of any trade. In the event of such an advance, the Trust shall immediately
reimburse the Trustee for the amount thereof.
6. DISPOSITION OF INCOME
During the term of this Trust, all income received by the Trust
shall be accumulated and reinvested in accordance with Section 5 above.
7. ACCOUNTING BY TRUSTEE
(a)(i) The Trustee shall keep accurate and detailed accounts of all
its receipts, investments and disbursements under this Agreement. Such person
or persons as PWG shall designate shall be allowed to inspect the books of
account relating to the trust upon request at any reasonable time during the
business hours of the Trustee. With repect to any securities or properties,
which do not have a readily ascertainable market value, PWG shall provide the
Trustee with periodic valuations of such securities or properties. The
valuation method of each valuation report shall be done in a manner consistent
with valuations used by PWG on its inventory of securities. Trustee may
conclusively rely upon such valuations of PWG for all purposes hereunder
without inquiry.
(ii) Within 60 days after the close of each calendar year, (subject
to the valuations supplied by PWG) the Trustee shall transmit to PWG, and
certify the accuracy of, a written statement of the assets and liabilities of
the Trust at the close of that year and a written account of all the Trustee's
transactions relating to the Trust during the period from the last previous
accounting to the close of that year. (For purposes of this paragraph, the date
of the
9
<PAGE> 10
Trustee's resignation or removal as provided in Section 10 hereof shall be
deemed to be the close of a calendar year.)
(iii) Unless PWG shall have filed with the Trustee written
exceptions or objections to any such statement and account within 90 days
after receipt thereof, PWG shall be deemed to have approved such statement
and account, and in such case or upon the written approval by PWG of any such
statement and account, the Trustee shall be forever released and discharged
with respect to all matters and things embraced in such statement and account
as though it had been settled by decree of a court of competent jurisdiction
in an action or proceeding to which PWG and all persons having any beneficial
interest in the Trust were parties.
(b) Nothing contained in this Agreement or in the Plan shall
deprive the Trustee of the right to have a judicial settlement of its
accounts. In any proceeding for a judicial settlement of the Trustee's
account or for instructions in connection with the Trust, the only other
necessary parties thereto in addition to the Trustee shall be PWG and the
Participant or Beneficiaries. No person interested in the Trust, other than
PWG and the Participant or Beneficiaries, shall have a right to compel an
accounting, judicial or otherwise, by the Trustee, and each such person shall
be bound by all accounting by the Trustee to PWG, as herein provided, as if
the account had been settled by decree of a court of competent jurisdiction
in an action or proceeding to which such person was a party.
8. RESPONSIBILITY OF PWG AND TRUSTEE
(a) The Trustee shall discharge its duties under this Agreement
in a reasonably prudent manner.
10
<PAGE> 11
(b) The Trustee may retain and consult with counsel, who may be
counsel for PWG or for the Trustee in its individual capacity, and shall not be
deemed imprudent by reason of its taking or refraining from taking any action
in accordance with the opinion of counsel. The Trustee shall not be required to
give any bond or any other security for the faithful performance of its duties
under this Agreement, except as required by law.
(c) The Trustee shall be under no duties whatsoever, except such
duties as are specifically set forth as such in this Agreement or as otherwise
agreed to in writing by the Trustee. The Trustee shall not be compelled to take
any action toward the execution or performance of the Trust created hereunder
or to prosecute or defend any suit or claim in respect thereof, unless
indemnified to its satisfaction against loss, liability, and reasonable costs
and expenses. The Trustee shall be under no liability or obligation to anyone
with repsect to any failure on the part of PWG to perform any of its
obligations under this Agreement.
(d) PWG shall act in accordance with the Plan as provided herein,
and the Trustee shall not be responsible in any respect for acting in
accordance with the Plan nor shall the Trustee be responsible for the adequacy
of the Trust to meet and discharge all payments and liabilities under the Plan.
The Trustee shall be fully protected in relying upon any written notice,
certificate, instruction, direction or other communication of any investment
manager appointed by PWG, the Administrator or other authorized officers of PWG
that is not contrary to the express provisions of this Agreement. PWG shall
furnish the Trustee with the name and specimen signature of the Administrator
or other authorized officers of PWG authorized to act or give directions
hereunder and shall promptly notify the Trustee of the termination of the
Administrator and the appointment of a successor thereto. Until notified to the
contrary, the
11
<PAGE> 12
Trustee shall be fully protected in relying upon the most recent name and
specimen signature of the Administrator furnished to it by PWG.
(e) Unless other evidence with respect thereto has been
specifically prescribed in this Agreement, any action of PWG under any
provision of this Agreement, including any approval of or exceptions to the
Trustee's accounts, shall be evidenced by a certificate signed by the
Administrator, and the Trustee shall be fully protected in relying upon such
certificate. The Trustee may accept a certificate signed by the Administrator
as proof of any fact or matter that it deems necessary or desirable to have
established in the administration of the Trust (unless other evidence of such
fact or matter is expressly prescribed herein), and the Trustee shall be fully
protected in relying upon the statements in the certificate.
(f) The Trustee shall be entitled conclusively to rely upon any
written notice, instruction, direction, certificate or other communication
reasonably believed by it to be genuine and to be signed by the proper person
or persons, and the Trustee shall be under no duty to make investigation or
inquiry as to the truth or accuracy of any statement contained therein.
(g) In no event shall the Trustee be liable for special or
consequential or punitive damages.
(h) Until notice be given to the contrary, communications to the
Trustee shall be sent to it at its office at Chemical Bank, 4 New York Plaza,
Fourth Floor, New York, New York and to PWG at its offices located at 1285
Avenue of Americas, New York, New York 10019, Attention: Director of Human
Resources.
(i) PWG shall pay and shall protect, indemnify and save harmless
the Trustee and its officers, directors or trustees, employees, agents and
nominees from and against any and
12
<PAGE> 13
all losses, liabilities (including liabilities for penalties), actions, suits,
judgments, demands, damages, reasonable costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses) of any nature arising from
or relating to any action or failure to act by the Trustee, its officers,
directors or trustees, employees, nominees and agents in connection with the
transactions contemplated by this Agreement, except to the extent that any such
loss, liability, action, suite, demand, damage, cost or expense is the result
of the gross negligence or willful misconduct of the Trustee, its officers,
directors or trustees, employees, nominees or agents.
(j) The Trustee shall have, without exclusions, all powers
conferred on trustees by applicable law, unless expressly provided otherwise
herein.
(k) Notwithstanding any powers granted to the Trustee pursuant to
this Trust Agreement or to applicable law, the Trustee shall not have any power
that could give this Trust the objective of carrying on a business and dividing
the gains therefrom, within the meaning of Section 301.7701-2 of the Procedure
and Administrative Regulations promulgated pursuant to the Internal Revenue
Code.
9. TRANSACTION COSTS, TAXES, COMPENSATION AND EXPENSES OF TRUSTEE
(a) PWG shall pay (or make available to the Trustee to pay) any
transaction costs and any federal, state, local or other taxes (including
withholding taxes) imposed or levied with respect to the corpus and/or income
of the Trust or any part thereof under existing or future laws, and PWG, in its
discretion, may contest the validity or amount of any transaction cost or any
tax assessment, claim or demand respecting the Trust or any part thereof.
Notwithstanding the foregoing, to the extent instructed by the Administrator
and to the extent Trust assets are
13
<PAGE> 14
available, the Trustee, solely in its capacity as trustee and not in its
individual capacity, shall advance funds to PWG to enable PWG to satisfy any
such transaction costs or taxes. Such advances shall be repayable at such date
or dates, with or without interest to be set at a reasonable market rate, or
shall be forgiven in whole or in part, in each case, as determined by the
Administrator in its sole discretion. In the event PWG pays such transaction
costs or such taxes directly, the Administrator may require the Trustee to
reimburse PWG for the cost of funds incurred by PWG for any transaction costs
or any tax payments made on behalf of the Trust. The Trustee upon notice from
the Administrator that a payment is for the purposes set forth in the preceding
sentence may reimburse PWG without further inquiry.
(b) PWG shall pay to the Trustee from time to time such reasonable
compensation for its services as trustee as shall be agreed upon by PWG and the
Trustee. PWG shall also pay the reasonable and necessary expenses (including
reasonable fees of counsel engaged by the Trustee pursuant to Section 8(b) of
this Agreement) incurred by the Trustee in the performance of its duties under
this Agreement; provided, however, that the aggregate amount of any legal
expenses incurred in any calendar year by the Trustee under this Trust and any
other trust between PWG and the Trustee which is established in whole or in
part to fund PWG's obligations under the Plan and which are reimbursable to the
Trustee under this section or the corresponding section of each trust agreement
entered into by the parties hereto in connection with any such other trust
shall not exceed $3,500, unless (i) the Trustee has delivered written notice
("Notice") to PWG at least ten business days prior to the date on which such
legal expense or expenses are to be incurred and (ii) PWG has not notified the
Trustee in writing of its objection to the Trustee incurring such expenses
prior to the expiration of such ten-business
14
<PAGE> 15
day period. To constitute Notice for purposes of the previous sentence, the
writing from the Trustee to PWG shall specify in reasonable detail (i) the
expenses to be incurred, (ii) the reason or reasons why the Trustee believes it
is necessary to incur such expenses, (iii) the anticipated amount of such
expenses and (iv) the legal counsel who will be paid any amounts for which
reimbursement will be sought by the Trustee under this section. If PWG
notifies the Trustee in writing of its objection to any expense described in
the Notice prior to the expiration of the ten-business day period, such expense
shall not be reimbursable to the Trustee either from the assets of the Trust or
from PWG, regardless of whether the Trustee determines to incur such expense.
The ten-business day notice period described above shall begin on the date the
Notice is received by PWG. Any compensation and expenses which are otherwise
reimbursable under this section and which are not paid by PWG may be deducted
by the Trustee from the assets of the Trust. If the Trustee satisfies such
obligations one of the assets of the Trust, PWG shall immediately, upon demand
by the Trustee, deposit into the Trust a sum equal to the amount paid by the
Trust.
10. RESIGNATION AND REMOVAL OF TRUSTEE
(a) The Trustee may resign at any time by written notice to PWG, which
shall be effective 60 days after receipt of such notice unless PWG and the
Trustee agree otherwise.
(b) The Trustee may be removed by PWG on 60 days' written notice or
upon shorter notice accepted by the Trustee.
(c) Upon resignation or removal of the Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the
successor Trustee. The transfer shall
15
<PAGE> 16
be completed within 60 days after receipt of notice or resignation, removal or
transfer, unless PWG extends the time limit.
(d) If the Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the effective date of
resignation or removal under paragraph (a) or (b) of this Section. If no such
appointment has been made, the Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions. All expenses
of the Trustee in connection with the proceeding described in the previous
sentence shall be paid by PWG.
11. APPOINTMENT OF SUCCESSOR TRUSTEE
If the Trustee resigns or is removed in accordance with Section 10
hereof, PWG, by action of the Committee, shall appoint a successor trustee
reasonably acceptable to the Participant or Beneficiaries, to act hereunder
after the effective date of such removal or resignation. Each successor trustee
shall have the powers and duties conferred upon the Trustee in this Agreement,
and the term "Trustee" as used in this Agreement shall be deemed to include any
successor trustee. Upon designation or appointment of a successor trustee, the
Trustee shall transfer and deliver the Trust to the successor trustee,
reserving such sums as the Trustee shall deem necessary to defray its expenses
in settling its accounts, to pay any of its compensation due and unpaid and to
discharge any obligation of the Trust for which the Trustee may be liable. Any
amounts remaining shall be restored to the Trust by PWG with interest at 30-day
treasury bill rate. If the sums so reserved are not sufficient for these
purposes, the Trustee shall be entitled to recover the amount of any deficiency
from PWG. When the Trust shall have been transferred and delivered to the
successor trustee and the accounts of the Trustee have been
16
<PAGE> 17
settled as provided in Section 7 hereof, the Trustee shall be released and
discharged from all further accountability or liability for the Trust (except
for any acts (other than any accounting) resulting from the gross negligence or
willful misconduct of the Trustee during the period it was acting hereunder)
and shall not be responsible in any way for the further disposition of the
Trust or any part thereof.
12. AMENDMENT OR TERMINATION
(a) This Trust Agreement may be amended by a written instrument
executed by the Trustee and PWG. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of the Plan or shall make the Trust
revocable. PWG shall certify to the Trustee that any proposed amendment is not
in conflict with the terms of Plan or Trust
(b) The Trust shall not terminate until the earlier to occur of
(i) the date on which the Participant or Beneficiaries are no longer entitled
to any benefits pursuant to the Plan or (ii) the twenty-first anniversary of
the death of the Participant who is the beneficiary of the Trust as of the date
of execution of this Agreement. Upon termination of the Trust, any assets
remaining in the Trust shall be returned to PWG.
13. MISCELLANEOUS
(a) Any provision of this Trust Agreement prohibited by law shall
be ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to the Participants or Beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subject to attachment, garnishment,
levy, execution or other legal or equitable process.
17
<PAGE> 18
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
(d) The titles to Sections of this Agreement are placed herein
for convenience of reference only, and the Agreement is not to be construed by
reference thereto.
(e) This Agreement shall bind and inure to the benefit of
successor and assigned of PWG and the Trustee, respectively, and the
Participant or Beneficiaries and legal representatives (e.g., executors,
administrators, conservators, etc.).
(f) This Agreement may be executed in any number of
counterparts, each of which shall be deemend to be an original but all of which
together shall constitute but one instrument, which may be sufficiently
evidenced by an counterpart.
14. EFFECTIVE DATE
The effective date of this Trust Agreement shall be February
4, 1994.
18
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their respective names by their duly authorized officers under
their corporate seals as of the day and year first above written.
PAINE WEBBER GROUP INC.
/s/ Elisa A. Bell By: /s/ Theodore A. Levine
------------------------------- -----------------------------
Notary Public
Title:
ELISA A. BELL -----------------------------
NOTARY PUBLIC, State of New York
No. 03-4818330
Qualified in Bronx County
Commission Expires June 30, 1994
CHEMICAL BANK
/s/ Thora-Chan Sui-Maharaj By: /s/ Steven A. Sabo
-------------------------------- ----------------------------
Notary Public
Title: Vice President
THORA-CHAN SUI-MAHARAJ ----------------------------
Notary Public, State of New York
No. 41-4638300
Qualified in Queens County
Certificate Filed in New York County
Commission Expires September 30, 1994
19
<PAGE> 1
EXHIBIT 10.6
PAINE WEBBER GROUP INC.
________________________________________________________________________________
Senior Officer Deferred Compensation Plan
Grantor Trust Agreement
________________________________________________________________________________
THIS AGREEMENT, made as of the 4th day of February, 1994, by and
between PAINE WEBBER GROUP INC., a Delaware corporation (hereinafter referred
to as "PWG"), and CHEMICAL BANK (hereinafter referred to as the "Trustee").
WITNESSETH:
WHEREAS, PWG or one or more of its direct or indirect subsidiaries is
obligated to pay Deferred Compensation to Paul Guenther (the "Participant") and
his/her beneficiaries (the "Beneficiaries") under the PWG Senior Officer
Deferred Compensation Plan (the "Plan"); and
WHEREAS, PWG wishes to establish a trust (the "Trust") and to
contribute assets to the Trust that shall be held therein, subject to the
claims of the creditors of PWG or its Material Subsidiaries, as herein defined,
in the event of insolvency, as herein defined, until delivered to the
Participant or Beneficiaries in such manner and at such times as specified in
the Plan; and
<PAGE> 2
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement for purposes of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and the Internal Revenue
Code of 1986, as amended (the "Code");
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
1. ESTABLISHMENT OF TRUST
(a) The Trust shall consist of such property, as is acceptable to the
Trustee, as shall be deposited with the Trustee from time to time by PWG, which
shall be the principal of the Trust, to be held and administered as provided
herein.
(b) Such property may consist of shares of PWG common stock, par value
$1.00 ("Shares"). If any Shares are contributed to the Trust, PWG shall, by
virtue of such contribution, represent that the Shares are validly issued,
nonassessable and transferrable, subject to the requirements of applicable
federal and state securities laws. PWG represents the Shares have been
registered on Form S-8 filed with the Securities Exchange Commission. PWG shall
advise the Trustee of any limitations on sale of the Shares. PWG shall also use
its reasonable efforts to register or qualify such Shares covered by the Form
S-8 under the "blue sky" or securities laws of such jurisdictions within the
United States.
(c) The Trust hereby established shall be irrevocable.
(d) The Trust is intended to be a grantor trust, of which PWG is the
grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
2
<PAGE> 3
(e) The principal of the Trust, and any earnings thereon, shall be held
separate and apart from other assets of PWG and shall be used exclusively for
the uses and purposes of the Participant, Beneficiaries and the general
creditors of PWG and its Material Subsidiaries as herein set forth. The
Participant and Beneficiaries shall have no preferred claim on, or any
beneficial ownership interest in, any assets of the Trust. Any rights created
under the Plans and this Trust Agreement shall be mere unsecured contractual
rights of the Participant and Beneficiaries against PWG. Any assets held by the
Trust shall be subject to the claims of the general creditors of PWG and its
Material Subsidiaries under federal and state law in the event of insolvency,
as defined in Section 3(a) herein.
2. PAYMENTS TO THE PARTICIPANT OR BENEFICIARIES
(a) PWG shall deliver to the Trustee written schedules (the "Payment
Schedules") in a form acceptable to the Trustee that indicate the dates or
events on which the assets of the Trust are to be paid out to the Participant
or Beneficiaries; provided that it shall be the responsibility of the
Administrator (as defined in Section 2(b)) to determine if an event set forth
on the schedule has occurred and advise the Trustee of such event. Except as
otherwise provided herein, the Trustee shall make payments to the Participant
or Beneficiaries in accordance with such Payment Schedules.
(b) All payments shall be in cash except that the Trustee may, at the
direction of an administrator (the "Administrator") appointed for purposes of
this Trust by the Compensation Committee of PWG's Board of Directors (the
"Committee"), distribute assets held in the Trust other than Shares to the
Participant or Beneficiaries; provided that in the event of
3
<PAGE> 4
a distribution in kind, the Administrator shall advise the Trustee of the value
of the assets distributed and the Trustee may conclusively rely upon such
information without further inquiry.
(c) The Administrator shall advise the Trustee of the amount of
withholding of any federal, state or local taxes that may be required to be
withheld with respect to the payments of benefits pursuant to the terms of the
Plan. The Trustee shall pay amounts withheld to the appropriate taxing
authorities.
(d) For the purpose of making cash payments or to satisfy various
withholding or other obligations hereunder, if all or part of the principal of
the Trust shall consist of securities or other property, which do not have a
readily ascertainable market value, PWG may purchase from the Trust (or it may
substitute new assets for) such assets at its option for the amount it then
designates as the market value; provided that the Administrator certifies to
the Trustee that such market value has been determined on the same basis
utilized for trust reporting purposes pursuant to Section 7(a). The Trustee
shall be absolutely protected in relying upon the value determined by PWG and
the Administrator.
3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS WHEN COMPANY IS INSOLVENT
(a) The Trustee shall cease payment of benefits to the Participant or
Beneficiaries if PWG or any Material Subsidiary is Insolvent. PWG or any
Material Subsidiary shall be considered "insolvent" for purposes of this Trust
Agreement if (i) PWG or such Material Subsidiary is unable to pay its debts as
they become due, or (ii) PWG or such Material Subsidiary is subject to a
pending proceeding as a debtor under the United States Bankruptcy Code.
4
<PAGE> 5
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the assets of the Trust shall be subject to claims of
general creditors of PWG and its Material Subsidiaries under federal and state
law as set forth below.
(1) The Chief Financial Officer of PWG shall have the duty to
inform the Trustee in writing of the insolvency of PWG or any such
Material Subsidiary. If a person claiming to be a creditor of PWG or a
Material Subsidiary alleges in writing to the Trustee that PWG or such
Material Subsidiary has become insolvent, the Trustee shall, within 2
business days of delivery to the person authorized as the Trustee to
discontinue payments hereunder, request a certification from the Chief
Financial Officer of PWG as to whether or not PWG or such Material
Subsidiary is insolvent and, pending such certification, the Trustee
shall discontinue payment of benefits to the Participant or
Beneficiaries. The Trustee may conclusively, without further inquiry
rely, upon the certification that it receives.
(2) Unless the Trust Department of the Trustee has actual direct
written knowledge of the insolvency of PWG or any such Material
Subsidiary, or has received notice from PWG or a person claiming to be
a creditor alleging that PWG is insolvent, the Trustee shall have no
duty to inquire whether PWG or any such Material Subsidiary is
insolvent. The Trustee may in all events rely on the certification
concerning the solvency of PWG or any such Material Subsidiary as may
be furnished to the Trustee pursuant to Section 3(b)(1) without further
inquiry.
5
<PAGE> 6
(3) If at any time the Trustee has determined that PWG or any
such Material Subsidiary is insolvent pursuant to Section 3(b)(1) or
(b)(2), the Trustee shall discontinue payments to the Participant or
Beneficiaries and shall hold the assets of the Trust for the benefit
of the general creditors of PWG or any such Material Subsidiary.
Nothing in this Trust Agreement shall in any way diminish any rights
of the Participant or Beneficiaries to pursue their rights as general
creditors of PWG with respect to benefits due under the Plan or
otherwise.
(4) The Trustee shall resume the payment of benefits to the
participant or Beneficiaries in accordance with Section 2 of this
Trust Agreement only after the Trustee has received a certification
that PWG or any such Material Subsidiary is no longer insolvent. The
Trustee shall be entitled to rely on such certification without future
inquiry.
(c) Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Trust pursuant to Section 3(b)
hereof and subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to the
Participant or Beneficiaries under the terms of the Plan for the period of such
discontinuance, less the aggregate amount of any payments made to the
Participant or Beneficiaries by PWG in lieu of the payments provided for
hereunder during any such period of discontinuance. PWG shall certify to the
Trustee the amount of payments made to the Participant or Beneficiaries by PWG
during the discontinuance.
(d) As used herein, "Material Subsidiary" shall mean at any time any
significant subsidiary of PWG as determined in accordance with Regulation S-X
under the Securities
6
<PAGE> 7
Exchange Act of 1934. PWG shall from time to time provide the Trustee with a
list of Material Subsidiaries.
4. PAYMENTS TO COMPANY
Subject to Section 2(a) and Section 5(a), PWG shall have no right or
power to direct the Trustee to return to PWG or to divert to any other person
any of the Trust assets before all payment of benefits have been made to
the Participant or Beneficiaries pursuant to the terms of the Plan. The
Administrator shall certify to the Trustee in writing that all payments of
benefits under the Trust have been made. The trustee may conclusively rely
upon such certification.
5. INVESTMENT AUTHORITY
(a) The Trustee shall, upon written instructions received from the
Administrator or investment manager appointed by PWG, hold, dispose, invest and
reinvest the assets of the Trust (including the Shares), without distinction
between principal and income, in treasury bills, mutual funds available for
investment in connection with tax-qualified plans maintained by PWG or its
subsidiaries, hedge funds designated from time to time by the Administrator,
and marketable securities. Notwithstanding the foregoing, in no event may
assets of the Trust be invested in Shares except to the extent such Shares have
been deposited in the Trust pursuant to Section 1(a). PWG shall have the right
at any time, and from time to time, in its sole discretion, to substitute
assets of equal market value for any asset held by the Trust as provided in
Section 2(d). The right of PWG to purchase or substitute assets held in the
trust is exercisable by PWG in a nonfiduciary capacity.
7
<PAGE> 8
(b) Except as provided for in Section 5(d) with respect to Shares,
all rights associated with assets of the Trust shall be exercised by the
Trustee or the person designated by the Trustee, and shall in no event be
exercisable by or rest with PWG, the Participant or Beneficiaries.
(c) When disposing of assets held in the Trust, nothing shall
prevent the Trustee, upon the direction of Administrator, from selling such
assets to the Participant or Beneficiaries for the amount set forth in the
Trust accounting.
(d) The Trustee shall have the absolute discretion to vote or
abstain from voting the shares with respect to any matters brought before
shareholders. The Trustee shall tender or not tender any Shares as directed
by the Administrator.
(e) The Trustee may hold the assets of the Trust in nominee name.
(f) When the Trustee delivers property against payment, delivery
of the property and receipt of payment may not be simultaneous. The risk of
non-receipt of payment shall be the Trust's and the Trustee shall have no
liability therefore, unless such non-receipt of payment is a result of the
Trustee's (or its officers, directors, employees, nominees or agents) gross
negligence or willful misconduct. All credits to the Trust of the anticipated
proceeds of sales and redemptions of property and of anticipated income from
property shall be conditional upon receipt by the Trustee of final payment and
may be reversed to the extent final payment is not received. At the discretion
of the Trustee, the Trust may make use of such conditional credits. To the
extent such credits do not become unconditional by receipt of final payment,
the Trust shall reimburse the Trustee upon demand for the amount of such
conditional credits so used. When the Trustee is to receive property, it is
authorized to accept documents in lieu of
8
<PAGE> 9
such property as long as such documents contain the agreement of the issuer
thereof to hold such property subject to the Trustee's sole order. The Trustee
may, in its discretion, advance funds to the Trust to facilitate the settlement
of any trade. In the event of such an advance, the Trust shall immediately
reimburse the Trustee for the amount thereof.
6. DISPOSITION OF INCOME
During the term of this Trust, all income received by the Trust
shall be accumulated and reinvested in accordance with Section 5 above.
7. ACCOUNTING BY TRUSTEE
(a)(i) The Trustee shall keep accurate and detailed accounts of all
its receipts, investments and disbursements under this Agreement. Such person
or persons as PWG shall designate shall be allowed to inspect the books of
account relating to the trust upon request at any reasonable time during the
business hours of the Trustee. With repect to any securities or properties,
which do not have a readily ascertainable market value, PWG shall provide the
Trustee with periodic valuations of such securities or properties. The
valuation method of each valuation report shall be done in a manner consistent
with valuations used by PWG on its inventory of securities. Trustee may
conclusively rely upon such valuations of PWG for all purposes hereunder
without inquiry.
(ii) Within 60 days after the close of each calendar year, (subject
to the valuations supplied by PWG) the Trustee shall transmit to PWG, and
certify the accuracy of, a written statement of the assets and liabilities of
the Trust at the close of that year and a written account of all the Trustee's
transactions relating to the Trust during the period from the last previous
accounting to the close of that year. (For purposes of this paragraph, the date
of the
9
<PAGE> 10
Trustee's resignation or removal as provided in Section 10 hereof shall be
deemed to be the close of a calendar year.)
(iii) Unless PWG shall have filed with the Trustee written
exceptions or objections to any such statement and account within 90 days
after receipt thereof, PWG shall be deemed to have approved such statement
and account, and in such case or upon the written approval by PWG of any such
statement and account, the Trustee shall be forever released and discharged
with respect to all matters and things embraced in such statement and account
as though it had been settled by decree of a court of competent jurisdiction
in an action or proceeding to which PWG and all persons having any beneficial
interest in the Trust were parties.
(b) Nothing contained in this Agreement or in the Plan shall
deprive the Trustee of the right to have a judicial settlement of its
accounts. In any proceeding for a judicial settlement of the Trustee's
account or for instructions in connection with the Trust, the only other
necessary parties thereto in addition to the Trustee shall be PWG and the
Participant or Beneficiaries. No person interested in the Trust, other than
PWG and the Participant or Beneficiaries, shall have a right to compel an
accounting, judicial or otherwise, by the Trustee, and each such person shall
be bound by all accounting by the Trustee to PWG, as herein provided, as if
the account had been settled by decree of a court of competent jurisdiction
in an action or proceeding to which such person was a party.
