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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934. FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1997
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
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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.
8.08% Preferred Trust Securities* New York Stock Exchange, Inc.
*Issued by PWG Capital Trust I and PWG Capital Trust II, respectively. Fully
and unconditionally guaranteed by Paine Webber Group Inc.
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
--------------------------------
The aggregate market value of voting stock held by non-affiliates of
the Registrant was approximately $3.93 billion as of March 19, 1998. (See Item
12.)
On March 19, 1998, the Registrant had outstanding 139,402,271 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 1997 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 7, 1998.
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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 16,600 people in 299 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 1997 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, 1997,
1996 and 1995, 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," on
pages 54, 58 and 59 in the 1997 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 equity 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. The largest portion of
the Company's commission revenue (59%) is derived from brokerage transactions
for individual and institutional clients in listed securities and options. The
Company may also act as broker for investors in the purchase and sale of
over-the-counter securities and fixed income instruments including 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 commissions and
standard dealers' discounts, which are determined by the terms of the selling
agreement and the size of the transaction. Income from proprietary mutual funds
is also derived from management and distribution fees (see "Asset Management"
section). 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.
___________
* Certain items herein, including (without limitation) certain matters discussed
under "Legal Proceedings" in Part I, Item 3 of this report, "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
("MD&A") incorporated by reference in Part II, Item 7 of this report, and
"Quantitative and Qualitative Disclosures about Market Risk" incorporated by
reference in Part II, Item 7a of this report are forward-looking statements. The
matters referred to in such forward-looking statements could be affected by many
factors, including (without limitation) economic and market conditions, the
level and volatility of interest rates, currency and security valuations,
competitive conditions, the impact of current, pending and future legislation
and regulation and other risks and uncertainties detailed in the MD&A. The
Company disclaims any obligation or undertaking to update publicly or revise any
forward-looking statements.
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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, performance measurement and financial planning.
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
equity, index, and currency options on behalf of clients, and the delivery and
receipt of the underlying instruments upon exercise of the options. In addition,
the Company utilizes its securities research capabilities in the formulation of
options strategies and recommendations for its clients.
Commodities and financial futures The Company provides transaction services for
clients in the purchase and sale of futures contracts, including metals,
currencies, interest rates, stock indexes, 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 1,050 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 accounts, 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, emerging
market securities, and mortgage and asset-backed securities.
Equity The Company effects transactions in large blocks of securities, usually
with institutional investors, generally involving 10,000 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. 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-backed
related securities including those issued through Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA") and Federal
Home Loan Mortgage Corp. ("FHLMC"); asset-backed securities; emerging market
securities; corporate investment-grade and high-yield securities; and options
and futures contracts on certain of these products. To the extent significant
price fluctuations occur, the Company's capital can be at risk. This risk is
mitigated by hedging inventory positions.
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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 purchases and sales, and
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.
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 and asset-backed 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 origination,
purchase, sale, securitization and resale of mortgage notes and other real
estate related products.
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 principal transaction gains or losses.
The Company underwrites, makes markets in, 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 and establishes limits with
respect to overall market exposure, industry group and individual issuer.
The Company may also take positions in emerging market securities to facilitate
transactions for its clients on a principal basis. Emerging market securities
include Latin American, Eastern Europe and Asian instruments denominated in U.S.
dollars and local currency units. The Company continually monitors its risk
positions associated with emerging market securities and establishes limits with
respect to overall market exposure, region 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 remarketing agent 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 may also engage
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. 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 purchase and sale agreements,
and option contracts.
Derivative financial instruments are subject to varying degrees of market and
credit risk, although in many cases derivatives serve to reduce, rather than
increase the Company's exposure to losses from these risks. 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 1997 Annual Report to Stockholders for a discussion of these
groups and their functions. See also "Notes to Consolidated Financial Statements
- - Note 1: Summary of Significant Accounting Policies, Note 10: Financial
Instruments with Off-Balance-Sheet Risk and Note 11: Risk Management", beginning
on page 39, page 46 and page 48, respectively, in the 1997 Annual Report to
Stockholders.
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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.
Through its Commercial Real Estate group, the Company provides a full range of
capital markets services to its real estate clients, including underwriting of
debt and equity securities, principal lending, debt restructuring, property
sales and bulk sales services, and a broad range of other advisory services.
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., Financial Counselors, Inc. and
NewCrest Advisors 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 and administrator, include both taxable and tax-exempt
funds and front-load, reverse-load, and level-load funds. At December 31, 1997,
total assets under management were $48.9 billion.
MARGIN LENDING
In a margin transaction, the Company extends credit to a client for the purchase
of securities, using the securities purchased and/or other securities in the
client's account as collateral for amounts loaned. The Company receives income
from interest charged on such extensions of credit. Amounts loaned are limited
by margin requirements which are subject to the Company's credit review and
daily monitoring procedures and are generally more restrictive than the margin
regulations of the Federal Reserve Board and other regulatory authorities. The
Company may lend to other brokers or use as collateral a portion of the margin
securities to the extent permitted by applicable margin regulations.
The financing of margin purchases can be an important source of revenue to the
Company since the interest rate paid by the client on funds loaned by the
Company exceeds the Company's cost of short-term funds. The amount of the
Company's gross interest revenues is affected not only by prevailing interest
rates, but also by the volume of business conducted on a margin basis. To
finance margin loans to clients, the Company utilizes both interest-bearing and
non-interest-bearing funds generated from a variety of sources in the course of
its operations, including bank loans, free credit balances in client accounts,
sale of securities under agreements to repurchase, the lending of securities and
sales of securities not yet purchased. No interest is paid on a substantial
portion of clients' credit balances.
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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 pays a fee to the lender or receives only a
portion of the interest earned on the cash deposit, 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 active in the sales, trading and underwriting of U.S. dollar
denominated and non-U.S. dollar denominated Eurobonds. In addition, certain of
the foreign subsidiaries provide prime brokerage services to their clients and
are active in the securities lending business.
RESEARCH
Research provides investment advice and strategies to institutional and
individual clients, and other business areas of the Company. The Equity Research
analysts, strategists, and economists cover more than 850 companies in 61
industries and also generate broader investment and economic analyses. The
Company's Fixed Income and Municipal Securities groups also maintain dedicated
research teams that cover their respective businesses.
OTHER ACTIVITIES
PaineWebber Specialists Inc. ("PWSI") maintains trading posts on the Pacific,
Boston and Cincinnati stock exchanges and an affiliation on the Chicago stock
exchange. Specialists are responsible for executing transactions and maintaining
an orderly market in certain securities. In this function, the specialist firm
acts as an agent in executing orders entrusted to it and/or acts as a dealer.
PWSI acts as a specialist for approximately 550 equity issues.
Correspondent Services Corporation ("CSC"), a registered broker-dealer, provides
execution and clearing services of securities through PWI to approximately 133
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.
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
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are subject to regulation of the laws of the 50 states, the District of
Columbia, Puerto Rico and certain foreign countries or exchanges 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 on a quarterly
and annual basis, 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.
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 have increased from discount brokerage
firms, on-line internet trading, and commercial banks that were not
traditionally engaged in the securities business. The Company believes that the
principal factors affecting competition in the securities industry are available
capital, and the quality and prices of services and products offered.
ITEM 2. PROPERTIES
The principal executive offices of the Company are located at 1285 Avenue of the
Americas, New York, New York under leases expiring through December 31, 2015.
The Company is currently leasing approximately 668,000 square feet at 1285
Avenue of the Americas principally comprising the offices of its investment
banking, asset management, capital markets, 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 principally comprises the offices of the Private Client Group
headquarters, systems, operations, administrative services, and finance
divisions.
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At December 31, 1997, the Company maintained 299 offices worldwide under leases
expiring between 1998 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 in excess of $193 million appear to be sought, are
described below. The Company is also involved in numerous proceedings in which
compensatory damages of less than $193 million appear to be sought, or in which
punitive or exemplary damages, together with the apparent compensatory damages
alleged, appear to exceed $193 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 actively
defend 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 in the United States District Court
for the Southern District of New York under the caption In Re NASDAQ
Market-Maker Antitrust Litigation, MDL Docket No. 1023. The consolidated class
complaint 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 Court certified a class of retail and institutional investors.
Plaintiffs and all but one of the defendants reached an agreement to settle the
litigation, which was preliminarily approved by the Court on December 31, 1997.
Subsequently, the remaining defendant reached an agreement to settle with
Plaintiffs. PaineWebber's share of the settlement will be approximately $50
million. The settlement is subject to various contingencies, including final
approval by the Court after notice and hearing. If the settlement is finally
approved, PaineWebber will be released from all specified claims by
participating class members, and the Complaint will be dismissed with prejudice
as to PaineWebber.
On July 16, 1996, PaineWebber and certain other NASDAQ market-makers 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 United States District Court for
the Southern District of New York approved the Stipulation and Order on April
23, 1997, following a public hearing. Intervenors filed a notice of appeal to
the United States Court of Appeals, and the appeal was argued on March 16, 1998.
NEWTON v. MERRILL LYNCH, ET AL. SECURITIES LITIGATION
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 class action
complaint, filed in March 1995, purportedly on behalf of a class of persons who
placed market orders with defendants for the purchase or sale of NASDAQ
securities between November 1992 and 1994, alleges that defendants violated the
federal securities laws in connection with the execution of those orders by,
among other things, failing to provide execution of such orders at prices better
than the national best bid or offer available on the NASDAQ market. On December
13, 1995, the District Court granted defendants' motion for summary judgment. On
January 31, 1998, the United States Court of Appeals for the Third Circuit (en
banc) reversed the District Court's grant of summary judgment and remanded the
case to the District Court for further proceedings. The District Court has not
yet ruled on class certification.
GENERAL DEVELOPMENT CORPORATION SECURITIES LITIGATION
In May 1991, PaineWebber and other entities and individuals were named as
defendants in an action captioned Rolo v. City Investing Liquidating Trust, et
al., Civ. Action 90-442D D.N.J., alleging conspiracy and aiding and abetting
violations of the Racketeer Influenced and Corrupt Organization Act, the
Interstate Land Sales Full Disclosure Act, as well as common law claims, on
behalf of members of an association
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known as the North Port Out-of-State Lot Owners Association who purchased lots
and/or houses from General Development Corporation ("GDC") or one of its
affiliates. The secondary liability claims against PaineWebber related to its
role as an underwriter of GDC's April 8, 1988 offering of 12 7/8% senior
subordinated notes and 1989 offering of Adjustable Rate General Development
Residential Mortgage Pass-Through Certificates, Series 1989-A, which offerings
plaintiffs contend enabled GDC to perpetuate 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, interest, attorneys' and
witness fees, costs, and disbursements.
The District Court's order dismissing plaintiff's First Amended Complaint
against PaineWebber was affirmed by the Third Circuit Court of Appeals on
November 8, 1994. On April 4, 1995, 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. On remand, on
August 24, 1995, the District Court entered an order dismissing the action as to
all defendants. Plaintiffs filed a notice of appeal from the District Court's
dismissal order and, on September 16, 1996, the Third Circuit of Appeals heard
arguments on plaintiffs' appeal. The court has not yet ruled on the appeal.
ASKIN LITIGATION *
Kidder, Peabody & Co. Incorporated ("Kidder, Peabody"), a subsidiary of the
Company, together with other unrelated individuals and firms, has been named as
a defendant in certain actions pending in the United States District Court for
the Southern District of New York brought on behalf of individuals and two
purported classes of investors in three funds (the "Funds") managed by Askin
Capital Management, L.P. and David J. Askin (collectively, the "Askin Parties").
The actions are Primavera Familienstiftung v. David J. Askin, et al., Docket No.
95 Civ. 8905; ABF Capital Management, et al. v. Askin Capital Management, L.P.,
Docket No. 96 Civ. 2978; Montpellier Resources, Limited et al. v. Askin Capital
Management, L.P., et al., Docket No. 97 Civ 1856; Richard Johnston as Trustee
for the Demeter Trust, et al. v. Askin Capital Management, L.P., et al., Docket
No. 97 Civ 4335. The plaintiffs have alleged, among other things, that Kidder,
Peabody and other brokerage firms aided and abetted false and misleading
representations made to investors in violation of federal and state securities
laws, used the Funds as an outlet for otherwise unmarketable tranches of
collateralized mortgage obligations, and violated various rules of the New York
Stock Exchange and National Association of Securities Dealers. Collectively in
the four lawsuits, the plaintiffs claim damages of approximately $650 million,
as well as unspecified punitive damages. As a result of various decisions by the
District Court, the only claim remaining in these cases against Kidder, Peabody
is for aiding and abetting the Askin Parties' alleged fraud on the investors.
The parties are presently engaged in pre-trial discovery. No trial date has been
set.
In a separate, but related action now pending in the United States Bankruptcy
Court for the Southern District of New York captioned ABF Capital Management, et
al. v. Kidder, Peabody & Co. Incorporated, a group of investors in the Funds
have sought to equitably subordinate, pursuant to Section 510(c) of the
Bankruptcy Code, certain recoveries received by Kidder, Peabody, amounting to
approximately $15.5 million, in connection with the settlement of Kidder,
Peabody's claims in the Funds' bankruptcy proceedings. This action is also at an
early stage; no trial date has been set.
KEANE LITIGATION*
Kidder, Peabody is a defendant, along with other unrelated individuals and
entities, in Richard A. Lippe, et al. v. Bairnco Corp. et al., 96 Civ. 7600, in
the United States District Court for the Southern District of New York brought
by the Trustees of the Keene Creditors' Trust ("KCT"). This action originally
was filed on June 8, 1995 as Adversary Proceeding No. 95/9393A in the Bankruptcy
Court for the Southern District of New York. On April 10, 1997, the District
Court ordered the withdrawal of the bankruptcy court. KCT was established
pursuant to the Plan of Reorganization approved in connection with the
bankruptcy proceedings related to Keene Corporation ("Keene"). The KCT claims
against Kidder, Peabody arise from fairness
- --------
* This item relates to a matter involving Kidder, Peabody & Co. Incorporated
which was acquired by the Company in August 1997. In connection with the
acquisition, the seller and its parent General Electric Company agreed to
indemnify the Company for all losses relating to this matter.
8
<PAGE> 10
opinions rendered by Kidder, Peabody during the 1980's in connection with the
sale of various businesses by Keene. KCT alleges that Kidder, Peabody's fairness
opinions intentionally or recklessly undervalued the assets being sold. KCT
further alleges that such acts constituted aiding and abetting breaches of
fiduciary duties and self-dealing by Keene's corporate officers and directors,
who are also defendants, in violation of the New York Business Corporation Law
and the Racketeer Influenced and Corrupt Organizations Act. KCT seeks damages
from Kidder, Peabody and other unrelated individuals and firms in excess of $700
million. On September 15, 1997, Kidder, Peabody filed a motion to dismiss the
complaint. On February 6, 1998, the District Court granted Kidder, Peabody's
motion to dismiss the complaint as to Kidder, Peabody. The dismissal order is
not appealable by plaintiff at this time.
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 7, 1998 ("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 or are a nominee for director of PWG:
Margo Alexander, 51, is President and Chief Executive Officer of Mitchell
Hutchins Asset Management Inc., a wholly-owned subsidiary of PWI, a position she
has held since January 1995. From 1981 to 1995, Ms. Alexander held various
positions in the Company including Director of Research, Co-Director of
Institutional Equity, and Director of Institutional Equity. In April 1973, she
joined Mitchell Hutchins & Co., a predecessor firm of the Company, as a security
analyst.
Steven P. Baum, 45, is Executive Vice President and Director of Capital Markets
of PWI, a position he has held since October 1997. From November 1995 to October
1997, he was Director of the Global Fixed Income and Commercial Real Estate
groups. Upon joining the Company in January 1995, he served as Director of the
Commercial Real Estate group and co-director of the Global Fixed Income group
until October 1995. Prior to joining the Company, 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 1990 to
July 1994.
Theodore A. Levine, 53, is General Counsel and Secretary of PWG, and is an
Executive Vice President of PWI, positions he has held since June 1993. Mr.
Levine is also a Senior Vice President of PWG, a position he has held since
October 1997. He was Vice President of PWG from June 1993 to September 1997.
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.
Robert H. Silver, 42, is Executive Vice President and Director of Operations,
Service and Systems of PWI, a position he has held since 1995. From 1988 to
1995, Mr. Silver held various positions in the Company including Director of
Retail Products and Marketing, Director of Retail Branch offices, and Director
of Finance and Controls. Prior to joining the Company, Mr. Silver was with
Merrill Lynch & Co., Inc. from 1983 to 1988 and KPMG Peat Marwick from 1977 to
1983.
Mark B. Sutton, 43, 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
9
<PAGE> 11
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" on page 57 in the 1997 Annual Report to
Stockholders is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Financial Highlights" on page 11 in
the 1997 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 1997 Annual Report to Stockholders is
incorporated herein by reference.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth under the caption "Management's Discussion and
Analysis - Risk Management" beginning on page 31 and "Note 1 - Summary of
Significant Accounting Policies - Derivative Financial Instruments" in the
"Notes to the Consolidated Financial Statements" beginning on page 39 in the
1997 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
or are not nominee for director, 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
10
<PAGE> 12
Agreements" and "Certain Transactions and Arrangements" in the Proxy Statement
and is incorporated herein by reference.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security ownership of executive officers, directors and certain beneficial
owners is set forth under the caption "Security Ownership" in the Proxy
Statement and is incorporated herein by reference.
Solely for the purpose of calculating the aggregate market value of the voting
stock held by non-affiliates of the Registrant as set forth on the cover of this
report, it has been assumed that directors and executive officers of the
Registrant are affiliates.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information related to certain transactions with directors of the Registrant
is set forth under the captions "Certain 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 9% Cumulative
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).
3.3 - Certificate of Amendment to the Restated Certificate of
Incorporation of Registrant as filed with the office of
the Secretary of State of the State of Delaware on June
6, 1994 (incorporated by reference to Registrant's
Current Report on Form 8-K dated June 15, 1994).
3.4 - 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
3, 1988
11
<PAGE> 13
(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).
3.5* - By-laws of the Registrant as amended February 5, 1998.
3.6 - 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 - Amended and Restated Stockholders Agreement, dated as of
August 6, 1997 between Paine Webber Group Inc., General
Electric Company, General Electric Capital Corporation,
General Electric Capital Services, Inc. and Kidder
Peabody Group Inc. (incorporated by reference to Exhibit
4.1 of Registrant's Form 8-K dated August 7, 1997).
4.2 - Share Purchase Agreement, dated August 6, 1997, by and
among General Electric Company and General Electric
Capital Services, Inc. and Paine Webber Group Inc.
(incorporated by reference to Exhibit 4.2 of Registrant's
Form 8-K dated August 7, 1997).
4.3 - 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).
4.4 - 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).
4.5 - 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).
4.6 - 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).
4.7 - 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).
4.8 - 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).
4.9 - 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).
12
<PAGE> 14
4.10 - 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).
4.11+ - 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).
4.12 - 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).
4.13 - 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).
. 4.14 - 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).
4.15 - 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).
4.16 - 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).
4.17 - 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).
4.18 - 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).
4.19 - 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).
4.20 - Certificate of Trust of PWG Capital Trust II
(incorporated by reference to Exhibit 4.5 of Registrant's
Registration Statement No. 333-13831 on Form S-3 filed
with the SEC on November 22, 1996).
4.21 - Form of Amended and Restated Declaration of Trust for PWG
Capital Trust I and II (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).
4.22 - Form of Preferred Security relating to Preferred Trust
Securities of PWG Capital Trust I and II (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).
4.23 - 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).
13
<PAGE> 15
4.24 - 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).
4.25 - Form of Guarantee with respect to Preferred Securities
relating to Preferred Trust Securities of PWG Capital
Trust I and II (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).
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 7, 1997 among Registrant, the
Initial Lenders named therein, and The Bank of New York, Administrative
Agent, 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, PaineWebber
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 - 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).
10.2 - 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).
10.3 - 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).
10.4 - 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).
10.5 - 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).
10.6 - Second Restated and Amended Agreement of Lease, dated as
of May 1, 1996, between 1285 Associates Limited
Partnership and PWI 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).
14
<PAGE> 16
10.7 - 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).
10.8* - Amended and Restated Investment Agreement dated as of
November 5, 1992 by and between Registrant and The Yasuda
Mutual Life Insurance Company ("Yasuda").
10.9 - 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).
10.10 - 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).
10.11 - 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).
10.12 - 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).
10.13 - 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).
10.14 - 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).
10.15 - Directors and Officers Liability and Corporation
Reimbursement insurance policy with Fiduciary Liability
Rider with National Union Fire Insurance Company
(incorporated by reference to Exhibit 10.51 of
Registrant's Form 10-K for the year ended December 31,
1996).
10.16 - 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).
10.17+ - 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).
10.18+ - 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).
10.19+ - 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).
15
<PAGE> 17
10.20+ - Amendment to the Registrant's Senior Officer Deferred
Compensation Plan dated as of August 15, 1996
(incorporated by reference to Exhibit 10.5 of
Registrant's Form 10-K for the year ended December 31,
1996).
10.21+ - Amendment to the Registrant's Senior Officer Deferred
Compensation Plan dated as of September 1, 1996
(incorporated by reference to Exhibit 10.6 of
Registrant's Form 10-K for the year ended December 31,
1996).
10.22+ - Omnibus Amendment to Grantor Trust Agreement under
Registrant's Senior Officer Deferred Compensation Plan
dated as of August 9, 1996 (incorporated by reference to
Exhibit 10.7 of Registrant's Form 10-K for the year ended
December 31, 1996).
10.23+ - Omnibus Amendment to Grantor Trust Agreement under
Registrant's Senior Officer Deferred Compensation Plan
dated as of August 15, 1996 (incorporated by reference to
Exhibit 10.8 of Registrant's Form 10-K for the year ended
December 31, 1996).
10.24+ - Omnibus Amendment to Grantor Trust Agreement under
Registrant's Senior Officer Deferred Compensation Plan
dated as of August 9, 1996 (incorporated by reference to
Exhibit 10.7 of Registrant's Form 10-K for the year ended
December 31, 1996).
10.25+ - Form of Registrant's 1994 Senior Officer Deferred
Compensation Plan Grantor Trust agreement.
10.26+ - 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).
10.27+ - 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).
10.28+ - 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).
10.29+ - 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).
10.30+ - 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).
10.31+ - 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).
10.32+ - 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).
10.33+ - Employment Agreement dated as of April 29, 1996 between
Registrant, PWI and Joseph J. Grano, Jr. (incorporated by
reference to Exhibit 10.32 of Registrant's Form 10-K for
the year ended December 31, 1996).
10.34+ - Registrant's Supplemental Employees 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).
16
<PAGE> 18
10.35+ - 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).
10.36+ - 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).
10.37+ - 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 10.36 of
Registrant's Form 10-K for the year ended December 31,
1996).
10.38+ - 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).
11 - Computation of Earnings Per Share - The information set
forth under the caption "Note 17: Earnings per Common
Share" on page 55 in the 1997 Annual Report to
Stockholders is incorporated herein by reference.
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* - 1997 Annual Report to Stockholders of Registrant.
21* - Subsidiaries of the Registrant.
23* - Consent of Independent Auditors.
27* - Financial Data Schedules.
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K dated December 30, 1997
reporting under Item 5 ("Other Events") the agreement to settle the
In Re NASDAQ Market-Maker Antitrust Litigation by PaineWebber
Incorporated, along with 29 other Nasdaq market-makers.
The Company filed a Current Report on Form 8-K dated February 19, 1998
reporting under Item 5 ("Other Events") and Item 7 ("Financial
Statements, Pro Forma Financial Information and Exhibits") in
connection with the adoption of Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share" and providing a press
release dated January 20, 1998 related to the Company's financial
results for 1997 and quarter ended December 31, 1997.
+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Form 10-K pursuant to Item 14(c).
* Filed herewith
17
<PAGE> 19
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 1997 Annual Report to Stockholders. With the exception of the following
financial statements and the information incorporated by reference on items 1,
5, 6, 7 and 7a, the 1997 Annual Report to Stockholders is not to be deemed filed
as part of this report.
