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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, 1996
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:
Name of each exchange on
Title of each class which registered
------------------- ----------------
Common Stock, $1 Par Value New York Stock Exchange, Inc.
Pacific Stock Exchange, Inc.
Stock Index Return Securities on the S&P
MidCap 400 Index due June 2, 2000 American Stock Exchange,Inc.
8.30% Preferred Trust Securities* New York Stock Exchange, Inc.
* Issued by PWG Capital Trust I. Fully and unconditionally guaranteed by Paine
Webber Group Inc.
---------------------------
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 approximately $1.87 billion as of March 19, 1997. (See Item 12.)
On March 19, 1997, the Registrant had outstanding 91,654,629 shares of common
stock of $1 par value, which is Registrant's only class of common stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Parts I, II and IV incorporate information by reference from the Registrant's
1996 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 1, 1997.
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PART I
ITEM 1. BUSINESS
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 15,870 people in 298 offices worldwide. In
addition to the detailed information set forth below, incorporated herein by
reference is the general business description information on the Company, under
the caption "Management's Discussion and Analysis" on page 25 in the 1996 Annual
Report to Stockholders.
The Company's business activities are highly integrated and constitute a single
industry segment. Financial information for the years ended December 31, 1996,
1995 and 1994, including the amount of total revenue contributed by class of
similar products or services contributing 10% or more of consolidated revenue
and information on geographic data, is set forth in the Consolidated Financial
Statements and the Notes thereto, and the "Five Year Financial Summary," in the
1996 Annual Report to Stockholders incorporated herein by reference.
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 securities (listed and over-the-counter securities), mutual funds,
insurance products, options, fixed income instruments, commodities and financial
futures. 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 (59%)
is derived from brokerage transactions in listed securities and options. 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 the 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 which are sold by PWI as agent.
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 nonaffiliated 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.
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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, agricultural products, in addition to
managed futures and commodity funds. Transactions in futures contracts are on
margin and are subject to individual exchange regulations. The risk to the
Company's clients in futures transactions, and the resulting credit risk to the
Company, is greater than the risk in cash securities transactions, principally
due to the low initial margin requirements relative to the nominal value of the
actual futures contract. Additionally, commodities exchange regulations
governing 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, acts
as trustee, custodian or investment manager of retirement assets for
approximately 1,200 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 options include managed money, mutual funds and
annuities. 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.
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 Nasdaq
National Market 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). Profits
and losses on the repurchase transactions result from the interest rate
differentials.
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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 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 31 in the 1996 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 OTC options. These risks are controlled by
the use of standard documentation whenever possible providing for early
termination and collateral calls, and by entering into master netting agreements
when feasible. 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
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 44 and
page 47, respectively, in the 1996 Annual Report to Stockholders.
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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 market risk modeling, review of trading positions and
hedging strategies, and monitoring adherence to established limits by an
independent risk management group. Market risk monitoring is based on estimating
loss exposure through stress testing. These results are compared to established
limits, and exceptions are subject to review and approval by senior management.
INVESTMENT BANKING
The Company manages and underwrites public offerings of debt and equity
securities, arranges private placements and provides financial advice in
connection with mergers and acquisitions, restructurings and reorganizations for
domestic and international companies.
The Company manages public offerings of corporate debt and equity securities or
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 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.
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, through certain subsidiaries, may participate from time to time as
an equity investor or provide financing commitments or other extensions of
credit associated with merchant banking and other principal investments.
ASSET MANAGEMENT
The Asset Management group is comprised of Mitchell Hutchins Asset Management
Inc. ("MHAM"), including Mitchell Hutchins Investment Advisory division,
Mitchell Hutchins Institutional Investors Inc. and Financial Counselors Inc. The
Asset Management group provides investment advisory and portfolio management
services to mutual funds, institutions, pension funds, endowment funds,
individuals and trusts. 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, 1996, total assets under management were
$44.8 billion.
MARGIN LENDING
Client securities transactions are executed on either a cash or margin basis. In
a margin transaction, the Company extends credit to a client for the purchase of
securities, using the securities purchased and/or other securities in the
client's account as collateral for amounts loaned. The Company receives income
from interest charged on such extensions of credit. Amounts loaned are limited
by margin requirements which are subject to the Company's credit review and
daily monitoring procedures and are generally more restrictive than the margin
regulations of the Federal Reserve Board and other regulatory authorities. The
Company may lend to other brokers or use as collateral a portion of the margin
securities to the extent permitted by applicable margin regulations.
<PAGE> 6
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.
SECURITIES LENDING
In connection with both its trading and brokerage transactions, the Company
borrows and lends securities to and from brokers and dealers and banks,
principally to cover short sales and to complete transactions where the customer
has not delivered securities by the settlement date. The borrower of securities
is generally required to deposit cash or another form of qualifying collateral
with the lender. The borrower receives only a portion of the interest earned on
the cash deposit or pays a fee to the lender, pursuant to an agreement between
the parties specifying the terms of the transaction.
INTERNATIONAL
Portions of the Company's core business activities are conducted through
PaineWebber International Inc. and its subsidiaries (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 770 companies in 53 industries are
covered by the division's analysts. In addition to fundamental company and
industry research, the Company offers research products and services in the
following areas: asset allocation, economics, fixed income and high-yield
issues, convertible and closed-end bond funds, country funds and derivatives.
OTHER ACTIVITIES
The Commercial 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, equity and partnership investments, debt
restructuring, property sales and bulk sales services, and other advisory
services.
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 550 equity issues.
Correspondent Services Corporation ("CSC"), a registered broker-dealer, provides
execution and clearing services of securities to approximately 115
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.
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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, while
the Commodity Futures Trading Commission ("CFTC") provides this function over
all national commodities and futures 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 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. 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.
As a registered broker-dealer and member firm of the NYSE, PWI is subject to the
Net Capital Rule (Rule 15c3-1 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), which also has been adopted through incorporation
by reference in NYSE Rule 325. The Net Capital Rule, which specifies minimum net
capital requirements for registered broker-dealers, is designed to measure the
financial soundness and liquidity of broker-dealers. 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.
Pursuant to SEC and CFTC regulations, registered broker-dealers and futures
commission merchants ("FCMs") must 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 Company. Securities broker-dealers and FCMs are also required
to file with the SEC and 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.
<PAGE> 8
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 December 31, 2015.
The Company is currently leasing approximately 622,000 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 950,000 square feet of space at Lincoln Harbor
in Weehawken, New Jersey under leases expiring December 31, 2013. The Lincoln
Harbor facility houses the Private Client Group headquarters, systems,
operations, administrative services, and finance and training divisions.
At December 31, 1996, the Company maintained 298 offices worldwide under leases
expiring between 1997 and 2015. In addition, the Company leases various
furniture and equipment.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in a number of proceedings concerning matters arising in
connection with the conduct of its business. Certain actions, in which
compensatory damages of $163 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 $163 million appear to be sought, or in which
punitive or exemplary damages, together with the apparent compensatory damages
alleged, appear to exceed $163 million. The Company has 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.
IN RE NASDAQ MARKET-MAKER ANTITRUST LITIGATIONS
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 pre-trial 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 refiled consolidated 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. On December 18, 1995, PaineWebber
filed its answer to plaintiffs' refiled consolidated complaint. The parties are
presently engaged in pre-trial discovery. On November 26, 1996, the Court
conditionally certified a class of retail investors who bought or sold certain
NASDAQ securities through defendants (and in limited cases through
non-defendants) during certain periods of time. Plaintiffs' motion for
certification of a class of institutional investors is pending.
PaineWebber and two other broker-dealers were named as defendants in litigation
brought in November 1994 and subsequently styled In Re Merrill Lynch et al.,
Securities Litigation, Civ. No. 94-5343 (DRD). The amended complaint, filed in
March 1995, alleged that defendants violated federal securities laws in
connection with the execution of orders to buy and sell NASDAQ securities. On
December 13, 1995, the District Court granted defendants' motion for summary
judgment. On January 19, 1996, the plaintiffs filed a notice of appeal to the
United States Court of Appeals for the Third Circuit. The appeal was heard on
October 24, 1996, and the Court has not yet ruled on this appeal.
On July 16, 1996, PaineWebber Incorporated entered into a Stipulation and Order
resolving a civil complaint filed by the United States Department of Justice,
alleging that it and other NASDAQ market makers violated Section 1 of the
Sherman Act in connection with certain market making practices. In entering into
the Stipulation and Order, without admitting the allegations, the parties agreed
that the defendants would not engage in certain types of market making
activities and the defendants undertook specified steps to assure compliance
with their agreement. The Stipulation and Order is subject to approval by the
United States District Court for the Southern District of New York following a
public hearing, and if that Court approves the Stipulation and Order, the
complaint will be dismissed with prejudice.
<PAGE> 9
LIMITED PARTNERSHIP PROCEEDINGS
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 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.
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
are 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 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 of 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' complaints.
On January 18, 1996, PaineWebber signed and filed with the federal court a
memorandum of understanding with the plaintiffs in both the Federal Court
Limited Partnership Actions and the Geodyne Limited Partnership Actions
outlining the terms under which the parties have agreed to settle these actions.
Pursuant to that memorandum of understanding, PaineWebber irrevocably deposited
$125 million into an escrow fund under the supervision of the United States
District Court for the Southern District of New York to be used to resolve the
Federal Court and Geodyne Limited Partnership Actions in accordance with the
definitive settlement agreement and plan of allocation which the parties
subsequently submitted to the court for its consideration and approval. The
court held hearings on the fairness of the settlement in October and November
1996. On March 20, 1997, the court issued an order approving the settlement.
In addition, three actions were filed against the Company in the District Court
for Brazoria County, Texas, two captioned Mallia v.PaineWebber, Inc. ("Mallia I"
and "Mallia II") and one captioned Billy Hamilton v. PaineWebber ("Hamilton"),
relating to the Company's sale and sponsorship of various limited partnership
investments. Mallia I was originally filed as a class action, but was later
amended to assert claims only on behalf of the named plaintiffs. The complaints
in Mallia I, Mallia II, and Hamilton, collectively, make allegations on behalf
of approximately 65 named plaintiffs that are substantially similar to those in
the Federal Court Limited Partnership Actions except that the plaintiffs purport
to bring only state law claims, principally for common law fraud, negligent
misrepresentation, breach of fiduciary duty, violations of the Texas Securities
Act, and violations of the Texas Deceptive Trade Practices Act, on behalf of
those
<PAGE> 10
investors who bought interests in Pegasus aircraft leasing partnerships and in
unspecified other limited partnerships and investments. The plaintiffs seek
unspecified damages. All three actions have been removed to federal court and
the two Mallia actions have been transferred to the United States District Court
for the Southern District of New York. The Hamilton action has been dismissed
with the consent of the parties on the grounds that it is duplicative of the two
Mallia actions now before the federal court in New York.
In April 1995, two investors in the Pegasus limited partnership filed a
purported class action in the Circuit Court of the State of Illinois for Cook
County entitled Jacobson v. PaineWebber, Inc., making allegations substantially
similar to those alleged in the Federal Court Limited Partnership Actions, but
limited in subject matter to the sale of the Pegasus partnerships, and without a
RICO claim. The complaint sought unspecified damages. The plaintiffs in the
Jacobson case simultaneously remained as participants in the Federal Court
Limited Partnership Actions, and subsequently dismissed the Illinois action but
objected to the proposed settlement of the Federal Court Limited Partnership
Actions. As noted above, on March 20, 1997, the court approved the fairness of
the settlement.
On January 18, 1996, the Securities and Exchange Commission commenced, and
PaineWebber Incorporated simultaneously settled, civil and administrative
proceedings relating to the firm's sale of public proprietary limited
partnerships in the 1980s and early 1990s. Without admitting or denying the
SEC's allegations or findings, the firm agreed to the entry of an administrative
cease and desist order, created a capped $40 million fund, paid a $5 million
civil penalty, and committed to pay $7.5 million of additional investor claims
relating to the limited partnerships. As part of the settlement, PaineWebber
Incorporated represented that it had previously paid approximately $120 million
to resolve investor claims over a period of several years prior to the SEC
settlement. Additionally, pursuant to the order an independent consultant has
reviewed the firm's policies and procedures concerning retail brokerage
operations and the dissemination of sales and marketing materials, and has made
certain recommendations which the firm is implementing. On the same date,
PaineWebber Incorporated also announced an agreement to settle with the various
state securities regulators pursuant to which PaineWebber Incorporated has made
payments in excess of $4.5 million.
SHORT-TERM U.S. GOVERNMENT INCOME FUND PROCEEDING
The United States Securities and Exchange Commission has informed Mitchell
Hutchins Asset Management Inc. ("MHAM") that it has authorized the institution
of an administrative proceeding against MHAM alleging violations of various
provisions of Federal securities laws in connection with the sale of the Paine
Webber Short-Term U.S. Government Income Fund in 1993 and 1994. MHAM is engaged
in settlement discussions with the SEC to resolve this matter. It expects that
any settlement of this matter will not have a material impact on MHAM's
operations or financial results.
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 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 purchases 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-
<PAGE> 11
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.
On April 4, 1995, the United States Court of Appeals for the Third Circuit
entered an order vacating its order of November 8, 1994, and granted plaintiffs'
application for rehearing and remanded the case to the District Court for
reconsideration. Following the remand by the Third Circuit Court of Appeals, on
August 24, 1995, the District Court entered an order dismissing the action as to
all defendants. On February 20, 1996, plaintiffs filed a notice of appeal from
the District Court's order dismissing the action. On September 16, 1996, the
Third Circuit Court of Appeals heard arguments on plaintiffs' appeal. The court
has not yet ruled on the appeal.
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 1, 1997 ("Proxy Statement")
to be filed with the SEC 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:
Steven P. Baum, 44, is Executive Vice President and Director of the Global Fixed
Income and Commercial Real Estate group of PWI, a position he has held since
November 1995. From January 1995 to October 1995, he served as Director of the
Commercial Real Estate group and co-director of the Global Fixed Income group.
Prior to joining the Company in January 1995, Mr. Baum was with Kidder, Peabody
& Co. from 1985 to 1994 where he served in various capacities in the Fixed
Income group including co-head of the Fixed Income Department from July 1994 to
January 1995 and head of the Commercial Real Estate group from 1991 to July
1994.
Regina Dolan, 42, 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 Executive 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, 52, is General Counsel, Vice President and Secretary of PWG,
and is an Executive Vice President of PWI, positions he has held since June 15,
1993. Prior to joining the Company, Mr. Levine was a partner at the Washington
D.C.- based law firm of Wilmer, Cutler and Pickering from February 1984 to June
1993. He was with the Securities and Exchange Commission from 1969 to 1984 where
he rose to the position of Associate Director in the Division of Enforcement.
<PAGE> 12
Mark B. Sutton, 42, is Executive Vice President and Director of the Private
Client Group of PWI, a position he has held since January 1995. Prior to
rejoining the Company in 1995, Mr. Sutton was with Kidder, Peabody & Co. from
July 1992 to December 1994. He served as Managing Director and Chief Operating
Officer of its brokerage unit until July of 1994 when he became the Chief
Executive Officer of Kidder, Peabody's Investment Services Division. Mr.
Sutton's original tenure with PaineWebber was from 1978 to 1992 where he served
in various capacities including Director of Transaction Services and Managing
Director of MHAM.
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 1996 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 1996
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 25 in the 1996 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.
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.
<PAGE> 13
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 Arrangements with Directors" and
"Certain Transactions and Arrangements" in the Proxy Statement and is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, 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 filed 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
and PWI (incorporated by reference to Exhibit 1.2 of Registrant's
Registration Statement No. 33-52695 filed with the SEC on October
16, 1995).
3.1 - Restated Certificate of Incorporation of Registrant, as filed
with the Office of the Secretary of State of the State of
Delaware on May 4, 1987 (incorporated by reference to Exhibit 3.1
of Registrant's Registration Statement No. 33-52695 on Form S-3
filed with the SEC on October 16, 1995).
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 - 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).
<PAGE> 14
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 3.1 of Registrant's
Registration Statement No. 33-52695 on Form S-3 filed with the
SEC on October 16, 1995).
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 3.2 of Registrant's Registration
Statement No. 33-52695 on Form S-3 filed with the SEC on
October 16, 1995).
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 10, 1994 (incorporated by reference to
Registrant's Form 8-K dated February 10, 1994).
4.1 - Form of Debt Securities (8-7/8% Notes due 2005) (incorporated by
reference to Exhibit 4.1 of Registrant's Form 10-K for the year
ended December 31, 1995).
4.2 - Form of Debt Securities (8-1/4% Notes due 2002) (incorporated by
reference to Exhibit 4.2 of Registrant's Form 10-K for the year
ended December 31, 1995).
4.3 - Form of Debt Securities (6-3/4% Notes due 2006) (incorporated by
reference to Exhibit 4.3 of Registrant's Form 10-K for the year
ended December 31, 1995).
4.4 - Form of Debt Securities (6-1/4% Notes due 1998) (incorporated by
reference to Exhibit 4.4 of Registrant's Form 10-K for the year
ended December 31, 1995).
4.5 - Form of Debt Securities (6-1/2% Notes due 2005) (incorporated by
reference to Exhibit 4.1 of Registrant's Form 10-K for the year
ended December 31, 1994).
4.6 - Form of Debt Securities (7-5/8% Notes due 2014) (incorporated by
reference to Exhibit 4.2 of Registrant's Form 10-K for the year
ended December 31, 1994).
4.7 - Form of Debt Securities (7-3/4% Notes due 2002) (incorporated by
reference to Exhibit 4.3 of Registrant's Form 10-K for the year
ended December 31, 1994).
4.8 - 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).
<PAGE> 15
4.9 - 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).
4.10 - Supplemental Indenture dated as of November 30, 1993 between
Registrant and Chase Manhattan Bank Delaware (formerly known as
Chemical Bank (Delaware)), as Trustee, relating to the
Subordinated Debt Securities (incorporated by reference to
Exhibit 4.2g of Registrant's Registration Statement No. 33-52695
on Form S-3 filed with the SEC on October 16, 1995).
4.11 - Indenture dated as of March 15, 1988 between Registrant and Chase
Manhattan Bank Delaware (formerly known as Chemical Bank
(Delaware)), as Trustee, relating to Registrant's Subordinated
Debt Securities (incorporated by reference to Exhibit 4.2d of
Registrant's Registration Statement No. 33-52695 on Form S-3
filed with the SEC on October 16, 1995).
4.12 - Supplemental Indenture dated as of September 22, 1989, to the
Indenture dated as of March 15, 1988, between Registrant and
Chase Manhattan Bank Delaware (formerly known as Chemical Bank
(Delaware)), as Trustee, relating to Subordinated Debt Securities
(incorporated by reference to Exhibit 4.2e of Registrant's
Registration Statement No. 33-52695 on Form S-3 filed with the
SEC on October 16, 1995).
4.13 - Supplemental Indenture dated as of March 22, 1991 between
Registrant and Chase Manhattan Bank Delaware (formerly known as
Chemical Bank (Delaware)), as Trustee, relating to Subordinated
Debt Securities (incorporated by reference to Exhibit 4.2f of
Registrant's Registration Statement No. 33-52695 on Form S-3
filed with the SEC on October l6, 1995).
4.14 - Indenture dated as of March 15, 1988 between Registrant and The
Chase Manhattan Bank (formerly known as Chemical Bank), as
Trustee, relating to Registrant's Senior Debt Securities,
(incorporated by reference to Exhibit 4.2a of Registrant's
Registration Statement No. 33-52695 on Form S-3 filed with the
SEC on October 16, 1995).
4.15 - Supplemental Indenture dated as of September 22, 1989, to the
Indenture dated as of March 15, 1988 between Registrant and The
Chase Manhattan Bank (formerly known as Chemical Bank), as
Trustee, relating to Senior Debt Securities (incorporated by
reference to Exhibit 4.2b of Registrant's Registration Statement
No. 33-52695 on Form S-3 filed with the SEC on October 16, 1995).
4.16 - Supplemental Indenture dated as of March 22, 1991 between
Registrant and The Chase Manhattan Bank (formerly known as
Chemical Bank), as Trustee, relating to Senior Debt Securities
(incorporated by reference to Exhibit 4.2c of Registrant's
Registration Statement No. 33-52695 on Form S-3 filed with the
SEC on October 16, 1995).
4.17 - Form of Debt Securities (9-1/4% Notes Due 2001) (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).
<PAGE> 16
4.22 - Proposed Form of Debt Securities (Medium-Term Senior Note, Series
C, Fixed Rate) (incorporated by reference to Exhibit 4.1a to
Registrant's Registration Statement No. 33-52695 on Form S-3
filed with the SEC on October 16, 1995).
4.23 - Proposed Form of Debt Securities (Medium-Term Subordinated Note,
Series D, Fixed Rate) (incorporated by reference to Exhibit 4.1b
to Registrant's Registration Statement No. 33-52695 on Form S-3
filed with the SEC on October 16, 1995).
. 4.24 - Proposed Form of Debt Securities (Medium-Term Subordinated Note,
Series C, Floating Rate) (incorporated by reference to Exhibit
4.1c to Registrant's Registration Statement No. 33-52695 on Form
S-3 filed with the SEC on October 16, 1995).
4.25 - Proposed Form of Debt Securities (Medium-Term Subordinated Note,
Series D, Floating Rate) (incorporated by reference to Exhibit
4.1d to Registrant's Registration Statement No. 33-52695 on Form
S-3 filed with the SEC on October 16, 1995).
4.26 - Proposed Form of Debt Securities (Senior Note, Fixed Rate)
(incorporated by reference to Exhibit 4.1c to Registrant's
Registration Statement No. 33-58124 on Form S-3 filed with the
SEC on February 10, 1993).
4.27 - Proposed Form of Debt Securities (Subordinated Note, Fixed Rate)
(incorporated by reference to Exhibit 4.1f to Registrant's
Registration Statement No. 33-58124 on Form S-3 filed with the
SEC on February 10, 1993).
4.28 - Form of Junior Subordinated Debt Indenture dated November 1996
between the Registrant and The Chase Manhattan Bank as Trustee
(incorporated by reference to Exhibit 4.1 of Registrant's
Registration Statement No. 333-13831 on Form S-3 filed with the
SEC on November 22, 1996).
4.29 - Certificate of Trust of PWG Capital Trust I (incorporated by
reference to Exhibit 4.4 of Registrant's Registration Statement
No. 333-13831 on Form S-3 filed with the SEC on November 22,
1996).
4.30 - Form of Amended and Restated Declaration of Trust for PWG Capital
Trust I (incorporated by reference to Exhibit 4.11 of
Registrant's Registration Statement No. 333-13831 on Form S-3
filed with the SEC on November 22, 1996).
4.31 - Form of Preferred Security relating to Preferred Trust Securities
of PWG Capital Trust I (incorporated by reference to Exhibit 4.12
of Registrant's Registration Statement No. 333-13831 on Form S-3
filed with the SEC on November 22, 1996).
4.32 - Form of Supplemental Indenture to be used in connection with
issuance of Junior Subordinated Debt Securities (incorporated by
reference to Exhibit 4.13 of Registrant's Registration Statement
No. 333-13831 on Form S-3 filed with the SEC on November 22,
1996).
4.33 - Form of Junior Subordinated Debt Security (incorporated by
reference to Exhibit 4.14 of Registrant's Registration Statement
No. 333-13831 on Form S-3 filed with the SEC on November 22,
1996).
4.34 - Form of Guarantee with respect to Preferred Securities relating
to Preferred Trust Securities of PWG Capital Trust I
(incorporated by reference to Exhibit 4.15 of Registrant's
Registration Statement No. 333-13831 on Form S-3 filed with the
SEC on November 22, 1996).
<PAGE> 17
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 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 SEC 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 August 30, 1996 among, PWI, the
Initial Lenders named therein, and The Chase Manhattan Bank, as
Administrative Agent, relating to the $750 million secured credit
facility.
Credit Agreement dated as of August 30, 1996 among, Paine Webber
Real Estate Securities Inc., the Initial Lenders named therein,
and The Chase Manhattan Bank, as Administrative Agent, relating
to the $750 million secured credit facility.
Credit Agreement dated as of August 30, 1996 among, Paine Webber
International (U.K.) Ltd., the Initial Lenders named therein, and
The Chase Manhattan Bank, as Administrative Agent, relating to
the $750 million secured credit facility.
10.1 - Limited Partnership Agreement of PW Partners 1993 Dedicated L.P.
dated as of January 6, 1994 (incorporated by reference to Exhibit
10.1 of Registrant's Form 10-K for the year ended December 31,
1994).
10.2 - Limited Partnership Agreement of PW Partners 1993 L.P. dated as
of February 2, 1994 (incorporated by reference to Exhibit 10.2 of
Registrant's Form 10-K for the year ended December 31, 1994).
10.3 - Registrant's 1994 Executive Incentive Compensation Plan
(incorporated by reference to Exhibit 10.3 of Registrant's Form
10-K for the year ended December 31, 1994).
10.4 - Registrant's 1994 Senior Officer Deferred Compensation Plan
(incorporated by reference to Exhibit 10.4 of Registrant's Form
10-K for the year ended December 31, 1994).
10.5*- Amendment to the Registrant's Senior Officer Deferred
Compensation Plan dated as of August 15, 1996.
10.6*- Amendment to the Registrant's Senior Officer Deferred
Compensation Plan dated as of September 1, 1996.
10.7*- Omnibus Amendment to Grantor Trust Agreement under Registrant's
Senior Officer Deferred Compensation Plan dated as of August 9,
1996.
10.8*- Omnibus Amendment to Grantor Trust Agreement under Registrant's
Senior Officer Deferred Compensation Plan dated as of August 15,
1996.
10.9 - Registrant's 1994 Senior Officer Deferred Compensation Plan
Grantor Trust Agreement on behalf of Donald B. Marron
(incorporated by reference to Exhibit 10.5 of Registrant's Form
10-K for the year ended December 31, 1994).
10.10- Registrant's 1994 Senior Officer Deferred Compensation Plan
Grantor Trust Agreement on behalf of Joseph J. Grano
(incorporated by reference to Exhibit 10.7 of Registrant's Form
10-K for the year ended December 31, 1994).
- -------------------
* Filed herewith
<PAGE> 18
10.11- Registrant's 1994 Senior Officer Deferred Compensation Plan
Grantor Trust Agreement on behalf of Regina A. Dolan
(incorporated by reference to Exhibit 10.8 of Registrant's Form
10-K for the year ended December 31, 1994).
10.12*- Registrant's 1994 Senior Officer Deferred Compensation Plan
Grantor Trust Agreement on behalf of Steven Baum.
10.13*- Registrant's 1994 Senior Officer Deferred Compensation Plan
Grantor Trust Agreement on behalf of Mark Sutton.
10.14- Lease dated December 7, 1994 between IBM Credit Corporation and
PWI (IBM 9032-003, 9076-303 and 9672-E02) (incorporated by
reference to Exhibit 10.9 of Registrant's Form 10-K for the year
ended December 31, 1994).
10.15- Lease dated November 23, 1994 between AT&T Capital Corporation
and PWI (IBM 9021-962)(incorporated by reference to Exhibit
10.10 of Registrant's Form 10-K for the year ended December 31,
1994).
10.16 - 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).
10.17 - 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).
10.18 - 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).
10.19 - 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).
10.20 - 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).
10.21- 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 SEC on September 13, 1994).
10.22 - 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 SEC on September 13,
1994).
10.23 - 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
SEC on May 5, 1994).
10.24 - 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).
-------------------
* Filed herewith
<PAGE> 19
10.25- 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).
10.26- Letter dated as of October 27, 1995 amending certain provisions
of the Employment Agreement between Registrant, PWI and Theodore
A. Levine (incorporated by reference to Exhibit 10.20 of
Registrant's Form 10-K for the year ended December 31, 1995).
10.27- Second Restated and Amended Agreement of Lease, dated as of May
1, 1996, between 1285 Associates Limited Partnership and Paine
Webber Incorporated relating to property located at 1285 Avenue
of the Americas, New York, New York (incorporated by reference to
Exhibit 10.1 of Registrant's Form 10-Q for the quarter ended
March 31, 1996).
10.28- Guarantee dated as of May 1, 1996 between Registrant and 1285
Associates Limited Partnership relating to the lease of property
located at 1285 Avenue of the Americas, New York, New
York.(incorporated by reference to Exhibit 10.2 of Registrant's
Form 10-Q for the quarter ended March 31, 1996).
10.29- Amended and Restated 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).
10.30- Employment Agreement dated as of January 2, 1987 between
Registrant, PWI and Donald B. Marron (incorporated by reference
to Exhibit 10.23 of Registrant's Form 10-K for the year ended
December 31, 1995).
10.31- Employment Agreement dated as of January 2, 1987 between
Registrant, PWI and John A. Bult (incorporated by reference to
Exhibit 10.24 of Registrant's Form 10-K for the year ended
December 31, 1995).
10.32*-Employment Agreement dated as of April 29, 1996 between
Registrant, PWI and Joseph J. Grano, Jr.
10.33- Registrant's Supplemental Employee's Retirement Plan For Certain
Senior Officers, as amended, dated January 1, 1990 (incorporated
by reference to Exhibit 10.25 of Registrant's Form 10-K for the
year ended December 31, 1995).
10.34- 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 10.26 of Registrant's Form 10-K for the year ended
December 31, 1995).
10.35- 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
10.27 of Registrant's Form 10-K for the year ended December 31,
1995).
10.36*-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.
- ----------------
* Filed herewith
<PAGE> 20
10.37- 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).
10.38- 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).
10.39- 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).
10.40- 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).
10.41- Registrant's 1990 Stock Award and Option Plan (incorporated by
reference to Exhibit 4.1 of Registrant's Registration Statement
No. 33-40489 on Form S-8 filed with the SEC on May 13, 1991).
10.42- 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).
10.43*-Master Agreement between PWI and Quotron Systems Inc. dated
February 11, 1991.
10.44 -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).
10.45 -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 (Operations Center) located in
Weehawken, New Jersey (incorporated by reference to Exhibit 10.37
of Registrant's Form 10-K for the year ended December 31, 1995).
10.46 -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 10.38
of Registrant's Form 10-K for the year ended December 31, 1995).
10.47 -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 10.39
of Registrant's Form 10-K for the year ended December 31, 1995).
10.48 -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 10.40
of Registrant's Form 10-K for the year ended December 31, 1995).
10.49 -Agreement of Limited Partnership of Hartz-Tower B Limited
Partnership dated April 14, 1986, as amended, relating to the
Lincoln Harbor Project (Tower B/Office Building) located in
Weehawken, New Jersey (incorporated by reference to Exhibit 10.41
of Registrant's Form 10-K for the year ended December 31, 1995).
----------------
* Filed herewith
<PAGE> 21
10.50 - 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 10.42 of
Registrant's Form 10-K for the year ended December 31, 1995).
10.51*- Directors and Officers Liability and Corporation
Reimbursement insurance policy with Fiduciary Liability Rider
with National Union Fire Insurance Company.
10.52 - 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).
10.53 - 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).
10.54 - Limited Partnership Agreement of PW Partners 1995 L.P. dated as
of October 31, 1995 (incorporated by reference to Exhibit 10.47
of Registrant's Form 10-K for the year ended December 31, 1995).
10.55*- Registrant's 1994 Senior Officer Deferred Compensation Plant
Grantor Agreement on behalf of Theodore A. Levine
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
o Employment Agreement dated as of January 2, 1987 between
Registrant, PWI and Donald B. Marron (incorporated by reference
to Exhibit 10.23 of Registrant's Form 10-K for the year ended
December 31, 1995).
o* Employment Agreement dated as of April 29, 1996 between
Registrant, PWI and Joseph J. Grano Jr.
o Employment Agreement dated as of January 2, 1987 between
Registrant, PWI and John A. Bult (incorporated by reference to
Exhibit 10.24 of Registrant's Form 10-K for the year ended
December 31, 1995).
o 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).
o Letter dated as of October 27, 1995 amending the Employment
Agreement between Registrant, PWI and Theodore A. Levine
(incorporated by reference to Exhibit 10.20 of Registrant's Form
10-K for the year ended December 31, 1995).
o Registrant's Supplemental Employee's Retirement Plan for Certain
Senior Officers dated August 4, 1988 (incorporated by reference
to Exhibit 10.25 of Registrant's Form 10-K for the year ended
December 31, 1995).
o Deferred Compensation Agreement dated as of August 29, 1988
between Registrant and Donald B. Marron relating to the
Supplemental Employees Retirement Plan (incorporated by
reference to Exhibit 10.26 of Registrant's Form 10-K for the
year ended December 31, 1995).
o Deferred Compensation Agreement
dated as of August 29, 1988 between Registrant and John A. Bult
relating to the Supplemental Employees Retirement Plan
(incorporated by reference to Exhibit 10.27 of Registrant's Form
10-K for the year ended December 31, 1995).
o Agreement and Declaration of Trust for Supplemental Employees
Retirement Plan dated as of January 1, 1990 between Registrant
and Chase Manhattan Bank, N.A. as Trustee (incorporated by
reference to Exhibit 10.3 of Registrant's Form 10-K for the year
ended December 31, 1990).
- -------------------
* Filed herewith
<PAGE> 22
o Registrant's 1983 Stock Option Plan (incorporated by reference
to Exhibit 4 of Registrant's Registration Statement No. 2-81554
on Form S-8 filed with the SEC on January 28, 1983).
o Registrant's 1984 Stock Award Plan (incorporated by reference to
Exhibit 4(a) of Registrant's Registration Statement No. 2-92770
on Form S-8 filed with the SEC on August 15, 1984).
o Registrant's 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).
o Registrant's 1986 Stock Award Plan (incorporated by reference to
Registrant's Registration Statement No. 33-2959 on Form S-8
filed with the SEC on February 4, 1986).
o Registrant's 1990 Stock Award and Option Plan (incorporated by
reference to Exhibit 4.1 of Registrant's Registration Statement
No. 33-40489 on Form S-8 filed with the SEC on May 13, 1991).
o Form of 8% Convertible Debentures Due 2000 issued in connection
with Registrant's Key Executive Equity Program (incorporated by
reference to Exhibit 4.1 of Registrant's Form 10-K for the year
ended December 31, 1991).
o Form of 6.5% Convertible Debenture Due 2002 issued in connection
with Registrant's Key Executive Equity Program (incorporated by
reference to Exhibit 4.1 of Registrant's Form 10-K for the year
ended December 31, 1992).
o Limited Partnership Agreement of PW Partners 1991 Dedicated L.P.
dated as of October 7, 1991 (incorporated by reference to
Exhibit 10.2 of Registrant's Form 10-K for the year ended
December 31, 1992).
o Limited Partnership Agreement of PW Partners 1992 Dedicated L.P.
dated as of September 2, 1992 (incorporated by reference to
Exhibit 10.1 to Registrant's Form 10-K for the year ended
December 31, 1993).
o Limited Partnership Agreement of PW Partners 1993 Dedicated L.P.
dated as of January 6, 1994 (incorporated by reference to
Exhibit 10.1 of Registrant's Form 10-K for the year ended
December 31, 1994).
o Limited Partnership Agreement of PW Partners 1993 L.P. dated as
of February 2, 1994 (incorporated by reference to Exhibit 10.2
of Registrant's Form 10-K for the year ended December 31, 1994).
o Limited Partnership Agreement of PW Partners 1995 L.P. dated as
of October 31, 1995 (incorporated by reference to Exhibit 10.47
of Registrant's Form 10-K for the year ended December 31, 1995).
o Registrant's 1994 Executive Incentive Compensation Plan
(incorporated by reference to Exhibit 10.3 of Registrant's Form
10-K for the year ended December 31, 1994).
o Registrant's 1994 Senior Officer Deferred Compensation Plan
(incorporated by reference to Exhibit 10.4 of Registrant's Form
10-K for the year ended December 31, 1994).
o* Amendment to the Registrant's Senior Officer Deferred
Compensation Plan dated as of August 15, 1996.
o* Amendment to the Registrant's Senior Officer Deferred
Compensation Plan dated as of September 1, 1996.
o* Omnibus Amendment to Grantor Trust Agreement under Registrant's
Senior Officer Deferred Compensation Plan dated as of August 15,
1996.
- -------------------
* Filed herewith
<PAGE> 23
o* Omnibus Amendment to Grantor Trust Agreement under Registrant's
Senior Officer Deferred Compensation Plan dated as of August 9,
1996.
o Registrant's 1994 Senior Officer Deferred Compensation Plan
Grantor Trust Agreement on behalf of Donald B. Marron
(incorporated by reference to Exhibit 10.5 of Registrant's Form
10-K for the year ended December 31, 1994).
o Registrant's 1994 Senior Officer Deferred Compensation Plan
Grantor Trust Agreement on behalf of Joseph J. Grano
(incorporated by reference to Exhibit 10.7 of Registrant's Form
10-K for the year ended December 31, 1994).
o Registrant's 1994 Senior Officer Deferred Compensation Plan
Grantor Trust Agreement on behalf of Regina A. Dolan
(incorporated by reference to Exhibit 10.8 of Registrant's Form
10-K for the year ended December 31, 1994).
o* Registrant's 1994 Senior Officer Deferred Compensation Plan
Grantor Trust Agreement on behalf of Steven Baum.
o* Registrant's 1994 Senior Officer Deferred Compensation Plan
Grantor Trust Agreement on behalf of Mark Sutton
o* Registrant's 1994 Senior Officer Deferred Compensation Plan
Grantor Trust Agreement on behalf of Theodore A. Levine.
11* - Computation of Earnings per Common Share.
12.1*- Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends.
12.2*- Computation of Ratio of Earnings to Fixed Charges.
13* - 1996 Annual Report to Stockholders of Registrant.
21* - Subsidiaries of the Registrant.
23* - Consent of Independent Auditors.
27* - Financial Data Schedule.
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K dated March 11, 1997 with
the SEC reporting under item 5 ("Other Events") providing a press release
dated January 20, 1997 related to the Company's financial results for 1996
and quarter ended December 31, 1996.
- -------------------
* Filed herewith
<PAGE> 24
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 1996 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 1996 Annual Report to Stockholders is not to be deemed filed as
part of this report.
1996 Annual
Report
Description (Page)
----------- ------
Report of independent auditors 55
Consolidated statements of financial
condition at December 31, 1996 and 1995 33
For the years ended December 31, 1996, 1995 and 1994:
Consolidated statements of income 32
Consolidated statements of changes in
stockholders' equity 34-35
Consolidated statements of cash flows 36
Notes to consolidated financial statements 37-54
Quarterly financial information (unaudited) 58
Schedules
- ---------
Form 10-K
Description (Page)
----------- ------
Report of independent auditors F-2
I - Condensed financial information F-3 - F-6
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> 25
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, 1996 and 1995, and for each of the three years in the period
ended December 31, 1996, and have issued our report thereon dated February 3,
1997. Our audits also included the financial statement schedule listed in the
Index to Financial Statements and Financial Statement Schedules on page F-1.
This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
New York, New York
February 3, 1997
F-2
<PAGE> 26
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,
-------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
Interest $ 185,772 $ 224,487 $ 192,008
Other 291 628 1,677
--------- --------- ---------
Total revenues 186,063 225,115 193,685
Interest expense 229,396 238,172 237,871
--------- --------- ---------
Net revenues (43,333) (13,057) (44,186)
--------- --------- ---------
NON-INTEREST EXPENSES 3,956 6,644 10,350
--------- --------- ---------
Loss before income taxes and
equity in income of affiliates (47,289) (19,701) (54,536)
Benefit for income taxes 21,689 16,511 22,852
--------- --------- ---------
Loss before equity in income
of affiliates (25,600) (3,190) (31,684)
Equity in income of affiliates 389,950 83,940 63,315
--------- --------- ---------
NET INCOME $ 364,350 $ 80,750 $ 31,631
========= ========= =========
</TABLE>
See Notes to Condensed Financial Information of Registrant.
F-3
<PAGE> 27
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,
1996 1995
------------ ------------
<S> <C> <C>
Assets
Cash and cash equivalents $ -- $ 12
Trading assets, at fair value -- 32,575
Loans to and receivables from affiliates 3,818,190 3,272,502
Investments in affiliates 1,971,079 1,550,289
Other assets 181,118 248,445
----------- -----------
$ 5,970,387 $ 5,103,823
=========== ===========
Liabilities and Stockholders' Equity
Short-term borrowings $ 913,471 $ 719,608
Trading liabilities, at fair value -- 32,575
Payables to affiliates 242,564 27,812
Other liabilities and accrued expenses 114,578 140,710
----------- -----------
1,270,613 920,705
Long-term borrowings 2,781,694 2,444,070
----------- -----------
4,052,307 3,364,775
Commitments and contingencies
Redeemable Preferred Stock 187,655 186,760
Stockholders' Equity:
Convertible Preferred Stock 100,000 100,000
Common stock, $1 par value, 200,000,000
shares authorized; issued 108,358,178 shares
and 104,492,091 shares in 1996 and 1995, respectively 108,358 104,492
Additional paid-in capital 913,927 831,763
Retained earnings 1,009,448 719,325
----------- -----------
2,131,733 1,755,580
Treasury stock, at cost; 15,366,234 shares and 7,417,845
shares in 1996 and 1995, respectively (331,907) (151,616)
Unamortized cost of restricted stock (67,533) (55,302)
Foreign currency translation adjustment (1,868) 3,626
----------- -----------
1,730,425 1,552,288
----------- -----------
$ 5,970,387 $ 5,103,823
=========== ===========
</TABLE>
See Notes to Condensed Financial Information of Registrant.
F-4
<PAGE> 28
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,
-----------------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 364,350 $ 80,750 $ 31,631
Adjustments to reconcile net income to cash
(used for) provided by operating activities:
Noncash items included in net income:
Equity in income of affiliates (389,950) (83,940) (63,315)
Depreciation and amortization 2,951 2,925 388
Deferred income taxes (17,050) 16,371 (25,940)
Other 2,535 6,299 15,855
(Increase) decrease in assets:
Trading assets 32,575 33,587 (6,138)
Loans to and receivables from affiliates (485,743) 1,626,049 483,700
Investment in affiliates (12,322) (3,106) (58,300)
Other assets 78,810 (36,729) (70,617)
Increase (decrease) in liabilities:
Payables to affiliates 214,752 3,411 23,887
Trading liabilities (32,575) (33,587) 6,238
Other liabilities and accrued expenses (29,324) 21,744 70,662
Proceeds from:
Dividends received from subsidiaries 2,707 -- 19,102
----------- ----------- -----------
Cash (used for) provided by operating activities (268,284) 1,633,774 427,153
----------- ----------- -----------
Cash flows from investing activities:
Payments for:
Net assets acquired in business acquisition -- (624,090) (726,217)
Acquisition-related expenditures -- (15,649) --
Office equipment and leasehold improvements (220) (55) (144)
----------- ----------- -----------
Cash used for investing activities (220) (639,794) (726,361)
----------- ----------- -----------
Cash flows from financing activities:
Net proceeds from (payments on)
short-term borrowings 193,863 (887,041) (100,996)
Proceeds from:
Long-term borrowings 476,752 472,452 637,379
Employee stock transactions 50,103 36,203 11,078
Payments for:
Long-term borrowings (141,128) (366,550) (168,505)
Repurchases of common stock (237,766) (173,525) (43,133)
Dividends (73,332) (75,703) (36,474)
----------- ----------- -----------
Cash provided by (used for) financing activities 268,492 (994,164) 299,349
----------- ----------- -----------
(Decrease) increase in cash and cash equivalents (12) (184) 141
Cash and cash equivalents, beginning of year 12 196 55
----------- ----------- -----------
Cash and cash equivalents, end of year $ 0 $ 12 $ 196
=========== =========== ===========
</TABLE>
See Notes to Condensed Financial Information of Registrant.
F-5
<PAGE> 29
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. (the "Company")
should be read in conjunction with the consolidated financial statements of
Paine Webber Group Inc. and it's subsidiaries and the notes thereto incorporated
by reference in this report.
STATEMENT OF CASH FLOWS
Interest payments for the years ended December 31, 1996, 1995 and 1994
approximated $232,771, $229,390 and $232,526, respectively. Income tax payments
(consolidated) totaled $130,886, $28,248 and $68,455 for the years ended
December 31, 1996, 1995 and 1994, respectively.
COMMITMENTS AND CONTINGENCIES
The Company has guaranteed certain of its subsidiaries' unsecured lines of
credit and contractual obligations.
The Company guarantees payments due from PWG Capital Trust I (the "Trust"), a
wholly owned subsidiary of the Company, to holders of the 8.30% Trust
Securities, on a subordinated basis, to the extent the Company has made
principal and interest on payments on the Junior Subordinated Debentures. This
guarantee, together with the Company's obligations under the Junior Subordinated
Debentures, provides a full and unconditional guarantee on a subordinated basis
of amounts due on the Preferred Trust Securities.
F-6
<PAGE> 30
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 26, 1997.
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 26, 1997.