8. RESPONSIBILITY OF PWG AND TRUSTEE
(a) The Trustee shall discharge its duties under this Agreement
in a reasonably prudent manner.
10
<PAGE> 11
(b) The Trustee may retain and consult with counsel, who may be
counsel for PWG or for the Trustee in its individual capacity, and shall not be
deemed imprudent by reason of its taking or refraining from taking any action
in accordance with the opinion of counsel. The Trustee shall not be required to
give any bond or any other security for the faithful performance of its duties
under this Agreement, except as required by law.
(c) The Trustee shall be under no duties whatsoever, except such
duties as are specifically set forth as such in this Agreement or as otherwise
agreed to in writing by the Trustee. The Trustee shall not be compelled to take
any action toward the execution or performance of the Trust created hereunder
or to prosecute or defend any suit or claim in respect thereof, unless
indemnified to its satisfaction against loss, liability, and reasonable costs
and expenses. The Trustee shall be under no liability or obligation to anyone
with repsect to any failure on the part of PWG to perform any of its
obligations under this Agreement.
(d) PWG shall act in accordance with the Plan as provided herein,
and the Trustee shall not be responsible in any respect for acting in
accordance with the Plan nor shall the Trustee be responsible for the adequacy
of the Trust to meet and discharge all payments and liabilities under the Plan.
The Trustee shall be fully protected in relying upon any written notice,
certificate, instruction, direction or other communication of any investment
manager appointed by PWG, the Administrator or other authorized officers of PWG
that is not contrary to the express provisions of this Agreement. PWG shall
furnish the Trustee with the name and specimen signature of the Administrator
or other authorized officers of PWG authorized to act or give directions
hereunder and shall promptly notify the Trustee of the termination of the
Administrator and the appointment of a successor thereto. Until notified to the
contrary, the
11
<PAGE> 12
Trustee shall be fully protected in relying upon the most recent name and
specimen signature of the Administrator furnished to it by PWG.
(e) Unless other evidence with respect thereto has been
specifically prescribed in this Agreement, any action of PWG under any
provision of this Agreement, including any approval of or exceptions to the
Trustee's accounts, shall be evidenced by a certificate signed by the
Administrator, and the Trustee shall be fully protected in relying upon such
certificate. The Trustee may accept a certificate signed by the Administrator
as proof of any fact or matter that it deems necessary or desirable to have
established in the administration of the Trust (unless other evidence of such
fact or matter is expressly prescribed herein), and the Trustee shall be fully
protected in relying upon the statements in the certificate.
(f) The Trustee shall be entitled conclusively to rely upon any
written notice, instruction, direction, certificate or other communication
reasonably believed by it to be genuine and to be signed by the proper person
or persons, and the Trustee shall be under no duty to make investigation or
inquiry as to the truth or accuracy of any statement contained therein.
(g) In no event shall the Trustee be liable for special or
consequential or punitive damages.
(h) Until notice be given to the contrary, communications to the
Trustee shall be sent to it at its office at Chemical Bank, 4 New York Plaza,
Fourth Floor, New York, New York and to PWG at its offices located at 1285
Avenue of Americas, New York, New York 10019, Attention: Director of Human
Resources.
(i) PWG shall pay and shall protect, indemnify and save harmless
the Trustee and its officers, directors or trustees, employees, agents and
nominees from and against any and
12
<PAGE> 13
all losses, liabilities (including liabilities for penalties), actions, suits,
judgments, demands, damages, reasonable costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses) of any nature arising from
or relating to any action or failure to act by the Trustee, its officers,
directors or trustees, employees, nominees and agents in connection with the
transactions contemplated by this Agreement, except to the extent that any such
loss, liability, action, suite, demand, damage, cost or expense is the result
of the gross negligence or willful misconduct of the Trustee, its officers,
directors or trustees, employees, nominees or agents.
(j) The Trustee shall have, without exclusions, all powers
conferred on trustees by applicable law, unless expressly provided otherwise
herein.
(k) Notwithstanding any powers granted to the Trustee pursuant to
this Trust Agreement or to applicable law, the Trustee shall not have any power
that could give this Trust the objective of carrying on a business and dividing
the gains therefrom, within the meaning of Section 301.7701-2 of the Procedure
and Administrative Regulations promulgated pursuant to the Internal Revenue
Code.
9. TRANSACTION COSTS, TAXES, COMPENSATION AND EXPENSES OF TRUSTEE
(a) PWG shall pay (or make available to the Trustee to pay) any
transaction costs and any federal, state, local or other taxes (including
withholding taxes) imposed or levied with respect to the corpus and/or income
of the Trust or any part thereof under existing or future laws, and PWG, in its
discretion, may contest the validity or amount of any transaction cost or any
tax assessment, claim or demand respecting the Trust or any part thereof.
Notwithstanding the foregoing, to the extent instructed by the Administrator
and to the extent Trust assets are
13
<PAGE> 14
available, the Trustee, solely in its capacity as trustee and not in its
individual capacity, shall advance funds to PWG to enable PWG to satisfy any
such transaction costs or taxes. Such advances shall be repayable at such date
or dates, with or without interest to be set at a reasonable market rate, or
shall be forgiven in whole or in part, in each case, as determined by the
Administrator in its sole discretion. In the event PWG pays such transaction
costs or such taxes directly, the Administrator may require the Trustee to
reimburse PWG for the cost of funds incurred by PWG for any transaction costs
or any tax payments made on behalf of the Trust. The Trustee upon notice from
the Administrator that a payment is for the purposes set forth in the preceding
sentence may reimburse PWG without further inquiry.
(b) PWG shall pay to the Trustee from time to time such reasonable
compensation for its services as trustee as shall be agreed upon by PWG and the
Trustee. PWG shall also pay the reasonable and necessary expenses (including
reasonable fees of counsel engaged by the Trustee pursuant to Section 8(b) of
this Agreement) incurred by the Trustee in the performance of its duties under
this Agreement; provided, however, that the aggregate amount of any legal
expenses incurred in any calendar year by the Trustee under this Trust and any
other trust between PWG and the Trustee which is established in whole or in
part to fund PWG's obligations under the Plan and which are reimbursable to the
Trustee under this section or the corresponding section of each trust agreement
entered into by the parties hereto in connection with any such other trust
shall not exceed $3,500, unless (i) the Trustee has delivered written notice
("Notice") to PWG at least ten business days prior to the date on which such
legal expense or expenses are to be incurred and (ii) PWG has not notified the
Trustee in writing of its objection to the Trustee incurring such expenses
prior to the expiration of such ten-business
14
<PAGE> 15
day period. To constitute Notice for purposes of the previous sentence, the
writing from the Trustee to PWG shall specify in reasonable detail (i) the
expenses to be incurred, (ii) the reason or reasons why the Trustee believes it
is necessary to incur such expenses, (iii) the anticipated amount of such
expenses and (iv) the legal counsel who will be paid any amounts for which
reimbursement will be sought by the Trustee under this section. If PWG
notifies the Trustee in writing of its objection to any expense described in
the Notice prior to the expiration of the ten-business day period, such expense
shall not be reimbursable to the Trustee either from the assets of the Trust or
from PWG, regardless of whether the Trustee determines to incur such expense.
The ten-business day notice period described above shall begin on the date the
Notice is received by PWG. Any compensation and expenses which are otherwise
reimbursable under this section and which are not paid by PWG may be deducted
by the Trustee from the assets of the Trust. If the Trustee satisfies such
obligations one of the assets of the Trust, PWG shall immediately, upon demand
by the Trustee, deposit into the Trust a sum equal to the amount paid by the
Trust.
10. RESIGNATION AND REMOVAL OF TRUSTEE
(a) The Trustee may resign at any time by written notice to PWG, which
shall be effective 60 days after receipt of such notice unless PWG and the
Trustee agree otherwise.
(b) The Trustee may be removed by PWG on 60 days' written notice or
upon shorter notice accepted by the Trustee.
(c) Upon resignation or removal of the Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the
successor Trustee. The transfer shall
15
<PAGE> 16
be completed within 60 days after receipt of notice or resignation, removal or
transfer, unless PWG extends the time limit.
(d) If the Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the effective date of
resignation or removal under paragraph (a) or (b) of this Section. If no such
appointment has been made, the Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions. All expenses
of the Trustee in connection with the proceeding described in the previous
sentence shall be paid by PWG.
11. APPOINTMENT OF SUCCESSOR TRUSTEE
If the Trustee resigns or is removed in accordance with Section 10
hereof, PWG, by action of the Committee, shall appoint a successor trustee
reasonably acceptable to the Participant or Beneficiaries, to act hereunder
after the effective date of such removal or resignation. Each successor trustee
shall have the powers and duties conferred upon the Trustee in this Agreement,
and the term "Trustee" as used in this Agreement shall be deemed to include any
successor trustee. Upon designation or appointment of a successor trustee, the
Trustee shall transfer and deliver the Trust to the successor trustee,
reserving such sums as the Trustee shall deem necessary to defray its expenses
in settling its accounts, to pay any of its compensation due and unpaid and to
discharge any obligation of the Trust for which the Trustee may be liable. Any
amounts remaining shall be restored to the Trust by PWG with interest at 30-day
treasury bill rate. If the sums so reserved are not sufficient for these
purposes, the Trustee shall be entitled to recover the amount of any deficiency
from PWG. When the Trust shall have been transferred and delivered to the
successor trustee and the accounts of the Trustee have been
16
<PAGE> 17
settled as provided in Section 7 hereof, the Trustee shall be released and
discharged from all further accountability or liability for the Trust (except
for any acts (other than any accounting) resulting from the gross negligence or
willful misconduct of the Trustee during the period it was acting hereunder)
and shall not be responsible in any way for the further disposition of the
Trust or any part thereof.
12. AMENDMENT OR TERMINATION
(a) This Trust Agreement may be amended by a written instrument
executed by the Trustee and PWG. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of the Plan or shall make the Trust
revocable. PWG shall certify to the Trustee that any proposed amendment is not
in conflict with the terms of Plan or Trust
(b) The Trust shall not terminate until the earlier to occur of
(i) the date on which the Participant or Beneficiaries are no longer entitled
to any benefits pursuant to the Plan or (ii) the twenty-first anniversary of
the death of the Participant who is the beneficiary of the Trust as of the date
of execution of this Agreement. Upon termination of the Trust, any assets
remaining in the Trust shall be returned to PWG.
13. MISCELLANEOUS
(a) Any provision of this Trust Agreement prohibited by law shall
be ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to the Participants or Beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subject to attachment, garnishment,
levy, execution or other legal or equitable process.
17
<PAGE> 18
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
(d) The titles to Sections of this Agreement are placed herein
for convenience of reference only, and the Agreement is not to be construed by
reference thereto.
(e) This Agreement shall bind and inure to the benefit of
successor and assigned of PWG and the Trustee, respectively, and the
Participant or Beneficiaries and legal representatives (e.g., executors,
administrators, conservators, etc.).
(f) This Agreement may be executed in any number of
counterparts, each of which shall be deemend to be an original but all of which
together shall constitute but one instrument, which may be sufficiently
evidenced by an counterpart.
14. EFFECTIVE DATE
The effective date of this Trust Agreement shall be February
4, 1994.
18
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their respective names by their duly authorized officers under
their corporate seals as of the day and year first above written.
PAINE WEBBER GROUP INC.
/s/ Elisa A. Bell By: /s/ Theodore A. Levine
------------------------------- -----------------------------
Notary Public
Title:
ELISA A. BELL -----------------------------
NOTARY PUBLIC, State of New York
No. 03-4818330
Qualified in Bronx County
Commission Expires June 30, 1994
CHEMICAL BANK
C /s/ Thora-Chan Sui-Maharaj By: /s/ Steven V. Sabo
-------------------------------- ----------------------------
Notary Public
Title: Vice President
THORA-CHAN SUI-MAHARAJ ----------------------------
Notary Public, State of New York
No. 41-4638300
Qualified in Queens County
Certificate Filed in New York County
Commission Expires September 30, 1994
19
<PAGE> 1
EXHIBIT 10.7
PAINE WEBBER GROUP INC.
________________________________________________________________________________
Senior Officer Deferred Compensation Plan
Grantor Trust Agreement
________________________________________________________________________________
THIS AGREEMENT, made as of the 4th day of February, 1994, by and
between PAINE WEBBER GROUP INC., a Delaware corporation (hereinafter referred
to as "PWG"), and CHEMICAL BANK (hereinafter referred to as the "Trustee").
WITNESSETH:
WHEREAS, PWG or one or more of its direct or indirect subsidiaries is
obligated to pay Deferred Compensation to Joseph Grano (the "Participant") and
his/her beneficiaries (the "Beneficiaries") under the PWG Senior Officer
Deferred Compensation Plan (the "Plan"); and
WHEREAS, PWG wishes to establish a trust (the "Trust") and to
contribute assets to the Trust that shall be held therein, subject to the
claims of the creditors of PWG or its Material Subsidiaries, as herein defined,
in the event of insolvency, as herein defined, until delivered to the
Participant or Beneficiaries in such manner and at such times as specified in
the Plan; and
<PAGE> 2
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement for purposes of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and the Internal Revenue
Code of 1986, as amended (the "Code");
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
1. ESTABLISHMENT OF TRUST
(a) The Trust shall consist of such property, as is acceptable to the
Trustee, as shall be deposited with the Trustee from time to time by PWG, which
shall be the principal of the Trust, to be held and administered as provided
herein.
(b) Such property may consist of shares of PWG common stock, par value
$1.00 ("Shares"). If any Shares are contributed to the Trust, PWG shall, by
virtue of such contribution, represent that the Shares are validly issued,
nonassessable and transferrable, subject to the requirements of applicable
federal and state securities laws. PWG represents the Shares have been
registered on Form S-8 filed with the Securities Exchange Commission. PWG shall
advise the Trustee of any limitations on sale of the Shares. PWG shall also use
its reasonable efforts to register or qualify such Shares covered by the Form
S-8 under the "blue sky" or securities laws of such jurisdictions within the
United States.
(c) The Trust hereby established shall be irrevocable.
(d) The Trust is intended to be a grantor trust, of which PWG is the
grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
2
<PAGE> 3
(e) The principal of the Trust, and any earnings thereon, shall be held
separate and apart from other assets of PWG and shall be used exclusively for
the uses and purposes of the Participant, Beneficiaries and the general
creditors of PWG and its Material Subsidiaries as herein set forth. The
Participant and Beneficiaries shall have no preferred claim on, or any
beneficial ownership interest in, any assets of the Trust. Any rights created
under the Plans and this Trust Agreement shall be mere unsecured contractual
rights of the Participant and Beneficiaries against PWG. Any assets held by the
Trust shall be subject to the claims of the general creditors of PWG and its
Material Subsidiaries under federal and state law in the event of insolvency,
as defined in Section 3(a) herein.
2. PAYMENTS TO THE PARTICIPANT OR BENEFICIARIES
(a) PWG shall deliver to the Trustee written schedules (the "Payment
Schedules") in a form acceptable to the Trustee that indicate the dates or
events on which the assets of the Trust are to be paid out to the Participant
or Beneficiaries; provided that it shall be the responsibility of the
Administrator (as defined in Section 2(b)) to determine if an event set forth
on the schedule has occurred and advise the Trustee of such event. Except as
otherwise provided herein, the Trustee shall make payments to the Participant
or Beneficiaries in accordance with such Payment Schedules.
(b) All payments shall be in cash except that the Trustee may, at the
direction of an administrator (the "Administrator") appointed for purposes of
this Trust by the Compensation Committee of PWG's Board of Directors (the
"Committee"), distribute assets held in the Trust other than Shares to the
Participant or Beneficiaries; provided that in the event of
3
<PAGE> 4
a distribution in kind, the Administrator shall advise the Trustee of the value
of the assets distributed and the Trustee may conclusively rely upon such
information without further inquiry.
(c) The Administrator shall advise the Trustee of the amount of
withholding of any federal, state or local taxes that may be required to be
withheld with respect to the payments of benefits pursuant to the terms of the
Plan. The Trustee shall pay amounts withheld to the appropriate taxing
authorities.
(d) For the purpose of making cash payments or to satisfy various
withholding or other obligations hereunder, if all or part of the principal of
the Trust shall consist of securities or other property, which do not have a
readily ascertainable market value, PWG may purchase from the Trust (or it may
substitute new assets for) such assets at its option for the amount it then
designates as the market value; provided that the Administrator certifies to
the Trustee that such market value has been determined on the same basis
utilized for trust reporting purposes pursuant to Section 7(a). The Trustee
shall be absolutely protected in relying upon the value determined by PWG and
the Administrator.
3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS WHEN COMPANY IS INSOLVENT
(a) The Trustee shall cease payment of benefits to the Participant or
Beneficiaries if PWG or any Material Subsidiary is Insolvent. PWG or any
Material Subsidiary shall be considered "insolvent" for purposes of this Trust
Agreement if (i) PWG or such Material Subsidiary is unable to pay its debts as
they become due, or (ii) PWG or such Material Subsidiary is subject to a
pending proceeding as a debtor under the United States Bankruptcy Code.
4
<PAGE> 5
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the assets of the Trust shall be subject to claims of
general creditors of PWG and its Material Subsidiaries under federal and state
law as set forth below.
(1) The Chief Financial Officer of PWG shall have the duty to
inform the Trustee in writing of the insolvency of PWG or any such
Material Subsidiary. If a person claiming to be a creditor of PWG or a
Material Subsidiary alleges in writing to the Trustee that PWG or such
Material Subsidiary has become insolvent, the Trustee shall, within 2
business days of delivery to the person authorized as the Trustee to
discontinue payments hereunder, request a certification from the Chief
Financial Officer of PWG as to whether or not PWG or such Material
Subsidiary is insolvent and, pending such certification, the Trustee
shall discontinue payment of benefits to the Participant or
Beneficiaries. The Trustee may conclusively, without further inquiry
rely, upon the certification that it receives.
(2) Unless the Trust Department of the Trustee has actual direct
written knowledge of the insolvency of PWG or any such Material
Subsidiary, or has received notice from PWG or a person claiming to be
a creditor alleging that PWG is insolvent, the Trustee shall have no
duty to inquire whether PWG or any such Material Subsidiary is
insolvent. The Trustee may in all events rely on the certification
concerning the solvency of PWG or any such Material Subsidiary as may
be furnished to the Trustee pursuant to Section 3(b)(1) without further
inquiry.
5
<PAGE> 6
(3) If at any time the Trustee has determined that PWG or any
such Material Subsidiary is insolvent pursuant to Section 3(b)(1) or
(b)(2), the Trustee shall discontinue payments to the Participant or
Beneficiaries and shall hold the assets of the Trust for the benefit
of the general creditors of PWG or any such Material Subsidiary.
Nothing in this Trust Agreement shall in any way diminish any rights
of the Participant or Beneficiaries to pursue their rights as general
creditors of PWG with respect to benefits due under the Plan or
otherwise.
(4) The Trustee shall resume the payment of benefits to the
participant or Beneficiaries in accordance with Section 2 of this
Trust Agreement only after the Trustee has received a certification
that PWG or any such Material Subsidiary is no longer insolvent. The
Trustee shall be entitled to rely on such certification without future
inquiry.
(c) Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Trust pursuant to Section 3(b)
hereof and subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to the
Participant or Beneficiaries under the terms of the Plan for the period of such
discontinuance, less the aggregate amount of any payments made to the
Participant or Beneficiaries by PWG in lieu of the payments provided for
hereunder during any such period of discontinuance. PWG shall certify to the
Trustee the amount of payments made to the Participant or Beneficiaries by PWG
during the discontinuance.
(d) As used herein, "Material Subsidiary" shall mean at any time any
significant subsidiary of PWG as determined in accordance with Regulation S-X
under the Securities
6
<PAGE> 7
Exchange Act of 1934. PWG shall from time to time provide the Trustee with a
list of Material Subsidiaries.
4. PAYMENTS TO COMPANY
Subject to Section 2(a) and Section 5(a), PWG shall have no right or
power to direct the Trustee to return to PWG or to divert to any other person
any of the Trust assets before all payment of benefits have been made to
the Participant or Beneficiaries pursuant to the terms of the Plan. The
Administrator shall certify to the Trustee in writing that all payments of
benefits under the Trust have been made. The trustee may conclusively rely
upon such certification.
5. INVESTMENT AUTHORITY
(a) The Trustee shall, upon written instructions received from the
Administrator or investment manager appointed by PWG, hold, dispose, invest and
reinvest the assets of the Trust (including the Shares), without distinction
between principal and income, in treasury bills, mutual funds available for
investment in connection with tax-qualified plans maintained by PWG or its
subsidiaries, hedge funds designated from time to time by the Administrator,
and marketable securities. Notwithstanding the foregoing, in no event may
assets of the Trust be invested in Shares except to the extent such Shares have
been deposited in the Trust pursuant to Section 1(a). PWG shall have the right
at any time, and from time to time, in its sole discretion, to substitute
assets of equal market value for any asset held by the Trust as provided in
Section 2(d). The right of PWG to purchase or substitute assets held in the
trust is exercisable by PWG in a nonfiduciary capacity.
7
<PAGE> 8
(b) Except as provided for in Section 5(d) with respect to Shares,
all rights associated with assets of the Trust shall be exercised by the
Trustee or the person designated by the Trustee, and shall in no event be
exercisable by or rest with PWG, the Participant or Beneficiaries.
(c) When disposing of assets held in the Trust, nothing shall
prevent the Trustee, upon the direction of Administrator, from selling such
assets to the Participant or Beneficiaries for the amount set forth in the
Trust accounting.
(d) The Trustee shall have the absolute discretion to vote or
abstain from voting the shares with respect to any matters brought before
shareholders. The Trustee shall tender or not tender any Shares as directed
by the Administrator.
(e) The Trustee may hold the assets of the Trust in nominee name.
(f) When the Trustee delivers property against payment, delivery
of the property and receipt of payment may not be simultaneous. The risk of
non-receipt of payment shall be the Trust's and the Trustee shall have no
liability therefore, unless such non-receipt of payment is a result of the
Trustee's (or its officers, directors, employees, nominees or agents) gross
negligence or willful misconduct. All credits to the Trust of the anticipated
proceeds of sales and redemptions of property and of anticipated income from
property shall be conditional upon receipt by the Trustee of final payment and
may be reversed to the extent final payment is not received. At the discretion
of the Trustee, the Trust may make use of such conditional credits. To the
extent such credits do not become unconditional by receipt of final payment,
the Trust shall reimburse the Trustee upon demand for the amount of such
conditional credits so used. When the Trustee is to receive property, it is
authorized to accept documents in lieu of
8
<PAGE> 9
such property as long as such documents contain the agreement of the issuer
thereof to hold such property subject to the Trustee's sole order. The Trustee
may, in its discretion, advance funds to the Trust to facilitate the settlement
of any trade. In the event of such an advance, the Trust shall immediately
reimburse the Trustee for the amount thereof.
6. DISPOSITION OF INCOME
During the term of this Trust, all income received by the Trust
shall be accumulated and reinvested in accordance with Section 5 above.
7. ACCOUNTING BY TRUSTEE
(a)(i) The Trustee shall keep accurate and detailed accounts of all
its receipts, investments and disbursements under this Agreement. Such person
or persons as PWG shall designate shall be allowed to inspect the books of
account relating to the trust upon request at any reasonable time during the
business hours of the Trustee. With repect to any securities or properties,
which do not have a readily ascertainable market value, PWG shall provide the
Trustee with periodic valuations of such securities or properties. The
valuation method of each valuation report shall be done in a manner consistent
with valuations used by PWG on its inventory of securities. Trustee may
conclusively rely upon such valuations of PWG for all purposes hereunder
without inquiry.
(ii) Within 60 days after the close of each calendar year, (subject
to the valuations supplied by PWG) the Trustee shall transmit to PWG, and
certify the accuracy of, a written statement of the assets and liabilities of
the Trust at the close of that year and a written account of all the Trustee's
transactions relating to the Trust during the period from the last previous
accounting to the close of that year. (For purposes of this paragraph, the date
of the
9
<PAGE> 10
Trustee's resignation or removal as provided in Section 10 hereof shall be
deemed to be the close of a calendar year.)
(iii) Unless PWG shall have filed with the Trustee written
exceptions or objections to any such statement and account within 90 days
after receipt thereof, PWG shall be deemed to have approved such statement
and account, and in such case or upon the written approval by PWG of any such
statement and account, the Trustee shall be forever released and discharged
with respect to all matters and things embraced in such statement and account
as though it had been settled by decree of a court of competent jurisdiction
in an action or proceeding to which PWG and all persons having any beneficial
interest in the Trust were parties.
(b) Nothing contained in this Agreement or in the Plan shall
deprive the Trustee of the right to have a judicial settlement of its
accounts. In any proceeding for a judicial settlement of the Trustee's
account or for instructions in connection with the Trust, the only other
necessary parties thereto in addition to the Trustee shall be PWG and the
Participant or Beneficiaries. No person interested in the Trust, other than
PWG and the Participant or Beneficiaries, shall have a right to compel an
accounting, judicial or otherwise, by the Trustee, and each such person shall
be bound by all accounting by the Trustee to PWG, as herein provided, as if
the account had been settled by decree of a court of competent jurisdiction
in an action or proceeding to which such person was a party.
8. RESPONSIBILITY OF PWG AND TRUSTEE
(a) The Trustee shall discharge its duties under this Agreement
in a reasonably prudent manner.
10
<PAGE> 11
(b) The Trustee may retain and consult with counsel, who may be
counsel for PWG or for the Trustee in its individual capacity, and shall not be
deemed imprudent by reason of its taking or refraining from taking any action
in accordance with the opinion of counsel. The Trustee shall not be required to
give any bond or any other security for the faithful performance of its duties
under this Agreement, except as required by law.
(c) The Trustee shall be under no duties whatsoever, except such
duties as are specifically set forth as such in this Agreement or as otherwise
agreed to in writing by the Trustee. The Trustee shall not be compelled to take
any action toward the execution or performance of the Trust created hereunder
or to prosecute or defend any suit or claim in respect thereof, unless
indemnified to its satisfaction against loss, liability, and reasonable costs
and expenses. The Trustee shall be under no liability or obligation to anyone
with repsect to any failure on the part of PWG to perform any of its
obligations under this Agreement.
(d) PWG shall act in accordance with the Plan as provided herein,
and the Trustee shall not be responsible in any respect for acting in
accordance with the Plan nor shall the Trustee be responsible for the adequacy
of the Trust to meet and discharge all payments and liabilities under the Plan.
The Trustee shall be fully protected in relying upon any written notice,
certificate, instruction, direction or other communication of any investment
manager appointed by PWG, the Administrator or other authorized officers of PWG
that is not contrary to the express provisions of this Agreement. PWG shall
furnish the Trustee with the name and specimen signature of the Administrator
or other authorized officers of PWG authorized to act or give directions
hereunder and shall promptly notify the Trustee of the termination of the
Administrator and the appointment of a successor thereto. Until notified to the
contrary, the
11
<PAGE> 12
Trustee shall be fully protected in relying upon the most recent name and
specimen signature of the Administrator furnished to it by PWG.
(e) Unless other evidence with respect thereto has been
specifically prescribed in this Agreement, any action of PWG under any
provision of this Agreement, including any approval of or exceptions to the
Trustee's accounts, shall be evidenced by a certificate signed by the
Administrator, and the Trustee shall be fully protected in relying upon such
certificate. The Trustee may accept a certificate signed by the Administrator
as proof of any fact or matter that it deems necessary or desirable to have
established in the administration of the Trust (unless other evidence of such
fact or matter is expressly prescribed herein), and the Trustee shall be fully
protected in relying upon the statements in the certificate.