1997 Annual
Report
Description (Page)
Report of independent auditors 56
Consolidated statements of financial
condition at December 31, 1997 and 1996 35
For the years ended December 31, 1997, 1996 and 1995:
Consolidated statements of income 34
Consolidated statements of changes in
stockholders' equity 36-37
Consolidated statements of cash flows 38
Notes to consolidated financial statements 39-55
Quarterly financial information (unaudited) 57
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> 20
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, 1997 and 1996, and for each of the three years in the period
ended December 31, 1997, and have issued our report thereon dated January 30,
1998. 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
January 30, 1998
F-2
<PAGE> 21
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,
1997 1996 1995
--------- --------- ---------
REVENUES
<S> <C> <C> <C>
Interest $ 262,573 $ 185,772 $ 224,487
Other 379 291 628
--------- --------- ---------
Total revenues 262,952 186,063 225,115
Interest expense 320,838 229,396 238,172
--------- --------- ---------
Net revenues (57,886) (43,333) (13,057)
--------- --------- ---------
NON-INTEREST EXPENSES 1,514 3,956 6,644
--------- --------- ---------
Loss before income taxes and
equity in income of affiliates (59,400) (47,289) (19,701)
Benefit for income taxes 27,320 21,689 16,511
--------- --------- ---------
Loss before equity in income
of affiliates (32,080) (25,600) (3,190)
Equity in income of affiliates 447,529 389,950 83,940
--------- --------- ---------
NET INCOME $ 415,449 $ 364,350 $ 80,750
========= ========= =========
</TABLE>
See Notes to Condensed Financial Information of Registrant.
F-3
<PAGE> 22
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 AMOUNTS)
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
----------- -----------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 559 $ --
Loans to and receivables from affiliates 5,531,860 3,818,190
Investments in affiliates 2,144,787 1,971,079
Other assets 368,569 181,118
----------- -----------
$ 8,045,775 $ 5,970,387
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 1,254,127 $ 913,471
Payables to affiliates 981,969 242,564
Other liabilities and accrued expenses 282,584 114,578
----------- -----------
2,518,680 1,270,613
Long-term borrowings 3,407,464 2,781,694
----------- -----------
5,926,144 4,052,307
Commitments and contingencies
Redeemable Preferred Stock 188,668 187,655
Stockholders' Equity:
Convertible Preferred Stock -- 100,000
Common stock, $1 par value, 200,000,000
shares authorized; issued 188,458,083 shares
and 162,537,267 shares in 1997 and 1996, respectively(1) 188,458 162,537
Additional paid-in capital(1) 1,405,329 792,215
Retained earnings 1,340,966 1,009,448
Treasury stock, at cost; 48,557,788 shares and 23,049,351
shares in 1997 and 1996, respectively(1) (998,300) (331,907)
Foreign currency translation adjustment (5,490) (1,868)
----------- -----------
1,930,963 1,730,425
----------- -----------
$ 8,045,775 $ 5,970,387
=========== ===========
</TABLE>
(1) 1996 amounts have been retroactively adjusted to reflect a three-for-two
common stock split in the form of a 50% stock dividend, effective on November
17, 1997 to stockholders of record on October 24, 1997.
See Notes to Condensed Financial Information of Registrant.
F-4
<PAGE> 23
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,
1997 1996 1995
----------- --------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 415,449 $ 364,350 $ 80,750
Adjustments to reconcile net income to cash
(used for) provided by operating activities:
Noncash items included in net income:
Equity in income of affiliates (447,529) (389,950) (83,940)
Depreciation and amortization (1,309) 2,951 2,925
Deferred income taxes 1,862 (17,050) 16,371
Other 2,809 2,535 6,299
(Increase) decrease in assets:
Trading assets -- 32,575 33,587
Loans to and receivables from affiliates (1,644,602) (485,743) 1,626,049
Investment in affiliates 111,389 (12,322) (3,106)
Other assets (117,002) 78,810 (36,729)
Increase (decrease) in liabilities:
Payables to affiliates 739,405 214,752 3,411
Trading liabilities -- (32,575) (33,587)
Other liabilities and accrued expenses 172,607 (29,324) 21,744
Proceeds from:
Dividends received from subsidiaries 225,000 2,707 --
----------- --------- -----------
Cash (used for) provided by operating activities (541,921) (268,284) 1,633,774
----------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for:
Net assets acquired in business acquisition -- -- (624,090)
Acquisition-related expenditures -- -- (15,649)
Office equipment and leasehold improvements (61) (220) (55)
----------- --------- -----------
Cash used for investing activities (61) (220) (639,794)
----------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments on)
Short-term borrowings 340,656 193,863 (887,041)
Proceeds from:
Long-term borrowings 822,011 476,752 472,452
Employee stock transactions 72,820 50,103 36,203
Payments for:
Long-term borrowings (198,360) (141,128) (366,550)
Repurchases of common stock (411,668) (237,766) (173,525)
Dividends (82,918) (73,332) (75,703)
----------- --------- -----------
Cash provided by (used for) financing activities 542,541 268,492 (994,164)
----------- --------- -----------
Increase (decrease) in cash and cash equivalents 559 (12) (184)
Cash and cash equivalents, beginning of year -- 12 196
----------- --------- -----------
Cash and cash equivalents, end of year $ 559 $ -- $ 12
=========== ========= ===========
</TABLE>
See Notes to Condensed Financial Information of Registrant.
F-5
<PAGE> 24
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 its subsidiaries and the notes thereto incorporated
by reference in this report.
Included in 1997 non-interest expense in the Condensed Statements of Income
is the amortization of negative goodwill.
COMMON STOCK
On October 13, 1997, the Company's Board of Directors approved a
three-for-two stock split in the form of a 50% stock dividend, paid on
November 17, 1997 to stockholders of record on October 24, 1997.
Subsequent to December 31, 1997, the Company's Board of Directors approved,
subject to shareholders approval, an increase to the number of common
shares authorized for issuance from 200,000,000 to 400,000,000 shares.
STATEMENT OF CASH FLOWS
Interest payments for the years ended December 31, 1997, 1996 and 1995
approximated $312,509, $232,771 and $229,390, respectively. Income tax
payments (consolidated) totaled $278,553, $130,886 and $28,248 for the
years ended December 31, 1997, 1996 and 1995, 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 and PWG
Capital Trust II ("Trust I" and "Trust II", respectively), wholly owned
subsidiaries of the Company, to holders of 8.30% Trust I Securities and
8.08% Trust II Securities, on a subordinated basis, to the extent the
Company has made principal and interest payments on the 8.30% Junior
Subordinated Debentures and 8.08% Junior Subordinated Debentures
(collectively, 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> 25
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 31, 1998.
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 31, 1998.
/s/ Donald B. Marron
Donald B. Marron
Chairman of the Board,
Chief Executive Officer
and Director (principal executive
officer)
/s/ Regina A. Dolan
Regina A. Dolan
Senior Vice President and
Chief Financial Officer
/s/ E. Garrett Bewkes, Jr.
E. Garrett Bewkes, Jr.
Director
/s/ Reto Braun
Reto Braun
Director
/s/ John A. Bult
John A. Bult
Director
<PAGE> 26
SIGNATURES
/s/ Frank P. Doyle
Frank P. Doyle
Director
/s/ Joseph J. Grano, Jr.
Joseph J. Grano, 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
/s/ Henry Rosovsky
Henry Rosovsky
Director
/s/ Yoshinao Seki
Yoshinao Seki
Director
/s/ John R. Torell III
John R. Torell III
Director
<PAGE> 27
Exhibit Index
-------------
3.5 By-Laws of the Registrant as amended February 5, 1998.
10.8 Amended and Restated Investment Agreement dated as of November
5, 1992 by and between Registrant and The Yasuda Mutual Life
Insurance Company ("Yasuda").
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 1997 Annual Report to Stockholders of Registrant.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27.1 Financial Data Schedule.
27.2 Financial Data Schedule.
27.3 Financial Data Schedule.
<PAGE> 1
--------------------------------------------------------------
BY-LAWS
OF
Paine Webber group Inc.
Incorporated under the laws
of the State of Delaware
As Amended on February 5, 1998
<PAGE> 2
--------------------------------------------------------------
BY-LAWS
of
PAINE WEBBER GROUP INC.
------------------------
ARTICLE I
Offices
The registered office of Paine Webber Group Inc. (hereinafter referred
to as the "Corporation") in the State of Delaware shall be located in the City
of Wilmington, County of New Castle. The Corporation's principal place of
business shall be in the City, County and State of New York. The Corporation may
establish and discontinue, from time to time, such offices and places of
business within or without the State of Delaware as may be deemed proper for the
conduct of the Corporation's business.
ARTICLE II
Meetings of Stockholders
Section 1. Purpose of Annual Meeting. An annual meeting of stockholders
shall be held on such date and at such time and place as may be designated by
the Board of Directors. At each annual meeting, the stockholders shall elect the
members of the Board of Directors for the succeeding year. At any such annual
meeting any proper business properly brought before the meeting may be
transacted. To be properly brought before an annual meeting, business must be
(i) specified in the notice of the meeting (or any supplement thereto) given by
or at the direction of the Board of Directors, (ii) otherwise properly brought
before the meeting by or at the direction of the Board of Directors or (iii)
otherwise properly brought before the meeting by a stockholder. For business to
be properly brought before an annual meeting by a stockholder, the stockholder
must have given written notice thereof, either by personal delivery or by United
States mail, postage pre-paid, to the Secretary of the Corporation, not later
than 90 days in advance of such meeting. Any such notice shall set forth as to
each matter the stockholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting and, in the event that
such business includes a proposal to amend either the Certificate of
Incorporation or By-laws of the Corporation, the language of the proposed
amendment, (ii) the name and address of the stockholder proposing such business,
(iii) a representation that the stockholder is a holder of record of stock of
the Corporation entitled to vote at such meeting and intends to appear in person
or by proxy at the meeting to propose such business, and (iv) any material
interest of the stockholder in such business. No business shall be conducted at
an annual meeting of stockholders except in accordance with this paragraph, and
the chairman of any annual meeting of stockholders may refuse to permit any
business to be brought before an annual meeting without compliance with the
foregoing procedures.
<PAGE> 3
Section 2. Special Meetings. In addition to such special meetings as
are provided for by law or by the Certificate of Incorporation, special meetings
of the holders of any class or series or of all classes or series of the
Corporation's capital stock may be called at any time by the Board of Directors.
Special meetings shall be called by means of a notice as provided for in Section
4 of this Article II.
Section 3. Place of Meetings. All meetings of the stockholders shall be
held at such place within or without the State of Delaware as shall be
designated by the Board of Directors.
Section 4. Notice of Meetings. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting and, in case
of a special meeting, the purpose or purposes for which the meeting is called.
The notice of annual meeting of stockholders shall identify each matter intended
to be acted upon at such meeting. If mailed, the notice shall be addressed to
the stockholder in a postage-prepaid envelope at his address as it appears on
the records of the Corporation unless, prior to the time of mailing, the
Secretary shall have received from any such stockholder a written request that
notices intended for him be mailed to some other address, in which case notices
intended for such stockholder shall be mailed to the address designated in such
request. Notice of each meeting of stockholders shall be delivered personally or
mailed not less than ten nor more than 60 days before the day of the meeting to
each stockholder entitled to vote at such meeting.
Section 5. Waiver of Notice. Whenever notice is required to be given, a
written waiver thereof signed by the person entitled to notice or by his proxy
or attorney duly authorized, whether before or after the time stated thereon,
shall be deemed equivalent to notice. Attendance of a person at a meeting of
stockholders shall constitute a waiver of notice of such meeting, except as
otherwise provided by law. Neither the business to be transacted at nor the
purpose of any regular or special meeting of the stockholders need be specified
in any written waiver of notice.
Section 6. Organization. The Chairman of the Board shall act as
chairman at all meetings of stockholders at which he is present, and as such
chairman shall call such meetings of stockholders to order and preside thereat.
If the Chairman of the Board shall be absent from any meeting of stockholders,
the duties otherwise provided in this Section 6 to be performed by him at such
meeting shall be performed at such meeting by the President. If neither of such
officers is present at such meeting, such duties shall be performed by an
officer designated by the Chairman of the Board. If no such designated officer
is present at such meeting, any stockholder or the proxy of any stockholder
entitled to vote at the meeting may call the meeting to order and a chairman to
preside thereat shall be elected by a majority of those present and entitled to
vote. The Secretary of the Corporation shall act as secretary at all meetings of
the stockholders, but in his absence the chairman of the meeting may appoint any
person present to act as secretary of the meeting.
<PAGE> 4
Section 7. Stockholders Entitled to Vote. The Board of Directors may
fix a date not more than 60 nor less than ten days preceding the date of any
meeting of stockholders, or preceding the last day on which the consent of
stockholders may be effectively expressed for any purpose without a meeting, as
a record date for the determination of the stockholders entitled (a) to notice
of, and to vote at, such meeting and any adjournment thereof or (b) to express
such consent and in such case such stockholders, and only such stockholders as
shall be stockholders of record on the date so fixed, shall be entitled to
notice of, and to vote at, such meeting and any adjournment thereof, or to
express such consent, as the case may be, notwithstanding any transfer of any
stock on the books of the Corporation after any such record date fixed as
aforesaid. The Secretary shall prepare and make or cause to be prepared and
made, at least ten days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at such meeting, arranged in alphabetical
order and showing the address of each such stockholder as it appears on the
records of the Corporation and the number of shares registered in the name of
each such stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting. If the meeting is
to be held in the City of New York, such list will be open to examination at the
principal place of business of the Corporation, and, unless the meeting is to be
held at such principal place of business, the notice of meeting shall specify
that the list is so located. If the meeting is to be held in a city other than
New York, the list shall be open to examination either at a place, specified in
the notice of meeting, within the city where the meeting is to be held, or, if
not so specified, at the place where the meeting is to be held, and a duplicate
list shall be similarly open to examination at the principal place of business
of the Corporation. Such list shall be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Section 8. Quorum and Adjournment. Except as otherwise provided by law,
the holders of a majority of the shares of capital stock entitled to vote at the
meeting shall constitute a quorum at all meetings of the stockholders. Where
more than one class or series of capital stock is entitled to vote as such class
or series at such a meeting, a majority of the shares of each such class or
series of capital stock entitled to vote at such meeting shall constitute a
quorum at such meeting. In the absence of a quorum, the holders of a majority of
all such shares of capital stock present in person or by proxy may adjourn any
meeting, from time to time, until a quorum shall attend. At any such adjourned
meeting at which a quorum may be present, any business may be transacted which
might have been transacted at the meeting as originally called. No notice of any
adjourned meeting need be given if the time and place thereof are announced at
the meeting at which the adjournment is taken. If the adjournment is for more
than 30 days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
<PAGE> 5
Section 9. Order of Business. The order of business at all meetings
of stockholders shall be as determined by the chairman of the meeting.
Section 10. Vote of Stockholders. Except as otherwise permitted by law,
by the Certificate of Incorporation or by Section 12 of this Article II, all
action by stockholders shall be taken at a stockholders' meeting. Except as
otherwise provided by law or by the Certificate of Incorporation, every
stockholder of record, as determined pursuant to Section 7 of this Article II,
who is entitled to vote, shall at every meeting of the stockholders be entitled
to one vote for each share of stock entitled to vote held by such stockholder on
the record date. Every stockholder entitled to vote shall have the right to vote
in person or by proxy. Except as otherwise provided by law, no vote on any
question upon which a vote of the stockholders may be taken need be by ballot
unless the chairman of the meeting shall determine that it shall be by ballot or
the holders of a majority of the shares of capital stock present in person or by
proxy and entitled to participate in such vote shall so demand. In a vote by
ballot each ballot shall state the number of shares voted and the name of the
stockholder or proxy voting. Unless otherwise provided by law, by the
Certificate of Incorporation or by Section 13 of Article III hereof, each
director shall be elected and all other questions shall be decided by the vote
of the holders of a majority of the shares of capital stock present in person or
by proxy at the meeting and entitled to vote on the question; provided, however,
that the Board of Directors may require on any question a vote of a majority of
the shares of capital stock outstanding and entitled to vote thereon.
Section 11. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent to corporate action in writing without a
meeting may authorize another person or persons to act for him by proxy. A proxy
acting for any stockholder shall be duly appointed by an instrument in writing
subscribed by such stockholder.
Section 12. Attendance at Stockholders' Meetings. Any stockholder of
the Corporation not entitled to notice of the meeting or to vote at such meeting
shall nevertheless be entitled to attend any meeting of stockholders of the
Corporation.
<PAGE> 6
ARTICLE III
Board of Directors
Section 1. Number, Qualification and Election.
Subject to the rights of the holders of any class or series of stock having a
preference over the Common Stock of the Corporation as to dividends or upon
liquidation, the number of directors which shall constitute the whole Board
shall be 13, but by vote of a majority of the entire Board of Directors, the
number thereof may be increased without limit, or decreased to not less than
three, by amendment of this Section 1.
The directors, other than those who may be elected by the holders of
shares of any class or series of stock having a preference over the Common Stock
of the Corporation as to dividends or upon liquidation pursuant to Article IV of
the Certificate of Incorporation, shall be classified with respect to the time
for which they severally hold office, into three classes as follows: one class
of three directors shall be originally elected for a term expiring at the annual
meeting of stockholders to be held in 1988, another class of four directors
shall be originally elected for a term expiring at the annual meeting of
stockholders to be held in 1989, and another class of four directors shall be
originally elected for a term expiring at the annual meeting of stockholders to
be held in 1990, with each class to hold office until its successors are elected
and qualified. At each annual meeting of the stockholders of the Corporation,
the successors of the class of directors whose term expires at that meeting
shall be elected to hold office for a term expiring at the annual meeting of
stockholders held in the third year following the year of their election.
Subject to the rights of the holders of any class or series of stock
having a preference over the Common Stock of the Corporation as to dividends or
upon liquidation, at each annual meeting of the stockholders there shall be
elected the directors of the class the term of office of which shall then
expire.
In any election of directors, the persons receiving a plurality of the
votes cast, up to the number of directors to be elected in such election, shall
be deemed elected.
Nominations for the election of directors may be made by the Board of
Directors or by any stockholder entitled to vote for the election of directors.
Any stockholder entitled to vote for the election of directors at a meeting may
nominate a person or persons for election as directors only if written notice of
such stockholder's intent to make such nomination is given, either by personal
delivery or by United States mail, postage prepaid, to the Secretary of the
Corporation not later than (i) with respect to an election to be held at an
annual meeting of stockholders, 90 days in advance of such meeting, and (ii)
<PAGE> 7
with respect to an election to be held at a special meeting of stockholders for
the election of directors, the close of business on the seventh day following
the date on which notice of such meeting is first given stockholders. Each such
notice shall set forth: (a) the name and address of the stockholder who intends
to make the nomination and the person or persons to be nominated; (b) a
representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote at the meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (c) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the stockholder; (d) such other information regarding each nominee proposed by
the stockholder as would have been required to be included in a proxy statement
filing pursuant to the proxy rules of the Securities and Exchange Commission had
each nominee been nominated, or intended to be nominated, by the Board of
Directors; and (e) the consent of each nominee to serve as a Director of the
Corporation if so elected. The chairman of any meeting of stockholders to elect
directors and the Board of Directors may refuse to acknowledge the nomination of
any person not made in compliance with the foregoing procedure.
Section 2. Number. The number of directors may be fixed from time
to time by resolution of the Board of Directors but shall not be less than
three.
Section 3. General Powers. The business, properties and affairs of the
Corporation shall be managed by the Board of Directors which, without limiting
the generality of the foregoing, shall have power to appoint the officers and
agents of the Corporation, to fix and alter the salaries of officers, employees
and agents of the Corporation, to grant general or limited authority (including
authority to delegate and sub-delegate) to officers, employees and agents of the
Corporation to make, execute, affix the corporate seal to, and deliver contracts
and other instruments and documents, including bills, notes, checks or other
instruments for the payment of money, in the name and on behalf of the
Corporation without specific authority in each case, and to appoint committees,
in addition to those provided for in Article IV hereof, with such powers and
duties as the Board of Directors may duly determine. The membership of such
committees shall consist of such persons as are designated by the Board of
Directors whether or not any of such persons is then a director of the
Corporation. In addition, the Board of Directors may exercise all the powers of
the Corporation and do all lawful acts and things which are not reserved to the
stockholders by law, by the Certificate of Incorporation or by the By-Laws.
Section 4. Place of Meetings. Meetings of the Board of Directors may be
held at the principal place of business of the Corporation in the City of New
York or at any other place, within or without the State of Delaware, from time
to time designated by the Board of Directors.
<PAGE> 8
Section 5. Organization Meeting. A newly elected Board of Directors
shall meet and organize without notice and as soon as practicable after each
annual meeting of stockholders, at the place at which such meeting of
stockholders took place. If a quorum is not present, such organization meeting
may be held at any other time or place which may be specified in a notice given
in the manner provided in Section 7 of this Article III for special meeting of
the Board of Directors, or in a waiver of notice thereof.
Section 6. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such times as may be determined by resolution of the Board of
Directors and no notice shall be required for any regular meeting. Except as
otherwise provided by law, any business may be transacted at any regular meeting
of the Board of Directors.
Section 7. Special Meetings; Notice and Waiver of Notice. Special
meetings of the Board of Directors shall be called by the Secretary or an
Assistant Secretary on the request of the Chairman of the Board or the
President, or on the request in writing of one-third of the whole Board of
Directors stating the purpose or purposes of such meeting. Notices of special
meetings shall be mailed to each director, addressed to him at his residence or
usual place of business, not later than three days before the day on which the
meeting is to be held, or shall be sent to him at either of such places by
telegraph, or be communicated to him personally or by telephone, not later than
the day before such day of meeting. Notice of any meeting of the Board of
Directors need not be given to any director if he shall sign a written waiver
thereof either before or after the time stated therein for such meeting.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Unless limited by law,
the Certificate of Incorporation, the By-Laws, or by the terms of the notice
thereof, any and all business may be transacted at any special meeting without
the notice thereof having so specifically enumerated the matters to be acted
upon. Only such business as is specified in the notice of any special meeting of
the stockholders shall come before such meeting.
Section 8. Organization. The Chairman of the Board shall preside at all
meetings of the Board of Directors at which he is present. If the Chairman of
the Board shall be absent from any meeting of the Board of Directors, the duties
otherwise provided in this Section 8 to be performed by him at such meeting
shall be performed at such meeting by the President. If neither of such officers
is present at such meeting, such duties shall be performed by a director
designated by the Chairman of the Board. If no such designated officer or
director is present at such meeting, one of the directors present shall be
chosen by the members of the Board of Directors present to preside at such
meeting. The Secretary of the Corporation shall act as the secretary at all
meetings of the Board of Directors and in his absence a temporary secretary
shall be appointed by the chairman of the meeting.
<PAGE> 9
Section 9. Quorum and Adjournment; Manner of Acting. Except as
otherwise provided by Section 14 of this Article III, at every meeting of the
Board of Directors a majority of the total number of directors shall constitute
a quorum but in no event shall a quorum be constituted by less than two
directors. Except as otherwise provided by law, or by Section 14 of this Article
III, by Section 1 of Article IV, or by Section 3 of Article V, or by Article
VIII, the vote of a majority of the directors present at any such meeting at
which a quorum is present shall be the act of the Board of Directors. In the
absence of a quorum, any meeting may be adjourned, from time to time, until a
quorum is present. No notice of any adjourned meeting need be given other than
by announcement at the meeting that is being adjourned. Members of the Board of
Directors may participate in a meeting thereof by means of conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
Section 10. Voting. On any question on which the Board of Directors
shall vote, the names of those voting and their votes shall be entered in the
minutes of the meeting when any member of the Board of Directors present at the
meeting so requests.
Section 11. Acting Without a Meeting. Any action required or permitted
to be taken at any meeting of the Board of Directors may be taken without a
meeting, if (a) all members of the Board of Directors consent thereto in writing
and such written consents are filed with the minutes of proceedings of the Board
of Directors, or (b) a quorum of members of the Board of Directors participate
in such action by means of conference telephone or similar communications
equipment by means of which all such members participating in such action can
hear each other.
Section 12. Resignations. Any director may resign at any time either by
oral tender of resignation at any meeting of the Board of Directors or by oral
tender to the Chairman of the Board or the President or by written notice
thereof to the Corporation. Any resignation shall be effective immediately
unless some other time is specified for it to take effect. Acceptance of any
resignation shall not be necessary to make it effective unless such resignation
is tendered subject to such acceptance.