/s/ Donald B. Marron
--------------------------
Donald B. Marron
Chairman of the Board,
Chief Executive Officer
and Director (principal executive
officer)
/s/ Regina Dolan
--------------------------
Regina Dolan
Vice President and
Chief Financial Officer
/s/ T. Stanton Armour
--------------------------
T. Stanton Armour
Director
/s/ E. Garrett Bewkes, Jr.
--------------------------
E. Garrett Bewkes, Jr.
Director
-----------------------------
Reto Braun
Director
/s/ John A. Bult
--------------------------
John A. Bult
Director
<PAGE> 31
SIGNATURES
/s/ Frank P. Doyle
--------------------------
Frank P. Doyle
Director
/s/ Joseph J. Grano, Jr.
--------------------------
Joseph J. Grano, Jr.
Director
/s/ John E. Kilgore, Jr.
--------------------------
John E. Kilgore, Jr.
Director
/s/ James W. Kinnear
--------------------------
James W. Kinnear
Director
/s/ Naoshi Kiyono
--------------------------
Naoshi Kiyono
Director
/s/ Robert M. Loeffler
--------------------------
Robert M. Loeffler
Director
/s/ Edward Randall, III
--------------------------
Edward Randall, III
Director
--------------------------
Henry Rosovsky
Director
--------------------------
Yoshinao Seki
Director
<PAGE> 32
EXHIBIT INDEX
EXHIBIT NO DESCRIPTION
- ---------- -----------
1 - Distribution Agreement dated November 30, 1993 between Registrant
and PWI (incorporated by reference to Exhibit 1.2 of Registrant's
Registration Statement No. 33-52695 filed with the SEC on October
16, 1995).
3.1 - Restated Certificate of Incorporation of Registrant, as filed
with the Office of the Secretary of State of the State of
Delaware on May 4, 1987 (incorporated by reference to Exhibit 3.1
of Registrant's Registration Statement No. 33-52695 on Form S-3
filed with the SEC on October 16, 1995).
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 - 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).
<PAGE> 33
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 3.1 of Registrant's
Registration Statement No. 33-52695 on Form S-3 filed with the
SEC on October 16, 1995).
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 3.2 of Registrant's Registration
Statement No. 33-52695 on Form S-3 filed with the SEC on
October 16, 1995).
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 10, 1994 (incorporated by reference to
Registrant's Form 8-K dated February 10, 1994).
4.1 - Form of Debt Securities (8-7/8% Notes due 2005) (incorporated by
reference to Exhibit 4.1 of Registrant's Form 10-K for the year
ended December 31, 1995).
4.2 - Form of Debt Securities (8-1/4% Notes due 2002) (incorporated by
reference to Exhibit 4.2 of Registrant's Form 10-K for the year
ended December 31, 1995).
4.3 - Form of Debt Securities (6-3/4% Notes due 2006) (incorporated by
reference to Exhibit 4.3 of Registrant's Form 10-K for the year
ended December 31, 1995).
4.4 - Form of Debt Securities (6-1/4% Notes due 1998) (incorporated by
reference to Exhibit 4.4 of Registrant's Form 10-K for the year
ended December 31, 1995).
4.5 - Form of Debt Securities (6-1/2% Notes due 2005) (incorporated by
reference to Exhibit 4.1 of Registrant's Form 10-K for the year
ended December 31, 1994).
4.6 - Form of Debt Securities (7-5/8% Notes due 2014) (incorporated by
reference to Exhibit 4.2 of Registrant's Form 10-K for the year
ended December 31, 1994).
4.7 - Form of Debt Securities (7-3/4% Notes due 2002) (incorporated by
reference to Exhibit 4.3 of Registrant's Form 10-K for the year
ended December 31, 1994).
4.8 - 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).
<PAGE> 34
4.9 - 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).
4.10 - Supplemental Indenture dated as of November 30, 1993 between
Registrant and Chase Manhattan Bank Delaware (formerly known as
Chemical Bank (Delaware)), as Trustee, relating to the
Subordinated Debt Securities (incorporated by reference to
Exhibit 4.2g of Registrant's Registration Statement No. 33-52695
on Form S-3 filed with the SEC on October 16, 1995).
4.11 - Indenture dated as of March 15, 1988 between Registrant and Chase
Manhattan Bank Delaware (formerly known as Chemical Bank
(Delaware)), as Trustee, relating to Registrant's Subordinated
Debt Securities (incorporated by reference to Exhibit 4.2d of
Registrant's Registration Statement No. 33-52695 on Form S-3
filed with the SEC on October 16, 1995).
4.12 - Supplemental Indenture dated as of September 22, 1989, to the
Indenture dated as of March 15, 1988, between Registrant and
Chase Manhattan Bank Delaware (formerly known as Chemical Bank
(Delaware)), as Trustee, relating to Subordinated Debt Securities
(incorporated by reference to Exhibit 4.2e of Registrant's
Registration Statement No. 33-52695 on Form S-3 filed with the
SEC on October 16, 1995).
4.13 - Supplemental Indenture dated as of March 22, 1991 between
Registrant and Chase Manhattan Bank Delaware (formerly known as
Chemical Bank (Delaware)), as Trustee, relating to Subordinated
Debt Securities (incorporated by reference to Exhibit 4.2f of
Registrant's Registration Statement No. 33-52695 on Form S-3
filed with the SEC on October l6, 1995).
4.14 - Indenture dated as of March 15, 1988 between Registrant and The
Chase Manhattan Bank (formerly known as Chemical Bank), as
Trustee, relating to Registrant's Senior Debt Securities,
(incorporated by reference to Exhibit 4.2a of Registrant's
Registration Statement No. 33-52695 on Form S-3 filed with the
SEC on October 16, 1995).
4.15 - Supplemental Indenture dated as of September 22, 1989, to the
Indenture dated as of March 15, 1988 between Registrant and The
Chase Manhattan Bank (formerly known as Chemical Bank), as
Trustee, relating to Senior Debt Securities (incorporated by
reference to Exhibit 4.2b of Registrant's Registration Statement
No. 33-52695 on Form S-3 filed with the SEC on October 16, 1995).
4.16 - Supplemental Indenture dated as of March 22, 1991 between
Registrant and The Chase Manhattan Bank (formerly known as
Chemical Bank), as Trustee, relating to Senior Debt Securities
(incorporated by reference to Exhibit 4.2c of Registrant's
Registration Statement No. 33-52695 on Form S-3 filed with the
SEC on October 16, 1995).
4.17 - Form of Debt Securities (9-1/4% Notes Due 2001) (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).
<PAGE> 35
4.22 - Proposed Form of Debt Securities (Medium-Term Senior Note, Series
C, Fixed Rate) (incorporated by reference to Exhibit 4.1a to
Registrant's Registration Statement No. 33-52695 on Form S-3
filed with the SEC on October 16, 1995).
4.23 - Proposed Form of Debt Securities (Medium-Term Subordinated Note,
Series D, Fixed Rate) (incorporated by reference to Exhibit 4.1b
to Registrant's Registration Statement No. 33-52695 on Form S-3
filed with the SEC on October 16, 1995).
. 4.24 - Proposed Form of Debt Securities (Medium-Term Subordinated Note,
Series C, Floating Rate) (incorporated by reference to Exhibit
4.1c to Registrant's Registration Statement No. 33-52695 on Form
S-3 filed with the SEC on October 16, 1995).
4.25 - Proposed Form of Debt Securities (Medium-Term Subordinated Note,
Series D, Floating Rate) (incorporated by reference to Exhibit
4.1d to Registrant's Registration Statement No. 33-52695 on Form
S-3 filed with the SEC on October 16, 1995).
4.26 - Proposed Form of Debt Securities (Senior Note, Fixed Rate)
(incorporated by reference to Exhibit 4.1c to Registrant's
Registration Statement No. 33-58124 on Form S-3 filed with the
SEC on February 10, 1993).
4.27 - Proposed Form of Debt Securities (Subordinated Note, Fixed Rate)
(incorporated by reference to Exhibit 4.1f to Registrant's
Registration Statement No. 33-58124 on Form S-3 filed with the
SEC on February 10, 1993).
4.28 - Form of Junior Subordinated Debt Indenture dated November 1996
between the Registrant and The Chase Manhattan Bank as Trustee
(incorporated by reference to Exhibit 4.1 of Registrant's
Registration Statement No. 333-13831 on Form S-3 filed with the
SEC on November 22, 1996).
4.29 - Certificate of Trust of PWG Capital Trust I (incorporated by
reference to Exhibit 4.4 of Registrant's Registration Statement
No. 333-13831 on Form S-3 filed with the SEC on November 22,
1996).
4.30 - Form of Amended and Restated Declaration of Trust for PWG Capital
Trust I (incorporated by reference to Exhibit 4.11 of
Registrant's Registration Statement No. 333-13831 on Form S-3
filed with the SEC on November 22, 1996).
4.31 - Form of Preferred Security relating to Preferred Trust Securities
of PWG Capital Trust I (incorporated by reference to Exhibit 4.12
of Registrant's Registration Statement No. 333-13831 on Form S-3
filed with the SEC on November 22, 1996).
4.32 - Form of Supplemental Indenture to be used in connection with
issuance of Junior Subordinated Debt Securities (incorporated by
reference to Exhibit 4.13 of Registrant's Registration Statement
No. 333-13831 on Form S-3 filed with the SEC on November 22,
1996).
4.33 - Form of Junior Subordinated Debt Security (incorporated by
reference to Exhibit 4.14 of Registrant's Registration Statement
No. 333-13831 on Form S-3 filed with the SEC on November 22,
1996).
4.34 - Form of Guarantee with respect to Preferred Securities relating
to Preferred Trust Securities of PWG Capital Trust I
(incorporated by reference to Exhibit 4.15 of Registrant's
Registration Statement No. 333-13831 on Form S-3 filed with the
SEC on November 22, 1996).
<PAGE> 36
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 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 SEC 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 August 30, 1996 among, PWI, the
Initial Lenders named therein, and The Chase Manhattan Bank, as
Administrative Agent, relating to the $750 million secured credit
facility.
Credit Agreement dated as of August 30, 1996 among, Paine Webber
Real Estate Securities Inc., the Initial Lenders named therein,
and The Chase Manhattan Bank, as Administrative Agent, relating
to the $750 million secured credit facility.
Credit Agreement dated as of August 30, 1996 among, Paine Webber
International (U.K.) Ltd., the Initial Lenders named therein, and
The Chase Manhattan Bank, as Administrative Agent, relating to
the $750 million secured credit facility.
10.1 - Limited Partnership Agreement of PW Partners 1993 Dedicated L.P.
dated as of January 6, 1994 (incorporated by reference to Exhibit
10.1 of Registrant's Form 10-K for the year ended December 31,
1994).
10.2 - Limited Partnership Agreement of PW Partners 1993 L.P. dated as
of February 2, 1994 (incorporated by reference to Exhibit 10.2 of
Registrant's Form 10-K for the year ended December 31, 1994).
10.3 - Registrant's 1994 Executive Incentive Compensation Plan
(incorporated by reference to Exhibit 10.3 of Registrant's Form
10-K for the year ended December 31, 1994).
10.4 - Registrant's 1994 Senior Officer Deferred Compensation Plan
(incorporated by reference to Exhibit 10.4 of Registrant's Form
10-K for the year ended December 31, 1994).
10.5*- Amendment to the Registrant's Senior Officer Deferred
Compensation Plan dated as of August 15, 1996.
10.6*- Amendment to the Registrant's Senior Officer Deferred
Compensation Plan dated as of September 1, 1996.
10.7*- Omnibus Amendment to Grantor Trust Agreement under Registrant's
Senior Officer Deferred Compensation Plan dated as of August 9,
1996.
10.8*- Omnibus Amendment to Grantor Trust Agreement under Registrant's
Senior Officer Deferred Compensation Plan dated as of August 15,
1996.
10.9 - Registrant's 1994 Senior Officer Deferred Compensation Plan
Grantor Trust Agreement on behalf of Donald B. Marron
(incorporated by reference to Exhibit 10.5 of Registrant's Form
10-K for the year ended December 31, 1994).
10.10- Registrant's 1994 Senior Officer Deferred Compensation Plan
Grantor Trust Agreement on behalf of Joseph J. Grano
(incorporated by reference to Exhibit 10.7 of Registrant's Form
10-K for the year ended December 31, 1994).
- -------------------
* Filed herewith
<PAGE> 37
10.11- Registrant's 1994 Senior Officer Deferred Compensation Plan
Grantor Trust Agreement on behalf of Regina A. Dolan
(incorporated by reference to Exhibit 10.8 of Registrant's Form
10-K for the year ended December 31, 1994).
10.12*- Registrant's 1994 Senior Officer Deferred Compensation Plan
Grantor Trust Agreement on behalf of Steven Baum.
10.13*- Registrant's 1994 Senior Officer Deferred Compensation Plan
Grantor Trust Agreement on behalf of Mark Sutton.
10.14- Lease dated December 7, 1994 between IBM Credit Corporation and
PWI (IBM 9032-003, 9076-303 and 9672-E02) (incorporated by
reference to Exhibit 10.9 of Registrant's Form 10-K for the year
ended December 31, 1994).
10.15- Lease dated November 23, 1994 between AT&T Capital Corporation
and PWI (IBM 9021-962)(incorporated by reference to Exhibit
10.10 of Registrant's Form 10-K for the year ended December 31,
1994).
10.16 - 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).
10.17 - 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).
10.18 - 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).
10.19 - 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).
10.20 - 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).
10.21- 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 SEC on September 13, 1994).
10.22 - 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 SEC on September 13,
1994).
10.23 - 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
SEC on May 5, 1994).
10.24 - 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).
-------------------
* Filed herewith
<PAGE> 38
10.25- 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).
10.26- Letter dated as of October 27, 1995 amending certain provisions
of the Employment Agreement between Registrant, PWI and Theodore
A. Levine (incorporated by reference to Exhibit 10.20 of
Registrant's Form 10-K for the year ended December 31, 1995).
10.27- Second Restated and Amended Agreement of Lease, dated as of May
1, 1996, between 1285 Associates Limited Partnership and Paine
Webber Incorporated relating to property located at 1285 Avenue
of the Americas, New York, New York (incorporated by reference to
Exhibit 10.1 of Registrant's Form 10-Q for the quarter ended
March 31, 1996).
10.28- Guarantee dated as of May 1, 1996 between Registrant and 1285
Associates Limited Partnership relating to the lease of property
located at 1285 Avenue of the Americas, New York, New
York.(incorporated by reference to Exhibit 10.2 of Registrant's
Form 10-Q for the quarter ended March 31, 1996).
10.29- Amended and Restated 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).
10.30- Employment Agreement dated as of January 2, 1987 between
Registrant, PWI and Donald B. Marron (incorporated by reference
to Exhibit 10.23 of Registrant's Form 10-K for the year ended
December 31, 1995).
10.31- Employment Agreement dated as of January 2, 1987 between
Registrant, PWI and John A. Bult (incorporated by reference to
Exhibit 10.24 of Registrant's Form 10-K for the year ended
December 31, 1995).
10.32*-Employment Agreement dated as of April 29, 1996 between
Registrant, PWI and Joseph J. Grano, Jr.
10.33- Registrant's Supplemental Employee's Retirement Plan For Certain
Senior Officers, as amended, dated January 1, 1990 (incorporated
by reference to Exhibit 10.25 of Registrant's Form 10-K for the
year ended December 31, 1995).
10.34- 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 10.26 of Registrant's Form 10-K for the year ended
December 31, 1995).
10.35- 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
10.27 of Registrant's Form 10-K for the year ended December 31,
1995).
10.36*-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.
- ----------------
* Filed herewith
<PAGE> 39
10.37- 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).
10.38- 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).
10.39- 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).
10.40- 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).
10.41- Registrant's 1990 Stock Award and Option Plan (incorporated by
reference to Exhibit 4.1 of Registrant's Registration Statement
No. 33-40489 on Form S-8 filed with the SEC on May 13, 1991).
10.42- 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).
10.43*-Master Agreement between PWI and Quotron Systems Inc. dated
February 11, 1991.
10.44 -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).
10.45 -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 (Operations Center) located in
Weehawken, New Jersey (incorporated by reference to Exhibit 10.37
of Registrant's Form 10-K for the year ended December 31, 1995).
10.46 -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 10.38
of Registrant's Form 10-K for the year ended December 31, 1995).
10.47 -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 10.39
of Registrant's Form 10-K for the year ended December 31, 1995).
10.48 -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 10.40
of Registrant's Form 10-K for the year ended December 31, 1995).
10.49 -Agreement of Limited Partnership of Hartz-Tower B Limited
Partnership dated April 14, 1986, as amended, relating to the
Lincoln Harbor Project (Tower B/Office Building) located in
Weehawken, New Jersey (incorporated by reference to Exhibit 10.41
of Registrant's Form 10-K for the year ended December 31, 1995).
----------------
* Filed herewith
<PAGE> 40
10.50 - 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 10.42 of
Registrant's Form 10-K for the year ended December 31, 1995).
10.51*- Directors and Officers Liability and Corporation
Reimbursement insurance policy with Fiduciary Liability Rider
with National Union Fire Insurance Company.
10.52 - 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).
10.53 - 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).
10.54 - Limited Partnership Agreement of PW Partners 1995 L.P. dated as
of October 31, 1995 (incorporated by reference to Exhibit 10.47
of Registrant's Form 10-K for the year ended December 31, 1995).
10.55*- Registrant's 1994 Senior Officer Deferred Compensation Plant
Grantor Agreement on behalf of Theodore A. Levine
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
o Employment Agreement dated as of January 2, 1987 between
Registrant, PWI and Donald B. Marron (incorporated by reference
to Exhibit 10.23 of Registrant's Form 10-K for the year ended
December 31, 1995).
o* Employment Agreement dated as of April 29, 1996 between
Registrant, PWI and Joseph J. Grano Jr.
o Employment Agreement dated as of January 2, 1987 between
Registrant, PWI and John A. Bult (incorporated by reference to
Exhibit 10.24 of Registrant's Form 10-K for the year ended
December 31, 1995).
o 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).
o Letter dated as of October 27, 1995 amending the Employment
Agreement between Registrant, PWI and Theodore A. Levine
(incorporated by reference to Exhibit 10.20 of Registrant's Form
10-K for the year ended December 31, 1995).
o Registrant's Supplemental Employee's Retirement Plan for Certain
Senior Officers dated August 4, 1988 (incorporated by reference
to Exhibit 10.25 of Registrant's Form 10-K for the year ended
December 31, 1995).
o Deferred Compensation Agreement dated as of August 29, 1988
between Registrant and Donald B. Marron relating to the
Supplemental Employees Retirement Plan (incorporated by
reference to Exhibit 10.26 of Registrant's Form 10-K for the
year ended December 31, 1995).
o Deferred Compensation Agreement
dated as of August 29, 1988 between Registrant and John A. Bult
relating to the Supplemental Employees Retirement Plan
(incorporated by reference to Exhibit 10.27 of Registrant's Form
10-K for the year ended December 31, 1995).
o Agreement and Declaration of Trust for Supplemental Employees
Retirement Plan dated as of January 1, 1990 between Registrant
and Chase Manhattan Bank, N.A. as Trustee (incorporated by
reference to Exhibit 10.3 of Registrant's Form 10-K for the year
ended December 31, 1990).
- -------------------
* Filed herewith
<PAGE> 41
o Registrant's 1983 Stock Option Plan (incorporated by reference
to Exhibit 4 of Registrant's Registration Statement No. 2-81554
on Form S-8 filed with the SEC on January 28, 1983).
o Registrant's 1984 Stock Award Plan (incorporated by reference to
Exhibit 4(a) of Registrant's Registration Statement No. 2-92770
on Form S-8 filed with the SEC on August 15, 1984).
o Registrant's 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).
o Registrant's 1986 Stock Award Plan (incorporated by reference to
Registrant's Registration Statement No. 33-2959 on Form S-8
filed with the SEC on February 4, 1986).
o Registrant's 1990 Stock Award and Option Plan (incorporated by
reference to Exhibit 4.1 of Registrant's Registration Statement
No. 33-40489 on Form S-8 filed with the SEC on May 13, 1991).
o Form of 8% Convertible Debentures Due 2000 issued in connection
with Registrant's Key Executive Equity Program (incorporated by
reference to Exhibit 4.1 of Registrant's Form 10-K for the year
ended December 31, 1991).
o Form of 6.5% Convertible Debenture Due 2002 issued in connection
with Registrant's Key Executive Equity Program (incorporated by
reference to Exhibit 4.1 of Registrant's Form 10-K for the year
ended December 31, 1992).
o Limited Partnership Agreement of PW Partners 1991 Dedicated L.P.
dated as of October 7, 1991 (incorporated by reference to
Exhibit 10.2 of Registrant's Form 10-K for the year ended
December 31, 1992).
o Limited Partnership Agreement of PW Partners 1992 Dedicated L.P.
dated as of September 2, 1992 (incorporated by reference to
Exhibit 10.1 to Registrant's Form 10-K for the year ended
December 31, 1993).
o Limited Partnership Agreement of PW Partners 1993 Dedicated L.P.
dated as of January 6, 1994 (incorporated by reference to
Exhibit 10.1 of Registrant's Form 10-K for the year ended
December 31, 1994).
o Limited Partnership Agreement of PW Partners 1993 L.P. dated as
of February 2, 1994 (incorporated by reference to Exhibit 10.2
of Registrant's Form 10-K for the year ended December 31, 1994).
o Limited Partnership Agreement of PW Partners 1995 L.P. dated as
of October 31, 1995 (incorporated by reference to Exhibit 10.47
of Registrant's Form 10-K for the year ended December 31, 1995).
o Registrant's 1994 Executive Incentive Compensation Plan
(incorporated by reference to Exhibit 10.3 of Registrant's Form
10-K for the year ended December 31, 1994).
o Registrant's 1994 Senior Officer Deferred Compensation Plan
(incorporated by reference to Exhibit 10.4 of Registrant's Form
10-K for the year ended December 31, 1994).
o* Amendment to the Registrant's Senior Officer Deferred
Compensation Plan dated as of August 15, 1996.
o* Amendment to the Registrant's Senior Officer Deferred
Compensation Plan dated as of September 1, 1996.
o* Omnibus Amendment to Grantor Trust Agreement under Registrant's
Senior Officer Deferred Compensation Plan dated as of August 15,
1996.
- -------------------
* Filed herewith
<PAGE> 42
o* Omnibus Amendment to Grantor Trust Agreement under Registrant's
Senior Officer Deferred Compensation Plan dated as of August 9,
1996.
o Registrant's 1994 Senior Officer Deferred Compensation Plan
Grantor Trust Agreement on behalf of Donald B. Marron
(incorporated by reference to Exhibit 10.5 of Registrant's Form
10-K for the year ended December 31, 1994).
o Registrant's 1994 Senior Officer Deferred Compensation Plan
Grantor Trust Agreement on behalf of Joseph J. Grano
(incorporated by reference to Exhibit 10.7 of Registrant's Form
10-K for the year ended December 31, 1994).
o Registrant's 1994 Senior Officer Deferred Compensation Plan
Grantor Trust Agreement on behalf of Regina A. Dolan
(incorporated by reference to Exhibit 10.8 of Registrant's Form
10-K for the year ended December 31, 1994).
o* Registrant's 1994 Senior Officer Deferred Compensation Plan
Grantor Trust Agreement on behalf of Steven Baum.
o* Registrant's 1994 Senior Officer Deferred Compensation Plan
Grantor Trust Agreement on behalf of Mark Sutton
o* Registrant's 1994 Senior Officer Deferred Compensation Plan
Grantor Trust Agreement on behalf of Theodore A. Levine.
11* - Computation of Earnings per Common Share.
12.1*- Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends.
12.2*- Computation of Ratio of Earnings to Fixed Charges.
13* - 1996 Annual Report to Stockholders of Registrant.
21* - Subsidiaries of the Registrant.
23* - Consent of Independent Auditors.
27* - Financial Data Schedule.
- -------------------
* Filed herewith
<PAGE> 1
EXHIBIT 10.5
AMENDMENT
to the
PAINE WEBBER GROUP INC.
SENIOR OFFICER DEFERRED COMPENSATION PLAN
Pursuant to Section 11 of the Senior Officer Deferred
Compensation Plan (the "Plan") of Paine Webber Group Inc., the Compensation
Committee of the Board of Directors of PWG hereby amends the Plan as follows:
1. Section 7(c) of the Plan is hereby amended by deleting it
in its entirety and replacing it with the following:
"(c) Settlement. Subject to Section 8, the
Participant shall be entitled to receive, in settlement of
such sub-account of the Deferral Account, the following:
(i) With respect to any balance in such sub-account
resulting from amounts credited to such
sub-account prior to August 15, 1996 (including
additional amounts credited to such sub-account
thereafter as a result of deemed dividend
reinvestment or other earnings on such
pre-August 15, 1996 balance and on such
additional amounts), cash payments in an amount
equal to such balance determined by valuing
assets of such rabbi trust 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 all or part of
PaineWebber's obligations to the Participant
with respect to such Deferral Account balance.
(ii) With respect to any balance in such sub-account
not subject to (i) above, cash payment in an
amount equal to such balance determined by
valuing assets of such rabbi trust as of the
applicable Valuation Date; provided that the
trustee may, at the direction of the Committee
or Administrator, distribute PWG common stock
or other assets of the rabbi trust in
settlement of
<PAGE> 2
2
PaineWebber's obligations to the
Participant with respect to such Deferral
Account balance."
2. Section 8(a) of the Plan is hereby amended by deleting the
phrase "by delivery of other assets other than PWG common stock" and replacing
it with the following:
"by delivery of PWG common stock or other
assets (except that PWG common stock may not
be delivered in settlement of that part of a
Deferral Account subject to Section 7(c)(i)
above)".
3. Section 9(b) of the Plan is hereby amended by inserting
before the period (".") at the end thereof the following:
"provided, however, that the provisions of
this Section 9(b) shall not apply to
Notional Stock Units credited to the account
of a Section 16 Participant on or after
August 15, 1996".
4. Section 9(c) of the Plan is hereby amended by inserting
after the phrase "Notional Stock Units" the following:
"subject to Section 7(c)(i) above".
5. The effective date of this amendment shall be August 15,
1996. Except as otherwise amended hereby, the terms of the Plan shall remain
in full force and effect.
<PAGE> 1
EXHIBIT 10.6
AMENDMENT
TO THE
PAINE WEBBER GROUP INC.
SENIOR OFFICER DEFERRED COMPENSATION PLAN
Pursuant to Section 11 of the Senior Officer Deferred
Compensation Plan (the "Plan") of Paine Webber Group Inc., the Compensation
Committee of the Board of Directors of PWG hereby amends the Plan as follows:
1. Section 2(a) of the Plan is hereby amended by deleting it
in its entirety and replacing it with the following:
"(a) Valuation Date shall mean the close of the
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, the
Valuation Date shall mean the date immediately prior to the
date of such payment; and provided that, with respect to the
reallocation of a portion of the Deferral Account to a
notional investment in an investment partnership, the
Valuation Date shall be the date of the closing of such
investment partnership."
2. The effective date of this amendment shall be effective as
of September 1, 1996. Except as otherwise amended hereby, the terms of the Plan
shall remain in full force and effect.
<PAGE> 1
EXHIBIT 10.7
OMNIBUS AMENDMENT
to the
GRANTOR TRUST AGREEMENTS
under the
PAINE WEBBER GROUP INC.
SENIOR OFFICER DEFERRED COMPENSATION PLAN
This Amendment (this "Amendment"), made as of the 9th day of
August, 1996, by and between PaineWebber Group Inc., a Delaware corporation
("PWG"), and The Chase Manhattan Bank (the "Trustee").
WHEREAS, Paine Webber Group Inc. and The Chase Manhattan Bank
are parties to grantor trust agreements executed in connection with the
obligation of PWG to pay deferred compensation to Donald Marron, Margo
Alexander, Regina Dolan, Joseph Grano and Ronald Schwartz under the terms of the
PWG Deferred Compensation Plan (the "Trust Agreements"); and
WHEREAS, PWG and the Trustee desire to amend the Trust
Agreements in certain respects, as more fully set forth below, to clarify
certain issues which have arisen after the original execution thereof.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for other good and valuable consideration the
parties hereto agree as follows:
1. Pursuant to Section 12(a) of the Trust Agreements, the
parties agree that Section 5(a) of each Trust Agreement is hereby deleted in its
entirety and replaced with the following:
"(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, hedge funds, investment partnerships sponsored by
PWG 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
<PAGE> 2
2
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."
2. The effective date of this Amendment shall be August 9,
1996. Except as amended hereby, the terms of the Trust Agreements shall remain
in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment 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.
________________________ By:_____________________________________
Notary Public Title: Vice President and Treasurer
THE CHASE MANHATTAN BANK
_______________________ By:______________________________________
Notary Public Title: Vice President
<PAGE> 1
EXHIBIT 10.8
OMNIBUS AMENDMENT
to the
GRANTOR TRUST AGREEMENTS
under the
PAINE WEBBER GROUP INC.
SENIOR OFFICER DEFERRED COMPENSATION PLAN
This AMENDMENT (this "Amendment"), made as of the 15th day of
August, 1996, by and between Paine Webber Group Inc., a Delaware corporation
("PWG"), and The Chase Manhattan Bank (the "Trustee").
WHEREAS, PWG and the Trustee are parties to grantor trust
agreements (the "Trust Agreements") executed in connection with the obligation
of PWG to pay deferred compensation to the individuals listed on Exhibit A
attached hereto under the terms of the Paine Webber Group Inc. Senior Officer
Deferred Compensation Plan (the "Plan"); and
WHEREAS, PWG and the Trustee desire to amend the Trust
Agreements in certain respects, as more fully set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for other good and valuable consideration the
parties hereto agree as follows:
1. Pursuant to Section 12(a) of the Trust Agreements, the
parties agree that Section 2(b) of each Trust Agreement is hereby deleted in its
entirety and replaced with the following:
"(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"),
(1) with respect to any property deposited in the
Trust prior to August 15, 1996 (including additional property
placed in the Trust thereafter as a result of dividend
reinvestment or other earnings on such pre-August 15, 1996
property and on such additional amounts), distribute assets
held in the Trust other than Shares to the Participant or
Beneficiaries; and
<PAGE> 2
(2) with respect to any property in the Trust not subject to
(1) above, distribute Shares or other assets held in the Trust to the
Participant or Beneficiaries;
provided that, in the event of 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."
2. The effective date of this Amendment shall be August 15,
1996. Except as amended hereby, the terms of the Trust Agreements shall remain
in full force and effect.
3. PWG hereby certifies to the Trustee that the amendment to
the Trust Agreements described herein is not in conflict with the terms of the
Plan or the Trust Agreements.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment 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.
___________________ By:_________________________
Notary Public Title:
THE CHASE MANHATTAN BANK
___________________ By:_________________________
Notary Public Title:
<PAGE> 3
Exhibit A
Donald Marron
Joseph Grano
Margo Alexander
Regina Dolan
Ronald Schwartz
Steven Baum
Robert Silver
Mark Sutton
Theodore Levine
Brian Barefoot
James MacGilvray
Paul Guenther
Robert Pangia
Timothy Cronin
Lee Fensterstock
<PAGE> 1
EXHIBIT 10.12
PAINE WEBBER GROUP INC.
Senior Officer Deferred Compensation Plan
Grantor Trust Agreement
THIS AGREEMENT (this "Trust Agreement"), made as of the 9th
day of August, 1996, by and between PAINE WEBBER GROUP INC., a Delaware
corporation (hereinafter referred to as "PWG"), and THE CHASE MANHATTAN 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 Steven Baum (the
"Participant") and his 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
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
<PAGE> 2
the Shares have been registered on Form S-8 filed with the Securities and
Exchange Commission. PWG shall advise the Trustee of any limitations on sale of
the Shares. PWG shall also use its reasonable effects to register or qualify
such Shares covered by 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 Code and shall be construed accordingly.
(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 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.
2
<PAGE> 3
(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.
(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.
(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
3
<PAGE> 4
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 payment, 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 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, hedge funds,
investment partnerships sponsored by PWG 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,
4
<PAGE> 5
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.
(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 be or rest with PWG, the Participant or the Beneficiaries.
(c) When disposing of assets held in the Trust, nothing shall
prevent the Trustee, upon the direction of the Administrator, from selling such
assets to the Participant or the 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 therefor, unless such non-receipt of payment is a result of the
Trustee's (or its officers', directors', employees', nominees' or agents') gross
negligence or wilful 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 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.
5
<PAGE> 6
7. ACCOUNTING BY TRUSTEE
(a) (i) The Trustee shall keep accurate and detailed accounts
of all its receipts, investments and disbursements under this Trust 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 respect 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. The
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 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 Trust 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 Trust
Agreement in a reasonably prudent manner.
6
<PAGE> 7
(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 Trust 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 Trust 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 respect to any failure on the part of PWG to perform
any of its obligations under this Trust 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 Trust 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 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 Trust Agreement, any action of PWG under any
provision of this Trust 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.
7
<PAGE> 8
(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 The Chase Manhattan Bank, 770
Broadway, New York, New York 10003-9598, 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 trustee, employees, agents
and nominees from and against any and 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 trustee,
employees, nominees and agents in connection with the transactions contemplated
by this Trust Agreement, except to the extent that any such loss, liability,
action, suit, demand, damage, cost or expense is the result of the gross
negligence or wilful 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 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 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
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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 Trust Agreement) incurred by the Trustee in the performance of its
duties under this Trust 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 expenses 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-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 expenses 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 out 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
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transfer shall 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 Trust Agreement, and the term "Trustee" as used in this Trust 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 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 the Plan or the 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
by any benefits pursuant to the Plan or (ii) the twenty-first anniversary of the
death of the Participant who is the beneficiary
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of the Trust as of the date of execution of this Trust 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 provisions, 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.
(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 Trust Agreement are placed
herein for convenience of reference only, and the Trust Agreement is not to be
construed by reference thereto.
(e) This Trust Agreement shall bind and inure to the benefit
of the successors and assigns of PWG and the Trustee, respectively, and the
Participant or Beneficiaries and legal representatives (e.g., executors,
administrators, conservators, etc.).
(f) This Trust Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute but one instrument, which may be sufficiently
evidenced by a counterpart.
14. EFFECTIVE DATE
The effective date of this Trust Agreement shall be August 9,
1996.
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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.
_____________________ By:_______________________
Notary Public Title:
THE CHASE MANHATTAN BANK
_____________________ By:_______________________
Notary Public Title:
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<PAGE> 1
EXHIBIT 10.13
PAINE WEBBER GROUP INC.
Senior Officer Deferred Compensation Plan
Grantor Trust Agreement
THIS AGREEMENT (this "Trust Agreement"), made as of the 9th
day of August, 1996, by and between PAINE WEBBER GROUP INC., a Delaware
corporation (hereinafter referred to as "PWG"), and THE CHASE MANHATTAN 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 Mark Sutton (the
"Participant") and his 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
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
<PAGE> 2
the Shares have been registered on Form S-8 filed with the Securities and
Exchange Commission. PWG shall advise the Trustee of any limitations on sale of
the Shares. PWG shall also use its reasonable effects to register or qualify
such Shares covered by 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 Code and shall be construed accordingly.
(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 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.
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(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.
(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.
(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
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<PAGE> 4
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 payment, 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 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, hedge funds,
investment partnerships sponsored by PWG 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,
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<PAGE> 5
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.
(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 be or rest with PWG, the Participant or the Beneficiaries.
(c) When disposing of assets held in the Trust, nothing shall
prevent the Trustee, upon the direction of the Administrator, from selling such
assets to the Participant or the 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 therefor, unless such non-receipt of payment is a result of the
Trustee's (or its officers', directors', employees', nominees' or agents') gross
negligence or wilful 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 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.
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<PAGE> 6
7. ACCOUNTING BY TRUSTEE
(a) (i) The Trustee shall keep accurate and detailed accounts
of all its receipts, investments and disbursements under this Trust 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 respect 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. The
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 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 Trust 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 Trust
Agreement in a reasonably prudent manner.
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<PAGE> 7
(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 Trust 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 Trust 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 respect to any failure on the part of PWG to perform
any of its obligations under this Trust 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 Trust 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 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 Trust Agreement, any action of PWG under any
provision of this Trust 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.
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<PAGE> 8
(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 The Chase Manhattan Bank, 770
Broadway, New York, New York 10003-9598, 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 trustee, employees, agents
and nominees from and against any and 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 trustee,
employees, nominees and agents in connection with the transactions contemplated
by this Trust Agreement, except to the extent that any such loss, liability,
action, suit, demand, damage, cost or expense is the result of the gross
negligence or wilful 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 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 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
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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 Trust Agreement) incurred by the Trustee in the performance of its
duties under this Trust 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 expenses 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-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 expenses 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 out 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
9
<PAGE> 10
transfer shall 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 Trust Agreement, and the term "Trustee" as used in this Trust 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 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 the Plan or the 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
by any benefits pursuant to the Plan or (ii) the twenty-first anniversary of the
death of the Participant who is the beneficiary
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<PAGE> 11
of the Trust as of the date of execution of this Trust 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 provisions, 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.
(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 Trust Agreement are placed
herein for convenience of reference only, and the Trust Agreement is not to be
construed by reference thereto.
(e) This Trust Agreement shall bind and inure to the benefit
of the successors and assigns of PWG and the Trustee, respectively, and the
Participant or Beneficiaries and legal representatives (e.g., executors,
administrators, conservators, etc.).
(f) This Trust Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute but one instrument, which may be sufficiently
evidenced by a counterpart.
14. EFFECTIVE DATE
The effective date of this Trust Agreement shall be August 9,
1996.
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<PAGE> 12
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.
__________________________ By:_______________________
Notary Public Title:
THE CHASE MANHATTAN BANK
_________________________ By:______________________
Notary Public Title:
12
<PAGE> 1
EXHIBIT 10.32
EMPLOYMENT AGREEMENT
AGREEMENT dated as of April 24, 1996, by and between PAINE
WEBBER GROUP INC., a Delaware corporation with its principal office at 1285
Avenue of the Americas, New York, New York 10019 ("PWG"), PAINEWEBBER
INCORPORATED, a Delaware corporation with its principal office at 1285 Avenue of
the Americas, New York, New York 10019 ("PWI'), as the employers, and JOSEPH J.
GRANO JR., who resides at Sheepfield Farms Road, New Vernon, New Jersey 07976,
as the employee (the "Executive").
WHEREAS, the Executive has been serving as President of PWI,
and
WHEREAS, PWG and PWI each desire to assure the Executive of
his rights to compensation and benefits that are granted to him because of his
service in the foregoing capacity, and Executive desires to continue to serve in
such capacity in consideration of the terms and conditions hereinafter set
forth,
NOW THEREFORE, in consideration of the premises and of the
mutual covenants set forth herein and for other good and valuable consideration,
PWG, PWI and the Executive hereby agree as follows:
1. DEFINITIONS
(a) "Cause" shall mean (i) the Executive is convicted
of a crime involving moral turpitude, or (ii) the Executive, in carrying out his
duties, is guilty of (A) willful gross neglect or (B) willful gross misconduct
resulting, in either case, in material harm to PWG or PWI unless such act, or
failure to act, was believed by the Executive in good faith to be in the best
interests of PWG or PWI.
(b) 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
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
<PAGE> 2
2
(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 election of directors.
(c) "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.
(d) "Constructive Termination" shall mean that,
without the Executive's prior written consent, one or more of the following
events occurs and, within six months thereafter, the Executive, on his own
initiative, terminates his employment:
(i) The Executive is not reelected to or is
otherwise removed from the position of President of PWI as described in Section
2(a) for any reason other than his termination of employment under Section
10(a), 10(b) or 10(d).
(ii) The Executive is assigned any duties or
responsibilities that are inconsistent, in any significant respect, with the
scope of duties and responsibilities associated with his position as described
in Section 2(a).
(iii) The Executive suffers a reduction in
the authorities, duties and responsibilities associated with his position as
described in Section 2(a) on the basis of which he makes a determination in good
faith that he can no longer carry out such position in the manner contemplated
at the time this Agreement was entered into.
(iv) The Executive's base salary or annual
bonus decreases below the minimum level provided in Section 3 or 4, as the case
may be, or his benefits under any employee benefit plan or program of PWG or
PWI, or his incentive opportunity under any incentive program of PWG or PWI is
materially reduced below the level, or opportunity, as the case may be, in
effect on the Operative Date, unless PWG or PWI provides the Executive with a
comparable plan or program having the economic equivalent thereof.
(v) The principal office of PWG or PWI or
the Executive's own office location as assigned to him by PWG or PWI is
relocated outside an area within ten miles of the headquarters of PWI in
Manhattan on the date hereof.
(e) "Disability" shall mean the Executive's inability
to render for a period of six consecutive months, full and effective services
hereunder by reason of permanent disability, whether resulting from illness,
accident or otherwise; provided, however, that in no event will the Executive be
<PAGE> 3
3
considered disabled for the purposes of this Agreement unless he is deemed
disabled pursuant to the PWG Long Term Disability Plan.
(f) "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.
(g) "Pro Rata Bonus" shall mean an amount equal to
the annual bonus otherwise payable with respect to the fiscal year in question
multiplied by a fraction, the numerator of which is the number of days in such
fiscal year during which the Executive is employed, and the denominator of which
is 365.
(h) "Term of this Agreement" shall mean the period
between the Operative Date and the third anniversary thereof, but only if the
Executive is employed by PWG or PWI on the Operative Date.
2. POSITIONS AND DUTIES
(a) During the Term of this Agreement, the Executive
shall be employed as President of PWI. The Executive shall be during the Term of
this Agreement responsible for the duties of the President as set forth in the
By-laws of PWI and such other duties as may be assigned to him by the Board of
Directors and/or the Chief Executive Officer of PaineWebber Group. He shall
recommend during the Term of this Agreement objectives, policies and plans for
the areas of his responsibility. During the Term of this Agreement and subject
to the provisions of Section 2(b), the Executive shall devote his full business
time and attention to the business and affairs of PWG and PWI and shall use his
best efforts, skills and abilities to promote their interests.
(b) Anything herein to the contrary notwithstanding,
nothing shall preclude the Executive from serving on the boards of directors of
other companies, engaging in charitable and community affairs and managing his
personal investments, provided that such activities do not materially interfere
with the performance of his duties or responsibilities hereunder.
3. SALARY
During the Term of this Agreement, the Executive
shall be paid by PWI a base salary payable no less frequently than in equal
semi-monthly installments at an annualized rate of no less than the annual
salary being paid to the Executive on the Operative Date. Such base salary shall
be reviewed annually for increase in the discretion of the Compensation
Committee of the PWG Board (the "Committee"), taking into account such factors
as corporate and individual performance, salary increases for other senior
officers and increases, if any, in the Consumer Price Index for New York (the
"Consumer Price Index").
4. ANNUAL BONUS
For each fiscal year during the Term of this
Agreement, PWI shall pay the Executive an annual bonus of not less than the
average of the three annual bonuses awarded to him for the three fiscal years of
PWI next preceding the Operative Date or such larger amount as the Committee in
its discretion shall determine, taking into account such factors as corporate
and individual performance, bonuses for other senior officers and increases, if
any, in the Consumer Price Index. For
<PAGE> 4
4
the period of employment during the last fiscal year in which falls the Term of
this Agreement, PWI shall pay the Executive a Pro Rata Bonus. All bonuses shall
be paid to the Executive at the same time bonuses are paid to other senior
officers of PWI, unless the Executive has elected to defer receipt of all or
part of the bonus to which he is entitled in respect of such fiscal year in
accordance with the terms of any deferred compensation program as then in affect
and available to the Executive.
5. RESTRICTED STOCK
During the Term of this Agreement, the Executive
shall be entitled to participate in the restricted stock award program under the
Paine Webber Group Inc. 1994 Executive Stock Award Plan (the "Stock Award
Plan"), or any successor program or programs. Size and frequency of awards shall
be determined in accordance with administrative policies consistent with those
followed in the past.
6. STOCK OPTION AND STOCK APPRECIATION RIGHTS AWARDS
During the Term of this Agreement, the Executive
shall be entitled to participate in the stock option and other stock based award
programs under the Stock Award Plan, or any successor program or programs. Size
and frequency of awards shall be determined in accordance with administrative
policies consistent with those followed in the past.
7. PW PARTNERS L.P.; PW PARTNERS DEDICATED L.P.
During the Term of this Agreement, the Executive
shall be eligible to participate in leveraged investment partnerships such as PW
Partners 1995 L.P. and PW stock based partnerships such as PW Partners 1993
Dedicated, L.P.
8. EMPLOYEE BENEFIT PROGRAMS
During the Term of this Agreement, the Executive
shall be entitled to participate in all employee benefit programs of PWG or PWI
now or hereafter made available to PWG or PWI executives or salaried employees
generally, as such programs may be in effect from time to time, including,
without limitation, pension and other retirement plans, profit sharing plans,
group life insurance, accidental death and dismemberment insurance,
hospitalization, surgical, major medical coverage, sick leave (including salary
continuation arrangements), long-term disability, vacations, holidays and other
employee benefit programs sponsored by PWG or PWI.