(f) The Trustee shall be entitled conclusively to rely upon any
written notice, instruction, direction, certificate or other communication
reasonably believed by it to be genuine and to be signed by the proper person
or persons, and the Trustee shall be under no duty to make investigation or
inquiry as to the truth or accuracy of any statement contained therein.
(g) In no event shall the Trustee be liable for special or
consequential or punitive damages.
(h) Until notice be given to the contrary, communications to the
Trustee shall be sent to it at its office at Chemical Bank, 4 New York Plaza,
Fourth Floor, New York, New York and to PWG at its offices located at 1285
Avenue of Americas, New York, New York 10019, Attention: Director of Human
Resources.
(i) PWG shall pay and shall protect, indemnify and save harmless
the Trustee and its officers, directors or trustees, employees, agents and
nominees from and against any and
12
<PAGE> 13
all losses, liabilities (including liabilities for penalties), actions, suits,
judgments, demands, damages, reasonable costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses) of any nature arising from
or relating to any action or failure to act by the Trustee, its officers,
directors or trustees, employees, nominees and agents in connection with the
transactions contemplated by this Agreement, except to the extent that any such
loss, liability, action, suite, demand, damage, cost or expense is the result
of the gross negligence or willful misconduct of the Trustee, its officers,
directors or trustees, employees, nominees or agents.
(j) The Trustee shall have, without exclusions, all powers
conferred on trustees by applicable law, unless expressly provided otherwise
herein.
(k) Notwithstanding any powers granted to the Trustee pursuant to
this Trust Agreement or to applicable law, the Trustee shall not have any power
that could give this Trust the objective of carrying on a business and dividing
the gains therefrom, within the meaning of Section 301.7701-2 of the Procedure
and Administrative Regulations promulgated pursuant to the Internal Revenue
Code.
9. TRANSACTION COSTS, TAXES, COMPENSATION AND EXPENSES OF TRUSTEE
(a) PWG shall pay (or make available to the Trustee to pay) any
transaction costs and any federal, state, local or other taxes (including
withholding taxes) imposed or levied with respect to the corpus and/or income
of the Trust or any part thereof under existing or future laws, and PWG, in its
discretion, may contest the validity or amount of any transaction cost or any
tax assessment, claim or demand respecting the Trust or any part thereof.
Notwithstanding the foregoing, to the extent instructed by the Administrator
and to the extent Trust assets are
13
<PAGE> 14
available, the Trustee, solely in its capacity as trustee and not in its
individual capacity, shall advance funds to PWG to enable PWG to satisfy any
such transaction costs or taxes. Such advances shall be repayable at such date
or dates, with or without interest to be set at a reasonable market rate, or
shall be forgiven in whole or in part, in each case, as determined by the
Administrator in its sole discretion. In the event PWG pays such transaction
costs or such taxes directly, the Administrator may require the Trustee to
reimburse PWG for the cost of funds incurred by PWG for any transaction costs
or any tax payments made on behalf of the Trust. The Trustee upon notice from
the Administrator that a payment is for the purposes set forth in the preceding
sentence may reimburse PWG without further inquiry.
(b) PWG shall pay to the Trustee from time to time such reasonable
compensation for its services as trustee as shall be agreed upon by PWG and the
Trustee. PWG shall also pay the reasonable and necessary expenses (including
reasonable fees of counsel engaged by the Trustee pursuant to Section 8(b) of
this Agreement) incurred by the Trustee in the performance of its duties under
this Agreement; provided, however, that the aggregate amount of any legal
expenses incurred in any calendar year by the Trustee under this Trust and any
other trust between PWG and the Trustee which is established in whole or in
part to fund PWG's obligations under the Plan and which are reimbursable to the
Trustee under this section or the corresponding section of each trust agreement
entered into by the parties hereto in connection with any such other trust
shall not exceed $3,500, unless (i) the Trustee has delivered written notice
("Notice") to PWG at least ten business days prior to the date on which such
legal expense or expenses are to be incurred and (ii) PWG has not notified the
Trustee in writing of its objection to the Trustee incurring such expenses
prior to the expiration of such ten-business
14
<PAGE> 15
day period. To constitute Notice for purposes of the previous sentence, the
writing from the Trustee to PWG shall specify in reasonable detail (i) the
expenses to be incurred, (ii) the reason or reasons why the Trustee believes it
is necessary to incur such expenses, (iii) the anticipated amount of such
expenses and (iv) the legal counsel who will be paid any amounts for which
reimbursement will be sought by the Trustee under this section. If PWG
notifies the Trustee in writing of its objection to any expense described in
the Notice prior to the expiration of the ten-business day period, such expense
shall not be reimbursable to the Trustee either from the assets of the Trust or
from PWG, regardless of whether the Trustee determines to incur such expense.
The ten-business day notice period described above shall begin on the date the
Notice is received by PWG. Any compensation and expenses which are otherwise
reimbursable under this section and which are not paid by PWG may be deducted
by the Trustee from the assets of the Trust. If the Trustee satisfies such
obligations one of the assets of the Trust, PWG shall immediately, upon demand
by the Trustee, deposit into the Trust a sum equal to the amount paid by the
Trust.
10. RESIGNATION AND REMOVAL OF TRUSTEE
(a) The Trustee may resign at any time by written notice to PWG, which
shall be effective 60 days after receipt of such notice unless PWG and the
Trustee agree otherwise.
(b) The Trustee may be removed by PWG on 60 days' written notice or
upon shorter notice accepted by the Trustee.
(c) Upon resignation or removal of the Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the
successor Trustee. The transfer shall
15
<PAGE> 16
be completed within 60 days after receipt of notice or resignation, removal or
transfer, unless PWG extends the time limit.
(d) If the Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the effective date of
resignation or removal under paragraph (a) or (b) of this Section. If no such
appointment has been made, the Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions. All expenses
of the Trustee in connection with the proceeding described in the previous
sentence shall be paid by PWG.
11. APPOINTMENT OF SUCCESSOR TRUSTEE
If the Trustee resigns or is removed in accordance with Section 10
hereof, PWG, by action of the Committee, shall appoint a successor trustee
reasonably acceptable to the Participant or Beneficiaries, to act hereunder
after the effective date of such removal or resignation. Each successor trustee
shall have the powers and duties conferred upon the Trustee in this Agreement,
and the term "Trustee" as used in this Agreement shall be deemed to include any
successor trustee. Upon designation or appointment of a successor trustee, the
Trustee shall transfer and deliver the Trust to the successor trustee,
reserving such sums as the Trustee shall deem necessary to defray its expenses
in settling its accounts, to pay any of its compensation due and unpaid and to
discharge any obligation of the Trust for which the Trustee may be liable. Any
amounts remaining shall be restored to the Trust by PWG with interest at 30-day
treasury bill rate. If the sums so reserved are not sufficient for these
purposes, the Trustee shall be entitled to recover the amount of any deficiency
from PWG. When the Trust shall have been transferred and delivered to the
successor trustee and the accounts of the Trustee have been
16
<PAGE> 17
settled as provided in Section 7 hereof, the Trustee shall be released and
discharged from all further accountability or liability for the Trust (except
for any acts (other than any accounting) resulting from the gross negligence or
willful misconduct of the Trustee during the period it was acting hereunder)
and shall not be responsible in any way for the further disposition of the
Trust or any part thereof.
12. AMENDMENT OR TERMINATION
(a) This Trust Agreement may be amended by a written instrument
executed by the Trustee and PWG. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of the Plan or shall make the Trust
revocable. PWG shall certify to the Trustee that any proposed amendment is not
in conflict with the terms of Plan or Trust
(b) The Trust shall not terminate until the earlier to occur of
(i) the date on which the Participant or Beneficiaries are no longer entitled
to any benefits pursuant to the Plan or (ii) the twenty-first anniversary of
the death of the Participant who is the beneficiary of the Trust as of the date
of execution of this Agreement. Upon termination of the Trust, any assets
remaining in the Trust shall be returned to PWG.
13. MISCELLANEOUS
(a) Any provision of this Trust Agreement prohibited by law shall
be ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to the Participants or Beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subject to attachment, garnishment,
levy, execution or other legal or equitable process.
17
<PAGE> 18
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
(d) The titles to Sections of this Agreement are placed herein
for convenience of reference only, and the Agreement is not to be construed by
reference thereto.
(e) This Agreement shall bind and inure to the benefit of
successor and assigned of PWG and the Trustee, respectively, and the
Participant or Beneficiaries and legal representatives (e.g., executors,
administrators, conservators, etc.).
(f) This Agreement may be executed in any number of
counterparts, each of which shall be deemend to be an original but all of which
together shall constitute but one instrument, which may be sufficiently
evidenced by an counterpart.
14. EFFECTIVE DATE
The effective date of this Trust Agreement shall be February
4, 1994.
18
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their respective names by their duly authorized officers under
their corporate seals as of the day and year first above written.
PAINE WEBBER GROUP INC.
/s/ Elisa A. Bell By: /s/ Theodore A. Levine
------------------------------- -----------------------------
Notary Public
Title:
ELISA A. BELL -----------------------------
NOTARY PUBLIC, State of New York
No. 03-4818330
Qualified in Bronx County
Commission Expires June 30, 1994
CHEMICAL BANK
/s/ Thora-Chan Sui-Maharaj By: /s/ Steven A. Sabo
-------------------------------- ----------------------------
Notary Public
Title: Vice President
THORA-CHAN SUI-MAHARAJ ----------------------------
Notary Public, State of New York
No. 41-4638300
Qualified in Queens County
Certificate Filed in New York County
Commission Expires September 30, 1994
19
<PAGE> 1
EXHIBIT 10.8
PAINE WEBBER GROUP INC.
________________________________________________________________________________
Senior Officer Deferred Compensation Plan
Grantor Trust Agreement
________________________________________________________________________________
THIS AGREEMENT, made as of the 4th day of February, 1994, by and
between PAINE WEBBER GROUP INC., a Delaware corporation (hereinafter referred
to as "PWG"), and CHEMICAL BANK (hereinafter referred to as the "Trustee").
WITNESSETH:
WHEREAS, PWG or one or more of its direct or indirect subsidiaries is
obligated to pay Deferred Compensation to Regina Dolan (the "Participant") and
his/her beneficiaries (the "Beneficiaries") under the PWG Senior Officer
Deferred Compensation Plan (the "Plan"); and
WHEREAS, PWG wishes to establish a trust (the "Trust") and to
contribute assets to the Trust that shall be held therein, subject to the
claims of the creditors of PWG or its Material Subsidiaries, as herein defined,
in the event of insolvency, as herein defined, until delivered to the
Participant or Beneficiaries in such manner and at such times as specified in
the Plan; and
<PAGE> 2
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement for purposes of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and the Internal Revenue
Code of 1986, as amended (the "Code");
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
1. ESTABLISHMENT OF TRUST
(a) The Trust shall consist of such property, as is acceptable to the
Trustee, as shall be deposited with the Trustee from time to time by PWG, which
shall be the principal of the Trust, to be held and administered as provided
herein.
(b) Such property may consist of shares of PWG common stock, par value
$1.00 ("Shares"). If any Shares are contributed to the Trust, PWG shall, by
virtue of such contribution, represent that the Shares are validly issued,
nonassessable and transferrable, subject to the requirements of applicable
federal and state securities laws. PWG represents the Shares have been
registered on Form S-8 filed with the Securities Exchange Commission. PWG shall
advise the Trustee of any limitations on sale of the Shares. PWG shall also use
its reasonable efforts to register or qualify such Shares covered by the Form
S-8 under the "blue sky" or securities laws of such jurisdictions within the
United States.
(c) The Trust hereby established shall be irrevocable.
(d) The Trust is intended to be a grantor trust, of which PWG is the
grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
2
<PAGE> 3
(e) The principal of the Trust, and any earnings thereon, shall be held
separate and apart from other assets of PWG and shall be used exclusively for
the uses and purposes of the Participant, Beneficiaries and the general
creditors of PWG and its Material Subsidiaries as herein set forth. The
Participant and Beneficiaries shall have no preferred claim on, or any
beneficial ownership interest in, any assets of the Trust. Any rights created
under the Plans and this Trust Agreement shall be mere unsecured contractual
rights of the Participant and Beneficiaries against PWG. Any assets held by the
Trust shall be subject to the claims of the general creditors of PWG and its
Material Subsidiaries under federal and state law in the event of insolvency,
as defined in Section 3(a) herein.
2. PAYMENTS TO THE PARTICIPANT OR BENEFICIARIES
(a) PWG shall deliver to the Trustee written schedules (the "Payment
Schedules") in a form acceptable to the Trustee that indicate the dates or
events on which the assets of the Trust are to be paid out to the Participant
or Beneficiaries; provided that it shall be the responsibility of the
Administrator (as defined in Section 2(b)) to determine if an event set forth
on the schedule has occurred and advise the Trustee of such event. Except as
otherwise provided herein, the Trustee shall make payments to the Participant
or Beneficiaries in accordance with such Payment Schedules.
(b) All payments shall be in cash except that the Trustee may, at the
direction of an administrator (the "Administrator") appointed for purposes of
this Trust by the Compensation Committee of PWG's Board of Directors (the
"Committee"), distribute assets held in the Trust other than Shares to the
Participant or Beneficiaries; provided that in the event of
3
<PAGE> 4
a distribution in kind, the Administrator shall advise the Trustee of the value
of the assets distributed and the Trustee may conclusively rely upon such
information without further inquiry.
(c) The Administrator shall advise the Trustee of the amount of
withholding of any federal, state or local taxes that may be required to be
withheld with respect to the payments of benefits pursuant to the terms of the
Plan. The Trustee shall pay amounts withheld to the appropriate taxing
authorities.
(d) For the purpose of making cash payments or to satisfy various
withholding or other obligations hereunder, if all or part of the principal of
the Trust shall consist of securities or other property, which do not have a
readily ascertainable market value, PWG may purchase from the Trust (or it may
substitute new assets for) such assets at its option for the amount it then
designates as the market value; provided that the Administrator certifies to
the Trustee that such market value has been determined on the same basis
utilized for trust reporting purposes pursuant to Section 7(a). The Trustee
shall be absolutely protected in relying upon the value determined by PWG and
the Administrator.
3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS WHEN COMPANY IS INSOLVENT
(a) The Trustee shall cease payment of benefits to the Participant or
Beneficiaries if PWG or any Material Subsidiary is Insolvent. PWG or any
Material Subsidiary shall be considered "insolvent" for purposes of this Trust
Agreement if (i) PWG or such Material Subsidiary is unable to pay its debts as
they become due, or (ii) PWG or such Material Subsidiary is subject to a
pending proceeding as a debtor under the United States Bankruptcy Code.
4
<PAGE> 5
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the assets of the Trust shall be subject to claims of
general creditors of PWG and its Material Subsidiaries under federal and state
law as set forth below.
(1) The Chief Financial Officer of PWG shall have the duty to
inform the Trustee in writing of the insolvency of PWG or any such
Material Subsidiary. If a person claiming to be a creditor of PWG or a
Material Subsidiary alleges in writing to the Trustee that PWG or such
Material Subsidiary has become insolvent, the Trustee shall, within 2
business days of delivery to the person authorized as the Trustee to
discontinue payments hereunder, request a certification from the Chief
Financial Officer of PWG as to whether or not PWG or such Material
Subsidiary is insolvent and, pending such certification, the Trustee
shall discontinue payment of benefits to the Participant or
Beneficiaries. The Trustee may conclusively, without further inquiry
rely, upon the certification that it receives.
(2) Unless the Trust Department of the Trustee has actual direct
written knowledge of the insolvency of PWG or any such Material
Subsidiary, or has received notice from PWG or a person claiming to be
a creditor alleging that PWG is insolvent, the Trustee shall have no
duty to inquire whether PWG or any such Material Subsidiary is
insolvent. The Trustee may in all events rely on the certification
concerning the solvency of PWG or any such Material Subsidiary as may
be furnished to the Trustee pursuant to Section 3(b)(1) without further
inquiry.
5
<PAGE> 6
(3) If at any time the Trustee has determined that PWG or any
such Material Subsidiary is insolvent pursuant to Section 3(b)(1) or
(b)(2), the Trustee shall discontinue payments to the Participant or
Beneficiaries and shall hold the assets of the Trust for the benefit
of the general creditors of PWG or any such Material Subsidiary.
Nothing in this Trust Agreement shall in any way diminish any rights
of the Participant or Beneficiaries to pursue their rights as general
creditors of PWG with respect to benefits due under the Plan or
otherwise.
(4) The Trustee shall resume the payment of benefits to the
participant or Beneficiaries in accordance with Section 2 of this
Trust Agreement only after the Trustee has received a certification
that PWG or any such Material Subsidiary is no longer insolvent. The
Trustee shall be entitled to rely on such certification without future
inquiry.
(c) Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Trust pursuant to Section 3(b)
hereof and subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to the
Participant or Beneficiaries under the terms of the Plan for the period of such
discontinuance, less the aggregate amount of any payments made to the
Participant or Beneficiaries by PWG in lieu of the payments provided for
hereunder during any such period of discontinuance. PWG shall certify to the
Trustee the amount of payments made to the Participant or Beneficiaries by PWG
during the discontinuance.
(d) As used herein, "Material Subsidiary" shall mean at any time any
significant subsidiary of PWG as determined in accordance with Regulation S-X
under the Securities
6
<PAGE> 7
Exchange Act of 1934. PWG shall from time to time provide the Trustee with a
list of Material Subsidiaries.
4. PAYMENTS TO COMPANY
Subject to Section 2(a) and Section 5(a), PWG shall have no right or
power to direct the Trustee to return to PWG or to divert to any other person
any of the Trust assets before all payment of benefits have been made to
the Participant or Beneficiaries pursuant to the terms of the Plan. The
Administrator shall certify to the Trustee in writing that all payments of
benefits under the Trust have been made. The trustee may conclusively rely
upon such certification.
5. INVESTMENT AUTHORITY
(a) The Trustee shall, upon written instructions received from the
Administrator or investment manager appointed by PWG, hold, dispose, invest and
reinvest the assets of the Trust (including the Shares), without distinction
between principal and income, in treasury bills, mutual funds available for
investment in connection with tax-qualified plans maintained by PWG or its
subsidiaries, hedge funds designated from time to time by the Administrator,
and marketable securities. Notwithstanding the foregoing, in no event may
assets of the Trust be invested in Shares except to the extent such Shares have
been deposited in the Trust pursuant to Section 1(a). PWG shall have the right
at any time, and from time to time, in its sole discretion, to substitute
assets of equal market value for any asset held by the Trust as provided in
Section 2(d). The right of PWG to purchase or substitute assets held in the
trust is exercisable by PWG in a nonfiduciary capacity.
7
<PAGE> 8
(b) Except as provided for in Section 5(d) with respect to Shares,
all rights associated with assets of the Trust shall be exercised by the
Trustee or the person designated by the Trustee, and shall in no event be
exercisable by or rest with PWG, the Participant or Beneficiaries.
(c) When disposing of assets held in the Trust, nothing shall
prevent the Trustee, upon the direction of Administrator, from selling such
assets to the Participant or Beneficiaries for the amount set forth in the
Trust accounting.
(d) The Trustee shall have the absolute discretion to vote or
abstain from voting the shares with respect to any matters brought before
shareholders. The Trustee shall tender or not tender any Shares as directed
by the Administrator.
(e) The Trustee may hold the assets of the Trust in nominee name.
(f) When the Trustee delivers property against payment, delivery
of the property and receipt of payment may not be simultaneous. The risk of
non-receipt of payment shall be the Trust's and the Trustee shall have no
liability therefore, unless such non-receipt of payment is a result of the
Trustee's (or its officers, directors, employees, nominees or agents) gross
negligence or willful misconduct. All credits to the Trust of the anticipated
proceeds of sales and redemptions of property and of anticipated income from
property shall be conditional upon receipt by the Trustee of final payment and
may be reversed to the extent final payment is not received. At the discretion
of the Trustee, the Trust may make use of such conditional credits. To the
extent such credits do not become unconditional by receipt of final payment,
the Trust shall reimburse the Trustee upon demand for the amount of such
conditional credits so used. When the Trustee is to receive property, it is
authorized to accept documents in lieu of
8
<PAGE> 9
such property as long as such documents contain the agreement of the issuer
thereof to hold such property subject to the Trustee's sole order. The Trustee
may, in its discretion, advance funds to the Trust to facilitate the settlement
of any trade. In the event of such an advance, the Trust shall immediately
reimburse the Trustee for the amount thereof.
6. DISPOSITION OF INCOME
During the term of this Trust, all income received by the Trust
shall be accumulated and reinvested in accordance with Section 5 above.
7. ACCOUNTING BY TRUSTEE
(a)(i) The Trustee shall keep accurate and detailed accounts of all
its receipts, investments and disbursements under this Agreement. Such person
or persons as PWG shall designate shall be allowed to inspect the books of
account relating to the trust upon request at any reasonable time during the
business hours of the Trustee. With repect to any securities or properties,
which do not have a readily ascertainable market value, PWG shall provide the
Trustee with periodic valuations of such securities or properties. The
valuation method of each valuation report shall be done in a manner consistent
with valuations used by PWG on its inventory of securities. Trustee may
conclusively rely upon such valuations of PWG for all purposes hereunder
without inquiry.
(ii) Within 60 days after the close of each calendar year, (subject
to the valuations supplied by PWG) the Trustee shall transmit to PWG, and
certify the accuracy of, a written statement of the assets and liabilities of
the Trust at the close of that year and a written account of all the Trustee's
transactions relating to the Trust during the period from the last previous
accounting to the close of that year. (For purposes of this paragraph, the date
of the
9
<PAGE> 10
Trustee's resignation or removal as provided in Section 10 hereof shall be
deemed to be the close of a calendar year.)
(iii) Unless PWG shall have filed with the Trustee written
exceptions or objections to any such statement and account within 90 days
after receipt thereof, PWG shall be deemed to have approved such statement
and account, and in such case or upon the written approval by PWG of any such
statement and account, the Trustee shall be forever released and discharged
with respect to all matters and things embraced in such statement and account
as though it had been settled by decree of a court of competent jurisdiction
in an action or proceeding to which PWG and all persons having any beneficial
interest in the Trust were parties.
(b) Nothing contained in this Agreement or in the Plan shall
deprive the Trustee of the right to have a judicial settlement of its
accounts. In any proceeding for a judicial settlement of the Trustee's
account or for instructions in connection with the Trust, the only other
necessary parties thereto in addition to the Trustee shall be PWG and the
Participant or Beneficiaries. No person interested in the Trust, other than
PWG and the Participant or Beneficiaries, shall have a right to compel an
accounting, judicial or otherwise, by the Trustee, and each such person shall
be bound by all accounting by the Trustee to PWG, as herein provided, as if
the account had been settled by decree of a court of competent jurisdiction
in an action or proceeding to which such person was a party.
8. RESPONSIBILITY OF PWG AND TRUSTEE
(a) The Trustee shall discharge its duties under this Agreement
in a reasonably prudent manner.
10
<PAGE> 11
(b) The Trustee may retain and consult with counsel, who may be
counsel for PWG or for the Trustee in its individual capacity, and shall not be
deemed imprudent by reason of its taking or refraining from taking any action
in accordance with the opinion of counsel. The Trustee shall not be required to
give any bond or any other security for the faithful performance of its duties
under this Agreement, except as required by law.
(c) The Trustee shall be under no duties whatsoever, except such
duties as are specifically set forth as such in this Agreement or as otherwise
agreed to in writing by the Trustee. The Trustee shall not be compelled to take
any action toward the execution or performance of the Trust created hereunder
or to prosecute or defend any suit or claim in respect thereof, unless
indemnified to its satisfaction against loss, liability, and reasonable costs
and expenses. The Trustee shall be under no liability or obligation to anyone
with repsect to any failure on the part of PWG to perform any of its
obligations under this Agreement.
(d) PWG shall act in accordance with the Plan as provided herein,
and the Trustee shall not be responsible in any respect for acting in
accordance with the Plan nor shall the Trustee be responsible for the adequacy
of the Trust to meet and discharge all payments and liabilities under the Plan.
The Trustee shall be fully protected in relying upon any written notice,
certificate, instruction, direction or other communication of any investment
manager appointed by PWG, the Administrator or other authorized officers of PWG
that is not contrary to the express provisions of this Agreement. PWG shall
furnish the Trustee with the name and specimen signature of the Administrator
or other authorized officers of PWG authorized to act or give directions
hereunder and shall promptly notify the Trustee of the termination of the
Administrator and the appointment of a successor thereto. Until notified to the
contrary, the
11
<PAGE> 12
Trustee shall be fully protected in relying upon the most recent name and
specimen signature of the Administrator furnished to it by PWG.
(e) Unless other evidence with respect thereto has been
specifically prescribed in this Agreement, any action of PWG under any
provision of this Agreement, including any approval of or exceptions to the
Trustee's accounts, shall be evidenced by a certificate signed by the
Administrator, and the Trustee shall be fully protected in relying upon such
certificate. The Trustee may accept a certificate signed by the Administrator
as proof of any fact or matter that it deems necessary or desirable to have
established in the administration of the Trust (unless other evidence of such
fact or matter is expressly prescribed herein), and the Trustee shall be fully
protected in relying upon the statements in the certificate.
(f) The Trustee shall be entitled conclusively to rely upon any
written notice, instruction, direction, certificate or other communication
reasonably believed by it to be genuine and to be signed by the proper person
or persons, and the Trustee shall be under no duty to make investigation or
inquiry as to the truth or accuracy of any statement contained therein.
(g) In no event shall the Trustee be liable for special or
consequential or punitive damages.
(h) Until notice be given to the contrary, communications to the
Trustee shall be sent to it at its office at Chemical Bank, 4 New York Plaza,
Fourth Floor, New York, New York and to PWG at its offices located at 1285
Avenue of Americas, New York, New York 10019, Attention: Director of Human
Resources.
(i) PWG shall pay and shall protect, indemnify and save harmless
the Trustee and its officers, directors or trustees, employees, agents and
nominees from and against any and
12
<PAGE> 13
all losses, liabilities (including liabilities for penalties), actions, suits,
judgments, demands, damages, reasonable costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses) of any nature arising from
or relating to any action or failure to act by the Trustee, its officers,
directors or trustees, employees, nominees and agents in connection with the
transactions contemplated by this Agreement, except to the extent that any such
loss, liability, action, suite, demand, damage, cost or expense is the result
of the gross negligence or willful misconduct of the Trustee, its officers,
directors or trustees, employees, nominees or agents.
(j) The Trustee shall have, without exclusions, all powers
conferred on trustees by applicable law, unless expressly provided otherwise
herein.
(k) Notwithstanding any powers granted to the Trustee pursuant to
this Trust Agreement or to applicable law, the Trustee shall not have any power
that could give this Trust the objective of carrying on a business and dividing
the gains therefrom, within the meaning of Section 301.7701-2 of the Procedure
and Administrative Regulations promulgated pursuant to the Internal Revenue
Code.
9. TRANSACTION COSTS, TAXES, COMPENSATION AND EXPENSES OF TRUSTEE
(a) PWG shall pay (or make available to the Trustee to pay) any
transaction costs and any federal, state, local or other taxes (including
withholding taxes) imposed or levied with respect to the corpus and/or income
of the Trust or any part thereof under existing or future laws, and PWG, in its
discretion, may contest the validity or amount of any transaction cost or any
tax assessment, claim or demand respecting the Trust or any part thereof.