Section 13.Removal of Directors. Directors may only be removed as
provided in Section 3(c) of Article VI of the Certificate of Incorporation of
the Corporation.
Subject to the rights of the holders of any class or series of stock
having a preference over the Common Stock of the Corporation as to dividends or
upon liquidation, any vacancies on the Board of Directors resulting from death,
resignation, removal or other cause shall only be filled by the affirmative vote
of a majority of the remaining directors then in office, even though less than a
quorum of the Board of Directors, or by a sole remaining director, and newly
created directorships resulting from any increase in the number of directors
shall be filled by the Board, or if not so filled, by the stockholders at the
next annual meeting thereof or at a special meeting called for that purpose in
accordance with Section 2 of Article II of these By-Laws. Any director elected
in accordance with the preceding sentence of this paragraph shall hold office
for the remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified.
<PAGE> 10
Section 14. Senior Advisor. The Corporation may appoint a Senior
Advisor to the Board of Directors of the Corporation. The Senior Advisor shall
be entitled, but not required, to attend all meetings of the Board of Directors
of the Corporation. The Senior Advisor will not have voting rights on any
matters on which the Board of Directors of the Corporation shall vote.
ARTICLE IV
Committees of the Board
Section 1. Appointing Committees of the Board. The Board of Directors
may from time to time, by resolution adopted by affirmative vote of a majority
of the whole Board of Directors, appoint committees of the Board of Directors
which shall have such powers of the Board of Directors and such duties as the
Board of Directors may properly determine. The Board of Directors may designate
one or more directors as alternate members of any such committee who may replace
any absent or disqualified member at any meeting of such committee. In the
absence or disqualification of any member of such committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not constituting a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Except as may be otherwise provided by the resolution
designating any such committee, at all meetings of any such committee the
presence of members (or alternative members, if any) consisting of a majority of
the total authorized membership of such committee, but in no event less than
two, shall be necessary and sufficient to constitute a quorum for the
transaction of business, and the act of the majority of the members (or such
alternates) present at any meeting at which a quorum is present, but in no event
less than two, shall be the act of such committee.
Section 2. Place and Time of Meetings; Notice and Waiver of Notice;
Records. Meetings of such committees of the Board of Directors may be held at
any place, within or without the State of Delaware, from time to time designated
by the Board of Directors or the committee in question. Regular meetings of any
such committee shall be held at such times as may be determined by resolution of
the Board of Directors or the committee in question, and no notice shall be
required for any regular meeting. A special meeting of any such committee shall
be called by resolution of the Board of Directors, or by the Secretary or an
Assistant Secretary upon the request of any member of the committee. The
provisions of Section 7 of Article III with respect to notice and waiver of
notice of special meetings of the Board of Directors shall also apply to all
special meetings, and the provisions of Section 11 of Article III with respect
to action taken without a meeting and with respect to participation in meetings
of the Board of Directors by means of telephone or similar communications
equipment shall apply to all meetings of committees of the Board of Directors.
Any such committee may make rules for holding and conducting its meetings and
shall keep minutes of all meetings.
<PAGE> 11
ARTICLE V
The Officers
Section 1. Officers. The officers of the Corporation shall be a
Chairman of the Board, a President, a Secretary, a Treasurer and, in the
discretion of the Board of Directors, one or more Vice Presidents. The officers
shall be appointed by the Board of Directors. The Board of Directors may also
appoint one or more Assistant Secretaries, Assistant Treasurers and other
officers and agents as in their judgment may be necessary or desirable. The
Board of Directors may appoint persons as officers of divisions of the
Corporation who shall not for any purpose be considered officers of the
Corporation. The Chairman of the Board and the President shall be selected from
the directors.
Section 2. Terms of Office; Vacancies. So far as is practicable, all
officers shall be appointed at the organization meeting of the Board of
Directors in each year, and, except as otherwise provided in Sections 3 and 4 of
this Article V, shall hold office until the organization meeting of the Board of
Directors in the next subsequent year and until their respective successors are
elected and qualify, or until they sooner die, retire, resign or are removed. If
any vacancy shall occur in any office, the Board of Directors may appoint a
successor to fill such vacancy for the remainder of the term.
Section 3. Removal of Officers. Any officer may be removed at any time,
either for or without cause, by affirmative vote of a majority of the whole
Board of Directors, at any regular meeting or at any special meeting called for
that purpose.
Section 4. Resignations. Any officer may resign at any time, either by
oral tender of resignation to the Chairman of the Board or the President or by
giving written notice thereof to the Corporation. Any resignation shall be
effective immediately unless some other time is specified for it to take effect
and acceptance of any resignation shall not be necessary to make it effective
unless such resignation is tendered subject to such acceptance.
<PAGE> 12
Section 5. Officers Holding More Than One Office. Any officer may
hold two or more offices, the duties of which can be consistently performed by
the same person.
Section 6. The Chairman Of The Board. The Chairman of the Board shall
be a member of the Board of Directors. He shall be the Chief Executive Officer
of the Corporation and, subject to the control of the Board of Directors, shall
have general and active charge of all the policies and affairs of the
Corporation. As provided in Section 6 of Article II, and Section 8 of Article
III, he shall preside at the various meetings at which he is present. The
Chairman of the Board shall also perform such other duties and have such other
powers as are described in Section 7 of this Article V and as may from time to
time be assigned to him by the Board of Directors. In the absence or disability
of the Chairman of the Board, his duties shall be performed and his powers may
be exercised by the President. In the absence or disability of both
aforementioned officers, the powers of the Chairman of the Board may be
exercised by such member of the Board of Directors as may be designated by the
Board of Directors.
Section 7. The President. The President shall be a member of the Board
of Directors. As provided in Section 6 of Article II, and Section 8 of Article
III, the President shall preside at the various meetings under the circumstances
described in such Sections. If such officer is not available, the duties of the
President shall be performed and his powers may be exercised by such member of
the Board of Directors as may be designated by the Chairman of the Board, and
failing such designation or in the absence of the person so designated, by such
member of the Board of Directors as may be designated by the Board of Directors.
The President shall also perform such other duties and have such other powers as
may from time to time be assigned to him by the Board of Directors.
Section 8. The Vice Presidents. The Vice Presidents shall perform such
duties and have such powers as may, from time to time, be assigned to them by
the Board of Directors, the Chairman of the Board or the President.
Section 9. The Secretary. The Secretary shall attend to the giving of
notice of all meetings of stockholders and of the Board of Directors and
committees thereof, and, as provided in Section 6 of Article II, and Section 8
of Article III, shall act as secretary at all meetings of stockholders and
directors, and keep minutes of all proceedings at such meetings, as well as of
all proceedings at all meetings of such committees of the Board of Directors as
shall designate him to so serve. The Secretary shall have charge of the
corporate seal and he or any Assistant Secretary shall have authority to attest
any and all instruments or writings to which the same may be affixed. He shall
keep and account for all books, documents, papers and records of the
Corporation, except those for which some other officer or agent is properly
accountable. He shall generally perform all the duties usually appertaining to
the office of secretary of a corporation. In the absence of the Secretary, such
person as shall be designated by the chairman of any meeting shall perform his
duties.
<PAGE> 13
Section 10. The Treasurer. The Treasurer shall have the care and
custody of all the funds of the Corporation and shall deposit the same in such
banks or other depositories as the Board of Directors, or any officer or
officers thereunto duly authorized by the Board of Directors, shall, from time
to time, direct or approve. He shall generally perform all the duties usually
appertaining to the affairs of the treasurer of a corporation. When required by
the Board of Directors, he shall give bonds for the faithful discharge of his
duties in such sums and with such sureties as the Board of Directors shall
approve. In the absence of the Treasurer, such person as shall be designated by
the Chairman of the Board shall perform his duties.
Section 11. Additional Powers and Duties. In addition to the foregoing
especially enumerated duties and powers, the several officers of the Corporation
shall perform such other duties and exercise such further powers as the Board of
Directors may, from time to time, determine, or as may be assigned to them by
any superior officer.
ARTICLE VI
Stock and Transfers of Stock
Section 1. Stock Certificates. The capital stock of the Corporation
shall be represented by certificates signed by two officers of the Corporation,
one being the Chairman of the Board, the President or a Vice President and the
other being the Secretary or an Assistant Secretary, and sealed with a seal of
the Corporation. Stock certificates may, in the discretion of the Board of
Directors, also be countersigned by a Transfer Agent or Agents, and registered
by a Registrar of transfers, to be appointed by the Board. Any of or all
signatures on a stock certificate, may, if the Board of Directors so determines,
be a facsimile. The seal may be a facsimile, engraved or printed. In case any
such officer who has signed any such certificate shall have ceased to be such
officer before such certificate is issued, it may nevertheless be issued by the
Corporation with the same effect as if he were such officer at the date of
issue. The certificates representing the voting capital stock of the Corporation
shall be in such form as shall be approved by the Board of Directors and shall
bear the following legend:
"The Corporation will furnish without charge to each stockholder who so requests
the powers, designations, preferences and relative participating, optional or
other special rights of each class of stock or series thereof of the Corporation
and the qualifications, limitations or restrictions of such preference and/or
rights. Such request may be made to the Corporation or to the Transfer Agent or
Registrar."
<PAGE> 14
Section 2. Registration of Transfers of Stock. Registration of a
transfer of stock shall be made on the books of the Corporation only upon
presentation by the person named in the certificate evidencing such stock, or by
an attorney lawfully constituted in writing, and upon surrender and cancellation
of such certificate, with duly executed assignment and power of transfer
endorsed thereon or attached thereto, and with such proof of the authenticity of
the signature thereon as the Corporation or its agents may reasonably require.
Section 3. Lost Certificates. In case any certificate of stock shall be
lost, stolen or destroyed, the Board of Directors, in its discretion, or any
officer or officers thereunto duly authorized by the Board of Directors, may
authorize the issuance of a substitute certificate in the place of the
certificate so lost, stolen or destroyed; provided, however, that, in each such
case, the Corporation may require the owner of the lost, stolen or destroyed
certificate, or his legal representative, to give the Corporation evidence which
the Corporation determines in its discretion is satisfactory of the loss, theft
or destruction of such certificate and of the ownership thereof, and may also
require a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 4. Determination of Stockholders of Record for Certain
Purposes. In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not be more than 60 or
less than ten days prior to any such action.
ARTICLE VII
Indemnification
Section 1. Right to Indemnification. The Corporation shall to the
fullest extent permitted by applicable law as then in effect, indemnify any
person (the "Indemnitee") who is or was a director or officer of the Corporation
or is or was involved in any manner (including, without limitation, as a party
or a witness) or is threatened to be made so involved in any threatened, pending
or completed investigation, claim, action, suit or proceeding, whether civil,
criminal, administrative or investigative (including without limitation, any
action, suit or proceeding by or in the right of the Corporation to procure a
judgment in its favor) (a "Proceeding") by reason of the fact that such person
is or was a director or officer of the Corporation, or is or was serving at the
request of the Corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise (including, without
limitation, any employee benefit plan) against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such Proceeding. Such
indemnification shall be a contract right and shall include the right to receive
payment in advance of any expenses incurred by the Indemnitee in connection with
such Proceeding, consistent with the provisions of applicable law as then in
effect.
<PAGE> 15
Section 2. Insurance, Contracts and Funding. The Corporation may
purchase and maintain insurance to protect itself and any person entitled to
indemnity under this Article VII against any expenses, judgments, fines and
amounts paid in settlement as specified in the first section of this Article or
incurred by any such person in connection with any Proceeding referred to in
this Article VII, to the fullest extent permitted by applicable law as then in
effect. The Corporation may enter into contracts with any person entitled to
indemnity under this Article VII in furtherance of the provisions of this
Article VII and may create a trust fund, grant a security interest or use other
means (including, without limitation, a letter of credit) to ensure the payment
of such amounts as may be necessary to effect indemnification as provided in
this Article.
Section 3. Indemnification; Not Exclusive Right. The right of
indemnification provided in this Article VII shall not be exclusive of any other
rights to which those seeking indemnification may otherwise be entitled, and the
provisions of this Article VII shall inure to the benefit of the heirs and legal
representatives of any person entitled to indemnity under this Article VII and
shall be applicable to Proceedings commenced or continuing after the adoption of
this Article VII, whether arising from acts or omissions occurring before or
after such adoption.
Section 4. Advancement of Expenses; Procedures; Presumptions and Effect
of Certain Proceedings; Remedies. In furtherance, but not in limitation of the
foregoing provisions, the following procedures, presumptions and remedies shall
apply with respect to advancement of expenses and the right to indemnification
under this Article VII:
(a) Advancement of Expenses. All reasonable expenses incurred by or on
behalf of the Indemnitee in connection with any Proceeding shall be advanced to
the Indemnitee by the Corporation within 20 days after the receipt by the
Corporation of a statement or statements from the Indemnitee requesting such
advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the expenses incurred by the Indemnitee and, if required by law at the
time of such advance, shall include or be accompanied by an undertaking by or on
behalf of the Indemnitee to repay the amounts advanced if it should ultimately
be determined that the Indemnitee is not entitled to be indemnified against such
expenses pursuant to this Article VII.
(b) Procedure for Determination of Entitlement to Indemnification. (i)
to obtain indemnification under this Article VII, an Indemnitee shall submit to
the Secretary of the Corporation a written request, including such documentation
and information as is reasonably available to the Indemnitee and reasonably
necessary to determine whether and to what extent the Indemnitee is entitled to
indemnification (the "Supporting Documentation"). The determination of the
Indemnitee's entitlement to indemnification shall be made not later than 60 days
after receipt by the Corporation of the written request for indemnification
together with the Supporting Documentation. The Secretary of the Corporation
shall, promptly upon receipt of such a request for indemnification, advise the
Board of Directors in writing that the Indemnitee has requested indemnification.
<PAGE> 16
(ii) The Indemnitee's entitlement to indemnification under this Article
VII shall be determined in one of the following ways: (A) by a majority vote of
the Disinterested Directors (as hereinafter defined), if they constitute a
quorum of the Board of directors; (B) by a written opinion of Independent
Counsel (as hereinafter defined) if (x) a Change of Control (as hereinafter
defined) shall have occurred and the Indemnitee so requests or (y) a quorum of
the Board of Directors consisting of Disinterested Directors is not obtainable
or, even if obtainable, a majority of such Disinterested Directors so directs;
(C) by the stockholders of the Corporation (but only if a majority of the
Disinterested Directors, if they constitute a quorum of the Board of Directors,
presents the issue of entitlement to indemnification to the stockholders for
their determination); or (D) as provided in Section 4(c).
(iii) In the event the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 4(b)(ii), a majority of
the Disinterested Directors shall select the Independent Counsel, but only an
Independent Counsel to which the Indemnitee does not reasonably object;
provided, however, that if a Change of Control shall have occurred, the
Indemnitee shall select such Independent Counsel, but only an Independent
Counsel to which the Board of Directors does not reasonable object. If no
Independent Counsel is so selected to act as provided in Section 4(b)(ii), the
Indemnitee shall be entitled to seek adjudication to indemnification in an
appropriate court of the State of Delaware or any other court of competent
jurisdiction.
(c) Presumptions and Effect of Certain Proceedings. Except as otherwise
expressly provided in this Article VII, if a Change of Control shall have
occurred, the Indemnitee shall be presumed to be entitled to indemnification
under this Article VII upon submission of a request for indemnification together
with the Supporting Documentation in accordance with Section 4(b)(i), and
thereafter the Corporation shall have the burden of proof to overcome that
presumption in reaching a contrary determination. In any event, if the person or
persons empowered under Section 4(b) to determine entitlement to indemnification
shall not have been appointed or shall not have made a determination within 60
days after receipt by the Corporation of the request therefor together with the
Supporting Documentation, the Indemnitee shall be deemed to be entitled to
indemnification and the Indemnitee shall be entitled to such indemnification
<PAGE> 17
unless (A) the Indemnitee misrepresented or failed to disclose a material fact
in making the request for indemnification or in the Supporting Documentation or
(B) such indemnification is prohibited by law. The termination of any Proceeding
described in Section 1, or of any claim, issue or matter therein, by judgment,
order, settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, adversely affect the right the Indemnitee to
indemnification or create a presumption that the Indemnitee did not act in good
faith and in a manner which the Indemnitee reasonably believed to be in or not
opposed to the best interests of the Corporation or, with respect to any
criminal Proceeding, that the Indemnitee had reasonable cause to believe that
his conduct was unlawful.
(d) Remedies of Indemnitee. (i) In the event that a determination is
made pursuant to Section 4(b) that the Indemnitee is not entitled to
indemnification under this Article VII, (A) the Indemnitee shall be entitled to
seek an adjudication of his entitlement to such indemnification either, at the
Indemnitee's sole option, in an appropriate court of the State of Delaware or
any other court of competent jurisdiction; (B) any such judicial proceeding
shall be de novo and the Indemnitee shall not be prejudiced by reason of such
adverse determination; and (C) if a Change of Control shall have occurred, in
any such judicial proceeding the Corporation shall have the burden of proving
that the Indemnitee is not entitled to indemnification under this Article VII.
(ii) If a determination shall have been made or deemed to have been
made, pursuant to Section 4(b) or (c), that the Indemnitee is entitled to
indemnification, the Corporation shall be obligated to pay the amounts
constituting such indemnification within five days after such determination has
been made or deemed to have been made and shall be conclusively bound by such
determination unless (A) the Indemnitee misrepresented or failed to disclose a
material fact in making the request for indemnification or in the Supporting
Documentation or (B) such indemnification is prohibited by law. In the event
that (x) advancement of expenses is not timely made pursuant to Section 4(a) or
(y) payment of indemnification is not made within five days after a
determination of entitlement to indemnification has been made or deemed to have
been made pursuant to section 4(b) or (c), the Indemnitee shall be entitled to
seek judicial enforcement of the Corporation's obligation to pay to the
Indemnitee such advancement of expenses or indemnification. Notwithstanding the
foregoing, the Corporation may bring an action, in an appropriate court in the
State of Delaware or any other court of competent jurisdiction, contesting the
right of the Indemnitee to receive indemnification hereunder due to the
occurrence of an event described in subclause (A) or (B) of this clause (ii) (a
"Disqualifying Event"); provided, however, that in any such action the
Corporation shall have the burden of proving the occurrence of such
Disqualifying Event.
(iii) The Corporation shall be precluded from asserting in any judicial
proceeding commenced pursuant to this Section 4(d) that the procedures and
presumptions of this Article VII are not valid, binding and enforceable and
shall stipulate in any such court that the Corporation is bound by all the
provisions of this Article VII.
<PAGE> 18
(iv) In the event that the Indemnitee, pursuant to this Section 4(d),
seeks a judicial adjudication to enforce his rights under, or to recover damages
for breach of, this Article VII, the Indemnitee shall be entitled to recover
from the Corporation, and shall be indemnified by the Corporation against, any
expenses actually and reasonably incurred by the Indemnitee if the Indemnitee
prevails in such judicial adjudication. If it shall be determined in such
judicial adjudication that the Indemnitee is entitled to receive part but not
all of the indemnification or advancement of expenses sought, the expenses
incurred by the Indemnitee in connection with such judicial adjudication shall
be prorated accordingly.
(e) Definitions. For purposes of this Section 4: (i) "Change in
Control" means a change in control of the Corporation of a nature that would be
required to be reported in response to Item 6(e) (or any successor provision) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934 (the "Act"), whether or not the Corporation is then subject to such
reporting requirement; provided that, without limitation, such a change in
control shall be deemed to have occurred if (A) any "person" [(as such term is
defined in Sections 4 of Article XIII of the Certificate of Incorporation)]* is
or becomes an "Interested Stockholder" [as defined therein)]*; (B) the
Corporation is a party to any merger or consolidation in which the Corporation
is not the continuing or surviving corporation or pursuant to which shares of
the Corporation's Common Stock would be converted into cash, securities or other
property, other than a merger of the Corporation in which the holders of the
Corporation's Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger; (C) there is a sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
the assets of the Corporation, or a liquidation or dissolution of the
Corporation; or (D) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors (including
for this purpose any new director whose election or nomination for election by
the Corporation's stockholders was approved by a vote of at least two-thirds of
the directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board of
Directors.
(ii) "Disinterested Director" means a director of the Corporation who
is not or was not a party to the Proceeding in respect of which indemnification
is sought by the Indemnitee.
(iii) "Independent Counsel" means a law firm or a member of a law firm
that neither presently is, nor in the past five years has been, retained to
represent: (i) the Corporation or the Indemnitee in any matter material to
either such party or (ii) any other party to the Proceeding giving rise to a
claim for indemnification under this Article VII. Notwithstanding the foregoing,
the term "Independent Counsel" shall not include any person who, under the
applicable standards of professional conduct then prevailing under the law of
the State of Delaware, would have conflict of interest in representing either
the Corporation or the Indemnitee in an action to determine the Indemnitee's
rights under this Article VII.
<PAGE> 19
Section 5. Severability. If any provision or provisions of this Article
VII shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Article VII containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby; and (b) to
the fullest extent possible, the provisions of this Article VII (including,
without limitation, all portions of any section of this Article VII containing
any such provision held to be invalid, illegal or unenforceable, that are not
themselves invalid, illegal or unenforceable) shall be construed so as to give
effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
Section 6. Indemnification of Employees and Agents. Notwithstanding any
other provision or provisions of this Article VII, the Corporation may indemnify
(including, without limitation, by direct payment) any person (other than a
director or officer of the Corporation) who is or was involved in any manner
(including, without limitation, as a party or witness) or is threatened to be
made so involved in any Proceeding by reason of the fact that such person is or
was an employee or agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise (including,
without limitation, any employee benefit plan), against any or all expenses
(including attorneys' fees), judgments, fines amounts paid in settlement
incurred in connection with such Proceeding.
ARTICLE VIII
Miscellaneous
Section 1. Seal. The seal of the Corporation shall have inscribed
thereon the name of the Corporation, the year of its organization and the
state of its incorporation.
Section 2. Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board of Directors.
Section 3. References to Article and Section Numbers and to the By-Laws
and the Certficate of Incorporation. Whenever in the By-Laws reference is made
to an Article or Section number, such reference is to the number of an Article
or Section of the By-Laws. Whenever in the By-Laws reference is made to the
By-Laws, such reference is to these By-Laws of the Corporation, as the same may
from time to time be amended, and whenever reference is made to the Certificate
of Incorporation, such reference is to the Certificate of Incorporation of the
Corporation, as the same may from time to time be amended.
<PAGE> 20
Section 4. Books of the Corporation. Except as otherwise provided by
law, the books of the Corporation shall be kept at the principal place of
business of the Corporation and at such other locations as the Board of
Directors may from time to time determine.
ARTICLE IX
Amendments
The By-Laws may be altered, amended or repealed, from time to time, in
accordance with the provisions of Article XII of the Certificate of
Incorporation.
<PAGE> 1
[LOGO] YASUDA LIFE THE YASUDA MUTUAL LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
1-9-1, NISHI-SHINJUKU, SHINJUKU-KU, TOKYO, 169-92 JAPAN
Telephone (03)3342-7111 Telex (03)3232-2887 Facsimile (03)3348-4495
October 13, 1992
Paine Webber Group Inc.
1285 Avenue of the Americas
New York, New York 10019
Attention: Vice President and General Counsel
Dear Sirs:
This Letter of Intent will acknowledge the present good faith intention of
Paine Webber Group Inc. ("PaineWebber") and The Yasuda Mutual Life Insurance
Company ("Yasuda Mutual") to amend the Investment Agreement, dated as of
November 30, 1987 (the "Investment Agreement"), by and between PaineWebber and
Yasuda Mutual, to provide for: (i) the repurchase by PaineWebber of 1,685,394
shares of its 7% Cumulative Convertible Exchangeable Voting Preferred Stock,
Series A (the "Series A Shares"), currently owned by Yasuda Mutual and (ii) the
delivery by PaineWebber to Yasuda Mutual of shares of cumulative convertible
voting preferred stock of PaineWebber having the terms set forth in the Annex to
this letter and the cancellation by PaineWebber of 3,370,786 Series A Shares
owned by Yasuda Mutual (the balance of the outstanding Series A Shares). The
principal terms of the transaction as currently contemplated are set forth in
the Annex to this letter.