9. BUSINESS EXPENSE REIMBURSEMENT AND PERGUISITES
(a) During the Term of this Agreement, the Executive
shall be entitled to receive proper reimbursement by PWG or PWI for all
reasonable, out-of-pocket expenses incurred by him (in accordance with the
policies and procedures established by PWG or PWI for their senior executives)
in performing services under this Agreement, provided that the Executive submits
reasonable documentation with respect to such expenses.
(b) During the Term of this Agreement, the Executive
shall also be entitled to any of the PWG or PWI executive perquisites in
accordance with the terms and provisions of such arrangements as are in effect
and applicable on the Operative Date.
<PAGE> 5
5
10. TERMINATION OF EMPLOYMENT
(a) Termination Due to Death or Disability. In the
event the Executive's employment terminates during the Term of this Agreement as
a result of death or termination by PWG or PWI due to Disability, the Executive
or his legal representative, as the case may be, shall be entitled to:
(i) base salary as provided in Section 3, at
the rate in effect at the time of his termination through the date of
termination of employment;
(ii) any bonus awarded but not yet paid
under Section 4;
(iii) a Pro Rata Bonus for the fiscal year
in which death or disability occurs;
(iv) any deferred bonus as provided in
Section 4, including interest or other credits on the deferred amounts;
(v) reimbursement for expenses incurred
pursuant to Section 9(a) prior to termination; and
(vi) such rights to other compensation and
benefits as may be provided in applicable plans and programs of PWG or PWI,
including without limitation restricted stock as provided in Section 5, stock
options and other stock based awards as provided in Section 6 and interests in
PW Partners L.P. and PW Partners Dedicated L.P. as provided in Section 7, as
well as applicable employee benefit plans and programs as provided in Section 8.
(b) Termination by PWG or PWI for Cause. In the event
PWG or PWI terminates the Executive's employment during the Term of this
Agreement for Cause, he shall be entitled to:
(i) base salary as provided in Section 3 at
the rate in effect at the time of his termination through the date of
termination of employment;
(ii) any bonus awarded but not yet paid
under Section 4;
(iii) any deferred bonus as provided in
Section 4, including interest or other credits on the deferred amounts;
(iv) reimbursement for expenses incurred
pursuant to Section 9(a) prior to termination; and
(v) such rights to other compensation and
benefits as may be provided in applicable plans and programs of PWG or PWI,
including without limitation restricted stock as provided in Section 5, stock
options and other stock based awards as provided in Section 6, and interests in
PW Partners L.P. and PW Partners Dedicated L.P. as provided in Section 7, as
well as applicable employee benefit plans and programs as provided in Section 8.
In any case described in this Section 10(b), the Executive
shall be given written notice, authorized by a vote of at least a majority of
the members of the PWG Board (excluding the Executive),
<PAGE> 6
6
that PWG or PWI intends to terminate his employment for Cause under this Section
10(b). Such written notice shall specify the particular acts, or failures to
act, on the basis of which the decision to so terminate employment has been
made. The Executive shall be given the opportunity within 20 days of the receipt
of such notice to meet with the PWG Board to defend such acts, or failures to
act, and the Executive shall be given seven days after such meeting to correct
such acts or failures to act. Upon failure of the Executive, within seven days,
to correct such acts or failures to act, the Executive's employment by PWG and
PWI shall automatically be terminated for Cause under this Section 10(b).
(c) Termination Without Cause or Constructive
Termination.
(i) In the event that during the Term of
this Agreement (A) either PWG or PWI terminates the Executive's employment
without Cause, other than due to Disability, or (B) there is a Constructive
Termination, the Executive shall thereupon be entitled to (x) a lump sum payment
equal to the present value of:
(aa) base salary until the end of the Term of this
Agreement at the rate in effect immediately prior to the termination of
employment;
(bb) a bonus for the year of termination and bonuses
for each year until the end of the Term of this Agreement, at an annualized rate
equal to the average of the bonuses awarded to him with respect to the three
years preceding the year in which termination occurs; and
(cc) any bonus awarded but not yet paid (including
deferred bonus); and (y) such rights to compensation, benefits and
reimbursements as may be provided in applicable plans, programs and policies of
PWG or PWI, including without limitation restricted stock as provided in Section
5, stock options and other stock based awards as provided in Section 6 and
interests in PW Partners L.P. and PW Partners Dedicated L.P. as provided in
Section 7, as well as applicable employee benefit plans and programs as provided
in Section 8. To the extent that, because of his termination under this Section
10(c), the Executive is ineligible for continued employee benefit coverage under
the employee benefit programs as provided in Section 8, PWI shall provide him
with the economic equivalent thereof
(ii) Notwithstanding anything herein to the
contrary, if
(A) any amounts due under Section 10(c)(i) constitute
"Parachute Payments" within the meaning of Section 28OG(b)(2) of the Internal
Revenue Code (the "Code"), or successor provision, and
(B) the amount of the Parachute Payments, reduced by
all Federal, state and local taxes applicable with respect thereto, including
the excise tax imposed pursuant to Section 4999 of the Code, is less than the
amount he would receive, after taxes, if he were paid only 2.99 times his "Base
Amount" within the meaning of Section 28OG(b)(3). then, in lieu of the Parachute
Payments the Executive shall be paid an amount in cash equal to 2.99 times the
Base Amount. The determinations made with respect to this Section 10(c)(ii)
shall be made by an independent auditor (the "Auditor") jointly selected by PWG
and the Executive, or his legal representatives. The Auditor shall be a
nationally recognized United States public accounting firm which has not, during
the two years preceding the date of its selection, acted in any way on behalf of
PWG or its affiliates.
<PAGE> 7
7
(iii) Any payments to which the Executive
shall be entitled under this Section 10(c) shall be made as promptly as possible
following the termination of the Executive's employment hereunder.
(d) Voluntary Termination. A "Voluntary Termination"
under this Section 10(d) shall mean a termination of employment, during the Term
of this Agreement, by the Executive on his own initiative other than (i) a
termination due to disability under Section 10(a) or (ii) a Constructive
termination under Section 10(c). Such a termination shall not be deemed a breach
of the Agreement and shall entitle the Executive to all of the rights and
benefits to which he would be entitled in the event of a termination for Cause
as described in Section 10(b).
(e) No-Mitigation: No Offset. In the event of any
termination under this Section 10, the Executive shall be under no obligation to
seek other employment and there shall be no offset against amounts due the
Executive under this Section 10 on account of any remuneration attributable to
any subsequent employment that the Executive may obtain. Any amounts due under
this Section 10 are in the nature of severance payments, or liquidated damages,
or both, and are not in the nature of a penalty.
11. INDEMNIFICATION
PWG and PWI represent that, while the Executive is
employed under this Agreement, he shall be serving as an officer of PWI at the
request of PWG for purposes of the provisions of Article VII of the By-laws of
PWG and as an officer of PWI for purposes of the provisions of Article IX of the
By-laws of PWI as in effect on the date hereof. If either By-law is amended so
as to remove or diminish the protection therein accorded to covered officers,
PWG and/or PWI will notify the Executive within five days of such removal or
diminution. PWG and PWI further agree to maintain the same liability insurance
coverage for the Executive with respect to all periods during which the
Executive serves or served as an officer of PWG or PWl as is maintained with
respect to such periods for other senior executives of PWG and PWI.
12. DISPUTES
Any controversy or claim arising out of or relating
to this Agreement, or any breach thereof, shall be settled by arbitration in
accordance with the rules of the American Arbitration Association then in effect
in the State of New York, and judgment upon such award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. The
arbitration shall be held in Manhattan. The cost of the arbitration including,
but not limited to, any reasonable legal fees or other expenses incident
thereto, shall be determined by the arbitrator(s) and shall be borne by the
parties to the arbitration. To the extent the Executive's position is upheld,
any reasonable expenses (including costs of witnesses, evidence, and attorneys)
incurred by the Executive in connection with the arbitration shall be reimbursed
to the Executive by PWG or PWI.
13. ASSIGNABILITY
No rights or obligations under this Agreement may be
assigned or transferred by the Executive except (a) the Executive's rights to
compensation and benefits hereunder shall, in the event of death, pass to his
estate, or to his designated beneficiary, and may be transferred by will or
operation of law, and (b) the Executive's rights under PWI and PWG plans,
programs and policies as described in Sections 5, 6, 7 and 8 may be assigned or
transferred in accordance with such plans, policies or practices.
<PAGE> 8
8
No rights or obligations of PWI or PWG under this Agreement may be assigned or
transferred except that such rights or obligations may be assigned or
transferred by operation of law in situations described in Section 368 of the
Code, as amended, or successor provision, in liquidation, in dissolution or
otherwise where PWI or PWG is not the continuing entity, provided the assignee
or transferee is the successor to all or substantially all the assets of PWI or
PWG and such assignee or transferee assumes the rights, duties and liabilities
of PWI or PWG, as contained in this Agreement, either contractually or as a
matter of law.
14. GOVERNING LAW
This agreement shall be governed by the laws of the
State of New York without reference to the principles of conflict of laws.
15. ENTIRE AGREEMENT
Except as otherwise specifically provided herein,
this Agreement contains all the legally binding understandings and
representations between PWG, PWI and the Executive pertaining to the subject
matter hereof and supersedes all undertakings and agreements, if any, whether
oral or in writing, previously entered into by PWG, PWI and the Executive with
respect to such subject matter.
16. AMENDMENT OR MODIFICATION; WAIVER
No provision of this Agreement may be amended or
waived unless such amendment or waiver is agreed to in writing, signed by the
Executive and by a duly authorized officer of PWI or PWG. Except as otherwise
specifically provided in this Agreement, no waiver by PWG, PWI or the Executive
of any breach by the other of any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of a similar or
dissimilar provision or condition at the same or any prior or subsequent time.
17. NOTICES
Any notice required or permitted to be given under
this Agreement shall be in writing and shall be deemed to have been given when
delivered personally or sent by certified or registered mail, postage prepaid,
return receipt requested, duly addressed to the party concerned at the address
indicated below or to such changed address as such party may subsequently give
notice of
If to PWG or PWI:
Paine Webber Group Inc.
1285 Avenue of the Americas
New York, N.Y. 10019
Attn: Corporate Secretary
If to the Executive:
Joseph J. Grano, Jr.
Sheepfield Farms Road
New Vernon, N.J. 07976
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9
18. SEVERABILITY. In the event that any provision or
portion of this Agreement shall be determined to be invalid or unenforceable for
any reason, the remaining provisions or portions of this Agreement shall be
unaffected thereby and shall remain in full force and effect to the fullest
extent permitted by law.
19. SURVIVORSHIP. To the extent contemplated by this
Agreement, the respective rights and obligations of the parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations.
20. REPRESENTATIONS
(a) By the Executive. The Executive represents and
warrants that the performance of his duties under this Agreement will not
violate any agreement between him and any other person, firm or organization.
(b) By PWG and PWI. PWG and PWI represent and warrant
that they are fully authorized and empowered to enter into this Agreement.
21. IMPACT OF AGREEMENT ON OTHER BENEFITS.
Nothing in this Agreement shall curtail the
Executive's entitlement to full participation in the executive compensation,
employee benefit and other programs of PWG and PWI in which senior executives of
PWG and PWI are eligible to participate.
22. REFERENCES.
In the event of the Executive's death or a judicial
determination of his incompetence, reference in this Agreement to the Executive
will be deemed, where appropriate, to refer to his legal representative, or,
where appropriate, to his beneficiary or beneficiaries.
23. HEADINGS.
Headings to the sections in this Agreement are
intended solely for convenience and no provision of this Agreement shall be
construed by reference to any heading.
24. COUNTERPARTS.
This agreement may be executed in one or more
counterparts.
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IN WITNESS WHEREOF, the Executive, PWG and PWI have caused
this Agreement to be executed as of the day and year first above written.
PAINE WEBBER GROUP INC.
by: /s/
------------------------
PAINEWEBBER INCORPORATED
by: /s/ Joseph J. Grano, Jr.
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Joseph J. Grano, Jr.
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EXHIBIT 10.36
AGREEMENT AND DECLARATION OF TRUST
FOR SUPPLEMENTAL EMPLOYEE'S
RETIREMENT PLAN FOR CERTAIN SENIOR OFFICERS
THIS AGREEMENT, made as of the 1st day of January, 1990 by and between
Paine Webber Group Inc. (hereinafter "Paine Webber"), a corporation organized
and existing under the laws of the State of Delaware and having its principal
place of business at 1285 Avenue of the Americas, New York, New York 10019 and
Chase Manhattan Bank, N.A. (hereinafter the "Trustee"), a corporation organized
and existing under the laws of the United States of America and having a place
of business at 1211 Avenue of the Americas, New York, New York 10036;
WITNESSETH
WHEREAS, Paine Webber has, in accordance with a Supplemental Employee's
Retirement Plan duly adopted by Paine Webber, entered into individual deferred
compensation contracts with certain key executives of its subsidiaries and
affiliates; and
WHEREAS, Paine Webber desires to provide an orderly means of funding the
obligations under such
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contracts by means of an inter vivos trust which for income tax purposes shall
be a grantor trust within the meaning of Section 677 of the Internal Revenue
Code of 1986, as amended; and
WHEREAS, in accordance with said funding, Paine Webber desires to provide
additional assurance to the aforesaid key executives that Paine Webber's
obligation under said deferred compensation contracts will be met when due in
accordance with their terms; and
WHEREAS, Paine Webber desires to settle a trust for the purposes and in
accordance with the terms and conditions herein described; and
WHEREAS, Chase Manhattan Bank, N.A. has agreed to act as trustee, holding
in trust the contributions and assets herein provided, in accordance with the
terms and conditions set forth in this Agreement and Declaration of Trust;
NOW, THEREFORE, for the purpose of creating and settling the trust, Paine
Webber hereby conveys to the Trustee legal title to the assets and funds
hereinafter provided TO BE HELD IN TRUST, NEVERTHELESS, in accordance with the
promises and mutual covenants herein contained, in consideration of which Paine
Webber and the Trustee do hereby covenant and agree as follows, to wit:
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ARTICLE I
DEFINITIONS
For the purposes herein, and unless the context clearly requires otherwise, the
terms in this Agreement and Declaration of Trust, when capitalized, shall mean
as set forth below.
1.1 "Actuary/recordkeeper" shall mean any such person or organization as Paine
Webber shall designate, from time to time, to act as such.
1.2 "Bankruptcy" of Paine Webber or an "event of Bankruptcy" with respect to
Paine Webber or "Bankrupt" as used with respect to Paine Webber shall mean
Paine Webber:
(a) voluntarily commences any proceeding or files any petition
seeking relief under Title 11 of the United States Code or any other
federal or state bankruptcy, insolvency or similar law,
(b) consents to the institution of, or fails to controvert in a
timely and appropriate manner, any such proceeding or the filing of any
such petition,
(c) applies for or consents to the appointment of a receiver or
trustee for Paine Webber or for a substantial part of the property of
Paine Webber,
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(d) makes a general assignment for the benefit of creditors,
(e) becomes unable or fails generally to pay its debts as they
become due,
(f) is the subject of an involuntary proceeding commenced in a court
of competent jurisdiction seeking:
(i) relief against Paine Webber or all or a substantial part
of the property of Paine Webber under Title 11 of the United States Code
or any other federal or state bankruptcy, insolvency or similar law,
(ii) the appointment of a receiver or trustee for Paine Webber
or for a substantial part of the property of Paine Webber, or
(iii) the winding-up or liquidation of Paine Webber;
and such proceeding or petition continues undismissed for 60 days or an
order or decree approving or ordering any of the foregoing is entered.
1.3 "Code" shall mean the Internal Revenue Code of 1986, as amended (Title 26,
United States Code).
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1.4 "Investment Manager" shall mean the person or organization appointed from
time to time by Paine Webber to manage the assets held in trust by the
Trustee or the person or organization appointed from time to time by a
cestui que trust pursuant to Section 5.3 hereof to manage the cestui que
trust's aliquot share of the trust estate, provided any such person or
organization shall be an investment advisor registered with the Securities
and Exchange Commission pursuant to the Investment Advisers Act of 1940.
1.5 "Plan" shall mean the Paine Webber Group, Inc. Supplemental Employee's
Retirement Plan for Certain Senior Officers, as amended from time to time.
1.6 "Variable Annuity" means the arrangement, available at the election of the
cestui que trust, to self-direct the investment of his aliquot share of
the trust estate and have his benefit vary by the investment performance
related thereto, in accordance with the Plan.
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ARTICLE II
CREATION OF TRUST
2.1 Paine Webber hereby conveys to the Trustee such sums of money and such
property (other than money) as shall be delivered to the Trustee
simultaneously herewith to be held by the Trustee, in trust nevertheless,
together with the increase, earnings and profits thereon, and with such
subsequent sums of money and other property subsequently conveyed by Paine
Webber to be held by the Trustee, in trust nevertheless, for the purposes
herein stated and for no other, in accordance with this Agreement and
Declaration of Trust. Any property (other than money) conveyed to the
Trustee by Paine Webber pursuant to the Agreement and Declaration of Trust
shall only be held in trust if the property is acceptable to the Trustee.
All such money and other property, together with the increase, earnings
and profits thereon and less any disbursements disbursed free of the trust
to the time of reference, shall be and constitute the trust estate. All
such assets shall be held without distinction between corpus and earnings
thereon and the assets to be held in trust shall be accumulated until
distributed in accordance
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with the provisions of this Agreement and Declaration of Trust in such
manner that the trust created and existing hereby shall be an accumulation
trust. The assets held in trust shall be held by the Trustee as one
account, without any subaccounting whatsoever and without distinction,
separation or segregation by virtue of the interest of any particular
cestui que trust in or to the assets held in trust prior to their
distribution free of trust as hereinafter provided.
2.2 The Trustee shall hold, manage, administer and invest the assets held in
trust solely for the purposes and in accordance with the terms of this
Agreement and Declaration of Trust. The Trustee shall be under no
obligation to collect any money or other assets from Paine Webber but
shall merely hold in trust such assets as are conveyed by Paine Webber, as
aforesaid.
ARTICLE III
THE ACTUARY
3.1 Paine Webber shall appoint an Actuary/recordkeeper with respect to this
Agreement and Declaration of
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Trust and shall, simultaneously with entering into this Agreement and
Declaration of Trust, advise the Trustee in writing of the name and
address of the Actuary/recordkeeper as appointed and of the authorized
signatories on behalf of the Actuary/recordkeeper. The Trustee shall be
entitled to rely upon such notification which shall be provided in
accordance with Section 16.7 hereof. Any such notification shall continue
to be valid until and unless amended, modified or revoked by Paine Webber.
Paine Webber reserves the right to so amend, modify or revoke at any time.
3.2 Whenever Paine Webber shall convey title of any assets to the Trustee
(whether initially upon the inception of the trust or otherwise), the
Actuary/recordkeeper shall record the same on its books and records and
shall, on its books and records, cause a separate account to be opened in
the name of each cestui que trust. The Actuary/recordkeeper shall, in
connection with Paine Webber, determine (solely for the subaccounting
records maintained by the Actuary/recordkeeper) the portion of each such
conveyance of assets that pertains to each cestui que trust. As of the
last
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business day of each calendar month, the Trustee shall render a monthly
statement which shall show the cash position of the trust at the beginning
of the month, assets conveyed by Paine Webber to the Trustee to be held in
trust during the month, assets disbursed free of the trust to pay the
expenses of the Trust, assets distributed free of the trust to the cestuis
que trust, earnings and profits of the trust during the month and a
revaluation of the assets held as of the rendering of the statement. All
such statements shall be rendered in duplicate to Paine Webber and the
Actuary/recordkeeper.
3.3 The Actuary/recordkeeper shall, as soon as practicable upon receipt of
such information, prepare a subaccounting record monthly with respect to
each cestui que trust showing that cestui que trust's subaccounting
balance on the books and records of the Actuary/recordkeeper at the
beginning of the month, assets conveyed into trust during the month
applicable to that cestui que trust, distributions of assets made by the
Trustee to the cestui que trust during the month free of trust, the cestui
que trust's aliquot share of the earnings and profits of the Trust and the
changes in value
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thereof caused by the Trustee's revaluation of the market value of the
assets held in trust. A copy of such record for each cestui que trust
shall be provided to Paine Webber monthly and Paine Webber shall promptly
furnish a copy of such record to the cestui que trust. Within sixty (60)
days after receiving such a record a cestui que trust may file written
objections thereto with the Actuary/recordkeeper. If no such objections
are filed during the sixty (60) day period or any such objections are
resolved to the satisfaction of both the cestui que trust and the
Actuary/recordkeeper, such record shall be deemed an account stated and
shall conclusively bind Paine Webber, the Trustee, the
Actuary/recordkeeper and the cestui que trust.
3.4 Subject to the provisions of Article VIII hereof, the trust created hereby
is intended to fund and meet the obligations of Paine Webber arising
pursuant to the individual deferred compensation agreements entered into
in accordance with the Plan and dated subsequent to January 1, 1990.
Nevertheless, the assets held in trust shall, until distributed to the
cestuis que trust, be considered for tax accounting purposes as part of
the assets of
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Paine Webber. The deferred compensation contracts referred to in this
paragraph shall be deemed to refer also to deferred compensation contracts
within the meaning of paragraphs 6 through 8 of Accounting Principles
Board Opinion No. 12, issued in 1967. The assets herein provided shall be
held in trust for the sole use, enjoyment and benefit of the cestuis que
trust subject to the requirement of Article VIII hereof that no event of
Bankruptcy shall have occurred with respect to Paine Webber prior to the
distribution of the assets to the cestuis que trust free of trust and
subject to forfeiture and reversion to Paine Webber as hereinafter
provided. If Paine Webber shall become Bankrupt prior to the assets being
distributed to the cestuis que trust free of trust, as hereinafter
provided, the assets shall be reverted for the benefit of Paine Webber's
creditors free of trust and the trust shall thereupon be discharged,
except as otherwise provided in Section 8.2 hereof. Furthermore, if the
amount held in trust for the benefit of a cestui que trust shall be
forfeited either because of termination of employment before vesting or
the application of the forfeiture provision with respect to competitive
employment,
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the assets with respect to that cestui que trust shall be reverted to
Paine Webber upon receipt by the Trustee of a certificate of the Actuary/
recordkeeper so directing and identifying the amount to be so reverted.
3.5 The beneficial interest of each cestui que trust in the trust estate at
any time and from time to time shall be conclusively determined in
accordance with the subaccounting books and records maintained by the
Actuary/recordkeeper and Paine Webber, the Trustee and each cestui que
trust shall be conclusively bound thereby.
ARTICLE IV
THE TRUST
4.1 The trust established hereby shall be irrevocable prior to the assets
being distributed to the cestuis que trust or the earlier occurrence of an
event of Bankruptcy with respect to Paine Webber in accordance with
Article VIII hereof.
4.2 No part of the assets held in trust, other than for such expenses or taxes
as are properly charged to
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the trust, in accordance with the provisions of this Agreement and
Declaration of Trust, shall be used for or diverted to purposes other than
for the benefit of the cestuis que trust or, if an event of Bankruptcy has
occurred with respect to Paine Webber, Paine Webber and its creditors.
4.3 The primary obligation to provide benefits as specified in the Plan and
the deferred compensation agreements referred to in Section 3.4 hereof
shall be that of Paine Webber. This Agreement and Declaration of Trust
shall discharge Paine Webber's obligation to provide benefits under the
Plan and such deferred compensation agreements to the extent, and only to
the extent, that the Plan participants, or their beneficiaries, actually
receive benefits from the trust created by this Agreement and Declaration
of Trust.
ARTICLE V
INVESTMENT AND ADMINISTRATION
5.1 As elected by Paine Webber and communicated to the Trustee from time to
time in writing, the Trustee shall either (a) invest and reinvest the
assets then
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held in trust in accordance with the specific directions and instructions
of Paine Webber in each case; or (b) invest and reinvest the assets held
in trust in accordance with the specific directions and instructions of
the Investment Manager appointed by Paine Webber for this purpose.
However, after commencement of payments to a cestui que trust who elects a
Variable Annuity pursuant to Section 4.4(a) of the Plan, the Trustee shall
invest and reinvest the assets held in trust in accordance with the
specific written directions and instructions of the Actuary/recordkeeper
given to the Trustee pursuant to Section 5.3 of this Agreement and
Declaration of Trust with respect to the beneficial interest of the cestui
que trust. In any event, neither the Trustee nor the Actuary/recordkeeper
shall be responsible for making investment decisions with respect to the
assets held in trust and, if an investment direction is not timely
received by the Trustee, such portion of the assets shall be invested in a
money market fund provided by the Trustee for this purpose so as to
provide for daily accrual of interest.
5.2 If Paine Webber elects that the investment of the assets held in trust be
made pursuant to the
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specific directions and instructions of Paine Webber in each case, then
Paine Webber shall certify to the Trustee the authorized signature or
signatures of the persons who shall be empowered to provide the specific
investment directions to the Trustee. Any such authorized signatory shall
continue to be authorized until the Trustee shall be actually advised by
Paine Webber of any change thereto. Any person so authorized shall provide
a specimen signature to the Trustee and shall provide such additional
information as the Trustee shall reasonably require. Investment directions
shall be in writing, but if agreed to between the Trustee and the
authorized signatory may be oral, telegraphic or telephonic, subject to
later written confirmation.
5.3 If a cestui que trust upon commencement of a monthly retirement allowance
elects a Variable Annuity in accordance with the Plan and therefore elects
to make specific investment directions and instructions with respect to
the cestui que trust's aliquot share of the trust estate, then Paine
Webber shall so advise the Actuary/recordkeeper and shall certify to the
Actuary/recordkeeper the name of such cestui que trust and shall provide
to the Actuary/recordkeeper
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a specimen signature of such cestui que trust. Paine Webber and such
cestui que trust shall each provide such additional information as the
Actuary/recordkeeper shall reasonably require. The cestuis que trust shall
each rely conclusively (and be entitled to so rely) upon the last
certification of the Actuary/recordkeeper for determining the
proportionate aliquot share of the assets held in trust representing that
cestui que trust's beneficial interest in the totality of the assets held
in trust and the cestui que trust shall be entitled to direct the
Actuary/recordkeeper with respect to only that aliquot portion of the
trust estate so certified. The cestui que trust may appoint an Investment
Manager for this purpose. In such an event, the cestui que trust shall so
advise the Actuary/recordkeeper and provide a specimen signature of the
person or persons so authorized to act on behalf of the Investment
Manager. The cestui que trust and the Investment Manager shall each
provide such additional information as the Actuary/recordkeeper shall
reasonably require.
Notwithstanding the investment direction herein granted to each cestui que
trust, it is understood
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that his interest in the assets held in trust is contingent only and
subject to the occurrence of an event of Bankruptcy with respect to Paine
Webber as provided in Article VIII hereof and that any direction to convey
legal title to any assets held in trust to the cestui que trust or any
other person free of the trust shall be invalid except to the extent that
such cestui que trust or other person is then entitled to a distribution
of legal title free of the trust in accordance with Article VII hereof.
If due to appreciation or depreciation of the assets of the trust since
the last certification by the Actuary/recordkeeper, Paine Webber or any
cestui que trust believes that the last allocation by the
Actuary/recordkeeper is no longer valid, such person may request a new
interim allocation by the Actuary/recordkeeper and no further investment
direction may be accepted as valid until such new interim allocation is
certified by the Actuary/recordkeeper. The Actuary/recordkeeper shall, in
performing the interim allocation, reflect any asset change since the last
certification as is, in its opinion, fair and equitable, and any such
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interim allocation and certification shall be binding on all parties
hereto.
5.4 If Paine Webber elects that the investment of the trust be made pursuant
to the specific directions and instructions of the appointed Investment
Manager in each case, then Paine Webber shall certify to the Trustee the
name and address of the Investment Manager so designated and the
signatories who are authorized to act on behalf of such Investment
Manager. Any such Investment Manager shall continue to be authorized until
the Trustee shall be actually notified of any change thereto by Paine
Webber and any such authorized signatory shall continue to be authorized
until the Trustee shall be actually notified of any change thereto by the
Investment Manager so authorized. Any person so authorized shall provide a
specimen signature to the Trustee and shall provide such additional
information as the Trustee shall reasonably require. Investment directions
shall be in writing, but if agreed to between the Trustee and the
authorized signatory may be oral, telegraphic or telephonic, subject to
later written confirmation.
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ARTICLE VI
POWERS OF TRUSTEE
6.1 The Trustee shall not be liable in discharging its duties hereunder,
including without limitation its duty to invest and reinvest the assets
held under trust, if it acts in good faith pursuant to the directions of
the Investment Manager, Paine Webber or the Actuary/recordkeeper with
regard to matters in which, pursuant to the terms of this Agreement and
Declaration of Trust, such persons respectively have the power and
authority to direct the Trustee. The Trustee shall be required to act
strictly in accordance with any such direction.
6.2 Subject to Article V hereof regarding investment direction, the Trustee
shall have the power to invest and reinvest the assets held in trust to
the same extent as if the assets were owned outright by the Trustee and
more specifically:
(a) To invest and reinvest in any property, real, personal or mixed,
wherever situated and whether or not productive of income or
consisting of wasting assets, including without limitation, common
and preferred stocks, bonds,
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notes, debentures (including convertible stocks and securities but
not including any stock or security of the Trustee), leaseholds,
mortgages, certificates of deposit or demand or time deposits
(including any such deposits with the Trustee), shares of investment
companies and mutual funds, interests in partnerships and trusts,
insurance policies and annuity contracts, and oil, mineral or gas
properties, royalties, interests or rights, without being limited to
the classes of property in which trustees are authorized to invest
by any law or any rule of court of any state and without regard to
the proportion any such property may bear to the entire amount of
the trust estate; provided, further, the Trustee is specifically
authorized to receive and hold any stock or security of Paine Webber
or the Trustee which is contributed by Paine Webber to be held in
trust or to purchase such stock or securities on the open market
subject to applicable legal requirements.
(b) To invest and reinvest all or any portion of assets held in trust
collectively through the medium of any common, collective or
commingled
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trust fund that may be established and maintained by the Trustee and
which may be authorized to accept such assets, subject to the
instrument or instruments establishing such trust fund or funds;
(c) To retain any property at any time received by the Trustee;
(d) To sell or exchange any property held by it at public or private
sale, for cash or on credit, to grant and exercise options for the
purchase or exchange thereof, to exercise all conversion or
subscription rights pertaining to any such property and to enter
into any covenant or agreement to purchase any property in the
future;
(e) To participate in any plan of reorganization, consolidation, merger,
combination, liquidation or other similar plan relating to property
held by it and to consent to or oppose any such plan or any action
thereunder or any contract, lease, mortgage, purchase, sale or other
action by any person;
(f) To deposit any property held by it with any protective,
reorganization or similar committee, to delegate discretionary power
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thereto, and to pay part of the expenses and compensation thereof
and any assessments levied with respect to any such property so
deposited;
(g) To extend the time of payment of any obligation held by it;
(h) To hold uninvested any moneys received by it, without liability for
interest thereon, until such moneys shall be invested, reinvested or
disbursed;
(i) To exercise all voting or other rights with respect to any property
held by it and to grant proxies, discretionary or otherwise;
(j) For the purposes of the assets held in trust, to borrow money from
others including the Trustee, to issue its promissory note or notes
therefor, and to secure the repayment thereof by pledging any
property held by it;
(k) To manage, administer, operate, insure, repair, improve, develop,
preserve, mortgage, lease or otherwise deal with, for any period,
any real property or any oil, mineral or gas properties, royalties,
interests or rights held by it directly or through any corporation,
either alone or by joining with others, using other assets held in
trust for any such purposes, to
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modify, extend, renew, waive or otherwise adjust any provision of
any such mortgage or lease and to make provision for amortization of
the investment in or depreciation of the value of such property;
(1) To employ suitable agents and counsel, who may be counsel to Paine
Webber or the Trustee, and to pay their reasonable expenses and
compensation from the assets held in trust to the extent not paid by
Paine Webber;
(m) To cause any property held by it to be registered and held in the
name of one or more nominees, with or without the addition of words
indicating that such securities are held in a fiduciary capacity,
and to hold securities in bearer form;
(n) To settle, compromise or submit to arbitration any claims, debts or
damages due or owing to or arising from the assets held in trust,
respectively, to commence or defend suits or legal proceedings to
protect any interest with respect to assets held in trust, and to
undertake any and all legal action with respect to the assets held
in trust in any court or before any other body or tribunal;
provided,
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however, that the Trustee shall not be required to take any such
action unless it shall have been indemnified by Paine Webber to its
reasonable satisfaction against liability or expenses it might incur
therefrom;
(o) To organize under the laws of any state a corporation or trust for
the purpose of acquiring and holding title to any property which it
is authorized to acquire hereunder and to exercise with respect
thereto any or all of the powers set forth herein; and
(p) Generally, to do all acts, whether or not expressly authorized, that
the Trustee may deem necessary or desirable for the protection of
the assets held in trust.
6.3 The powers herein provided shall be exercised by the Trustee only in
accordance with, and subject to, Article V hereof.
6.4 No person dealing with the Trustee shall be under any obligation to see to
the proper application of any money paid or property delivered to the
Trustee or to inquire into the Trustee's authority as to any transaction.
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ARTICLE VII
DISTRIBUTIONS
7.1 Upon the direction of Paine Webber or upon proper application of a cestui
que trust (including a beneficiary of an original deceased cestui que
trust), the Actuary/recordkeeper shall determine the cestui que trust's
eligibility for benefits and calculate the amount thereof and shall
certify the same to the Trustee. Such certification shall include the
amount of such benefits, the date of payment, and the manner thereof, and
the name, address and social security number of the payee and shall be
updated annually and whenever the Actuary/recordkeeper shall determine
that any information set forth in a previous such notice needs to be
changed.
The determination of eligibility and calculation of amount of benefit
shall be made by the Actuary/recordkeeper in accordance with the terms and
provisions of the Plan and of the deferred compensation agreements issued
thereunder. Upon receipt of the aforesaid certified statement from the
Actuary/recordkeeper and appropriate federal,
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state and local tax withholding information, the Trustee shall liquidate
the assets so specified by Paine Webber or the Investment Manager
appointed by Paine Webber (as applicable) and shall convey title to the
proceeds thereof to the cestui que trust free of the trust or shall, if so
directed by Paine Webber or the Investment Manager appointed by Paine
Webber, convey title to those assets held in trust so designated by Paine
Webber or such Investment Manager to the cestui que trust free of the
trust, provided that in the case of a cestui que trust who has elected a
Variable Anuity the assets to be liquidated or conveyed shall be specified
by the Actuary/recordkeeper. If the Actuary/recordkeeper shall so
indicate, such distributions shall be made periodically at the times and
in the frequencies indicated. Nevertheless, all such conveyances shall be
subject to the provisions of Article VIII hereof, and in the event Paine
Webber becomes Bankrupt (notwithstanding anything to the contrary), the
estate shall be disposed of as provided by Article VIII.
Copies of the certification by the Actuary/recordkeeper to the Trustee
shall be
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provided by the Actuary/recordkeeper to the affected cestui que trust and
Paine Webber
7.2 The Trustee shall withhold from such payments to each cestui que trust
such amounts as are certified to the Trustee by the Actuary/recordkeeper
in accordance with the election by the cestui que trust and applicable
legal requirements with respect to federal, state and local taxes. The
Trustee shall forward amounts so withheld, together with appropriate
documentation, to the Actuary/recordkeeper. The Actuary/recordkeeper
shall, on behalf of and as agent for Paine Webber, remit to the taxing
authority the amounts so withheld as provided by law, together with such
forms and information as shall be required by law with respect thereto.
7.3 Any payments made to a cestui que trust shall only be charged against the
account of that cestui que trust on the books and records of the Actuary/
recordkeeper, but no individual accounts shall be maintained on the books
and records of the Trustee.
7.4 If a cestui que trust shall be entitled to an annuity (whether measured by
one or two lives), the
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Actuary/recordkeeper shall, at the time of eligibility for the first such
payment, instruct the Trustee to purchase a commercial annuity contract or
policy from a licensed insurance company or annuity company. The annuity
contract or policy shall be specifically identified in such direction and
shall be owned in trust by the Trustee and the Trustee shall be entitled
to all annuity and other payments therefrom, but the life or lives for
measuring the period of payments shall be as designated by the
Actuary/recordkeeper. This Section 7.4 shall not be applicable if the
cestui que trust shall elect to make investment directions after
commencement of the monthly retirement allowance pursuant to Section 5.3
hereof.
ARTICLE VIII
BANKRUPTCY
8.1 Notwithstanding any provision in this Agreement and Declaration of Trust
to the contrary, if at any time while the Trustee still holds assets in
trust Paine Webber becomes Bankrupt, the Trustee shall, upon receipt of
written notice, court order or written allegations as provided in Section
8.2 hereof,
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suspend the payment of all benefits from the estate and shall thereafter
hold the estate in suspense for the benefit of Paine Webber's creditors
until it receives a court order directing the disposition of the estate;
provided, however, the Trustee may deduct or continue to deduct its fees
and expenses and other expenses of the Trustee acting as Trustee,
including taxes, pending the receipt of such court order.
8.2 Paine Webber represents and agrees that it shall have the fiduciary duty
and responsibility on behalf of Paine Webber's creditors to give to the
Trustee prompt written notice in the event of Bankruptcy with respect to
Paine Webber and the Trustee shall be entitled to rely thereon to the
exclusion of all directions or claims to pay benefits thereafter, other
than an order of a court of competent jurisdiction. Absent such notice,
the Trustee shall have no responsibility for determining whether or not an
event of Bankruptcy has occurred and shall be entitled to rely on there
being no event of Bankruptcy unless (a) the Trustee is served with a court
order showing that an event of Bankruptcy has occurred or (b) the Trustee
receives written
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allegations of an event of Bankruptcy from a third party considered by the
Trustee to be reliable and responsible. If after an event of Bankruptcy,
Paine Webber later ceases to be Bankrupt without the entry of a court
order concerning the disposition of the estate, Paine Webber shall by
written notice so inform the Trustee and the Trustee shall thereupon
resume all its duties and responsibilities under this Agreement and
Declaration of Trust without regard for this Article VIII until and unless
Paine Webber again becomes Bankrupt. Distribution pursuant to Article VII
hereof shall be suspended during an event of Bankruptcy but shall be paid
retroactively (without interest) if Paine Webber later ceases to be
Bankrupt without the entry of a court order concerning the disposition of
the estate.
ARTICLE IX
FUNDING
9.1 The Actuary/recordkeeper shall recommend to Paine Webber amounts to be
conveyed to the Trustee to be held in trust hereunder so that, on an
actuarial basis, such amounts are sufficient to support the benefits under
the Plan and the deferred
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compensation agreements referred to in Section 3.4 hereof. Notwithstanding
anything to the contrary, however, the Trustee shall be under no
obligation to determine the appropriate amounts to be conveyed or enforce
any requirement of conveyance hereunder.
9.2 Paine Webber intends that none of the benefit plans and arrangements
funded by the assets held in trust by the Trustee be qualified within the
meaning of Section 401 of the Code and that they therefore be exempt from
all such requirements and further intends that they be exempt from all of
the requirements of the Employee Retirement Income Security Act of 1974,
as amended (29 USC 1001 et seq), except for part 1 of Title I thereof, and
that Paine Webber shall assume all responsibility for complying with part
1 of Title I thereof.
ARTICLE X
INDEMNIFICATION
10.1 Paine Webber hereby agrees to indemnify and hold harmless the Trustee with
regard to the Trustee's acting in accordance with any direction of Paine
Webber, the Investment Manager appointed by Paine
<PAGE> 32
32
Webber or the Actuary/recordkeeper within the power and authority given
to any such person as aforesaid.
10.2 The Trustee hereby agrees to indemnify and hold harmless Paine Webber with
regard to the Trustee's failure to act in accordance with any direction of
Paine Webber, the Investment Manager appointed by Paine Webber or the
Actuary/recordkeeper within the power and authority given to any such
person as aforesaid.
ARTICLE XI
LIQUIDATION OF TRUST
11.1 The Trust established hereby is irrevocable and may not be terminated by
Paine Webber or otherwise prior to the satisfaction of all liabilities to
the cestuis que trust under the Plan and deferred compensation agreements
referred to in Section 3.4 hereof or the occurrence of an event of
Bankruptcy with respect to Paine Webber in accordance with Article VIII
hereof. The estate shall terminate when all of the assets thereof shall be
distributed to the cestuis que trust or reverted to Paine Webber or its
creditors. If all of the obligations under
<PAGE> 33
33
the Plan and the deferred compensation agreements referred to in Section
3.4 hereof shall be met and a portion of the estate shall remain, then the
Actuary/recordkeeper shall certify to the Trustee instructions to
distribute that remainder to Paine Webber. The Trustee shall convey such
assets free of the trust as certified by the Actuary/recordkeeper and,
when all of the assets thereof shall be distributed, the estate shall
terminate.
11.2 The estate created in accordance with this Agreement and Declaration of
Trust shall continue for such time as may be necessary to accomplish the
purposes for which it was created, notwithstanding the rules against
perpetuities or accumulations, it being exempt therefrom in accordance
with the New York Estates, Powers and Trusts Law Section 9-1.6.
ARTICLE XII
FEES AND EXPENSES
12.1 Any federal, state or local taxes on the assets held in trust, or any part
thereof, or any income thereon shall be paid by the estate, provided that
any taxes
<PAGE> 34
34
assessed against Paine Webber as grantor shall be paid by Paine Webber. In
the event any such taxes payable by the estate are attributable to a
particular investment thereof (for example, a transfer tax on the transfer
of a particular security), the Trustee shall maintain such records as may
be necessary to permit the proper allocation of such taxes.
12.2 Paine Webber shall pay to the Trustee its reasonable expenses for managing
and administering the assets held in trust, including without limitation
reasonable expenses of counsel and other agents employed by the Trustee
and reasonable compensation for its services as Trustee hereunder as shall
be agreed to between Paine Webber and the Trustee from time to time. Such
expenses, fees and compensation shall be a charge on the estate and shall
constitute a lien in favor of the Trustee until paid by Paine Webber.
ARTICLE XIII
ACCOUNTING
13.1 The Trustee shall maintain true and correct records with respect to the
assets held in trust that show
<PAGE> 35
35
all its receipts and disbursements hereunder and the market value of the
estate on the date of valuation. The records of the Trustee with respect
to the assets held in trust shall be open to inspection by Paine Webber,
or its representatives, at all reasonable times during normal business
hours of the Trustee and may be audited not more frequently than once each
calendar year by an independent certified public accountant engaged by
Paine Webber; provided, however, the Trustee shall be entitled to
additional compensation from Paine Webber in respect of audits or
auditors' requests which exceed the ordinary course of the usual scope of
such examinations of its records.
13.2 As promptly as practicable following termination of the duties of the
Trustee hereunder or the resignation or removal of the Trustee, but in no
event later than sixty (60) days after such termination or the notice of
resignation or removal pursuant to Article XIV hereof, the Trustee shall
prepare and deliver to Paine Webber a statement of transactions reflecting
its acts and transactions as Trustee during the last calendar year, or
during such period from the close of the last calendar year
<PAGE> 36
36
or last statement period to the termination of the Trustee's duties,
including a statement of the then current value of the estate. Any such
statement shall be deemed an account stated and accepted and approved by
Paine Webber, and the Trustee shall be relieved and discharged as if such
account had been settled and allowed by a judgment or decree of a court of
competent jurisdiction, unless protested by written notice to the Trustee
within sixty (60) days of receipt thereof by Paine Webber.
The Trustee shall have the right to apply at any time to a court of
competent jurisdiction for judicial settlement of any account of the
Trustee not previously settled as herein provided or for the determination
of any question of construction or for instructions. In any such action or
proceeding it shall be necessary to join as parties only the Trustee and
Paine Webber (although the Trustee may also join such other parties as it
may deem appropriate), and any judgment or decree entered therein shall be
conclusive.
<PAGE> 37
37
ARTICLE XIV
RESIGNATION AND REMOVAL
14.1 The Trustee may resign at any time by delivering written notice thereof to
Paine Webber; provided, however, that no such resignation shall take
effect until the appointment of a successor trustee.
14.2 The Trustee may be removed at any time by Paine Webber, pursuant to a
resolution of the Board of Directors of Paine Webber, upon delivery to the
Trustee of a certified copy of such resolution and sixty (60) days'
written notice, unless such notice period is waived in whole or in part by
the Trustee.
14.3 Upon the resignation or removal of the Trustee, a successor trustee shall
be appointed by Paine Webber. Such successor trustee shall be a bank or
trust company which is established under the laws of the United States of
America or a State within the United States of America. Such appointment
shall take effect upon the delivery to the Trustee of (a) a written
appointment of such successor trustee, duly executed by Paine Webber, and
(b) a written acceptance by such successor trustee, duly executed
<PAGE> 38
38
thereby. Any successor trustee shall have all the rights, powers and
duties granted the Trustee hereunder.