Notwithstanding the foregoing, to the extent instructed by the Administrator
and to the extent Trust assets are
13
<PAGE> 14
available, the Trustee, solely in its capacity as trustee and not in its
individual capacity, shall advance funds to PWG to enable PWG to satisfy any
such transaction costs or taxes. Such advances shall be repayable at such date
or dates, with or without interest to be set at a reasonable market rate, or
shall be forgiven in whole or in part, in each case, as determined by the
Administrator in its sole discretion. In the event PWG pays such transaction
costs or such taxes directly, the Administrator may require the Trustee to
reimburse PWG for the cost of funds incurred by PWG for any transaction costs
or any tax payments made on behalf of the Trust. The Trustee upon notice from
the Administrator that a payment is for the purposes set forth in the preceding
sentence may reimburse PWG without further inquiry.
(b) PWG shall pay to the Trustee from time to time such reasonable
compensation for its services as trustee as shall be agreed upon by PWG and the
Trustee. PWG shall also pay the reasonable and necessary expenses (including
reasonable fees of counsel engaged by the Trustee pursuant to Section 8(b) of
this Agreement) incurred by the Trustee in the performance of its duties under
this Agreement; provided, however, that the aggregate amount of any legal
expenses incurred in any calendar year by the Trustee under this Trust and any
other trust between PWG and the Trustee which is established in whole or in
part to fund PWG's obligations under the Plan and which are reimbursable to the
Trustee under this section or the corresponding section of each trust agreement
entered into by the parties hereto in connection with any such other trust
shall not exceed $3,500, unless (i) the Trustee has delivered written notice
("Notice") to PWG at least ten business days prior to the date on which such
legal expense or expenses are to be incurred and (ii) PWG has not notified the
Trustee in writing of its objection to the Trustee incurring such expenses
prior to the expiration of such ten-business
14
<PAGE> 15
day period. To constitute Notice for purposes of the previous sentence, the
writing from the Trustee to PWG shall specify in reasonable detail (i) the
expenses to be incurred, (ii) the reason or reasons why the Trustee believes it
is necessary to incur such expenses, (iii) the anticipated amount of such
expenses and (iv) the legal counsel who will be paid any amounts for which
reimbursement will be sought by the Trustee under this section. If PWG
notifies the Trustee in writing of its objection to any expense described in
the Notice prior to the expiration of the ten-business day period, such expense
shall not be reimbursable to the Trustee either from the assets of the Trust or
from PWG, regardless of whether the Trustee determines to incur such expense.
The ten-business day notice period described above shall begin on the date the
Notice is received by PWG. Any compensation and expenses which are otherwise
reimbursable under this section and which are not paid by PWG may be deducted
by the Trustee from the assets of the Trust. If the Trustee satisfies such
obligations one of the assets of the Trust, PWG shall immediately, upon demand
by the Trustee, deposit into the Trust a sum equal to the amount paid by the
Trust.
10. RESIGNATION AND REMOVAL OF TRUSTEE
(a) The Trustee may resign at any time by written notice to PWG, which
shall be effective 60 days after receipt of such notice unless PWG and the
Trustee agree otherwise.
(b) The Trustee may be removed by PWG on 60 days' written notice or
upon shorter notice accepted by the Trustee.
(c) Upon resignation or removal of the Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the
successor Trustee. The transfer shall
15
<PAGE> 16
be completed within 60 days after receipt of notice or resignation, removal or
transfer, unless PWG extends the time limit.
(d) If the Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the effective date of
resignation or removal under paragraph (a) or (b) of this Section. If no such
appointment has been made, the Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions. All expenses
of the Trustee in connection with the proceeding described in the previous
sentence shall be paid by PWG.
11. APPOINTMENT OF SUCCESSOR TRUSTEE
If the Trustee resigns or is removed in accordance with Section 10
hereof, PWG, by action of the Committee, shall appoint a successor trustee
reasonably acceptable to the Participant or Beneficiaries, to act hereunder
after the effective date of such removal or resignation. Each successor trustee
shall have the powers and duties conferred upon the Trustee in this Agreement,
and the term "Trustee" as used in this Agreement shall be deemed to include any
successor trustee. Upon designation or appointment of a successor trustee, the
Trustee shall transfer and deliver the Trust to the successor trustee,
reserving such sums as the Trustee shall deem necessary to defray its expenses
in settling its accounts, to pay any of its compensation due and unpaid and to
discharge any obligation of the Trust for which the Trustee may be liable. Any
amounts remaining shall be restored to the Trust by PWG with interest at 30-day
treasury bill rate. If the sums so reserved are not sufficient for these
purposes, the Trustee shall be entitled to recover the amount of any deficiency
from PWG. When the Trust shall have been transferred and delivered to the
successor trustee and the accounts of the Trustee have been
16
<PAGE> 17
settled as provided in Section 7 hereof, the Trustee shall be released and
discharged from all further accountability or liability for the Trust (except
for any acts (other than any accounting) resulting from the gross negligence or
willful misconduct of the Trustee during the period it was acting hereunder)
and shall not be responsible in any way for the further disposition of the
Trust or any part thereof.
12. AMENDMENT OR TERMINATION
(a) This Trust Agreement may be amended by a written instrument
executed by the Trustee and PWG. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of the Plan or shall make the Trust
revocable. PWG shall certify to the Trustee that any proposed amendment is not
in conflict with the terms of Plan or Trust
(b) The Trust shall not terminate until the earlier to occur of
(i) the date on which the Participant or Beneficiaries are no longer entitled
to any benefits pursuant to the Plan or (ii) the twenty-first anniversary of
the death of the Participant who is the beneficiary of the Trust as of the date
of execution of this Agreement. Upon termination of the Trust, any assets
remaining in the Trust shall be returned to PWG.
13. MISCELLANEOUS
(a) Any provision of this Trust Agreement prohibited by law shall
be ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to the Participants or Beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subject to attachment, garnishment,
levy, execution or other legal or equitable process.
17
<PAGE> 18
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
(d) The titles to Sections of this Agreement are placed herein
for convenience of reference only, and the Agreement is not to be construed by
reference thereto.
(e) This Agreement shall bind and inure to the benefit of
successor and assigned of PWG and the Trustee, respectively, and the
Participant or Beneficiaries and legal representatives (e.g., executors,
administrators, conservators, etc.).
(f) This Agreement may be executed in any number of
counterparts, each of which shall be deemend to be an original but all of which
together shall constitute but one instrument, which may be sufficiently
evidenced by an counterpart.
14. EFFECTIVE DATE
The effective date of this Trust Agreement shall be February
4, 1994.
18
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their respective names by their duly authorized officers under
their corporate seals as of the day and year first above written.
PAINE WEBBER GROUP INC.
/s/ Elisa A. Bell By: /s/ Theodore A. Levine
------------------------------- -----------------------------
Notary Public
Title:
ELISA A. BELL -----------------------------
NOTARY PUBLIC, State of New York
No. 03-4818330
Qualified in Bronx County
Commission Expires June 30, 1994
CHEMICAL BANK
/s/ Thora-Chan Sui-Maharaj By: /s/ Steven C. Sabo
-------------------------------- ----------------------------
Notary Public
Title: Vice President
THORA-CHAN SUI-MAHARAJ ----------------------------
Notary Public, State of New York
No. 41-4638300
Qualified in Queens County
Certificate Filed in New York County
Commission Expires September 30, 1994
19
<PAGE> 1
Exhibit 10.9
TERM LEASE SUPPLEMENT
Date Prepared: 11/23/94 Page 1 of 2
<TABLE>
<S> <C> <C> <C>
Customer No.: 6876702 Supplement Number: C00196146 Purchase Agreement Ref.: HQ12291
Customer Name and Address Installed at Location IBM Branch Office No.: RH4
PAINEWEBBER INC PAINEWEBBER INC IBM Branch Office Address
800 HARBOR BLVD 800 HARBOR BLVD SECURITES Lease Agreement No.: 2650157
WEEHAWKEN, NJ 07087-6725 WEEHAWKEN, NJ 07087-6725 33 MAIDEN LANE Associated Supplement Nos.:
NEW YORK, NY 10038-4518
Amendment Nos.:
Addendum Nos.:
Customer Reference: Quote Letter No.: Q0110281501
</TABLE>
<TABLE>
<CAPTION>
Location/ Leased or Financed Item: Plant Order (*) (*)
Lessor Installed Type Model/Feature or Serial (*) Purch. Maint. (*)
Customer No. State Description MES No. No Option Option Includ. Term
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6876702/ NJ 9032-003 20025 B FM 60
5374065 'LIC' ES CONNECTION DIRECTO
6876702/ NJ 9032-003 20026 B FM 60
5374065 'LIC' ES CONNECTION DIRECTO
6876702/ NJ 9076-303 4MFGCV 76375 B FM 60
5374065 'LIC' BS FR W/I 66MHZ WIDE
6876702/ NJ 9672-E02 4NFPND 40358 B FM 60
5374065 'LIC' S/390 PARA TRANS SRVR
------------------------------------------------------------------------------------------------------------------------------------
Supplier Name Supplier Customer No.
</TABLE>
<TABLE>
<CAPTION>
Location/ Unit Purchase Lease (*)Estimated
Lessor Price/ Rate Commencement
Customer No. Amount Financed $/1000 Rent /Release Date
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6876702/ 280,296.00 15.80 4,429 11/94
5374065
6876702/ 260,296.00 15.80 4,429 11/94
5374065
6876702/ 477,000.00 18.22 8,691 11/94
5374065
6876702/ 1,007,000.00 18.21 18,337 11/94
5374065
------------------------------------------------------------------------------------------------------------------------------------
Total Amount Interim Total Rent Payment Period
Financed Rent (this page)
(this page) Applies?
MONTHLY
2,044,592.00 NO 35,866 IN ARREARS
------------------------------------------------------------------------------------------------------------------------------------
Total Amount Total Rent
Financed (all pages)
(all pages) Taxes May Apply
2,044,592.00 35,886
------------ ---------------
</TABLE>
(*) See page 2 for explanations, definitions and additional terms.
FOR THESE LEASE RATES TO BE VALID, THIS SUPPLEMENT MUST BE SIGNED AND RECEIVED
BY LESSOR BY: 11/29/94.
THE LEASE AGREEMENT REFERENCED ABOVE AND THIS SUPPLEMENT CONTAIN THE TERMS FOR
THIS TRANSACTION. LESSEE AUTHORIZES LESSOR TO CHANGE THE AMOUNT FINANCED AND
THE RENT IF LESSEE'S SUPPLIER CHANGES LESSEE'S PURCHASE PRICE. LESSEE FURTHER
AUTHORIZES LESSOR TO INSERT SERIAL NUMBERS ON THIS SUPPLEMENT WITHOUT FURTHER
AUTHORIZATION FROM LESSEE. BY SIGNING BELOW, BOTH PARTIES ACKNOWLEDGE THAT
THEY HAVE READ AND UNDERSTAND THE AGREEMENTS AND AGREE TO THE TERMS. FURTHER
LESSEE AGREES THAT THESE TERMS SUPERSEDE ALL PROPOSALS OR PRIOR AGREEMENTS,
ORAL OR WRITTEN, AND ALL OTHER COMMUNICATIONS BETWEEN BOTH PARTIES RELATING TO
THE ITEMS LISTED HEREIN. ONCE THIS SUPPLEMENT IS SIGNED BY BOTH PARTIES, IT
SHALL BE DEEMED TO HAVE BEEN ACCEPTED BY LESSOR AT ITS HEADQUARTERS OR ITS
LOCATION IN BETHESDA, MARYLAND AND ANY REPRODUCTION OF THIS AGREEMENT MADE BY
RELIABLE MEANS (FOR EXAMPLE PHOTOCOPY, IMAGE OR FACSIMILE) SHALL IN ALL
RESPECTS BE CONSIDERED EQUIVALENT TO AN ORIGINAL.
Accepted by:
IBM Credit Corporation PAINEWEBBER INC
-----------------------------------
For or as Lessor: Lessee
By: By: /s/ Vito A. Giuliani
-------------------------------- --------------------------------
Authorized Signature Authorized Signature
Vito A. Giuliani 12/7/94
----------------------------------- -----------------------------------
Name (Type or Print) Date Name (Type or Print) Date
Initial below
to request an
IBM maintenance
agreement on
IBM Leased Items
-------------
<PAGE> 2
TERM LEASE SUPPLEMENT
Additional Terms and Conditions
OPTION CODES
B, B+, C, C+ Lease with fair market value end of lease renewal and purchase
options
B', C' Lease with prestated end of lease purchase and renewal options
B$, C$ Lease with a one dollar ($1) end of lease purchase option
L Lease for Used Equipment
S Financing of IBM One-Time Charges
T Financing of non-IBM One-Time Charges
PURCH. OPTION (PURCHASE OPTION - END OF LEASE ONLY)
FM Fair market sales value, as determined by Lessor, at end of
Lease
CL Contact IBM Credit for purchase price
NA Not Applicable
$1 Purchase Price is One Dollar ($1.00)
number Prestated Purchase Percent - Purchase price will be the Unit
Purchase Price times this percent
MAINT. INCLUD. (Maintenance included)
Y Lease includes maintenance coverage
TERM
The Initial Term starts on the Rent Commencement Date and continues for the
number of Payment Periods stated under Term. If the Term has a prefix of "CO"
then the Lease is coterminous with the Lease for the Equipment with the
referenced serial number.
ESTIMATED COMMENCEMENT
For Leases, the month stated is the month the Lease must commence for Lessee to
receive the stated Lease Rate. For Financing, the date stated is the intended
start date of the Financing.
INTEREST RATE
The Interest Rate, if stated, is the Annual Percentage Rate (APR) for the Lease
or Financing. In the State of Texas the interest rate for the Lease or
Financing will not exceed the stated interest rate.
RENT PROTECTION
The Lease Rates stated on the Supplement are not subject to change provided the
Lease or Financing commences within the month of the Estimated Commencement.
RENEWAL OF LEASES WITH PRESTATED PURCHASE OPTIONS
Lessee may renew a Lease with a prestated purchase option for a Term of one
year. The Rent will be one-half of the Prestated Purchase Percent times the
Unit Purchase Price stated in the Supplement. Renewal Rent payments will be
annual and due and payable in advance.
LEASES WITH MAINTENANCE INCLUDED
For Leases that include basic maintenance coverage, Lessor will arrange for
maintenance service on the Equipment. The coverage starts at the end of
the warranty period and ends with the initial Term. The cost will be included
in the Rent. Coverage beyond the basic maintenance will be Lessee's
responsibility.
The maintenance service provider alone will be responsible for fulfilling all
contractual commitments. Lessee may finance additional maintenance coverage at
the end of the initial Term under then current terms.
LESSEE RESPONSIBILITIES FOR LEASES WITH MAINTENANCE INCLUDED
Lessee agrees, that before requesting maintenance service, to ensure that:
1. operational problems have been corrected;
2. error recovery procedures have been followed;
3. failures are clearly identified and logged; and
4. Customer Problem Analysis and Resolution (CPAR) procedures have been
completed for equipment requiring maintenance under this Lease.
Lessee also agrees to complete, and return to IBM, a self-initialization review
form ("Form"). Lessee agrees to ensure that the Equipment location qualifies as
a qualified customer location (as determined by IBM). Lessee acknowledges
having received a copy of that Form.
If Lessee has a Corporate Service Option Attachment to the IBM Customer
Agreement then Lessee agrees to perform all "Customer" obligations under that
agreement for the Equipment on a Lease that includes maintenance.
BASE EXTENSIONS
For machines designated as "Base Extension", this Supplement supersedes the
prior Lease for these machines and incorporates the terms of the Term Lease
Master Agreement effective for this Supplement, including these terms with
resepct to Purchase of Equipment, which may be different than the terms
governing the superseded Lease. This Lease amends and supersedes the prior
Lease for these machines with respect to Term, Lease Rate, Rent, Payment
Period, Purchase Option Code, and Lease Option. These changes shall become
effective on the Rent Commencement Date specified in this Supplement.
LESSEE REPRESENTATIONS
Lessee represents that for Financing in:
1. Ohio, Maryland, Mississippi, Virginia, or West Virginia, Lessee is a
corporation as defined by the applicable state law.
2. Pennsylvania, Lessee is a business corporation as defined by Pennsylvania
laws; and
3. Alabama or Wisconsin, the Financed Items are not being purchased for
agricultural purposes.
AUTHORITY TO SIGN FINANCING STATEMENTS
Lessee authorizes Lessor or its agent as attorney-in-fact to prepare, execute in
Lessee's name and file any Uniform Commercial Code financing statements or
similar documents covering this Equipment. Lessee authorizes Lessor to fill in
serial numbers on this Supplement after execution by Lessee for the Equipment
listed on the Supplement.
LEASE OPTIONS B+ AND C+
This amends the Lease Master Agreement referenced on page 1.
1. In paragraph 18 - Purchase of Equipment - in line 4 replace "Options A or
B" with "Options B, B+, C or C+".
2. In paragraph 19 - Optional Renewal - in line 7 replace "Options A or B"
with "Options B, B+, C or C+".
<PAGE> 1
Exhibit 10.10
Equipment Schedule No. 004 dated December 13, 1994
incorporating by reference Third Party Master Lease Agreement
Contract No. 1070 dated November 23, 1994 between
AT&T SYSTEMS LEASING CORPORATION as Lessor and
PAINEWEBBER INCORPORATED as Lessee
Lessee: PAINEWEBBER INCORPORATED Lessor: AT&T SYSTEMS LEASING CORPORATION
Address: 1285 Avenue of the Americas Address: 3rd Floor
New York, NY 10019 2555 Telegraph Road
Bloomfield Hills, MI 48302
Location of Equipment: 800 Harbor Blvd.
Weehawken, NJ 07087
Expected Delivery Date: December, 1994
Return of Equipment: To be advised
<TABLE>
<CAPTION>
EQUIPMENT MODEL/ LESSOR'S BASIC
QTY. MFG. TYPE FEATURE DESCRIPTION BASIS RENT
---- ---- --------- ------- ----------- -------- -----
<S> <C> <C> <C> <C> <C>
1 IBM 9021-962 (1024 x 2048 x 128E x 32P) $16,671,253.00 $341,558.00*
</TABLE>
* Basic Rent includes reimbursement for New Jersey Sales Tax imposed upon
Lessor at the inception of a lease.
Lease Payment Due Date: The first day of each month in advance.
Commencement Date: The date indicated on the Acceptance Certificate as the
Acceptance Date.
First Lease Payment Due Date: The first day of the month immediately following
the month in which the Commencement Date occurs.
Initial Lease Term: The Lease Term for each Leased Item commences on the
Commencement Date and continues for sixty (60) months.
THIS EQUIPMENT SCHEDULE HAS THREE COUNTERPARTS. THIS IS COUNTERPART NO. 3. A
SECURITY INTEREST MAY BE CREATED ONLY IN COUNTERPART NO. 1.
<PAGE> 2
Lease Payment: Payable on each Lease Payment Due Date: $341,558.00.
Special Terms: Pursuant to Section 1 of the Lease Agreement, the following
terms set forth below or attached hereto, shall be applicable to and shall
constitute a part of this Equipment Schedule.
1. If Lessee fails to furnish to Lessor any lease documentation reasonably
requested by Lessor by the 30th day following the date of IBM's
Installation Advice Form ("Due Date"), Lessee shall reimburse Lessor for
any late payment fees charged by IBM.
2. Effective on the Commencement Date and upon full execution of this
Equipment Schedule, Equipment Schedule Nos. 001 and 002 both dated October
21, 1991 incorporating by reference Third Party Master Lease Agreement
Contract No. 0729 between Lessor and Lessee shall terminate and Lessee shall
have no further obligations under Equipment Schedule Nos. 001 and 002 except
for those obligations that specifically survive the termination of the
Equipment Schedules and related Master Lease.
Master Agreement: This Equipment Schedule is issued pursuant to the Lease
Agreement identified on Page 1. All of the terms and conditions of the Lease
Agreement are incorporated herein and made a part hereof as if such terms and
conditions were set forth in this Equipment Schedule. By their execution and
delivery of this Equipment Schedule, the parties hereby reaffirm all of the
terms and conditions of the Lease Agreement except as modified hereby.
LESSOR: LESSEE:
AT&T SYSTEMS LEASING CORPORATION PAINEWEBBER INCORPORATED
BY: /s/ Margaret V. Sayles BY: /s/ Vito A. Giuliani
------------------------------- ------------------------------
NAME: Margaret V. Sayles NAME: Vito A. Giuliani
------------------------------- ------------------------------
TITLE: Contract Negotiator/Analyst TITLE: CVP
------------------------------- ------------------------------
DATE: 12-16-94 DATE: 12-15-94
------------------------------- ------------------------------
THIS EQUIPMENT SCHEDULE HAS THREE COUNTERPARTS. THIS IS COUNTERPART NO. 3. A
SECURITY INTEREST MAY BE CREATED ONLY IN COUNTERPART NO. 1.
<PAGE> 1
EXHIBIT 11
PAINE WEBBER GROUP INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------
1994 1993 1992
----------- ----------- -----------
PRIMARY:
<S> <C> <C> <C>
Weighted average common shares outstanding 71,693,020 68,535,178 61,956,106
Incremental stock options and awards 6,370,453 5,824,821 5,611,289
Weighted average effect of Cumulative Participating
Convertible Voting Preferred Stock - 4,329,959 1,812,468
----------- ----------- -----------
Average common and common equivalent shares 78,063,473 78,689,958 69,379,863
=========== =========== ===========
Net income $ 31,631 $ 246,183 $ 213,175
Interest savings on convertible debentures and
short-term borrowings 1,330 - -
Preferred dividend requirements (1,219) (1,834) (17,065)
----------- ----------- -----------
Net income applicable to common shares $ 31,742 $ 244,349 $ 196,110
=========== =========== ===========
Earnings per common share $ 0.41 $ 3.11 $ 2.83
=========== =========== ===========
FULLY DILUTED:
Weighted average common shares outstanding 71,693,020 68,535,178 61,956,106
Incremental stock options and awards 7,673,929 6,785,963 6,710,424
Weighted average effect of Cumulative Participating
Convertible Voting Preferred Stock - 4,329,959 1,812,468
Weighted average common shares issuable assuming conversion
of 8% Convertible Debentures and equity securities 1,647,190 4,676,191 21,886,440
----------- ----------- -----------
Average common and common equivalent shares 81,014,139 84,327,291 92,365,438
=========== =========== ===========
Net income $ 31,631 $ 246,183 $ 213,175
Interest savings on convertible debentures 2,181 3,004 6,300
Preferred dividend requirements (969) - -
----------- ----------- -----------
Net income applicable to common shares $ 32,843 $ 249,187 $ 219,475
=========== =========== ===========
Earnings per common share $ 0.41 $ 2.95 $ 2.37
=========== =========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 12.1
PAINE WEBBER GROUP INC.
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------------
1994 1993 1992 1991 1990
------------ ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income (loss) before taxes $ 44,385 $ 407,576 $ 339,115 $ 226,247 $ (102,633)
---------- ---------- ----------- ---------- ----------
Preferred stock dividends 1,710 5,828 27,789 34,732 23,174
---------- ---------- ----------- ---------- ----------
Fixed charges:
Interest 1,428,653 1,130,712 879,242 1,056,124 1,242,151
Interest factor in rents 51,102 50,133 45,962 43,804 42,223
---------- ---------- ----------- ---------- ----------
Total fixed charges 1,479,755 1,180,845 925,204 1,099,928 1,284,374
---------- ---------- ----------- ---------- ----------
Total fixed charges and preferred
stock dividends 1,481,465 1,186,673 952,993 1,134,660 1,307,548
---------- ---------- ---------- ---------- ----------
Income before taxes and fixed charges $1,524,140 $1,588,421 $1,264,319 $1,326,175 $1,181,741
========== ========== ========== ========== ==========
Ratio of earnings to fixed charges
and preferred stock dividends 1.0 1.3 1.3 1.2 - **
======== ======= ======= ====== =======
</TABLE>
For purposes of computing the ratio of earnings to combined fixed charges and
preferred stock dividends (tax effected), "earnings" consist of income (loss)
before taxes and fixed charges. "Fixed charges" consist of interest expense
incurred on securities sold under agreements to repurchase, short-term
borrowings, long-term borrowings and that portion of rental expense estimated
to be representative of the interest factor.
** Earnings were inadequate to cover fixed charges and would have had to
increase approximately $125,807 in order to cover the deficiency.
<PAGE> 1
EXHIBIT 12.2
PAINE WEBBER GROUP INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------
1994 1993 1992 1991 1990
----------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income (loss) before taxes $ 44,385 $ 407,576 $ 339,115 $ 226,247 $ (102,633)
----------- ------------ ---------- ---------- ----------
Fixed charges:
Interest 1,428,653 1,130,712 879,242 1,056,124 1,242,151
Interest factor in rents 51,102 50,133 45,962 43,804 42,223
----------- ------------ ----------- ---------- ----------
Total fixed charges 1,479,755 1,180,845 925,204 1,099,928 1,284,374
----------- ----------- ----------- ---------- ----------
Income before taxes and
fixed charges $1,524,140 $1,588,421 $1,264,319 $1,326,175 $1,181,741
========== ========== ========== ========= ==========
Ratio of earnings to fixed charges 1.0 1.3 1.4 1.2 - **
====== ====== ====== ======= =======
</TABLE>
For purposes of computing the ratio of earnings to fixed charges,
"earnings" consist of income (loss) before taxes and fixed charges.
"Fixed charges" consist of interest expense incurred on securities sold
under agreements to repurchase, short-term borrowings, long-term
borrowings and that portion of rental expense estimated to be
representative of the interest factor.
** Earnings were inadequate to cover fixed charges and would have had to
increase approximately $102,633 in order to cover the deficiency.
<PAGE> 1
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(In thousands of dollars Years Ended December 31,
except per share amounts) 1994(1) 1993 1992 1991 1990(2)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Total revenues $ 3,964,077 $ 4,004,717 $ 3,363,731 $ 3,165,895 $ 2,978,505
Net revenues
(including net interest) $ 2,535,424 $ 2,874,005 $ 2,484,489 $ 2,109,771 $ 1,736,354
Income (loss) before taxes $ 44,385 $ 407,576 $ 339,115 $ 226,247 $ (102,633)
Net income (loss) $ 31,631 $ 246,183 $ 213,175 $ 150,716 $ (57,351)
----------------------------------------------------------------------------------
PER COMMON SHARE(3)
Primary earnings (loss) $ 0.41 $ 3.11 $ 2.83 $ 2.10 $ (1.44)
Fully diluted earnings (loss) $ 0.41 $ 2.95 $ 2.37 $ 1.67 $ (1.44)
Dividends declared $ 0.48 $ 0.38 $ 0.31 $ 0.24 $ 0.23
Book value $ 15.96 $ 16.29 $ 14.24 $ 12.23 $ 10.03
----------------------------------------------------------------------------------
FINANCIAL CONDITION
Total assets $ 35,856,125 $ 37,026,909 $ 26,508,982 $ 22,621,763 $ 18,150,539
Long-term borrowings and
Redeemable Preferred Stock $ 2,501,384 $ 1,936,082 $ 1,150,553 $ 815,728 $ 656,993
Stockholders' equity $ 1,630,499 $ 1,195,047 $ 1,080,667 $ 1,050,478 $ 895,916
Total capitalization $ 4,131,883 $ 3,131,129 $ 2,231,220 $ 1,866,206 $ 1,552,909
----------------------------------------------------------------------------------
</TABLE>
(1) The 1994 results include after-tax costs of $36 million ($50 million before
income taxes) and $34 million ($57 million before income taxes) related to
the Kidder, Peabody Group Inc. acquisition and a non-recurring mutual fund
charge, respectively.
(2) The 1990 results reflect an after-tax charge of $95 million ($149 million
before income taxes) for restructuring and merchant banking reserves.
(3) All per share data have been restated to reflect three-for-two common stock
splits in March 1994 and December 1991.