The transaction is subject to, among other things, the negotiation and
execution and delivery of a definitive amendment to the Investment Agreement,
which shall set forth the terms and conditions under which the transaction shall
occur and which shall be mutually acceptable to both parties (which terms and
conditions may differ from those set forth in the Annex), and the parties
acknowledge that their current intentions as to the proposed transaction,
including as to its terms and whether to proceed, may change and new issues may
be presented for further consideration.
Capitalized terms used but not defined in this Letter of Intent and the
Annex hereto have the respective meanings assigned in the Investment Agreement.
<PAGE> 2
1. Expenses. The parties hereto shall each bear their own respective costs
and expenses in connection with the transactions contemplated hereby.
2. Publicity. This Letter of Intent shall be kept confidential until the
parties hereto mutually agree upon the language and timing of a press release or
until such time as one such party determines that a public announcement is
required by law, in which case the parties hereto shall in good faith attempt to
agree on any public announcements or publicity statements with respect thereto.
3. No Binding Obligation. Except with respect to paragraphs 1 and 2, which
are intended to be binding on the parties, this Letter of Intent is intended to
serve only as an expression of the parties' intentions and not as a binding
obligation to consummate the contemplated transactions; any such obligation will
be created only by a definitive amendment to the Investment Agreement, the
provisions of which will supersede this and all other understandings of the
parties.
4. Governing Law. This Letter of Intent shall be governed by the laws of
the State of New York.
If the foregoing terms and conditions are acceptable to you, please so
indicate by signing both of the enclosed copies of this letter where indicated
and returning one to the undersigned.
Very truly yours,
THE YASUDA MUTUAL LIFE INSURANCE
COMPANY
By: /s/ Takeshi Maki
------------------------------
Name: Takeshi Maki
Title: Manager, International
Finance Division
Acknowledged and Agreed to:
PAINE WEBBER GROUP INC.
By: /s/ Regina Dolan
---------------------------
Name: REGINA DOLAN
Title: ATTORNEY IN FACT
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<PAGE> 3
ANNEX
Repurchase and Sale of Series A Shares. Yasuda Mutual shall sell, and
PaineWebber shall purchase, 1,685,394 Series A Shares. The aggregate purchase
price for the Series A Shares so repurchased shall be Yen9,955,995,396, plus an
amount (payable in dollars) equal to the aggregate accumulated and unpaid
dividends on the Series A Shares so repurchased.
Participating Preferred Shares. Simultaneously with the repurchase referred
to in the preceding paragraph, PaineWebber shall deliver to Yasuda Mutual
7,758,632 shares of Cumulative Participating Convertible Voting Preferred Stock,
Series A having the terms set forth below (the "Participating Preferred Shares")
to replace 3,370,786 Series A Shares which Yasuda Mutual shall deliver to
PaineWebber for cancellation by PaineWebber. In connection with the delivery of
such Participating Preferred Shares, PaineWebber shall pay to Yasuda Mutual an
amount (payable in dollars) equal to the aggregate accumulated and unpaid
dividends on the Series A Shares so delivered for cancellation. The
Participating Preferred Shares shall have the following terms:
Title:
Cumulative Participating Convertible Voting Preferred Stock, Series A
Liquidation
Preference:
$19.3333 per share
Dividends:
Cumulative dividends in the amount of $0.12 per share per calendar
quarter, plus an amount in any calendar quarter equal to the amount of
dividends per share in excess of $0.12 paid on the shares of Common
Stock of PaineWebber during such quarter, such additional dividends to
be declared on the same dates as dividends on the Common Stock and
paid in priority to the payment of any dividends on the Common Stock
on the payment dates for such dividends.
The amount of dividends payable on each Participating Preferred Share
shall be subject to antidilution adjustments in the event of certain
changes in the
<PAGE> 4
capital structure of PaineWebber (e.g., stock splits and stock
dividends) that result in a change in the Conversion Price with
respect to the Participating Preferred Shares as described below.
Conversion:
Convertible at any time at the option of the holder. Conversion Price
will be equal to $19.3333, subject to antidilution adjustments
substantially identical to the adjustments contained in the terms of
the Series A Shares.
Voting
Rights:
One vote per share entitled to vote together with the shares of Common
Stock as a single class upon all matters upon which holders of Common
Stock are entitled to vote, subject to adjustment on terms
substantially identical to those contained in the terms of the Series
A Shares.
Class voting rights together with other Parity Preferred Stock (as
defined in the terms of the Series A Shares), to the same extent as
provided in the terms of the Series A Shares.
Redemption:
Redeemable at the option of PaineWebber on any date beginning March
15, 1993, for a redemption price equal to the Liquidation Preference
plus accumulated and unpaid dividends to the redemption date,
provided, that if redemption takes place in any calendar quarter on a
date other than a scheduled dividend payment date, PaineWebber shall
pay Yasuda Mutual such additional amounts, if any, as may be necessary
to ensure to Yasuda Mutual a yield of $0.12 per share for such
calendar quarter on the Participating Preferred Shares called for
redemption and any shares of Common Stock issued upon conversion
thereof. Redemption shall be subject to the following conditions:
(a) until March 31, 1993, up to 50% of the Participating Preferred
Shares initially issued may be redeemed, provided, that on the
date the notice of redemption is given, the Average Market Price
of the Common Stock is greater than the Trigger Price;
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<PAGE> 5
(b) thereafter until March 31, 1994, all of the outstanding
Participating Preferred Shares may be redeemed, provided, that on
the date the notice of redemption is given, the Average Market
Price of the Common Stock is greater than the Trigger Price;
(c) thereafter, all of the outstanding Participating Preferred Shares
may be redeemed, provided, that on the date the notice of
redemption is given, the Average Market Price of the Common Stock
is greater than $24.00.
Notice of redemption will be given upon at least 30 days' and not more
than 45 days' notice. Holders of Participating Preferred Shares will
have the option to receive the redemption price in the form of
securities which are direct obligations of the United States of
America, on the same terms and conditions as is provided in the terms
of the Series A Shares.
Exchangeability:
Participating Preferred Shares will not be exchangeable for
convertible subordinated debentures.
Definitions:
Average Market Price: The Average Market Price of the Common Stock on
any date means the average of the daily closing prices for any period
of 15 consecutive trading days ending within three trading days before
the date in question.
Trigger Price: The Trigger Price on any date means the greater of (i)
the quotient obtained by dividing (A) 2,566.43 by (B) the Yen-Dollar
Exchange Rate on the next preceding business day and (ii) $21.50.
Yen-Dollar Exchange Rate: The Yen-Dollar Exchange Rate on any date of
determination means the noon buying rate for cable transfers in yen in
New York City as certified for customs purposes by the Federal Reserve
Bank of New York for such day.
Principal Amendments to Investment Agreement
Definition of Investor Minimum Investment: The definition of Investor
Minimum Investment will be amended to
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<PAGE> 6
provide that the Investor Minimum Investment means on any date of determination
5,000,000 shares of Participating Preferred Shares and/or Common Stock, subject
to antidilution adjustments in the event of certain changes in the capital
structure of PaineWebber (e.g., stock splits and stock dividends) that result in
a change in the Conversion Price with respect to the Participating Preferred
Shares.
Covenants: The provisions of Articles V, VI, VII and VIII of the Investment
Agreement will continue to apply as though the Participating Preferred Shares
were Series A Shares, subject only to the following exceptions:
o the Participating Preferred Shares will be transferable subject only
to the Company's right of first refusal contained in Article VII of
the Investment Agreement, provided that, prior to November 30, 2007,
the Participating Preferred Shares (and shares of Common Stock issued
upon conversion thereof) shall not be transferable by Yasuda Mutual to
any Person pursuant to a Hostile Proposal;
o the reference to 35% in Section 5.1(1) (ii) will be changed to the
Standstill Amount;
o Designees of Yasuda Mutual shall be entitled to one-sixth (rounded
down to the next whole number not less than one) of the seats on the
PaineWebber Board of Directors for so long as Yasuda Mutual holds at
least 10% of the Outstanding Voting Securities of PaineWebber, and to
two seats for so long as Yasuda Mutual holds at least the Investor
Minimum Investment; and
o PaineWebber shall be required to exercise its right of first refusal
under Article VII by written notice to Yasuda Mutual given within a
number of Business Days after receipt of a Transfer Notice relating to
a specified number of shares as set forth below:
3,000,000 shares or less 5 Business
Days
more than 3,000,000 but 7 Business
not more than 5,000,000 Days
shares
more than 5,000,000 shares 10 Business
Days
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<PAGE> 7
Registration Rights:
o Yasuda Mutual shall have the right to registration on request pursuant
to Section 2 of Exhibit 6, up to eight times.
o The time period in Section 2.1(a) of Exhibit 6 shall be reduced from
120 days to 60 days.
Closing Date: November 5, 1992
Closing Conditions: The closing of the transactions contemplated hereby
will be subject to conditions substantially similar to those contained in
Article III of the Investment Agreement.
Indemnification: PaineWebber shall indemnify and hold Yasuda Mutual and its
officers, directors, employees and agents harmless from any and all actions,
suits, claims, proceedings or investigations that may arise under Delaware
corporate law or under securities laws of the United States or any state thereof
in connection with or as a result of the transactions specified in clauses (i)
and (ii) of the introductory paragraph of the Letter of Intent, other than those
arising primarily as a result of the gross negligence or willful misconduct of
Yasuda Mutual.
Effectiveness of Amendment: Upon closing of the repurchase and replacement
of Series A Shares as described above.
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<PAGE> 8
Complete Unexecuted Copy
================================================================================
AMENDED AND RESTATED
INVESTMENT AGREEMENT
By and Between
PAINE WEBBER GROUP INC.
and
THE YASUDA MUTUAL LIFE INSURANCE COMPANY
Dated as of November 5, 1992
================================================================================
<PAGE> 9
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS .............................................................. 1
ARTICLE II
REPURCHASE AND REPLACEMENT OF SERIES A SHARES
Section 2.1 Repurchase of Series A Shares ............................. 2
Section 2.2 Replacement of Series A Shares ............................ 2
Section 2.3 Registration Rights ....................................... 3
ARTICLE III
CLOSING; INITIAL CONVERSION PRICE; CONDITIONS
Section 3.1 Closing ................................................... 3
Section 3.2 Initial Conversion Price .................................. 4
Section 3.3 Conditions to Obligations of
Investor ................................................ 4
Section 3.4 Conditions to Obligations
of Company .............................................. 5
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties
of Company .............................................. 7
(a) Corporate Existence .................................. 7
(b) Authorization; Enforcement ........................... 7
(c) Compliance with Law .................................. 8
(d) Compliance with Obligations .......................... 9
(e) Consents and Approvals ............................... 10
(f) Exchange Act Reports ................................. 10
(g) Financial Condition .................................. 10
(h) Litigation ........................................... 11
(i) Material Adverse Change .............................. 12
(j) Governmental Investigations .......................... 12
(k) Outstanding Capital Stock ............................ 12
i
<PAGE> 10
Page
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(l) The Participating Preferred Shares;
Common Stock ....................................... 14
(m) Listing of Common Stock .............................. 14
Section 4.2 Representations and Warranties
of Investor ............................................. 14
(a) Corporate Existence .................................. 14
(b) Authorization; Enforcement ........................... 14
(c) Compliance with Law .................................. 15
(d) Compliance with Obligations .......................... 15
(e) Consents and Approvals ............................... 15
(f) Litigation ........................................... 16
(g) Status and Investment Intent ......................... 16
ARTICLE V
COVENANTS
Section 5.1 Covenants of Company ...................................... 16
(a) Registration Rights .................................. 16
(b) Reservation of Common Stock .......................... 16
(c) Equity Purchase Rights ............................... 17
(d) Information .......................................... 19
(e) Governmental Investigations .......................... 21
(f) Directors of Company ................................. 21
(g) Senior Advisor to the Board
of Directors of Company ............................ 23
(h) Going Private Transactions ........................... 23
(i) Certain Repurchases of Voting
Securities; Company Announcements .................. 25
(j) Adverse Acts ......................................... 26
(k) Operations in Ordinary Course ........................ 26
(l) Additional Payments in the Event
of Certain Redemptions ............................. 27
(m) Certain Approvals .................................... 28
Section 5.2 Covenants of Investor ..................................... 28
(a) Transfers ............................................ 28
(b) Acquisition of Voting Securities ..................... 28
(c) Exercise of Control .................................. 29
(d) Certain Approvals; Exercise
of Voting Power .................................... 31
-ii-
<PAGE> 11
Page
----
ARTICLE VI
FURTHER AGREEMENTS
Section 6.1 Exchange of Personnel ........................................ 31
(a) Investor Exchange Personnel .......................... 31
(b) Company Exchange Personnel ........................... 32
(c) Compensation of Exchange Personnel ................... 33
(d) Limitations on Hiring of
Exchange Personnel ................................. 33
(e) Termination of Exchange Rights ....................... 33
Section 6.2 Economic Parity ........................................... 34
Section 6.3 Cooperation ............................................... 34
Section 6.4 Fees and Expenses ......................................... 34
Section 6.5 Publicity ................................................. 35
Section 6.6 Mutual Collaboration ...................................... 35
ARTICLE VII
COMPANY'S RIGHT OF FIRST REFUSAL ......................................... 36
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Termination ............................................... 40
Section 8.2 Survival of Representations
and Warranties; Indemnification ......................... 42
Section 8.3 Legend .................................................... 42
Section 8.4 Severability .............................................. 43
Section 8.5 Voting Securities Owned by Investor ....................... 43
Section 8.6 Specific Enforcement ...................................... 43
Section 8.7 Entire Agreement .......................................... 44
Section 8.8 Counterparts .............................................. 44
Section 8.9 Notices ................................................... 44
Section 8.10 Cure Provisions ........................................... 45
Section 8.11 Waivers ................................................... 46
Section 8.12 Beneficial Ownership ...................................... 46
Section 8.13 Delay Provision ........................................... 46
Section 8.14 Submission to Jurisdiction;
Consent to Service of Process ........................... 47
Section 8.15 Headings .................................................. 47
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<PAGE> 12
Page
----
Section 8.16 Successors and Assigns .................................... 48
Section 8.17 Governing Law ............................................. 48
Testimonium and Signatures ............................................... 48
EXHIBITS
1 Definitions
2 Form of Preferred Stock
3 Registration Rights
4 Form of Certificate of Officers of Company on
Closing Date
5-A Form of Opinion of James Treadway, Esq. on Closing Date
5-B Form of Opinion of Cravath, Swaine & Moore on Closing Date
6 Form of Certificate of a Director of Investor on Closing Date
7-A Form of Opinion of Braun Moriya Hoashi & Kubota on Closing Date
7-B Form of Opinion of Sullivan & Cromwell on Closing Date
8 Options, Warrants, etc. for Company or Significant Subsidiary
Capital Stock
9 Restated Certificate of Incorporation and By-laws of Company
10 Form of Legend
11 Functional Areas and Supervisory Committee Areas
12 List of Market Makers in the Foreign Exchange Market for Japanese
Yen
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<PAGE> 13
Amended and Restated Investment Agreement (as so amended and restated, the
"Agreement"), dated as of November 5, 1992, by and between Paine Webber Group,
Inc., a Delaware corporation (the "Company"), and The Yasuda Mutual Life
Insurance Company, a mutual life insurance company organized under the laws of
Japan (the "Investor").
WHEREAS, the Company and the Investor previously entered into the
Investment Agreement, dated as of November 30, 1987 (the "Original Agreement").
WHEREAS, the Company and the Investor wish to provide for the repurchase by
the Company of a portion of the outstanding Series A Shares and the replacement
of the remaining outstanding Series A Shares with shares of a series of
preferred stock of the Company having the terms set forth in an exhibit hereto.
WHEREAS, the Company and the Investor wish to amend the Agreement to modify
the definition of "Investor Minimum Investment" contained in the Original
Agreement and to make certain other amendments to the Original Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Unless otherwise indicated, defined terms in this Agreement and in the
Exhibits to this Agreement, which may be identified by the capitalization of the
first letter of each principal word thereof, have the meanings assigned to them
in Exhibit 1.
<PAGE> 14
ARTICLE II
REPURCHASE AND REPLACEMENT OF SERIES A SHARES
Section 2.1. Repurchase of Series A Shares. Subject to the terms and
conditions stated herein, the Company agrees to repurchase from the Investor,
and the Investor agrees to sell to the Company, at the Closing 1,685,394 of the
Company's 7% Cumulative Convertible Exchangeable Voting Preferred Stock, Series
A (the "Series A Shares") for total consideration of (i) Yen9,955,995,396 (the
"Aggregate Repurchase Price") plus (ii) an amount in cash (in United States
dollars) equal to the accumulated and unpaid dividends to but excluding the
Closing Date on the Series A Shares so repurchased (the "Accumulated Dividends
on Repurchased Shares").
Section 2.2. Replacement of Series A Shares. Subject to the terms and
conditions stated herein, the Investor agrees to deliver, and the Company agrees
to accept, at the Closing, 3,370,786 Series A Shares, and the Company agrees to
deliver, and the Investor agrees to accept, in replacement of such 3,370,786
Series A Shares (i) 7,758,632 shares of the Company's Cumulative Participating
Convertible Voting Preferred Stock, Series A (the "Participating Preferred
Shares") and (ii) an amount in cash (in United States dollars) equal to the
accumulated and unpaid dividends to but excluding the Closing Date on the Series
A Shares so replaced (the "Accumulated Dividends on Replaced Shares"). The
Participating Preferred Shares shall have the designation, powers, preferences
and rights specified in the Certificate of Designation of the Company to be
filed by the Company with the Secretary of State of the State of Delaware at or
before the Closing, substantially in the form set forth in Exhibit 2.
-2-
<PAGE> 15
Section 2.3. Registration Rights. The Investor shall have the rights to
registration under the Securities Act of all shares of Common Stock of the
Company, on the terms and subject to the conditions set forth in Exhibit 3.
ARTICLE III
CLOSING; INITIAL CONVERSION PRICE;
CONDITIONS
Section 3.1. Closing. The closing of the repurchase and sale of the Series
A Shares and the replacement of the remaining outstanding Series A Shares by the
Participating Preferred Shares as provided for in this Agreement shall take
place on November 5, 1992, at 11:00 A.M., New York time, at the offices of the
Company set forth in Section 8.9 of this Agreement, or at such other time and
place as the parties determine in writing (the "Closing"). The actual date on
which the Closing shall occur is referred to herein as the "Closing Date." At
the Closing, the Company shall deliver to the Investor (i) the Aggregate
Repurchase Price and (ii) the Accumulated Dividends on Repurchased Shares, and
the Investor shall deliver to the Company for cancellation a certificate or
certificates representing 1,685,394 Series A Shares. Also at the Closing, the
Company shall deliver to the Investor (i) a certificate or certificates, in such
reasonable denominations as shall be designated in writing by the Investor not
less than five Business Days prior to the Closing and registered in the name of
the Investor, representing an aggregate of 7,758,632 Participating Preferred
Shares and (ii) the Accumulated Dividends on Replaced Shares, and the Investor
shall deliver to the Company for cancellation a certificate or certificates
representing 3,370,786 Series A Shares. The Aggregate Repurchase
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<PAGE> 16
Price, the Accumulated Dividends on Repurchased Shares and the Accumulated
Dividends on Replaced Shares shall be paid to the Investor in each case by, at
the option of the Investor, bank check or wire transfer of immediately available
funds to an account or accounts designated in writing by the Investor not less
than five Business Days prior to the Closing.
Section 3.2. Initial Conversion Price. The Participating Preferred Shares
shall be convertible into shares of the Common Stock, $1.00 par value per share
(the "Common Stock"), initially at a conversion price (the "Initial Conversion
Price") equal to $19.3333.
Section 3.3. Conditions to Obligations of Investor. The obligations of the
Investor to consummate the Closing are, at the option of the Investor, subject
to the satisfaction prior to or at the Closing of each of the following
conditions precedent:
(i) Representations and Warranties. The representations and warranties
made by the Company in this Agreement shall have been true and correct when
made and, if Closing shall occur on a date other than the date of this
Agreement, shall be true and correct on the Closing Date as though such
representations and warranties were made on and as of the Closing Date.
(ii) Compliance with Agreements and Conditions. The Company shall have
performed and complied in all material respects with all agreements,
obligations and conditions required by this Agreement to be performed or
complied with by the Company at or before the Closing.
(iii) Litigation. There shall not then be in effect any order
enjoining or restraining the transactions contemplated by this Agreement
and there shall not then
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<PAGE> 17
be threatened or instituted any action or proceeding by any governmental
body or agency with respect to the repurchase and sale of the Series A
Shares, the replacement of the remaining outstanding Series A Shares by the
Participating Preferred Shares or the other transactions contemplated by
this Agreement.
(iv) Certificate. The Investor shall have received a certificate
executed on behalf of the Company by its Chairman and Chief Financial
Officer (or other executive officers acceptable to the Investor) and dated
the Closing Date, to the effect that the conditions set forth in clauses
(i) and (ii) above have been satisfied, substantially in the form set forth
in Exhibit 4.
(v) Opinions. The Investor shall have received the written opinions,
dated the Closing Date, of James Treadway, Esq., Vice President and General
Counsel of the Company, and Cravath, Swaine & Moore, United States counsel
to the Company, substantially in the forms set forth in Exhibits 5-A and
5-B, respectively.
Section 3.4. Conditions to Obligations of Company. The obligations of the
Company to consummate the Closing are, at the option of the Company, subject to
the satisfaction prior to or at the Closing of each of the following conditions
precedent:
(i) Representations and Warranties. The representations and warranties
made by the Investor in this Agreement shall have been true and correct
when made, and, if Closing shall occur on a date other than the date of
this Agreement, shall be true and correct on the Closing Date as though
such representations and warranties were made on and as of the Closing
Date.
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<PAGE> 18
(ii) Compliance with Agreements and Conditions. The Investor shall
have performed and complied in all material respects with all agreements,
obligations and conditions required by this Agreement to be performed or
complied with by the Investor at or before the Closing.
(iii) Litigation. There shall not then be in effect any order
enjoining or restraining the transactions contemplated by this Agreement
and there shall not then be threatened or instituted any action or
proceeding by any governmental body or agency with respect to the
repurchase and sale of the Series A Shares, the replacement of the
remaining outstanding Series A Shares by the Participating Preferred Shares
or the other transactions contemplated by this Agreement.
(iv) Certificate. The Company shall have received a certificate
executed on behalf of the Investor by a Director (or other executive
officer acceptable to the Company) to the effect that the conditions set
forth in clauses (i) and (ii) above have been satisfied, substantially in
the form set forth in Exhibit 6.
(v) Opinions. The Company shall have received the written opinions,
dated the Closing Date, of Braun Moriya Hoashi & Kubota, Japanese counsel
to the Investor, and Sullivan & Cromwell, United States counsel to the
Investor, substantially in the forms set forth in Exhibits 7-A and 7-B,
respectively.
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<PAGE> 19
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1. Representations and Warranties of Company. The Company hereby
makes the following representations and warranties to the Investor:
(a) Corporate Existence. The Company and each corporation (excluding
subsidiaries the interest of the Company in which has been acquired in
connection with the Company's merchant banking activities) which is a
"significant subsidiary" of the Company as defined in Regulation S-X under
the Securities Act (a "Significant Subsidiary") is a corporation duly
organized, validly existing and in good standing under the laws of the
state of its incorporation and has full corporate power and authority to
own and operate its properties and conduct its business as now conducted by
it. Each of the Company and each Significant Subsidiary is duly qualified
as a foreign corporation to transact business and is in good standing in
each jurisdiction in which such corporation owns or leases substantial
properties or in which the conduct of its business requires such
qualification and in which failure of such corporation to be so qualified
and in good standing would have a material adverse effect upon the
business, financial condition or results of operations of the Company and
its consolidated subsidiaries considered as a whole.