14.4 If, within sixty (60) days of the delivery of the Trustees written notice
of resignation, a successor trustee shall not have been appointed, the
Trustee may apply to any court of competent jurisdiction for the
appointment of a successor trustee.
14.5 Upon the resignation or removal of the Trustee and the appointment of a
successor trustee, and after the acceptance and approval of its account,
the Trustee shall transfer and convey title to all of the assets held in
trust to such successor and, to the extent the Trustee shall have physical
custody of such assets, shall deliver such custody to such successor.
Under no circumstances shall the Trustee transfer custody, or deliver
custody of any assets held in trust to any successor which is not a bank
or trust company as aforesaid.
ARTICLE XV
AMENDMENT
This Agreement and Declaration of Trust may be amended, in
<PAGE> 39
39
whole or in part, by written agreement between Paine Webber and the Trustee,
provided, however, that no such amendment shall adversely affect the rights of
any person to receive the benefits that have accrued under the Plan or such
person's deferred compensation agreement prior to the date of such amendment.
ARTICLE XVI
MISCELLANEOUS
16.1 The Chief Executive Officer of Paine Webber shall provide to the Trustee,
in writing, a statement as to the Paine Webber officers who may provide
directions, orders and instructions to the Trustee as provided in this
Agreement and Declaration of Trust, including any changes in such
officers. Any such writing may be relied upon by the Trustee until a new
statement is received by the Trustee.
16.2 This Agreement and Declaration of Trust shall be construed and interpreted
under, and the trust hereby created shall be governed by, the laws of the
State of New York and, to the extent applicable, the laws of the United
States of America.
<PAGE> 40
40
16.3 Neither the gender nor the use of the singular or the plural of any word
shall be construed to exclude another gender or number when a different
gender or number would be appropriate.
16.4 No right or interest of any cestui que trust in or to the estate or any
income of the estate shall be transferable or assignable or shall be
subject to alienation, anticipation or encumbrance, and no right or
interest of any cestui que trust shall be subject to any garnishment,
attachment or execution. Notwithstanding the foregoing, the estate shall
at all times remain subject to claims of creditors of Paine Webber in the
event Paine Webber becomes Bankrupt as provided herein, and in that event,
except to the extent otherwise provided in Section 8.2 hereof, the cestuis
que trust shall have no claims to the assets held in trust superior to
that of any other unsecured creditor.
16.5 This Agreement and Declaration of Trust shall be binding upon and inure to
the benefit of any successor to Paine Webber or its business as the result
of merger, consolidation, reorganization, transfer of assets or otherwise
and any subsequent
<PAGE> 41
41
successor thereto. In the event of any such merger, consolidation,
reorganization, transfer of assets or other similar transaction, the
successor to Paine Webber or its business or any subsequent successor
thereto shall promptly notify the Trustee in writing of its successorship
and furnish the Trustee with the information specified in Section 16.1 of
this Agreement and Declaration of Trust. In no event shall any such
transaction described herein suspend or delay the rights of any cestui que
trust to receive benefits hereunder.
16.6 This Agreement and Declaration of Trust may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of
which shall together constitute only one indenture.
16.7 Communications to the Trustee shall be sent to: Chase Manhattan Bank,
N.A., Trust and Estates Management Division, 1211 Avenue of the Americas,
34th Floor, New York, New York 10036, or to such other address as the
Trustee may specify in writing. Communications to Paine Webber shall be
sent to:
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42
Mr. Ronald M. Schwartz
Director, Human Resources and
Executive Vice President
1285 Avenue of the Americas, 14th Floor
New York, New York 10019,
or to such other address as Paine Webber may specify in writing. No
communication shall be binding upon a party until it is received by that
party.
16.8 In the event any cestui que trust is determined to be subject to federal
income tax on any amount to his credit then held in trust under this
Agreement and Declaration of Trust prior to the time of payment hereunder,
the entire amount determined to be so taxable shall be immediately
distributed by the Trustee to such cestui que trust, subject to
withholding with respect to federal, state and local taxes in accordance
with the provisions of Section 7.2 hereof. Such distribution shall be at
the direction of the Actuary/recordkeeper. Any such amount shall be deemed
to be subject to federal income tax upon the earliest of: (a) a final
determination by the United States Internal Revenue Service addressed to
the cestui que trust which is not appealed to the courts; (b) a final
determination by the United States Tax Court or any other Federal Court
affirming any such determination by the Internal Revenue Service; or (c)
an opinion
<PAGE> 43
43
by an attorney for Paine Webber, addressed to Paine Webber, the Trustee
and the Actuary/recordkeeper, that, by reason of Treasury Regulations,
provisions of the Internal Revenue Code, published Internal Revenue
Service rulings, court decisions or other substantial precedent, amounts
to the credit of cestuis que trust hereunder are subject to federal income
tax prior to payment.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals this 20th
day of December, 1990.
Attest: Paine Webber Group Inc.
/s/ James C. Treadway, Jr. /s/ Donald B. Marron
- -------------------------- --------------------------
James C. Treadway, Jr. Donald B. Marron
Secretary Chairman of the Board of
Directors and
Chief Executive Officer
Attest: Chase Manhattan Bank, N.A.
/s/ John W. Koenig By: /s/ William P. Barbeoson
- -------------------------- ------------------------
John W. Koenig
Title: Vice President Title: VICE PRESIDENT
BLE/251
<PAGE> 1
Exhibit 10.43
MASTER AGREEMENT
BETWEEN
PAINEWEBBER INCORPORATED
AND
QUOTRON SYSTEMS, INC.
FEBRUARY 11, 1991
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
ARTICLE I -- DEFINITIONS............................................... 2
ARTICLE II -- PURPOSE AND TERM......................................... 5
ARTICLE III -- ORDERING SERVICES AND INSTALLATION OF OFFICES........... 7
ARTICLE IV -- SERVICES AND UPGRADES.................................... 10
ARTICLE V -- PRICE AND PAYMENT......................................... 14
ARTICLE VI -- OFFICE CLOSINGS.......................................... 22
ARTICLE VII -- MAINTENANCE............................................. 23
ARTICLE VIII -- PERFORMANCE CRITERIA................................... 27
ARTICLE IX -- SERVICE STANDARDS........................................ 34
ARTICLE X -- PURCHASE OPTION........................................... 38
ARTICLE XI -- SOFTWARE DEVELOPMENT AND SUPPORT; TRAINING............... 38
ARTICLE XII -- PROPRIETARY INFORMATION................................. 39
ARTICLE XIII -- DISCLAIMER OF WARRANTIES; LIMITATION OF LIABILITY;
INDEMNIFICATION........................................ 40
ARTICLE XIV -- TERMINATION............................................. 44
ARTICLE XV -- MISCELLANEOUS PROVISIONS................................. 48
i
<PAGE> 3
TABLE OF CONTENTS
APPENDIX A -- PRICE LIST
APPENDIX B -- SERVICE AGREEMENTS
APPENDIX B1 -- EQUIPMENT LEASE AGREEMENT
APPENDIX C -- EQUIPMENT AND SERVICE SCHEDULE
APPENDIX D -- LIST OF PAINEWEBBER OFFICES
APPENDIX E -- CUSTOMER ENGINEERING MAINTENANCE SERVICE OFFERING
APPENDIX F -- SOFTWARE DEVELOPMENT
APPENDIX G -- TRAINING
APPENDIX H -- NON-DISCLOSURE AGREEMENT
APPENDIX I -- TRAVEL TIME SCHEDULE
APPENDIX J -- CATALOG OF SERVICES
APPENDIX K -- INTERNATIONAL SERVICE AGREEMENT
ii
<PAGE> 4
THIS MASTER AGREEMENT ("Agreement") is made this ___ day of _____________, 1991
by and between PaineWebber Incorporated, a Delaware corporation, with its
principal place of business at 1285 Avenue of the Americas, New York, NY 10019
("PWI") and Quotron Systems, Inc., a Delaware corporation, with its principal
place of business at 12731 West Jefferson Blvd., Los Angeles, CA 90066 ("QSI").
WITNESSETH:
WHEREAS, QSI and PWI are Parties to a National Agreement dated February 5, 1988
pursuant to which QSI provides financial information services to PWI.
WHEREAS, PWI and QSI desire to enter into a new Master Agreement for the
continued provision of financial information services to PWI, including
upgrades of existing services.
NOW, THEREFORE, in consideration of the premises contained herein and other
good and valuable consideration, receipt of which is hereby acknowledged, QSI
and PWI agree as follows:
1
<PAGE> 5
ARTICLE I
DEFINITIONS
When used in this Agreement,
1.1 "ALTERNATIVE PLATFORM OR ALTERNATIVE EQUIPMENT" means Equipment other
than Q800 or Q1000 Equipment that may be made available by QSI to PWI.
1.2 "BUSINESS DAY" means any day on which the New York Stock Exchange is
open for trading.
1.3 "CABLING" means standard quad cabling utilized by QSI for installation
of Equipment.
1.4 "CE" means Customer Engineering personnel provided by QSI or its
designees.
1.5 "CPU" means a central processor unit.
1.6 "CSR" means a QSI Customer Service Request.
1.7 "EFFECTIVE DATE" means August 1, 1990.
1.8 "FIRST EXTENSION" has the meaning set forth in Section 2.2(b) hereof.
1.9 "SECOND EXTENSION" has the meaning set forth in Section 2.2(c) hereof.
2
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1.10 "EQUIPMENT" means the hardware provided to PWI by QSI used for the
delivery to PWI of Quotron financial information services.
1.11 "EXISTING OFFICE" means an Office installed with Services as of the
Effective Date.
1.12 "EXPIRATION DATE" has the meaning set forth in Section 2.2(a) hereof.
1.13 "EXPEDITED BASIS" means anytime outside of the standard QSI lead times
for tasks referred to in Article IX.
1.14 "FUTURE OFFICE" means an Office in which Services are installed after
the Effective Date and which do not receive any Services on the
Effective Date.
1.15 "INTERNATIONAL OFFICE" means a location outside the fifty (50) United
States and Puerto Rico where PWI, its parent, subsidiaries or affiliates
conduct its business and which is subject to an International Service
Agreement.
1.16 "MDS" means Quotron Market Data Services.
1.17 "OFFICE" means a location where PWI, its parent, subsidiaries or
affiliates conduct business in the fifty (50) United States and Puerto
Rico and which is subject to a Service Agreement executed by PWI.
1.18 "PARTY" means PWI or QSI, and "PARTIES" means both PWI and QSI.
1.19 "Q800" means a Quotron 800 Computer.
1.20 "Q1000" means a Quotron 1000 Computer.
3
<PAGE> 7
1.21 "RS/6000" means an IBM RS/6000 Model 320 server.
1.22 "RETAIL OFFICE" means a PWI branch Office engaged in the buying and
selling of securities for the general public and excludes PWI Capital
Markets.
1.23 "SERVICES" means one or more of those QSI Information Services (formerly
known as Quotron Financial Information and Offices Services)
categorized as MDS, Trading and Decision Support Services, and Branch
Office Services made available on QSI provided Equipment.
Classification of Services into each such category is set forth in
Appendix "J" hereto. "SERVICES" may also refer to Services made
available through a QSI provided Alternative Platform, Quotron QUOTDIAL
Service, personal computers, and Remote Information Services ("Remote
Services") formerly known as "Quotron Satellite Office Terminal
Service".
1.24 "SERVICE AGREEMENT" means the written agreements including Service
Orders between QSI and PWI pursuant to which QSI provides Services to
an Office. "SERVICE AGREEMENT" also includes the Equipment Rental
Agreement. "EQUIPMENT RENTAL AGREEMENT" means an agreement whereby the
Equipment is rented by PWI from QSI on a month-to-month basis. Service
Agreements include the Information Services Agreement, Equipment
Rental Agreement, Equipment Maintenance Agreement, PC Service
Agreement, Remote Information Services Agreement, Agreement for
QuotChart, QuotData and QuotTerm. Forms of the Service Order and
Service Agreements are attached hereto in Appendix "B".
1.25 "EQUIPMENT LEASE AGREEMENT" means an Agreement whereby the Equipment is
leased by PWI and QSI or a third party for a fixed term. A form of the
Quotron Equipment Lease Agreement is attached hereto in Appendix "B1".
4
<PAGE> 8
1.26 "EQUIPMENT RENTAL AGREEMENT" - see definition of Service Agreement.
1.27 "UPGRADE" means replacing Equipment installed in an Office with
different Equipment that makes possible the delivery to PWI of improved
or additional Services. Examples of an Upgrade would be replacing the
Q800 with the Q1000 or replacing the Q1000 with an Alternative
Platform.
ARTICLE II
PURPOSE AND TERM
2.1 PURPOSE. The Parties agree that the purpose of this Agreement is to set
forth the terms and conditions that together with the terms and
conditions contained in the Service Agreements, shall govern the
provision of Services to Offices. All such Service Agreements shall have
full force and effect, provided that in the event of a conflict of terms
between a Service Agreement and this Agreement, this Agreement shall
prevail. The National Agreement between the Parties dated February 5,
1988 is hereby superseded in whole by this Agreement as of the Effective
Date.
2.2 TERM.
(a) MASTER AGREEMENT. This Agreement shall be in effect until
August 1, 1995 (the "Expiration Date"), unless sooner
terminated by the Parties in accordance with Article XIV hereof
or extended by PWI pursuant to and in accordance with
Subsection (b) and/or (c) of this Section 2.2.
5
<PAGE> 9
(b) FIRST EXTENSION OF MASTER AGREEMENT. Unless either Party gives
written notice of termination to the other Party at least sixty
(60) days prior to the Expiration Date, PWI may exercise an
option to extend the term of this Agreement for a period of
three (3) years ("First Extension") by furnishing to Quotron
written notice at least sixty (60) days prior to the Expiration
Date, of PWI's intent to exercise its option to extend pursuant
to this Section.
(c) SECOND EXTENSION OF MASTER AGREEMENT. Unless either Party gives
written notice of termination to the other Party at least sixty
(60) days prior to the expiration date of the term of the First
Extension, PWI may exercise an additional option to extend the
term of this Agreement for a period of three (3) years ("Second
Extension") beyond the expiration of the term of the First
Extension by furnishing to Quotron written notice at least sixty
(60) days prior to the expiration of term of the First
Extension, of PWI's intent to exercise its option to extend
pursuant to this Section.
(d) TERM OF SERVICE AGREEMENT FOR OFFICES LISTED IN APPENDIX "D".
Commencing on the Effective Date, the terms of the Service
Agreements for all Existing Offices including Offices listed in
Appendix "D" shall be extended to the Expiration Date, and shall
be further extended to the end of the First Extension (if the
option under Section 2.2(b) is exercised) and further extended
to the end of this Second Extension (if the option under
Section 2.2(c) is exercised).
(e) TERM OF FUTURE SERVICE AGREEMENTS. The term of each Service
Agreement for Future Offices shall be, at PWI's option, either
(i) co-terminus with the Expiration Date (provided the term of
such Service Agreement is at least 12 months) or (ii) not
co-terminus, in which case PWI will specify for each such
Service Agreement a term of 12, 24, 36, 48 or 60 months. With
less than twelve (12) months remaining in the Agreement, PWI
shall have the option to select a term co-
6
<PAGE> 10
terminus with the Expiration Date at month-to-month pricing
described in Appendix "A".
(f) MONTH-TO-MONTH EXTENSION. Upon the expiration date of the fixed
term (which excludes any First Extension or Second Extension) of
a Service Agreement, such Service Agreement shall continue to be
extended one full month at a time, subject to termination by
either Party on at least sixty (60) days prior written notice
furnished to the other.
ARTICLE III
ORDERING SERVICE AND INSTALLATION OF OFFICES
3.1 ORDERS. QSI agrees to consult with PWI as QSI defines and implements
improvements in the process and procedures to be used in ordering QSI
Services and/or Equipment.
3.2 SERVICE AGREEMENTS. Upon execution of this Agreement, the Service
Agreements, to include the Information Service Agreement, the Equipment
Maintenance Agreement, and the Equipment Rental Agreement shall be
deemed to have been executed by both Parties and shall be in effect for
each Existing Office and for each new installation of Future Offices.
The Service Agreements executed or deemed to have been executed pursuant
to this Article shall supersede all prior Service Agreements between the
Parties.
3.3 INSTALLATION OF FUTURE OFFICES. To order Q1000 Service for any Future
Office during the term of this Agreement, PWI shall notify QSI that it
wishes to order Service and PWI shall execute for that Office an
Equipment and Service Schedule, per Appendix "C" attached
7
<PAGE> 11
hereto and incorporated by reference. QSI shall install Services in a
Future Office within sixty (60) days of receipt by QSI of a completed
Service Order and an executed Equipment and Service Schedule for that
Office. When requested by PWI in writing, QSI shall install Services in
an Office on a expedited basis, subject to payment by PWI of QSI and
third party expedite fees. The foregoing shall be subject in each case
to PWI supplying to QSI all necessary Service and communication
line-ordering information at the time the order is placed, and subject
to the availability of communication lines and facilities.
3.4 ACQUISITION OF A COMPETITIVE FIRM'S OFFICES. When requested by PWI in
writing, QSI shall install Services in an office of a firm which has
been acquired by PWI in order to replace a competitive vendor's system
with Services provided by QSI. QSI shall exert its best efforts to
install Services in such offices on an expedited basis subject in each
case to PWI supplying to QSI all necessary Service and communication
line-ordering information at the time the order is placed, and subject
to the availability of communication lines and facilities. QSI shall not
charge PWI for the QSI expedite fees when installation is to replace a
competitive vendor's system pursuant to this Section. PWI shall pay all
applicable third party (telco, air freight) expedite fees.
3.5 INSTALLATION OF INTERNATIONAL OFFICES. International Offices installed
with Services as of the Effective Date shall continue to be subject to
the terms and conditions, including pricing and discounts, which are
currently in effect for International Offices. To order Service for any
future International Offices during the term of this Agreement, PWI
shall notify the appropriate QSI International office that it wishes to
order Service and PWI
8
<PAGE> 12
shall execute for that International Office a separate International
Service Agreement per Appendix "K" for the applicable foreign country.
3.6 OFFICE RELOCATIONS. Relocation costs (including but not limited to all
applicable removal and installation costs) for any Office that is
relocated (and not designated a Temporary Office, as provided in Section
3.8 hereof) shall be paid by PWI. At PWI's option ("Relocation Option"),
QSI agrees to pay and amortize over the term of the Service Agreement
the costs associated with a relocation of an Office (to include
applicable removal and installation costs) provided PWI extends the term
of the Service Agreement for the new location by five (5) years. PWI
shall provide QSI with thirty (30) days notice, prior to the relocation,
that PWI elects to relocate pursuant to this Relocation Option. The
exercise by PWI of this Relocation Option shall automatically cause the
term of the Service Agreement for the Office to be relocated to be
extended for a period of five (5) years calculated from the first of the
month following the month in which the relocation occurred. If PWI
terminates Services to an Office after the relocation and prior to the
end of the five (5) year term, the term of twenty (20) months specified
in Article VI shall apply and PWI shall pay (i) unamortized costs of the
initial installation, if any, and (ii) unamortized installation costs
incurred as a result of the relocation.
3.7 CABLING OF FUTURE DESK UNITS. QSI shall install and pay for standard
quad cabling, as ordered, for projected desk units at the time QSI
installs cables for then current requirements. If the cabling for
projected desk units is not utilized in a Future Office within
twenty-four (24) months from the date of initial installation, PWI shall
pay the pro rata cost of the unused cabling. PWI will be charged and PWI
shall pay the price differential between standard quad cabling and other
type of cabling installed hereunder.
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<PAGE> 13
3.8 TEMPORARY OFFICES. At the time a Service Agreement is executed for a
Future Office, PWI may specify on the Service Order that the location of
the Future Office is temporary ("Temporary Office") and is to be
relocated at a later date during the initial term of the Service
Agreement to a permanent Office located within 50 miles of this Temporary
Office or located in the same metropolitan area. Installation and actual
removal costs for any Temporary Office shall be the responsibility of
PWI, and costs of installation in the permanent Office of the Equipment
located in the Temporary Office shall be paid for by the Parties in
accordance with Section 5.1(g) hereof.
ARTICLE IV
SERVICES AND UPGRADES
4.1 AVAILABILITY OF SERVICE. QSI will provide Services specified by PWI in
the Service Agreement for any Office for which Services are ordered. QSI
will give notice and make available to PWI throughout the term of this
Agreement services and equipment on terms and conditions as favorable as
any made available to other QSI Customers (defined as any brokerage firm,
bank or financial service provider) that are subject to similar terms and
conditions and that have similar billing volume.
4.2 UPGRADING OF OFFICES.
(a) UPGRADING OF RETAIL OFFICES FROM Q800 TO Q1000. QSI will complete
the Upgrade of Retail Offices (including Lincoln Harbor - Weehawken
C/Ns 4750-139, 4750-223 and 4750-280, 120 Broadway and the 1285
Retail Branch Offices) from MDS provided by Q800 Computers to MDS
plus Branch Office Services and Trading and
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Decision Support Services provided by Q1000 Equipment by January 1,
1991. QSI shall pay the QSI incurred installation costs associated
with such an Upgrade. QSI shall also pay the QSI incurred
installation charges for four (4) Offices to be relocated and
Upgraded to Q1000 Equipment after January 1, 1991. The four (4)
Offices are Akron, OH C/N 4750-665, Bellevue, WA C/N 4750-022,
Medford, OR C/N 4750-635 and Rochester, MN C/N 4750-715.
(b) UPGRADING OF RETAIL OFFICES, PWI CAPITAL MARKERS, AND SOFT DOLLAR
LOCATIONS FROM Q800 TO Q1000. PWI shall pay the QSI incurred
installation costs associated with the Upgrade from Q800 to Q1000
for (i) all PWI Capital Market and Soft Dollar Locations, at any
time, and (ii) for Retail Offices upgrading after January 1, 1991
(excluding the four (4) Offices and associated Soft Dollar Locations
referenced in Section (a) above).
(c) UPGRADE OF PWI OFFICES TO AN ALTERNATIVE PLATFORM. PWI may Upgrade
any Office from Q800/Q1000 to a QSI provided Alternative Platform
pursuant to a mutually agreed to installation schedule. Such
Upgrades are subject to the following terms and conditions:
(i) PWI shall pay actual costs of removal of the Equipment being
replaced including but not limited to labor, freight and
telco charges.
(ii) Notwithstanding anything to the contrary contained in the
Agreement, PWI shall sign a fixed term Equipment Lease
Agreement for each Office to be installed with the
Alternative Equipment supplied by QSI.
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(iii) If PWI acquires an Alternative Platform other than from QSI,
PWI will pay to QSI all costs associated with the
installation of software in the Alternative Platform and all
software licenses.
(iv) PWI shall not be required to pay any further Services charges
with regard to the Q800/Q1000 Equipment which is removed from
an Office as a result of an Upgrade to an Alternative
Platform.
4.3 SERVICE CHANGES.
(a) STANDARD. To order any additional Services or any change in
Services (including entitlement changes), PWI shall deliver a
written or electronic Customer Service Request ("CSR") to QSI's Los
Angeles Order Processing Department. Installation of, or reduction
in, equipment, keyboards, displays, expansion hardware or Services
shall be completed within standard lead time (as reflected in
Article IX below) days of receipt by QSI of a properly completed
CSR, subject to PWI supplying to QSI all necessary Service and
communication line-ordering information at the time the order is
placed, and to the availability of hardware, communication lines and
facilities. Service changes will be priced in accordance with
Appendix "A" hereto.
(b) ENTITLEMENT CHANGES. Software only entitlement changes not
requiring a visit to an Office by a CE shall be accomplished at no
charge to PWI.
(c) DESK UNIT ADDITIONS. Upon prior written or electronic notice, PWI
may add desk units. QSI shall install additional desk units at no
charge to PWI for the installation. QSI acknowledges that from time
to time PWI will have a need to have a desk unit added on an
expedited basis to accommodate a new broker. On an exception basis
QSI will exert its best efforts to exceed the standard lead times
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described in Article IX below in order to accommodate PWT's
requested install date. No QSI expedite fee will be charged for this
accommodation. QSI will maintain on an ongoing basis twelve 12"
cluster terminals with 80-key Qwerty keyboards, and a sufficient
number of C.I. boards and cable connectors, as determined by QSI,
for the exclusive use of PWI on an expedite basis.
(d) DESK UNIT REMOVALS AND RELOCATIONS. Upon prior written or electronic
notice, and at PWI's expense, PWI may remove desk units, or relocate
desk units at the same or different locations. The billing for
reductions in desk units and/or costs of relocation will appear on a
supplemental invoice retroactive to the date of removal and/or
relocation, provided, however, that monthly billing shall not be
reduced below the Firm-Wide Minimum Monthly Subscription
Requirement.
4.4 TECHNICAL COMPETITIVENESS. If PWI determines that for competitive
reasons it requires a feature or service added to Services then available
and if PWI provides QSI with a description and specifications for the
required feature or service, then in the event, within 60 calendar days,
QSI shall provide a proposal to develop and implement the new feature or
service, together with a proposed schedule. If PWI accepts QSI's
proposal, QSI shall develop and install the new feature or service in
accordance with the accepted proposal and schedule. If PWI does not
accept QSI's proposal for any reason, the Parties will submit PWI's
specifications and QSI's proposal to a mutually acceptable expert in the
financial information services field who shall determine whether QSI's
proposal adequately and reasonably meets reasonable competitive
requirements of PWI or, if not, how QSI's proposal should be modified. In
the event the Parties cannot agree on an expert the Parties agree that
each Party will choose an expert and the two experts will choose a third
expert and the three experts shall perform the evaluation of QSI's
proposal. The cost of the expert(s) shall be borne equally by the
Parties. PWI may then either accept QSI's proposal in its original form
or as modified pursuant to the expert's determination, or PWI may abandon
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its quest for the new feature or service. If PWI does accept QSI proposal
in either form, QSI shall develop and install the new feature or service
in accordance with the accepted proposal and schedule. If QSI meets the
accepted schedule for development and installation of the new feature or
service, or is not more than 30 calendar days delayed for reasons within
QSI's control, PWI shall either (i) subscribe and pay for the new feature
or service for the mutually agreed to minimum period and minimum number
of Orders or terminals reasonably deemed necessary to recoup QSI's
development costs for the new feature or service, or (ii) reimburse QSI
for its development costs for the new feature or service that were agreed
to by PWI pursuant to the QSI proposal. QSI agrees that the failure to
deliver on schedule the QSI proposal and have PWI approve the new feature
or service will subject QSI to penalties as provided in Article 8.4.
ARTICLE V
PRICE AND PAYMENT
5.1 PRICES FOR SERVICES.
(a) EXISTING OFFICES. Commencing on the Effective Date, the prices
applicable to Services in Existing Offices shall be as set forth on
the Price List attached hereto as Appendix "A". Effective with the
first recurring monthly billing following the execution of this
Agreement, (QSI shall be permitted to use an estimated amount on the
first monthly billing following execution of this Agreement provided
it is approximately 90% of the credit that would be due with the
second recurring monthly billing generating the remaining credit
based on active calculations), PWI will receive, as a credit against
future bills, an amount equal to the difference
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between actual Office billings and Office billings as calculated
using the prices and discounts as detailed in Appendix "A" for all
monthly billings from the Effective Date through the implementation
of the pricing and discounts of Appendix "A". QSI guarantees that
the annual recurring billing (excluding exchange fees, royalties,
taxes and surcharge) shall be no more than $17,491,938 based on 6878
retail terminals and 1676 non-retail terminals with existing Office,
Equipment and Services defined as PWA on Page 2-3 of Appendix "A"
located in PWI Offices and correspondent offices installed with
Services as of August 1, 1990. In the event that any of the stock,
commodity, futures or any other exchanges extend their hours beyond
those in effect as of the Effective Date, QSI may charge PWI for
QSI's increased costs of providing operation and (at PWI's request)
maintenance during the lengthened market day. The charge for QSI's
providing operation (but not maintenance) during such extended hours
shall be as mutually agreed upon by the Parties, but in no event
shall such charge be greater than the published list prices charged
to other customers. Such charge shall be discountable and subject to
the terms and conditions of Section 4.1 herein.
(b) FUTURE OFFICES AND RENEWALS. The prices applicable to Services in
Future Offices installed or renewed after the Effective Date during
the initial five (5) year term of this Agreement shall be those set
forth on the Price List attached thereto as Appendix "A".
(c) PRICE ADJUSTMENT DURING FIRST EXTENSION. On or after the
commencement date of the three (3) year term of the First Extension
(in the event the First Extension option is exercised by PWI), QSI
may raise any price set forth in Appendix "A" (exclusive of
Equipment) by an aggregate of eight percent (8%).
(d) PRICE ADJUSTMENT DURING SECOND EXTENSION. On or after the
commencement date
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of the three (3) year term of the Second Extensions (in the
event the Second Extension option is exercised by PWI), QSI may
raise any price set forth in Appendix "A" (exclusive of
Equipment) by an aggregate of an additional eight percent (8%)
over the level to which it was adjusted during the First
Extension.
(e) EQUIPMENT PRICING DURING FIRST EXTENSION. On the commencement
date of the three (3) year term of the First Extension (in the
event the Plant Extension option is exercised by PWI) the prices
applicable to five (5) year tests Equipment rental shall be
reduced by thirty percent (30%). The prices applicable to Leased
Equipment during the First Extension shall be adjusted subject
to negotiation by the Parties.
(f) MONTH-TO-MONTH EXTENSIONS. If PWI extends a Service Agreement on
a month-to-month basis for reasons other than a competitive
replacement or replacement with services provided by PWI, then
in that event, the prices applicable to Offices that are covered
by Service Agreements extended on a month-to-month basis shall
be one hundred ten percent (110%) of the prices before discount
being charged to PWI immediately prior to conversion to the
month to month terms. Notwithstanding anything contained herein
to the contrary, Offices extended on a month-to-month term basis
following a fixed term are eligible for continuation of
discounts. If at the end of the initial five (5) year term of
this Agreement, the Parties are in good faith contract
negotiations, PWI shall be subject to payment of one hundred
percent (100%) of PWI's prevailing prices and discount which
will remain in effect for six (6) months. If the Parties are not
in good faith contract negotiations, then PWI shall be subject
to QSI's then current published list prices at no discount.
(g) INSTALLATION COSTS FOR Q800 AND Q1000 SYSTEMS. QSI shall pay and
amortize over a period of 20 months, installation costs for Q800
or Q1000 systems for all Offices
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covered under a 12 month or longer term Service Agreement. PWI
shall pay installation costs for all Offices installed with a
term less than 12 months.
(h) INSTALLATION COSTS FOR UPGRADE TO ALTERNATIVE PLATFORM. For
Upgrades From Q800 or Q1000 Systems PWI will select one of the
following options:
(i) Pay the installation charges with a one-time payment.
(ii) PWI will arrange to include the installation charges as
part of the Equipment Lease for Alternative Platforms.
(iii) Commit to at least a 36 month extension of the Services
Agreement with QSI in which case QSI will pay the
installation charges and amortize them over the term
of the extension. If PWI closes the Office prior to the
end of the 36 month extension PWI shall pay to QSI the
unamortized portion of the installation charges.
(i) INSTALLATION COSTS - ALTERNATIVE PLATFORMS FOR NEW OFFICES. For
new Offices PWI will select one of the following options:
(i) Pay the installation charges with a one-time payment.
(ii) PWI will arrange to include the installation charges
as part of the Equipment Lease for Alternative
Platforms.
(iii) Commit to at least a 36 month term of the Service
Agreement with QSI in which case QSI will pay the
installation charges and amortize them over the term.
If PWI closes the Office prior to the end of the 36
month
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term PWI shall pay to QSI the unamortized portion of the
installation charges.
(j) MAINTENANCE CHARGES AND LABOR RATES. The charges applicable to
maintenance during the initial five (5) year term of this
Agreement shall be those set forth in Appendix "A". Labor rates
during the initial two (2) years of the Agreement shall be those
set forth in Appendix A. On August 1, 1992 QSI shall have the
right to increase labor rates specified in Appendix A by up to a
percentage by which the Federal Bureau of Labor Statistics All
Urban Consumers Figure (the "CPI") has increased from the
Effective Date to August 1, 1992. On each succeeding anniversary
date (twelve (12) month increments), QSI shall have the right to
increase labor rates by up to the percentage which the CPI has
risen from the immediately prior anniversary date.
5.2 DISCOUNTS. Commencing on the Effective Date, Offices covered under this
Agreement shall receive a twenty-seven percent (27%) discount off
discountable prices contained in Appendix "A". Exchange and News Fees,
Communication Charges, taxes, surcharge, data base services,
installation and removal costs, maintenance, Equipment Rental,
Equipment Lease and any billing for other than recurring monthly charges
for Services are not discountable. Discounted rates shall not survive
termination of this Agreement except as provided in Section 5.1 (f)
above.
5.3 FIRM-WIDE MINIMUM MONTHLY SUBSCRIPTION REQUIREMENT. Notwithstanding
anything to the contrary contained in this Agreement and the individual
Service Agreements, PWI shall, during the term of this Agreement, pay to
QSI a Firm-Wide Minimum Subscription Charge in an amount equal to
$500,000 per month for all Offices provided with Service (including for
this purpose, the Offices covered by the Agency Agreement between QSI
and Correspondent Services Corporation, a PWI wholly-owned subsidiary),
after discount and
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exclusive of taxes, surcharge, Exchange fees, Financial Data Base
Service, installation and removal charges, maintenance, Equipment Rental
and Equipment Lease charges, and any charges other than recurring
monthly charges for the Service makes a reduction below $500,000 results
from QSI's failure to meet the performance criteria reflected in Article
VIII and the exercise of PWI's rights thereunder.
5.4 TAXES. All sales, use, gross receipts, excise, transaction,
telecommunications consumption, Value Added (VAT), Goods and Services
(GST), utility, manage, personal property, intangible tax and any other
federal, state and local taxes, fees and charges, including interest and
other charges not due to any fault on the part of QSI thereon chargeable
by the taxing authorities, shall be paid by PWI. The foregoing provision
shall be construed such that PWI shall pay all taxes, fees and charges
applicable to the Service, Equipment, software and any other
pass-through charges provided by QSI to PWI, other than taxes imposed
upon the net income of QSI.
5.5 PAYMENT. Payment is due on receipt of invoice ("Due Date"). Monthly
charges will be computed from the first day that Service is provided,
and will be invoiced each calendar month in advance. PWI's failure to
pay any amount within sixty (60) days after the Due Date, (subject to
satisfactory completion and acceptance by PWI of Phases I, II and III of
the billing projects described in Appendix "F" at which time invoices
will be due within thirty (30) days after the Due Date) shall constitute
a default and entitle QSI to terminate the Service and exercise its
rights pursuant to provisions hereof. If PWI fails to pay any amount on
or before thirty (30) days after the Due Date, PWI shall pay a late
charge at the rate of 1-1/2% per month (or the maximum lawful rate,
whichever is lower) on each such delinquent amount from the applicable
Due Date for such amount to the date of receipt of payment thereof by
QSI.
5.6 INTERNATIONAL OFFICES. International Offices shall be billed on an
office-by-office basis in local currency. All International Office
invoices shall be paid by PWI in local currency.
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5.7 GENERATION OF INVOICES. QSI will generate invoices by the month
following completion of installation of Service and change management
activities such as commitment changes, relocations and reductions of
Services. The Parties acknowledge and agree that in order to generate
invoices in a timely manner QSI shall provide PWI with estimated billing
for third party invoiced activities such as charges incurred from taxes,
connectors, freight.
5.8 CONTESTED BILLING.
(a) RESOLUTION OF CONTESTED BILLING. QSI and PWI agree that
negligible effort will be made by both Parties to resolve any
billing disputes within ninety (90) days after receipt by QSI of
written notification from PWI which specifies the items
contested. PWI shall pay all uncontested amounts upon receipt of
invoice in accordance with Section 5.5 hereof. That portion of
PWI's balance which is contained will not incur a late charge
from the date of PWI's written notification until such time as
PWI's claim is rejected in full or in part by QSI. At that time,
the items contested shall become due and payable. If payment is
not received on or before thirty (30) days after the claim has
been rejected, QSI retains the right to assess late charges on
all or part of PWI's rejected claim effective the date PWI has
been notified that the claim was rejected ("Rejection Date").
The notification shall contain the reason the claim was rejected
and any relevant documentation and shall be forwarded to PWI's
Chief Information Officer ("CIO"). If PWI's CIO does not agree
with QSI's rejection of the claim, the CIO may escalate such
claim to QSI's Chief Financial Officer ("CFO"). QSI's CFO and
PWI's CIO shall have a thirty (30) day period in which to
determine the validity of such claim. If the determination is
made that the charges are valid, PWI shall be invoiced and shall
pay all late charges commencing as of the Rejection Date. If the
determination is made that the claim is not valid then PWI shall
not be obliged to pay any late charges (if invoiced).
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The Parties agree to assist each other in their investigation
and to provide appropriate documentation as requested by either
Party.
(b) FUTURE BILLING MATTERS. Any QSI invoice which PWI does not
notify QSI (as being in dispute) within six months of its
receipt thereof shall irrevocably be deemed correct and PWI
waives its right to challenge the convection of same. Similarly,
any QSI invoice which QSI does not notify PWI (as being
incorrect) within six months of its effective date shall
irrevocably be deemed correct and QSI waives its right to
challenge or change same. This section shall not apply to the
pass through of taxes referenced in Section 5.4 herein. This
clause shall not become effective until administrative projects
Phase I, II and III of Appendix F are completed and functioning
at PWI.
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ARTICLE VI
OFFICE CLOSINGS
6.1 OFFICE CLOSINGS. PWI at any time after the Effective Date, may close any
Office, provided such closing is not for the purpose of replacing the
Service with similar services provided by PWI or a third party. For
purposes of this Article an Office shall be deemed closed when all
business at that location is terminated and no new Office or Offices are
opened in the same general geographic area under circumstances that
indicate an Office relocation. The following provisions shall apply to
the termination of Service to an Office as a result of the closing of
that Office.
(a) THIRTY DAYS NOTICE. PWI shall furnish QSI with thirty (30) days
written notice of each Office closing. PWI shall pay full
monthly billing for the Service during the notice period.
(b) UNAMORTIZED INSTALLATION COSTS. PWI shall pay in a lump sum upon
termination, unamortized installation costs for any Office
installed with Service for less than 20 months.
(c) EQUIPMENT RENTAL AGREEMENT. PWI shall pay Equipment rental
charges to the conclusion of the thirty (30) day written notice
period or any extension requested in writing by PWI.
(d) EQUIPMENT LEASE AGREEMENT. PWI shall continue to pay full lease
charges for the duration of the lease or the net present value
of the remaining lease
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payment and title remains with the lessor covering Equipment
installed under an Equipment Lease Agreement.
(e) MAINTENANCE AGREEMENT. PWI's obligations under the Equipment
Maintenance Agreement for a specific Office shall extend to the
date of removal or to the completion of the thirty (30) days
written notice period, whichever is later.
(f) ACTUAL COST OF REMOVAL. PWI shall pay actual costs of removal
including but not limited to labor, freight and telco charges.
(g) FIRM-WIDE MINIMUM MONTHLY SUBSCRIPTION REQUIREMENT. Nothing in
this Article shall relieve PWI of its Firm-Wide Minimum Monthly
Subscription Requirement as described in Section 5.3.
ARTICLE VII
MAINTENANCE
7.1 MAINTENANCE. QSI or a third party designated by QSI shall perform
maintenance on the Equipment. Normal hours of maintenance are during
Business Days as shown below ("Business Hours"):
8:00 AM - 5:00 PM Eastern Time
7:00 AM - 4:00 PM Central and Mountain Time
6:00 AM - 3:00 PM Pacific Time
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QSI and/or representatives designated by QSI shall have access to the
Equipment at all reasonable times for the purposes of installation,
maintenance, repair and removal thereof. Maintenance requested by PWI
shall be as set forth in the Equipment Maintenance Agreement attached
hereto in Appendix "B". If a call-repair maintenance action is in
progress as a result of a service request made by PWI during Business
Hours, then such a service request action will be completed beyond
Business Hours. Such a service action shall be at no charge to PWI. If
PWI requests that maintenance start after Business hours, PWI will pay
for service billable at the QSI standard hourly overtime rate then in
effect. Such deferred service actions shall be excluded from performance
criteria calculations. PWI shall have the option to have such service
action commence the following Business Day. QSI shall provide a normal
level of maintenance and performance for terminals covered by the
Equipment Maintenance Agreement, provided that PWI complies with QSI's
then current site planning and installation requirements. Normal level
of maintenance means "the same level of maintenance QSI provides to
other similarly situated commercial customers who subscribe to the
Service." Any support activities and/or maintenance required because of
problems caused by PWI-provided software as identified by QSI and agreed
to by PWI, shall be paid by PWI at QSI's standard hourly rates then in
effect. The cost of maintenance requested by PWI to be accomplished
after Business Hours or on weekends or holidays will be paid by PWI at
QSI's hourly rates then in effect, subject to availability of CEs.
7.2 DEDICATED CE MAINTENANCE. QSI or its designee will provide dedicated CE
maintenance coverage at PWI's designated site, currently 1285 Avenue of
the Americas Office, during Business Hours on Business Days, excluding
lunch periods and breaks. QSI will select and assign a qualified
technician to remain at the Office and provide all necessary maintenance
functions. PWI reserves the right to request the replacement of the
assigned CE. QSI shall not unreasonably withhold its consent to such
request. During periods of vacation, training, sickness or for other
business reasons, QSI will assign other qualified personnel. It is QSI's
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intentions to keep such personnel changes to a minimum. In the event of
an unplanned employee absence, QSI will exert its reasonable efforts to
supply on site replacement coverage by 9:00 a.m. of the day affected.
Each morning the assigned CE will report directly to the Office and
verify the operation of the Equipment. Any malfunctions will be
responded to immediately. In order to maintain records and ensure system
performance, QSI requires that all trouble reports made by PWI's staff
be reported to the QSI Call-in Center. Installation work will continue
to be coordinated and performed by QSI's Installation Department and
billed accordingly. The cost for this dedicated CE maintenance service
is based upon a formula that attempts to recover only the excess cost of
dedicated personnel who would normally be available to service other
accounts. The monthly charges shall be the greater of (i) a minimum
monthly charge, as specified in the following sentence, or (ii) six
percent of the difference between $140,000 and regular monthly site
billing. The minimum monthly charge during the initial twelve (12)
months following the Effective Date of this Agreement shall be $500 per
month, and may be increased thereafter up to a maximum amount of $1,000
per month. Maintenance charges are not eligible for discounts.
7.3 SERVICE REQUEST AVERAGE RESPONSE TIME. PWI's Help Desk shall request
maintenance for an Office by telephoning QSI's Call-In Center or the
designated QSI representative (within the time frames then set in QSI's
service policies). QSI shall guarantee response time to service
requests under all conditions subject to the provisions of Section 14.3.
Travel time shall be calculated by city in accordance with QSI's Travel
Time Schedule per Appendix "I" attached hereto and incorporated by
reference. Appendix "I" will remain in effect for the term of the
Agreement. A written or electronic Service Report describing the details
of the outage is forwarded to QSI, Los Angeles for purposes of
verification, record keeping and monitoring. To provide PWI with a
maximum effort of support, the CE will call for additional support after
working on the problem unsuccessfully for approximately one hour, and
must notify PWI before loading file systems or replacing a disc drive.
QSI current
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service policy per Appendix "E" entitled "Quotron Systems, Inc. Customer
Engineering Maintenance Service Offering" is attached hereto and
incorporated by reference. In the event QSI selects another maintenance
provider, the Parties agree to review and as mutually agreed to modify
or supplement the existing Appendix "I".
7.4 MAINTENANCE PROVIDERS. The Parties acknowledge that QSI or a third party
designated by QSI ("Designee") shall perform maintenance on the
Equipment. QSI shall have sole discretion in the selection of any
Designee organization which shall perform maintenance on the Equipment.
QSI agrees to consider, and review written input from PWI as to the
selection of such a Designee. QSI's commitment to consider, and review
PWI's input is intended to be a good faith expression of QSI's intent to
reasonably and diligently give weight to PWI's concerns in the Designee
selection process. PWI shall have the right to renegotiate the
Maintenance Section of this Agreement, including any Equipment
Maintenance Agreements hereunder two years from the Effective Date of
this Agreement. QSI agrees to renegotiate in good faith if PWI exercises
its right to renegotiate. The Parties shall negotiate terms and
conditions applicable to the providing of maintenance on Alternative
Equipment.
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ARTICLE VIII
PERFORMANCE CRITERIA
8.1 DEFINITIONS. As of the Effective Date, QSI shall provide MDS to PWI in
accordance with the performance criteria set forth in this Article for
all Offices located in the contiguous forty-eight (48) United States,
Hawaii, and Puerto Rico. Offices outside of the contiguous forty-eight
(48) United States and Hawaii will be maintained on a best effort basis
with response no later than 24 hours after receipt of service call from
PWI. Offices located in Puerto Rico will be maintained with response no
later than six (6) hours after receipt of a service call from PWI.