Page 3
<PAGE> 2
FINANCIAL PERFORMANCE
Contents
-------------------------------------
Management's Discussion
and Analysis 30
Consolidated Financial Statements 40
Notes to Consolidated
Financial Statements 45
Report of Independent Auditors 61
Five Year Financial Summary 62
Common Stock and
Quarterly Information 64
Page 29
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
BUSINESS DESCRIPTION
Paine Webber Group Inc. ("PWG") is a holding company which, together with its
operating subsidiaries (collectively, the "Company"), forms one of the largest
full-service securities and commodities firms in the industry. Founded in 1879,
the Company employs approximately 16,600 people in 338 offices worldwide
including the effect of the recent acquisition of certain net assets and
specific businesses of Kidder, Peabody Group Inc., which was consummated in a
series of transactions in late 1994 and early 1995.
The Company's principal line of business is to serve the investment and
capital needs of individual, corporate, institutional and public agency clients
through its broker-dealer subsidiary, PaineWebber Incorporated ("PWI"), and
other specialized subsidiaries. The Company holds memberships in all major
securities and commodities exchanges in the United States, and makes a market in
many securities traded on the Automated Quotation System of the National
Association of Securities Dealers ("NASDAQ") or in other over-the-counter
markets. Additionally, PWI is a primary dealer in U.S. government securities.
The Company is comprised of interrelated business groups, including the
Private Client Group, International, Institutional Fixed Income Sales and
Trading, Institutional Equity Sales and Trading, Municipal Securities Group,
Investment Banking, Asset Management, Real Estate, Research and Transaction
Services, which utilize common operational and administrative personnel and
facilities.
The Private Client Group consists primarily of a domestic branch office
system and consumer product groups through which PWI and certain other
subsidiaries provide clients with financial services and products, including the
purchase and sale of securities, option contracts, commodity and financial
futures contracts, direct investments, selected insurance products, fixed income
instruments and mutual funds. The Company may act as principal or agent in
providing these services. Fees charged vary according to the size and complexity
of a transaction, and the activity level of a client's account.
Through the International, Fixed Income and Equity groups, the Company
places securities for, and executes trades on behalf of, institutional clients
both domestically and internationally. In addition, the Company takes positions
in both listed and unlisted equity and fixed income securities to facilitate
client transactions or for the Company's own account.
The Municipal Securities Group originates, underwrites, sells and trades
taxable and tax-exempt issues for municipal and public agency clients.
Through the Investment Banking group, the Company provides financial advice
to, and raises capital for, a broad range of domestic and international
corporate clients. Investment Banking manages and underwrites public and private
offerings, participates as an underwriter in syndicates of public offerings
managed by others, and provides advice in connection with mergers and
acquisitions, lease financings and debt restructurings.
The Asset Management group is comprised of Mitchell Hutchins Asset
Management Inc. ("MHAM"), Mitchell Hutchins Institutional Investors Inc.
("MHII") and Mitchell Hutchins Investment Advisory division ("MHIA"). MHAM and
MHII provide investment advisory and portfolio management services to pension
and endowment funds. MHAM also provides investment advisory and portfolio
management services to individuals and mutual funds. MHIA provides portfolio
management services to individuals, trusts and institutions.
The Real Estate group provides a full range of capital market services to
real estate clients, including underwriting of debt and equity securities,
principal lending activity, debt restructuring, property sales and bulk sales
services, and a broad range of other advisory services.
Page 30
<PAGE> 4
PaineWebber Annual Report 1994
--------------------------------------------------------------------------------
The Research group provides investment advice to institutional and
individual investors, and other business areas of the Company on 890 companies
in 62 industry sectors.
The Transaction Services group includes correspondent services, prime
brokerage and securities lending businesses, and specialist trading. Through
Correspondent Services Corporation (csc), the Company provides execution and
clearing services to broker-dealers in the U.S. and overseas. The Company also
acts as a specialist responsible for executing transactions and maintaining an
orderly market in certain securities.
The Company's business is one of the nation's most highly regulated
industries. Violations of applicable regulations can result in the revocation of
broker-dealer licenses, the imposition of censures or fines, and the suspension
or expulsion of a firm, its officers or employees. The Company's business is
regulated by various agencies, including the Securities and Exchange Commission
("SEC"), the New York Stock Exchange ("NYSE"), the Commodity Futures Trading
Commission ("CFTC") and the National Association of Securities Dealers.
The Company's principal business activities are, by their nature, affected
by many factors, including general economic and financial conditions, the level
and volatility of interest rates, currency and security valuations, competitive
conditions, counterparty risk, transactional volume and market liquidity. As a
result, revenues and profitability are subject to fluctuations reflecting the
impact of these factors.
--------------------------------------------------------------------------------
GENERAL BUSINESS ENVIRONMENT
The general business environment was significantly less favorable in 1994 than
in 1993. During 1993, short-term interest rates remained at historically low
levels, and bond and equity markets were strong. However, to curb anticipated
inflationary pressures, the Federal Reserve tightened monetary policy on six
separate occasions during 1994 by increasing either the federal funds rate
and/or the discount rate it charges member firms on their borrowings, thereby
causing other short-term interest rates to rise significantly. Bond prices
declined substantially during 1994, and the fixed income markets were far more
volatile than in 1993. As a result, underwriting activity declined considerably
in 1994, with corporate debt and equity underwriting volume down 26% and
mortgage-backed securities underwriting volume down 63%. In addition, fixed
income trading volumes generally trended down during 1994.
Rising interest rates also had a negative influence on the equity markets,
both domestic and foreign, with stock price trends generally less positive in
1994 than in 1993. However, most equity markets were stronger than the fixed
income markets as equities benefited from the rapid growth of corporate profits
in 1994. Although trading volume was about 10% higher in 1994 than in 1993 on
both the NYSE and the NASDAQ, equity underwriting activity declined sharply.
--------------------------------------------------------------------------------
THE KIDDER, PEABODY ACQUISITION
As of October 17, 1994, the Company entered into an agreement, as thereafter
supplemented, with General Electric Company ("GE") and Kidder, Peabody Group
Inc. ("Kidder"), whereby the Company agreed to purchase certain assets and
liabilities (the "net assets"), and specific businesses of Kidder, in a series
of transactions in December 1994 and early 1995. The assets
Page 31
<PAGE> 5
Management's Discussion and Analysis
--------------------------------------------------------------------------------
acquired, liabilities assumed and consideration given are summarized below:
<TABLE>
<CAPTION>
(in thousands)
--------------------------------------------------------------------------------
<S> <C>
NET ASSETS ACQUIRED:
Assets acquired $2,379,808
Liabilities assumed (513,667)
----------
Net assets acquired 1,866,141
----------
CONSIDERATION:
Cash 1,352,672
Redeemable Preferred Stock 185,000
Convertible Preferred Stock 100,000
Common stock 318,469
----------
Total 1,956,141
----------
Excess of purchase price over fair value of net assets acquired $ 90,000
==========
</TABLE>
The consideration given in exchange for the net assets acquired included
cash and the issuance of the Company's common and preferred stock. The cash
proceeds were obtained from various funding sources. On December 16, 1994, the
Company issued 21.5 million shares of common stock valued at $318.5 million, 2.5
million shares of 20 year 9% Cumulative Redeemable Preferred Stock, Series C
("Redeemable Preferred Stock") with a stated value and liquidation preference of
$100.00 per share and a fair value of $185.0 million at the date of issuance,
and 1.0 million shares of 20 year 6% Cumulative Convertible Redeemable Preferred
Stock, Series A ("Convertible Preferred Stock") with a fair value of $100.0
million. As a result of this transaction, GE owns approximately 25% of the
common stock of the Company on a fully diluted basis and is restricted from
increasing its ownership of the Company pursuant to a stockholders agreement
among the Company, GE and Kidder.
The acquisition has been accounted for under the purchase method of
accounting. The excess of the purchase price over the fair value of the net
assets acquired resulted in the Company recording approximately $90 million in
goodwill, which is included in "Other assets" in the Consolidated Statement of
Financial Condition. The goodwill is being amortized over 35 years on a
straight-line basis. Evaluation of the net assets is continuing and allocation
of the purchase price may be adjusted. The consolidated financial statements of
the Company include the results of operations of the Kidder businesses acquired
prior to December 31, 1994 from the dates of acquisition. As a result of the
acquisition, the Company recorded after-tax costs of approximately $36 million
in the fourth quarter of 1994 relating primarily to the elimination of duplicate
facilities, severance and other personnel-related costs.
As a result of the Kidder acquisition, the number of total employees has
increased by approximately 2,400, including over 1,000 investment executives.
The number of domestic retail offices has increased by 47 and offices and
business groups have been expanded in London, Geneva, Zurich, Hong Kong and
Singapore. Assets under control have increased approximately 28% to $183.0
billion, while recurring fees are also expected to increase significantly.
Page 32
<PAGE> 6
PaineWebber Annual Report 1994
--------------------------------------------------------------------------------
RESULTS OF OPERATIONS
1994 COMPARED WITH 1993
Net income for the year ended December 31, 1994, before giving effect to the
costs related to the Kidder acquisition and a second quarter non-recurring
charge related to the PaineWebber Short-Term U.S. Government Income Fund ("the
Fund"), was $101.5 million, or $1.30 per primary share ($1.27 per fully diluted
share), compared to $246.2 million, or $3.11 per primary share ($2.95 per fully
diluted share), earned during 1993. Net earnings, including the acquisition
costs and the charge related to the Fund, were $31.6 million, or $0.41 per
primary and fully diluted share. During 1994, total revenues of $4.0 billion
were relatively unchanged from 1993, as decreases resulting from lower mutual
fund sales and lower activity from retail and institutional clients were offset
by higher interest income. Revenues, net of interest expense, decreased 12% to
$2.5 billion.
The results for the year ended December 31, 1994 were reduced by after-tax
costs in the fourth quarter of approximately $36 million ($50 million pre-tax)
associated with the Kidder acquisition. These costs related to closing duplicate
facilities, severance and other personnel-related costs are included in "Other
expenses" in the Consolidated Statement of Income.
In addition, results for the year ended December 31, 1994 were reduced by a
non-recurring after-tax charge in the second quarter of approximately $34
million ($57 million pre-tax) relating to the reimbursement to certain
shareholders of the Fund, a mutual fund managed by the Company's investment
subsidiary, MHAM, for losses and other expenses attributable to
mortgage-derivative securities owned by the Fund. The Fund's performance was
adversely affected by the rapid and substantial decline in the mortgage-backed
securities market which was triggered by rising interest rates. Beyond these
unusual market conditions, however, the Company determined that certain
Non-Planned Amortization Class ("non-PAC") interest only and principal only
("I/O and P/O") securities held by the Fund had shown an unacceptable level of
volatility and reduced liquidity. In view of the Fund's stated investment
objectives, the Company decided to reimburse certain then current and former
Fund shareholders for the decline in the net asset value attributable to these
securities. In addition, the Company purchased all the Fund's remaining I/O and
P/O securities, as well as two structured floating rate securities from the
Fund, for an aggregate price of approximately $235 million in order to permit
the Fund to maintain an appropriate mix of investments based on its investment
objectives and reduced size.
During 1994, commission revenues decreased 3% to $970.3 million as a result
of lower mutual fund sales and a lower volume of activity among retail clients
offset by higher activity among our institutional equity clients. Commissions
from listed securities decreased $20.7 million, or 4%, commissions from
over-the-counter securities decreased $6.2 million, or 8%, and mutual fund
commissions decreased $5.4 million, or 3%. In addition, 1993 revenues included
$18.0 million of commissions from the institutional commodities business. The
Company exited this business during 1993. These decreases were partially offset
by a $26.0 million increase in insurance commissions due to a higher level of
annuity sales and expansion of the insurance business during 1994.
Principal transactions revenues decreased by $260.0 million, or 33%,
primarily due to reduced liquidity in the mortgage business and lower trading
volumes in the fixed income markets. These declines were partially offset by
improved results in U.S. government and agency obligations, and corporate equity
securities.
Investment banking revenues declined 31% during 1994 to $284.5 million.
This decrease is attributable to the lower volume of corporate equity and debt
issues underwritten and a lower dollar volume of lead-managed municipal issues.
These declines were partially offset by higher merger and acquisition and
increased private placement fees.
Asset management fees increased 9% to $356.4 million primarily due to a 28%
increase in the average level of assets in managed or wrap
Page 33
<PAGE> 7
Management's Discussion and Analysis
--------------------------------------------------------------------------------
fee accounts and trust accounts. The increase also reflects higher advisory fees
earned on money market accounts and closed-end mutual funds. The average assets
under management in money market, institutional and long-term mutual funds were
approximately $37 billion during 1994 and $38 billion during 1993.
Net interest increased $20.1 million, or 8%, as a result of higher margin
lending to clients at improved spreads and expansion of the stock loan business
partially offset by decreased interest income on lower fixed income inventory
levels.
Other income rose $25.6 million, or 23%, primarily due to higher
transaction and account fees, increased proxy business and an increased number
of Individual Retirement Accounts ("IRAs") and Resource Management Accounts
("RMAs"). During 1994, the number of IRA and RMA accounts increased
approximately 8% and 6%, respectively, from December 31, 1993.
Compensation and benefit expenses decreased $82.4 million, or 5%, primarily
due to lower performance-based incentive compensation and lower revenue driven
compensation paid to retail and institutional investment executives. These
decreases were partially offset by salary increases, higher costs associated
with employee benefit plan enhancements, a change in pension plan assumptions
and severance costs. Compensation and benefits as a percentage of net revenues
were 61.0% during 1994 and 56.7% during 1993.
All other operating expenses increased $107.0 million, or 13% over 1993,
primarily due to costs related to the Kidder acquisition and charges related to
the Fund. The increase also reflects higher consulting fees and increased costs
related to technology initiatives.
1993 COMPARED WITH 1992
Net income for the year ended December 31, 1993, was $246.2 million, a 15%
increase over the $213.2 million earned during the year ended December 31, 1992.
Total revenues of $4.0 billion rose 19% from those reported in 1992, while
revenues, net of interest expense, rose $389.5 million to $2.9 billion. Net
earnings per common share were $3.11 primary ($2.95 fully diluted) compared with
earnings per common share of $2.83 primary ($2.37 fully diluted) in 1992. This
increase was attributable to improved performance by all major business groups,
continued growth in recurring fees and client-centered revenues, and favorable
debt and equity market conditions. Fully diluted earnings per common share were
also favorably impacted by changes in the Company's capital structure.
Commission revenues improved 21% to $996.1 million during 1993 as a result
of higher market volume and an increase of over 250 investment executives, or
5%, from the previous year. Commissions from listed securities rose $90.6
million, or 21%, mutual fund commissions rose $34.2 million, or 27%, and
commissions from over-the-counter securities rose $23.6 million, or 44%. In
addition, insurance commissions increased $44.7 million, or 85%, as a result of
increased sales of deferred annuity contracts. These gains were partially offset
by decreases in commissions earned from commodities and direct investments.
Principal transactions revenues increased $59.7 million, or 8%, during
1993, reflecting improved results in corporate securities and municipal
obligations offset by a decline in U.S. government and agency obligations. In
early 1993, the Company exited the risk arbitrage business.
Investment banking revenues for the year ended December 31, 1993 increased
8% to $413.6 million as compared to the $384.3 million earned during 1992. This
increase reflects increased common and preferred equity, and high-yield debt
securities issues. These gains were partially offset by declines in merger and
acquisition and private placement fees.
Asset management fees, which are generally recurring in nature, increased
$58.6 million, or 22%, during 1993 primarily due to a 42% increase in client
assets in managed or wrap fee accounts and a 51% increase in client assets in
long-term mutual funds. Total assets under management grew 11% to $38.9 billion
as of December 31, 1993. This increase was led by the introduction of additional
Premier priced funds and the PaineWebber Short-Term U.S. Government Income Fund.
Page 34
<PAGE> 8
PaineWebber Annual Report 1994
--------------------------------------------------------------------------------
Net interest increased $30.5 million, or 14%, due to increased margin
lending to clients, a reflection of favorable equity market conditions and
higher fixed income inventory levels.
Other income rose $37.1 million, or 49%, primarily due to increased
dividend income on higher equity inventory. Also reflected in other income is an
increase in revenues from RMAs as the number of accounts grew by 17% to 271,000.
Compensation and benefit expenses rose $196.0 million, or 14%, during 1993
primarily due to higher revenue driven compensation paid to retail and
institutional investment executives, as well as increased incentive compensation
associated with improved firmwide performance. The increase also reflects salary
increases related to strategic hiring and normal increases. Compensation and
benefits as a percentage of net revenues decreased to 56.7% during 1993 as
compared to 57.7% during 1992.
All other operating expenses increased $125.1 million, or 18%, over 1992.
This increase reflects the costs of technology initiatives, including the
rollout of new broker workstations to the retail branches, higher business
development and litigation-related expenses, and general increases related to
retail branch expansion.
INCOME TAXES
The effective tax rate for the year ended December 31, 1994 was 28.7% as
compared to 39.6% for 1993. The decline in the effective rate is primarily due
to higher nontaxable dividends and interest, and foreign tax credits for the
year. The effective tax rate for the year ended December 31, 1993 was higher
compared to the 1992 rate of 37.1% due in part to a change in the statutory
federal rate from 34% to 35%, effective January 1, 1993.
--------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
The primary objectives of the Company's funding policies are to insure ample
liquidity at all times and a strong capital base. These objectives are met by
maximization of self-funded assets, diversification of funding sources,
maintenance of prudent liquidity and capital ratios, and contingency planning.
LIQUIDITY
The Company maintains a liquid balance sheet with the majority of the assets
consisting of inventories, securities borrowed or purchased under agreements to
resell, and receivables from clients, brokers and dealers, which are readily
converted into cash. The nature of the Company's business as a securities dealer
results in carrying significant levels of trading inventories in order to meet
its client and proprietary trading needs. The Company's total assets may
fluctuate from period to period as the result of changes in the level of trading
positions held to facilitate client transactions, the volume of resale and
repurchase transactions, and proprietary trading strategies. These fluctuations
depend significantly upon economic and market conditions, and transactional
volume.
The Company's total assets at December 31, 1994 were $35.9 billion compared
to $37.0 billion at December 31, 1993. The majority of the Company's assets are
financed by daily operations such as securities sold under agreements to
repurchase, free credit balances in client accounts and securities lending
activity. Additional financing sources are available through bank loans and
commercial paper, committed and uncommitted lines of credit, and the issuance of
long-term senior and subordinated debt.
The Company maintains committed and uncommitted credit facilities from a
diverse group of banks. In December 1994, the Company entered into two new
unsecured senior revolving credit agreements to provide up to $2.0 billion,
including $1.2 billion, which expires in December 1995 with provisions for
renewal through December 1997 and $800.0 million, which expires in December
1997. The facilities are available for general corporate purposes and to finance
asset purchases. The new revolving credit agreements replaced the Company's
previous $500.0 million facilities which would have expired in March 1995. At
December 31, 1994, there was $500.0 million outstanding under these credit
Page 35
<PAGE> 9
Management's Discussion and Analysis
--------------------------------------------------------------------------------
facilities, a portion of which was used to finance assets acquired from Kidder.
Additionally, the Company had more than $5.0 billion in uncommitted lines of
credit at December 31, 1994.
The Company maintains public shelf registration statements for the issuance
of the debt securities with the SEC. During 1994, the Company issued $200.0
million of 7-5/8% Senior Notes and $435.0 million of Medium-Term Senior and
Subordinated Notes under these registration statements. At December 31, 1994,
the Company had $857.6 million in debt securities available for issuance.
CAPITAL RESOURCES AND CAPITAL ADEQUACY
The Company's businesses are capital intensive. In addition to a funding policy
which provides for diversification of funding sources and maximization of
liquidity, the Company maintains a strong capital base. At December 31, 1994,
the Company's total capital base, which includes long-term borrowings,
redeemable preferred stock and stockholders' equity, was $4.1 billion, an
increase of $1.0 billion from the prior year. Total capital increased largely in
connection with the Kidder acquisition, in which the Company issued $603.5
million of additional capital in December 1994. In addition, long-term
borrowings increased $379.3 million from the prior year.
On December 16, 1994, the Company issued to Kidder 21.5 million shares of
common stock valued at $318.5 million. The Company also issued to Kidder 2.5
million shares of 20 year 9% Cumulative Redeemable Preferred Stock, Series C
("Redeemable Preferred Stock"), with a stated value and liquidation preference
of $100.00 per share and a fair value at the date of issuance of $185.0 million,
and 1.0 million shares of 20 year 6% Cumulative Convertible Redeemable Preferred
Stock, Series A ("Convertible Preferred Stock"), with a stated value and
liquidation preference of $100.00 per share and a fair value of $100.0 million.
The increase in long-term borrowings from December 31, 1993 primarily
reflects the issuance of $200.0 million of 7-5/8% Senior Notes in the first
quarter of 1994 and the net issuance of $295.6 million of Medium-Term Senior and
Subordinated Notes during the year. Offsetting these increases were the
maturities of three bank term loans, totaling $70.0 million. The Company has
entered into interest rate swap agreements which convert substantially all its
fixed rate notes and various medium-term senior and subordinated notes into
floating rate obligations.
During 1994, the Company issued 3.4 million shares of common stock related
to employee compensation programs, increasing equity capital by over $55
million, including $44.1 million of restricted stock amortization. In accordance
with the Company's repurchase program, 2.6 million shares of common stock were
repurchased during the year for $43.1 million. At December 31, 1994, the
remaining number of shares of common stock authorized to be repurchased by the
Company's Board of Directors was 8.9 million.
The Board of Directors declared quarterly cash dividends on the Company's
common stock during 1994. Dividends were also accrued on the Redeemable
Preferred Stock and the Convertible Preferred Stock for the period these
securities were outstanding. On February 3, 1994, the Board of Directors of the
Company declared a three-for-two common stock split in the form of a 50% stock
dividend, effective on March 10, 1994. Also, the stockholders of the Company
approved an increase in the number of common shares authorized for issuance from
100.0 million shares to 200.0 million shares in the second quarter of 1994.
PWI is subject to the net capital requirements of the SEC, the NYSE and the
CFTC which are designed to measure the financial soundness and liquidity of
broker-dealers. PWI has consistently maintained net capital in excess of the
minimum requirements imposed by these agencies. In addition, the Company has
other banking and securities subsidiaries, both domestic and foreign, which have
also consistently maintained net regulatory capital in excess of requirements.
MERCHANT BANKING, HIGHLY LEVERAGED AND STRUCTURED SECURITIES TRANSACTIONS
In connection with its merchant banking activities, the Company has provided
financing and made investments in companies, some of which
Page 36
<PAGE> 10
PaineWebber Annual Report 1994
--------------------------------------------------------------------------------
are involved in highly leveraged transactions. Positions taken or commitments
made by the Company may involve credit or market risk from any one issuer or
industry.
At December 31, 1994, the Company had investments in merchant banking
transactions which were affected by liquidity, reorganization or restructuring
issues amounting to $56.9 million, net of reserves, compared to $52.1 million,
net of reserves, at December 31, 1993. These investments have not had a material
effect on the Company's results of operations. Included in the portfolio at
December 31, 1994 was an investment of $52.3 million in a limited partnership
which specializes in investments in corporate restructurings and special
situations. The Company did not enter into any significant merchant banking
transactions during 1994.
The Company's trading activities include market-making transactions in
high-yield debt securities. These securities generally involve greater risks
than investment-grade corporate debt securities because these issuers usually
have high levels of indebtedness and lower credit ratings and are, therefore,
more vulnerable to general economic conditions. At December 31, 1994, the
Company held in long and short inventory $79.3 million and $32.9 million,
respectively, of high-yield debt securities, which accounted for less than 1% of
gross inventory positions. No one issuer accounted for more than 12% of the
total amount. The Company continually monitors its risk positions associated
with high-yield debt securities and establishes limits with respect to overall
market exposure, industry group and individual issuer. The Company accounts for
these positions at fair value, with unrealized gains and losses reflected in
revenues. For the year ended December 31, 1994, the Company recorded pre-tax
trading losses of $16.3 million on transactions in high-yield debt securities
primarily related to two retailers. For the years ended December 31, 1993 and
1992, the Company recorded pre-tax trading revenues on transactions in
high-yield debt securities of $24.4 million and $10.0 million, respectively.
During 1994, the Company purchased certain I/O and P/O securities and two
structured floating rate securities from a mutual fund managed by the Company's
investment subsidiary, as previously discussed in the Results of Operations
section. These securities are classified as "available-for-sale" in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 115 and are
included in "Other assets" at their fair value in the Consolidated Statement of
Financial Condition.
--------------------------------------------------------------------------------
DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument represents a contractual agreement between
counterparties whose value is derived from changes in the value of some other
underlying asset such as the price of another security, interest rates, currency
exchange rates, specified rates (e.g. LIBOR) or indices (e.g. S&P 500), or the
value referenced in the contract. Derivatives may be traded on exchanges such as
futures, certain options contracts and structured products (e.g. indexed
warrants) or negotiated in over-the-counter markets such as forward contracts,
interest rate swaps, caps and floors, and other structured products.
In the normal course of business, the Company engages in a variety of
derivative transactions in connection with its proprietary trading activities
and asset and liability management, as well as on behalf of its clients. As a
dealer, the Company regularly makes a market in and trades a variety of
securities. The Company is also engaged in creating structured products which
are sold to clients. In connection with these activities, the Company attempts
to reduce its exposure to market risk by entering into offsetting hedging
transactions which may include derivative financial instruments. The Company
also enters into interest rate swap contracts to hedge its fixed rate borrowings
and reduce overall borrowing costs.
The notional amount of a derivative contract is used to measure the volume
of activity and is not reflected on the statement of financial condition. The
Company had off-balance-sheet derivative contracts outstanding with gross
notional amounts of $39.4 billion and $76.1 billion at December 31, 1994 and
1993, respectively,
Page 37
<PAGE> 11
Management's Discussion and Analysis
--------------------------------------------------------------------------------
which included $16.3 billion and $47.5 billion related to "to be announced"
mortgage securities requiring forward settlement. Also included in these amounts
were $1.8 billion and $1.4 billion of interest rate swap agreements used to
hedge the Company's long-term borrowings at December 31, 1994 and 1993,
respectively. (For further discussion on the Company's derivative financial
instruments, see Note 10 in the Company's Notes to Consolidated Financial
Statements.)
The Company records any unrealized gains and losses on its derivative
contracts used in a trading capacity by marking-to-market the contracts on a
daily basis. The unrealized gain or loss is recorded on the statement of
financial condition with the related profit or loss reflected in principal
transactions or net interest, depending upon the type of contract. The Company
accrues interest income and expense on interest rate swap agreements used to
hedge its fixed rate long-term borrowings. The interest rate swap agreements had
the effect of reducing net interest expense on the Company's long-term
borrowings by $29.6 million, $28.1 million and $10.1 million for the years ended
December 31, 1994, 1993 and 1992, respectively. The Company had no deferred
gains or losses recorded at December 31, 1994 and 1993 related to terminated
swap agreements.
The fair value of an exchange traded derivative financial instrument is
determined by quoted market prices, while over-the-counter derivatives are
valued based upon pricing models which consider time value and volatility, as
well as other economic factors. The fair values of the Company's derivative
financial instruments held for trading purposes at December 31, 1994 were $302.4
million and $195.5 million for assets and liabilities, respectively, and are
reflected on the Consolidated Statement of Financial Condition.
All financial instruments involve market risk. Market risk is the potential
change in value of the financial instrument caused by unfavorable changes in
interest rates, foreign currency exchange rates or the market values of the
assets underlying the instruments. The Company actively monitors its market risk
profile through a variety of control procedures including market risk modeling,
review of trading positions and hedging strategies, and monitoring adherence to
established limits by an independent risk management group.