(b) Authorization; Enforcement. The Company has full corporate power
and authority (i) to execute and deliver this Agreement and to perform its
obligations under this Agreement in accordance with its terms, (ii) to
repurchase and replace Series A Shares as provided in this Agreement and to
issue and deliver the
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Participating Preferred Shares and to perform its obligations thereunder in
accordance with their terms. The Company has taken all necessary corporate
action to authorize the execution and delivery of this Agreement, the
repurchase and replacement of the Series A Shares as provided in this
Agreement, the issuance and delivery of the Participating Preferred Shares
and the consummation of the transactions contemplated hereby and thereby.
This Agreement is a valid and legally binding obligation of the Company
enforceable in accordance with its terms (assuming in each case due
authorization, execution and delivery by the other party thereto), subject,
as to enforcement, to bankruptcy, insolvency, reorganization, moratorium
and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
(c) Compliance with Law.
(i) Neither the Company nor any Significant Subsidiary has
received notice, nor believes, nor has any reason to believe, that it
is in violation of any statute, regulation or order of, or any
restriction imposed by, the United States of America, any state,
municipality or other political subdivision having jurisdiction over
it or any agency thereof, in respect of the conduct of its business or
the ownership of its properties, that is expected materially and
adversely to affect the business, financial condition or results of
operations of the Company and its consolidated subsidiaries considered
as a whole.
(ii) The execution and delivery by the Company of this Agreement
does not, and the repurchase and
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replacement of Series A Shares by the Company as provided in this
Agreement, the issuance and delivery of the Participating Preferred
Shares and the performance by the Company of its obligations under
this Agreement and the Participating Preferred Shares and the
transactions contemplated hereby and thereby will not, violate any
provision of any material law or regulation, or any existing writ or
decree of any court or governmental authority applicable to it.
(d) Compliance with Obligations.
(i) Neither the Company nor any Significant Subsidiary is in
violation of or in default under any obligation, agreement, covenant
or condition contained in its Restated Certificate of Incorporation or
By-laws, or in any contract, lease or other instrument to which it is
a party (or which is binding on it or its assets), which violation or
default is material to the business, financial condition or results of
operations of the Company and its consolidated subsidiaries considered
as a whole.
(ii) The execution and delivery by the Company of this Agreement
does not, and the repurchase and replacement of Series A Shares as
provided in this Agreement, the issuance and delivery of the
Participating Preferred Shares and the performance by the Company of
its obligations under this Agreement and the Participating Preferred
Shares and the transactions contemplated hereby and thereby will not,
violate, conflict with or constitute a breach of, or a default under,
its
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Restated Certificate of Incorporation or By-laws, or any other
material agreement or instrument to which it is a party or which is
binding on it or its assets, and will not result in the creation of
any lien on, or security interest in, any of its assets.
(e) Consents and Approvals. Except for obtaining from the Bank of
England pursuant to the United Kingdom Banking Act 1987 notification that
it has no objection to the status of the Investor as a "controller" of
Paine Webber International Bank, Ltd. ("Bank of England Approval"), all
consents, approvals, authorizations and orders of governmental or other
third parties required for the Company to execute and deliver this
Agreement and to issue the Participating Preferred Shares and otherwise to
consummate the transactions contemplated hereby and thereby have been
obtained.
(f) Exchange Act Reports. Each of the Company's Annual Reports on Form
10-K for the fiscal years ended December 31, 1989, 1990 and 1991, Quarterly
Reports on Form 10-Q for the quarters ended March 31 and June 30, 1992, and
Current Report on Form 8-K dated September 15, 1992 (collectively, the "SEC
Documents") has been duly and timely filed, and when filed was in
substantial compliance with the requirements of the Exchange Act and the
applicable rules and regulations of the Securities and Exchange Commission
thereunder. Each of the SEC Documents was complete and correct in all
material respects as of its date and, as of its date, did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in the
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light of the circumstances under which they were made, not misleading.
(g) Financial Condition. The consolidated balance sheets of the
Company and its consolidated subsidiaries as of (I) December 31, 1989, 1990
and 1991, and (II) (A) March 31, 1992 and (B) June 30, 1992, together with
consolidated statements of earnings, stockholders' equity and changes in
cash flows for the fiscal year then ended in the case of (I) above, or the
three months and three months and six months then ended, in the case of
(II) (A) and (B) above, respectively, contained in the SEC Documents and,
in the case of (I) above, certified by Ernst & Young, fairly present the
financial condition of the Company and its consolidated subsidiaries and
the results of their operations and changes in cash flows as of the dates
and for the periods referred to and have been prepared in accordance with
generally accepted accounting principles in the United States ("U.S. GAAP")
consistently applied (except, in the case of (II) above, that the
consolidated financial statements are condensed and have been prepared in
accordance with Exchange Act Form 10-Q and do not necessarily reflect all
normal audit adjustments) throughout the periods involved.
(h) Litigation. Except as disclosed in the SEC Documents or as
otherwise previously disclosed in writing to the Investor and identified as
an exception to this representation, there is no legal action, suit,
investigation or proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its subsidiaries or
the assets of any of them which is expected by the Company materially and
adversely to affect the business, financial condition or results of
operations of the Company and its
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consolidated subsidiaries considered as a whole, or its ability to perform
or observe any obligation or condition under this Agreement or the
Participating Preferred Shares.
(i) Material Adverse Change. Except as disclosed in the SEC Documents
or as otherwise previously summarized in writing to the Investor and
identified as an exception to this representation (provided that such
summary shall be accurate in all material respects, and shall not contain
any material misstatements or omissions), there has been no material
adverse change in the business, financial condition, results of operations
or prospects, of the Company and its consolidated subsidiaries since
December 31, 1991.
(j) Governmental Investigations. To the knowledge of the Company,
except for third party subpoenas, and except as previously disclosed to the
Investor in writing and identified as an exception to this representation,
there are no subpoenas, which have been issued since January 1, 1990
(whether or not they are outstanding or pending) or threatened to be issued
against the Company or any of its Affiliates or against any officers,
directors or employees of the Company or any of its Affiliates in
connection with any governmental investigations or proceedings related to
possible violations of any of the United States securities laws, which
individually or in the aggregate are expected by the Company materially and
adversely to affect the business, financial condition or results or
operations of the Company and its consolidated subsidiaries as a whole, or
its ability to perform or observe any obligation or condition under this
Agreement or the Participating Preferred Shares.
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(k) Outstanding Capital Stock. The authorized capital stock of the
Company consists of 100,000,000 shares of Common Stock and 20,000,000
shares of Series Preferred Stock, $20.00 par value per share. At the time
of the Closing, the number of shares of Common Stock outstanding will be no
more than 43,222,490, all of which shares will be validly issued, fully
paid and nonassessable, and except for 1,550,395 shares of $1.375
Convertible Exchangeable Preferred Stock, $25 liquidation value per share,
and the 5,056,180 Series A Shares being repurchased or replaced by the
Company pursuant to this Agreement, no other shares of capital stock of the
Company will be outstanding at such time. The Company is the sole
beneficial owner, directly or indirectly, of all of the outstanding capital
stock (other than directors' qualifying shares) of each Significant
Subsidiary. Except as set forth in Exhibit 8 to this Agreement, the table
on page 33 of the Company's 1991 Annual Report to Stockholders, the table
on page 9 of the Company's Proxy Statement for its 1992 Annual Meeting of
Stockholders and the discussion of the Company's Key Executive Equity
Program on pages 10 and 11 of such Proxy Statement, or as otherwise
previously disclosed in writing to the Investor and identified as an
exception to this representation, there are no outstanding options,
warrants or other rights to subscribe for or acquire from the Company or
any Significant Subsidiary, as the case may be, or any plans, contracts or
commitments providing for the issuance or, or the granting of rights to
acquire, any capital stock of or other ownership interest in the Company or
any Significant Subsidiary, as the case may be, or any securities or
obligations convertible into or exchangeable for any of such capital stock
or other
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ownership interest. Except for the rights granted to the Investor pursuant
to Section 5.1(c) of this Agreement, there are no preemptive rights in
respect of the capital stock of the Company or any Significant Subsidiary.
Exhibit 9 contains true, complete and correct copies of the Restated
Certificate of Incorporation and By-laws of the Company which are in full
force and effect on the date hereof.
(1) The Participating Preferred Shares Common Stock. The Participating
Preferred Shares have been duly authorized; upon issuance to the Investor
as provided hereunder, the Participating Preferred Shares will be validly
issued, fully paid and nonassessable, and will be convertible into Common
Stock in accordance with their terms; the shares of Common Stock initially
issuable upon conversion of the Participating Preferred Shares have been
duly authorized and reserved for issuance upon such conversion and when
issued upon conversion, will be validly issued, fully paid and
nonassessable; and the stockholders of the Company have no preemptive
rights with respect to the Participating Preferred Shares.
(m) Listing of Common Stock. The outstanding Common Stock is listed
on the New York Stock Exchange; the Company's listing agreement with
respect thereto is in full force and effect; and no action has been taken
or threatened by such exchange with respect to the delisting or permanent
suspension from trading of the Common Stock.
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Section 4.2. Representations and Warranties of Investor. The Investor
hereby makes the following representations and warranties to the Company:
(a) Corporate Existence. It is a mutual life insurance company, duly
organized, validly existing and in good standing under the laws of Japan.
(b) Authorization; Enforcement. The Investor has full power and
authority to execute and deliver this Agreement and to perform its
obligations under the Agreement in accordance with its terms. The Investor
has taken all necessary action to authorize the execution and delivery of
this Agreement and the transactions contemplated hereby. This Agreement is
a valid and legally binding obligation of the Investor enforceable in
accordance with its terms (assuming due authorization, execution and
delivery by the Company), subject, as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles.
(c) Compliance with Law. The execution and delivery by the Investor of
this Agreement does not, and the performance by the Investor of its
obligations hereunder and the transactions contemplated hereby will not,
violate any provision of any material law or regulation, or any existing
writ or decree of any court or governmental authority applicable to it.
(d) Compliance with Obligations. The execution and delivery by the
Investor of this Agreement does not, and the performance by the Investor of
its obligations hereunder and the transactions contemplated hereby will
not, violate, conflict with or constitute a breach of,
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or a default under, any charter or similar instrument, or any other
material agreement or instrument to which it is a party or which is binding
on it or its assets.
(e) Consents and Approvals. Except for Bank of England Approval, all
consents, approvals, authorizations and orders of governmental or other
third parties required for the Investor to execute and deliver this
Agreement, and to consummate the transactions contemplated hereby have been
obtained.
(f) Litigation. There is no legal action, suit, investigation or
proceeding pending or, to the knowledge of the Investor, threatened against
or affecting the Investor or its assets which is expected by the Investor
materially and adversely to affect its ability to perform or observe any
obligation or condition under this Agreement.
(g) Status and Investment Intent. The Investor is an "accredited
investor" within the meaning of Regulation D under the Securities Act and
is accepting for delivery hereunder the Participating Preferred Shares for
its own account and (subject to its property being at all times within its
control) not with a view to any public resale or distribution or other
disposition thereof.
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ARTICLE V
COVENANTS
Section 5.1. Covenants of Company.
(a) Registration Rights. The Company shall comply with the respective
provisions regarding registration rights contained in Exhibit 3.
(b) Reservation of Common Stock. The Company shall reserve and keep
available out of its authorized but unissued shares of Common Stock the full
number of shares then deliverable upon conversion or exercise of the
Participating Preferred Shares then Outstanding.
(c) Equity Purchase Rights. So long as the Investor owns directly or
indirectly at least the Investor Minimum Investment, (i) if the Company shall
not have outstanding Public Company Stock, or if it shall have outstanding
Public Company Stock and the granting of equity purchase rights of the type set
forth in this clause (c) (the "Equity Purchase Rights") shall be permitted by
the rules of any national stock exchange upon which such stock shall be listed,
or over-the-counter market in which such stock shall be traded if no longer
listed, the Investor shall have Equity Purchase Rights or (ii) if the Equity
Purchase Rights are not available to the Investor, the Investor shall have
equity purchase rights no less favorable than the preemptive or equity purchase
rights, if any, that might be granted by the Company to any other Person.
As soon as practicable after determining to issue Equity Purchase Shares
(other than Equity Purchase Shares issued by the Company (i) under employee
stock options or other employee or director benefit plans or
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(ii) if the Company has outstanding Public Company Stock, under dividend
reinvestment plans which offer Voting Securities to securityholders at a
discount from Average Market Price no greater than is then customary for public
corporations, in each case with a purchase or exercise price per share equal to
or greater than the stockholders' equity of the Company and its consolidated
subsidiaries ("Stockholders' Equity") per share of Common Stock (on a primary
basis) determined from its consolidated balance sheet at the time of the
issuance of such Equity Purchase Shares), the Company shall notify the Investor
by written notice of such proposed sale (which notice shall specify, to the
extent practicable, the purchase price for, and terms and conditions of, such
Equity Purchase Shares) and shall offer to sell to the Investor at the purchase
price (net of any underwriting discounts or commissions), if any, to be paid by
the transferee(s) of such Equity Purchase Shares an amount of Equity Purchase
Shares determined as provided below. Immediately after the amount of Equity
Purchase Shares to be sold to other Persons is known to the Company, it shall
notify the Investor of such amount. If such offer is accepted by the Investor
within ten Business Days the Company shall sell to the Investor an amount of
Equity Purchase Shares (the "Equity Purchase Share Amount") equal to the product
of (A) the quotient of (x) the number of Voting Securities owned by the Investor
immediately prior to the issuance of the Equity Purchase Shares divided by (y)
the aggregate number of Outstanding Voting Securities owned by Persons other
than the Investor immediately prior to the issuance of the Equity Purchase
Shares (for purposes of this calculation, treating all securities of the Company
convertible into Voting Securities as though
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they have been so converted), multiplied by (B) the aggregate number of Equity
Purchase Shares being issued by the Company to Persons other than the Investor,
rounded up to the nearest whole Equity Purchase Share. If, at the time of the
determination of any Equity Purchase Share Amount, any other Person has
preemptive or other equity purchase rights similar to the Equity Purchase
Rights, such Equity Purchase Share Amount shall be recalculated to take into
account the amount of Voting Securities to be sold to such Persons, rounding up
such Equity Purchase Share Amount to the nearest whole Equity Purchase Share.
The purchase and sale of any Equity Purchase Shares pursuant to this clause
(c) shall take place at 9:00 A.M. on a Business Day designated by the Investor
which shall be no later than the 75th day following the day on which the
Investor receives the notice and offer of sale provided for in the immediately
preceding paragraph, at the offices of the Company set forth in Section 8.9 of
this Agreement, or at such other time and place in New York City as the Investor
and the Company shall agree. If the Investor is unable to obtain any required
governmental approvals prior to such 75th day, it shall have no right or
obligation to purchase any Equity Purchase Shares pursuant to this clause (c).
At the time of purchase, the Company shall deliver to the Investor certificates
registered in the name of the Investor representing the Equity Purchase Shares
purchased and the Investor shall transfer to the Company the purchase price in
United States dollars by bank check or wire transfer of immediately available
funds, as specified by the Company, to an account designated by the Company not
less than five Business Days prior to
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the date of purchase. The Company and the Investor will use their best efforts
to comply as soon as practicable with all Federal, state and foreign laws and
regulations and stock exchange listing requirements applicable to any purchase
and sale of securities under this clause (c).
(d) Information. So long as the Investor owns directly or indirectly at
least the Investor Minimum Investment, the Company shall:
(i) furnish to the Investor (x) as soon as publicly available after
the close of each of the Company's fiscal years, a copy of the annual audit
report relating to the Company and its consolidated subsidiaries prepared
in accordance with U.S. GAAP by the Company's independent public
accountants, together with financial statements consisting of consolidated
balance sheets of the Company and its consolidated subsidiaries as of the
end of such fiscal year and consolidated statements of earnings, changes in
stockholders' equity and changes in cash flows of the Company and its
consolidated subsidiaries for such fiscal year; and (y) as soon as publicly
available, copies of all financial statements and information, reports,
notices and proxy statements sent by the Company in a general mailing to
all its stockholders or otherwise made publicly available, of all reports
on Forms 10-K, lO-Q and 8-K, filed by the Company under the Exchange Act,
of all final prospectuses included in registration statements of the
Company (except for final prospectuses included in registration statements
on Securities Act Form S-8 (or any successor form)) at the time of
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effectiveness of such registration statements under the Securities Act or
filed pursuant to Rule 424 under the Securities Act and, to the extent
requested by the Investor, periodic reports filed with the National
Association of Securities Dealers, Inc. and other broker-dealer
self-regulatory organizations; and
(ii) upon prior notice to the Company, permit the Investor to visit
and inspect at the Investor's expense any of the properties, corporate
books and financial and other records of the Company and its majority-owned
subsidiaries, and to discuss the affairs, finances and accounts of any such
corporation with the officers of such corporation or the Company and such
corporation's or the Company's independent public accountants, all at such
times and as often as the Investor may reasonably request; provided,
however, that such visits, inspections and discussions may be limited by
the Company to the extent that it shall reasonably determine is necessary
to avoid the disclosure of proprietary information, the disclosure of which
it reasonably believes would harm its relationships with customers or
competitive position.
(e) Governmental Investigations. Prior to the Closing, the Company promptly
shall disclose in writing to the Investor any subpoenas of the type referred to
in Section 4.1(3) of this Agreement which, to the knowledge of the Company, are
issued or threatened to be issued.
(f) Directors of Company.
(i) So long as the Investor directly or indirectly owns at least the
Investor Minimum
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Investment and at least 10% of the Outstanding Voting Securities, the
Company at all times shall use its best efforts to cause at least
one-sixth of the seats on its Board of Directors (if not a whole number,
rounded to the next lower whole number), but in no event less than two
seats or, if the Investor directly or indirectly owns at least the Investor
Minimum Investment but less than 10% of the Outstanding Voting Securities,
two seats on its Board of Directors, to be occupied by persons designated
by the Investor (who shall be Directors of the Investor and reasonably
acceptable to the Company) to be members of the Board of Directors of the
Company and shall vote all shares for which management or Board of
Directors of the Company holds proxies or is otherwise entitled to vote in
favor of the election of designees of the Investor except as may otherwise
be provided by stockholders submitting such proxies. The Investor agrees to
use its best efforts to cause any such designee who shall cease to be a
Director of the Investor to resign from the Board of Directors of the
Company within a reasonable time after such event. In the event that any
such designee shall cease to serve as a director for any reason (including
his having ceased to be a Director of the Investor), the Company shall use
its best efforts to cause the vacancy resulting thereby to be filled by a
designee of the Investor (who shall be a Director of the Investor and
reasonably acceptable to the Company).
(ii) The Company shall use its best efforts to maintain at least one
of the Investor's designees
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referred to in subsection (i) to serve on each Committee of the Board of
Directors of the Company that from time to time shall be designated by the
Investor. In that connection, the Investor designates the Audit Committee
for the period commencing immediately after the Closing Date. The designee
of the Investor on any Committee shall be deemed (A) to waive prior notice
of any meeting of such Committee in circumstances where prior notice to
such designee would be impracticable and (B) to the extent necessary under
Delaware law to render effective the actions taken at such a meeting, to
consent to such actions; provided, however, that the Company as soon
thereafter as is practicable shall provide such designee with a
description, in reasonable detail, of the proceedings of such meeting.
(iii) The Company agrees that any designees of the Investor who are
elected to serve on the Board of Directors of the Company shall be
furnished with all information generally provided to the Board of Directors
of the Company, shall have full access to information regarding the Company
and shall be entitled to the same perquisites as the Company's other
outside Directors. The designee of the Investor elected to serve on any
Committee of the Board of Directors or other committee of the Company shall
be provided with, and have access to, all information regarding the Company
provided to other members of such Committee.
(g) Senior Advisor to the Board of Directors of Company. The Company shall
maintain as Senior Advisor to the Board of Directors of the Company the
President
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of the Investor for so long as the Investor directly or indirectly owns the
Investor Minimum Investment. The Senior Advisor to the Board of Directors of the
Company shall be entitled but not required to attend all meetings of the Board
of Directors of the Company. The Senior Advisor will not have the right to vote
at meetings of the Board of Directors of the Company.
(h) Going Private Transactions. During the period commencing on the date
hereof and ending on December 18, 1992, without the prior written consent of the
Investor, the Company shall not, and it shall use its best efforts to cause its
Affiliates not to, engage in any transaction or series of transactions which has
either a likelihood or purpose of producing, directly or indirectly, any of the
effects specified in Exchange Act Rule 13e-3(a) (3)(ii) (or any successor rule).
Thereafter, the Company and its Affiliates shall not be limited by this
paragraph (h) from engaging in any such transaction or transactions, provided
that in connection therewith, arrangements reasonably satisfactory to the
Investor shall be made to provide that the Investor has the option of receiving
in exchange for each security of the Company owned by it either (A) an amount of
cash consideration equal to (x) the consideration received by other holders of
similar securities of the Company in connection with such transaction or
transactions or (y), in the case of (I) the Participating Preferred Shares or
Equity Purchase Shares purchased with respect thereto, an amount of cash
consideration equal to the higher of (A) the amount determined under clause (x)
and (B) the Liquidation Preference or principal amount thereof, as the case may
be (or in the case of Equity Purchase Shares, the purchase price therefor), plus
accumulated
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and unpaid dividends or (II) Common Stock received upon conversion of such
securities (if the transaction giving rise to rights of Investor pursuant to
this paragraph (h) shall have commenced within two years after such conversion),
an amount of cash consideration equal to the higher of (A) the amount determined
under clause (x) and (B) the Conversion Price computed as of the date of
conversion relating to such shares of Common Stock (appropriately adjusted to
reflect stock dividends, stock splits and reverse stock splits and other events
arising after the date of such conversion that would have affected the
Conversion Price but which resulted in a distribution to the Investor as a
holder of Common Stock), plus declared and unpaid dividends or (B) a combination
of Voting Securities in the resulting entity proportionate to the Investor's
relative equity interest in the Company prior to such transaction or
transactions and additional consideration appropriately reflective of (x) the
diminishment, if any, in the overall equity capital of such entity as compared
to the Company prior to such transaction or transactions and (y) the Fair Market
Value of any other securities issued by the Company and owned by the Investor.
In case the Company shall have made provision for the Investor to receive, and
the Investor shall have failed to elect to receive, the consideration specified
in either clause (A) or clause (B) of the immediately preceding sentence, the
Company shall have the option to repurchase from the Investor (X) the securities
specified in clause (A) (y) of the immediately preceding sentence, in exchange
for the consideration specified in such clause and (Y) other securities issued
by the Company and owned by the Investor, in exchange for the consideration
received by other holders of similar
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securities of the Company in connection with such transaction or transactions.
(i) Certain Repurchases of Voting Securities; Company Announcements.
(i) During the term of this Agreement, without the prior written
consent of the Investor, the Company shall not, and it shall use its best
efforts to cause its Affiliates not to, engage in any repurchases of its
Outstanding Voting Securities if, as a result of such repurchases, the
Voting Securities owned by the Investor would be equal to or greater than
25% of the Outstanding Voting Securities (assuming for this purpose that
all Participating Preferred Shares owned by it and the Company's
Outstanding $1.375 Convertible Exchangeable Preferred Stock have been
converted into or exercised for Common Stock), such 25% limit in ownership
being known herein as the "Standstill Amount"; provided, however, that the
provisions of this clause (ii) shall not apply to any transaction to which
the provisions of paragraph (h) apply.
(ii) For purposes of this subsection (i) shares of Common Stock
repurchased by the Company include shares of Common Stock purchased by the
Company or any of its Affiliates for the account of any of such Persons.
(j) Adverse Acts. The Company agrees that it will not, without the prior
consent of the Investor, take or recommend to stockholders any action which
would limit the legal rights of the Investor based upon the size of its holdings
or by issuance of another class of
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securities having voting rights disproportionately greater than those of the
Common Stock.
(k) Operations in Ordinary Course. From the date hereof to the Closing (if
the Closing Date shall not be the date of this Agreement), except for those
actions consented to by the Investor in advance in writing, the Company shall
conduct its business in the ordinary course and substantially in accordance with
past practice and shall not take any action which would have caused an
adjustment in the Conversion Price of the Participating Preferred Shares had
such Shares been outstanding on the effective date of such action.