(a) DEFINITIONS. For purposes of this Article VIII, outages mean,
when calculating performance for QSI provided terminals,
terminal hardware failure and/or the total inability to obtain
quotes on the Quoteline ("Outages"). Optional and customized
services and PWI developed software shall be excluded. For
purposes of this Section "Optional Services" mean Services other
than Market Data Services such as Trading and Decision Support
Services, Branch Office Services and Network Services. Optional
Services are listed in Appendix "J" attached hereto and
incorporated by reference. "Customized Services' means services
developed at the request of PWI by QSI for use in conjunction
with the Service or with PWI application software. Outages which
are caused in whole or in part, by PWI non-compliance with
QSI-provided environmental criteria or policies regarding the
connection of devices not approved by QSI to the systems, PWI
provided software, PWI provided hardware, communications
circuits and/or modems, communications circuits provided by a
telephone company or communications carrier and/or any telephone
company or communications carrier problem, or by force majeure
as
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described in Section 14.3 herein, shall be excluded from performance
criteria calculations pursuant to this Article. Additionally, Outages
caused by failure of data vendor feeds such as News, Exchanges, Database
vendors, and other third party providers of services, shall be excluded.
"Downtime" starts when PWI's notification of an Outage is received and
logged at PWI's Help Desk by the QSI person assigned to the Help Desk,
or in his absence or non-availability, logged in at QSI's Call-In
Center. "Uptime" is any other time. QSI agrees to have a person manning
PWI's Help Desk on Business days during Business Hours. Business Hours
are defined in Section 7.1.
(b) CALCULATION OF PERFORMANCE. On Business Days, the QSI provided terminals
shall be subject to, and QSI obligates itself to meet, the performance
levels stated in this Section. Uptime shall be calculated by multiplying
the number of QSI provided terminals installed by 9 hours, and
multiplying the result by the number of Business Days in that month. The
resulting answer shall be divided into the number of QSI provided
terminals are available for operation use during that same period of
time. The answer to these calculations equals actual performance.
As an example, if ten (10) terminals worked a nine (9) hour day and
there were twenty (20) Business Days in that month, and there were no
failures that month, then the calculation would be:
10 x 9 x 20 = 1800 Available Hours
10 x 9 x 20 = 1800 Performance Hours
1800
----
1800 = 100% up-time performance
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If, using the above example, there had been eighty-one (81) hours of
Outages during the month, the result would be:
1719
----
1800 = 95.5% Performance
For the average to fall below 99% Uptime, a minimum of twenty (20)
terminal hours would have to be lost because of Downtime as shown below.
1780
----
1800 = 98.9% up-time performance
(c) UPTIME PERFORMANCE REQUIREMENT. On Business days during Business Hours
("Business Hours" are defined in Article VII herein), each Office shall
be subject to and QSI obligates itself to meet the Uptime performance
figure of ninety-nine percent (99%).
(d) PERFORMANCE DEFAULTS; PENALTIES. If the performance as defined and
calculated above, falls below the 99% level described above, for two (2)
consecutive months, and it is not due to PWI failing to meet any of its
obligations, then PWI shall have the option to give QSI written notice
that QSI is in default of its performance level. Upon receipt of such
notice from PWI, QSI shall have a period of thirty (30) days in which to
bring the performance to an acceptable level. If at the end of the
thirty (30) day period the performance equals or exceeds the 99%
performance level, as calculated above, then QSI will no longer be
considered in default of the performance criteria. At this time a new
two (2) month period of calculation of performance shall commence.
However, at the end of such thirty (30) day period
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QSI will provide PWI a retroactive credit for the two (2) months QSI
missed the 99% performance level. PWI shall be entitled to receive a
credit for that Office in an amount equal to double the percentage
difference between the performance level QSI is obligated to meet and
the performance level actually attained off monthly discountable Service
billings retroactive to the commencement of the two (2) month period
when QSI was first in default. If the performance level falls below 90%,
PWI shall receive a credit equal to four (4) times the percentage
difference rather than the doubling referred to above. For example, if
the applicable performance level QSI is obligated to meet is 99% and the
QSI level of performance actually attained is 95%, PWI shall be entitled
to receive a monthly credit of eight percent (8%) off monthly
discountable Service billings at the affected Office retroactive to the
commencement of the two (2) month period when QSI was first in default
and continuing until the relevant performance standard is met. In
addition if, within a twelve (12) month period, PWI receives credits
during three (3) or more months due to QSI's failure to meet the
relevant performance levels at a particular Office, then upon ten (10)
calendar days' prior written notice, PWI may terminate the Service
Agreement for that Office, without penalties or removal costs to PWI.
Nothing in this Article shall relieve PWI of its obligations under an
Equipment Lease Agreement for Alternative Platforms.
(e) PERFORMANCE MONITORING. All calculation pursuant to this Article shall
be based on information logged in and recorded at QSI's Call-In Center,
("Records") and PWI's Reports ("Reports") of Outages. In the event of a
difference between QSI's Records and PWI's Reports for a particular
Office, an attempt shall be made by the Parties to resolve those
differences before performance is calculated for that Office. PWI shall
have the right to check QSI's Records in order to reconcile any
differences in calculations of performance. QSI shall have the right to
check PWI's Reports after PWI gives notice of default to QSI, and the
Parties shall attempt in
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good faith to reconcile any differences. QSI will provide PWI with a
monthly management report showing Uptime performance detailed by Office.
8.2 SYSTEM RESPONSE TIME. QSI and PWI will initiate a joint effort by
9/30/91 to establish a base line of QSI Services, PWI services and the
Q1000 hardware configuration including the number of desk units
("Mutually Agreed Upon Configuration") which will ensure the following
response times ("Acceptable Response Time") can be met:
Quote Response Less than 2 Seconds
3270 Recognition of Request Less than 1 Second
Q1000 BOS Load Time Less than 10 Seconds
Q1000 BOS Recognition of Request 1 Second
Q1000 BSS Load Less than 15 Seconds
QSI will complete an investigation of methodologies to reduce BSS Load
Time by approximately 50% no later than the end of first quarter of
1991. In the same time frame QSI will determine the feasibility of
modifying the BSS Load in such a manner that Response Time can be
measured by Recognition of Request. For the purpose of determining any
such Acceptable Response Time, in the Mutually Agreed Upon
Configuration, no more than 32 host connections including terminals,
printers and programmatic interfaces shall have terminal emulation. By
way of explanation, "Response Time" means the length of time a terminal
inquiry transaction takes from proper key entry until the first line of
data appears on the screen. "Recognition of Request Time" means the
length of time screen response indicating CPU action takes when a key is
depressed. Acceptable Response Time shall be maintained while any
mutually agreed upon combination of available Services identified in
Appendix "J" hereof are operating on the Q1000. QSI shall demonstrate
the attainability of the Acceptable Response Time through testing of the
Mutually Agreed Upon Configuration at QSI's SIT lab and at a PWI
Office, such testing
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to be monitored by PWI. The attainability of the Acceptable Response Time shall
be further demonstrated through trial at three Offices among the first several
to be upgraded which have the Mutually Agreed Upon Configuration. Response Time
shall be monitored manually through mutual observation of PWI and QSI. If a
Q1000 cannot maintain an Acceptable Response Time during any three (3) Business
Day test period and after a fourteen (14) Business Day cure period and such
failure is not due to Equipment or communications circuits outside the affected
Office, QSI shall increase capacity of the affected CPU or provide additional
CPU's, at QSI's expense, including the cost of additional CPU base charges,
until an Acceptable Response Time is maintained. Any additional Equipment
installed by QSI pursuant to the preceding sentence shall be for a term equal to
the longest term remaining of the equipment where capacity is to be expanded,
and PWI shall have no obligation to extend the term of Service Agreement
therefor. If the failure to maintain an Acceptable Response Time is determined
to be due to PWI applications used in excess of the defined capacity limits, or
if PWI adds new applications, PWI shall reimburse QSI for the additional costs
of maintaining a Response Time acceptable to PWI (including QSI's expenses
incurred in determining the impact of either of the foregoing on Response Time),
and shall pay the installation costs of any additional Equipment required to
maintained such Response Time. If such Equipment is installed in connection with
additional applications desired by PWI. PWI shall be required to extend the term
of Service Agreement in respect of such Equipment for at least the minimum term
required for such application.
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8.3 FOREIGN DEVICES. PWI agrees that linking or attaching non-Quotron
Equipment to Quotron Equipment shall be subject to compliance with QSI's
"Policy for Connecting Foreign Devices to Quotron User Computers."
Exceptions to the policy will be mutually agreed upon. Non-Quotron
equipment shall be construed to mean any equipment not bearing QSI's
name or which is not marketed by or on behalf of QSI or connected
without QSI approval. Both Parties are in agreement that and all non-QSI
approved foreign devices connected with and to the Q1000 shall be
excluded from performance criteria calculations in Article VIII.
8.4 SOFTWARE COMMITMENTS; PENALTIES. In the event QSI shall fail in any
material respect to meet the software development deliverable dates as
specified in Appendix F and subsequent software development projects
that are mutually agreed upon by QSI and PWI, QSI shall be subject to
penalties as outlined in this Section subject to the following terms and
conditions. QSI shall not be subject to penalties to the extent such
failure is due to reasons beyond QSI's control or to the extent such
failure is caused by PWI. Examples or failures caused by PWI include but
are not limited to (i) PWI requests a delay in completion of a schedule
date, (ii) PWI fails to provide requirements, deliverables or sign off
on the specifications, and/or (iii) PWI changes in deliverables or
delivery dates.
(a) PWI RESPONSIBILITIES. The schedules applicable to the
deliverables in Appendix F are subject to PWI satisfying the
commitments reflected or required by Appendix F or as mutually
agreed upon in connection with future projects. PWI shall
provide to QSI written documentation evidencing QSI's failure to
meet a deliverable date. Upon receipt of such notice. QSI shall
have a period of 30 days in which to provide the deliverable. If
at the end of the 30 days QSI is unable to provide the
deliverable, QSI shall be deemed to be in default
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hereunder and shall be subject to the penalties listed below.
The penalties shall commence at the conclusion of the 30 days
notice period.
PENALTIES PER DELIVERABLE MISSED
<TABLE>
<CAPTION>
DELIVERABLE PERIOD MONTHLY PENALTY
- ------------------ ---------------
<S> <C>
0-6 months 2.0 x $7000 x VT
7-12 months 1.5 x $7000 x VT
Greater than 12 months 1.1 x $7000 x VT
</TABLE>
"VT" shall mean variable term. If the deliverable period missed is 2 months
then VT equals 1. The VT will increase by .5 for each additional month missed.
The penalty is cumulative.
ARTICLE IX
SERVICE STANDARDS
9.1 SERVICE STANDARDS. To order additional Services or changes in Service, PWI
shall deliver to QSI's Los Angeles Order Processing Department a
written/electronic QSI Change request form or PC Order Form ("Change
Order") (a form of which is attached hereto in Appendix "B") detailing the
action requested. Service changes shall be subject to the Service Standards
set forth below. QSI shall exert its reasonable efforts to ensure that
ninety-
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seven point seventy-five percent (97.75%) of all Service requests will meet
these Service Standards (excluding travel time) and subject to the following
terms and conditions:
(a) Individual Change Orders must be written for each CPU.
(b) Service Standards shall commence after receipt of a valid
written/electronic Change Order at QSI's Los Angeles, Order Processing
Department.
(c) Service Standards are subject to PWI providing all necessary Service and
communication line-ordering information at the time the Change Order is
placed.
(d) Standards are subject to the availability of non-QSI hardware,
communication lines and facilities.
SERVICE ACTIVITY SERVICE STANDARDS
- ---------------- -----------------
RCC Entitlements One (1) Business Day
(Quoteline entitlements)
Software Only Two (2) Business Days
(i.e. Monitor Line)
Inside Moves Five (5) Business Days
(terminal)
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SERVICE ACTIVITY SERVICE STANDARDS
---------------- -----------------
Hardware Only or Hardware Fourteen (14) Business Days
with Software (terminal (See Section 4.3(c) for special
additions, etc.) situations).
NEW INSTALLATION/RELOCATIONS:
-----------------------------
SIT/SOT OR PC Orders Twenty-five (25) Business Days
(Remote)
CPU Installation Thirty-five (35) Business Days
Ten (10) Business Days shall be added to performance Service Standards
involving such non-standard Change Order requests as CPU relocations,
rewires and major reconfigurations. QSI hardware availability will be
subject to quarterly forecasts (subject to modification by PWI once within
the quarter) from PWI of hardware requirements as defined by PWI. QSI will
honor such forecast. If, due to normal growth conditions (normal growth
conditions exclude PWI requirements as a result of an acquisition of
another firm), Q1000 Equipment is not available within the Standards
outlined above, QSI will provide equivalent Equipment at no additional cost
to PWI including installation in accordance with Section 5.1(g).
9.2 PERFORMANCE MONITORING OF SERVICE STANDARDS. QSI agrees to provide PWI
with a monthly work completion report. In the event that PWI believes that
QSI has failed to meet the standard delivery times on more than 2.25% of
the orders for a calendar month PWI will notify QSI in writing that QSI is
in default of the Service Standards. Based upon mutual agreement as to the
correctness of the claim, QSI will issue to PWI credits equal in value to
the supplemental billings for the orders requesting the addition of
hardware and/or Services that were not completed to Standard within that
calendar month. In the case of
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orders for removal of hardware and/or Services QSI will ensure that billing
ceases as of the date determined by the Service Standards.
9.3 ENVIRONMENTAL CRITERIA. PWI shall meet the power, environmental and space
specifications for the Q1000 set forth in the "QUOTRON 1000 System Site
Preparation Guide," QSI Document Number SY-0002-04-00, for every Office
installed or to be installed with Q1000 Services. PWI shall meet the power,
environmental and space specifications for each Office installed with QSI
provided Alternative Equipment as set forth in the applicable Quotron
Systems Site Preparation Guide.
9.4 QSI ACCESS TO PWI OFFICES. Any person or persons designated in writing by
QSI shall have access to such Equipment at all reasonable hours on a
non-disruptive basis for the purpose of installation, inspection,
maintenance, repair, removal and replacement thereof. PWI shall safekeep
QSI's Equipment and software using the same degree of care as its uses to
safekeep its own equipment and software and shall permit access thereto
only by persons authorized in writing by QSI. QSI shall give PWI reasonable
notice by telephone of the date and time of which QSI personnel will arrive
at any Office to perform maintenance, and PWI shall not unreasonably deny
access to QSI personnel at the requested time and place.
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ARTICLE X
PURCHASE OPTION
10.1 The Parties Agree that PWI will have the following options when acquiring
QSI provided Alternative Platforms:
a) Make an outright purchase,
b) Lease the Alternative Platform through QSI,
c) Lease the Alternative Platform from a third party.
ARTICLE XI
SOFTWARE DEVELOPMENT, SUPPORT, TRAINING AND DOCUMENTATION
11.1 SOFTWARE DEVELOPMENT AND SUPPORT. QSI shall provide software development
support to PWI in accordance with, and subject to charges set forth in
Appendix "F" hereto.
11.2 TRAINING. QSI will provide training programs and support as described in
Appendix "G" hereto.
11.3 DOCUMENTATION. QSI will provide available technical documentation to PWI
relating to API's, BSS, Terminal Emulation, SNA and BOS within three (3)
months after the signing of this Agreement.
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ARTICLE XII
PROPRIETARY INFORMATION
12.1 PROPRIETARY INFORMATION. PWI acknowledges that certain information
received through the Service is derived by QSI from proprietary
information of third party information sources, exchanges, associations,
news disseminating entities, data base vendors and other sources
("Sources"). PWI agrees that no proprietary right or title to the
information received from the Service is transferred to PWI. PWI
acknowledges that QSI's agreements with the Sources require that
information received from the Sources not be resold and will be used only
in PWI's business at the Office where Services are installed. PWI will not
furnish such information to any person, firm or branch office for re-use.
PWI agrees that no display nor subset of display of any Service may be
interfaced, re-used or retransmitted with any other equipment and/or via a
local area network or data feed without the express written consent of
QSI and the written authorization of each Source providing proprietary
data to PWI. PWI will not furnish such information to any newspaper, press
association or service or permit connection of any other display and
keyboard or computer to the communication circuit used to provide Services
except with the prior written approval of QSI. PWI shall be responsible
for furnishing the Sources with a description of each proposed use of any
Services and PWI shall obtain all necessary authorizations from each
Source, and will pay all charges (either directly, or to QSI's PWI
account) required by such Sources in respect of PWI's use of the Service.
12.2 RIGHT TO INFORMATION. QSI agrees to provide PWI with answers to technical
questions, all published product documentation, and technical notes on a
timely basis. In addition, PWI development personnel will be given access
at all reasonable hours on a non-disruptive basis to QSI development sites
(Los Angeles) and associated personnel; such access to be mutually agreed
upon by both Parties. PWI acknowledges QSI's proprietary products, and
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<PAGE> 43
QSI acknowledges PWI's proprietary business information. This Agreement
serves as an extended non-disclosure agreement where specified PWI
individuals will have access on a confidential basis to detailed
information about QSI's current and planned products that are deemed
important by PWI for PWI's development and ongoing business needs. This
non-disclosure agreement is attached as Appendix "H".
ARTICLE XIII
DISCLAIMER OF WARRANTIES:
LIMITATION OF LIABILITY: INDEMNIFICATION
13.1 DISCLAIMER. THE PARTIES HERETO AGREE THAT THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AND ALL OTHER
WARRANTIES, EITHER EXPRESSED OR IMPLIED, EXCEPT AS OTHERWISE EXPRESSLY
PROVIDED IN THIS AGREEMENT, ARE EXCLUDED FROM ANY TRANSACTION UNDER THIS
AGREEMENT. QSI SHALL NOT BE LIABLE IN ANY EVENT FOR LOSS OF ANTICIPATED
PROFITS, LOSS BY REASON OF SHUTDOWN, NONOPERATION OR INCREASED EXPENSES
OF OPERATION OF OTHER EQUIPMENT, OR OTHER CONSEQUENTIAL LOSS OR DAMAGE
OF ANY NATURE ARISING FROM ANY CAUSE WHATSOEVER EXCEPT AS OTHERWISE
EXPRESSLY PROVIDED FOR IN THIS AGREEMENT.
13.2 LIMITATION OF LIABILITY. NOTWITHSTANDING ANYTHING HEREIN TO THE
CONTRARY, QSI SHALL HAVE NO LIABILITY, CONTINGENT OR OTHERWISE. FOR
ACCURACY OF THE INFORMATION FURNISHED, OR OF PWTS COMMUNICATIONS
TRAFFIC, RETRIEVED FROM, TRANSPORTED THROUGH
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OR STORED IN QSI NETWORK AND DATA BASES, FOR LOSS OF DATA, OR FOR LOSS
OF DATA CONFIDENTIALITY (EXCEPT FOR LOSS OF DATA CONFIDENTIALITY
OCCASIONED BY QSI'S NEGLIGENT ACTS OR MISCONDUCT) OR FOR DELAYS OR
OMISSIONS THEREIN, OR FOR INTERRUPTIONS OF ANY SERVICE FROM WHATEVER
CAUSE, AND QSI SHALL NOT BE LIABLE FOR DAMAGES ARISING FROM THE USE OR
PRESENCE OF QSI'S EQUIPMENT ON PWI'S PREMISES EXCEPT WHERE SUCH DAMAGES
ARE THE DIRECT RESULT OF QSI'S NEGLIGENCE IN ASSEMBLING OR MAINTAINING
ITS EQUIPMENT.
13.3 INDEMNIFICATION.
(a) With regard to physical property damage and personal injury,
PWI agrees that, at its sole expense, it shall protect, defend,
hold harmless and indemnify QSI, its parent, subsidiary and
affiliate companies, and all directors, officers and employees
of QSI and its parent, subsidiary and affiliate companies, as
applicable, (collectively, the "QSI Indemnified Parties") from
and against any and all claims, demands, suits or other
proceedings by a third party against any QSI Indemnified Party,
any damages, losses, expenses and any other liabilities of any
nature whatsoever, including without limitation, reasonable
attorneys' fees, incurred by any QSI Indemnified Party and
arising out of, in connection with, or resulting from PWI's
negligence or misconduct hereunder.
(b) With regard to physical property damage and personal injury,
QSI agrees that, at its sole expense, it shall protect, defend,
hold harmless and indemnify PWI, its parent, subsidiary and
affiliate companies, and all directors, officers and employees
of PWI and its parent, subsidiary and affiliate companies, as
applicable, (collectively, the "PWI Indemnified Parties") from
and against any and all claims, demands, suits or other
proceedings by a third party against any PWI Indemnified Party,
any damages, losses, expenses and any other liabilities of any
nature whatsoever,
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including without limitation, reasonable attorneys' fees,
incurred by any PWI Indemnified Party and arising out of, in
connection with, or resulting from QSI's negligence or
misconduct hereunder.
(c) QSI further agrees that, at its sole expense, its shall
protect, defend, hold harmless and indemnify all PWI Indemnified
Parties from and against any and all claims, demands, suits or
other proceedings against any PWI Indemnified Party, any
damages, losses, expenses and any other liabilities of any
nature whatsoever, including without limitation, reasonable
attorneys' fees, incurred by any PWI Indemnified Party and
arising out of, in connection with or resulting from any
infringement or alleged infringement by any PWI Indemnified
Party of any United States or other patent or copyright covering
or alleged to cover the QSI Equipment, the QSI software or any
training manuals and technical documents related to the Service
provided by QSI to PWI hereunder (collectively, "Covered Item")
or the use of any of the foregoing as contemplated by this
Agreement. QSI agrees that it shall pay all sums which, by final
judgment or decree in any such suits or proceedings, may be
assessed against any PWI Indemnified Party on account of any
such Infringement.
Should any Covered Item or any portion thereof become, or in
QSI's opinion by likely to become the subject of a claim of such
infringement, PWI shall permit QSI at QSI's option, either (i)
to obtain for PWI the right to use such Covered Item; (ii)
replace or modify the Covered Item so that it becomes
non-infringing; or (iii) grant PWI a credit for such Covered
Item less depreciation (an equal amount per year over the life
of the Covered Item as established by QSI) for use, damage, and
obsolescence and accept its return. However, QSI shall have no
liability for any infringement or claim thereof, based upon (i)
the use of any Covered Item in combination with any other
device, software, or data not supplied by QSI where the
combination and not the Covered Item alone caused the
infringement, (ii) use
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of the Covered Item in practicing any non-QSI process; (iii) PWI's
non-standard use of any information, data or service provided by QSI
where such non-standard use and not the information, data or service
caused the infringement; and (iv) alteration of the Covered Items not
made by QSI. No expense shall be incurred for the account of QSI without
QSI's consent.
(d) The Parties agrees that this right to indemnification under paragraphs
(a), (b) and (c) hereunder shall be subject to:
(i) written notice by the Party seeking indemnification to the
Party from whom indemnification is sought of the claim, demand,
suit or other proceeding requiring indemnification; and
(ii) the Parties agree that the Party from whom indemnification is
sought is authorized to assume, at its own expense, the sole
defense thereof through its own counsel and to compromise or
settle, at its own expense, any such claim, demand, suit or
other proceeding. So far as this may be done without prejudice
to the rights of the Party seeking indemnification or such
Party's reputation and standing in the business community and
among members of the general public who may utilize such Party's
services. Prior to final settlement of any claim, demand, suit
or proceeding hereunder, the indemnified Party shall be
consulted and if it determines that the proposed settlement is
not in its best interest, it may assume its defense from that
point forward and the indemnifying Party's liability for that
claim, demand, suit or other proceeding shall be limited to the
amount of the proposed settlement.
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ARTICLE XIV
TERMINATION
14.1 FAILURE TO MEET PAYMENT OBLIGATIONS. In the event PWI shall fail to
meet its payment obligations as provided in this Agreement with respect
to any Office, QSI may terminate the Service Agreement with respect to
such Office if such failure is not corrected within thirty (30) days of
delivery of written notice thereof to PWI.
14.2 BANKRUPTCY AND BUSINESS TERMINATION. If either Party shall cease doing
business as a going concern (and without assigning its obligations
hereunder pursuant to Section 15.1 hereof), make an assignment for the
benefit of creditors, admit in writing its inability to pay its debts as
they become due, file a voluntary petition in bankruptcy, be adjudicated
a bankrupt or an insolvent, file a petition seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar arrangement under any present or future statue,
law or regulation or file an answer admitting the material allegations
of a petition filed against it in any such proceeding or consent to or
acquiesce in the appointment of a trustee, receiver or liquidator of it
or of all or any substantial part of its assets or properties, or if it
shall take any action designed to obtain its dissolution or liquidation,
or within 60 days after the commencement of any proceedings against it
seeking reorganization, arrangement, readjustment, liquidation,
dissolution or similar relief under any present or future statue, law or
regulation, fail to have such proceedings dismissed, or if within 60
days after the appointment, without that party's consent or
acquiescence, or any trustee, receiver or liquidator of its or of all
or any substantial part of its assets or properties, such appointment
shall not be vacated, the other Party may immediately terminate this
Agreement.
14.3 FORCE MAJEURE. In the event that the performance of either Party
hereto is prevented or
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delayed by reason of any cause or causes beyond the reasonable control
of and without fault of such Party, and cannot be overcome by due
diligence (such events shall include, without limitation, strikes,
riots, floods, fires, acts of God, or acts of any third party not under
the control of the Parties hereto, unless a labor interruption, job
action, or other delay has been precipitated by either Party's
negligence, misconduct or failure to act in accordance with the terms
hereof) such Party shall be excused from performance to the extent of
and during the continuance of any such happening or event. Any
performance obligations affected by such force majeure shall be tolled
for the duration thereof.
14.4 BUSINESS DISRUPTION. QSI's intent is to provide PWI with reasonable
reimbursement for unplanned expenses that could occur as a result of
unilateral actions taken by QSI or Citicorp during the course of the
contract. The following scenarios define those unilateral actions which
could be taken and the reimbursement values.
(a) QUOTRON CEASES TO CONDUCT BUSINESS. QSI will provide PWI with
six (6) months prior written notice of QSI's intent to cease
operations. PWI can select and manage a new vendor and all four
reimbursement options provided below would apply. Citicorp will
provide PWI full reimbursement of the cost differential for like
Services for this alternative vendor for the duration of the QSI
contract up to a maximum of $15.00 per desk unit per month for
each remaining month in the term. PWI shall have the right of
first refusal with regard to the purchase of the QSI Equipment
installed in PWI Offices. Citicorp reserves the right to review
the cost differential that results from the selection by PWI of
an alternative vendor, and in the absence of the exercise of
good faith by PWI, to challenge the amount of the cost
differential. PWI shall cooperate in such review.
(b) QUOTRON IS SOLD. PWI can select and manage a new vendor and
all four reimbursement options would apply. As an alternative
option, services would continue to be provided by the new
entity. Any system or operational changes
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will be furnished at no cost. Retraining, application changes
and evaluation will be covered as described below. PWI shall
have the option to proceed with Reimbursement Option (d)(iii)
below and, if desired, can then proceed to continue with Options
(d)(i), (d)(ii), and (d)(iv).
(c) QUOTRON ENGAGES WITH ANOTHER COMPANY AS A JOINT VENTURE. If QSI
retains 60% or more of the joint venture and it is not with a
significant PWI competitor, no change. Otherwise, PWI can
proceed with Reimbursement Option (d)(iii) below and can then
proceed to continue with Options (d)(i), (d)(ii) and (d)(iv).
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(d) REIMBURSEMENT OPTIONS. Citicorp reserves the right to review the
actual cost incurred under (ii), (iii) and (iv) below and in the
absence of good faith by PWI to challenge the validity of
expenses.
(i) EQUIPMENT DEINSTALLATION AND INSTALLATION. Citicorp will
manage the entire process of removing the QSI equipment
and installing new hardware in accordance with a
mutually agreeable schedule between both Parties
recognizing that time is of essence. Citicorp will
absorb this entire cost.
(ii) CONVERSION AND TRAINING COSTS. Citicorp will reimburse
PWI actual costs incurred up to $1,500,000 including
overtime and other costs as it relates to the
conversion.
(iii) NEW VENDOR EVALUATION COSTS. Citicorp will reimburse PWI
actual costs up to $300,000 for vendor evaluation.
(iv) PWI APPLICATIONS. Citicorp will pay PWI actual costs up
to $1,000,000 for conversion costs for PWI applications.
(e) PERFORMANCE PROTECTION GUARANTEE. Citicorp shall guarantee
performance of all contractual terms stated herein during the
term of this Agreement. Notwithstanding anything to the contrary
contained herein, Citicorp's liability resulting from this
guarantee of performance shall in no event exceed fourteen
million dollars. Citicorp's obligation to continue the guarantee
of all contractual terms shall cease effective on the event of a
Business Disruption as defined in this Article. Notwithstanding
anything to the contrary contained herein, Citicorp's liability
as a result of these business disruption provisions shall in no
event exceed eleven million dollars.
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(f) REPRESENTATIONS BY CITICORP.
(i) Citicorp acknowledges that it is currently the parent of
QSI and it has committed to the above Performance
Protection and Business Disruption provisions for the
term of this Agreement.
(ii) Citicorp acknowledges receipt of a copy of this
Agreement and the commitments made hereunder.
(iii) Citicorp represents and warrants that it has full
authority to make the Performance Protection and
Business Disruption commitments reflected in this
Agreement and to execute the Agreement as a guarantor.
ARTICLE XV
MISCELLANEOUS PROVISIONS
15.1 ENTIRE AGREEMENT. This Agreement, together with all written amendments,
schedules, exhibits, appendices, attachments and the individual Service
Agreements for each Office, constitute the entire agreement between PWI
and QSI with respect to the subject matter addressed herein and therein.
This Agreement cannot be modified or supplemented by oral statements
made either before or after execution of this Agreement and such
statements do not constitute warranties. No collateral or prior
statements, representations, understandings, agreements or warranties
(express or implied) are part of this Agreement. This Agreement shall be
binding upon and inure to the benefit of the Parties, their successors,
legal representatives and assigns. This Agreement may not be assigned by
either Party without the written consent of the other Party. However,
either Party shall have the
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right to assign this Agreement to its parent, subsidiary or an affiliate
under the common control of its parent, or to any person, entity or
organization which holds or acquires control of the assigning Party. QSI
and PWI intend this Agreement to be a valid legal instrument, and no
provision of this Agreement which shall be deemed unenforceable shall in
any way invalidate any other provision or provisions of this Agreement,
all of which shall remain in full force and effect.
15.2 USE OF TRADE NAMES, TRADEMARKS OR SERVICE MARKS. Neither Party shall use
any trade name, trademark or service mark of the other Party without the
prior written approval of the other Party. QUOTRON, QUOTRON 800, QUOTRON
1000, QUOTRON 5300, PC800, PC1000, QUOTREND, QUOTEVUE, QUOTYPE,
QUOTDIAL, QUOTRON F/X TRADER, QUOTTERM, QUOTCHART, QUOTDATA, SATELLITE
OFFICE TERMINAL are trademarks of QSI.
15.3 NOTICES. Unless otherwise provided herein or in any Service Agreement,
all notices, requests, demands and other communications under this
Agreement shall be in writing and shall be delivered by hand or sent by
prepaid registered or certified mail with return receipt requested or
sent by confirmed facsimile with the original sent by mail and shall be
deemed to have been duly delivered when delivered by hand or when
received, addressed as follows (or to such other address as may be
designated by a Party, in writing, pursuant hereto);
(a) IF TO QUOTRON:
Quotron Systems, Inc.
12731 West Jefferson Blvd.
Los Angeles, CA 90066
Attn: Vice President & General Counsel
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(b) IF TO PWI:
PaineWebber Incorporated
1000 Harbor Blvd.
Weehawken, NJ 07087
Attn: Chief Information Officer
WITH COPY TO:
PaineWebber Incorporated
1285 Avenue of Americas
New York, NY 10019
Attn: General Counsel
(c) IF TO CITICORP:
Citicorp
399 Park Avenue
New York, NY 10043
Floor 2, Zone 1
Attn: John Roche
Executive Vice President (Legal)
15.4 GOVERNING LAW. This Agreement is made and entered into in the State of
New York and shall be governed by the laws of that State, The Parties
hereto, their successors and assigns, consent to the jurisdiction of the
courts of the State of New York in respect to any legal proceedings that
may result from a dispute as to the interpretation or breach of any of
the terms or conditions of this Agreement.
50
<PAGE> 54
15.5 WAIVER. No delay or failure of either Party in exercising any right or
power hereunder and no partial or single exercise thereof shall impair
or preclude exercise of any such right or power or shall be deemed to
constitute a waiver of such right or powers or any other rights or
powers hereunder.
15.6 DUE AUTHORIZATION. Each of QSI and PWI represents and warrants that it
is authorized to enter into this Agreement and that there are no
outstanding commitments, agreements or understandings, express or
implied, which may or can in any way defeat or modify the rights
conveyed or obligations undertaken by it under this Agreement.
15.7 COUNTERPARTS; SEVERABILITY. This Agreement and any amendments, waivers,
consents or supplements may be executed in two or more counterparts each
of which when executed shall be deemed to be an original and all of such
counterparts shall be deemed to be one and the same instrument. If any
provision of this Agreement shall be invalid, illegal or unenforceable
in any jurisdiction, the validity, legality and enforceability of the
remaining provisions, or of such provision in any other jurisdiction,
shall not in any way be affected or impaired thereby.
15.8 HEADINGS. The heading of each Article and Section of this Agreement is
for the purpose of convenience only and shall not affect the
interpretation of any provision hereof.
15.9 CONFIDENTIALITY.
(a) PWI and QSI each agree that all of the information contained
herein, including without limitation, all of the information
contained in the Attachments hereto, as well as all of the
information obtained by the Parties in connection with their
performance hereunder (collectively, "Information"), is
proprietary and confidential.
51
<PAGE> 55
(b) PWI and QSI further each agree:
(i) to hold all such Information in confidence, using the same
degree of care as each Party uses to maintain the
confidentiality of its own information;
(ii) not make use thereof other than for the performance of this
Agreement;
(iii) to release such Information only to employees reasonably
requiring such Information; and
(iv) not to release or disclose any such Information to any third
party without the prior written consent of the Party to whom
the Information is proprietary.
(c) The Parties acknowledge that disclosure or use of the Information
contrary to the terms of this Agreement may cause harm to the Parties
that may be irreparable by money or damages and therefore, either of
the Parties shall have the right in addition to any other remedies
available to it to seek to enjoin such disclosure or use.
(d) The provisions of paragraph (b) above shall not apply to:
(i) any Information which is in the public domain;
(ii) Information which is rightfully obtained from any third party
or developed independently; or
(iii) the release of Information by either of the Parties hereto when
such disclosure is required by a self-regulatory agency,
applicable law, regulation,
52
<PAGE> 56
subpoena or other legal requirement, but in any such instance
the disclosing Party shall, to the extent practicable, provide
the other Party with notice of such disclosure. Nothing
contained herein shall prevent either Party from disclosing
such Information to its parent, subsidiary or affiliate
companies, subcontractors or agents, or attorneys or
accountants, as applicable, when reasonably required in
connection with the performance of services hereunder, provided
each Party shall take reasonable steps to ensure that any
person or entity receiving any such Information treats all such
Information confidentially, using the same degree of care as
such person or entity uses with respect to its own, like
information. The obligations set forth in this section 15.9
shall survive the termination of this Agreement and continue
for as long as either Party hereto is in possession of
Information protected hereunder.
15.10 WARRANTY OF TITLE. QSI warrants that it has full title to the Equipment
to be sold hereunder and the full title or right to license the software
to be licensed hereunder, free of all liens and encumbrances, of any
nature, whatsoever.
15.11 THIRD PARTY BENEFICIARIES. The Parties intend that the Correspondent
Services Corporation ("CSC"), a wholly-owned subsidiary of PWI be a
third party beneficiary of this Agreement as provided for in an Agency
Agreement between QSI and CSC in particular, CSC shall receive the
benefits provided for in Articles 4.1, 4.3, 5.7, 5.8, 7.1, 7.3, 8.1,
8.2, 9.1, 9.2, 11.2. Except as provided herein, the provisions of
this Agreement are for the exclusive benefit of the Parties hereto and
not for the benefit of any third Party.
53
<PAGE> 57
IN WITNESS WHEREOF, each of the Parties hereto has caused this
Agreement to be executed by its duly authorized officer.
QUOTRON SYSTEMS, INC. PAINEWEBBER INCORPORATED
/s/ Paul F. Glan
________________________________ ________________________________
By Paul F. Glan By
________________________________ ________________________________
Title President Title
________________________________ ________________________________
Date 2/11/91 Date
CITICORP
________________________________
By
________________________________
Title
________________________________
Date
54
<PAGE> 58
IN WITNESS WHEREOF, each of the Parties hereto has caused this
Agreement to be executed by its duly authorized officer.
QUOTRON SYSTEMS, INC. PAINEWEBBER INCORPORATED
/s/ Robert H. Bonmosche
- ---------------------------- --------------------------------
By By Robert H. Bonmosche
Executive Vice President
- ---------------------------- --------------------------------
Title Title
February 11, 1991
- ---------------------------- --------------------------------
Date Date
CITICORP
/s/ Lawrence M. Small
- ----------------------------
By Lawrence M. Small
Vice Chairman
- ----------------------------
Title
2/11/91
- ----------------------------
Date
55
<PAGE> 1
EXHIBIT 10.51
POLICY NUMBER:
484-38-07
RENEWAL OF
482-17-58
[AMERICAN INTERNATIONAL COMPANIES LOGO]
DIRECTORS, OFFICERS AND CORPORATE LIABILITY INSURANCE POLICY
<TABLE>
<S> <C>
/ / AIU Insurance Company / / Illinois National Insurance Company
/ / American International South Insurance Company /X/ National Union Fire Insurance Company of Pitts., PA
/ / Birmingham Fire Insurance Company of Penns. / / National Union Fire Insurance Company of Louisiana
/ / Granite State Insurance Company / / New Hampshire Insurance Company
</TABLE>
(each of the above being a capital stock company)
================================================================================
NOTICE: EXCEPT TO SUCH EXTENT AS MAY OTHERWISE BE PROVIDED HEREIN, THE COVERAGE
OF THIS POLICY IS GENERALLY LIMITED TO LIABILITY FOR ONLY THOSE CLAIMS THAT ARE
FIRST MADE AGAINST THE INSUREDS DURING THE POLICY PERIOD AND REPORTED IN WRITING
TO THE INSURER PURSUANT TO THE TERMS HEREIN. PLEASE READ THE POLICY CAREFULLY
AND DISCUSS THE COVERAGE THEREUNDER WITH YOUR INSURANCE AGENT OR BROKER.
NOTICE: THE LIMIT OF LIABILITY AVAILABLE TO PAY JUDGMENTS OR SETTLEMENTS SHALL
BE REDUCED BY AMOUNTS INCURRED FOR LEGAL DEFENSE. AMOUNT INCURRED FOR LEGAL
DEFENSE SHALL BE APPLIED AGAINST THE RETENTION AMOUNT.
NOTICE: THE INSURER DOES NOT ASSUME ANY DUTY TO DEFEND; HOWEVER, THE INSURER
MUST ADVANCE DEFENSE COSTS PAYMENTS PURSUANT TO THE ITEMS HEREIN PRIOR TO THE
FINAL DISPOSITION OF A CLAIM.
DECLARATIONS
ITEM 1. NAMED CORPORATION: PAINE WEBBER GROUP INC.
MAILING ADDRESS: 1285 AVE OF THE AMERICAS
NEW YORK, NY 10019-6028
STATE OF INCORPORATION OF THE NAMED CORPORATION:
Delaware
ITEM 2. SUBSIDIARY COVERAGE: any past, present or future Subsidiary of the
Named Corporation
ITEM 3. POLICY PERIOD: From: November 25, 1996 To: November 25, 1999
(12:01 A.M. standard time at the address stated in Item 1.)
ITEM 4. LIMIT OF LIABILITY: $20,000,000
aggregate for Coverages A and B combined (including Defense Costs)
<PAGE> 2
ITEM 5. RETENTION:
SECURITIES CLAIMS:
Judgments & Settlements (all coverages) None
Defense Costs (non-Indemnifiable Loss) None
Defense Costs (Coverage B(i) and
Indemnifiable Loss) $2,500,000
for Loss arising from
Claims alleging the same
Wrongful Act or related
Wrongful Acts (waivable
under Clause 6 in
certain circumstances)
OTHER CLAIMS:
Judgments, Settlements and Defense
Costs (non-Indemnifiable Loss) None
Judgments. Settlements and Defense
Costs (Indemnifiable Loss) $2,500,000
for Loss arising from
Claims alleging the same
Wrongful Act or related
Wrongful Acts
ITEM 6. CONTINUITY DATES:
A. Coverages A and B(ii): November 25, 1980
B. Coverage B(i): November 25, 1996
C. Coverages A and B:
Outside Entity Coverage (Per
Outside Entity) See Endorsement
#62790
ITEM 7. PREMIUM: $2,040,000
ITEM 8. NAME AND ADDRESS OF INSURER ("Insurer"):
(This policy is issued only by the insurance company indicated below.)
National Union Fire Insurance Company of Pittsburgh, Pa.
70 Pine Street
New York, NY 10270
<PAGE> 3
IN WITNESS WHEREOF, the Insurer has caused this policy to be signed on the
Declarations Page by its President, a Secretary and a duly authorized
representative of the Insurer.
/s/ Elizabeth M. Tuck /s/
- ------------------------- -------------------------
SECRETARY PRESIDENT
/s/
--------------------------
AUTHORIZED REPRESENTATIVE
------------------------- -------------------------
COUNTERSIGNATURE DATE COUNTERSIGNED AT
MARSH & MCLENNAN, INC.
1166 AVENUE OF THE AMERICAS
NEW YORK, NY 10036
<PAGE> 4
- --------------------------------------------------------------------------------
USE THIS DECLARATIONS SUPPLEMENT ON ALL NEW YORK CLAIMS MADE LIABILITY POLICIES
WHERE A ONE YEAR TAIL (EXTENDED REPORTING PERIOD OR DISCOVERY PERIOD) IS
REQUIRED BY NEW YORK REGULATION 121.
- --------------------------------------------------------------------------------
NEW YORK REGULATION 121
DECLARATIONS PAGE DISCLOSURE SUPPLEMENT
"Us" and "We" where used in this supplement mean the insurance company issuing
the policy.
"Claims-made relationship" means that period of time between the effective date
of the first claims made policy between Us and you (the policy holder) and the
cancellation or nonrenewal of the last consecutive claims-made policy between
such parties, where there has been no gap in coverage, but does not include any
period covered by tail coverage.
Retroactive Date/Prior Acts Exclusion Date/"Nose" Coverage
Coverage for things that happened prior to the beginning of the policy period is
referred to in this supplement as "nose" coverage. If the policy has a
retroactive date feature or an exclusion or other wording deleting coverage for
things that happened before a certain date (a prior acts exclusion), then nose
coverage is limited (or non existent) and THERE IS NO COVERAGE FOR THINGS THAT
HAPPENED PRIOR TO THAT DATE
Claims-Made Policy
In this claims-made policy, generally, coverage is provided for liability ONLY
IF THE CLAIM FOR DAMAGES IS FIRST MADE AGAINST THE INSURED AND REPORTED TO US IN
WRITING DURING THE POLICY PERIOD. All coverage ceases upon termination of the
policy, except for the tail coverage.
Extended Reporting Period/Discovery Period/"Tail" Coverage
The Extended Reporting Period, or Discovery Period as it may be called, will
increase the time within which a claim may be eligible for the policy's
coverage. This is referred to in this supplement as "tail" coverage. The tail
coverage helps to prevent the situation of a claim going uncovered because of
cancellation or nonrenewal of the policy or other termination of the coverage
provided by the policy. It provides for a period of time after termination of
coverage during which claims first made against the Insured and reported to us
in writing, for things that happened before the termination of coverage and
otherwise covered by the policy, will be covered. Generally, this optional tail
coverage can be purchased if coverage is terminated either by you or by us. If
the optional tail is not
1
<PAGE> 5
purchased, an automatic tail coverage goes into effect upon termination of
coverage; however, this automatic tail lasts for only 60 days, (90 days if the
policyholder is a public entity as defined in section 107(a)(51) of the New York
Insurance Law). After the end of the tail, you will have a gap in your insurance
coverage, unless you have obtained appropriate coverage to fill the gap. UPON
TERMINATION OF COVERAGE IT IS VERY IMPORTANT THAT YOU CONSULT WITH YOUR
INSURANCE AGENT OR BROKER OR OTHER PROFESSIONAL INSURANCE ADVISER.
The length of the optional tail offered in the policy is ONE YEAR generally, but
this option will not be available in some circumstances. It will not be
available if coverage is terminated by us because of non-payment of premium or
fraud and at the effective date of such termination of coverage a claims-made
relationship has continued for less than one year.