Credit risk represents the amount of accounting loss the Company would
incur should counterparties to its proprietary transactions fail to perform and
the value of any collateral proves inadequate. The Company manages credit risk
by monitoring net exposure to individual counterparties, monitoring credit
limits and requiring additional collateral where appropriate. The current
credit exposure represents the fair value or replacement cost on contracts in
which the Company has recorded an unrealized gain. At December 31, 1994, the
fair value amounted to $302.4 million.
--------------------------------------------------------------------------------
RISK MANAGEMENT
The Company monitors its exposure to market and counterparty risk on a daily
basis through a variety of financial, security position, and credit exposure
reporting and control procedures.
Each department's trading positions, exposures, profits and losses, and
trading strategies are reviewed by the senior management of each business group
on a daily basis. The Company also has an independent risk management group that
meets daily to review the Company's risk profile and adherence to established
trading limits, and aids in the development of risk management policies. Trading
position and exposure limits, as well as credit policy, are established by the
Asset/Liability Management Committee which generally meets between two and four
times a month and is comprised of senior corporate and business unit managers.
Credit risk is substantially reduced by the industry practice of obtaining
and maintaining adequate collateral until the commitments are settled. In
addition, the Company monitors its exposure to counterparty risk on a daily
basis through the use of credit exposure information and monitoring of
collateral values. The credit department establishes and reviews credit limits
Page 38
<PAGE> 12
PaineWebber Annual Report 1994
--------------------------------------------------------------------------------
for clients and other counterparties seeking margin, resale and repurchase
agreement facilities, securities borrowed and securities loaned arrangements,
and various other products. Although the Company closely monitors the
creditworthiness of its clients, the debtors' ability to discharge amounts owed
is dependent upon, among other things, general market conditions. The Company is
not materially dependent upon any single client.
In addition to the above procedures, the Company has in place committees
and management controls to review inventory positions, other asset accounts and
asset agings on a regular basis.
--------------------------------------------------------------------------------
INFLATION
Because the Company's assets are, to a large extent, liquid in nature, they are
not significantly affected by inflation. However, inflation may result in
increases in the Company's expenses, such as employee compensation and office
space leasing costs, which may not be readily recoverable in the price of
services offered. To the extent inflation results in rising interest rates and
has other negative effects upon the securities markets, it may adversely affect
the Company's financial condition and results of operations.
--------------------------------------------------------------------------------
SEGMENT INFORMATION
The Company's business activities encompass several classes of highly integrated
services, primarily those of a full-line securities broker-dealer, and are
considered a single business segment for purposes of SFAS No. 14.
--------------------------------------------------------------------------------
NEW ACCOUNTING DEVELOPMENTS
On January 1, 1994, the Company adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits." The adoption of SFAS No. 112 did not have a material
effect on the Company's financial condition or results of operations.
On January 1, 1994, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which addresses the
accounting and reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities. The
investments are to be classified into categories: trading, held-to-maturity or
available-for-sale. Those investments that are classified as trading and
available-for-sale are recorded at fair value, while investments classified as
held-to-maturity are reported at amortized cost. Unrealized gains or losses on
trading investments are included in earnings and unrealized gains or losses on
available-for-sale investments are excluded from earnings and reported as a
separate component of stockholders' equity. The adoption of SFAS No. 115 has not
had a material effect on the Company's financial condition or results of
operations.
Effective January 1, 1994, Financial Accounting Standards Board ("FASB")
Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts,"
permits companies to offset on the balance sheet, certain assets and liabilities
when specific conditions are met. Netting is permitted only when a legal right
of offset exists with the same counterparty under a master netting agreement. In
December 1994, FASB Interpretation No. 41, "Offsetting of Amounts Related to
Certain Repurchase and Reverse Repurchase Agreements," was issued, effective
beginning December 15, 1994. Interpretation No. 41 modifies Interpretation No.
39 to permit offsetting on the balance sheet of repurchase and reverse
repurchase agreements that meet the requirements of Interpretation No. 39,
settle on the same date and on certain securities transfer systems. The effect
of compliance with Interpretations No. 39 and No. 41 in 1994 was not material to
the Company's Consolidated Statement of Financial Condition.
Page 39
<PAGE> 13
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands of dollars except per share amounts) 1994 1993 1992
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Commissions $ 970,294 $ 996,127 $ 821,878
Principal transactions 519,438 779,444 719,789
Investment banking 284,503 413,643 384,321
Asset management 356,368 325,690 267,088
Other 138,902 113,253 76,114
Interest 1,694,572 1,376,560 1,094,541
--------------------------------------
Total revenues 3,964,077 4,004,717 3,363,731
INTEREST EXPENSE 1,428,653 1,130,712 879,242
--------------------------------------
Net revenues 2,535,424 2,874,005 2,484,489
--------------------------------------
NON-INTEREST EXPENSES
Compensation and benefits 1,546,467 1,628,889 1,432,930
Office and equipment 225,375 211,880 192,948
Communications 130,095 123,601 112,255
Business development 85,430 93,962 75,061
Brokerage, clearing and exchange fees 82,577 79,752 75,689
Professional services 78,856 66,825 59,820
Other 342,239 261,520 196,671
--------------------------------------
Total non-interest expenses 2,491,039 2,466,429 2,145,374
--------------------------------------
INCOME BEFORE TAXES 44,385 407,576 339,115
Income taxes 12,754 161,393 125,940
--------------------------------------
NET INCOME $ 31,631 $ 246,183 $ 213,175
======================================
NET INCOME APPLICABLE TO COMMON SHARES $ 31,742 $ 244,349 $ 196,110
======================================
EARNINGS PER COMMON SHARE:
Primary $ 0.41 $ 3.11 $ 2.83
Fully diluted $ 0.41 $ 2.95 $ 2.37
--------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
Page 40
<PAGE> 14
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
(In thousands of dollars except share and per share amounts) 1994 1993
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 259,238 $ 241,038
Cash and securities segregated and on deposit for
federal and other regulations 369,585 327,172
Trading inventories, at fair value 10,784,117 14,847,229
Securities borrowed or purchased under agreements to resell 18,630,656 16,190,818
Receivables:
Clients 3,495,670 3,417,093
Brokers and dealers 432,565 908,468
Dividends and interest 229,462 205,296
Fees and other 233,027 119,960
Office equipment and leasehold improvements, net of
accumulated depreciation and amortization of $245,225
and $209,738 in 1994 and 1993, respectively 272,365 228,441
Other assets 1,149,440 541,394
---------------------------
$35,856,125 $37,026,909
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 1,889,609 $ 2,779,213
Commitments for securities sold but not yet purchased, at fair value 6,034,706 7,365,877
Securities loaned or sold under agreements to repurchase 19,099,766 19,029,553
Payables:
Clients 2,899,240 2,745,209
Brokers and dealers 303,244 664,260
Dividends and interest 218,719 265,975
Other liabilities and accrued expenses 933,977 693,947
Income taxes - 62,174
Accrued compensation and benefits 344,981 289,572
---------------------------
31,724,242 33,895,780
Long-term borrowings 2,315,415 1,936,082
---------------------------
34,039,657 35,831,862
---------------------------
Commitments and contingencies
Redeemable Preferred Stock 185,969 -
Stockholders' Equity:
Convertible Preferred Stock 100,000 -
Common stock, $1 par value, 200,000,000 shares authorized; issued
100,613,737 shares and 83,603,262 shares in 1994 and 1993, respectively 100,614 83,603
Additional paid-in capital 784,974 568,487
Retained earnings 715,052 721,115
---------------------------
1,700,640 1,373,205
Treasury stock, at cost; 1,297,081 shares and 6,568,433 shares
in 1994 and 1993, respectively (21,981) (112,390)
Unamortized cost of restricted stock (51,803) (60,980)
Foreign currency translation adjustment 3,643 (4,788)
---------------------------
1,630,499 1,195,047
---------------------------
$35,856,125 $37,026,909
===========================
</TABLE>
See Notes to Consolidated Financial Statements.
Page 41
<PAGE> 15
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
7% Cumulative Cumulative
Convertible Participating $1.375 6% Cumulative
Exchangeable Convertible Convertible Convertible
Voting Voting Exchangeable Redeemable
(In thousands of dollars except share and per share amounts) Preferred Stock Preferred Stock Preferred Stock Preferred Stock
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1991 $ 300,000 $ 0 $ 38,760 $ 0
---------------------------------------------------------------------------------------------------------------------------------
Net income
Dividends declared:
Common stock, $.31 per share
7% Preferred Stock, $2.336 per share
$1.375 Preferred Stock, $1.375 per share
Participating Preferred Stock, $.053 per share
Redemption, conversion and repurchase of
7% Preferred Stock (150,000)
Replacement of 7% Preferred Stock
with Participating Preferred Stock (150,000) 150,000
Exercises of stock options
Restricted stock awards
Restricted stock amortization
Conversion of debentures
Tax benefit relating to employee compensation programs
Minimum pension liability
Other
Repurchases of common stock
Foreign currency translation
---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 0 150,000 38,760 0
---------------------------------------------------------------------------------------------------------------------------------
Net income
Dividends declared:
Common stock, $.38 per share
$1.375 Preferred Stock, $1.241 per share
Participating Preferred Stock, $.33 per share
Redemption and conversion of Participating Preferred Stock (150,000)
Redemption or conversion of $1.375 Preferred Stock (38,760)
Exercises of stock options
Restricted stock awards
Restricted stock amortization
Conversion of debentures
Tax benefit relating to employee compensation programs
Minimum pension liability
Other
Repurchases of common stock
Foreign currency translation
---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 0 0 0 0
---------------------------------------------------------------------------------------------------------------------------------
Net income
Dividends declared: Common stock, $.48 per share
Dividends accrued:
Redeemable Preferred Stock
Convertible Preferred Stock
Issuance of Convertible Preferred Stock 100,000
Issuance of common stock relating to business acquisition
Exercises of stock options
Restricted stock awards
Restricted stock amortization
Conversion of debentures
Tax benefit relating to employee compensation programs
Other
Repurchases of common stock
Foreign currency translation
---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 $ 0 $ 0 $ 0 $100,000
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
Page 42
<PAGE> 16
<TABLE>
<CAPTION>
Unamortized
Additional Cost of
Common Paid-in Retained Treasury Restricted
(In thousands of dollars except share and per share amounts) Stock Capital Earnings Stock Stock
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1991 $ 74,955 $ 400,457 $352,750 $ (94,849) $ (22,223)
-------------------------------------------------------------------------------------------------------------------------------
Net income 213,175
Dividends declared:
Common stock, $.31 per share (19,397)
7% Preferred Stock, $2.336 per share (14,933)
$1.375 Preferred Stock, $1.375 per share (2,132)
Participating Preferred Stock, $.053 per share (414)
Redemption, conversion and repurchase of
7% Preferred Stock 20,402 (37,622)
Replacement of 7% Preferred Stock
with Participating Preferred Stock
Exercises of stock options 1,638 8,848 6,070
Restricted stock awards 1,926 30,781 (32,707)
Restricted stock amortization 24,221
Conversion of debentures (1,055) 8,955
Tax benefit relating to employee compensation programs 17,996
Minimum pension liability (4,635)
Other (2,479)
Repurchases of common stock (32,016)
Foreign currency translation
-------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 78,519 470,315 529,049 (149,462) (30,709)
-------------------------------------------------------------------------------------------------------------------------------
Net income 246,183
Dividends declared:
Common stock, $.38 per share (27,454)
$1.375 Preferred Stock, $1.241 per share (1,833)
Participating Preferred Stock, $.33 per share (1,686)
Redemption and conversion of Participating Preferred Stock 3,247 (22,529) 93,420
Redemption or conversion of $1.375 Preferred Stock 551 10,261 (615)
Exercises of stock options 888 (1,195) 19,428
Restricted stock awards 3,628 64,156 (67,784)
Restricted stock amortization 37,513
Conversion of debentures (13,912) 39,162
Tax benefit relating to employee compensation programs 29,651
Minimum pension liability 4,635
Other 17 1,329 1,689
Repurchases of common stock (116,627)
Foreign currency translation
-------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 83,603 568,487 721,115 (112,390) (60,980)
-------------------------------------------------------------------------------------------------------------------------------
Net income 31,631
Dividends declared: Common stock, $.48 per share (36,475)
Dividends accrued:
Redeemable Preferred Stock (969)
Convertible Preferred Stock (250)
Issuance of Convertible Preferred Stock
Issuance of common stock relating to business acquisition 14,000 177,374 127,095
Exercises of stock options 579 3,803
Restricted stock awards 2,432 32,464 (34,896)
Restricted stock amortization 44,073
Conversion of debentures (205) 1,455
Tax benefit relating to employee compensation programs 2,597
Other 454 4,992
Repurchases of common stock (43,133)
Foreign currency translation
-------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 $100,614 $ 784,974 $715,052 $ (21,981) $ (51,803)
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Foreign Number of Shares
Currency Total -------------------------
Translation Stockholders' Common Treasury
(In thousands of dollars except share and per share amounts) Adjustment Equity Stock Stock
---------------------------------------------------------------------------------------------- -------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1991 $ 628 $ 1,050,478 74,955,314 (11,564,874)
---------------------------------------------------------------------------------------------- -------------------------
Net income 213,175
Dividends declared:
Common stock, $.31 per share (19,397)
7% Preferred Stock, $2.336 per share (14,933)
$1.375 Preferred Stock, $1.375 per share (2,132)
Participating Preferred Stock, $.053 per share (414)
Redemption, conversion and repurchase of
7% Preferred Stock (167,220)
Replacement of 7% Preferred Stock
with Participating Preferred Stock 0
Exercises of stock options 16,556 1,637,437 518,535
Restricted stock awards 0 1,925,978
Restricted stock amortization 24,221
Conversion of debentures 7,900 867,546
Tax benefit relating to employee compensation programs 17,996
Minimum pension liability (4,635)
Other (2,479)
Repurchases of common stock (32,016) (2,298,041)
Foreign currency translation (6,433) (6,433)
---------------------------------------------------------------------------------------------- -------------------------
Balance at December 31, 1992 (5,805) 1,080,667 78,518,729 (12,476,834)
---------------------------------------------------------------------------------------------- -------------------------
Net income 246,183
Dividends declared:
Common stock, $.38 per share (27,454)
$1.375 Preferred Stock, $1.241 per share (1,833)
Participating Preferred Stock, $.33 per share (1,686)
Redemption and conversion of Participating Preferred Stock (75,862) 7,500,000
Redemption or conversion of $1.375 Preferred Stock (28,563) 551,154
Exercises of stock options 19,121 888,409 1,537,137
Restricted stock awards 0 3,628,205
Restricted stock amortization 37,513
Conversion of debentures 25,250 2,771,672
Tax benefit relating to employee compensation programs 29,651
Minimum pension liability 4,635
Other 3,035 16,765 135,592
Repurchases of common stock (116,627) (6,036,000)
Foreign currency translation 1,017 1,017
---------------------------------------------------------------------------------------------- -------------------------
Balance at December 31, 1993 (4,788) 1,195,047 83,603,262 (6,568,433)
---------------------------------------------------------------------------------------------- -------------------------
Net income 31,631
Dividends declared: Common stock, $.48 per share (36,475)
Dividends accrued:
Redeemable Preferred Stock (969)
Convertible Preferred Stock (250)
Issuance of Convertible Preferred Stock 100,000
Issuance of common stock relating to business acquisition 318,469 14,000,000 7,500,000
Exercises of stock options 4,382 578,593
Restricted stock awards 0 2,431,882
Restricted stock amortization 44,073
Conversion of debentures 1,250 84,740
Tax benefit relating to employee compensation programs 2,597
Other 5,446 291,750
Repurchases of common stock (43,133) (2,605,138)
Foreign currency translation 8,431 8,431
---------------------------------------------------------------------------------------------- -------------------------
Balance at December 31, 1994 $ 3,643 $ 1,630,499 100,613,737 (1,297,081)
---------------------------------------------------------------------------------------------- -------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
Page 43
<PAGE> 17
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands of dollars) 1994 1993 1992
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 31,631 $ 246,183 $ 213,175
Adjustments to reconcile net income to cash
provided by (used for) operating activities:
Noncash items included in net income:
Depreciation and amortization 40,619 31,034 29,156
Deferred income taxes (48,827) 3,609 (8,129)
Amortization of deferred charges 128,817 90,923 94,241
Other 29,232 51,058 46,181
(Increase) decrease in operating receivables:
Clients (82,116) (628,297) (722,646)
Brokers and dealers 479,265 (351,984) 338,214
Dividends and interest (12,205) (45,449) (20,941)
Fees and other (113,067) 75,898 (54,208)
Increase (decrease) in operating payables:
Clients 154,031 462,492 559,723
Brokers and dealers (361,016) 40,546 (254,254)
Dividends and interest (47,992) 66,767 34,586
Other 142,176 134,327 93,829
(Increase) decrease in:
Trading inventories 5,534,676 (5,919,229) (1,197,608)
Securities borrowed or purchased
under agreements to resell (3,259,147) (821,417) (280,973)
Cash and securities on deposit (42,413) 149,760 (44,964)
Other assets (318,193) (274,529) (54,823)
Increase (decrease) in:
Commitments for securities sold but not yet purchased (1,502,636) 2,641,834 1,186,233
Securities loaned or sold under agreements to repurchase 2,592,401 81,063 (354,672)
------------------------------------------
Cash provided by (used for) operating activities 3,345,236 (3,965,411) (397,880)
------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for:
Net assets acquired in business acquisition (726,217) - -
Purchases of investments (234,531) - -
Office equipment and leasehold improvements (82,904) (95,886) (29,388)
------------------------------------------
Cash used for investing activities (1,043,652) (95,886) (29,388)
------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments on):
Short-term borrowings (889,604) 1,459,006 219,908
Securities sold under agreements to repurchase, net of
securities purchased under agreements to resell (1,702,879) 1,981,333 17,987
Proceeds from:
Long-term borrowings 637,379 1,126,907 414,149
Employee stock transactions 11,078 21,121 16,556
Payments for:
Long-term borrowings (259,751) (316,997) (76,186)
Repurchases of common stock (43,133) (116,627) (32,016)
Preferred stock transactions - (104,425) (167,220)
Repurchase of warrant - - (1,687)
Dividends (36,474) (30,973) (36,876)
------------------------------------------
Cash (used for) provided by financing activities (2,283,384) 4,019,345 354,615
------------------------------------------
Increase (decrease) in cash and cash equivalents 18,200 (41,952) (72,653)
Cash and cash equivalents, beginning of year 241,038 282,990 355,643
------------------------------------------
Cash and cash equivalents, end of year $ 259,238 $ 241,038 $ 282,990
==========================================
</TABLE>
See Notes to Consolidated Financial Statements.
Page 44
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share amounts)
-------------------------------------------------------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Paine Webber
Group Inc. and its wholly owned subsidiaries, including its principal
subsidiary PaineWebber Incorporated ("PWI") (collectively, the "Company"). All
material intercompany balances and transactions have been eliminated. Certain
reclassifications have been made in prior year amounts to conform to current
year presentations. The Company is engaged in one principal line of business,
that of serving the investment and capital needs of individual, corporate,
institutional and public agency clients.
SECURITIES TRANSACTIONS
Securities transactions are recorded in the Consolidated Statement of Financial
Condition on settlement date. Recording such transactions on a trade date basis
would not result in a material difference. Related revenues and expenses are
generally recorded in the accounts on trade date.
Trading inventories and commitments for securities sold but not yet
purchased, contracts for financial futures, forwards, options, caps and floors,
and interest rate swaps are recorded at fair values in the Consolidated
Statement of Financial Condition. Realized and unrealized gains and losses are
reflected in revenues in the period during which the change in fair value
occurs. Fair value is generally based upon quoted market prices. If quoted
market prices are not available, or if liquidating the Company's position is
reasonably expected to impact market prices, fair value is determined based
upon other relevant factors, including dealer price quotations, price activity
of similar instruments and pricing models. Pricing models consider the time
value and volatility factors underlying the financial instruments and other
economic measurements.
COLLATERALIZED SECURITIES TRANSACTIONS
Securities purchased under agreements to resell and securities sold under
agreements to repurchase (principally U.S. government and agency securities)
are recorded at the amount at which the securities will be resold or reacquired
as specified in the respective agreements, plus accrued interest. It is Company
policy to obtain possession or control of securities purchased under agreements
to resell, which have a fair value in excess of the original principal amounts
loaned. The Company monitors the fair value of the securities purchased and
sold under these agreements daily. Should the fair value of the securities
decline below the principal amount loaned, plus accrued interest, additional
collateral is requested or excess collateral is returned when deemed
appropriate. Securities purchased under agreements to resell and securities
sold under agreements to repurchase for which the resale/repurchase date
corresponds to the maturity date of the underlying securities, are accounted
for as purchases and sales, respectively.
Securities borrowed and securities loaned are recorded at the amount of cash
collateral advanced or received in connection with the transaction. Securities
borrowed transactions require the Company to deposit cash or other collateral
with the lender. With respect to securities loaned, the Company receives
collateral. The initial collateral advanced or received has a fair value equal
to or greater than the fair value of the securities borrowed or loaned. The
Company monitors the fair value of the securities borrowed and loaned on a
daily basis and requests additional collateral or returns excess collateral, as
appropriate.
OFFICE EQUIPMENT AND LEASEHOLD IMPROVEMENTS
The Company depreciates office equipment on the straight-line method over
estimated useful lives of three to ten years. Leasehold improvements are
amortized over the lesser of the estimated useful life of the asset or the
remaining term of the lease.
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
The Company files a consolidated federal income tax return.
TRANSLATION OF FOREIGN CURRENCIES
Assets and liabilities denominated in foreign currencies are translated at
year-end rates of exchange, and revenues and expenses are translated at average
rates of exchange for the year. Gains and losses resulting from translation
adjustments are accumulated in a separate component of stockholders' equity.
Gains or losses resulting from foreign currency transactions are included in
net income.
CASH FLOWS
Cash and cash equivalents are defined as highly liquid investments not held for
resale, with a maturity of three months or less when purchased. Total interest
payments for the years ended December 31, 1994, 1993 and 1992 were $1,499,398,
$1,063,945 and $844,656, respectively.
Page 45
<PAGE> 19
Notes To Consolidated Financial Statements
-------------------------------------------------------------------------------
COMMON SHARE DATA
Common share, per share and stock option data for all periods presented have
been adjusted to reflect a three-for-two stock split in the form of a 50% stock
dividend effective March 10, 1994 to stockholders of record on February 17,
1994.
ACCOUNTING CHANGES
On January 1, 1994, the Company adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits." The adoption of SFAS No. 112 did not have a material
effect on the Company's financial condition or its results of operations.
On January 1, 1994, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which addresses the
accounting and reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities. The
investments are to be classified into categories: trading, available-for-sale or
held-to-maturity. Those investments that are classified as trading and
available-for-sale are recorded at fair value, while investments classified as
held-to-maturity are reported at amortized cost. Unrealized gains or losses on
trading investments are included in earnings and unrealized gains or losses on
available-for-sale investments are excluded from earnings and reported as a
separate component of stockholders' equity. The adoption of SFAS No. 115 has
not had a material effect on the Company's financial condition or its results of
operations.
Effective January 1, 1994, Financial Accounting Standards Board ("FASB")
Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts,"
permits companies to offset on the balance sheet certain assets and liabilities
when specific conditions are met. Netting is permitted only when a legal right
of offset exists with the same counterparty under a master netting agreement. In
December 1994, FASB Interpretation No. 41, "Offsetting of Amounts Related to
Certain Repurchase and Reverse Repurchase Agreements," was issued, effective
beginning December 15, 1994. Interpretation No. 41 modifies Interpretation No.
39 to permit offsetting on the balance sheet of repurchase and reverse
repurchase agreements that meet the requirements of No. 39, settle on the same
date and on certain securities transfer systems. The effect of compliance with
Interpretations No. 39 and No. 41 in 1994 was not material to the Company's
Consolidated Statement of Financial Condition.
--------------------------------------------------------------------------------
NOTE 2: BUSINESS ACQUISITION
As of October 17, 1994, the Company entered into an agreement, as thereafter
supplemented, with General Electric Company ("GE") and Kidder, Peabody Group
Inc. ("Kidder"), whereby the Company agreed to purchase certain assets and
liabilities (the "net assets"), and specific businesses of Kidder in a series of
transactions in December 1994 and early 1995. The assets acquired, liabilities
assumed and consideration given are summarized below:
<TABLE>
-------------------------------------------------------------------------------
<S> <C>
NET ASSETS ACQUIRED:
Trading inventories $1,472,890
Receivables 846,057
Other assets 60,861
Commitments for securities sold but not yet purchased (172,201)
Payables (341,466)
----------
Net assets acquired 1,866,141
----------
CONSIDERATION:
Cash $1,352,672
Redeemable Preferred Stock 185,000
Convertible Preferred Stock 100,000
Common stock 318,469
----------
Total 1,956,141
----------
Excess of purchase price over fair value of net assets acquired $ 90,000
==========
</TABLE>
Page 46
<PAGE> 20
PaineWebber Annual Report 1994
-------------------------------------------------------------------------------
The consideration given in exchange for the net assets and businesses
acquired included cash and the issuance of the Company's common and preferred
stock. The cash proceeds were obtained from various funding sources. The Company
issued 21,500,000 shares of common stock valued at $318,469, 2,500,000 shares of
20 year 9% Cumulative Redeemable Preferred Stock, Series C ("Redeemable
Preferred Stock") valued at $185,000 at the date of issuance, and 1,000,000
shares of 20 year 6% Cumulative Convertible Redeemable Preferred Stock, Series A
("Convertible Preferred Stock") valued at $100,000 (See Note 7). As a result of
this transaction, GE owns approximately 25% of the common stock of the Company
on a fully diluted basis. GE is restricted from increasing ownership of the
Company pursuant to a stockholders agreement among the Company, GE and Kidder.
The acquisition has been accounted for under the purchase method of
accounting. The excess of the purchase price over the fair value of the net
assets acquired resulted in the Company recording approximately $90,000 in
goodwill, which is included in "Other assets" in the Consolidated Statement of
Financial Condition. The goodwill is being amortized over 35 years on a
straight-line basis. Evaluation of the net assets is continuing and allocation
of the purchase price may be adjusted. The consolidated financial statements of
the Company include the results of operations of the Kidder businesses acquired
prior to December 31, 1994 from the date of acquisition. As a result of the
acquisition, the Company recorded after-tax costs of approximately $36,000 in
the fourth quarter of 1994 relating primarily to the elimination of duplicate
facilities, severance and other personnel-related costs. These charges are not
reflected in the pro forma information below.
The following unaudited pro forma condensed results of operations assumes
the acquisition of all of the Kidder businesses (including those purchased in
1995) occurred at the beginning of each of the periods presented:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $4,915,000 $5,149,000
Net revenues $3,246,000 $3,757,000
Net income $ 160,000 $ 398,000
Earnings per common share:
Primary $1.34 $3.66
Fully diluted $1.30 $3.39
</TABLE>
The unaudited pro forma condensed results of operations are not necessarily
indicative of the Company's results of operations that might have occurred had
the transaction been executed at the beginning of 1994 or 1993, or of any future
results of operations of the Company.
-------------------------------------------------------------------------------
NOTE 3: FAIR VALUE OF FINANCIAL INSTRUMENTS
Substantially all of the Company's financial instruments are carried at fair
value or amounts approximating fair value. Assets, including cash and cash
equivalents, cash and securities segregated for regulatory purposes, trading
inventories, securities borrowed or purchased under agreements to resell, and
certain receivables are carried at fair value or contracted amounts which
approximate fair value. Similarly, liabilities including short-term borrowings,
commitments for securities sold but not yet purchased, securities loaned or sold
under agreements to repurchase, and certain payables are carried at fair value
or contracted amounts approximating fair value.