(1) Additional Payments in the Event of Certain Redemption. In the event
that the Company calls any Participating Preferred Shares for redemption on any
date that is not a Dividend Payment Date, the Company shall pay to the Investor
on the next succeeding Dividend Payment Date, at the option of the Investor, by
bank check or wire transfer of immediately available funds, an amount equal to
the difference (if positive) as of such Dividend Payment Date between (i) the
aggregate amount of accumulated dividends to which the Investor would have been
entitled had such Participating Preferred Shares remained outstanding until such
Dividend Payment Date and (ii) the sum of the aggregate amount of dividends (A)
actually received by the Investor since the immediately preceding Dividend
Payment Date on the Participating Preferred Shares so called for redemption and
(B) actually received by the Investor upon the next succeeding Dividend Payment
Date for any shares of Common Stock issued upon conversion thereof.
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(m) Certain Approvals. The Company shall use its best efforts to assist
the Investor in obtaining Bank of England Approval as soon as practicable.
Section 5.2. Covenants of Investor.
(a) Transfers. The Participating Preferred Shares, any Voting Securities
received upon conversion of any of the Participating Preferred Shares and any
Equity Purchase Shares purchased with respect thereto owned by the Investor
(collectively, the "Agreement Securities") shall be transferable, subject only
to the Company's rights of first refusal under Article VII of this Agreement.
All other securities of the Company (including any Equity Purchase Shares
purchased with respect thereto) otherwise acquired by the Investor at all times
shall be transferable without restriction under this Agreement, subject to
applicable law.
Notwithstanding the preceding paragraph, from the date of this Agreement
until November 30, 2007, Agreement Securities shall not be transferable by the
Investor to any Person pursuant to a tender offer or exchange offer or
acquisition of control of the Company or similar transaction by such Person
which is opposed by the Board of Directors of the Company (a "Hostile
Proposal").
(b) Acquisition of Voting Securities. The Investor agrees with the Company
that, from the date of this Agreement until November 30, 2007 (the "Standstill
Period"), it will not directly or indirectly acquire beneficial ownership of any
Voting Securities, any securities convertible into or exchangeable for Voting
Securities, or any other right to acquire Voting Securities without the consent
of the Company if the
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effect of such acquisition would be to increase the percentage of Voting
Securities then owned by the Investor to more than the Standstill Amount.
(c) Exercise of Control. Subject to the rights of the Investor and its
designated Directors and Senior Advisor under Sections 5.1(f) and 5.1(g) and to
its right to vote its Voting Securities in its discretion (except as limited
below) and to oppose any adverse acts by the Company in violation of Section
5.1(j), the Investor agrees with the Company that during the Standstill Period,
unless prior to November 30, 2007 it directly or indirectly owns Voting
Securities in excess of 30% of the Outstanding Voting Securities (assuming for
this purpose that all Participating Preferred Shares beneficially owned by it
and the Company's Outstanding $1.375 Convertible Exchangeable Preferred Stock
have been converted into or exercised for Common Stock), such securities in
excess of the Standstill Amount having been acquired with the consent of the
Company pursuant to an agreement containing a legend substantially similar to
that set forth in Exhibit 10, the Investor will not (i) by itself or in concert
with any Person other than the management of the Company, seek to exercise
control or to influence the exercise of control over the management, business,
operations or affairs of the Company; (ii) deposit any Voting Securities in a
voting trust or subject any Voting Securities to any arrangement or agreement
with respect to the voting of such Voting Securities; or (iii) solicit proxies
or become a "participant" in a "solicitation" (as such terms are defined in
Regulation 14A under the Exchange Act, as in effect on the date hereof) in
opposition to
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the recommendation of the Board of Directors of the Company.
Subject to the foregoing, the Investor will vote its Voting Securities, at
the option of the Company, either in accordance with the recommendation of the
Board of Directors of the Company or in the same proportion as the Company's
unaffiliated holders of Voting Securities with respect to the matters set forth
below:
(i) the election of the Board of Directors of the Company;
(ii) the approval of any amendments to the Company's Restated
Certificate of Incorporation or By-laws which do not in the judgment of
Investor adversely affect the relative rights and preferences of the
Participating Preferred Shares or otherwise adversely affect the rights of
the Investor under this Agreement;
(iii) the adoption of any proposal to require cumulative voting in the
election of the Board of Directors of the Company; and
(iv) (A) any merger, acquisition or consolidation involving the
Company, (B) any sale, lease, transfer or other disposition in one
transaction or a series of transactions of a material portion of the
Company's assets, (C) any purchase of a material amount of assets by the
Company, or (D) any recapitalization or similar transaction involving the
Company, which in the case of (A), (B), (C) or (D) is either opposed by the
Board of Directors of the Company or is
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approved by the Board of Directors of the Company in response to a Hostile
Proposal.
The Investor, as holder of Voting Securities, shall be present, in person or by
proxy, and without further action hereby agrees that it shall be deemed to be
present, at all meetings of stockholders of the Company with respect to which it
receives notice so that all Voting Securities owned by it may be counted for the
purpose of determining the presence of a quorum at such meetings.
(d) Certain Approvals; Exercise of Voting Power. The Investor shall use its
best efforts to obtain, as soon as practicable, Bank of England Approval. Prior
to the receipt of Bank of England Approval, the Investor shall not, and shall
use its best efforts to cause its associates (as defined in the United Kingdom
Banking Act 1987) not to, exercise voting rights with respect to Voting
Securities to the extent that such voting rights represent, in the aggregate,
more than 14.99% of the total voting power of Voting Securities.
ARTICLE VI
FURTHER AGREEMENTS
Section 6.1. Exchange of Personnel.
(a) Investor Exchange Personnel. The Company agrees to continue to
accommodate reasonable transfers of staff ("Investor Exchange Personnel") from
the Investor (and any other companies as shall be mutually agreed between the
parties), to the various offices of the Company and its Affiliates as more fully
provided in this Section 6.1(a).
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The Investor shall continue to have discretion to select the Investor
Exchange Personnel, ranging in experience from senior managers to new trainees,
and (subject to an overall standard of reasonableness in light of the capacity
of the Company to train inexperienced personnel and to integrate more
experienced personnel into its business, among other factors) to determine the
number, the functional area, location, timing and duration of personnel
exchanges, provided that all Investor Exchange Personnel shall be reasonably
acceptable to the Company. Without the prior consent of the Company, the
Investor will not transfer or arrange the transfer at any point in time of more
than 150 Investor Exchange Personnel, it being understood that the transfer of
such personnel will be phased in over a reasonably agreed schedule. Investor
Exchange Personnel may be directed by the Investor in its reasonable discretion
to the functional areas set forth in Exhibit 11, among others. In addition to
their placement in the functional areas specified in Exhibit 11, Investor
Exchange Personnel of reasonable seniority and experience and in reasonable
numbers designated by the Investor shall also be entitled to participate fully
as non-voting members of the committees constituted by the Company or its
Affiliates and charged with overall supervisory responsibility for the areas
specified in Exhibit 11. In all cases, the Company will use its best efforts to
accommodate the Investor's reasonable requests in the area of personnel
exchanges.
(b) Company Exchange Personnel. The Investor agrees to continue to
accommodate the reasonable transfer of staff ("Company Exchange Personnel") from
the Company (and any other companies as shall be mutually agreed between the
parties), to the various offices of the Investor and its Affiliates as more
fully provided in this Section 6.1(b).
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The Company shall continue to have discretion to select the Company
Exchange Personnel, ranging in experience from senior managers to new trainees,
and (subject to an overall standard of reasonableness in light of the capacity
of the Investor to train inexperienced personnel and to integrate more
experienced personnel into its business, among other factors) to determine the
number, the functional area, location, timing and duration of personnel
exchanges, provided that all Company Exchange Personnel shall be reasonably
acceptable to the Investor. Without the prior consent of the Investor, the
Company will not transfer or arrange the transfer at any point in time of more
than 50 Company Exchange Personnel, it being understood that the transfer of
such personnel will be phased in over a reasonably agreed schedule. In all
cases, the Investor will use its best efforts to accommodate the Company's
reasonable requests in the area of personnel exchanges.
(c) Compensation of Exchange Personnel. The compensation of Investor
Exchange Personnel and Company Exchange Personnel shall remain the obligation of
their respective employers, except as shall otherwise be agreed between the
Investor and the Company on a case by case basis.
(d) Limitations on Hiring of Exchange Personnel. The Company and the
Investor agree not to employ, attempt to employ, or induce any other Person to
employ or attempt to employ, any person who is currently or was formerly the
subject of a transfer pursuant to Section 6.1(a) or (b), respectively, for so
long as such person remains employed by the Person that employed him during the
period of such transfer, and for a period of two years thereafter.
(e) Termination of Exchange Rights. The exchange of personnel rights
provided herein shall terminate on and
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after the date the Investor ceases to own directly or indirectly at least the
Investor Minimum Investment; provided that the covenants in paragraph (d) shall
continue for a period of two years after such termination.
Section 6.2. Economic Parity. In any case where any Person or Group
acquires in excess of 25% of the Outstanding Voting Securities of the Company
pursuant to or in connection with a Hostile Proposal, the Company agrees that in
connection with any subsequent acquisition of control of the Company by such
Person or Group or any other Person or Group, it will be obligated promptly to
pay to the Investor an amount of cash consideration equal to the difference
between (a) the Fair Market Value of the consideration then realizable by the
Investor for its Agreement Securities and (b) the Fair Market Value of the
consideration that would have been realizable by the Investor had it not been
restricted under Section 5.2(a) from freely transferring the Agreement
Securities at the time of the Hostile Proposal. Any disagreement between the
Company and the Investor as to the appropriate amount of such payment shall be
determined by a mutually acceptable internationally recognized investment
banking or other advisory firm.
Section 6.3. Cooperation. Subject to the terms and conditions of this
Agreement, the Company and the Investor agree to use their best efforts to take,
or cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective, as soon as reasonably practicable, the terms of
this Agreement and the transactions contemplated hereby.
Section 6.4. Fees and Expenses. Whether or not the transactions
contemplated hereby are consummated or this
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Agreement is terminated pursuant to Section 8.1 hereof, and except as may
otherwise be specifically provided in this Agreement, each party shall pay the
fees and expenses of its counsel, accountants and other experts and all other
expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby.
Section 6.5. Publicity. Between the date hereof and December 31, 1992 (or,
if the Closing does not occur, the date this Agreement is terminated pursuant to
Section 8.1), the Company and the Investor agree to consult with each other and
to coordinate the issuance of any press release or similar public announcement
or communication relating to the execution or performance of this Agreement or
to the transactions contemplated hereby; provided, however, that no party shall
be restrained, after consultation with the other party, from making such
disclosure as it shall be advised by counsel it is required to make by law,
administrative regulation or guidance or by the regulations of any stock
exchange.
Section 6.6. Mutual Collaboration. The parties hereto recognize that
circumstances may arise which were not foreseen at the date of this Agreement
which may have a significant effect upon the arrangements contemplated by or
under this Agreement or the Joint Venture Agreement (the "Joint Venture
Agreement"), dated as of November 30, 1987, between The Yasuda Mutual Life
Insurance Company and Paine Webber Group Inc., or upon a party hereto in respect
of such arrangements. Accordingly, appropriate senior management will from time
to time jointly review the progress and performance of the Joint Venture, and,
if necessary or appropriate, take steps to strengthen the degree of business
cooperation, which steps shall be faithfully implemented by the parties to this
Agreement. Notwithstanding such
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collaboration and review, no party hereto shall be under any obligation to amend
this Agreement or the Joint Venture Agreement or the arrangements contemplated
hereby or thereby.
ARTICLE VII
COMPANY'S RIGHT OF FIRST REFUSAL
Subject to Sections 5.2(a) and 8.1(b), prior to making any offer to sell,
sale or transfer (whether for cash or other consideration) of Agreement
Securities, the Investor shall give the Company the opportunity to purchase such
Agreement Securities in the following manner:
(a) The Investor shall give notice (the "Transfer Notice") to the
Company in writing of such intention, specifying the name of the proposed
transferee(s) or the proposed manner of sale to transferees not then known,
the amount and class (or series) of Agreement Securities proposed to be
sold, the proposed price per security therefor (which price may be a price
determined by application of a formula, such as the average closing price
for such Agreement Securities on the principal national stock exchange on
which such Agreement Securities are listed for a specified number of days
prior to a sale date) (the "Transfer Price"), the other material terms upon
which such sale is proposed to be made and all other relevant information
requested by the Company. In the case of proposed sales to be made in
accordance with the volume limitations set forth in paragraphs (e)(l) and
(e)(2) of Rule 144 under the Securities Act (in the case of paragraph (e)
(2) without giving effect to the reference to subsection (k) of such Rule),
the Transfer Price shall be deemed to be the
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closing price (determined as set forth in the definition of Average Market
Price) on the day prior to the giving of notice of proposed sales.
(b) The Company shall have the right, exercisable by written notice
given by the Company to the Investor within (i) ten Business Days after
receipt of such Transfer Notice, in the event such Transfer Notice
specifies that more than 5,000,000 shares of Agreement Securities are
proposed to be sold, (ii) seven Business Days after receipt of such
Transfer Notice, in the event such Transfer Notice specifies that more than
3,000,000 but not more than 5,000,000 shares of Agreement Securities are
proposed to be sold, and (iii) five Business Days after receipt of such
Transfer Notice, in the event that such Transfer Notice specifies that
3,000,000 shares of Agreement Securities or fewer are proposed to be sold,
to purchase all of the Agreement Securities specified in the Transfer
Notice, for cash at a price per share equal to the Transfer Price;
provided, however, that if the Investor proposes to sell Agreement
Securities pursuant to a third party offer consisting in whole or in part
of consideration other than cash, and the Company exercises its right of
first refusal, the Company shall pay to the Investor, in lieu of such
non-cash consideration, an amount equal to the then Fair Market Value
thereof. For this purpose, the Company and the Investor shall use their
best efforts to cause any determination of the Fair Market Value of any
securities or other property included in the Transfer Price to be made
within (I) seven Business Days, in the case of clause (i) above, (II) five
Business Days in the case of clause (ii) above and (III) three Business
Days, in the case of clause (iii) above, after the date of delivery
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of the Transfer Notice. Delivery of and payment for the Agreement
Securities purchased pursuant to this clause (b) may be delayed by the
Company or by the Investor for such reasonable time as is required for such
determination to be made and communicated to the Company and the Investor.
The fees and reimbursable expenses of any person or persons making the
foregoing determinations shall be shared equally by the Company and the
Investor. In the event the Company shall hereafter (i) pay a dividend or
make a distribution on the Common Stock in shares of Common Stock, (ii)
subdivide or reclassify its outstanding shares of Common Stock into a
greater number of shares or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, then in each such
case the 3,000,000 and 5,000,000 share levels specified in the first
sentence of this clause (b) (or such other amounts as they may have been
adjusted to from time to time), as applied to proposed sales of shares of
Common Stock, shall be adjusted so that, after the happening of any of the
events described above in this sentence, they shall equal, respectively, a
number equal to 3,000,000 or 5,000,000, as the case may be (or such other
amounts as they may have been adjusted to from time to time), multiplied by
the number of shares of Common Stock (including fractions, if applicable)
that a holder of Common Stock would hold or be entitled to receive
immediately after such happening in respect of each share of Common Stock
held by such holder immediately prior to such happening. Any adjustments
made pursuant to the immediately preceding sentence shall become effective
immediately after the date of payment, in the case of a dividend or
distribution, or
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immediately after the effective date, in the case of a subdivision,
combination or reclassification.
(c) If the Company exercises its right of first refusal hereunder, the
closing of the purchase of the Agreement Securities with respect to which
such right has been exercised shall take place on a Business Day not later
than 30 days after the latest of (i) the Company's giving of notice of such
exercise, (ii) the determination of the Fair Market Value of any proposed
non-cash consideration and (iii) the end of such period of time as the
Company and the Investor may reasonably require in order to comply with
applicable laws and regulations. Upon exercise by the Company of the right
of first refusal under this Article VII, the Company and the Investor shall
be legally obligated to consummate the purchase contemplated thereby and
shall use their best efforts to secure any approvals required, and to
comply with all applicable laws and regulations and stock exchange listing
requirements in connection therewith as soon as practicable.
(d) If the Company does not exercise its right of first refusal
hereunder within the time specified for such exercise, the Investor shall
be free, during the period of 60 calendar days following the expiration of
such time for exercise, to sell or contract to sell the Agreement
Securities specified in such Transfer Notice at a price at least as high as
the Transfer Price (or at a price determined by the same, or more favorable
to the Investor, formula or, in the. case of proposed sales to be made in
accordance with the volume limitations set forth in paragraphs (e) (1) and
(e) (2) of Rule 144 under the Securities Act (in the case of paragraph (e)
(2) without giving effect to the reference to subsection (k)
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of such Rule) at a price determined consistent with the provisions of Rule
144, in the manner and on terms no less favorable to the Investor than were
specified in the Transfer Notice. Agreement Securities not so sold or
contracted to be sold by the Investor within such period shall again become
subject to the procedures provided in this Article VII.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. Termination. (a) This Agreement may be terminated at any time
prior to the Closing Date:
(i) By mutual action of the Company and the Investor.
(ii) By the Investor, if the conditions set forth in Section 3.3
hereof shall not have been complied with or performed and such
noncompliance or nonperformance shall not have been cured or eliminated (or
by its nature cannot be cured or eliminated) on or before the Closing Date.
(iii) By the Company, if the conditions set forth in Section 3.4
hereof shall not have been complied with or performed and such
noncompliance or nonperformance shall not have been cured or eliminated (or
by its nature cannot be cured or eliminated) on or before the Closing Date.
(iv) By either the Company or the Investor if the Closing shall not
have occurred before November 30, 1992.
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In the event of the termination of this Agreement pursuant to this clause
(a), this Agreement shall thereafter become void and have no effect, and no
party hereto shall have any liability to the other party hereto or its
stockholders or policyholders, as the case may be, or directors or officers in
respect thereof, except for the obligations of the parties in Section 6.4, and
except that nothing herein will relieve any party from liability for any breach
of this Agreement (except a breach of the representations and warranties of the
Company or the Investor in Sections 4.1 or 4.2, as the case may be) prior to
such termination. No party shall in any event be liable to the other party for
loss of anticipated profits from the transactions contemplated by this Agreement
or for any other consequential damages arising out of the termination of this
Agreement.
(b) All rights and obligations of the Investor under this Agreement (other
than its obligations under Section 5.2(b) (which shall continue for a period of
one year after termination) and its rights and obligations under Exhibit 3)
shall terminate at such time as the Investor ceases to own directly or
indirectly at least 1% of the then Outstanding Voting Securities. The rights and
obligations of the parties under this Agreement (other than under Sections
5.1(a), 5.1(b), 5.1(c), 5.1(d), 5.1(f), 5.1(g), 5.1(j), 6.1, 6.2 and 8.13, and
Exhibit 3) shall terminate at such time as the Investor owns directly or
indirectly in excess of 50% of the then Outstanding Voting Securities (such
Voting Securities in excess of the Standstill Amount, if acquired prior to
November 30, 2007, having been acquired with the consent of the Company pursuant
to an agreement containing a legend substantially similar to that set forth in
Exhibit 10).
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Section 8.2. Survival of Representations and Warranties Indemnification.
(a) The representations and warranties of the parties contained in this
Agreement shall survive the Closing until the second anniversary thereof. Each
party will indemnify and hold harmless the other against all damages and costs
(including legal fees and expenses) arising from any breach of its
representations or warranties in this Agreement, which breach was notified to
the other party prior to the second anniversary of the Closing.
(b) The Company shall also indemnify and hold the Investor and its
officers, directors, employees and agents harmless from any and all damages and
costs (including legal fees and expenses reasonably incurred) arising out of or
in connection with actions, suits, claims, proceedings or investigations that
may arise under the Delaware General Corporation Law or under securities laws of
the United States or any state thereof in connection with or as a result of this
Agreement and the transactions contemplated hereby, other than those arising
primarily as a result of the gross negligence or willful misconduct of the
Investor.
Section 8.3. Legend. The certificates evidencing the Agreement Securities
and the shares of Common Stock issuable upon conversion thereof (unless, in the
case of shares of Common Stock, a registration statement with respect to such
securities referred to in Exhibit 3 is then effective) shall bear the following
legend until such time as the Investor or any transferee thereof delivers an
opinion of counsel reasonably acceptable to the Company to the effect that such
legend is no longer required under the Securities Act:
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THESE SECURITIES WERE SOLD IN A PRIVATE PLACEMENT, WITHOUT REGISTRATION
UNDER THE SECURITIES ACT OF 1933 AND MAY BE OFFERED OR SOLD ONLY IF
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR IF AN EXEMPTION FROM
REGISTRATION IS AVAILABLE. THESE SECURITIES ARE SUBJECT TO THE PROVISIONS
OF THE AMENDED AND RESTATED INVESTMENT AGREEMENT DATED AS OF NOVEMBER 5,
1992 BY AND BETWEEN THE COMPANY AND THE INVESTOR AND MAY NOT BE SOLD OR
TRANSFERRED EXCEPT IN ACCORDANCE THEREWITH.
Section 8.4. Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect.
Section 8.5. Voting Securities Owned by Investor. Voting Securities held or
managed by the Investor or its Affiliates as an investment advisor or otherwise
for the benefit of Persons who are not Affiliates of the Investor shall not be
counted for purposes of this Agreement as being owned by the Investor.
Section 8.6. Specific Enforcement. The Company and the Investor acknowledge
and agree that irreparable damage would occur in the event that any of the
provisions of this Agreement, the Joint Venture Agreement or the Participating
Preferred Shares were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement, the Joint Venture Agreement and the Participating
Preferred Shares and to enforce specifically the terms and provisions hereof and
thereof in any court of the United States or any state
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thereof having jurisdiction, this being in addition to any other remedy to which
they may be entitled by law or equity.
Section 8.7. Entire Agreement. From and after the Closing this Agreement
will contain the entire understanding of the parties with respect to the matters
covered hereby and will supersede and replace the Original Agreement which shall
become null and void. Until the Closing has occurred, the terms of the original
Agreement shall remain in full force and effect and shall prevail with respect
to any inconsistency or disagreement between the terms of this Agreement and the
Original Agreement. This Agreement may be amended only by an agreement in
writing executed by the parties hereto.
Section 8.8. Counterparts. This Agreement may be executed by the parties
hereto in counterparts each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 8.9. Notices. All notices or services of process provided for
herein shall be validly given or served, as the case may be, if in writing and
delivered personally, or by telex (with correct answer-back received), if to:
The Company:
Paine Webber Group Inc.
1285 Avenue of the Americas
New York, New York 10019
U.S.A.
Attention: Vice President and General Counsel
Telex: 235773 (Answerback: Byedur)
With a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
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New York, New York 10019
U.S.A.
Attention: David G. Ormsby
Telex: 4743700 (Answerback: Cravath NYK)
The Investor:
The Yasuda Mutual Life Insurance Company
9-1, Nishishinjuku 1-chome,
Shinjuku-ku,
Tokyo 160
Japan
Attention: Kyosaku Sorimachi
Telex: 232-2887 (Answerback: Yasuda J)
With copies to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Robert S. Risoleo
Telex: 127816 (Domestic)
62694 (International)
(Answerback: Ladycourt)
Braun Moriya Hoashi & Kubota
911 Iino Building 1-1,
2-Chome, Uchisaiwai-cho
Chiyoda-Ku, Tokyo 100
Japan
Attention: Akio Hoashi
Telex: 2223753 (Answerback: Lawyer J)
or to such other address or telex number as either party may, from time to time,
designate in a written notice given in a like manner.
Section 8.10. Cure Provisions. In the event that the Investor's direct or
indirect ownership of Voting Securities is reduced below the Investor Minimum
Investment,
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the Investor shall have the right, exercisable by delivery to the Company of a
written notice stating its intention to exercise such right, to cure such
reduction by increasing its direct or indirect ownership of Voting Securities
above such Investor Minimum Investment within 60 Business Days after learning of
such reduction. If the above notice is delivered by the Investor to the Company,
the Investor shall be deemed for all purposes of this Agreement directly or
indirectly to own the Investor Minimum Investment until the earlier of (i) the
day after such deficit is cured and the Investor's direct or indirect ownership
of Voting Securities in fact equals or exceeds the Investor Minimum Investment
or (ii) the expiration of such 60-day period.