Future Premium Increases As Claims-Made Relationship Matures
During the first several years of being covered on a claims-made basis,
claims-made rates are generally comparatively lower than rates on other types of
policies generally known as occurrence policies, especially if there is no nose
coverage initially, and you can expect substantial annual premium increases,
independent of overall rate level increases, until the claims-made relationship
reaches maturity.
Length of Optional Tail and Premium Charge For it
The length of the optional tail offered in this policy and the premium charge
for it is as follows (please see the policy form and endorsements for complete
details):
Length Of Optional Tail Premium Charge For Optional Tail
One Year 95% of full annual premium
THIS DISCLOSURE SUPPLEMENT GENERALLY DISCUSSES CERTAIN IMPORTANT FEATURES OF THE
POLICY. PLEASE READ THE ENTIRE POLICY CAREFULLY AND DISCUSS IT WITH YOUR
INSURANCE AGENT OR BROKER OR OTHER PROFESSIONAL INSURANCE ADVISER. THE
PROVISIONS OF THE POLICY FORM AND ENDORSEMENTS THERETO ARE CONTROLLING.
2
<PAGE> 6
[AMERICAN INTERNATIONAL COMPANIES LOGO]
DIRECTORS, OFFICERS AND CORPORATE LIABILITY INSURANCE POLICY
In consideration of the payment of the premium, and in reliance upon the
statements made to the Insurer by application forming a part hereof and its
attachments and the material incorporated therein, the insurance company
designated in Item 8 of the Declarations, herein called the "Insurer", agrees as
follows:
1. INSURING AGREEMENTS
COVERAGE A: DIRECTORS AND OFFICERS INSURANCE
This policy shall pay the Loss of each and every Director or Officer of the
Company arising from a Claim first made against the Directors or Officers
during the Policy Period or the Discovery Period (if applicable) and reported
to the Insurer pursuant to the terms of this policy for any actual or alleged
Wrongful Act in their respective capacities as Directors or Officers of the
Company, except when and to the extent that the Company has indemnified the
Directors or Officers. The Insurer shall, in accordance with and subject to
Clause 8, advance Defense Costs of such Claim prior to its final disposition.
COVERAGE B: CORPORATE LIABILITY INSURANCE
This policy shall pay the Loss of the Company arising from a:
(i) Securities Claim first made against the Company, or
(ii) Claim first made against the Directors or Officers,
during the Policy Period or the Discovery Period (if applicable) and reported
to the Insurer pursuant to the terms of this policy for any actual or alleged
Wrongful Act, but, in the case of (ii) above, only when and to the extent
that the Company has indemnified the Directors or Officers for such Loss
pursuant to law, common or statutory, or contract, or the Charter or By-laws
of the Company duly effective under such law which determines and defines
such rights of indemnity. The Insurer shall, in accordance with and subject
to Clause 8, advance Defense Costs of such Claim prior to its final
disposition.
1
<PAGE> 7
2. DEFINITIONS
(a) "Claim" means:
(1) a written demand for monetary or non-monetary relief; or
(2) a civil, criminal, or administrative proceeding for monetary or
non-monetary relief which is commenced by:
(i) service of a complaint or similar pleading; or
(ii) return of an indictment (in the case of a criminal
proceeding); or
(iii) receipt or filing of a notice of charges.
The term "Claim" shall include a Securities Claim; provided, however,
that with respect to Coverage B(i) only, Claim or Securities Claim shall
not mean a criminal or administrative proceeding against the Company.
(b) "Company" means the Named Corporation designated in Item 1 of the
Declarations and any Subsidiary thereof.
(c) "Continuity Date" means the date set forth in:
(1) Item 6A of the Declarations with respect to Coverages A and B
(ii); or
(2) Item 6B of the Declarations with respect to Coverage B(i); or
(3) Item 6C of the Declarations with respect to Coverages A and B
for a Claim against an Insured arising out of such Insured
serving as a director, officer, trustee or governor of an
Outside Entity.
(d) "Defense Costs" means reasonable and necessary fees, costs and expenses
consented to by the Insurer (including premiums for any appeal bond,
attachment bond or similar bond, but without any obligation to apply for
or furnish any such bond) resulting solely from the investigation,
adjustment, defense and appeal of a Claim against the Insureds, but
excluding salaries of Officers or employees of the Company.
2
<PAGE> 8
(e) "Director(s) or Officer(s)" or "Insured(s)" means:
(1) with respect to Coverages A and B (ii), any past, present or
future duly elected or appointed directors or officers of the
Company. In the event the Named Corporation or a Subsidiary
thereof operates outside the United States, then the terms
"Director(s) or Officer(s)" or "Insured(s)" also mean those
titles, positions or capacities in such foreign Named
Corporation or Subsidiary which is equivalent to the position
of Director(s) or Officer(s) in a corporation incorporated
within the United States. Coverage will automatically apply to
all new Directors and Officers after the inception date of
this policy;
(2) with respect to Coverage B(i) only, the Company.
(f) "Listed Event" means any of the following events:
(1) any event for which the Company has reported or is required to
report on Form 8-K filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934; or
(2) any restatement or correction of a Company financial statement
contained in any document filed with the Securities and
Exchange Commission; or
(3) any statement or disclosure made by or on the behalf of the
Company relating to a prior forecast, estimate or projection
of the Company's earnings or sales made by or on behalf of the
Company, which statement or disclosure represents a greater
than 15% change from such prior forecast, estimate or
projection.
(g) "Loss" means damages, judgments, settlements and Defense Costs; however,
Loss shall not include civil or criminal fines or penalties imposed by
law, punitive or exemplary damages, the multiplied portion of multiplied
damages, taxes, any amount for which the Insureds are not financially
liable or which are without legal recourse to the Insureds, or matters
which may be deemed uninsurable under the law pursuant to which this
policy shall be construed.
Further, with respect to Coverage B only, Loss shall not include damages,
judgments or settlements arising out of a Claim alleging that the Company
paid an inadequate or unfair price or consideration for the purchase of
its own securities or the securities of a Subsidiary.
Notwithstanding the foregoing, with respect to Coverage B(i) only and
subject to the other terms, conditions and exclusions of the policy, Loss
shall include punitive damages (if insurable by law) imposed upon the
Company.
3
<PAGE> 9
(h) "No Liability" means with respect to a Securities Claim made against the
Insured(s); (1) a final judgment of no liability obtained prior to trial,
in favor of all Insureds, by reason of a motion to dismiss or a motion
for summary judgment, after the exhaustion of all appeals; or (2) a final
judgment of no liability obtained after trial, in favor of all Insureds,
after exhaustion of all appeals. In no event shall the term "No
Liability" apply to a Securities Claim made against an Insured for which
a settlement has occurred.
(i) "Outside Entity" means:
(1) a not-for-profit organization under section 501(c)(3) of the
Internal Revenue Code of 1986 (as, amended); or
(2) any other corporation, partnership, joint venture or other
organization listed by endorsement to this, policy.
(j) "Policy Period" means the period of time from the inception date shown in
Item 3 of the Declarations to the earlier of the expiration date shown in
Item 3 of the Declarations or the effective date of cancellation of this
policy; however, to the extent that coverage under this policy replaces
coverage in other policies terminating at noon standard time on the
inception date of such coverage hereunder, then such coverage as is
provided by this policy shall not become effective until such other
coverage has terminated.
(k) "Securities Claim" means a Claim made against an Insured which alleges, a
violation of the Securities Act of 1933 or the Securities, Exchange Act
of 1934, rules or regulations, promulgated thereunder, the securities
laws of any state, or any foreign jurisdiction, and which alleges a
Wrongful Act in connection with the claimant's, purchase or sale of, or
the offer to purchase or sell to the claimant, any securities of the
Company, whether on the open market or arising from a public or private
offering of securities by the Company.
(l) "Subsidiary" means:
(1) any corporation of which the Named Corporation owns on or
before the inception of the Policy Period more than 50% of the
issued and outstanding voting stock either directly, or
indirectly through one or more of its Subsidiaries;
(2) automatically any corporation whose assets total less than 10%
of the total consolidated assets of the Company as of the
inception date of this policy, which corporation becomes a
Subsidiary during the Policy Period. The Named Corporation
shall provide the Insurer with full particulars of the new
Subsidiary before the end of the Policy Period;
4
<PAGE> 10
(3) any corporation which becomes a Subsidiary during the Policy
Period (other than a corporation described in paragraph (2)
above) but only upon the condition that within 90 days of its
becoming a Subsidiary the Named Corporation shall have
provided the Insurer with full particulars of the new
Subsidiary and agreed to any additional premium and/or
amendment of the provisions of this, policy required by the
Insurer relating to such new Subsidiary. Further, coverage as
shall be afforded to the new Subsidiary is conditioned upon
the Named Corporation paying when due any additional premium
required by the Insurer relating to such new Subsidiary.
A corporation becomes a Subsidiary when the Named Corporation owns more
than 50% of the issued and outstanding voting stock, either directly, or
indirectly through one or more of its Subsidiaries. A corporation ceases
to be a Subsidiary when the Named Corporation ceases to own more than 50%
of the issued and outstanding voting stock either directly, or indirectly
through one or more of its Subsidiaries.
In all events, coverage as is afforded under this policy with respect to
any Claim made against a Subsidiary or any Director or Officer thereof
shall only apply for Wrongful Acts committed or allegedly committed after
the effective time that such Subsidiary became a Subsidiary and prior to
the time that such Subsidiary ceased to be a Subsidiary
(m) "Wrongful Act" means:
(1) with respect to individual Directors or Officers, any breach
of duty, neglect, error, misstatement, misleading statement,
omission or act by the Directors or Officers of the Company in
their respective capacities as such, or any matter claimed
against them solely by reason of their status as Directors or
Officers of the Company, or any matter claimed against them
arising out of their serving as a director, officer, trustee
or governor of an Outside Entity in such capacities, but only
if such service is at the specific written request or
direction of the Company,
(2) with respect to the Company, any breach of duty, neglect,
error, misstatement, misleading statement, omission or act by
the Company, but solely as respects a Securities Claim.
5
<PAGE> 11
3. EXTENSIONS
Subject otherwise to the terms hereof, this policy shall cover Loss arising
from any Claims made against the estates, heirs, or legal representatives of
deceased Directors or Officers, and the legal representatives of Directors or
Officers in the event of incompetency, insolvency or bankruptcy, who were
Directors or Officers at the time the Wrongful Acts upon which such Claims
are based were committed.
Subject otherwise to the terms hereof, this policy shall cover Loss arising
from all Claims made against the lawful spouse (whether such status is
derived by reason of statutory law, common law or otherwise of any applicable
jurisdiction in the world) of an individual Director or Officer for all
Claims arising solely out of his or her status as the spouse of an individual
Director or Officer, including a Claim that seeks damages recoverable from
marital community property, property jointly held by the individual Director
or Officer and the spouse, or property transferred from the individual
Director or Officer to the spouse; provided, however, that this extension
shall not afford coverage for any Claim for any actual or alleged Wrongful
Act of the spouse, but shall apply only to Claims arising out of any actual
or alleged Wrongful Acts of an individual Director or Officer, subject to the
policy's terms, conditions and exclusions.
4. EXCLUSIONS
The Insurer shall not be liable to make any payment for Loss in connection
with a Claim made against an Insured:
(a) arising out of, based upon or attributable to the gaining in fact of any
profit or advantage to which an Insured was not legally entitled;
(b) arising out of, based upon or attributable to: (1) profits in fact made
from the purchase or sale by an Insured of securities of the Company
within the meaning of Section 16(b) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any state statutory
law; or (2) payments to an Insured of any remuneration without the
previous approval of the stockholders of the Company, which payment
without such previous approval shall be held to have been illegal;
(c) arising out of, based upon or attributable to the committing in fact of
any criminal or deliberate fraudulent act;
[The Wrongful Act of a Director or Officer shall not be imputed to any
other Director or Officer for the purpose of determining the
applicability of the foregoing exclusions 4(a) through 4(c)]
6
<PAGE> 12
(d) alleging, arising out of, based upon or attributable to the facts
alleged, or to the same or related Wrongful Acts alleged or contained, in
any claim which has been reported, or in any circumstances of which
notice has been given, under any policy of which this policy is a renewal
or replacement or which it may succeed in time;
(e) alleging, arising out of, based upon or attributable to any pending or
prior litigation as of the Continuity Date, or alleging or derived from
the same or essentially the same facts as alleged in such pending or
prior litigation;
(f) alleging, arising out of, based upon or attributable to a Listed Event
that occurs no later than 90 days subsequent to the Continuity Date;
provided, however, that this exclusion shall only apply with respect to
coverage which would have otherwise been afforded under Coverage B(i) of
the policy;
(g) with respect to serving as a director, officer, trustee or governor of an
Outside Entity, for any Wrongful Act occurring prior to the Continuity
Date if the Insured knew or could have reasonably foreseen that such
Wrongful Act could lead to a Claim under this policy;
(h) alleging, arising out of, based upon or attributable to any actual or
alleged act or omission of the Directors or Officers serving in their
capacities as directors, officers, trustees or governors of any other
entity other than the Company or an Outside Entity, or by reason of their
status as directors, officers, trustees or governors of such other
entity;
(i) which is brought by any Insured or by the Company; or which is brought by
any security holder of the Company, whether directly or derivatively,
unless such security holder's Claim is instigated and continued totally
independent of, and totally without the solicitation of, or assistance
of, or active participation of, or intervention of, any Insured or the
Company; provided, however, this exclusion shall not apply to a wrongful
termination of employment Claim brought by a former employee other than a
former employee who is or was a Director of the Company;
(j) for any Wrongful Act arising out of the Insured serving as a director,
officer, trustee or governor of an Outside Entity if such Claim is
brought by the Outside Entity or by any director, officer, trustee or
governor thereof; or which is brought by any security holder of the
Outside Entity, whether directly or derivatively, unless such security
holder's Claim is instigated and continued totally independent of, and
totally without the solicitation of, or assistance of, or active
participation of, or intervention of, the Outside Entity, any director,
officer, trustee or governor thereof, any Insured or the Company;
(k) for bodily injury, sickness, disease, death or emotional distress of any
person, or damage to or destruction of any tangible property, including
the loss of use thereof, or for injury from libel or slander or
defamation or disparagement, or for injury from a violation of a person's
right of privacy;
7
<PAGE> 13
(l) alleging, arising out of, based upon, attributable to, or in any way
involving, directly or indirectly:
(1) the actual, alleged or threatened discharge, dispersal,
release or escape of pollutants; or
(2) any direction or request to test for, monitor, clean up,
remove, contain, treat, detoxify or neutralize pollutants.
including but not limited to a Claim alleging damage to the Company or
its securities holders.
Pollutants include (but are not limited to) any solid, liquid, gaseous
or thermal irritant or contaminant, including smoke, vapor, soot,
fumes, acids, alkalis, chemicals and waste. Waste includes (but is not
limited to) materials to be recycled, reconditioned or reclaimed;
(m) for violation(s) of any of the responsibilities, obligations or duties
imposed upon fiduciaries by the Employee Retirement Income Security Act
of 1974, or amendments thereto or any similar provisions of state
statutory law or common law.
5. LIMIT OF LIABILITY - (FOR ALL LOSS - INCLUDING DEFENSE COSTS)
The Limit of Liability stated in Item 4 of the Declarations is the limit of
the Insurer's liability for all Loss, under Coverage A and Coverage B
combined, arising out of all Claims first made against the Insureds during
the Policy Period and the Discovery Period (if applicable); however, the
Limit of Liability for the Discovery Period shall be part of, and not in
addition to, the Limit of Liability for the Policy Period. Further, any Claim
which is made subsequent to the Policy Period or Discovery Period (if
applicable) which pursuant to Clause 7(b) or 7(c) is considered made during
the Policy Period or Discovery Period shall also be subject to the one
aggregate Limit of Liability stated in Item 4 of the Declarations.
DEFENSE COSTS ARE NOT PAYABLE BY THE INSURER IN ADDITION TO THE LIMIT OF
LIABILITY. DEFENSE COSTS ARE PART OF LOSS AND AS SUCH ARE SUBJECT TO THE
LIMIT OF LIABILITY FOR LOSS.
6. RETENTION CLAUSE
The Insurer shall only be liable for the amount of Loss arising from a Claim
which is in excess of the Retention amount stated in Item 5 of the
Declarations, such Retention amount to be borne by the Company and/or the
Insureds and shall remain uninsured, with regard to all Loss under: (i)
Coverage A or B(ii) for which the Company has indemnified or is permitted or
required to indemnify the Director(s) or Officer(s) ("Indemnifiable Loss");
or (ii) Coverage B(i). A single Retention amount shall apply to Loss arising
from all Claims alleging the same Wrongful Act or related Wrongful Acts.
8
<PAGE> 14
Notwithstanding the foregoing, solely with respect to a Securities Claim
under this policy, the Retention shall only apply to Defense Costs; provided,
however, no Retention shall apply for a Securities Claim even as respects
Defense Costs in the event of a determination of No Liability of all
Insureds, and the Insurer shall thereupon reimburse such Defense Costs paid
by the Insured.
7. NOTICE/CLAIM REPORTING PROVISIONS
NOTICE HEREUNDER SHALL BE GIVEN IN WRITING TO THE INSURER NAMED IN ITEM 8 OF
THE DECLARATIONS AT THE ADDRESS INDICATED IN ITEM 8 OF THE DECLARATIONS. IF
MAILED, THE DATE OF MAILING SHALL CONSTITUTE THE DATE THAT SUCH NOTICE WAS
GIVEN AND PROOF OF MAILING SHALL BE SUFFICIENT PROOF OF NOTICE.
(a) The Company or the Insureds shall, as a condition precedent to the
obligations of the Insurer under this policy, give written notice to the
Insurer of any Claim made against an Insured as soon as practicable and
either:
(1) any time during the Policy Period or during the Discovery
Period (if applicable); or
(2) within 30 days after the end of the Policy Period or the
Discovery Period (if applicable), as long as such Claim is
reported no later than 30 days after the date such Claim was
first made against an Insured.
(b) If written notice of a Claim has been given to the Insurer pursuant to
Clause 7(a) above, then any Claim which is subsequently made against the
Insureds and reported to the Insurer alleging, arising out of, based upon
or attributable to the facts alleged in the Claim for which such notice
has been given, or alleging any Wrongful Act which is the same as or
related to any Wrongful Act alleged in the Claim of which such notice has
been given, shall be considered made at the time such notice was given.
(c) If during the Policy Period or during the Discovery Period (if
applicable) the Company or the Insureds shall become aware of any
circumstances which may reasonably be expected to give rise to a Claim
being made against the Insureds and shall give written notice to the
Insurer of the circumstances and the reasons for anticipating such a
Claim, with full particulars as to dates, persons, and entities involved,
then any Claim which is subsequently made against the Insureds and
reported to the Insurer alleging, arising out of, based upon or
attributable to such circumstances or alleging any Wrongful Act which is
the same as or related to any Wrongful Act alleged or contained in such
circumstances, shall be considered made at the time such notice of such
circumstances was given.
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<PAGE> 15
8. DEFENSE COSTS, SETTLEMENTS, JUDGMENTS (INCLUDING THE ADVANCEMENT OF DEFENSE
COSTS)
Under both Coverage A and Coverage B of this policy, except as hereinafter
stated, the Insurer shall advance, at the written request of the Insured,
Defense Costs prior to the final disposition of a Claim. Such advanced
payments by the Insurer shall be repaid to the Insurer by the Insureds or the
Company severally according to their respective interests, in the event and
to the extent that the Insureds or the Company shall not be entitled under
the terms and conditions of this policy to payment of such Loss.
THE INSURER DOES NOT, HOWEVER, UNDER THIS POLICY, ASSUME ANY DUTY TO DEFEND.
THE INSUREDS SHALL DEFEND AND CONTEST ANY CLAIM MADE AGAINST THEM. THE
INSUREDS SHALL NOT ADMIT OR ASSUME ANY LIABILITY, ENTER INTO ANY SETTLEMENT
AGREEMENT, STIPULATE TO ANY JUDGMENT, OR INCUR ANY DEFENSE COSTS WITHOUT THE
PRIOR WRITTEN CONSENT OF THE INSURER. ONLY THOSE SETTLEMENTS, STIPULATED
JUDGMENTS AND DEFENSE COSTS WHICH HAVE BEEN CONSENTED TO BY THE INSURER SHALL
BE RECOVERABLE AS LOSS UNDER THE TERMS OF THIS POLICY. THE INSURER'S CONSENT
SHALL NOT BE UNREASONABLY WITHHELD, PROVIDED THAT THE INSURER SHALL BE
ENTITLED TO EFFECTIVELY ASSOCIATE IN THE DEFENSE AND THE NEGOTIATION OF ANY
SETTLEMENT OF ANY CLAIM.
The Insurer shall have the right to effectively associate with the Company
and the Insureds in the defense of any Claim that appears reasonably likely
to involve the Insurer, including but not limited to negotiating a
settlement. The Company and the Insureds shall give the Insurer full
cooperation and such information as it may reasonably require.
The Insurer may make any settlement of any Claim it deems expedient with
respect to any Insured subject to such Insured's written consent. If any
Insured withholds consent to such settlement, the Insurer's liability for all
Loss on account of such Claim shall not exceed the amount for which the
Insurer could have settled such Claim plus Defense Costs incurred as of the
date such settlement was proposed in writing by the Insurer.
The Company is not covered in any respect under Coverage A; the Company is
covered, subject to the policy's terms and conditions, only with respect to
its indemnification of its Directors or Officers under Coverage B(ii) as
respects a Claim against such Directors and Officers, and subject to the
policy's terms and conditions, under Coverage B(i) for a Securities Claim
made against the Company. Accordingly, the Insurer has no obligation under
this policy for Defense Costs incurred by, judgments against or settlements
by the Company arising out of a Claim made against the Company other than a
covered Securities Claim, or any obligation to pay Loss arising out of any
legal liability that the Company has to the claimant except as respects a
covered Securities Claim against the Company.
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<PAGE> 16
With respect to (i) Defense Costs jointly incurred by, (ii) any joint
settlement made by, and/or (iii) any adjudicated judgment of joint and
several liability against the Company and any Director or Officer, in
connection with any Claim other than a Securities Claim, the Company and the
Director(s) or Officer(s) and the Insurer agree to use their best efforts to
determine a fair and proper allocation of the amounts as between the Company
and the Director(s) or Officers(s) and the Insurer, taking into account the
relative legal and financial exposures of and the relative benefits obtained
by the Directors and Officers and the Company. In the event that a
determination as to the amount of Defense Costs to be advanced under the
policy cannot be agreed to, then the Insurer shall advance such Defense Costs
which the Insurer states to be fair and proper until a different amount shall
be agreed upon or determined pursuant to the provisions of this policy and
applicable law.
9. PRE-AUTHORIZED SECURITIES DEFENSE ATTORNEYS
Only with respect to a Securities Claim:
Affixed as Appendix A hereto and made a part of this policy is a list of
Panel Counsel law firms ("Panel Counsel Firms"). The list provides the
Insured a choice of law firms from which a selection of legal counsel shall
be made to conduct the defense of any Securities Claim made against them.
The Insureds shall select a Panel Counsel Firm to defend a Securities Claim
made against the Insureds in the jurisdiction in which the Securities Claim
is brought. In the event a Securities Claim is brought in a jurisdiction not
included on the list, the Insureds shall select a Panel Counsel Firm in the
listed jurisdiction which is the nearest geographical jurisdiction to either
where the Securities Claim is brought or where the corporate headquarters of
the Named Corporation is located. In such instance the Insureds also may,
with the consent of the Insurer, which consent shall not be unreasonably
withheld, select a non-Panel Counsel Firm in the jurisdiction in which the
Securities Claim is brought to function as "local counsel" on the Securities
Claim to assist the Panel Counsel Firm which will function as "lead counsel"
in conducting the defense of the Securities Claim.
With the express prior written consent of the Insurer, an Insured may select
a Panel Counsel Firm different from that selected by other Insured defendants
if such selection is required due to an actual conflict of interest or is
otherwise reasonably justifiable.
The list of Panel Counsel Firms may be amended from time to time by the
Insurer. However, no change shall be made to the specific list attached to
this policy during the Policy Period without the consent of the Named
Corporation. At the request of the Insured, the Insurer may in its discretion
add to the attached list of Panel Counsel Firms for the purposes of defending
a Securities Claim made against the Insured in any specified jurisdiction
(including a jurisdiction not originally included in the Panel Counsel list)
a Panel Counsel Firm not originally listed for such jurisdiction. The Insurer
may in its discretion waive, in part or in whole, the provisions of this
clause as respects a particular Securities Claim.
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<PAGE> 17
10. DISCOVERY CLAUSE
Except as indicated below, if the Insurer or the Named Corporation shall
cancel or refuse to renew this policy, the Named Corporation shall have the
right, upon payment of an additional premium of 75% of the "full annual
premium", to a period of one year following the effective date of such
cancellation or nonrenewal (herein referred to as the "Discovery Period") in
which to give to the Insurer written notice of Claims first made against the
Insureds during said one year period for any Wrongful Act occurring prior to
the end of the Policy Period and otherwise covered by this policy. As used
herein, "full annual premium" means the premium level in effect immediately
prior to the end of the Policy Period. The rights contained in this
paragraph shall terminate, however, unless written notice of such election
together with the additional premium due is received by the Insurer within
30 days of the effective date of cancellation or nonrenewal.
In the event of a Transaction, as defined in Clause 12, the Named
Corporation shall have the right, within 30 days before the end of the
Policy Period, to request an offer from the Insurer of a Discovery Period
(with respect to Wrongful Acts occurring prior to the effective time of the
Transaction) for a period of no less than three years or for such longer or
shorter period as the Named Corporation may request. The Insurer shall offer
such Discovery Period pursuant to such terms, conditions and premium as the
Insurer may reasonably decide. In the event of a Transaction, the right to a
Discovery Period shall not otherwise exist except as indicated in this
paragraph.
The additional premium for the Discovery Period shall be fully earned at the
inception of the Discovery Period. The Discovery Period is not cancelable.
This clause and the rights contained herein shall not apply to any
cancellation resulting from non-payment of premium.
11. CANCELLATION CLAUSE
This policy may be canceled by the Named Corporation at any time only by
mailing written prior notice to the Insurer or by surrender of this policy
to the Insurer or its authorized agent. This policy may also be canceled by
or on behalf of the Insurer by delivering to the Named Corporation or by
mailing to the Named Corporation, by registered, certified, or other first
class mail, at the Named Corporation's address as shown in Item 1 of the
Declarations, written notice stating when, not less than 60 days thereafter,
the cancellation shall be effective. The mailing of such notice as aforesaid
shall be sufficient proof of notice. The Policy Period terminates at the
date and hour specified in such notice, or at the date and time of
surrender.
If this policy shall be canceled by the Named Corporation, the Insurer shall
retain the customary short rate proportion of the premium herein.
If this policy shall be canceled by the Insurer, the Insurer shall retain
the pro rata proportion of the premium herein.
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<PAGE> 18
Payment or tender of any unearned premium by the Insurer shall not be a
condition precedent to the effectiveness of cancellation, but such payment
shall be made as soon as practicable.
If the period of limitation relating to the giving of notice is prohibited
or made void by any law controlling the construction thereof, such period
shall be deemed to be amended so as to be equal to the minimum period of
limitation permitted by such law.
12. CHANGE IN CONTROL OF NAMED CORPORATION
If during the Policy Period:
a. the Named Corporation shall consolidate with or merge into, or
sell all or substantially all of its assets to any other
person or entity or group of persons and/or entities acting in
concert; or
b. any person or entity or group of persons and/or entities
acting in concert shall acquire an amount of the outstanding
securities representing more than 50% of the voting power for
the election of Directors of the Named Corporation, or
acquires the voting rights of such an amount of such
securities;
(either of the above events herein referred to as the "Transaction")
then this policy shall continue in full force and effect as to Wrongful Acts
occurring prior to the effective time of the Transaction, but there shall be
no coverage afforded by any provision of this policy for any actual or
alleged Wrongful Act occurring after the effective time of the Transaction.
This policy may not be canceled after the effective time of the Transaction
and the entire premium for this policy shall be deemed earned as of such
time. The Named Corporation shall also have the right to an offer by the
Insurer of a Discovery Period described in Clause 10 of the policy.
The Named Corporation shall give the Insurer written notice of the
Transaction as soon as practicable, but not later than 30 days after the
effective date of the Transaction.
13. SUBROGATION
In the event of any payment under this policy, the Insurer shall be
subrogated to the extent of such payment to all the Company's and the
Insured's rights of recovery thereof, and the Company and the Insureds shall
execute all papers required and shall do everything that may be necessary to
secure such rights including the execution of such documents necessary to
enable the Insurer to effectively bring suit in the name of the Company
and/or the Insureds. In no event, however, shall the Insurer exercise its
rights of subrogation against an Insured under this policy unless such
Insured has been convicted of a criminal act, or been judicially determined
to have committed a deliberate fraudulent act, or obtained any profit or
advantage to which such Insured was not legally entitled.
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<PAGE> 19
14. OTHER INSURANCE AND INDEMNIFICATION
Such insurance as is provided by this policy shall apply only as excess over
any other valid and collectible insurance.
In the event of a Claim against a Director or Officer arising out of his or
her serving as director, officer, trustee or governor of an Outside Entity,
coverage as is afforded by this policy shall be specifically excess of
indemnification provided by such Outside Entity and any insurance provided
to such Outside Entity with respect to its directors, officers, trustees or
governors. Further, in the event such other Outside Entity insurance is
provided by the Insurer or any member company of American International
Group, Inc. ("AIG") (or would be provided but for the application of the
retention amount, exhaustion of the limit of liability or failure to submit
a notice of a Claim) then the maximum aggregate Limit of Liability for all
Losses combined covered by virtue of this policy as respects any such Claim
shall be reduced by the limit of liability (as set forth on the declarations
page) of the other AIG insurance provided to such Outside Entity.
15. NOTICE AND AUTHORITY
It is agreed that the Named Corporation shall act on behalf of its
Subsidiaries and all Insureds with respect to the giving notice of Claim or
giving and receiving notice of cancellation, the payment of premiums and the
receiving of any return premiums that may become due under this policy, the
receipt and acceptance of any endorsements issued to form a part of this
policy and the exercising or declining to exercise any right to a Discovery
Period.
16. ASSIGNMENT
This policy and any and all rights hereunder are not assignable without the
written consent of the Insurer.
17. ARBITRATION
It is hereby understood and agreed that all disputes or differences which
may arise under or in connection with this policy, whether arising before or
after termination of this policy, including any determination of the amount
of Loss, shall be submitted to the American Arbitration Association under
and in accordance with its then prevailing commercial arbitration rules. The
arbitrators shall be chosen in the manner and within the time frames
provided by such rules. If permitted under such rules the arbitrators shall
be three disinterested individuals having knowledge of the legal, corporate
management or insurance issues relevant to the matters in dispute.
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<PAGE> 20
Any party may commence such arbitration proceeding in either New York, New
York; Atlanta, Georgia; Chicago, Illinois; or Denver, Colorado. The
arbitrators shall give due consideration to the general principles of
Delaware law in the construction and interpretation of the provisions of
this policy; provided, however, that the terms, conditions, provisions and
exclusions of this policy are to be construed in an evenhanded fashion as
between the parties, including without limitation, where the language of
this policy is alleged to be ambiguous or otherwise unclear, the issue shall
be resolved in the manner most consistent with the relevant terms,
conditions, provisions or exclusions of the policy (without regard to the
authorship of the language, the doctrine of reasonable expectation of the
parties and without any presumption or arbitrary interpretation or
construction in favor of either party or parties, and in accordance with the
intent of the parties.)
The written decision of the arbitrators shall be provided to both parties
and shall be binding on them. The arbitrators' award shall not include
attorney fees or other costs.
Each party shall bear equally the expenses of the arbitration.
18. ACTION AGAINST INSURER
Except as provided in Clause 17 of the policy, no action shall lie against
the Insurer unless, as a condition precedent thereto, there shall have been
full compliance with all of the terms of this policy, nor until the amount
of the Insureds' obligation to pay shall have been finally determined either
by judgment against the Insureds after actual trial or by written agreement
of the Insureds, the claimant and the Insurer.
Any person or organization or the legal representative thereof who has
secured such judgment or written agreement shall thereafter be entitled to
recover under this policy to the extent of the insurance afforded by this
policy. No person or organization shall have any right under this policy to
join the Insurer as a party to any action against the Insureds or the
Company to determine the Insureds liability, nor shall the Insurer be
impleaded by the Insureds or the Company or their legal representatives.
Bankruptcy or insolvency of the Company or the Insureds or of their estates
shall not relieve the Insurer of any of its obligations hereunder.
19. HEADINGS
The descriptions in the headings of this policy are solely for convenience,
and form no part of the terms and conditions of coverage.
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<PAGE> 1
EXHIBIT 10.55
PAINE WEBBER GROUP INC.
Senior Officer Deferred Compensation Plan
Grantor Trust Agreement
THIS AGREEMENT (this "Trust Agreement"), made as of the 9th day of August,
1996, by and between PAINE WEBBER GROUP INC., a Delaware corporation
(hereinafter referred to as "PWG"), and THE CHASE MANHATTAN 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 Theodore Levine (the "Participant")
and his 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
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
<PAGE> 2
the Shares have been registered on Form S-8 filed with the Securities and
Exchange Commission. PWG shall advise the Trustee of any limitations on sale of
the Shares. PWG shall also use its reasonable effects to register or qualify
such Shares covered by 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 1, subchapter J. chapter 1,
subtitle A of the Code and shall be construed accordingly.
(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 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.
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<PAGE> 3
(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.
(b)At all times during the continuance of this Trust, as provided in
Section l(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.
(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
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<PAGE> 4
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 payment, 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 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, hedge funds,
investment partnerships sponsored by PWG 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 l(a). PWG shall have the right at any time, and from time to
time,
4
<PAGE> 5
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.
(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 be or
rest with PWG, the Participant or the Beneficiaries.
(c) When disposing of assets held in the Trust, nothing shall prevent the
Trustee, upon the direction of the Administrator, from selling such assets to
the Participant or the 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
therefor, unless such non-receipt of payment is a result of the Trustee's (or
its officers', directors', employees', nominees' or agents') gross negligence or
wilful 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 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.
5
<PAGE> 6
7. ACCOUNTING BY TRUSTEE
(a) (i) The Trustee shall keep accurate and detailed accounts of all its
receipts, investments and disbursements under this Trust 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 respect 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. The 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 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 Trust 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 Trust Agreement in a
reasonably prudent manner.
6
<PAGE> 7
(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 Trust 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 Trust 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 respect to
any failure on the pan of PWG to perform any of its obligations under this Trust
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 Trust 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
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 Trust Agreement, any action of PWG under any provision of
this Trust 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.
7
<PAGE> 8
(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 The Chase Manhattan Bank, N.A., 770
Broadway, New York, New York 10003-9598, 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 trustee, employees, agents and nominees
from and against any and 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 trustee, employees, nominees and
agents in connection with the transactions contemplated by this Trust Agreement,
except to the extent that any such loss, liability, action, suit, demand,
damage, cost or expense is the result of the gross negligence or wilful
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 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 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
8
<PAGE> 9
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 Trust Agreement) incurred by the Trustee in the performance of its duties
under this Trust 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 expenses 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-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
expenses 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 out 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
9
<PAGE> 10
transfer shall 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 Trust Agreement, and
the term "Trustee" as used in this Trust 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 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 the Plan or the 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 by any
benefits pursuant to the Plan or (ii) the twenty-first anniversary of the death
of the Participant who is the beneficiary
10
<PAGE> 11
of the Trust as of the date of execution of this Trust 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 provisions, 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.
(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 Trust Agreement are placed herein for
convenience of reference only, and the Trust Agreement is not to be construed by
reference thereto.
(e) This Trust Agreement shall bind and inure to the benefit of the
successors and assigns of PWG and the Trustee, respectively, and the Participant
or Beneficiaries and legal representatives (e.g., executors, administrators,
conservators, etc.).
(f) This Trust Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original but all of which together shall
constitute but one instrument, which may be sufficiently evidenced by a
counterpart.
14. EFFECTIVE DATE
The effective date of this Trust Agreement shall be August 9, 1996.
11
<PAGE> 12
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.
______________________ By: ______________________
Notary Pubic Title:
THE CHASE MANHATTAN BANK
______________________ By:_______________________
Notary Public Title:
12
<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,
-----------------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
PRIMARY:
Weighted-average common shares outstanding 87,698,138 92,030,417 71,693,020
Incremental stock options and awards 6,708,357 9,241,691 6,370,453
------------- ------------- -------------
Weighted-average common and common equivalent shares 94,406,495 101,272,108 78,063,473
============= ============= =============
Net income $ 364,350 $ 80,750 $ 31,631
Interest savings on convertible debentures and
short-term borrowings 4,062 3,322 1,330
Preferred dividend requirements (29,395) (29,291) (1,219)
------------- ------------- -------------
Net income applicable to common shares $ 339,017 $ 54,781 $ 31,742
============= ============= =============
Primary earnings per common share $ 3.59 $ 0.54 $ 0.41
============= ============= =============
FULLY DILUTED:
Weighted-average common shares outstanding 87,698,138 92,030,417 71,693,020
Conversion of Convertible Preferred Stock 5,515,720 -- --
Incremental stock options and awards 8,480,906 9,241,691 7,673,929
Weighted-average common shares issuable assuming conversion
of 8% Debentures 449,752 -- 1,647,190
------------- ------------- -------------
Weighted-average common and common equivalent shares 102,144,516 101,272,108 81,014,139
============= ============= =============
Net income $ 364,350 $ 80,750 $ 31,631
Interest savings on convertible debentures and
short-term borrowings 3,865 1,526 2,181
Preferred dividend requirements (23,395) (29,291) (969)
------------- ------------- -------------
Net income applicable to common shares $ 344,820 $ 52,985 $ 32,843
============= ============= =============
Fully diluted earnings per common share $ 3.38 $ 0.52 $ 0.41
============= ============= =============
</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,
------------------------------------------------------------------------------
1996* 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income before taxes $ 558,999 $ 102,677 $ 44,385 $ 407,576 $ 339,115
---------- ---------- ---------- ---------- ----------
Preferred stock dividends 43,712 36,260 1,710 5,828 27,789
---------- ---------- ---------- ---------- ----------
Fixed charges:
Interest 1,971,788 1,969,811 1,428,653 1,130,712 879,242
Interest factor in rents 54,537 59,491 51,102 50,133 45,962
---------- ---------- ---------- ---------- ----------
Total fixed charges 2,026,325 2,029,302 1,479,755 1,180,845 925,204
---------- ---------- ---------- ---------- ----------
Total fixed charges and preferred
stock dividends 2,070,037 2,065,562 1,481,465 1,186,673 952,993
---------- ---------- ---------- ---------- ----------
Income before taxes and fixed charges $2,585,324 $2,131,979 $1,524,140 $1,588,421 $1,264,319
========== ========== ========== ========== ==========
Ratio of earnings to fixed charges
and preferred stock dividends 1.2 1.0 1.0 1.3 1.3
========== ========== ========== ========== ==========
</TABLE>
For purposes of computing the ratio of earnings to combined fixed charges and
preferred stock dividends (tax effected), "earnings" consist of income 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, preferred trust securities and that portion of rental expense
estimated to be representative of the interest factor.
* Income before taxes includes minority interest in wholly owned subsidiary
trust.
<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,
------------------------------------------------------------------------------
1996* 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income before taxes $ 558,999 $ 102,677 $ 44,385 $ 407,576 $ 339,115
---------- ---------- ---------- ---------- ----------
Fixed charges:
Interest 1,971,788 1,969,811 1,428,653 1,130,712 879,242
Interest factor in rents 54,537 59,491 51,102 50,133 45,962
---------- ---------- ---------- ---------- ----------
Total fixed charges 2,026,325 2,029,302 1,479,755 1,180,845 925,204
---------- ---------- ---------- ---------- ----------
Income before taxes and
fixed charges $2,585,324 $2,131,979 $1,524,140 $1,588,421 $1,264,319
========== ========== ========== ========== ==========
Ratio of earnings to fixed charges 1.3 1.1 1.0 1.3 1.4
========== ========== ========== ========== ==========
</TABLE>
For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of income 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, preferred trust securities and that
portion of rental expense estimated to be representative of the interest factor.
* Income before taxes includes minority interest in wholly owned subsidiary
trust.
<PAGE> 1
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 15,870 people in 298 offices worldwide.
The Company's principal line of business is to serve the investment and
capital needs of individual, corporate, institutional and public agency clients
through its broker-dealer subsidiary, PaineWebber Incorporated ("PWI"), and
other specialized subsidiaries. The Company holds memberships in all major
securities and commodities exchanges in the United States, and makes a market in
many securities traded on the National Association of Securities Dealers
Automated Quotation system ("NASDAQ") or in other over-the-counter markets.
The Company is comprised of interrelated business groups, including Research,
the Private Client Group, the Municipal Securities Group, Investment Banking,
Asset Management, Global Fixed Income and Commercial Real Estate, and Global
Equities and Transaction Services, which utilize common operational and
administrative personnel and facilities.
The Research group provides investment advice to institutional and individual
investors, and other business areas of the Company, covering more than 770
companies in 53 industries.
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, fixed income instruments, mutual funds, trusts, and selected
insurance products. The Company may act as principal or agent in providing these
services. Fees charged vary according to the size and complexity of a
transaction, and the activity level of a client's account.
The Municipal Securities Group structures, 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, restructurings, and recapitalizations.
The Asset Management group is comprised of Mitchell Hutchins Asset Management
Inc. ("MHAM"), including Mitchell Hutchins Investment Advisory division
("MHIA"), Mitchell Hutchins Institutional Investors Inc. ("MHII") and Financial
Counselors Inc. ("FCI"). The Asset Management group provides investment advisory
and portfolio management services to mutual funds, institutions, pension funds,
endowment funds, individuals and trusts.
Through the Global Fixed Income and Global Equities 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 fixed income securities and listed and over-the-counter equity
securities to facilitate client transactions or for the Company's own account.
The Commercial Real Estate group provides a full range of capital market
services to real estate clients, including underwriting of debt and equity
securities, principal lending, equity and partnership investments, debt
restructuring, property sales and bulk sales services, and a broad range of
other advisory services.
The Transaction Services group includes the 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.
25
<PAGE> 2
The Company's businesses operate in 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 businesses are
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 continued to be favorable in 1996. Although the
U.S. economy grew somewhat faster during 1996 than in 1995, inflation remained
subdued. After a modest easing of monetary policy in January, the Federal
Reserve did not change its stance. Consequently, the yield on the three-month
treasury bill was very stable, remaining in the range of 5 to 5-1/4%. The yield
on the 30-year treasury bond was more volatile, rising 100 basis points to about
7% in the first half of 1996, before drifting back toward 6-1/2% in the second
half of the year.
Although profit growth of corporations slowed in 1996, investors were
nevertheless impressed by the durability of the economic expansion and the
prospect of continued profit growth and moderate inflation in 1997. The S&P 500
Index increased 20% and the NASDAQ Composite Index increased 23% from year end
1995. Average daily volume on the NYSE increased 19% to 412 million shares
versus 346 million shares in 1995, while average daily volume on the NASDAQ
increased 36% to 545 million shares versus 401 million shares in 1995.
This positive environment in both the debt and equity markets led to a high
level of corporate finance activity in 1996. The value of mergers and
acquisitions in 1996 was 26% higher than in 1995. Total common stock offerings
increased 40% in 1996 and total corporate debt underwritings rose 21%.
Many organizations currently use computer programs which represent the
calendar year portion of dates by their last two digits. Calculations performed
with these truncated fields will not work properly with dates from 2000 and
beyond, which poses the risk that applications critical to operations could
fail. The Company has begun its efforts to identify and remedy improper date
fields, and expects that the annual incremental cost to complete these efforts
will not be material. Further, the Company expects the modifications to be in
effect in sufficient time so as to not disrupt operations.
RESULTS OF OPERATIONS
1996 Compared with 1995
Net income for the year ended December 31, 1996 was $364.4 million, or $3.59 per
primary share ($3.38 per fully diluted share). This compares to net income of
$226.8 million earned during 1995, or $1.98 per primary share ($1.90 per fully
diluted share), before giving effect to after-tax charges of approximately $146
million ($230 million before income taxes) associated with the resolution of the
issues arising out of the Company's sale of public proprietary limited
partnerships. Net income for 1995, including the charges, was $80.8 million, or
$0.54 per primary share ($0.52 per fully diluted share).
The results for the year ended December 31, 1995 were reduced by charges in
the second and fourth quarters of $125.9 million ($200.0 million before income
taxes) and $20.1 million ($30.0 million before income taxes), respectively,
related to the costs of resolving the SEC, individual and class action claims,
and administrative costs related to the Company's sale of public proprietary
limited partnerships in the 1980s and early 1990s. The charges are included in
"Other expenses" in the Consolidated Statement of Income.
Revenues, net of interest expense, were $3,735.2 million for 1996, an
increase of 12% from the $3,350.3 million in 1995.