At December 31, 1994 and 1993, the fair value of long-term borrowings was
$2,107,538 and $2,017,634, respectively, as compared to the carrying amounts of
$2,315,415 and $1,936,082, respectively. The estimated fair value of long-term
borrowings is based upon quoted market prices for the same or similar issues and
pricing models. However, for substantially all its fixed rate debt, the Company
enters into interest rate swap agreements to convert its fixed rate payments
into floating payments, which partially offset the effect of the changes in
interest rates on the fair value of the Company's long-term borrowings.
The fair value of interest rate swaps used to hedge the Company's long-term
borrowings is based upon the amounts the Company would receive or pay to
terminate the agreements, taking into account current interest rates and
creditworthiness of the counterparties. The fair value of the interest rate
swaps was $172,193 payable and $20,873 receivable at
Page 47
<PAGE> 21
Notes To Consolidated Financial Statements
-------------------------------------------------------------------------------
December 31, 1994 and 1993, respectively. The carrying amounts of the interest
rate swap agreements at December 31, 1994 and 1993 were $4,480 and $11,007,
respectively, and are included in "Dividends and interest receivable" in the
Company's Consolidated Statement of Financial Condition. For discussion on the
fair values of the Company s off-balance-sheet financial instruments see Notes
10 and 13.
-------------------------------------------------------------------------------
NOTE 4: TRADING INVENTORIES
At December 31, 1994 and 1993, trading inventories and commitments for
securities sold but not yet purchased, recorded at fair value, consisted of the
following:
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------------------------------------------
<S> <C> <C>
TRADING INVENTORIES
U.S. government and agency obligations $ 3,560,201 $ 4,512,500
Mortgages and mortgage-backed securities 2,441,940 7,063,889
Corporate debt securities 1,816,747 902,137
Commercial paper and other short-term debt 1,242,988 654,724
State and municipal obligations 1,018,875 720,067
Corporate equity securities 703,366 993,912
----------------------------
$10,784,117 $14,847,229
============================
COMMITMENTS FOR SECURITIES SOLD BUT NOT YET PURCHASED
U.S. government and agency obligations $ 4,918,655 $ 6,358,674
Mortgages and mortgage-backed securities 44,370 37,740
Corporate debt securities 398,913 181,074
State and municipal obligations 57,751 27,116
Corporate equity securities 615,017 761,273
----------------------------
$ 6,034,706 $ 7,365,877
============================
</TABLE>
Commitments for securities sold but not yet purchased commit the Company to
deliver specified securities at predetermined prices. These transactions may
result in market risk since, to satisfy the obligation, the Company must acquire
the securities at market prices, which may exceed the values reflected in the
Consolidated Statement of Financial Condition.
-------------------------------------------------------------------------------
NOTE 5: SHORT-TERM BORROWINGS
The Company meets its short-term financing needs by obtaining bank loans on
either a secured or unsecured basis; by issuing commercial paper and medium-term
notes; by entering into agreements to repurchase, whereby securities are sold
with a commitment to repurchase at a future date; and through securities lending
activity.
Short-term borrowings at December 31, 1994 and 1993 consisted of the
following:
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Bank loans and other $ 972,959 $ 1,670,730
Commercial paper 906,650 1,083,483
Medium-Term Notes 10,000 25,000
----------------------------
$ 1,889,609 $ 2,779,213
============================
</TABLE>
Bank loans generally bear interest at rates based on either the federal
funds rate or the London Interbank Offered Rate ("LIBOR"). The weighted average
interest rates on bank loans outstanding at December 31, 1994 and 1993 were
6.25% and 3.60%, respectively, and the weighted average interest rates during
1994 and 1993 were 4.37% and 3.80%, respectively.
The interest rate on commercial paper fluctuates throughout the year. The
weighted average interest
Page 48
<PAGE> 22
PaineWebber Annual Report 1994
-------------------------------------------------------------------------------
rates on commercial paper borrowings outstanding at December 31, 1994 and 1993
were 5.90% and 3.57%, respectively, and during 1994 and 1993 were 4.34% and
3.36%, respectively.
The Company has a Multiple Currency Medium-Term Note Program (the
"Program") under the terms of which the Company may offer for sale medium-term
senior and subordinated notes (collectively, the "Medium-Term Notes") due from
nine months to thirty years from date of issuance. The Medium-Term Notes may be
either fixed or variable with respect to interest rates. As of December 31,
1994, the Company had $10,000 of Medium-Term Notes outstanding with maturities
of nine months to one year from the date of issuance.
At December 31, 1994, the Company had committed and available two unsecured
senior revolving credit facilities with groups of banks aggregating $2,000,000,
of which $1,200,000 expires in December 1995 with provisions for renewal through
December 1997, and $800,000 expires in December 1997. Interest on borrowings
under the terms of the revolving credit facilities is computed, at the option of
the Company, at a rate based on LIBOR or an alternate rate based on the higher
of a base rate or the federal funds rate. The Company pays a fee on the
commitments. At December 31, 1994, there was $500,000 outstanding under these
credit facilities included in bank loans and other.
-------------------------------------------------------------------------------
NOTE 6: LONG-TERM BORROWINGS
Long-term borrowings at December 31, 1994 and 1993 consisted of the following:
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Fixed Rate Senior Notes due 1995 - 2014 $1,177,159 $ 998,156
Fixed Rate Subordinated Notes due 2002 174,324 174,236
Medium-Term Senior Notes 618,070 331,975
Medium-Term Subordinated Notes 308,150 298,650
Convertible Debentures 18,627 15,435
Other 19,085 47,630
Bank Term Loans -- 70,000
-----------------------------
$2,315,415 $1,936,082
=============================
</TABLE>
In February 1994, the Company issued $200,000 of 7-5/8% Senior Notes due
2014. Interest rates on the remaining fixed rate notes outstanding at December
31, 1994 range from 6-1/4% to 9-5/8%. The weighted average interest rate on the
fixed rate senior notes outstanding at December 31, 1994 was 7.58%. The Fixed
Rate Subordinated Notes due 2002 have an interest rate of 7-3/4%. Interest on
the notes is payable semi-annually.
As of December 31, 1994, the Company had $926,220 of Medium-Term Senior and
Subordinated Notes outstanding. The Medium-Term Notes outstanding at December
31, 1994 had an average maturity of 3.6 years and a weighted average interest
rate of 7.01%.
The Company has entered into interest rate swap agreements which
effectively convert substantially all its fixed rate notes and various
Medium-Term Notes into floating rate obligations. The floating interest rates
are based on LIBOR and generally adjust semiannually. The effective weighted
average interest rates on the fixed rate obligations, after giving effect to the
interest rate swap agreements, were 6.86% and 4.82% at December 31, 1994 and
1993, respectively. The notional amounts and maturities of the interest rate
swap agreements outstanding at December 31, 1994 were as follows:
<TABLE>
-------------------------------------------------------------------------------
<S> <C>
1995 - 1997 $ 241,800
1998 - 2000 759,450
2001 - 2003 350,000
2004 - 2006 485,000
----------
$1,836,250
==========
</TABLE>
Page 49
<PAGE> 23
Notes To Consolidated Financial Statements
-------------------------------------------------------------------------------
Pursuant to an employee benefit plan, the Company has issued 8% Convertible
Debentures (the "8% Debentures") due December 1998 and 2000, and 6.5%
Convertible Debentures (the "6.5% Debentures") due December 2002 (collectively,
"the Debentures"). The Debentures are shown net of receivables, representing
loans by the Company to employees to finance a portion of the Debentures. A
portion of the principal amount of the employee loans may be forgiven at the end
of a calendar year in which certain specified pre-tax earnings are achieved by
the Company.
The 8% Debentures are fully convertible, at the option of the holders, into
500,000 shares of 7.5% Convertible Preferred Stock, which are then convertible
into 1,336,943 shares of common stock. The 6.5% Debentures are convertible, at
the option of the holders, into 1,838,000 shares of 6.0% Convertible Preferred
Stock, which are then convertible into 3,115,254 shares of common stock. Two-
thirds of the 6.5% Debentures were convertible as of December 31, 1994, and the
remaining one-third becomes convertible on December 31, 1995. The Debentures are
redeemable at the employees' option, subject to certain conditions through 1998.
The aggregate amount of principal repayment requirements on long-term
borrowings for each of the five years subsequent to December 31, 1994, and the
total amounts due thereafter, are as follows:
<TABLE>
-------------------------------------------------------------------------------
<S> <C>
1995 $ 365,000
1996 128,200
1997 163,750
1998 270,692
1999 122,570
Thereafter 1,265,203
----------
$2,315,415
==========
</TABLE>
-------------------------------------------------------------------------------
NOTE 7: PREFERRED STOCK
The Company has authorization to issue up to 20,000,000 shares of preferred
stock, in one or more series, with a par value of $20.00 per share.
REDEEMABLE PREFERRED STOCK
In connection with the acquisition of certain net assets of Kidder on December
16, 1994 (See Note 2), the Company issued 2,500,000 shares of 20 year 9%
Cumulative Redeemable Preferred Stock, Series C (the "Redeemable Preferred
Stock"), with a stated value and liquidation preference of $100.00 per share.
The Redeemable Preferred Stock was recorded at its fair value of $185,000 at the
date of issuance, which will be increased periodically by charges to retained
earnings, using the interest method, so that the carrying amount equals the
redemption amount at the mandatory redemption date on December 15, 2014. The
Redeemable Preferred Stock is redeemable at any time on or after December 16,
1999, in whole or in part, at the option of the Company at a price of $100.00
per share, plus accrued and unpaid dividends. Dividends on the Redeemable
Preferred Stock are cumulative and payable in quarterly installments. Holders of
the Redeemable Preferred Stock have no voting rights except in the event of
certain dividend payment defaults.
CONVERTIBLE PREFERRED STOCK
The Company also issued, in connection with the Kidder acquisition, 1,000,000
shares of 20 year 6% Cumulative Convertible Redeemable Preferred Stock, Series A
(the "Convertible Preferred Stock"), with a stated value and liquidation
preference of $100.00 per share. The Convertible Preferred Stock was recorded
at its fair value of $100,000. The Convertible Preferred Stock is convertible
into common stock at any time, in whole or in part, at the option of the holder,
at a conversion price of $18.13 per common share, subject to adjustment. The
Convertible Preferred Stock is redeemable in cash at any time, in whole or in
part, at the option of the Company, at redemption prices equal to the greater of
$140.00 per share or a formula price for the first five years, then $105.00 per
share on or after December 16, 1999 and declining by $1.00 per share per year to
$100.00 per share on or after December 16, 2004, plus accrued and unpaid
dividends. Beginning December 16, 1999, in lieu of a cash payment upon
redemption, the Company may issue, subject to shareholder approval, shares of
its common stock equivalent to the redemption price divided by the then current
market price per common share. The Convertible Preferred Stock is subject to
mandatory
Page 50
<PAGE> 24
PaineWebber Annual Report 1994
-------------------------------------------------------------------------------
redemption on December 15, 2014. Dividends on the Convertible Preferred Stock
are cumulative and payable in quarterly installments. Holders of the
Convertible Preferred Stock have no voting rights, except in the event of
certain dividend payment defaults.
-------------------------------------------------------------------------------
NOTE 8: COMMON STOCK
On December 16, 1994, the Company issued 21,500,000 shares of common stock
valued at $318,469 in connection with the Kidder acquisition (See Note 2), of
which 7,500,000 shares were issued from treasury stock at an average cost of
$16.95 per share.
On February 3, 1994, the Board of Directors of the Company declared a
three-for-two common stock split in the form of a 50% stock dividend, effective
on March 10, 1994. All share and per share data presented in this Annual Report
to Stockholders reflect the effect of the split.
During the second quarter of 1994, the stockholders of the Company approved
an increase in the number of common shares authorized for issuance from
100,000,000 shares to 200,000,000 shares. In accordance with the repurchase
programs, as authorized by the Board of Directors, the Company had available to
repurchase at December 31, 1994 a maximum of 8,881,802 shares of common stock.
As of December 31, 1994, the Company had 30,488,994 authorized shares of common
stock reserved for issuance in connection with convertible securities and stock
option and stock award plans.
-------------------------------------------------------------------------------
NOTE 9: CAPITAL REQUIREMENTS
PWI, a registered broker-dealer, is subject to the Securities and Exchange
Commission ("SEC") Uniform Net Capital Rule and New York Stock Exchange ("NYSE")
Growth and Business Reduction capital requirements. Under the method of
computing capital requirements adopted by PWI, minimum net capital shall not be
less than 2% of combined aggregate debit items arising from client transactions,
plus excess margin collected on securities purchased under agreements to resell,
as defined. A reduction of business is required if net capital is less than 4%
of such aggregate debit items. Business may not be expanded if net capital is
less than 5% of such aggregate debit items. As of December 31, 1994, PWI's net
capital of $723,610 was 20% of aggregate debit balances and its net capital in
excess of the minimum required was $646,025.
Advances, dividend payments and other equity withdrawals by PWI and other
regulated subsidiaries are restricted by the regulations of the SEC, NYSE, and
international securities and banking agencies, as well as by covenants in
various loan agreements. At December 31, 1994, the equity of the Company's
subsidiaries totaled approximately $1,460,000. Of this amount, approximately
$445,699 was not available for payment of cash dividends and advances.
Under the terms of certain borrowing agreements, the Company is subject to
dividend payment restrictions and minimum net worth and net capital
requirements. At December 31, 1994, these restrictions did not affect the
Company's ability to pay dividends.
-------------------------------------------------------------------------------
NOTE 10: FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
HELD OR ISSUED FOR TRADING PURPOSES
In the normal course of business, the Company engages in a variety of derivative
and non-derivative financial instrument transactions in connection with its
market risk management, its principal trading activities and also on behalf of
its clients. Derivative financial instruments include forward and futures
contracts, options contracts, interest rate swaps and other contracts committing
the Company to purchase or deliver other instruments at specified future dates
and prices, or to make or receive payments based upon notional amounts and
specified rates or indices. As defined by the FASB in SFAS No. 119, "Disclosure
about Derivative Financial Instruments and Fair Value of Financial Instruments,"
a derivative financial instrument also includes unsettled purchase and sale
agreements and firm or standby commitments for the purchase of securities. It
does not include on-balance-sheet receivables and payables whose value is
derived from changes in the value of some underlying asset or index, such as
mortgage-backed securities and structured notes.
In connection with its market risk management and principal trading
activities, the Company may enter into a derivative contract to manage the risk
arising from other financial instruments or to take a position based upon
expected future market conditions. The Company also takes positions to
facilitate
Page 51
<PAGE> 25
Notes To Consolidated Financial Statements
-------------------------------------------------------------------------------
client transactions and acts as a market-maker in certain listed and unlisted
securities. These contracts are valued at market, and unrealized gains and
losses are reflected in the financial statements.
A large portion of the Company's derivative financial instruments are "to
be announced" mortgage securities requiring forward settlement. As a principal
in the mortgage-backed securitization business, the Company has outstanding
forward purchase and sale agreements committing the Company to deliver
participation certificates and mortgage-backed securities.
Set forth below are the gross contract or notional amounts of all
off-balance-sheet derivative financial instruments held or issued for trading
purposes. These amounts are not reflected in the Consolidated Statement of
Financial Condition and are indicative only of the volume of activity at
December 31, 1994 and 1993. They do not represent amounts subject to market
risks, and in many cases, limit the Company's overall exposure to market losses
by hedging other on- and off-balance-sheet transactions.
<TABLE>
<CAPTION>
Notional or Contract Amount
December 31, 1994 December 31, 1993
-----------------------------------------------------
Purchases Sales Purchases Sales
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage-backed forward contracts
and options written and purchased $ 8,757,807 $ 9,256,738 $24,199,060 $32,325,798
Foreign currency forward contracts, futures
contracts, and options written and purchased 2,325,721 1,855,557 2,137,209 2,374,267
Equity securities contracts including futures,
forwards, and options written and purchased 1,931,330 2,216,565 2,229,641 2,506,472
Other fixed income securities contracts
including futures, forwards, and options
written and purchased 5,321,100 5,374,546 3,823,751 4,645,429
Interest rate swaps, caps and floors 285,450 230,000 -- 408,593
</TABLE>
Set forth below are the fair values of derivative financial instruments
held or issued for trading purposes as of December 31, 1994 and the average fair
values of the instruments during the year ended December 31, 1994. The fair
value amounts are determined by quoted market prices and pricing models which
consider the time value and volatility of the underlying instruments. Changes in
fair value are reflected in trading revenues or net interest as incurred,
depending on the nature of the contract. The amounts are netted by counterparty
only when the criteria of Interpretation No. 39 are met.
<TABLE>
<CAPTION>
Average Fair Value *
Fair Value at Year ended
December 31, 1994 December 31, 1994
--------------------------------------------------
Assets Liabilities Assets Liabilities
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage-backed forward contracts and
options written and purchased $ 30,606 $ 25,209 $202,484 $191,687
Foreign currency forward contracts, futures
contracts, and options written and purchased 55,345 44,244 56,528 53,810
Equity securities contracts including futures,
forwards, and options written and purchased 204,938 116,973 162,388 155,422
Other fixed income securities contracts
including futures, forwards, and options
written and purchased 10,150 8,988 23,527 13,293
Interest rate swaps, caps and floors 1,372 128 1,757 1,147
</TABLE>
* Average fair value is based upon the average of the month-end balances during
the year.
Page 52
<PAGE> 26
PaineWebber Annual Report 1994
--------------------------------------------------------------------------------
The Company also enters into agreements to sell securities, at
predetermined prices, which have not yet been purchased. The Company is exposed
to market risk since to satisfy the obligation, the Company must acquire the
securities at market prices, which may exceed the values reflected on the
Consolidated Statement of Financial Condition.
The Company's risk of loss in the event of counterparty default is limited
to the current fair value or the replacement cost on contracts in which the
Company has recorded an unrealized gain. These amounts are reflected as assets
on the Company's Consolidated Statement of Financial Condition and amounted to
$302,411 and $260,880 at December 31, 1994 and 1993, respectively. Options
written do not expose the Company to credit risk since they do not obligate the
counterparty to perform. Transactions in futures contracts are conducted through
regulated exchanges which have margin requirements, and are settled in cash on a
daily basis, thereby minimizing credit risk.
The following table summarizes the Company's principal transaction revenues
(net trading revenues) by business activity for the year ended December 31,
1994.
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Corporate equities (includes equity securities, equity index futures, equity index
options and swaps, and equity options contracts) $ 324,178
Municipals (includes municipal and government securities) 139,039
U.S. government (includes U.S. government securities, financial futures and options contracts) 123,211
Mortgage and mortgage-backed (includes mortgage-backed and government securities,
mortgage-backed forwards and options contracts) (116,032)
Corporate debt and other (includes debt, foreign currency forwards, futures
and options contracts and other securities) 49,042
----------
$ 519,438
==========
</TABLE>
Principal transaction revenues include realized and unrealized gains and
losses in the fair value of derivative and other financial instruments.
HELD OR ISSUED FOR PURPOSES OTHER THAN TRADING
The Company enters into interest rate swap agreements to ensure that the
interest rate characteristics of assets and liabilities are matched. As of
December 31, 1994 and 1993, the Company had outstanding interest rate swap
agreements with commercial banks with a notional principal amount of $1,836,250
and $1,394,366, respectively. These agreements effectively converted
approximately 90% of the Company's fixed rate debt at December 31, 1994 into
floating rate debt. The interest rate swap agreements entered into have had the
effect of reducing net interest expense on the Company's long-term borrowings by
$29,563, $28,116 and $10,098 for the years ended December 31, 1994, 1993 and
1992, respectively. The difference to be received or paid on the swap agreements
is included in interest expense as incurred and any related receivable from or
payable to counterparties is reflected as an asset or liability, accordingly.
The Company had no deferred gains or losses related to terminated swap
agreements at December 31, 1994 and 1993. The Company is subject to market risk
as interest rates fluctuate. The interest rate swaps contain credit risk to the
extent the Company is in a receivable or gain position and the counterparty
defaults. However, the counterparties to the agreements are large financial
institutions and the Company has not experienced defaults in the past and
management does not anticipate any counterparty defaults in the forseeable
future. See Note 3 for further discussion of interest rate swap agreements used
for hedging purposes.
--------------------------------------------------------------------------------
NOTE 11: RISK MANAGEMENT
Transactions involving derivative and non-derivative financial instruments
involve varying degrees of both market and credit risk. The Company monitors its
exposure to market and credit risk on a daily basis and through a variety of
financial, security position and credit exposure reporting and control
procedures.
MARKET RISK
Market risk is the potential change in value of the financial instrument
caused by unfavorable changes in interest rates, foreign currency exchange rates
or the fair values of the securities underlying the instrument. The Company has
a variety of methods to monitor its
Page 53
<PAGE> 27
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
market risk profile. The senior management of each business group is
responsible for reviewing trading positions, exposures, profits and losses, and
trading strategies on a daily basis. The Company also has an independent risk
management group which aids in setting and monitoring risk management policies
of the Company, including monitoring adherence to the established limits,
performing market risk modeling, and reviewing trading positions and hedging
strategies. The Asset/Liability Management Committee is responsible for
establishing trading position and exposure limits and is comprised of senior
corporate and business unit managers.
Market risk modeling is based on estimating loss exposure through daily
stress testing. These results are compared to daily limits and exceptions are
subject to review and approval by senior management. Other market risk control
procedures include monitoring inventory agings, reviewing traders' marks and
regular meetings between the senior management of the business groups and the
risk management group.
CREDIT RISK IN PROPRIETARY TRANSACTIONS
Counterparties to the Company's proprietary trading, hedging, financing and
arbitrage activities are primarily financial institutions, including brokers and
dealers, banks and institutional clients (See Note 12). Credit losses could
arise should counterparties fail to perform and the value of any collateral
proves inadequate. The Company manages credit risk by monitoring net exposure to
individual counterparties on a daily basis, monitoring credit limits and
requiring additional collateral where appropriate.
Derivative credit exposures are calculated, aggregated and compared to
established limits by the credit department. Credit reserve requirements are
determined by senior management in conjunction with the Company's continuous
credit monitoring procedures. Historically, reserve requirements arising from
instruments with off-balance-sheet risk have not been material.
Receivables and payables with brokers and dealers, and agreements to resell
and repurchase securities are generally collateralized by cash, U.S. government
and government-agency securities, and letters of credit. The market value of the
initial collateral received is, at a minimum, equal to the contract value.
Additional collateral is requested when considered necessary.
The Company may pledge clients' securities as collateral in support of
securities loaned and bank loans as well as to satisfy margin requirements at
clearing organizations. The amounts loaned or pledged are limited to the extent
permitted by applicable margin regulations. Should the counterparty fail to
return the clients' securities, the Company may be required to replace them at
prevailing market prices. At December 31, 1994, the market value of client
securities loaned to other brokers approximated the amounts due or collateral
obtained.
CREDIT RISK IN CLIENT ACTIVITIES
Client transactions are entered on either a cash or margin basis. In a margin
transaction, the Company extends credit to a client for the purchase of
securities, using the securities purchased and/or other securities in the
client's account as collateral for amounts loaned. Amounts loaned are limited by
margin regulations of the Federal Reserve Board and other regulatory authorities
and are subject to the Company's credit review and daily monitoring procedures.
Market declines could, however, reduce the value of any collateral below the
principal amount loaned, plus accrued interest, before the collateral can be
sold.
Client transactions include positions in commodities and financial futures,
securities sold but not yet purchased and written options. The risk to the
Company's clients in these transactions can be substantial, principally due to
price volatility which can reduce the clients' ability to meet their
obligations. Margin deposit requirements pertaining to commodity futures and
options transactions are generally lower than those for exchange traded
securities. To the extent clients are unable to meet their commitments to the
Company and margin deposits are insufficient to cover outstanding liabilities,
the Company may take market action and credit losses could be realized.
Trades are recorded on a settlement date basis. Should either the client or
broker fail to perform, the Company may be required to complete the transaction
at prevailing market prices. Trades pending at December 31, 1994 were settled
without adverse effect on the Company's financial statements, taken as a whole.
Page 54
<PAGE> 28
PaineWebber Annual Report 1994
--------------------------------------------------------------------------------
NOTE 12: CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk that arise from financial instruments (whether on-
or off-balance-sheet) exist for groups of counterparties when they have similar
economic characteristics that would cause their ability to meet obligations to
be similarly affected by economic, industry or geographic factors. As a major
securities firm, the Company engages in activities with a broad range of
corporations, governments, and institutional and individual investors. The
Company has no significant exposure to any individual counterparty. The Company
seeks to control its credit risk and the potential for risk concentration
through a variety of reporting and control procedures described in Note 11.
The Company's most significant industry concentration, which arises within
its normal course of business activities, is financial institutions including
banks, brokers and dealers, mutual funds and insurance companies. At December
31, 1994, the Company had outstanding resale agreements and securities borrowed
of $9,523,562 with commercial banks which were collateralized by cash and
securities of approximately equal fair value.
--------------------------------------------------------------------------------
NOTE 13: COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office space and equipment under noncancelable operating
lease agreements which expire at various dates through 2014. As of December 31,
1994, the aggregate minimum future rental payments required by operating leases
with initial or remaining lease terms exceeding one year are as follows:
<TABLE>
--------------------------------------------------------------------------------
<S> <C>
1995 $ 136,495
1996 117,632
1997 105,423
1998 92,815
1999 86,254
Thereafter 407,809
---------
$ 946,428
=========
</TABLE>
Rentals are subject to periodic escalation charges and do not include
amounts payable for insurance, taxes and maintenance. In addition, minimum
payments have not been reduced by future minimum sublease rental income of
$28,419.
For the years ended December 31, 1994, 1993 and 1992, rent expense under
operating leases was $145,508, $143,120 and $130,516, respectively.
OTHER COMMITMENTS AND CONTINGENCIES
At December 31, 1994 and 1993, the Company was contingently liable under
unsecured letters of credit totaling $212,211 and $344,662, respectively, which
approximates fair value. In addition, certain of the Company's subsidiaries were
contingently liable as issuer of $89,410 of notes payable to managing general
partners of various limited partnerships pursuant to Internal Revenue Service
guidelines. There is no market for these guarantees, therefore, it is not
practicable to estimate their fair value. In the opinion of management, these
contingencies will not have a material adverse effect on the Company's
consolidated financial statements, taken as a whole. The Company also had
conditional commitments of $19,736 to contribute capital to limited partnerships
as of December 31, 1994.
The Company has been named as defendant in numerous legal actions in the
ordinary course of business. While the outcome of such matters cannot be
predicted with certainty, in the opinion of management of the Company, after
consultation with various counsel handling such matters, these actions will be
resolved with no material adverse effect on the Company's consolidated financial
statements, taken as a whole.
At December 31, 1994 and 1993, securities with a fair value of $674,669 and
$448,280, respectively, had been loaned or pledged as collateral for securities
borrowed of approximately equal fair value.
In meeting the financing needs of certain of its clients, PWI has issued
standby letters of credit which amounted to $13,695 at December 31, 1994. The
standby letters of credit are fully collateralized by marginable securities.
Page 55
<PAGE> 29
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
NOTE 14: STOCK OPTIONS AND STOCK AWARDS
Under the Company's various Stock Option and Award Plans ("the Plans"), officers
and other key employees are granted options (both non-qualified stock options
and incentive stock options) to purchase shares of common stock at a price not
less than the fair market value of the stock on the date the option is granted.
Options for the Company's common stock have also been granted to limited
partnerships in which key employees of the Company are limited partners. Options
either are exercisable at the date of grant, in ratable installments or
otherwise, over a period of one to four years from the date of grant. The rights
generally expire within ten years after the date of grant.