Section 8.11. Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement hereof shall be deemed to be
a waiver of any other provision, condition or requirement hereof; nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right accruing to it thereafter.
Section 8.12. Beneficial Ownership. In determining any Person's ("First
Person") direct or indirect beneficial ownership of the securities of any other
Person ("Second Person") pursuant to this Agreement, there shall not be included
any securities of the Second Person held by any other Person (Third Person")
with respect to which the First Person owns directly or indirectly less than 10%
of such Third Person's outstanding voting securities.
Section 8.13. Delay Provision. Notwithstanding any other provision of this
Agreement, the Investor shall have the option of postponing the date of any
optional or required purchase, sale, conversion or delivery of securities
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of the Company hereunder to a date no more than 30 Business Days following the
earliest date reasonably believed necessary by the Investor to avoid any
potential liability by it under Section 16(b) of the Exchange Act.
Section 8.14. Submission to Jurisdiction: Consent to Service of Process.
With respect to any claim arising out of this Agreement or the Joint Venture
Agreement (a) the Company and the Investor each irrevocably submits to the
nonexclusive jurisdiction of the courts of the State of New York and the United
States District Court located in the Borough of Manhattan in New York City and
the courts of Japan located in the Metropolis of Tokyo, and (b) the Company and
the Investor each irrevocably waives any objection which it may have at any time
to the laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement or the Joint Venture Agreement brought in any such
court, irrevocably waives any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum and further
irrevocably waives the right to object, with respect to such suit, action or
proceeding brought in any such court, that such court does not have jurisdiction
over such party; provided, however, that nothing in this Section 8.14 shall be
deemed to preclude either the Company or the Investor from bringing an action or
proceeding in respect of any such agreement in any other jurisdiction. The
Company and the Investor each agrees that service of process upon it in any such
suit, action or proceeding shall be deemed in every respect effective service of
process upon it if given in the manner set forth in Section 8.9.
Section 8.15. Headings. The headings herein are for convenience only, do
not constitute a part of this
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Agreement, and shall not be deemed to limit or affect any of the provisions
hereof.
Section 8.16. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and legal
representatives. No third party is intended to have any rights by reason of, or
to enforce, any provision of this Agreement. This Agreement may be assigned, in
whole or in part, by the Investor to any Affiliate of the Investor so long as
such Affiliate agrees to reassign this Agreement to the Investor or to another
Affiliate of the Investor if it ceases to be an Affiliate of the Investor and
the Affiliate agrees in writing to be bound by the terms of this Agreement as if
it were a party hereto. Neither party may assign this Agreement or any rights
hereunder except as provided in the preceding sentence and in Section 5.2(a).
The assignment by a party of this Agreement or any rights hereunder shall not
affect the obligations of such party under this Agreement.
Section 8.17. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the Company and the Investor have caused this Agreement
to be duly executed by their respective authorized directors or officers as of
the date hereof.
PAINE WEBBER GROUP INC. THE YASUDA MUTUAL LIFE
INSURANCE COMPANY
By: By:
--------------------------------- --------------------------
Name: Name:
Title: Title:
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<PAGE> 61
Exhibit 1 to the Amended and
Restated Investment Agreement
DEFINITIONS
"Accumulated Dividends on Repurchased Shares" has the meaning assigned in
Section 2.1.
"Accumulated Dividends on Replaced Shares" has the meaning assigned in
Section 2.2.
"Affiliate" means, with respect to a Person ("Reference Person"), any other
Person in which such Reference Person has a direct or indirect controlling
interest or by which such Reference Person is directly or indirectly controlled
or which is under direct or indirect common control with such Reference Person;
provided that in no event shall Affiliate include any other Person in which the
Reference Person owns less than 10% of such other Person's outstanding voting
securities.
"Aggregate Repurchase Price" has the meaning assigned in Section 2.1.
"Agreement" means the Amended and Restated Investment Agreement, dated as
of November 5, 1992, by and between Paine Webber Group Inc. and The Yasuda
Mutual Life Insurance Company.
"Agreement Securities" has the meaning assigned in Section 5.2(a).
"Average Market Price" of any security on any date means the average of the
daily closing prices for the 30 consecutive trading days commencing 45 days
before the date in question. The closing price for each day shall be the last
reported sales price regular way or, in case no such reported sale takes place
on such day, the average of the reported closing bid and asked prices regular
way, in either case on the New York Stock Exchange or, if such security is not
listed or admitted to trading on such Exchange, on the principal national
securities exchange on which such security is listed or admitted to trading or,
if not listed or admitted to trading on any national securities exchange, on the
National Association of Securities Dealers Automated Quotations National Market
System or, if such security is not listed or admitted to trading on any national
securities exchange or quoted on such National Market System, the average of the
closing bid and asked prices in the over-the-counter market as furnished by any
New York Stock Exchange member firm selected from time to time by the issuer of
such security for that purpose. For the purposes of this definition, the term
"trading day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday,
other than any day
<PAGE> 62
on which securities are not traded on such exchange or in such market.
"Average Trading Price" of the Common Stock on any date means the average
of the daily closing prices for any period of 15 consecutive trading days ending
on any of the three trading days immediately preceding the date in question. For
purposes of this definition, the term "trading day" shall mean each Monday,
Tuesday, Wednesday, Thursday and Friday, other than any day on which securities
are not traded on such exchange or in such market.
"Bank of England Approval" has the meaning assigned in Section 4.1(e).
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York City or Tokyo are
authorized or obligated by law or executive order to close.
"Closing" has the meaning assigned in Section 3.1.
"Closing Date" has the meaning assigned in Section 3.1.
"Common Stock" has the meaning assigned in Section 3.2.
"Company" means Paine Webber Group Inc., a Delaware corporation.
"Company Exchange Personnel" has the meaning assigned in Section 6.1(b).
"Conversion Price" has the meaning assigned in paragraph (v) of Exhibit 2.
"Dividend Payment Dates" has the meaning assigned in paragraph (iii) of
Exhibit 2.
"Equity Purchase Rights" has the meaning assigned in Section 5.1(c).
"Equity Purchase Shares" means Voting Securities or any securities
convertible into or exchangeable for Voting Securities or any options, warrants
or rights exercisable for Voting Securities.
"Equity Purchase Share Amount" has the meaning assigned in Section 5.1(c).
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"Exchange Act" means the Securities Exchange Act of 1934.
"Fair Market Value" means, with respect to Voting Securities or other
securities, the fair market value as jointly determined by the Investor and the
Company or, in the event the Investor and the Company are unable to agree, as
determined by a mutually acceptable internationally recognized investment
banking or other advisory firm.
"First Person" has the meaning assigned in Section 8.12.
"Group" means two or more Persons acting as a partnership, limited
partnership, syndicate or other group for purposes of acquiring, holding or
disposing of Voting Securities.
"Holder" has the meaning assigned in Section 9 of Exhibit 3.
"Hostile Proposal" has the meaning assigned in Section 5.2(a).
"Initial Conversion Price" has the meaning assigned in Section 3.2.
"Investor" means The Yasuda Mutual Life Insurance Company, a mutual life
insurance company organized under the laws of Japan.
"Investor Exchange Personnel" has the meaning assigned in Section 6.1(a).
"Investor Minimum Investment" means on any date of determination 5,000,000
shares of Common Stock (assuming for this purpose that all Participating
Preferred Shares beneficially owned by the Investor have been converted into
Common Stock); provider, however, that in the event the Company shall after the
date of the Agreement (i) pay a dividend or make a distribution on the Common
Stock in shares of Common Stock, (ii) subdivide or reclassify its outstanding
shares of Common stock into a greater number of shares or (iii) combine or
reclassify its outstanding shares of Common Stock into a smaller number of
shares, then in each such case the number of shares of Common Stock representing
the Investor Minimum Investment shall be multiplied by the number of shares
Common Stock (including fractions, if applicable) that a holder of Common Stock
would hold or be entitled to receive immediately after such happening in respect
of each share of Common Stock held by
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such holder immediately prior to such happening. Any adjustments made pursuant
to the immediately preceding sentence shall become effective immediately after
the date of payment, in the case of a dividend or distribution, or immediately
after the effective date, in the case of a subdivision, combination or
reclassification.
"Joint Venture" means the English limited company formed pursuant to the
Joint Venture Agreement.
"Joint Venture Agreement" means the Joint Venture Agreement, dated as of
November 30, 1987, as amended through the date hereof, by and between the
Investor and the Company, with respect to the Joint Venture.
"Liquidation Preference" with respect to the Participating Preferred Shares
has the meaning assigned in paragraph (iv) of Exhibit 2.
"Original Agreement" means the Investment Agreement, dated as of November
30, 1987, by and between Paine Webber Group Inc. and The Yasuda Mutual Life
Insurance Company.
"Outstanding" means with respect to any securities of the Company
securities issued and outstanding, and shall not include securities held in the
treasury of the Company.
"Participating Preferred Shares" has the meaning assigned in Section 2.2.
"Participation Threshold" has the meaning assigned in paragraph (iii) of
Exhibit 2.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Public Company Stock" means any class or series of Voting Securities
registered under the Exchange Act and broadly held and actively traded by public
securityholders.
"Registrable Securities" means any Common Stock and any securities of the
Company distributed with respect to such Common Stock.
"Registration Expenses" means all expenses incident to the registrant's
performance of or compliance with the registration requirements set forth in
Exhibit 3 to the Agreement including, without limitation, the following:
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<PAGE> 65
(i) the fees, disbursements and expenses of the Company's counsel(s) (United
States and non-United States) and accountants in connection with the
registration of the Registrable Securities to be disposed of under the
Securities Act; (ii) all expenses in connection with the preparation, printing
and filing of the registration statement, any preliminary prospectus or final
prospectus, any other offering document and amendments and supplements thereto
and the mailing and delivering of copies thereof to the underwriters and
dealers; (iii) the cost of printing or producing any agreement(s) among
underwriters, underwriting agreement (a), and blue sky or legal investment
memoranda, any selling agreements and any other documents in connection with the
offering, sale or delivery of the Registrable Securities to be disposed of; (iv)
all expenses in connection with the qualification of the Registrable Securities
to be disposed of for offering and sale under state securities laws, including
the fees and disbursements of counsel for the underwriters in connection with
such qualification and in connection with any blue sky and legal investment
surveys; (v) the filing fees incident to securing any required review by the
National Association of Securities Dealers, Inc. of the terms of the sale of the
Registrable Securities to be disposed of; and (vi) the fees of any nationally
recognized rating agency for rating the Registrable Securities to be disposed
of.
"SEC Documents" has the meaning assigned in Section 4.1(f).
"Second Person" has the meaning assigned in Section 8.12.
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Shares" has the meaning assigned in Section 2.1.
"Significant Subsidiary" has the meaning assigned in Section 4.1(a).
"Standstill Amount" has the meaning assigned in Section 5.1(i).
"Standstill Period" has the meaning assigned in Section 5.2(b).
"Stockholders' Equity" has the meaning assigned in Section 5.1(c).
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<PAGE> 66
"Third Person" has the meaning assigned in Section 8.12.
"Transfer Notice" has the meaning assigned in Article VII.
"Transfer Price" has the meaning assigned in Article VII.
"Trigger Price" on any date of determination means the greater of (i) the
quotient obtained by dividing (A) 2,566.43 by (B) the Yen-Dollar Exchange Rate
on the next preceding Business Day and (ii) $21.50.
"U.S. GAAP" has the meaning assigned in Section 4.1(g)
"Voting Securities" means all securities issued by the Company having the
ordinary power to vote in the election of directors of the Company, other than
securities having such power only upon the occurrence of a default or any other
extraordinary contingency.
"Yen-Dollar Exchange Rate" on any date of determination means the noon spot
buying rate in New York City per U.S.$ 1.00 for cable transfers of Japanese Yen
as certified for customs purposes by the Federal Reserve Bank of New York for
such date or, if the Federal Reserve Bank of New York has not provided such rate
by 1:30 P.M. on such date, then the rate applicable shall be the arithmetic mean
of the spot buying rates, of Japanese yen per U.S. $1.00 on such date for a
transaction amount approximately equivalent to U.S. $1,000,000 quoted at
approximately 1:30 P.M., New York City time, by three leading market makers in
the foreign exchange market for Japanese yen listed in Exhibit 12 and selected
by the Company.
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<PAGE> 67
Exhibit 2 to Amended and Restated
Investment Agreement
CERTIFICATE OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND THE QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS THEREOF, WHICH HAVE NOT BEEN SET FORTH IN THE
RESTATED CERTIFICATE OF INCORPORATION OR IN ANY AMENDMENT THERETO, OF THE
CUMULATIVE PARTICIPATING CONVERTIBLE
VOTING PREFERRED STOCK, SERIES A
($20 Par Value)
PAINE WEBBER GROUP INC.
----------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
----------
The undersigned DOES HEREBY CERTIFY that the following resolution was duly
adopted on November __, 1992, by the Board of Directors of Paine Webber Group
Inc., a Delaware corporation (hereinafter called the "Corporation"), pursuant to
authority conferred upon the Board of Directors by the provisions of the
Restated Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), of the Corporation;
RESOLVED, that the issuance of a series of the Series
Preferred Stock, par value $20 per share (the "Series Preferred
Stock"), which shall consist of 7,758,632 of the shares of the
Series Preferred Stock which the Corporation now has authority to
issue, be, and the same hereby is, authorized, and this Board of
Directors hereby fixes the powers, designations, preferences and
relative, participating, optional or other special rights, and
the qualifications, limitations or restrictions thereof, of the
shares of such series (in addition to the powers, designations,
preferences and relative, participating, optional or other
special rights, and the qualifications, limitations or
restrictions thereof, set forth in the Certificate of
Incorporation which are applicable to such series of Series
Preferred Stock) as follows:
<PAGE> 68
(i) Except as otherwise specified herein, defined terms
herein, which may be identified by the capitalization of the
first letter of each principal word thereof, have the
meanings assigned to them in the Amended and Restated
Investment Agreement, by and between Paine Webber Group Inc.
and The Yasuda Mutual Life Insurance Company, dated as of
November 5, 1992 (the "Agreement").
(ii) The designation of such series of the Series
Preferred Stock authorized by this resolution shall be the
Cumulative Participating Convertible Voting Preferred Stock,
Series A (the "Preferred Stock" and sometimes referred to in
the Agreement as the "Participating Preferred Shares"). The
number of shares of Preferred Stock shall be 7,758, 632.
(iii) (I) Holders of shares of Preferred Stock will be
entitled to receive, when and as declared by the Board of
Directors of the Corporation (the "Board") out of assets of
the Corporation legally available for payment, an annual
cash dividend of $0.48 per share ("Regular Dividends"),
payable in equal quarterly installments on March 15, June
15, September 15 and December 15 (or, if any such day is not
a Business Day in New York City, then on the next succeeding
Business Day) in each year (the "Dividend Payment Dates")
plus, for any calendar quarter in which the Board declares a
dividend or dividends on Common Stock of the Corporation (as
defined in paragraph (v) (I) below) in excess of the
Participation Threshold (as defined in paragraph (iii) (II)
below), an amount per share equal to the product of (x) the
amount in excess of the Participation Threshold paid as a
dividend on any share of Common Stock times (y) the number
of shares of Common Stock into which one share of Preferred
Stock is convertible on the date or dates, as the case may
be, on which such
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<PAGE> 69
dividend or dividends on Common Stock are paid
("Participating Dividends"). Concurrently with paying or
declaring and setting aside for payment any dividend or
other distribution in excess of the Participation Threshold
upon any share of the Common Stock (other than a dividend or
distribution that gives rise to an adjustment of the
Conversion Price pursuant to paragraph (v) (IV) below) the
Corporation shall pay or declare and set aside for payment,
as the case may be, an amount per share determined pursuant
to the immediately preceding sentence, such amount in
respect of the Preferred Stock to be paid in priority to the
payment of any dividend or other distribution upon the
Common Stock. Except as set forth in the preceding sentence,
payment of dividends on the Preferred Stock shall commence
the first Dividend Payment Date following the Closing Date.
Regular Dividends will be cumulative from and including the
date of initial issuance of any shares of Preferred Stock.
Participating Dividends will be cumulative from the first
dividend payment date for the Common Stock giving rise to
the right of holders of the Preferred Stock to receive a
Participating Dividend. Dividends will be payable to holders
of record as they appear on the stock books of the
Corporation on such record dates, not more than 60 days nor
less than 10 days preceding the payment dates thereof, as
shall be fixed by the Board or a duly authorized committee
thereof.
The Preferred Stock will rank on a parity as to
dividends with the Corporation's $1.375 Convertible
Exchangeable Preferred Stock. When dividends are not paid in
full upon the Preferred Stock (including any dividends in
excess of the Participation Threshold required to be paid or
declared pursuant to this paragraph (iii) (I)) and any other
preferred stock ranking on a parity as to dividends with the
Preferred Stock (such other preferred stock and the
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Preferred Stock hereinafter being collectively referred to
as "Parity Preferred Stock"), all dividends declared upon
shares of Parity Preferred Stock will be declared pro rata
so that in all cases the amount of dividends declared per
share on the Preferred Stock and such other Parity Preferred
Stock shall bear to each other the same ratio that
accumulated and unpaid dividends per share on the shares of
Preferred Stock and such other Parity Preferred Stock bear
to each other. Except as set forth in the preceding
sentence, unless full cumulative dividends on the Preferred
Stock have been paid (including any dividends in excess of
the Participation Threshold required to be paid or declared
pursuant to this paragraph (iii) (I)), no dividends (other
than in Common Stock of the Corporation (as defined in
paragraph (v) (I) below) or any other stock of the
Corporation ranking junior to the Preferred Stock as to
dividends) may be paid or declared and set aside for payment
or other distribution made upon the Common Stock or on any
other stock of the Corporation ranking junior to or on a
parity with the Preferred Stock as to dividends, nor may any
Common Stock or any other stock of the Corporation ranking
junior to or on a parity with the Preferred Stock as to
dividends be redeemed, purchased or otherwise acquired for
any consideration (or any payment made to or available for a
sinking fund for the redemption of any shares of such stock)
by the Corporation (except by conversion into or exchange
for stock of the Corporation ranking junior to the Preferred
Stock as to dividends). Dividends payable for any partial
dividend period shall be calculated on the basis of a
360-day year of twelve (12) 30-day months.
(II) The term "Participation Threshold" shall mean
$0.12, as adjusted in accordance with this paragraph (iii)
(II). In case the Corporation shall hereafter (i) pay a
dividend or
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<PAGE> 71
make a distribution on the Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares
of Common Stock into a greater number of shares or (iii)
combine or reclassify its outstanding shares of Common Stock
into a smaller number of shares, then in each such case the
Participation Threshold then in effect shall be adjusted so
that, after the happening of any of the events described
above in this sentence the Participation Threshold shall
equal a number equal to the Participation Threshold in
effect immediately prior to such happening multiplied by a
fraction of which the numerator is the number of shares of
Common Stock into which one share of Preferred Stock was
convertible immediately prior to such happening and the
denominator is the number of shares of Common Stock into
which one share of Preferred Stock was convertible
immediately after such happening. An adjustment to the
Participation Threshold made pursuant to this subsection
(II) shall become effective immediately after the date of
payment, in the case of a dividend or distribution, or
immediately after the effective date, in the case of a
subdivision, combination or reclassification.
(III) In the event the Corporation does not pay the
cash dividend provided for in subsection (I) on any Dividend
Payment Date, the Corporation shall consult with the holders
of the Preferred Stock to discuss what steps might be taken
to provide holders of the Preferred Stock with a payment of
an equivalent value otherwise than in cash in lieu of such
cash dividend.
(iv) The shares of Preferred Stock shall rank prior to
the shares of Common Stock and of any other class of stock
of the Corporation ranking junior to the Series Preferred
Stock upon liquidation, so that in the event of any
liquidation, dissolution or winding up of the
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<PAGE> 72
Corporation, whether voluntary or involuntary, the holders
of the Preferred Stock shall be entitled to receive out of
the assets of the Corporation available for distribution to
its stockholders, whether from capital, surplus or earnings,
before any distribution is made to holders of shares of
Common Stock or any other such junior stock, an amount equal
to $19.3333 per share (the "Liquidation Preference" of a
share of Preferred Stock) plus an amount equal to all
dividends (whether or not earned or declared) accumulated
and unpaid on the shares of Preferred Stock to the date of
final distribution. If, upon any liquidation, dissolution or
winding up of the Corporation, the assets of the
Corporation, or proceeds thereof, distributable among the
holders of shares of Parity Preferred Stock shall be
insufficient to pay in full the preferential amount
aforesaid, then such assets, or the proceeds thereof, shall
be distributable among such holders ratably in accordance
with the respective amounts which would be payable on such
shares if all amounts payable thereon were payable in full.
For the purposes hereof, the voluntary sale, conveyance,
exchange or transfer (for cash, shares of stock, securities
or other consideration) of all or substantially all the
property or assets of the Corporation shall be deemed a
voluntary liquidation, dissolution or winding up of the
Corporation, but a consolidation or merger of the
Corporation with one or more other corporations shall not be
deemed to be a liquidation, dissolution or winding up,
voluntary or involuntary.
(v) (I) Subject to and upon compliance with the
provisions of this paragraph (v), the holder of a share of
Preferred Stock shall have the right, at his option, at any
time, except that, if such share is called for redemption,
not after the close of business on the date fixed for such
redemption, unless default shall be made in the payment of
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<PAGE> 73
the redemption price, to convert such share into that number
of fully paid and nonassessable shares of Common Stock
(calculated as to each conversion to the nearest 1/10,000th
of a share) obtained by dividing the Liquidation Preference
of such share being converted by the Conversion Price (as
defined below) and by surrender of such share so to be
converted, such surrender to be made in the manner provided
in subsection (II) of this paragraph (v).
The term "Common Stock" shall mean the Common Stock, $1
par value, of the Corporation as the same exists at the date
of this Certificate or as such stock may be constituted from
time to time, except that for the purpose of this paragraph
(v), the term "Common Stock" shall include any stock of any
class of the Corporation which has no preference in respect
of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding
up of the Corporation and which is not subject to redemption
by the Corporation. However, shares issuable on conversion
of shares of Preferred Stock shall include only shares of
the class designated as Common Stock of the Corporation as
of the Closing Date, or shares of any class or classes
resulting from any reclassification or reclassifications
thereof and which have no preference in respect of dividends
or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation and which are not subject to redemption by the
Corporation; provided, that if at any time there shall be
more than one such resulting class, the shares of each such
class then so issuable shall be substantially in the
proportion which the total number of shares of such class
resulting from all such reclassifications bears to the total
number of shares of all such classes resulting from all such
reclassifications.
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<PAGE> 74
The term "Conversion Price" shall mean the Initial
Conversion Price, as adjusted in accordance with the
provisions of this paragraph (v).
(II) In order to exercise the conversion privilege, the
holder of each share of Preferred Stock to be converted
shall surrender the certificate representing such share at
the office of the conversion agent for the Preferred Stock
in the Borough of Manhattan, City of New York, appointed for
such purpose by the Corporation (the "conversion agent"),
with the Notice of Election to Convert on the back of said
certificate completed and signed. Such notice shall be
substantially in the following form:
"NOTICE TO ELECTION TO CONVERT
The undersigned, being a holder of the Cumulative
Participating Convertible Voting Preferred Stock, Series A
("Preferred Stock") of Paine Webber Group Inc. irrevocably
exercises the right to convert ___________ outstanding
shares of Preferred Stock on __________, _____, into shares
of Common Stock of Paine Webber Group Inc. in accordance
with the terms of the Preferred Stock, and directs that the
shares issuable and deliverable upon the conversion,
together with any check in payment for fractional shares, be
issued and delivered in the denominations indicated below to
the registered holder hereof unless a different name has
been indicated below. If shares are to be issued in the name
of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto.