Commission revenues earned during 1996 were $1,381.5 million, an increase of
9% from the $1,272.8 million earned in the prior year. Mutual fund and insurance
commissions increased $78.3 million, or 26%, commissions from over-the-counter
securities and other commissions increased $25.4 million, or 17%, and
commissions on listed securities and options increased $5.0 million, or 1%.
Revenues from principal transactions increased $109.4 million, or 12% from
1995. For financial reporting purposes, realized and unrealized gains and losses
on trading positions, including hedges, are recorded in principal transactions
revenues. The increase from the prior year reflects overall improved trading
results in both equity and fixed income trading activities which benefited from
the favorable market environment and increased customer demand.
26
<PAGE> 3
Asset management fees increased 13% to $453.3 million, primarily due to higher
fees earned on managed or wrap accounts and trust accounts. Average assets in
wrap and trust accounts during 1996 were 40% higher than during 1995. 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 $45 billion during
1996 compared to $42 billion in 1995.
Investment banking revenues were $391.2 million, as compared to $326.8
million, reflecting an increased number of equity and corporate debt
underwritings, an increased dollar volume of lead-managed and co-managed
municipal issues and an increase in private placement fees.
Net interest increased $52.0 million, or 18%, reflecting increased margin
lending to clients and an increased level of fixed income positions.
Compensation and benefit expenses for 1996 increased $214.5 million, or 11%,
primarily due to higher revenue-driven compensation paid to retail investment
executives and higher performance-based incentive compensation. Compensation and
benefits as a percentage of net revenues were 59.4% during 1996, as compared to
59.8% during 1995.
All other operating expenses decreased $287.0 million, or 23%, from 1995. In
1995, other expenses included the $230.0 million charge related to the limited
partnership settlements. All other operating expenses as a percentage of net
revenues, excluding the non-recurring charges, were 25.6% in 1996, as compared
to 30.2% during 1995. This reduction reflects various cost saving initiatives
including renegotiating contracts and leases on more favorable terms, and
centralizing purchasing of supplies and equipment. Offsetting the reduction were
increases in professional services which includes system programming costs for
the millennium.
1995 Compared with 1994
Net income for the year ended December 31, 1995 was $226.8 million, or $1.98 per
primary share ($1.90 per fully diluted share), before giving effect to the $146
million after-tax charge related to the limited partnership settlements. This
compares to net income of $101.5 million, or $1.30 per primary share ($1.27 per
fully diluted share), earned during 1994 before giving effect to the costs
related to the Kidder, Peabody Group Inc. ("Kidder") acquisition and a
non-recurring charge in the second quarter related to the PaineWebber Short-Term
U.S. Government Income Fund (the "Fund"). Net income for 1995, including the
charges, was $80.8 million, or $0.54 per primary share ($0.52 per fully diluted
share). This compares to 1994 net income of $31.6 million, or $0.41 per primary
and fully diluted share, after giving effect to acquisition costs and the
non-recurring charge related to the Fund.
In late 1994 and early 1995, the Company entered into an agreement with
General Electric Company and Kidder, whereby the Company agreed to purchase
certain net assets and specific businesses of Kidder, for consideration
consisting of cash and the Company's common and preferred stock valued at
approximately $2.0 billion at the time of issuance. The excess of the purchase
price over the fair value of the net assets acquired was approximately $98
million. The consolidated financial statements of the Company include the
results of operations of the Kidder businesses acquired in December 1994 and
early 1995 from the date of acquisition. As a result of the acquisition, 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 before income
taxes). The 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 before income taxes) 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 interest only and principal only 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.
Revenues, net of interest expense, increased 32%, primarily attributable to
the Kidder acquisition and improved market conditions.
Commission revenues earned during 1995 were $1,272.8 million, 31% higher than
the $970.3 million earned during 1994. Commissions on listed securities and
options increased $236.2 million, or 41%, mutual fund commissions increased
$42.7 million, or 27%, and commissions from over-the-counter securities and
other commissions increased $43.3 million, or 39%. These increases were
partially offset by lower insurance commissions due to decreased sales of
insurance annuities.
27
<PAGE> 4
Principal transactions revenues increased $394.8 million, or 76%, primarily due
to improved trading results, including hedges, in mortgage, corporate debt and
equity securities.
Asset management fees increased 12% to $399.5 million, primarily due to
higher fees earned on managed or wrap accounts and trust accounts. Average
assets in wrap and trust accounts during 1995 were 46% higher than during 1994.
The increase also reflects higher advisory fees earned on money market and
institutional accounts partially offset by lower advisory and distribution fees
earned on proprietary long-term mutual funds. The average assets under
management in money market, institutional and long-term mutual funds were
approximately $42 billion during 1995 compared to $37 billion in 1994.
Investment banking revenues were $326.8 million, as compared to $284.5
million, reflecting an increased number of equity and corporate debt
underwritings and an increased dollar volume of lead-managed municipal issues.
Net interest increased $21.0 million, or 8%, primarily due to the expansion
of the stock loan business and increased margin lending to clients. These
increases were partially offset by lower spreads earned on fixed income
positions.
Other income increased $11.2 million, or 8%, due to increased transaction
fees and higher fees from Individual Retirement Accounts ("IRAs") as a result of
an increased number of accounts. These increases were partially offset by lower
dividends on proprietary trading inventories.
Compensation and benefit expenses for 1995 increased $458.1 million, or 30%,
primarily due to higher revenue-driven compensation paid to retail and
institutional investment executives and higher performance-based incentive
compensation. The increased compensation costs also reflect the acquisition of
Kidder businesses and normal salary increases. Compensation and benefits as a
percentage of net revenues were 59.8% during 1995, as compared to 61.0% during
1994.
All other operating expenses increased $298.4 million, or 32%, over 1994. In
1995, other expenses include the $230.0 million charge related to the limited
partnership settlements, and in 1994, other expenses include the charge related
to the Fund and costs associated with the Kidder acquisition. Higher
professional fees relate primarily to increased legal and consulting fees.
Higher office and equipment, communications, business development, and brokerage
and clearing fees are primarily attributable to the acquired Kidder businesses.
All other operating expenses as a percentage of net revenues, excluding the
non-recurring charges, were 30.2% in 1995, as compared to 33.0% during 1994.
INCOME TAXES
The effective tax rate for the year ended December 31, 1996 was 34.8% as
compared to 21.4% for 1995. The increase in the effective rate was primarily due
to higher state and local income taxes and lower nontaxable interest for the
year. The effective tax rate for the year ended December 31, 1995 declined 7.3%
from the 1994 rate of 28.7%. This decline was due to lower state and local
taxes, proportionally lower nondeductible expenses, and higher nontaxable
interest for the year.
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 highly liquid balance sheet with the majority of the
assets consisting of trading assets, securities purchased under agreements to
resell, securities borrowed, and receivables from clients, brokers and dealers,
which are readily convertible 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, 1996 were $52.5 billion compared
to $45.7 billion at December 31, 1995. The increase is primarily attributable to
growth in securities purchased under agreements to resell and trading assets.
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 long-term borrowings.
The Company maintains committed and uncommitted credit facilities from a
diverse group of banks. The Company has a committed unsecured senior revolving
credit agreement to provide up to $1.2 billion through December 1997. In
addition, certain of the Company's subsidiaries have a committed secured
revolving credit facility to provide up to an aggregate of $750.0 million
through August 1997, with provisions for renewal through August 2000. The
secured borrowings under this facility
28
<PAGE> 5
can be collateralized using a variety of financial instruments. The facilities
are available for general corporate purposes. At December 31, 1996, there were
no outstanding borrowings under these credit facilities. Additionally, the
Company had approximately $4.6 billion in uncommitted lines of credit at
December 31, 1996.
The Company maintains public shelf registration statements with the SEC for
the issuance of debt securities. In December 1996, the Company filed a shelf
registration statement with the SEC providing for the issuance of an additional
$2.0 billion of debt securities. The Company issued $467.5 million of debt under
these registration statements in 1996. At December 31, 1996, the Company had
approximately $2.3 billion in debt securities available for issuance under these
registration statements.
In October 1996, the Company filed a shelf registration statement with the
SEC to issue up to an aggregate of $500.0 million of preferred trust securities
of PWG Capital Trusts I, II, III, and IV, business trusts formed under Delaware
law which are wholly owned subsidiaries of the Company, and debt securities of
the Company. In December 1996, PWG Capital Trust I issued $195.0 million of
8.30% Preferred Trust Securities ("Preferred Trust Securities"), under this
registration statement. At December 31, 1996, $305.0 million in Preferred Trust
Securities and debt securities of the Company were available for issuance under
this registration statement. (For further discussion on the Preferred Trust
Securities, see Note 7 in the Company's Notes to Consolidated Financial
Statements.)
Long-term borrowings at December 31, 1996 grew to $2,781.7 million from
$2,436.0 million at December 31, 1995. This increase primarily reflects the
issuances of $100.0 million of 6 3/4% Notes in January 1996, $150.0 million of
7 5/8% Notes in October 1996, and $217.5 million of Medium-Term Notes during the
year. Offsetting these increases were the maturities of $128.2 million of
Medium-Term Notes. At December 31, 1996, $168.8 million of long-term borrowings
had maturity dates in 1997. The weighted-average maturity on all outstanding
long-term borrowings at December 31, 1996 was 6.0 years.
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. The Company's total
capital base, which includes long-term borrowings, preferred stock and
stockholders' equity, grew to $4.9 billion at December 31, 1996, an increase of
$719.7 million from the prior year. The growth in total capital is primarily due
to the net increase in long-term borrowings of $345.7 million, the issuance of
$195.0 million of Preferred Trust Securities, and an increase in stockholders'
equity of $178.1 million.
During 1996, the Company issued 6.7 million shares of common stock related to
employee compensation programs. Activity related to these programs had the
effect of increasing equity capital by more than $71 million. In the second and
fourth quarters of 1996, the Company's Board of Directors authorized for
repurchase, in the open market or otherwise, an additional 17.0 million shares
of its common stock. The Company repurchased 10.7 million shares of its common
stock during 1996, at an aggregate cost of $237.8 million. At December 31, 1996,
the remaining number of shares of common stock authorized to be repurchased by
the Company's Board of Directors was 14.0 million.
The Board of Directors declared regular quarterly cash dividends of $0.12 per
share on the Company's common stock during 1996. Dividends were also declared on
the Redeemable Preferred Stock and the Convertible Preferred Stock. On February
6, 1997, the Board of Directors declared a 1997 first quarter dividend of $0.15
per common share, an increase of 25% over the prior quarter.
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 and Highly Leveraged Transactions
In connection with its merchant banking and commercial real estate activities,
the Company has provided financing and made investments in companies, some of
which are involved in highly leveraged transactions. Positions taken or
commitments made by the Company may involve credit or market risk from any one
issuer or industry.
At December 31, 1996, the Company had investments in merchant banking and
commercial real estate transactions which were affected by liquidity,
reorganization or restructuring issues amounting to $41.8 million, net of
reserves, compared to $85.5 million, net of reserves, at December 31, 1995.
These investments have not had a material effect on the Company's results of
operations. Included in the portfolio at December 31, 1996 and 1995 was an
investment of $15.0 and $52.2 million, respectively, in a limited partnership
which specializes in investments in corporate restructurings and special
situations.
29
<PAGE> 6
The Company's activities include underwriting and market-making transactions in
high-yield 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, 1996, the Company
held $111.4 million of high-yield securities, with approximately 32% of such
securities attributable to three issuers. The Company continually monitors its
risk positions associated with high-yield 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 years ended December 31, 1996 and 1995,
the Company recorded pre-tax trading profits on transactions in high-yield
securities of $18.8 million and $10.4 million, respectively. For the year ended
December 31, 1994, the Company recorded a pre-tax trading loss on transactions
in high-yield securities of $16.3 million.
DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument represents a contractual agreement between
counterparties and has value that 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 such as futures, certain
options contracts and structured products (e.g. indexed warrants) are traded on
exchanges, while derivatives such as forward contracts, certain options
contracts, interest rate swaps, caps and floors, and other structured products
are negotiated in over-the-counter markets.
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 Consolidated Statements of Financial
Condition. The Company had off-balance-sheet derivative contracts outstanding
with gross notional amounts of $41.1 billion and $43.0 billion at December 31,
1996 and 1995, respectively. These amounts included $22.4 billion and $26.7
billion, respectively, related to "to be announced" mortgage securities
requiring forward settlement. Also included in these amounts were $2.1 billion
and $1.9 billion notional amounts of interest rate swap agreements used to hedge
the Company's long-term borrowings at December 31, 1996 and 1995, 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 Consolidated
Statements of Financial Condition with the related profit or loss reflected in
principal transactions. 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 $7.9 million and $29.6 million
for the years ended December 31, 1996 and 1994, respectively, and increasing net
interest expense on the Company's long-term borrowings by $1.7 million for the
year ended December 31, 1995. The Company had no deferred gains or losses
recorded at December 31, 1996 and 1995 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, 1996 were $185.4
million and $242.4 million for assets and liabilities, respectively, and are
reflected on the Consolidated Statement of Financial Condition. The fair values
of these instruments at December 31, 1995 were $375.5 million and $275.6 million
for assets and liabilities, respectively.
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
30
<PAGE> 7
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 prove 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, 1996 and 1995, the fair
values amounted to $185.4 million and $375.5 million, respectively.
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 meets regularly 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. The
Company also manages the credit exposure relating to its trading activities by
entering into master netting agreements when feasible. The Company monitors its
exposure to counterparty risk on a daily basis through the use of credit
exposure information and monitoring of collateral values. The Credit department
establishes and reviews credit limits for clients and other counterparties
seeking margin, resale and repurchase agreement facilities, securities borrowed
and securities loaned arrangements, and various other products. Although the
Company closely monitors the creditworthiness of its clients, the debtors'
ability to discharge amounts owed is dependent upon, among other things, general
market conditions. The Company has no material concentration of credit risk with
any individual counterparty.
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, 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-service securities broker-dealer, and are
considered a single business segment for purposes of Statement of Financial
Accounting Standards ("SFAS") No. 14. (For information on geographic data, see
Note 16 in the Company's Notes to Consolidated Financial Statements.)
NEW ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board ("FASB") issued SFAS No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." SFAS No. 125 introduces the
financial-components approach which focuses on the recognition of financial
assets an entity controls and the derecognition of financial assets for which
control has been transferred. This statement is effective for certain types of
transactions occurring after December 31, 1996, including securitizations, sales
of mortgages and other receivables. The FASB has deferred the effective date of
accounting for other types of transfers of financial assets, including
repurchase agreements and securities lending transactions, until January 1,
1998. The Company does not expect the adoption of this Statement to have a
material impact on the Company's consolidated financial statements, taken as a
whole.
31
<PAGE> 8
Consolidated Statements of Income
(In thousands of dollars except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Commissions $1,381,475 $1,272,766 $ 970,294
Principal transactions 1,023,615 914,201 519,438
Asset management 453,267 399,540 356,368
Investment banking 391,164 326,777 284,503
Interest 2,309,737 2,256,750 1,694,572
Other 146,708 150,056 138,902
---------- ---------- ----------
Total revenues 5,705,966 5,320,090 3,964,077
Interest expense 1,970,754 1,969,811 1,428,653
---------- ---------- ----------
Net revenues 3,735,212 3,350,279 2,535,424
---------- ---------- ----------
NON-INTEREST EXPENSES
Compensation and benefits 2,219,129 2,004,585 1,546,467
Office and equipment 267,006 266,291 225,375
Communications 153,301 149,047 130,095
Business development 75,981 90,752 85,430
Brokerage, clearing and exchange fees 87,839 93,657 82,577
Professional services 108,123 101,911 78,856
Other 263,800 541,359 342,239
---------- ---------- ----------
Total non-interest expenses 3,175,179 3,247,602 2,491,039
---------- ---------- ----------
Income before taxes and minority interest 560,033 102,677 44,385
Provision for income taxes 194,649 21,927 12,754
---------- ---------- ----------
Income before minority interest 365,384 80,750 31,631
Minority interest 1,034 -- --
---------- ---------- ----------
Net income $ 364,350 $ 80,750 $ 31,631
========== ========== ==========
Net income applicable to common shares $ 339,017 $ 54,781 $ 31,742
========== ========== ==========
EARNINGS PER COMMON SHARE
Primary $ 3.59 $ 0.54 $ 0.41
Fully diluted $ 3.38 $ 0.52 $ 0.41
---------- ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
32
<PAGE> 9
Consolidated Statements of Financial Condition
(In thousands of dollars except share and per share amounts)
<TABLE>
<CAPTION>
December 31, 1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 383,856 $ 222,497
Cash and securities segregated and on deposit for
federal and other regulations 499,761 427,068
Trading assets, at fair value 16,823,307 14,095,446
Securities purchased under agreements to resell 20,746,831 16,699,295
Securities borrowed 7,380,374 7,226,515
Receivables:
Clients, net of allowance for doubtful accounts of
$12,109 and $12,400 in 1996 and 1995, respectively 4,327,996 4,070,599
Brokers and dealers 273,737 279,676
Dividends and interest 350,796 263,948
Fees and other 136,545 200,444
Office equipment and leasehold improvements, net of
accumulated depreciation and amortization of $343,322
and $288,807 in 1996 and 1995, respectively 313,261 322,056
Other assets 1,277,036 1,863,750
------------ ------------
$ 52,513,500 $ 45,671,294
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 1,337,646 $ 991,227
Trading liabilities, at fair value 6,621,891 6,233,054
Securities sold under agreements to repurchase 28,797,276 25,199,377
Securities loaned 3,459,860 2,752,429
Payables:
Clients 4,883,344 3,698,477
Brokers and dealers 205,437 155,118
Dividends and interest 285,341 256,338
Other liabilities and accrued expenses 1,290,555 1,639,403
Accrued compensation and benefits 737,376 570,786
------------ ------------
47,618,726 41,496,209
Long-term borrowings 2,781,694 2,436,037
------------ ------------
50,400,420 43,932,246
------------ ------------
Commitments and contingencies
Company-Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust holding solely Company
Guaranteed Related Subordinated Debt 195,000 --
Redeemable Preferred Stock 187,655 186,760
Stockholders' equity:
Convertible Preferred Stock 100,000 100,000
Common stock, $1 par value, 200,000,000 shares
authorized; issued 108,358,178 shares and 104,492,091
shares in 1996 and 1995, respectively 108,358 104,492
Additional paid-in capital 913,927 831,763
Retained earnings 1,009,448 719,325
------------ ------------
2,131,733 1,755,580
Treasury stock, at cost; 15,366,234 shares and 7,417,845
shares in 1996 and 1995, respectively (331,907) (151,616)
Unamortized cost of restricted stock (67,533) (55,302)
Foreign currency translation adjustment (1,868) 3,626
------------ ------------
1,730,425 1,552,288
------------ ------------
$ 52,513,500 $ 45,671,294
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
33
<PAGE> 10
Consolidated Statements of Changes in Stockholders' Equity
(In thousands of dollars except share and per share amounts)
<TABLE>
<CAPTION>
6% Cumulative
Convertible Additional
Redeemable Common Paid-in
Preferred Stock Stock Capital
------------ ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1993 $ 0 $ 83,603 $ 568,487
------------ ------------ ------------
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 14,000 177,374
Exercises of stock options 579 3,803
Restricted stock awards 2,432 32,464
Amortization of the cost of restricted stock
Conversion of debentures (205)
Tax benefit relating to employee compensation
programs 2,597
Other 454
Repurchases of common stock
Foreign currency translation
------------ ------------ ------------
Balance at December 31, 1994 $ 100,000 $ 100,614 $ 784,974
------------ ------------ ------------
Net income
Dividends declared:
Common stock, $.48 per share
Redeemable Preferred Stock, $9.00 per share
Convertible Preferred Stock, $6.00 per share
Exercises of stock options 942 (4,377)
Restricted stock awards 2,936 52,471
Amortization of the cost of restricted stock
Conversion of debentures (4,252)
Tax benefit relating to employee compensation
programs 2,947
Other
Repurchases of common stock
Foreign currency translation
------------ ------------ ------------
Balance at December 31, 1995 $ 100,000 $ 104,492 $ 831,763
------------ ------------ ------------
Net income
Dividends declared:
Common stock, $.48 per share
Redeemable Preferred Stock, $9.00 per share
Convertible Preferred Stock, $6.00 per share
Exercises of stock options 1,411 1,431
Restricted stock awards 2,455 69,721
Amortization of the cost of restricted stock
Conversion of debentures (10,214)
Tax benefit relating to employee compensation
programs 21,226
Other
Repurchases of common stock
Foreign currency translation
------------ ------------ ------------
Balance at December 31, 1996 $ 100,000 $ 108,358 $ 913,927
------------ ------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements.
34
<PAGE> 11
Consolidated Statements of Changes in Stockholders' Equity
(In thousands of dollars except share and per share amounts)
<TABLE>
<CAPTION>
Unamortized Foreign Number of Shares
Cost of Currency Total -----------------------
Retained Treasury Restricted Translation Stockholders' Common Treasury
Earnings Stock Stock Adjustment Equity Stock Stock
---------- --------- -------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 721,115 $(112,390) $(60,980) $(4,788) $1,195,047 83,603,262 (6,568,433)
---------- --------- -------- ------- ---------- ---------- ----------
Net income 31,631 31,631
Dividends declared:
Common stock, $.48 per share (36,475) (36,475)
Dividends accrued:
Redeemable Preferred Stock (969) (969)
Convertible Preferred Stock (250) (250)
Issuance of Convertible Preferred Stock 100,000
Issuance of common stock relating to
business acquisition 127,095 318,469 14,000,000 7,500,000
Exercises of stock options 4,382 578,593
Restricted stock awards (34,896) 0 2,431,882
Amortization of the cost of restricted
stock 44,073 44,073
Conversion of debentures 1,455 1,250 84,740
Tax benefit relating to employee
compensation programs 2,597
Other 4,992 5,446 291,750
Repurchases of common stock (43,133) (43,133) (2,605,138)
Foreign currency translation 8,431 8,431
---------- --------- -------- ------- ---------- ---------- ----------
Balance at December 31, 1994 $ 715,052 $ (21,981) $(51,803) $ 3,643 $1,630,499 100,613,737 (1,297,081)
---------- --------- -------- ------- ---------- ---------- ----------
Net income 80,750 80,750
Dividends declared:
Common stock, $.48 per share (47,203) (47,203)
Redeemable Preferred Stock, $9.00 per
share (22,500) (22,500)
Convertible Preferred Stock, $6.00 per
share (6,000) (6,000)
Exercises of stock options 34,388 30,953 942,511 1,993,837
Restricted stock awards (55,407) 0 2,935,843
Amortization of the cost of restricted
stock 51,908 51,908
Conversion of debentures 9,502 5,250 524,303
Tax benefit relating to employee
compensation programs 2,947
Other (774) (774)
Repurchases of common stock (173,525) (173,525) (8,638,904)
Foreign currency translation (17) (17)
---------- --------- -------- ------- ---------- ---------- ----------
Balance at December 31, 1995 $ 719,325 $(151,616) $(55,302) $ 3,626 $1,552,288 104,492,091 (7,417,845)
---------- --------- -------- ------- ---------- ---------- ----------
Net income 364,350 364,350
Dividends declared:
Common stock, $.48 per share (44,832) (44,832)
Redeemable Preferred Stock, $9.00 per
share (22,500) (22,500)
Convertible Preferred Stock, $6.00 per
share (6,000) (6,000)
Exercises of stock options 32,699 35,541 1,410,818 1,590,777
Restricted stock awards (72,176) 0 2,455,269
Amortization of the cost of restricted
stock 59,945 59,945
Conversion of debentures 24,776 14,562 1,207,350
Tax benefit relating to employee
compensation programs 21,226
Other (895) (895)
Repurchases of common stock (237,766) (237,766) (10,746,516)
Foreign currency translation (5,494) (5,494)
---------- --------- -------- ------- ---------- ---------- ----------
Balance at December 31, 1996 $1,009,448 $(331,907) $(67,533) $(1,868) $1,730,425 108,358,178 (15,366,234)
---------- --------- -------- ------- ---------- ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
35
<PAGE> 12
Consolidated Statements of Cash Flows
(In thousands of dollars)
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 364,350 $ 80,750 $ 31,631
Adjustments to reconcile net income to cash (used for)
provided by operating activities:
Noncash items included in net income:
Depreciation and amortization 64,116 54,100 40,619
Deferred income taxes 27,134 (90,778) (48,827)
Amortization of deferred charges 189,519 174,122 128,817
Other 46,204 213,852 29,232
(Increase) decrease in operating receivables:
Clients (262,538) 189,652 (82,116)
Brokers and dealers 5,939 152,889 479,265
Dividends and interest (86,848) (33,608) (12,205)
Fees and other 63,899 37,124 (113,067)
Increase (decrease) in operating payables:
Clients 1,184,867 587,798 154,031
Brokers and dealers 50,319 (148,126) (361,016)
Dividends and interest 29,003 37,602 (47,992)
Other (203,565) 739,065 142,176
(Increase) decrease in:
Cash and securities on deposit (72,693) (57,483) (42,413)
Trading assets (2,727,861) (3,310,637) 5,534,676
Securities purchased under agreements to resell (4,047,536) (5,820,114) (530,933)
Securities borrowed (153,859) 599,696 (1,908,905)
Other assets 306,054 (820,625) (318,193)
Increase (decrease) in:
Trading liabilities 388,837 198,348 (1,502,636)
Securities sold under agreements to repurchase 3,597,899 8,285,379 (29,888)
Securities loaned 707,431 526,511 100,101
----------- ----------- -----------
Cash (used for) provided by operating activities (529,329) 1,595,517 1,642,357
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from (payments for):
Net assets acquired in business acquisition -- (624,090) (726,217)
Acquisition-related expenditures (3,843) (46,157) --
Sales (purchases) of investments 122,032 112,499 (234,531)
Office equipment and leasehold improvements (51,583) (81,880) (82,904)
----------- ----------- -----------
Cash provided by (used for) investing activities 66,606 (639,628) (1,043,652)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments on):
Short-term borrowings 346,419 (898,382) (889,604)
Proceeds from:
Long-term borrowings 484,786 493,357 637,379
Employee stock transactions 50,103 36,203 11,078
Issuance of Preferred Trust Securities 195,000 -- --
Payments for:
Long-term borrowings (141,128) (374,580) (259,750)
Repurchases of common stock (237,766) (173,525) (43,133)
Dividends (73,332) (75,703) (36,475)
----------- ----------- -----------
Cash provided by (used for) financing activities 624,082 (992,630) (580,505)
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents 161,359 (36,741) 18,200
Cash and cash equivalents, beginning of year 222,497 259,238 241,038
----------- ----------- -----------
Cash and cash equivalents, end of year $ 383,856 $ 222,497 $ 259,238
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
36
<PAGE> 13
Notes to Consolidated Financial Statements
(In thousands of dollars except share and per share amounts)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
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. 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.
In late 1994 and early 1995, the Company entered into an agreement with
General Electric Company and Kidder, Peabody Group Inc. ("Kidder"), whereby the
Company agreed to purchase certain assets and liabilities, and specific
businesses of Kidder for consideration valued at approximately $2.0 billion at
the time of issuance, which consisted of cash of approximately $1.4 billion and
the Company's common and preferred stock. The acquisition was accounted for
under the purchase method of accounting. The excess of the purchase price over
the fair value of the net assets acquired was approximately $98,000 and is being
amortized on a straight-line basis over 35 years. The consolidated financial
statements of the Company include the results of operations of the Kidder
businesses acquired in December 1994 and early 1995 from the date of
acquisition. In the fourth quarter of 1994, the Company recorded after-tax costs
of approximately $36 million ($50 million before income taxes) relating
primarily to the elimination of duplicate facilities, severance and other
personnel-related costs.
The consolidated financial statements include the accounts of PWG and its
wholly owned subsidiaries, including its principal subsidiary PaineWebber
Incorporated ("PWI"). All material intercompany balances and transactions have
been eliminated. The consolidated financial statements are prepared in
conformity with generally accepted accounting principles which require
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
Trading Instruments
Trading assets and liabilities are recorded in the Consolidated Statements 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 recorded in the accounts on trade date.
Trading assets and liabilities, including derivative contracts held for
trading or to hedge trading inventory positions, are recorded at fair value in
the Consolidated Statements 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 ("resale agreements") and
securities sold under agreements to repurchase ("repurchase agreements"),
principally U.S. government and agency securities, are accounted for as
financing transactions and are recorded at their contractual amounts, plus
accrued interest. It is Company policy to obtain possession or control of
securities, which have a fair value in excess of the original principal amount
loaned, in order to collateralize resale agreements. The Company is
37
<PAGE> 14
required to provide securities to counterparties in order to collateralize
repurchase agreements. 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 or increase above the principal amount advanced or
received, plus accrued interest, additional collateral is requested or excess
collateral is returned when deemed appropriate. When specific conditions are
met, including the existence of a legally enforceable master netting agreement,
resale agreements and repurchase agreements are netted by counterparty on the
Consolidated Statements of Financial Condition as permitted under Financial
Accounting Standards Board ("FASB") Interpretation No. 39, "Offsetting of
Amounts Related to Certain Contracts," and Interpretation No. 41, "Offsetting of
Amounts Related to Certain Repurchase and Reverse Repurchase Agreements."
Resale agreements and repurchase agreements 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 using 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."
Under SFAS No. 109, deferred taxes are provided based upon the net tax effects
of temporary differences between the book and tax bases of assets and
liabilities. 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 during 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.
Stock-Based Compensation
The Company grants stock options to certain employees and non-employee directors
with an exercise price equal to the fair market value at the date of grant. The
Company accounts for stock option grants in accordance with Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees," and, accordingly, recognizes no compensation expense related to such
grants.
Statement of Cash Flows
For purposes of the Consolidated Statements of 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, 1996, 1995 and 1994 were $1,941,751, $1,932,192 and
$1,499,398, respectively.
38
<PAGE> 15
Accounting Pronouncements
Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
SFAS No. 121 requires impairment losses to be recognized when the sum of the
expected future cash flows from the use of the asset is less than the carrying
amount of the asset. SFAS No. 121 also addresses accounting for long-lived
assets that are expected to be disposed. The adoption of SFAS No. 121 did not
have a material impact on the Company's consolidated financial statements, taken
as a whole.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 125
introduces the financial-components approach which focuses on the recognition of
financial assets an entity controls and the derecognition of financial assets
for which control has been transferred. This statement is effective for certain
types of transactions occurring after December 31, 1996, including
securitizations, sales of mortgages and other receivables. The FASB has deferred
the effective date of accounting for other types of transfers of financial
assets, including repurchase agreements and securities lending transactions,
until January 1, 1998. The Company does not expect the adoption of this
Statement to have a material impact on the Company's consolidated financial
statements, taken as a whole.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which allows an entity to continue to measure compensation cost
for employee stock compensation plans in accordance with APB No. 25 or adopt the
fair value based method of accounting prescribed by SFAS No. 123. Entities
electing to continue to apply APB No. 25 must disclose pro forma net income and
earnings per share using the fair value method. The Company has elected to
continue to account for stock option grants under APB No. 25 and has included
the disclosure requirements in Note 13 of the Notes to Consolidated Financial
Statements.
NOTE 2: LIMITED PARTNERSHIP INVESTMENT CHARGES
The results for the year ended December 31, 1995 were reduced by after-tax
charges of approximately $146,000 ($230,000 before income taxes) associated with
the resolution of the issues arising out of the Company's sale of public
proprietary limited partnerships in the 1980s and early 1990s. The charges are
included in "Other expenses" in the Consolidated Statements of Income. The
Company reached a final and comprehensive resolution of the issues related to
the sale of the limited partnerships, including an agreement to settle all
pending class actions, a settlement with the SEC and an agreement to settle with
various state regulators.
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
assets, resale agreements, securities borrowed, and certain receivables, are
carried at fair value or contracted amounts which approximate fair value.
Similarly, liabilities, including short-term borrowings, trading liabilities,
repurchase agreements, securities loaned, and certain payables, are carried at
fair value or contracted amounts approximating fair value.
At December 31, 1996 and 1995, the fair values of long-term borrowings were
$2,813,699 and $2,478,095, respectively, as compared to the carrying amounts of
$2,781,694 and $2,436,037, 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 of its fixed rate debt, the
Company enters into interest rate swap agreements to convert its fixed rate
payments into floating rate 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 values of the interest rate
swaps were $21,170 payable and $33,756 receivable at December 31, 1996 and 1995,
respectively. The carrying amounts of the interest rate swap agreements included
in the Company's Consolidated Statements of Financial Condition at December 31,
1996 and 1995 were net receivables of $3,252 and $1,730, respectively. For
discussion on the fair values of the Company's off-balance-sheet financial
instruments, see Notes 10 and 12.
39
<PAGE> 16
NOTE 4: TRADING INVENTORIES
At December 31, 1996 and 1995, trading assets and liabilities, recorded at fair
value, consisted of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
TRADING ASSETS
U.S. government and agency obligations $ 4,767,991 $ 4,854,878
Mortgages and mortgage-backed securities 5,968,704 4,240,163
Corporate debt securities 3,284,235 2,364,597
Commercial paper and other short-term debt 1,457,226 1,252,652
State and municipal obligations 568,799 821,487
Corporate equity securities 776,352 561,669
----------- -----------
$16,823,307 $14,095,446
=========== ===========
TRADING LIABILITIES
U.S. government and agency obligations $ 5,118,658 $ 4,570,733
Mortgages and mortgage-backed securities 53,845 127,708
Corporate debt securities 672,683 714,588
State and municipal obligations 20,019 21,467
Corporate equity securities 756,686 798,558
----------- -----------
$ 6,621,891 $ 6,233,054
=========== ===========
</TABLE>
Trading liabilities 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, 1996 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Commercial paper $ 688,910 $ 547,554
Bank loans and other 648,736 443,673
---------- ----------
$1,337,646 $ 991,227
========== ==========
</TABLE>
The interest rate on commercial paper fluctuates throughout the year. The
weighted-average interest rates on commercial paper borrowings outstanding at
December 31, 1996 and 1995 were 5.66% and 6.00%, respectively, and during 1996
and 1995 were 5.61% and 6.09%, respectively.
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 rate on bank loans outstanding at December 31, 1996 and 1995 was 5.63%
for both periods, and the weighted-average interest rates during 1996 and 1995
were 5.64% and 6.63%, respectively.
The Company has a $1,200,000 committed unsecured senior revolving credit
facility with a group of banks which expires in December 1997. In addition,
certain of the Company's subsidiaries have entered into a committed secured
revolving credit facility, which provides up to an aggregate of $750,000 through
August 1997, with provisions for renewal through August 2000. 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, a base rate or the federal
funds rate. The Company pays a fee on the commitments. At December 31, 1996 and
1995, there were no outstanding borrowings under these credit facilities.
40
<PAGE> 17
NOTE 6: LONG-TERM BORROWINGS
Long-term borrowings at December 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Fixed Rate Notes due 1997 -- 2014 $1,547,398 $1,289,478
Fixed Rate Subordinated Notes due 2002 174,500 174,412
Medium-Term Senior Notes 747,725 651,475
Medium-Term Subordinated Notes 276,150 283,150
Convertible Debentures 13,935 17,038
Other 21,986 20,484
---------- ----------
$2,781,694 $2,436,037
========== ==========
</TABLE>
During 1996, the Company issued, in two separate offerings, fixed rate
notes in an aggregate principal amount of $250,000 due 2006 and 2008, with
interest rates of 6 3/4% and 7 5/8%, respectively. Interest rates on the fixed
rate notes and the fixed rate subordinated notes outstanding at December 31,
1996 and 1995 range from 6 1/4% to 9 1/4%. The weighted-average interest rates
on these notes outstanding at December 31, 1996 and 1995 were 7.52% and 7.56%,
respectively. Interest on the notes is payable semi-annually.
The Company has a Multiple Currency Medium-Term Note 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. At December 31, 1996 and 1995, the
Company had outstanding $764,925 and $753,425 of fixed rate Medium-Term Notes
and $258,950 and $181,200 of variable rate Medium-Term Notes, respectively. The
Medium-Term Notes outstanding at December 31, 1996 and 1995 had a
weighted-average interest rate of 6.98% and 7.03%, respectively. At December 31,
1996, these notes had an average maturity of 3.8 years.
The Company has entered into interest rate swap agreements which
effectively convert substantially all of its fixed rate notes into floating rate
obligations. The floating interest rates are based on LIBOR and generally adjust
semi-annually. The effective weighted-average interest rates on the long-term
borrowings, after giving effect to the interest rate swap agreements, were 6.92%
and 7.07% at December 31, 1996 and 1995, respectively. The notional amounts and
maturities of the interest rate swap agreements outstanding at December 31, 1996
were as follows:
<TABLE>
<S> <C>
1997--1999 $ 582,700
2000--2002 527,500
2003--2005 602,000
2006--2008 400,000
----------
$2,112,200
==========
</TABLE>
Pursuant to an employee benefit plan, the Company issued 8% Convertible
Debentures (the "8% Debentures") due December 1998 and 2000, and 6.5%
Convertible Debentures (the "6.5% Debentures") due December 2002 (the 8%
Debentures and the 6.5% Debentures being collectively referred to as "the
Debentures"). The Debentures are shown net of receivables, representing loans by
the Company to employees to finance a portion of the Debentures. A portion of
the principal amount of the employee loans may be forgiven at the end of a
calendar year in which certain specified pre-tax earnings are achieved by the
Company.
The 8% Debentures outstanding at December 31, 1996 are fully convertible,
at the option of the holders, into 120,000 shares of 7.5% Convertible Preferred
Stock, which in turn, are convertible into 324,324 shares of common stock. The
6.5% Debentures outstanding at December 31, 1996 are fully convertible, at the
option of the holders, into 1,452,557 shares of 6.0% Convertible Preferred
Stock, which in turn, are convertible into 2,178,836 shares of common stock. The
Debentures are redeemable at the employees' option, subject to certain
conditions through 1998. During 1996, $14,562 principal amount of the Debentures
was converted into 1,207,350 shares of the Company's common stock.
41
<PAGE> 18
The aggregate amount of principal repayment requirements on long-term borrowings
for each of the five years subsequent to December 31, 1996, and the total amount
due thereafter, are as follows:
<TABLE>
<S> <C>
1997 $ 168,750
1998 287,235
1999 184,475
2000 486,762
2001 196,500
Thereafter 1,457,972
----------
$2,781,694
==========
</TABLE>
NOTE 7: PREFERRED STOCK
PREFERRED STOCK ISSUED BY PAINE WEBBER GROUP INC.
The Company is authorized 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 in December
1994, 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
is increased periodically by charges to retained earnings, using the interest
method, so that the carrying amount equals the redemption amount of $250,000 at
the mandatory redemption date on December 15, 2014. The Redeemable Preferred
Stock is redeemable at any time, in whole or in part, on or after December 16,
1999 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
the Company's 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 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 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.
42
<PAGE> 19
PREFERRED STOCK ISSUED BY SUBSIDIARY TRUST
Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary
Trust holding solely Company Guaranteed Related Subordinated Debt
In December 1996, PWG Capital Trust I (the "Trust"), a business trust formed
under Delaware law and a wholly owned subsidiary of the Company, issued $195,000
(7,800,000 securities) of 8.30% Preferred Trust Securities (the "Preferred Trust
Securities") to the public at $25.00 per security and $6,031 (241,238
securities) of 8.30% Common Trust Securities (the "Common Trust Securities") to
the Company at $25.00 per security. The Preferred Trust Securities and Common
Trust Securities have a stated liquidation amount of $25.00 per security.
The Trust exists for the sole purpose of issuing the Preferred Trust
Securities and Common Trust Securities and investing the proceeds in an
equivalent amount of junior subordinated debentures of the Company. The sole
assets of the Trust at December 31, 1996 were $201,031 of 8.30% Junior
Subordinated Debentures due December 1, 2036 (the "Junior Subordinated
Debentures") issued by the Company. The Junior Subordinated Debentures held by
the Trust are redeemable by the Company, in whole or in part, on or after
December 1, 2001. If the Company redeems Junior Subordinated Debentures, the
Trust must redeem Preferred Trust Securities and Common Trust Securities having
an aggregate liquidation amount equal to the aggregate principal amount of
Junior Subordinated Debentures so redeemed. The Company guarantees payments due
from the Trust to the holders of the Preferred Trust Securities, on a
subordinated basis, to the extent the Company has made principal and interest
payments on the Junior Subordinated Debentures. This guarantee, together with
the Company's obligations under the Junior Subordinated Debentures, provides a
full and unconditional guarantee on a subordinated basis of amounts due on the
Preferred Trust Securities. Distributions on the Preferred Trust Securities are
cumulative and payable monthly in arrears to the extent that interest payments
are made in respect of the Junior Subordinated Debentures held by the Trust. The
payment of interest on the Junior Subordinated Debentures is deferrable at the
Company's option for periods not to exceed sixty consecutive months. The Company
generally cannot pay dividends on or redeem its preferred and common stocks
during such deferments. Distributions on the Preferred Trust Securities have
been classified as minority interest in the Company's Consolidated Statement of
Income.
NOTE 8: COMMON STOCK
During 1996, the Company repurchased 10,746,516 shares of its common stock at an
aggregate cost of $237,766. In the second and fourth quarters of 1996, the
Company's Board of Directors increased the number of shares of common stock
authorized for repurchase by 7,000,000 and 10,000,000 shares, respectively. In
accordance with the repurchase programs, the Company had available to repurchase
at December 31, 1996 a maximum of 13,996,382 shares of its common stock. As of
December 31, 1996, the Company had 32,253,343 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 resale agreements, 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, 1996, PWI's net capital of $948,954
was 16% of aggregate debit items and its net capital in excess of the minimum
required was $829,635.
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, 1996, the equity of the Company's
subsidiaries totaled approximately $1,971,000. Of this amount, approximately
$430,000 was not available for payment of cash dividends and advances.
Under the terms of certain credit agreements, the Company is subject to
dividend payment restrictions and minimum net worth and net capital
requirements. At December 31, 1996, these restrictions did not affect the
Company's ability to pay dividends.
43
<PAGE> 20
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 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 consolidated 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 Statements of
Financial Condition and are indicative only of the volume of activity at
December 31, 1996 and 1995. 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 at DECEMBER 31, 1996 December 31, 1995
------------------- ---------------------
Purchases Sales Purchases Sales
--------- ----- --------- -----
<S> <C> <C> <C> <C>
Mortgage-backed forward contracts
and options written and purchased $13,443,158 $16,383,162 $13,140,269 $15,861,501
Foreign currency forward contracts, futures
contracts, and options written and purchased 440,864 434,072 1,894,724 2,040,414
Equity securities contracts including futures,
forwards, and options written and purchased 442,500 888,784 993,161 1,220,400
Other fixed income securities contracts including futures,
forwards, and options written and purchased 2,916,929 3,183,749 2,647,504 3,148,312
Interest rate swaps and caps 438,562 415,597 104,050 --
</TABLE>
44
<PAGE> 21
Set forth below are the fair values of derivative financial instruments held or
issued for trading purposes as of December 31, 1996 and 1995. 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 principal transactions revenues as incurred. The amounts
are netted by counterparty only when the criteria of FASB Interpretation No. 39
are met.
<TABLE>
<CAPTION>
Fair Value at DECEMBER 31, 1996 December 31, 1995
---------------------- ---------------------
Assets Liabilities Assets Liabilities
------- ----------- ------ -----------
<S> <C> <C> <C> <C>
Mortgage-backed forward contracts
and options written and purchased $78,800 $ 50,480 $129,272 $116,536
Foreign currency forward contracts, futures contracts,
and options written and purchased 21,857 21,647 83,222 48,710
Equity securities contracts including futures,
forwards, and options written and purchased 56,679 30,919 135,977 52,250
Other fixed income securities contracts including futures,
forwards, and options written and purchased 15,431 131,088 22,353 58,148
Interest rate swaps and caps 12,654 8,216 4,660 --
</TABLE>
Set forth below are the average fair values of derivative financial
instruments held or issued for trading purposes during the years ended December
31, 1996 and 1995. The average fair value is based on the average of the
month-end balances during the year.
<TABLE>
<CAPTION>
Average Fair Value for the Years Ended DECEMBER 31, 1996 December 31, 1995
----------------------------------------------
Assets Liabilities Assets Liabilities
------ ----------- ------ ------------
<S> <C> <C> <C> <C>
Mortgage-backed forward contracts
and options written and purchased $150,053 $145,396 $118,784 $108,825
Foreign currency forward contracts, futures
contracts, and options written and purchased 37,872 43,132 71,805 89,857
Equity securities contracts including futures,
forwards, and options written and purchased 34,583 20,699 217,849 142,507
Other fixed income securities contracts including futures,
forwards, and options written and purchased 25,027 90,877 16,620 21,449
Interest rate swaps and caps 5,407 1,782 2,132 --
</TABLE>
45
<PAGE> 22
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 off-balance-sheet derivative trading transactions are generally short
term. At December 31, 1996, more than 97% of the off-balance-sheet derivatives
trading financial instruments had remaining maturities of less than one year.