In 1994, the Company established a Non-Employee Directors' Stock Plan which
provides for the granting to Non-Employee Directors of stock options and common
stock to receive an aggregate maximum of 600,000 shares of the Company's common
stock at the fair market value at the date of grant. The options are exercisable
on the third anniversary of the date of grant and generally expire ten years
from the date of grant. During 1994, 165,000 options and 2,625 shares of the
Company's common stock were granted under this plan.
Option activity during the years ended December 31, 1992, 1993 and 1994 was
as follows:
<TABLE>
<CAPTION>
Number of Option price
Shares per share
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at December 31, 1991 (6,036,513 exercisable) 11,487,319 $ 6.55 - 16.27
Granted 982,974 14.13 - 16.00
Exercised (2,155,972) 6.55 - 11.25
Terminated (318,017) 6.64 - 16.00
----------------------------
Options outstanding at December 31, 1992 (4,501,062 exercisable) 9,996,304 6.55 - 16.27
Granted 5,244,957 14.75 - 20.42
Exercised (2,425,546) 6.55 - 19.47
Terminated (534,760) 7.22 - 19.47
----------------------------
Options outstanding at December 31, 1993 (2,776,678 exercisable) 12,280,955 6.55 - 20.42
Granted 4,095,550 14.44 - 18.67
Exercised (574,586) 6.55 - 16.29
Terminated (630,309) 7.14 - 19.46
----------------------------
Options outstanding at December 31, 1994 (5,201,831 exercisable) 15,171,610 $ 6.55 - 20.42
============================
</TABLE>
The Plans also provide for the granting of cash and restricted stock
awards, stock appreciation rights, restricted stock units, stock purchase
rights, performance units and other stock based awards. The Company had no stock
appreciation rights or stock purchase rights outstanding at December 31, 1994.
Restricted stock awards are granted to key employees, whereby shares of the
Company's common stock are awarded in the name of the employee, who has all
rights of a stockholder, subject to certain sale and transfer restrictions. The
awards generally contain restrictions on sales and transfers ranging from one to
three years. The restricted stock awards are subject to forfeiture if the
employee is terminated prior to the prescribed restriction period.
During the years ended December 31, 1994, 1993 and 1992, the Company
awarded 2,431,882, 3,628,205 and 1,925,978 shares, respectively, of restricted
stock, net of forfeitures. The market value of the restricted shares awarded has
been recorded as unamortized cost of restricted stock and is shown as a separate
component of stockholders' equity. The unamortized cost of restricted stock is
being amortized over the restricted period. The charge to compensation expense,
net of forfeitures, amounted to $44,073, $37,513 and $24,221, in the years ended
December 31, 1994, 1993 and 1992, respectively.
At December 31, 1994 and 1993, there were 5,319,467 and 2,329,992 shares,
respectively, available for future stock option, common stock and restricted
stock awards under these plans.
Page 56
<PAGE> 30
PaineWebber Annual Report 1994
--------------------------------------------------------------------------------
NOTE 15: EMPLOYEE BENEFIT PLANS
PENSION PLAN
The Company has a non-contributory defined benefit pension plan (the "Plan"),
which provides benefits to eligible employees. Pension expense for the years
ended 1994, 1993 and 1992 for the Plan included the following components:
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned during the period $ 14,626 $ 9,906 $ 8,792
Interest cost on projected benefit obligation 16,448 14,017 12,495
Actual return on Plan assets 1,777 (20,203) (9,389)
Net amortization and deferral (15,167) 9,247 (739)
--------------------------------------
Net periodic pension cost $ 17,684 $ 12,967 $ 11,159
======================================
</TABLE>
--------------------------------------------------------------------------------
The following table summarizes the funded status and the prepaid pension
asset included in "Other assets" on the Company's Consolidated Statement of
Financial Condition at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested $ 182,032 $ 192,910
Non-vested 5,851 5,045
------------------------
Accumulated benefit obligation 187,883 197,955
Effect of projected future compensation levels 10,821 11,087
------------------------
Projected benefit obligation 198,704 209,042
Plan assets at fair value 216,761 219,258
------------------------
Plan assets in excess of projected benefit obligation 18,057 10,216
Unrecognized net assets existing at January 1, 1987
being recognized over fifteen years (6,205) (7,045)
Unrecognized prior service cost 7,854 9,892
Unrecognized net loss and actuarial experience 51,551 59,878
------------------------
Prepaid pension asset at year end $ 71,257 $ 72,941
========================
</TABLE>
The projected benefit obligation for the Plan was determined for 1994 and
1993 using an assumed discount rate of 8-3/4% and 7-3/4%, respectively, and an
assumed rate of compensation increase of 5%. The weighted average assumed rate
of return on Plan assets was 9-1/2% for 1994 and 1993, and 11% for 1992.
The Company's funding policy is to contribute to the Plan amounts that can
be deducted for federal income tax purposes. The Company's contributions paid
for the Plan years 1994, 1993 and 1992 were $10,295, $66,604 and $33,322,
respectively. Plan assets consist primarily of equity securities and U.S.
government and agency obligations.
SAVINGS INVESTMENT PLAN
The PaineWebber Savings Investment Plan ("SIP") is a defined contribution plan
for eligible employees of the Company. Under SIP, employee contributions are
matched by the Company on a graduated scale, which for 1994 is based, in part,
on the Company's pre-tax earnings and the compensation of eligible employees.
For 1993 and 1992, the scale was based, in part, on the Company's pre-tax return
on equity and the compensation of eligible employees. The provision for Company
contributions for amounts contributed or to be contributed in cash or stock to
SIP amounted to approximately $5,900, $3,500 and $3,000, for the years ended
December 31, 1994, 1993 and 1992, respectively.
OTHER BENEFIT PLANS
The Company also provides certain life insurance and health care benefits to
employees. The costs of such benefits for the years ended December 31, 1994,
1993 and 1992 were $50,800, $45,800 and $41,000, respectively.
Page 57
<PAGE> 31
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
NOTE 16: INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. For financial reporting
purposes, deferred tax assets are reflected without reduction for a valuation
allowance. Significant components of the Company's deferred tax assets and
liabilities as of December 31, 1994, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEFERRED TAX ASSETS:
Employee benefits $ 73,783 $ 57,489 $ 66,691
Accrued liabilities 44,388 30,735 28,167
Valuation of trading inventories and investments - 6,857 -
Other 28,456 - -
---------------------------------------
Total deferred tax assets 146,627 95,081 94,858
---------------------------------------
DEFERRED TAX LIABILITIES:
Tax over book depreciation 14,135 13,087 14,689
Accelerated deductions 10,379 24,608 13,944
Safe harbor leases 6,135 6,625 7,047
Valuation of trading inventories and investments 17,154 - 1,087
Other 11,910 12,674 16,395
---------------------------------------
Total deferred tax liabilities 59,713 56,994 53,162
---------------------------------------
Net deferred tax assets $ 86,914 $ 38,087 $ 41,696
=======================================
</TABLE>
For financial reporting purposes, income before taxes for the years ended
December 31, 1994, 1993 and 1992 includes the following components:
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PRETAX INCOME:
United States $ 9,841 $ 359,042 $ 297,844
Foreign 34,544 48,534 41,271
---------------------------------------
$ 44,385 $ 407,576 $ 339,115
=======================================
</TABLE>
The significant components of income taxes for the years ended December 31,
1994, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT:
Federal $ 12,224 $ 103,890 $ 89,510
State 9,930 35,403 30,386
Foreign 11,448 18,491 14,173
---------------------------------------
Total current $ 33,602 $ 157,784 $ 134,069
---------------------------------------
DEFERRED:
Federal $ (17,947) $ 7,935 $ (6,605)
State (6,490) (737) (1,524)
Foreign 3,589 (3,589) -
---------------------------------------
Total deferred (20,848) 3,609 (8,129)
---------------------------------------
$ 12,754 $ 161,393 $ 125,940
=======================================
</TABLE>
Page 58
<PAGE> 32
PaineWebber Annual Report 1994
--------------------------------------------------------------------------------
The reconciliation of income taxes, computed at the statutory federal
rates, to income taxes recorded for the years ended December 31, 1994, 1993 and
1992 is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------------------------------------------------------------------
Amount % Amount % Amount %
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory federal rates $ 15,536 35.0 $ 142,652 35.0 $ 115,299 34.0
State and local income taxes,
net of federal tax benefit 2,236 5.0 22,533 5.5 18,922 5.6
Foreign rate differential (1,141) (2.6) (4,636) (1.1) (2,268) (0.7)
Nontaxable dividends and interest (3,545) (8.0) (2,383) (0.6) (2,599) (0.8)
Restricted stock dividends (864) (1.9) (636) (0.2) (513) (0.2)
Nondeductible expenses 2,743 6.2 1,055 0.3 588 0.2
Other, net (2,211) (5.0) 2,808 0.7 (3,489) (1.0)
-----------------------------------------------------------
$ 12,754 28.7% $ 161,393 39.6% $ 125,940 37.1%
===========================================================
</TABLE>
Income taxes paid for the years ended December 31, 1994, 1993 and 1992 were
$68,455, $128,089 and $96,941, respectively.
The Company revised its annual effective tax rate to reflect a change in
the statutory federal rate from 34% to 35%, which was effective January 1, 1993.
Undistributed earnings of the Company's foreign subsidiaries are
considered to be permanently reinvested and, accordingly, no provision for U.S.
income taxes is required on such earnings. The estimated U.S. income taxes that
would be payable upon the repatriation of such earnings are not material.
--------------------------------------------------------------------------------
NOTE 17: EARNINGS PER COMMON SHARE
Earnings per common share is computed by dividing net income, adjusted for
preferred stock dividends and any interest savings, by the weighted average
common and common equivalent shares outstanding during each period presented.
Common equivalent shares include common shares issuable under the Company's
stock option and award plans, the conversion of convertible debentures and
preferred stock, and restricted stock outstanding.
In 1994, the Company computed its earnings per common share under the
modified treasury stock method in accordance with Accounting Principles Board
Opinion No. 15. The modified treasury stock method is used when the number of
shares obtainable upon exercise of outstanding options, warrants and their
equivalents, in the aggregate, exceeds 20% of the Company's outstanding common
stock. Under this method, all options, warrants and their equivalents are
assumed to have been exercised, whether or not dilutive, and the aggregate
proceeds used to repurchase up to 20% of the outstanding shares. Any remaining
proceeds are then used to reduce short-term or long-term borrowings.
In 1993 and 1992, the Company computed its earnings per common share under
the treasury stock method which assumes the aggregate proceeds obtainable upon
exercise of dilutive options, warrants and their equivalents were used to
repurchase outstanding shares.
Primary earnings per common share are computed based on the weighted
average number of common shares plus the incremental shares issuable under the
Company's stock option and award plans. Also included are the incremental shares
from the 6.5% Debentures for the year ended December 31, 1994. The 6.5%
Debentures issued during 1992 did not have a dilutive effect on primary or fully
diluted earnings per common share for the years ended December 31, 1993 and
1992, and therefore, were excluded from the computations.
Fully diluted earnings per common share for the years ended December 31, 1994,
1993 and 1992, in addition to the above, assumes the conversion of the 8%
Debentures. For the year ended December 31, 1994, the fully diluted number
assumes the conversion of the Convertible Preferred Stock. For the years ended
December 31, 1993 and 1992, the fully diluted number assumes the conversion of
the $1.375 Convertible Exchangeable Preferred Stock, and 1992 includes the
dilutive effect of the 7% Cumulative Convertible Exchangeable Voting Preferred
Stock, Series A.
Page 59
<PAGE> 33
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
The Company had the following weighted average number of common and common
equivalent shares outstanding:
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PRIMARY:
Weighted average common shares outstanding 71,693,020 68,535,178 61,956,106
Incremental stock options and awards 6,370,453 5,824,821 5,611,289
Weighted average effect of Cumulative Participating
Convertible Voting Preferred Stock - 4,329,959 1,812,468
---------------------------------------
Average common and common equivalent shares 78,063,473 78,689,958 69,379,863
=======================================
FULLY DILUTED:
Weighted average common shares outstanding 71,693,020 68,535,178 61,956,106
Incremental stock options and awards 7,673,929 6,785,963 6,710,424
Weighted average effect of Cumulative Participating
Convertible Voting Preferred Stock - 4,329,959 1,812,468
Weighted average common shares issuable assuming conversion
of 8% Debentures and equity securities 1,647,190 4,676,191 21,886,440
---------------------------------------
Average common and common equivalent shares 81,014,139 84,327,291 92,365,438
=======================================
</TABLE>
The weighted average number of common and common equivalent shares for the
year ended December 31, 1994 includes the 21,500,000 common shares issued in
connection with the Kidder acquisition, weighted for the period the shares were
outstanding from December 16, 1994 through December 31, 1994. Similarly, the
Convertible Preferred Stock was included in the fully diluted number of common
and common equivalent shares based on the same period.
Page 60
<PAGE> 34
PaineWebber Annual Report 1994
--------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
PAINE WEBBER GROUP INC.
We have audited the accompanying consolidated statements of financial condition
of Paine Webber Group Inc. as of December 31, 1994 and 1993 and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Paine Webber
Group Inc. at December 31, 1994 and 1993 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
New York, New York
January 31, 1995
/s/ Ernst & Young LLP
Page 61
<PAGE> 35
FIVE YEAR FINANCIAL SUMMARY
(in thousands except share and per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
1994(1) 1993 1992 1991 1990(2)
----------------------------------------------------------------------------------------------------------------------------------
Amount % Amount % Amount % Amount % Amount %
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
COMMISSIONS
Listed securities $ 504,829 19.9 $ 525,541 18.3 $ 434,957 17.5 $ 390,434 18.5 $ 344,579 19.8
Mutual funds 156,242 6.2 161,661 5.6 127,425 5.1 104,087 4.9 67,157 3.9
Options 75,494 3.0 74,058 2.6 65,615 2.6 47,092 2.2 46,372 2.7
Direct investments 858 0.0 4,553 0.2 15,288 0.6 24,937 1.2 39,326 2.3
Commodities 38,171 1.5 55,374 1.9 71,900 2.9 67,463 3.2 71,006 4.1
Over-the-counter securities 71,254 2.8 77,471 2.7 53,874 2.2 42,250 2.0 28,626 1.6
Insurance 123,446 4.9 97,469 3.4 52,819 2.2 46,785 2.2 55,172 3.2
----------------------------------------------------------------------------------------------------
970,294 38.3 996,127 34.7 821,878 33.1 723,048 34.2 652,238 37.6
----------------------------------------------------------------------------------------------------
PRINCIPAL TRANSACTIONS
Corporate securities 330,480 13.0 345,360 12.0 293,422 11.8 365,815 17.4 240,122 13.8
U.S. government and
agency obligations 82,584 3.3 321,514 11.2 331,071 13.3 205,565 9.7 158,077 9.1
Municipal obligations 106,374 4.2 112,570 3.9 95,296 3.8 77,912 3.7 69,759 4.0
----------------------------------------------------------------------------------------------------
519,438 20.5 779,444 27.1 719,789 28.9 649,292 30.8 467,958 26.9
----------------------------------------------------------------------------------------------------
INVESTMENT BANKING
Selling concessions and
underwriting fees:
Corporate securities 136,494 5.4 223,745 7.8 217,180 8.8 160,950 7.6 101,540 5.9
Municipal obligations 32,608 1.3 55,573 1.9 40,705 1.6 30,288 1.4 28,849 1.7
Underwriting
management fees:
Corporate securities 44,592 1.7 70,510 2.4 51,394 2.1 37,485 1.8 25,091 1.4
Municipal obligations 7,033 0.3 13,303 0.5 9,385 0.4 6,033 0.3 6,965 0.4
Private placement and
other fees 63,776 2.5 50,512 1.8 65,657 2.6 62,847 3.0 72,995 4.2
----------------------------------------------------------------------------------------------------
284,503 11.2 413,643 14.4 384,321 15.5 297,603 14.1 235,440 13.6
----------------------------------------------------------------------------------------------------
ASSET MANAGEMENT 356,368 14.1 325,690 11.3 267,088 10.8 217,433 10.3 181,324 10.4
----------------------------------------------------------------------------------------------------
OTHER 138,902 5.5 113,253 3.9 76,114 3.1 64,271 3.1 47,038 2.7
----------------------------------------------------------------------------------------------------
INTEREST
Resale agreements 538,532 21.2 419,520 14.6 382,766 15.4 457,507 21.7 673,742 38.8
Trading inventory 569,990 22.5 621,828 21.6 463,956 18.7 443,114 21.0 369,265 21.3
Client margin accounts 220,382 8.7 158,440 5.5 132,388 5.3 133,711 6.4 160,151 9.2
Other 365,668 14.4 176,772 6.2 115,431 4.6 179,916 8.5 191,349 11.0
----------------------------------------------------------------------------------------------------
1,694,572 66.8 1,376,560 47.9 1,094,541 44.0 1,214,248 57.6 1,394,507 80.3
----------------------------------------------------------------------------------------------------
TOTAL REVENUES 3,964,077 156.4 4,004,717 139.3 3,363,731 135.4 3,165,895 150.1 2,978,505 171.5
INTEREST EXPENSE 1,428,653 (56.4) 1,130,712 (39.3) 879,242 (35.4) 1,056,124 (50.1) 1,242,151 (71.5)
----------------------------------------------------------------------------------------------------
NET REVENUES $ 2,535,424 100.0 $ 2,874,005 100.0 $2,484,489 100.0 $2,109,771 100.0 $ 1,736,354 100.0
====================================================================================================
</TABLE>
Page 62
<PAGE> 36
FIVE YEAR FINANCIAL SUMMARY
(in thousands except share and per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
1994(1) 1993 1992 1991 1990(2)
-----------------------------------------------------------------------------------------------------------------------------------
Amount % Amount % Amount % Amount % Amount %
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NON-INTEREST EXPENSES
Compensation
and benefits $ 1,546,467 61.0 $ 1,628,889 56.7 $ 1,432,930 57.7 $ 1,228,070 58.2 $ 1,032,475 59.5
Office and equipment 225,375 8.9 211,880 7.4 192,948 7.8 187,985 8.9 185,309 10.7
Communications 130,095 5.1 123,601 4.3 112,255 4.5 113,780 5.4 121,484 7.0
Business development 85,430 3.4 93,962 3.3 75,061 3.0 67,420 3.2 66,567 3.8
Brokerage, clearing and
exchange fees 82,577 3.2 79,752 2.8 75,689 3.1 63,219 3.0 63,316 3.6
Professional services 78,856 3.1 66,825 2.2 59,820 2.4 52,479 2.5 62,784 3.6
Other 342,239 13.5 261,520 9.1 196,671 7.9 170,571 8.1 157,924 9.1
Restructuring and merchant
banking reserves -- -- -- -- -- -- -- -- 149,128 8.6
-------------------------------------------------------------------------------------------------------
TOTAL NON-INTEREST
EXPENSES 2,491,039 98.2 2,466,429 85.8 2,145,374 86.4 1,883,524 89.3 1,838,987 105.9
-------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE TAXES 44,385 1.8 407,576 14.2 339,115 13.6 226,247 10.7 (102,633) (5.9)
Income taxes (benefit) 12,754 0.5 161,393 5.6 125,940 5.0 75,531 3.6 (45,282) (2.6)
-------------------------------------------------------------------------------------------------------
Net income (loss) $ 31,631 1.3 $ 246,183 8.6 $ 213,175 8.6 $ 150,716 7.1 $ (57,351) (3.3)
=======================================================================================================
EARNINGS (LOSS) PER
COMMON SHARE:(3)
Primary $ 0.41 $ 3.11 $ 2.83 $ 2.10 $ (1.44)
Fully diluted $ 0.41 $ 2.95 $ 2.37 $ 1.67 $ (1.44)
=======================================================================================================
WEIGHTED AVERAGE
COMMON SHARES:(3)
Primary 78,063,473 78,689,958 69,379,863 60,745,674 56,043,744
Fully diluted 81,014,139 84,327,291 92,365,438 95,178,175 56,043,744
=======================================================================================================
DIVIDENDS DECLARED
PER SHARE:
Common stock(3) $ .48 $ .38 $ .31 $ .24 $ .23
Preferred stock:
7% Preferred Stock $ -- $ -- $ 2.336 $ 3.115 $ 3.115
$1.375 Preferred Stock $ -- $ 1.241 $ 1.375 $ 1.375 $ 1.375
Participating Preferred
Stock $ -- $ .33 $ .053 $ -- $ --
=======================================================================================================
</TABLE>
(1) The 1994 results include after-tax costs of $36 million ($50 million before
income taxes) and $34 million ($57 million before income taxes) related to
the Kidder, Peabody Group Inc. acquisition and a non-recurring mutual fund
charge, respectively.
(2) The 1990 results include an after-tax charge of $95 million ($149 million
before income taxes) for restructuring and merchant banking reserves.
(3) All share and per share data have been restated to reflect three-for-two
common stock splits in March 1994 and December 1991.
Page 63
<PAGE> 37
COMMON STOCK AND QUARTERLY INFORMATION
-------------------------------------------------------------------------------
COMMON STOCK DIVIDEND HISTORY
During 1994, Paine Webber Group Inc. continued its policy of paying quarterly
common stock dividends. Dividends declared during the last twelve quarters were
as follows:
<TABLE>
<CAPTION>
Calendar Quarter
1st 2nd 3rd 4th
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 $ .12 $ .12 $.12 $ .12
1993 .08 .10 .10 .10
1992 .067 .08 .08 .08
</TABLE>
On February 2, 1995, Paine Webber Group Inc. declared its 1995 first
quarter dividend of $0.12 per share. However, there is no assurance that
dividends will continue to be paid in the future since they are dependent upon
income, financial condition and other factors, including the restrictions
described in Note 9 in the Notes to Consolidated Financial Statements.
--------------------------------------------------------------------------------
MARKET FOR COMMON STOCK
The common stock of Paine Webber Group Inc. is listed on the New York Stock
Exchange ("NYSE") and the Pacific Stock Exchange. The following table summarizes
the high and low sales prices per share of the common stock as reported on the
Composite Tape for the periods indicated:
<TABLE>
<CAPTION>
High Low
----------------------------------------------------------------------------------
<S> <C> <C>
CALENDAR 1994
4th Quarter $ 15.88 $ 12.75
3rd Quarter 17.13 14.13
2nd Quarter 17.50 15.00
1st Quarter 19.75 16.50
======================
CALENDAR 1993
4th Quarter $ 23.09 $ 17.00
3rd Quarter 22.83 18.58
2nd Quarter 19.75 15.83
1st Quarter 18.17 14.08
======================
</TABLE>
On February 10, 1995, the last reported sale price per share of common
stock on the NYSE was $16.00.
The approximate number of holders of record of Paine Webber Group Inc.
common stock as of the close of business on February 15, 1995 was 6,478.
Included as one holder of record is PaineWebber Incorporated, which holds
securities beneficially owned by approximately 4,636 clients.
--------------------------------------------------------------------------------
QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
<TABLE>
<CAPTION>
Earnings (loss) per
Income Net common share
(In thousands of dollars Total Net (loss) before Income Primary/Fully
except per share amounts) Revenues Revenues taxes (loss) diluted
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CALENDAR 1994
4th Quarter $ 1,039,231 $ 614,567 $(40,499)(1) $(19,299)(1) $(.28)/(.28)(1)
3rd Quarter 940,049 589,814 33,895 20,337 .27/.26
2nd Quarter 902,349 578,966 (41,758)(2) (25,055)(2) (.35)/(.35)(2)
1st Quarter 1,082,448 752,077 92,747 55,648 .71/.70
==================================================================================
CALENDAR 1993
4th Quarter $ 1,075,830 $ 754,037 $ 94,791 $ 56,875 $ .74/.72
3rd Quarter 1,043,250 736,755 99,367 59,123 .75/.72
2nd Quarter 954,936 686,463 97,215 59,301 .74/.69
1st Quarter 930,701 696,750 116,203 70,884 .89/.84
==================================================================================
</TABLE>
The sum of the quarterly earnings per share amounts does not equal the
annual amount reported, as per share amounts are computed independently for each
quarter and the full year based on respective weighted average common and common
equivalent shares outstanding during each period.
(1) Includes after-tax costs of $36 million ($50 million before income taxes)
related to the Kidder acquisition.
(2) Includes an after-tax charge of $34 million ($57 million before income
taxes) related to a non-recurring mutual fund charge.
Page 64
<PAGE> 1
EXHIBIT 21
PAINE WEBBER GROUP INC.
SUBSIDIARIES OF THE REGISTRANT
A list of significant subsidiaries, all of which are consolidated, of
Paine Webber Group Inc. (the "Company") as of December 31, 1994 and the
state or jurisdiction in which organized follows. In each case, 100% of
the voting securities are owned by the Company. Certain subsidiaries
have been omitted because, in the aggregate, they do not constitute a
significant subsidiary.
<TABLE>
<CAPTION>
State or
jurisdiction of
Name organization
---- ----------------
<S> <C>
PaineWebber Incorporated Delaware
Mitchell Hutchins Asset Management Inc. Delaware
Correspondent Services Corporation (csc) Delaware
PaineWebber International (U.K.) Ltd. United Kingdom
PW Treasury Funding Inc. Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report on Form
10-K of Paine Webber Group Inc. of our report dated January 31, 1995,
included in the 1994 Annual Report to Stockholders of Paine Webber Group
Inc.
We also consent to the incorporation by reference in the registration
statements on Form S-8 (Registration Nos. 2-56284, 2-64984, 2-74819,
2-78627, 2-81554, 2-87418, 2-92770, 33-2959, 33-20240, 33-22265, 33-39539,
33-45583, 33-65296, 33-65298, 33-53489, 33-55451 and 33-55457) and on Form
S-3 (Registration Nos. 2-99979, 33-7738, 33-29253, 33-33613, 33-38960,
33-39818, 33-47267, 33-56156, 33-58124, 33-53776, 33-51149, 33-52695 and
33-52695-01) of Paine Webber Group Inc. and in the related prospectuses, of
our reports dated January 31, 1995 with respect to the consolidated
financial statements and consolidated financial statement schedules of
Paine Webber Group Inc. included and/or incorporated by reference in this
1994 Annual Report on Form 10-K for the year ended December 31, 1994.
/s/ ERNST & YOUNG LLP
New York, New York
March 24, 1995
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PAINE WEBBER GROUP INC. FOR THE PERIOD ENDED DECEMBER
31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000075754
<NAME> N/A
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 628,823
<RECEIVABLES> 4,390,724
<SECURITIES-RESALE> 10,804,445
<SECURITIES-BORROWED> 7,826,211
<INSTRUMENTS-OWNED> 10,784,117
<PP&E> 272,365
<TOTAL-ASSETS> 35,856,125
<SHORT-TERM> 1,889,609
<PAYABLES> 4,355,180
<REPOS-SOLD> 16,873,818
<SECURITIES-LOANED> 2,225,918
<INSTRUMENTS-SOLD> 6,034,706
<LONG-TERM> 2,315,415
<COMMON> 100,614
185,969
100,000
<OTHER-SE> 1,429,885
<TOTAL-LIABILITY-AND-EQUITY> 35,856,125
<TRADING-REVENUE> 519,438
<INTEREST-DIVIDENDS> 1,694,572
<COMMISSIONS> 970,294
<INVESTMENT-BANKING-REVENUES> 284,503
<FEE-REVENUE> 356,368
<INTEREST-EXPENSE> 1,428,653
<COMPENSATION> 1,546,467
<INCOME-PRETAX> 44,385
<INCOME-PRE-EXTRAORDINARY> 31,631
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,631
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.41
</TABLE>