The Company's risk of loss in the event of counterparty default is limited
to the current fair value or replacement cost on contracts in which the Company
has recorded an unrealized gain. These amounts are reflected as assets on the
Company's Consolidated Statements of Financial Condition and amounted to
$185,421 and $375,484 at December 31, 1996 and 1995, 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 transactions
revenues by business activity for the years ended December 31, 1996 and 1995.
Principal transactions revenues include realized and unrealized gains and losses
on trading positions, including hedges. In assessing the profitability of its
trading activities, the Company views net interest and principal transactions
revenues in the aggregate.
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995
---------- --------
<S> <C> <C>
Taxable fixed income (includes futures and options contracts, mortgage-backed
forwards, foreign currency forwards, and other securities) $ 500,391 $396,787
Equities (includes equity index futures, equity
index options and swaps, and equity options contracts) 379,446 377,650
Municipals 143,778 139,764
---------- --------
$1,023,615 $914,201
========== ========
</TABLE>
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, 1996 and 1995, the Company had outstanding interest rate swap
agreements with commercial banks with notional amounts of $2,112,200 and
$1,938,700, respectively. These agreements effectively converted substantially
all of the Company's fixed rate debt at December 31, 1996 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 $7,890
and $29,563 for the years ended December 31, 1996 and 1994, respectively, and
increasing net interest expense by $1,682 for the year ended December 31, 1995.
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, 1996 and 1995. 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 foreseeable future. See Note 3
for further discussion of interest rate swap agreements used for hedging
purposes.
46
<PAGE> 23
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 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 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,
comprised of senior corporate and business unit managers, is responsible for
establishing trading position and exposure limits.
Market risk modeling is based on estimating loss exposure through stress
testing. These results are compared to established 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. 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' margined 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, 1996, 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.
47
<PAGE> 24
Client transactions include positions in commodities and financial futures,
trading liabilities, 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.
Client 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, 1996
were settled without adverse effect on the Company's consolidated financial
statements, taken as a whole.
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 above.
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.
NOTE 12: COMMITMENTS AND CONTINGENCIES
Leases
The Company leases office space and equipment under noncancelable operating
lease agreements which expire at various dates through 2015. As of December 31,
1996, the aggregate minimum future rental payments required by operating leases
with initial or remaining lease terms exceeding one year were as follows:
<TABLE>
<S> <C>
1997 $ 146,507
1998 128,882
1999 121,214
2000 100,267
2001 91,300
Thereafter 756,869
----------
$1,345,039
==========
</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
$26,194.
For the years ended December 31, 1996, 1995 and 1994, rent expense under
operating leases was $163,612, $169,852 and $145,508, respectively.
Other Commitments and Contingencies
At December 31, 1996 and 1995, the Company was contingently liable under
unsecured letters of credit totaling $303,543 and $114,090, respectively, which
approximates fair value. At December 31, 1996, certain of the Company's
subsidiaries were contingently liable as issuer of $85,518 of notes payable to
managing general partners of various limited partnerships pursuant to Internal
Revenue Service guidelines. There is no market for these contingent liabilities
therefore, it is not practicable to estimate their fair value. In addition, as
part of the limited partnership settlements discussed in Note 2, the Company has
agreed, under certain circumstances, to provide to class members additional
consideration including assignment of any and all fees the Company is entitled
to receive from certain partnerships. 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.
48
<PAGE> 25
In February 1996, two limited partnerships, in which a subsidiary of the Company
serves as the general partner and certain key employees serve as the limited
partners, entered into two unsecured credit facilities with a commercial bank
under which the bank agreed to make unsecured loans to the limited partnerships
of up to $77,525. The Company entered into an agreement with the bank to
purchase the loans under certain specific circumstances. At December 31, 1996,
$55,582 had been loaned to the partnerships.
In meeting the financing needs of certain of its clients, the Company may
also issue standby letters of credit which are fully collateralized by
marginable securities. At December 31, 1996, the Company had outstanding $33,736
of such standby letters of credit. At December 31, 1996 and 1995, securities
with a fair value of $215,286 and $441,612, respectively, had been loaned or
pledged as collateral for securities borrowed of approximately equal fair value.
In the normal course of business, the Company enters into when-issued
transactions, underwriting and commercial real estate commitments. Settlement of
these transactions at December 31, 1996 would not have had a material impact on
the Company's consolidated financial statements, taken as a whole.
The Company has been named as a 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.
NOTE 13: 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, and to
non-employee directors. Options are exercisable at either the date of grant, in
ratable installments or otherwise, generally 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.
The activity during the years ended December 31, 1994, 1995 and 1996 was as
follows:
<TABLE>
<CAPTION>
Number of Exercise price Weighted-average
shares per share exercise price
---------- -------------- ------
<S> <C> <C> <C>
Options outstanding at December 31, 1993 (2,776,678 exercisable) 12,280,955 $ 6.55 - 20.42 $12.61
Granted 4,095,550 14.44 - 18.67 17.23
Exercised (574,586) 6.55 - 16.29 7.54
Terminated (630,309) 7.14 - 19.46 15.13
---------- -------------- ------
Options outstanding at December 31, 1994 (5,201,831 exercisable) 15,171,610 $ 6.55 - 20.42 $13.94
Granted 5,666,430 14.44 - 20.13 17.50
Exercised (2,934,098) 6.55 - 19.46 10.54
Terminated (958,519) 6.55 - 19.46 16.43
---------- -------------- ------
Options outstanding at December 31, 1995 (3,188,665 exercisable) 16,945,423 $ 6.55 - 20.42 $15.58
Granted 4,790,764 18.94 - 26.56 21.62
Exercised (2,999,720) 6.55 - 20.13 11.83
Terminated (1,182,730) 7.14 - 21.13 18.19
---------- -------------- ------
Options outstanding at December 31, 1996 (4,234,367 exercisable) 17,553,737 $ 6.55 - 26.56 $17.69
</TABLE>
49
<PAGE> 26
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------- -------------------------------
Weighted-average
Number of remaining Number of
Range of exercise shares Weighted-average contractual life shares Weighted-average
prices per share outstanding exercise price (years) exercisable exercise price
- ---------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 6.55 - 10.00 1,148,023 $ 7.36 2.3 1,148,023 $ 7.36
10.01 - 14.00 350,220 10.20 4.1 350,220 10.20
14.01 - 18.00 7,982,398 16.44 7.3 2,521,927 17.05
18.01 - 22.00 5,612,096 19.70 8.3 214,197 19.80
22.01 - 26.56 2,461,000 23.06 6.8 -- --
---------- ------ --- --------- ------
$ 6.55 - 26.56 17,553,737 $17.69 7.2 4,234,367 $14.00
---------- ------ --- --------- ------
</TABLE>
The Company accounts for stock option grants in accordance with APB No. 25.
Accordingly, no compensation cost has been recognized for its stock option
grants. Pro forma information regarding net income and earnings per share is
required under SFAS No. 123 and has been determined as if the Company had
accounted for all 1996 and 1995 stock option grants based on the fair value
method. The pro forma information presented below is not representative of the
effect stock options will have on pro forma net income or earnings per share for
future years.
The fair value of each option grant was estimated at the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions for 1996 and 1995, respectively: dividend yields of 2.2% and 2.8%;
expected lives of 4.2 and 4.7 years; risk-free interest rates of 5.9% and 6.9%;
and expected volatility of 28% for both years. The weighted-average fair value
of options granted during 1996 and 1995 were $5.53 and $4.46, respectively.
For purposes of the pro forma information, the fair values of the 1996 and
1995 stock option grants are amortized over the vesting period. The pro forma
information for the years ended December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C> <C>
Net Income As reported $364,350 $80,750
Pro forma $356,475 $75,649
Earnings per common share:
Primary As reported $ 3.59 $ 0.54
Pro forma $ 3.51 $ 0.49
Fully diluted As reported $ 3.38 $ 0.52
Pro forma $ 3.31 $ 0.48
</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, 1996
and 1995. 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, 1996, 1995 and 1994, the Company
awarded 2,455,269, 2,935,843 and 2,431,882 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 restriction period. The charge to compensation expense,
net of forfeitures, amounted to $59,945, $51,908 and $44,073 in the years ended
December 31, 1996, 1995 and 1994, respectively.
At December 31, 1996 and 1995, there were 6,680,726 and 6,560,893 shares,
respectively, available for future stock option, common stock and restricted
stock awards under these Plans.
50
<PAGE> 27
NOTE 14: 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 1996, 1995 and 1994 for the Plan included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Service cost for benefits earned during the period $ 19,191 $ 14,641 $ 14,626
Interest cost on projected benefit obligation 20,225 17,024 16,448
Actual return on Plan assets (37,725) (47,269) 1,777
Net amortization and deferral 21,254 32,424 (15,167)
-------- -------- --------
Net periodic pension cost $ 22,945 $ 16,820 $ 17,684
======== ======== ========
</TABLE>
The following table summarizes the funded status and the prepaid pension
asset included in "Other assets" on the Company's Consolidated Statements of
Financial Condition at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested $ 273,085 $ 254,656
Non-vested 8,446 8,185
--------- ---------
Accumulated benefit obligation 281,531 262,841
Effect of projected future compensation levels 20,677 15,273
--------- ---------
Projected benefit obligation 302,208 278,114
Plan assets at fair value 311,171 274,505
--------- ---------
Plan assets in excess of (less than) projected benefit obligation 8,963 (3,609)
Unrecognized net assets existing at January 1, 1987
being recognized over fifteen years (4,525) (5,365)
Unrecognized prior service cost 3,780 5,817
Unrecognized net loss and actuarial experience 57,274 81,593
--------- ---------
Prepaid pension asset at year end $ 65,492 $ 78,436
========= =========
</TABLE>
The projected benefit obligation for the Plan was determined for 1996 and
1995 using an assumed discount rate of 7 1/2% and 7 1/4%, respectively, and an
assumed rate of compensation increase of 5%. The weighted-average assumed rate
of return on Plan assets was 9 1/2% for 1996, 1995 and 1994.
The Company's funding policy is to contribute to the Plan amounts that can
be deducted for federal income tax purposes. Plan assets consist primarily of
equity securities and U.S. government and agency obligations.
Savings Investment Plan
The Paine Webber Savings Investment Plan ("SIP") is a defined contribution
(401(k)) plan for eligible employees of the Company. Under SIP, employee
contributions are matched by the Company on a graduated scale, which is based in
part on the Company's pre-tax earnings and the compensation of eligible
employees. The provision for Company contributions for amounts contributed or to
be contributed in cash to the SIP and invested in the PaineWebber Common Stock
Fund amounted to approximately $12,100, $7,100 and $5,900 for the years ended
December 31, 1996, 1995 and 1994, 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, 1996,
1995 and 1994 were $55,700, $55,600 and $50,800, respectively.
51
<PAGE> 28
NOTE 15: 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, net deferred tax assets are included in "Other assets" in the
Consolidated Statements of Financial Condition. 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, 1996, 1995
and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
DEFERRED TAX ASSETS:
<S> <C> <C> <C>
Employee benefits $141,929 $ 98,389 $ 73,783
Deferred deductions 40,767 99,205 44,388
Other 39,065 26,998 28,456
-------- -------- --------
Total deferred tax assets 221,761 224,592 146,627
-------- -------- --------
DEFERRED TAX LIABILITIES:
Tax over book depreciation 16,520 15,543 14,135
Accelerated deductions and deferred income 11,864 16,809 10,379
Safe harbor leases 4,976 5,567 6,135
Valuation of trading assets and investments 31,827 5,270 17,154
Other 6,016 3,711 11,910
-------- -------- --------
Total deferred tax liabilities 71,203 46,900 59,713
-------- -------- --------
$150,558 $177,692 $ 86,914
======== ======== ========
</TABLE>
The significant components of the provision for income taxes for the years
ended December 31, 1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CURRENT:
Federal $134,940 $ 64,953 $ 12,224
State 11,436 27,033 9,930
Foreign 21,139 20,719 11,448
-------- -------- --------
Total current 167,515 112,705 33,602
-------- -------- --------
DEFERRED:
Federal 11,978 (65,601) (17,947)
State 23,984 (25,177) (6,490)
Foreign (8,828) -- 3,589
-------- -------- --------
Total deferred 27,134 (90,778) (20,848)
-------- -------- --------
$194,649 $ 21,927 $ 12,754
======== ======== ========
</TABLE>
The reconciliation of income taxes, computed at the statutory federal rate,
to the provision for income taxes recorded for the years ended December 31,
1996, 1995 and 1994, was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------- ------------------- -------------------
Amount % Amount % Amount %
--------- ---- -------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory federal rate $ 196,012 35.0 $ 35,937 35.0 $ 15,536 35.0
State and local income taxes,
net of federal tax benefit 23,023 4.1 1,206 1.2 2,236 5.0
Foreign rate differential (9,227) (1.7) (2,500) (2.4) (1,141) (2.6)
Nontaxable dividends and interest (6,695) (1.2) (9,754) (9.5) (3,545) (8.0)
Restricted stock dividends (921) (0.2) (1,025) (1.0) (864) (1.9)
Nondeductible expenses 2,514 0.4 2,779 2.7 2,743 6.2
Minority interest (362) (0.1) -- -- -- --
Other, net (9,695) (1.5) (4,716) (4.6) (2,211) (5.0)
$ 194,649 34.8 $ 21,927 21.4 $ 12,754 28.7
</TABLE>
52
<PAGE> 29
Income taxes paid for the years ended December 31, 1996, 1995 and 1994 were
$130,886, $28,248 and $68,455, respectively.
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. As of December 31, 1996, such earnings were
estimated to be $152,000. The estimated U.S. income taxes that would be payable
upon the repatriation of such earnings are not material.
NOTE 16: GEOGRAPHIC DATA
The Company's business activities are highly integrated and constitute a single
industry segment for purposes of SFAS No. 14, "Financial Reporting for Segments
of a Business Enterprise." The table below presents information about the
Company's operations by geographic area. Calculations are based on the location
of the Company's individual legal entities within their respective subsidiaries.
Due to the global nature of the financial markets and the integration of the
Company's business activities, the Company believes that the amounts derived in
this manner are not necessarily meaningful in understanding its business.
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
TOTAL REVENUES:
United States $ 5,516,443 $ 5,107,476 $ 3,806,784
Non-U.S.* 189,523 212,614 157,293
----------- ----------- -----------
$ 5,705,966 $ 5,320,090 $ 3,964,077
=========== =========== ===========
NET REVENUES:
United States $ 3,576,442 $ 3,161,799 $ 2,399,884
Non-U.S.* 158,770 188,480 135,540
----------- ----------- -----------
$ 3,735,212 $ 3,350,279 $ 2,535,424
=========== =========== ===========
INCOME BEFORE TAXES & MINORITY INTEREST:
United States $ 526,422 $ 58,498 $ 220
Non-U.S.* 33,611 44,179 44,165
----------- ----------- -----------
$ 560,033 $ 102,677 $ 44,385
=========== =========== ===========
NET INCOME:
United States $ 333,711 $ 52,095 $ 2,099
Non-U.S.* 30,639 28,655 29,532
----------- ----------- -----------
$ 364,350 $ 80,750 $ 31,631
=========== =========== ===========
IDENTIFIABLE ASSETS:
United States $39,549,604 $36,575,206 $29,758,945
Non-U.S.* 12,963,896 9,096,088 6,097,180
----------- ----------- -----------
$52,513,500 $45,671,294 $35,856,125
=========== =========== ===========
</TABLE>
*Predominantly the United Kingdom
53
<PAGE> 30
NOTE 17: EARNINGS PER COMMON SHARE
Earnings per common share is computed by dividing net income, adjusted for
preferred stock dividends and 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 convertible
preferred stock, and restricted stock outstanding.
The Company computes its earnings per common share under the modified
treasury stock method in accordance with APB No. 15, "Earnings Per Share." 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
assumed to reduce short-term borrowings.
The Company calculated primary and fully diluted earnings per share as
follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
------------- ------------- ------------
<S> <C> <C> <C>
PRIMARY:
Weighted-average common shares outstanding 87,698,138 92,030,417 71,693,020
Incremental stock options and awards 6,708,357 9,241,691 6,370,453
------------- ------------- ------------
Weighted-average common and common equivalent shares 94,406,495 101,272,108 78,063,473
============= ============= ============
Net income $ 364,350 $ 80,750 $ 31,631
Interest savings on convertible debentures and short-term borrowings 4,062 3,322 1,330
Preferred dividend requirements (29,395) (29,291) (1,219)
------------- ------------- ------------
Net income applicable to common shares $ 339,017 $ 54,781 $ 31,742
------------- ------------- ------------
Primary earnings per common share $ 3.59 $ 0.54 $ 0.41
============= ============= ============
FULLY DILUTED:
Weighted-average common shares outstanding 87,698,138 92,030,417 71,693,020
Incremental stock options and awards 8,480,906 9,241,691 7,673,929
Conversion of Convertible Preferred Stock 5,515,720 -- --
Weighted-average common shares issuable assuming
conversion of 8% Debentures 449,752 -- 1,647,190
------------- ------------- ------------
Weighted-average common and common equivalent shares 102,144,516 101,272,108 81,014,139
============= ============= ============
Net income $ 364,350 $ 80,750 $ 31,631
Interest savings on convertible debentures and
short-term borrowings 3,865 1,526 2,181
Preferred dividend requirements (23,395) (29,291) (969)
------------- ------------- ------------
Net income applicable to common shares $ 344,820 $ 52,985 $ 32,843
------------- ------------- ------------
Fully diluted earnings per common share $ 3.38 $ 0.52 $ 0.41
============= ============= ============
</TABLE>
54
<PAGE> 31
Report of Ernst & Young LLP, Independent Auditors
THE BOARD OF DIRECTORS AND STOCKHOLDERS OF PAINE WEBBER GROUP INC.
We have audited the accompanying consolidated statements of financial condition
of Paine Webber Group Inc. as of December 31, 1996 and 1995, 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, 1996. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Paine Webber Group Inc. at December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
New York, New York
February 3, 1997
55
<PAGE> 32
Five Year Financial Summary
(In thousands of dollars except share and per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995(1) 1994(2) 1993 1992
----------------- ----------------- ----------------- ------------------ ----------------
Amount % Amount % Amount % Amount % Amount %
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
COMMISSIONS
Listed securities
and options $ 821,499 22.0 $ 816,517 24.4 $ 580,323 22.9 $ 599,599 20.9 $ 500,572 20.1
Mutual funds and
insurance 380,982 10.2 302,654 9.0 279,688 11.0 259,130 9.0 180,244 7.3
Over-the-counter
securities and other 178,994 4.8 153,595 4.6 110,283 4.4 137,398 4.8 141,062 5.7
---------- ---- ---------- ---- ---------- ---- ---------- ---- ---------- ----
1,381,475 37.0 1,272,766 38.0 970,294 38.3 996,127 34.7 821,878 33.1
---------- ---- ---------- ---- ---------- ---- ---------- ---- ---------- ----
PRINCIPAL TRANSACTIONS
Taxable fixed income 500,391 13.4 396,787 11.8 56,221 2.2 396,310 13.8 383,146 15.4
Equities 379,446 10.2 377,650 11.3 324,178 12.8 272,539 9.5 241,824 9.7
Municipals 143,778 3.8 139,764 4.2 139,039 5.5 110,595 3.8 94,819 3.8
---------- ---- ---------- ---- ---------- ---- ---------- ---- ---------- ----
1,023,615 27.4 914,201 27.3 519,438 20.5 779,444 27.1 719,789 28.9
---------- ---- ---------- ---- ---------- ---- ---------- ---- ---------- ----
ASSET MANAGEMENT 453,267 12.1 399,540 11.9 356,368 14.1 325,690 11.3 267,088 10.8
---------- ---- ---------- ---- ---------- ---- ---------- ---- ---------- ----
INVESTMENT BANKING
Selling concessions
and underwriting fees:
Corporate securities 188,991 5.1 171,903 5.1 136,494 5.4 223,745 7.8 217,180 8.8
Municipal
obligations 44,882 1.2 35,842 1.1 32,228 1.3 55,573 1.9 40,705 1.6
Underwriting
management fees:
Corporate securities 37,072 1.0 35,596 1.0 44,592 1.7 70,510 2.4 51,394 2.1
Municipal
obligations 9,032 0.2 7,736 0.2 7,413 0.3 13,303 0.5 9,385 0.4
Private placement
and other fees 111,187 3.0 75,700 2.3 63,776 2.5 50,512 1.8 65,657 2.6
---------- ---- ---------- ---- ---------- ---- ---------- ---- ---------- ----
391,164 10.5 326,777 9.7 284,503 11.2 413,643 14.4 384,321 15.5
---------- ---- ---------- ---- ---------- ---- ---------- ---- ---------- ----
OTHER 146,708 3.9 150,056 4.5 138,902 5.5 113,253 3.9 76,114 3.1
---------- ---- ---------- ---- ---------- ---- ---------- ---- ---------- ----
INTEREST 2,309,737 61.9 2,256,750 67.4 1,694,572 66.8 1,376,560 47.9 1,094,541 44.0
---------- ---- ---------- ---- ---------- ---- ---------- ---- ---------- ----
TOTAL REVENUES 5,705,966 152.8 5,320,090 158.8 3,964,077 156.4 4,004,717 139.3 3,363,731 135.4
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
INTEREST EXPENSE 1,970,754 (52.8) 1,969,811 (58.8) 1,428,653 (56.4) 1,130,712 (39.3) 879,242 (35.4)
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
NET REVENUES $3,735,212 100.0 $3,350,279 100.0 $2,535,424 100.0 $2,874,005 100.0 $2,484,489 100.0
========== ===== ========== ===== ========== ===== ========== ===== ========== =====
</TABLE>
56
<PAGE> 33
Five Year Financial Summary
(In thousands of dollars except share and per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995(1) 1994(2) 1993 1992
---------------- ---------------- ---------------- ---------------- ----------------
Amount % Amount % Amount % Amount % Amount %
---------- ---- ---------- ---- ---------- ---- ---------- ---- ---------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NON-INTEREST EXPENSES
Compensation
and benefits $ 2,219,129 59.4 $2,004,585 59.8 $1,546,467 61.0 $1,628,889 56.7 $1,432,930 57.7
Office and equipment 267,006 7.1 266,291 7.9 225,375 8.9 211,880 7.4 192,948 7.8
Communications 153,301 4.1 149,047 4.5 130,095 5.1 123,601 4.3 112,255 4.5
Business development 75,981 2.0 90,752 2.7 85,430 3.4 93,962 3.3 75,061 3.0
Brokerage, clearing and
exchange fees 87,839 2.4 93,657 2.8 82,577 3.2 79,752 2.8 75,689 3.1
Professional services 108,123 2.9 101,911 3.0 78,856 3.1 66,825 2.2 59,820 2.4
Other 263,800 7.1 541,359 16.2 342,239 13.5 261,520 9.1 196,671 7.9
---------- ---- ---------- ---- ---------- ---- ---------- ---- ---------- ----
TOTAL NON-INTEREST
EXPENSE 3,175,179 85.0 3,247,602 96.9 2,491,039 98.2 2,466,429 85.8 2,145,374 86.4
---------- ---- ---------- ---- ---------- ---- ---------- ---- ---------- ----
Income before
taxes and
minority interest 560,033 15.0 102,677 3.1 44,385 1.8 407,576 14.2 339,115 13.6
Provision for
income taxes 194,649 5.2 21,927 0.7 12,754 0.5 161,393 5.6 125,940 5.0
---------- ---- ---------- ---- ---------- ---- ---------- ---- ---------- ----
Income before
minority interest 365,384 9.8 80,750 2.4 31,631 1.3 246,183 8.6 213,175 8.6
Minority interest 1,034 0.0 -- 0.0 -- 0.0 -- 0.0 -- 0.0
---------- ---- ---------- ---- ---------- ---- ---------- ---- ---------- ----
Net income $ 364,350 9.8 $ 80,750 2.4 $ 31,631 1.3 $ 246,183 8.6 $ 213,175 8.6
EARNINGS PER
COMMON SHARE:(3)
Primary $ 3.59 $ 0.54 $ 0.41 $ 3.11 $ 2.83
Fully diluted $ 3.38 $ 0.52 $ 0.41 $ 2.95 $ 2.37
- -----------------------------------------------------------------------------------------------------------------
WEIGHTED-AVERAGE
COMMON SHARES:(3)
Primary 94,406,495 101,272,108 78,063,473 78,689,958 69,379,863
Fully diluted 102,144,516 101,272,108 81,014,139 84,327,291 92,365,438
- -----------------------------------------------------------------------------------------------------------------
DIVIDENDS DECLARED
PER SHARE:
Common stock(3) $ .48 $ .48 $ .48 $ .38 $ .31
Preferred stock:
Redeemable
Preferred Stock $ 9.00 $ 9.00 $ -- $ -- $ --
Convertible
Preferred Stock $ 6.00 $ 6.00 $ -- $ -- $ --
7% Preferred Stock $ -- $ -- $ -- $ -- $ 2.336
$1.375 Preferred
Stock $ -- $ -- $ -- $ 1.241 $ 1.375
Participating
Preferred Stock $ -- $ -- $ -- $ .33 $ .053
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The 1995 results include after-tax charges of $146 million ($230 million
before income taxes) related to the resolution of the issues arising from the
Company's sale of public proprietary limited partnerships.
(2) 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
purchase of certain net assets and specific businesses of Kidder, Peabody Group
Inc. and a non-recurring mutual fund charge, respectively.
(3) All share and per share data have been restated to reflect a three-for-two
common stock split in March 1994.
57
<PAGE> 34
Common Stock and Quarterly Information
COMMON STOCK DIVIDEND HISTORY
During 1996, 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>
1996 $ .12 $ .12 $ .12 $ .12
1995 .12 .12 .12 .12
1994 .12 .12 .12 .12
</TABLE>
On February 6, 1997, Paine Webber Group Inc. declared a 1997 first quarter
dividend of $0.15 per share, an increase of 25% over the fourth quarter of 1996.
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
- ------------------------------------------------------------------------------------------------------------------
CALENDAR 1996
<S> <C> <C>
4th Quarter $ 29.50 $ 21.00
3rd Quarter 23.75 19.00
2nd Quarter 23.75 19.88
1st Quarter 22.25 17.88
-------------------------
CALENDAR 1995
4th Quarter $ 23.13 $ 18.00
3rd Quarter 20.88 18.63
2nd Quarter 20.38 15.88
1st Quarter 18.13 14.38
-------------------------
</TABLE>
On February 14, 1997, the last reported sale price per share of Paine
Webber Group Inc. common stock on the NYSE was $36.00. The approximate number of
holders of record of Paine Webber Group Inc. common stock as of the close of
business on February 14, 1997 was 6,413. Included as one holder of record is
Paine Webber Incorporated, which holds securities beneficially owned by
approximately 7,119 clients.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Income (loss) Earnings (loss)
before taxes Net per common
(In thousands of dollars Total Net and minority Income share Primary/
except per share amounts) Revenues Revenues interest (loss) Fully diluted
- ----------------------------------------------------------------------------------------------------------------
CALENDAR 1996
<S> <C> <C> <C> <C> <C>
4th Quarter $ 1,469,528 $ 939,968 $ 141,776 $ 91,482 $ .91/.86
3rd Quarter 1,375,248 882,986 123,315 80,155 .79/.75
2nd Quarter 1,431,164 949,623 140,326 92,212 .90/.86
1st Quarter 1,430,026 962,635 154,616 100,501 .96/.92
---------------------------------------------------------------------------
CALENDAR 1995
4th Quarter $ 1,374,377 $ 887,672 $ 78,803(1) $ 58,798(1) $ .52/.50(1)
3rd Quarter 1,379,558 912,025 116,702 78,190 .71/.67
2nd Quarter 1,332,245 824,798 (145,613)(1) (90,548)(1) (1.06)/(1.06)(1)
1st Quarter 1,233,910 725,784 52,785 34,310 .27/.27
---------------------------------------------------------------------------
</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 charges of $125.9 million ($200 million before income
taxes) and $20.1 million ($30 million before income taxes) in the second and
fourth quarters, respectively, related to the resolution of the issues arising
from the Company's sale of public proprietary limited partnerships.
58
<PAGE> 35
Corporate Information
<TABLE>
<CAPTION>
PAINEWEBBER INCORPORATED
PAINE WEBBER GROUP INC. PAINE WEBBER GROUP INC. BOARD OF DIRECTORS BOARD OF DIRECTORS
<S> <C> <C>
1285 Avenue of the Americas T. Stanton Armour Donald B. Marron,
New York, NY 10019-6028 Private Investor Chairman
212-713-2000
E. Garrett Bewkes, Jr. Margo N. Alexander
Private Investor Terry L. Atkinson
OFFICERS Brian M. Barefoot
Reto Braun Steven P. Baum
Donald B. Marron Chairman of the Board, President and Chief Timothy E. Cronin
Chairman and Chief Executive Officer Executive Officer, Moore Corporation Limited Regina A. Dolan
Joseph J. Grano, Jr.
Theodore A. Levine John A. Bult Edward M. Kerschner
Vice President, General Counsel and Secretary Director, PaineWebber International Inc. Jerome A. Lichtstein
James P. MacGilvray
Regina A. Dolan Frank P. Doyle Ronald M. Schwartz
Vice President and Chief Financial Officer Executive Vice President (retired) Robert H. Silver
General Electric Company Mark B. Sutton
William J. Nolan
Treasurer Joseph J. Grano, Jr.
President, PaineWebber Incorporated
Geraldine L. Banyai
Assistant Secretary John E. Kilgore, Jr.
Private Investor
James W. Kinnear
Retired President and
Chief Executive Officer, Texaco Inc.
Naoshi Kiyono
Managing Director and General Manager,
International Investment Department,
The Yasuda Mutual Life Insurance Company
Robert M. Loeffler
Retired Attorney, Formerly Of Counsel,
Wyman, Bautzer, Kuchel & Silbert (law firm)
Donald B. Marron
Chairman of the Board and Chief
Executive Officer, Paine Webber Group Inc.
Edward Randall III
Private Investor
Henry Rosovsky
Professor Emeritus, Harvard University
Yoshinao Seki
Senior Managing Director and
Chief Investment Officer,
The Yasuda Mutual Life Insurance Company
</TABLE>
59
<PAGE> 36
Subsidiaries and Affiliated Companies
PAINEWEBBER INTERNATIONAL OFFICES
<TABLE>
<S> <C> <C>
GENEVA PARIS TOKYO
13 Cours de Rive 56 rue du Faubourg Saint Honore Asahi Seimei Hibiya
P.O. Box 3429 75008 Paris Building 3F
1211 Geneva 3 France 1-5-1 Yuraku-Cho
Switzerland 33-14-471-1300 Chiyoda-Ku, Tokyo 100
41-22-849-0707 Japan
SAN JUAN 813-3593-5200
HONG KONG American International Plaza,
Suite 3204-05 Penthouse ZURICH
Citibank Tower 250 Munoz Rivera Avenue Talacker 41
Citibank Plaza, 3 Garden Road Hato Rey 8001 Zurich
Hong Kong Puerto Rico 00918-1918 Switzerland
852-2842-0600 809-250-3600 411-221-3344
LONDON SINGAPORE
1 Finsbury Avenue 80 Raffles Place
London EC2M 2PA #13-20 UOB Plaza 2
England Singapore 0104
44-171-422-2000 65-323-0188
</TABLE>
- --------------------------------------------------------------------------------
PAINEWEBBER INTERNATIONAL BANK LTD. PAINEWEBBER INTERNATIONAL (U.K.) LTD.
1 Finsbury Avenue 1 Finsbury Avenue
London EC2M 2PA London EC2M 2PA
England England
44-171-422-2000 44-171-422-2000
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
MITCHELL HUTCHINS ASSET MANAGEMENT INC. PAINE WEBBER DEVELOPMENT CORPORATION CORRESPONDENT SERVICES CORPORATION
1285 Avenue of the Americas 1285 Avenue of the Americas 120 Broadway
New York, NY 10019-6028 New York, NY 10019-6028 New York, NY 10271-0002
MITCHELL HUTCHINS INSTITUTIONAL INVESTORS INC. PAINE WEBBER PROPERTIES INCORPORATED PAINEWEBBER SPECIALISTS INCORPORATED
1285 Avenue of the Americas 1285 Avenue of the Americas 120 Broadway
New York, NY 10019-6028 New York, NY 10019-6028 New York, NY 10271-0002
PAINEWEBBER CAPITAL INC. PW TRUST COMPANY PAINEWEBBER LIFE INSURANCE COMPANY
1285 Avenue of the Americas 1200 Harbor Boulevard 601 6th Avenue
New York, NY 10019-6028 Weehawken, NJ 07087-6725 Des Moines, IA 50309-1605
</TABLE>
60
<PAGE> 37
Branch Locations (by division)
<TABLE>
<S> <C> <C> <C> <C> <C>
NORTHEAST Tarrytown, NY Kenwood, OH CENTRAL Minneapolis, MN Hemet, CA
Wellesley, MA Knoxville, TN Minnetonka, MN Hilo, HI
Albany, NY Westfield, NJ Lexington, KY Albuquerque, NM Muskegon, MI Honolulu, HI
Andover, MA Westport, CT Little Rock, AR Anderson, IN Muskogee, OK Indian Wells, CA
Bangor, ME White Plains, NY Louisville, KY Aspen, CO New Orleans, LA Kalispell, MT
Boston, MA Worcester, MA Maryville, TN Atlantic, IA Northbrook, IL Kennewick, WA
Buffalo, NY McLean, VA Austin, TX Oakbrook Terrace, IL Kenwood, CA
Burlington, VT Melbourne, FL Baton Rouge, LA Oklahoma City, OK La Jolla, CA
Cherry Hill, NJ SOUTHERN Memphis, TN Beaumont, TX Omaha, NE Las Vegas, NV
Concord, NH Miami, FL Birmingham, MI Overland Park, KS Long Beach, CA
Darien, CT Akron, OH Naples, FL Boulder, CO Rodchester, MI Los Angeles, CA
East Hampton, NY Altoona, PA Nashville, TN Bryan/College Station, TX St. Louis, MO Medford, OR
Florham Park, NJ Atlanta, GA New Kensington, PA Chesterfield, MO St. Paul, MN Menlo Park, CA
Garden City, NY Aventura, FL Norfolk ,VA Chicago, IL San Angelo, TX Merced, CA
Glens Falls, NY Baltimore, MD North Palm Beach, FL Clayton, MO San Antonio, TX Mission Viejo, CA
Greenwich, CT Beachwood, OH Oak Ridge, TN Colorado Springs, CO Santa Fe, NM Missoula, MT
Hackensack, NJ Bethesda, MD Ocala, FL Corpus Christi, TX Schaumburg, IL Napa, CA
Hartford, CT Bethlehem, PA Orlando, FL Dallas, TX Sioux Falls, SD Newport Beach, CA
Hingham, MA Birmingham, AL Paducah, KY Denver, CO Sugarland, TX Newport Center, CA
Hyannis, MA Boca Raton, FL Palm Beach, FL Des Moines, IA Topeka, KS Orange, CA
Marblehead, MA Bradford, PA Pensacola, FL Detroit, MI Traverse City, MI Palo Alto, CA
Melville, NY Bristol, VA Philadelphia, PA Duluth, MN Troy, MI Pasadena, CA
Metro Park, NJ Charlotte, NC Pittsburgh, PA Farmington Hills, MI Tulsa, OK Phoenix, AZ
Middlebury, CT Charlottesville, VA Ponte Vedra, FL Flint, MI Tyler, TX Portland, OR
Morristown, NJ Cincinnati, OH Port Charlotte, FL Fort Collins, CO Vail, CO Rancho Bernardo, CA
Nantucket, MA Clearwater, FL Radnor, PA Fort Wayne, IN Victoria, TX Redlands, CA
New Haven, CT Cleveland, OH Raleigh, NC Fort Worth, TX Virginia, MN Reno, NV
New London, CT Columbus, OH Richmond, VA Grand Forks, ND Waco, TX Riverside, CA
New York, NY Coral Gables, FL Roanoke, VA Grand Rapids, MI Wauwatosa, WI Roseville, CA
Newtown, PA (International) Rockville, MD Greeley, CO Wayzata, MN Sacramento, CA
Norwich, CT Corry, PA St. Petersburg, FL Hibbing, MN West Beaumont, TX Salt Lake City, UT
Paramus, NJ Dayton, OH St. Simons Island, GA Hinsdale, IL Wichita, KS San Diego, CA
Peabody, MA Daytona Beach, FL Salem, SC Houston, TX San Francisco, CA
Pearl River, NY Destin, FL Sarasota, FL Hurst, TX San Jose, CA
Pittsfield, MA Durham, NC Stuart, FL Indianapolis, IN WESTERN San Mateo, CA
Plattsburgh, NY Erie, PA Tampa, FL Kansas City, MO Santa Barbara, CA
Portland, ME Fayetteville, NC Toledo, OH Kingwood, TX Anchorage, AK Santa Rosa, CA
Portsmouth, NH Fort Lauderdale, FL Troy, OH Lafayette, LA Bakersfield, CA Scottsdale, AZ
Princeton, NJ Fort Myers, FL Upper Arlington, OH Lansing, MI Bellevue, WA Seattle, WA
Providence, RI Gainesville, FL Venice, FL Lincoln, NE Beverly Hills, CA Sedona, AZ
Red Bank, NJ Greensboro, NC Vero Beach, FL Livonia, MI Billings, MT Spokane, WA
Rochester, NY Greensburg, PA Virginia Beach, VA Longview, TX Bozeman, MT Stockton, CA
Rockland, ME Greenville, SC Washington, DC Madison, WI Brea, CA Sun City, AZ
Somers Point, NJ Hendersonville, NC West Palm Beach, FL McAllen, TX Carlsbad, CA Sun Valley, ID
Southampton, NY Hunt Valley, MD Wilkes-Barre, PA Mexia, TX Carmel, CA Tucson, AZ
Springfield, MA Jackson, MS Winston-Salem, NC Midland, TX Century City, CA Ventura, CA
Stamford, CT Jackson, TN Youngstown, OH Milwaukee, WI Chico, CA Wailuku, HI
Syracuse, NY Jacksonville, FL Encino, CA Walnut Creek, CA
Jamestown, NY Fresno, CA Woodland Hills, CA
Jenkintown, PA Grass Valley, CA
Johnstown, PA
</TABLE>
61
<PAGE> 38
Corporate Data
<TABLE>
<CAPTION>
HEADQUARTERS SHAREHOLDER INQUIRIES STOCK, DEBT AND TRUST SECURITIES LISTINGS
<S> <C> <C>
The PaineWebber Building For information regarding your shares Paine Webber Group Inc. Common Stock
1285 Avenue of the Americas of Paine Webber Group Inc. (trading symbol PWJ) is listed on the
New York, NY 10019-6028 Common Stock, please contact: New York Stock Exchange and the Pacific
212-713-2000 Stock Exchange. The Stock Index Return
Assistant Secretary Securities on the Standard and Poor's
Lincoln Harbor Facility 212-713-3224 MidCap 400 Index due June 2, 2000 are
1000-1200 Harbor Boulevard listed on the American Stock Exchange.
Weehawken, NJ 07087-6725 The 8.30% Preferred Trust Securities of
201-902-3000 FINANCIAL INFORMATION PWG Capital Trust I are listed on the
New York Stock Exchange.
Internet address: Investors, securities analysts and others
www.painewebber.com desiring financial information should contact
10-K
Investor Relations
212-713-3641 The annual report to the Securities and
Exchange Commission on Form 10-K will be
available in March 1997. A copy may be
TRANSFER AGENT AND REGISTRAR obtained upon request in writing or by
telephone to Assistant Secretary, Paine
Chase Mellon Shareholder Services Webber Group Inc.
450 West 33rd Street
New York, NY 10001
AUDITORS
Ernst & Young LLP
787 Seventh Avenue
New York, NY 10019-6013
</TABLE>
62
<PAGE> 39
FINANCIAL HIGHLIGHTS
<TABLE>
<S> <C> <C> <C> <C> <C>
Years Ended December 31,
1996 1995(1) 1994(2) 1993 1992
(In thousands of dollars except per share amounts)
Operating Results
Total revenues . . . . . . . . . . . . . . $ 5,705,966 $ 5,320,090 $ 3,964,077 $ 4,004,717 $ 3,363,731
Net revenues (including net interest) . . $ 3,735,212 $ 3,350,279 $ 2,535,424 $ 2,874,005 $ 2,484,489
Income before income taxes and
minority interest . . . . . . . . . . . $ 560,033 $ 102,677 $ 44,385 $ 407,576 $ 339,115
Net income . . . . . . . . . . . . . . . . $ 364,350 $ 80,750 $ 31,631 $ 246,183 $ 212,175
------------ ----------- ----------- ----------- -----------
Per Common Share(3)
Primary earnings . . . . . . . . . . . . $ 3.59 $ 0.54 $ 0.41 $ 3.11 $ 2.83
Fully diluted earnings . . . . . . . . . $ 3.38 $ 0.52 $ 0.41 $ 2.95 $ 2.37
Dividends declared . . . . . . . . . . . $ 0.48 $ 0.48 $ 0.48 $ 0.38 $ 0.31
Book value . . . . . . . . . . . . . . . $ 18.28 $ 15.62 $ 15.96 $ 16.29 $ 14.24
----------- ----------- ----------- ----------- -----------
Financial Condition
Total assets . . . . . . . . . . . . . . . $52,513,500 $45,671,294 $35,856,125 $37,026,909 $26,508,982
Long-term borrowings and
Redeemable Preferred Stock . . . . . . . $ 3,164,349 $ 2,622,797 $ 2,501,384 $ 1,936,082 $ 1,150,553
Stockholders' equity . . . . . . . . . . . $ 1,730,425 $ 1,552,288 $ 1,630,499 $ 1,195,047 $ 1,080,667
Total Capitalization . . . . . . . . . . . $ 4,894,774 $ 4,370,085 $ 4,131,883 $ 3,131,129 $ 2,231,220
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
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- ----------
(1) The 1995 results include after-tax charges of $146 million ($230 million before income taxes) related to the resolution of the
Issues arising from the Company's sale of public proprietary limited partnerships.
(2) 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 purchase of certain net assets and specific businesses of Kidder, Peabody Group Inc. and a
non-recurring mutual fund charge, respectively.
(3) All per share data have been restated to reflect three-for-two common stock splits in March 1994.
</TABLE>
<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, 1996 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.
State or
jurisdiction of
incorporation or
Name organization
---- ------------
PaineWebber Incorporated Delaware
Mitchell Hutchins Asset Management Inc. Delaware
PaineWebber International (U.K.) Ltd. United Kingdom
<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 February 3, 1997, included in the
1996 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, 33-40489, 33-45583,
33-65296, 33-65298, 33-53489, 33-55451, 33-55457 and 333-05269) and on Form S-3
(Registration Nos. 2-99979, 33-7738, 33-29253, 33-33613, 33-38960, 33-39818,
33-47267, 33-58124, 33-53776, 33-51149, 33-52695, 333-13831, 333-13831-01,
333-13831-02, 333-13831-03, 333-13831-04 and 333-17913) of Paine Webber Group
Inc. and in the related prospectuses, of our reports dated February 3, 1997 with
respect to the consolidated financial statements and financial statement
schedule of Paine Webber Group Inc. included and/or incorporated by reference in
this 1996 Annual Report on Form 10-K for the year ended December 31, 1996.
ERNST & YOUNG LLP
New York, New York
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
FINANCIAL STATEMENTS OF PAINE WEBBER GROUP INC. FOR THE PERIOD ENDED DECEMBER
31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000075754
<NAME> PAINE WEBBER
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 883,617
<RECEIVABLES> 5,089,074
<SECURITIES-RESALE> 20,746,831
<SECURITIES-BORROWED> 7,380,374
<INSTRUMENTS-OWNED> 16,823,307
<PP&E> 313,261
<TOTAL-ASSETS> 52,513,500
<SHORT-TERM> 1,337,646
<PAYABLES> 6,664,677
<REPOS-SOLD> 28,797,276
<SECURITIES-LOANED> 3,459,860
<INSTRUMENTS-SOLD> 6,621,891
<LONG-TERM> 2,781,694
382,655
100,000
<COMMON> 108,358
<OTHER-SE> 1,522,067
<TOTAL-LIABILITY-AND-EQUITY> 52,513,500
<TRADING-REVENUE> 1,023,615
<INTEREST-DIVIDENDS> 2,309,737
<COMMISSIONS> 1,381,475
<INVESTMENT-BANKING-REVENUES> 391,164
<FEE-REVENUE> 453,267
<INTEREST-EXPENSE> 1,970,754
<COMPENSATION> 2,219,129
<INCOME-PRETAX> 560,033
<INCOME-PRE-EXTRAORDINARY> 364,350
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 364,350
<EPS-PRIMARY> 3.59
<EPS-DILUTED> 3.38
</TABLE>