Dated:
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<PAGE> 75
Fill in for registration of
shares of Common Stock
if to be issued otherwise
than to the registered
holder:
- ---------------------------
Name
- ---------------------------
Address
- --------------------------- -----------------------
(Please print name (Signature)
and address,
including postal
code number)
Denominations: "
-----------------------
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<PAGE> 76
Unless the shares issuable on conversion are to be issued in
the same name as the name in which such share of Preferred
Stock is registered, each share surrendered for conversion
shall be accompanied by instruments of transfer, in form
satisfactory to the Corporation, duly executed by the holder
or his duly authorized attorney and an amount sufficient to
pay any transfer or similar tax. A payment shall be made on
conversion for dividends accumulated on the Preferred Stock
surrendered for conversion but not for dividends on Common
Stock delivered on such conversion. As promptly as
practicable after the surrender of the certificates for
shares of Preferred Stock as aforesaid, the Corporation
shall issue and shall deliver at such office to such holder,
or on his written order, a certificate or certificates for
the number of full shares of Common Stock issuable upon the
conversion of such shares in accordance with the provisions
of this paragraph (v), and any fractional interest in
respect of a share of Common Stock arising upon such
conversion shall be settled as provided in subsection (III)
of this paragraph (v).
Each conversion shall be deemed to have been effected
immediately prior to the close of business on the date on
which the certificates for shares of Preferred Stock shall
have been surrendered and such notice received by the
Corporation as aforesaid, and the person or persons in whose
name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be
deemed to have become the holder or holders of record of the
shares represented thereby at such time on such date and
such conversion shall be at the Conversion Price in effect
at such time on such date. All shares of Common Stock
delivered upon conversions of the Preferred Stock will upon
delivery be duly and validly issued and fully paid and
non-assessable, free
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<PAGE> 77
of all liens and charges and not subject to any preemptive
rights.
(III) No fractional shares or scrip representing
fractions of shares of Common Stock shall be issued upon
conversion of the Preferred Stock. Instead of any fractional
interest in a share of Common Stock which would otherwise be
deliverable upon the conversion of a share of Preferred
Stock, the Corporation shall pay to the holder of such share
an amount in cash (computed to the nearest 1/100th of one
cent) equal to the Average Market Price of the Common Stock
at the close of business on the business day next preceding
the day of conversion. If more than one share shall be
surrendered for conversion at one time by the same holder,
the number of full shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the
aggregate Liquidation Preference of the shares of Preferred
Stock so surrendered.
(IV) The Conversion Price shall be adjusted from time
to time as follows:
(a) In case the Corporation shall hereafter (i) pay a
dividend or make a distribution on the Common Stock in
shares of Common Stock, (ii) subdivide its outstanding
shares of Common Stock into a greater number of shares,
(iii) combine its outstanding shares of Common Stock into a
smaller number of shares, or (iv) issue by reclassification
of the Common Stock any shares of capital stock of the
Corporation, the Conversion Price in effect immediately
prior to such action shall be adjusted so that the holder of
any share of Preferred Stock thereafter surrendered for
conversion shall be entitled to receive the number of shares
of Common Stock or other capital stock of the Corporation
which he would have owned or been entitled to receive
immediately following such action had such share been
converted immediately prior
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<PAGE> 78
thereto. The Corporation shall not pay any dividend or make
any distribution on shares of Common Stock held in the
treasury of the Corporation. An adjustment made pursuant to
this subdivision (a) shall become effective immediately
after the record date, in the case of a dividend or
distribution, or immediately after the effective date, in
the case of a subdivision, combination or reclassification.
If, as a result of an adjustment made pursuant to this
subdivision (a), the holder of any share of Preferred Stock
thereafter surrendered for conversion shall become entitled
to receive shares of two or more classes of capital stock or
shares of Common Stock and other capital stock of the
Corporation, the Board and the Investor jointly (if the
Investor shall be a holder of any of the Preferred Stock) or
an internationally recognized investment banking firm
selected by them if they are unable to reach agreement, or
the Board in its reasonable discretion (if the Investor
shall not be a holder of any of the Preferred Stock) shall
determine the allocation of the adjusted Conversion Price
between or among shares of such classes of capital stock or
shares of Common Stock and other capital stock. Such
determination shall be described in a statement filed with
the conversion agent by the Corporation as soon as
practicable.
(b) In case the Corporation shall hereafter pay or make
a dividend or other distribution in shares of Common Stock
on any class of capital stock of the Corporation other than
the Common Stock, the Conversion Price in effect immediately
after the record date mentioned in the next sentence shall
be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect
immediately prior to the record date mentioned in the next
sentence by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding at
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<PAGE> 79
the close of business on the record date mentioned in the
next sentence and the denominator shall be the sum of such
number of shares and the total number of shares constituting
such dividend or other distribution. Such reduction shall
become effective immediately after the record date for the
determination of stockholders entitled to receive such
dividend or other distribution. For the purposes of this
subdivision (b), the number of shares of Common Stock at any
time outstanding shall not include shares held in the
treasury of the Corporation but shall include shares
issuable in respect of script certificates issued in lieu of
fractions of shares of Common Stock. The Corporation shall
not pay any dividend or make any distribution on shares of
such capital stock held in the treasury of the Corporation.
(c) In case the Corporation shall hereafter issue
rights or warrants to holders of its outstanding shares of
Common Stock generally entitling them to subscribe for or
purchase shares of Common Stock at a price per share less
than the Average Market Price of the Common Stock on the
record date mentioned in the next sentence (other than
pursuant to an automatic dividend reinvestment plan of the
Corporation or any substantially similar plan), the
Conversion Price shall be reduced so that the same shall
equal the price determined by multiplying the Conversion
Price in effect immediately prior to the record date
mentioned in the next sentence by a fraction of which the
numerator shall be the number of shares of Common Stock
outstanding on the record date mentioned in the next
sentence plus the number of shares which the aggregate
offering price of the total number of shares so offered
would purchase at such Average Market Price, and of which
the denominator shall be the number of shares of Common
Stock outstanding on the record date mentioned
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<PAGE> 80
in the next sentence plus the number of additional shares of
Common Stock offered for subscription or purchase. Such
reduction shall become effective immediately after the
record date for the determination of stockholders entitled
to receive such rights or warrants. For the purposes of this
subdivision (c), the number of shares of Common Stock at any
time outstanding shall not include shares held in the
treasury of the Corporation but shall include shares
issuable in respect of script certificates issued in lieu of
fractions of shares of Common Stock. The Corporation will
not issue any rights or warrants in respect of shares of
Common Stock held in the treasury of the Corporation.
(d) In case the Corporation shall, by dividend or
otherwise, hereafter distribute to holders of its
outstanding shares of Common Stock generally evidences of
its indebtedness or assets (excluding any regular periodic
cash dividend paid from retained earnings of the Corporation
and dividends or distributions payable in stock for which
adjustment is made pursuant to subdivision (a) of this
subsection (IV)) or rights or warrants to subscribe to
securities of the Corporation (excluding those referred to
in subdivision (c) of this subsection (IV)), then in each
such case the Conversion Price shall be adjusted so that the
same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the record
date mentioned in the next sentence by a fraction of which
the numerator shall be the Average Market Price of the
Common Stock on the record date mentioned in the next
sentence less the then fair market value (as determined by
the Board and the Investor jointly (if the Investor shall be
a holder of any of the Preferred Stock), or by an
internationally recognized investment banking firm selected
by them if they are unable to agree or
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<PAGE> 81
by the Board in its reasonable discretion (if the Investor
shall not be a holder of any of the Preferred Stock)), of
the portion of the evidences of indebtedness or assets so
distributed to the holder of one share of Common Stock or of
such subscription rights or warrants applicable to one share
of Common Stock, and of which the denominator shall be such
Average Market Price of the Common Stock. Such adjustment
shall become effective immediately after the record date for
the determination of stockholders entitled to receive such
distribution. Such determination of fair market value shall
be described in a statement filed with the conversion agent
by the Corporation as soon as practicable.
(e) The reclassification (including any
reclassification upon a merger in which the Corporation is
the continuing corporation) of Common Stock into securities
including other than Common Stock shall be deemed to involve
(i) a distribution of such securities other than Common
Stock to all holders of Common Stock (and the effective date
of such reclassification shall be deemed to be "the record
date for the determination of stockholders entitled to
receive such distribution" within the meaning of subdivision
(d) of this subsection (IV)), and (ii) a subdivision or
combination, as the case may be, of the number of shares of
Common Stock outstanding immediately prior to such
reclassification into the number of shares of Common Stock
outstanding immediately thereafter.
(f) In any case in which this paragraph (v) shall
require that an adjustment be made immediately following a
record date or an effective date, the Corporation may elect
to defer (but only until five business days following the
filing by the Corporation with the conversion agent of the
certificate of independent public accountants required
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<PAGE> 82
by subdivision (h) of this subsection (IV)) issuing to the
holder of any share of Preferred Stock converted after such
record date or effective date the additional shares of
Common Stock or other capital stock issuable upon such
conversion over and above the shares of Common Stock or
other capital stock issuable upon such conversion on the
basis of the Conversion Price prior to adjustment, and
paying to such holder any amount of cash in lieu of a
fractional share.
(g) All calculations under this paragraph (v) shall be
made to the nearest 1/100 of one cent or to the nearest
1/10,000th of a share, as the case may be. Anything in this
paragraph (v) to the contrary notwithstanding, the
Corporation shall be entitled to make such reduction in the
Conversion Price, in addition to those required by this
paragraph (v), as it considers to be advisable in order that
any stock dividend, subdivision of shares, distribution of
rights to purchase stock or securities, or distribution of
securities convertible into or exchangeable for stock
hereafter made by the Corporation to its stockholders shall
not be taxable to the recipients.
(h) Whenever the Conversion Price is adjusted as herein
provided, (i) the Corporation shall promptly file with the
conversion agent a certificate of a firm of independent
public accountants (who may be the regular accountants
employed by the Corporation) setting forth the Conversion
Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment and the
manner of computing the same, and (ii) a notice stating that
the Conversion Price has been adjusted and setting forth the
adjusted Conversion Price shall forthwith be airmailed by
the Corporation to the holders of the Preferred Stock at
their addresses as
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shown on the stock books of the Corporation.
(i) In the event that any time as a result of an
adjustment made pursuant to subdivision (a) of this
subsection (IV), the holder of any share of Preferred Stock
thereafter surrendered for conversion shall become entitled
to receive any shares of the Corporation other than shares
of Common Stock, thereafter the Conversion Price of such
other shares so receivable upon conversion of any share
shall be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the
provisions with respect to Common Stock contained in this
paragraph (v).
(V) In case:
(a) the Corporation shall declare a dividend (or any
other distribution) on its Common Stock other than a regular
periodic cash dividend payable in cash out of its retained
earnings; or
(b) the Corporation shall authorize the granting to the
holders of the Common Stock of rights or warrants to
subscribe for or purchase any shares of stock of any class
or of any other rights; or
(c) there shall be any capital stock reorganization or
reclassification of the Common Stock (other than a
subdivision or combination of the outstanding Common Stock
and other than a change in the par value of the Common
Stock), or any consolidation or merger to which the
Corporation is a party or any statutory exchange of
securities with another corporation and for which approval
of any stockholders of the Corporation is required, or any
sale or transfer of all or substantially all the assets of
the Corporation; or
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<PAGE> 84
(d) there shall be a voluntary dissolution, liquidation
or winding up of the Corporation;
then the Corporation shall cause to be filed with the
conversion agent, and shall cause to be airmailed to the
holders of shares of the Preferred Stock at their addresses
as shown on the stock books of the Corporation, at least ten
days prior to the applicable date hereinafter specified, a
notice stating (i) the date on which a record is to be taken
for the purpose of such dividend, distribution, rights or
warrants, or, if a record is not to be taken, the date as of
which the holders of Common Stock of record to be entitled
to such dividend, distribution, rights or warrants are to be
determined, or (ii) the date on which such reorganization,
reclassification, consolidation, merger, statutory exchange,
sale, transfer, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger,
statutory exchange, sale, transfer, dissolution, liquidation
or winding up.
(VI) The Corporation covenants that it will at all
times reserve and keep available, free from preemptive
rights, out of the aggregate of its authorized but unissued
shares of Common Stock or its issued shares of Common Stock
held in its treasury, or both, for the purpose of effecting
conversions of the Preferred Stock, the full number of
shares of Common Stock deliverable upon the conversion of
all outstanding shares of Preferred Stock not theretofore
converted. For purposes of this subsection (VI), the number
of shares of Common Stock which shall be deliverable upon
the conversion of all outstanding shares of Preferred Stock
shall be
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<PAGE> 85
computed as if at the time of computation all such
outstanding shares were held by a single holder.
Before taking any action which would cause an
adjustment reducing the Conversion Price below the then par
value (if any) of the shares of Common Stock deliverable
upon conversion of the Preferred Stock, the Corporation will
take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Corporation may
validly and legally issue fully paid and non-assessable
shares of Common Stock at such adjusted Conversion Price.
The Corporation shall use its best efforts to list the
shares of Common Stock required to be delivered upon
conversion of the Preferred Stock prior to such delivery
upon each securities exchange, if any, upon which the
outstanding Common Stock is listed at the time of such
delivery.
Prior to the delivery of any securities which the
Corporation shall be obligated to deliver upon conversion of
the Preferred Stock, the Corporation shall use its best
efforts to comply with all Federal and state laws and
regulations thereunder requiring the registration of such
securities with, or any approval of or consent to the
delivery thereof by, any governmental authority.
(VII) The Corporation shall pay any and all documentary
stamp or similar issue or transfer taxes payable in respect
of the issue or delivery of shares of Common Stock on
conversions of the Preferred Stock pursuant hereto;
provided, however, that the Corporation shall not be
required to pay any tax which may be payable in respect of
any transfer involved in the issue or delivery of shares of
Common Stock in a name other than that of the holder of the
Preferred Stock to be converted and
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<PAGE> 86
no such issue or delivery shall be made unless and until the
person requesting such issue or delivery has paid to the
Corporation the amount of any such tax or has established,
to the satisfaction of the Corporation, that such tax has
been paid.
(VIII) In case of any consolidation or merger in which
the Corporation is a party (other than a merger in which the
Corporation is the continuing corporation), or in case of
any sale or conveyance to another corporation of the
property of the Corporation as an entirety or substantially
as an entirety, or in the case of any statutory exchange of
securities with another corporation (including any exchange
effected in connection with a merger of a third corporation
into the Corporation), the holder of each share of Preferred
Stock then outstanding shall have the right thereafter to
convert such share into the kind and amount of securities,
cash or other property receivable upon such consolidation,
merger, statutory exchange, sale or conveyance by a holder
of the number of shares of Common Stock into which such
share of Preferred Stock might have been converted
immediately prior to such consolidation, merger, statutory
exchange, sale or conveyance, assuming such holder of Common
Stock failed to exercise his rights of election, if any, as
to the kind or amount of securities, cash or other property
receivable upon such consolidation, merger, statutory
exchange, sale or conveyance (provided that if the kind or
amount of securities, cash or other property receivable upon
such consolidation, merger, statutory exchange, sale or
conveyance is not the same for each share of Common Stock in
respect of which such rights of election shall not have been
exercised ("non-electing share"), then for the purpose of
this subsection (VIII) the kind and amount of securities,
cash or other property receivable upon such
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<PAGE> 87
consolidation, merger, statutory exchange, sale or
conveyance for each non-electing share shall be deemed to be
the kind and amount so receivable per share by a plurality
of the non-electing shares). Thereafter, the holders of the
Preferred Stock shall be entitled to appropriate adjustments
with respect to their conversion rights to the end that the
provisions set forth in this paragraph (v) shall
correspondingly be made applicable, as nearly as may
reasonably be, in relation to any shares of stock or other
securities or property thereafter deliverable on the
conversion of the Preferred Stock. Any such adjustment shall
be approved by a firm of independent public accountants (who
may be the regular accountants employed by the Corporation),
evidenced by a certificate to that effect delivered to the
conversion agent.
The above provisions of this subsection (VIII) shall
similarly apply to successive consolidations, mergers,
statutory exchanges, sales or conveyances.
(vi) Upon any conversion or redemption of shares of
Preferred Stock, the shares of Preferred Stock so converted
or redeemed shall have the status of authorized and unissued
shares of Series Preferred Stock, and the number of shares
of Series Preferred Stock which the Corporation shall have
authority to issue shall not be decreased by the conversion
or redemption of shares of Preferred Stock.
(vii) (I) Each holder of shares of Preferred Stock
shall be entitled to one vote for each share held with
respect to all matters upon which holders of Common Stock
are entitled to vote, voting with the holders of outstanding
shares of Common Stock (and with any other holders of any
other class or series which may similarly be entitled to
vote with the shares of Common Stock) as a single class.
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<PAGE> 88
(II) If and whenever at any time or times dividends
payable on the Preferred Stock or on any other Parity
Preferred Stock shall have been in arrears and unpaid in an
aggregate amount equal to or exceeding the amount of
dividends payable thereon for six quarterly periods, then
the holders of Parity Preferred Stock shall have, in
addition to the other voting rights set forth herein, the
exclusive right, voting separately as a class, to elect two
directors of the Corporation, such directors to be in
addition to the number of directors constituting the Board
of Directors immediately prior to the accrual of such right,
the remaining directors to be elected by the other class or
classes of stock entitled to vote therefor at each meeting
of stockholders held for the purpose of electing directors.
Such voting right shall continue until such time as all
cumulative dividends accumulated on all the Parity Preferred
Stock having cumulative dividends shall have been paid in
full and until any noncumulative dividends payable on all
the Parity Preferred Stock having noncumulative dividends
shall have been paid regularly for at least one year, at
which time such voting right of the holders of the Parity
Preferred Stock shall terminate, subject to revesting in the
event of each and every subsequent event of default of the
character indicated above.
Whenever such voting right shall have vested, such
right may be exercised initially either at a special meeting
of the holders of the Parity Preferred Stock, called as
hereinafter provided, or at any annual meeting of
stockholders held for the purpose of electing directors, and
thereafter at each successive annual meeting.
At any time when such voting right shall have vested in
the holders of the Parity Preferred Stock, and if such
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<PAGE> 89
right shall not already have been initially exercised, a
proper officer of the Corporation shall, upon the written
request of the holders of record of 10% in number of shares
of the Parity Preferred Stock then outstanding, addressed to
the Secretary of the Corporation, call a special meeting of
the holders of the Parity Preferred Stock and of any other
class or classes of stock having voting power with respect
thereto for the purpose of electing directors. Such meeting
shall be held at the earliest practicable date upon the
notice required for annual meetings of stockholders at the
place for holding of annual meetings of stockholders of the
Corporation, or, if none, at a place designated by the
Secretary of the Corporation. If such meeting shall not be
called by the proper officers of the Corporation within 30
days after the personal service of such written request upon
the Secretary of the Corporation, or within 30 days after
mailing the same within the United States of America, by
registered mail, addressed to the Secretary of the
Corporation at its principal office (such mailing to be
evidenced by the registry receipt issued by the postal
authorities), then the holders of record of 10% in number of
shares of the Parity Preferred Stock then outstanding may
designate in writing one of their number to call such
meeting at the expense of the Corporation, and such meeting
may be called by such person so designated upon the notice
required for annual meetings of stockholders and shall be
held at the same place as is elsewhere provided for in this
subsection (II). Any holder of the Parity Preferred Stock
shall have access to the stock books of the Corporation for
the purpose of causing a meeting of stockholders to be
called pursuant to the provisions of this paragraph.
Notwithstanding the provisions of this paragraph, however,
no such special meeting shall be called during a period
within 90 days immediately
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<PAGE> 90
preceding the date fixed for the next annual meeting of
stockholders.
At any meeting held for the purpose of electing
directors at which the holders of the Parity Preferred Stock
shall have the right to elect directors as provided herein,
the presence in person or by proxy of the holders of 33-1/3%
of the then outstanding shares of the Parity Preferred Stock
shall be required and be sufficient to constitute a quorum
of the Parity Preferred Stock for the election of directors
by the Parity Preferred Stock. At any such meeting or
adjournment thereof (A) the absence of a quorum of the
holders of the Parity Preferred Stock shall not prevent the
election of directors other than those to be elected by the
holders of the Parity Preferred Stock and the absence of a
quorum or quorums of the holders of other classes of capital
stock entitled to elect such other directors shall not
prevent the election of directors to be elected by the
holders of the Parity Preferred Stock and (B) in the absence
of a quorum of the holders of any class of stock entitled to
vote for the election of directors, a majority of the
holders present in person or by proxy of such class shall
have the power to adjourn the meeting for the election of
directors which the holders of such class are entitled to
elect, from time to time, without notice other than
announcement at the meeting, until a quorum shall be
present.
The directors elected pursuant to this subsection (II)
shall serve until the next annual meeting or until their
respective successors shall be elected and shall qualify;
provided, however, that when the right of the holders of the
Parity Preferred Stock to elect directors as herein provided
shall terminate, the terms of office of all persons so
elected by the holders of the Parity Preferred Stock shall
terminate,
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and the number of directors of the Corporation shall
thereupon be such number as may be provided in the By-laws
of the Corporation irrespective of any increase made
pursuant to this subsection (II)
(III) So long as any shares of the Preferred Stock
remain outstanding, the Corporation will not, either
directly or indirectly or through merger or consolidation
with any other corporation:
(a) without the affirmative vote at a meeting or the
written consent with or without a meeting of the holders of
at least 66-2/3% in number of shares of the Preferred Stock,
(A) create any class or classes of stock ranking equal or
prior to the Preferred Stock either as to dividends or upon
liquidation or increase the authorized number of shares of
any class or classes of stock ranking equal or prior to the
Preferred Stock either as to dividends or upon liquidation,
(B) amend, alter or repeal any of the provisions of the
Certificate of Incorporation so as to affect adversely the
preferences, special rights or powers of the Preferred Stock
or (C) authorize any reclassification of the Preferred
Stock;
(b) without the affirmative vote at a meeting or the
written consent with or without a meeting of the holders of
at least 66-2/3% in number of shares of the Preferred Stock
then outstanding, amend, alter or repeal any of the
provisions hereof so as to affect adversely the preferences,
special rights or powers of the Preferred Stock; or
(c) without the affirmative vote at a meeting or the
written consent with or without a meeting of the holders of
at least a majority in number of shares of the Series
Preferred Stock of all series then outstanding, increase the
authorized number of shares of the Series Preferred Stock.
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(IV) No consent of the holders of the Preferred Stock shall be required for
(i) the creation of any indebtedness of any kind of the Corporation, (ii) the
creation of any class of stock of the Corporation ranking junior as to dividends
or upon liquidation to the Series Preferred Stock or (iii) any increase or
decrease in the amount of authorized Common Stock or any increase, decrease or
change in the par value thereof or in any other terms thereof.
(V) In case the Corporation shall hereafter (i) pay a dividend or make a
distribution on the Common Stock in shares of Common Stock, (ii) subdivide or
reclassify its outstanding shares of Common Stock into a greater number of
shares or (iii) combine or reclassify its outstanding shares of Common Stock
into a smaller number of shares, then in each such case the number of votes to
which a holder of a share of Preferred Stock is entitled pursuant to subsection
(I) of this paragraph (vii) shall be adjusted so that, after the happening of
any of the events described above, such holder shall be entitled to a number of
votes equal to the number of votes to which such holder was entitled pursuant to
subsection (I) immediately prior to such happening multiplied by a fraction of
which the numerator is the number of shares of Common Stock into which one share
of Preferred Stock was convertible immediately after such happening and the
denominator is the number of shares of Common Stock into which one share of
Preferred Stock was convertible immediately prior to such happening. An
adjustment made pursuant to this subsection (V) shall become effective
immediately after the date of payment, in the case of a dividend or
distribution, or immediately after the effective date, in the case of a
subdivision, combination or reclassification.
(viii) (I) The shares of the Preferred Stock may be redeemed to the
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extent specified below, at the option of the Corporation on any date beginning
March 15, 1993 upon at least 30 days' and not more than 45 days' prior written
notice to the holders of the shares to be redeemed, at an amount equal to the
sum of the Liquidation Preference of such shares plus accumulated and unpaid
dividends (whether or not earned or declared) to the date fixed for redemption:
Number of Shares Subject
to Redemption
-------------------------
to and including
March 31, 1993 ................. up to 50% of the shares of Preferred
Stock initially issued; provided, that
on the date the notice of redemption is
given, the Average Trading Price of the
Common Stock is greater than the Trigger
Price;
thereafter, to and
including March 31,
1994 ........................... all of the shares of Preferred Stock
outstanding; provided, that on the date
the notice of redemption is given, the
Average Trading Price of the Common
Stock is greater than the Trigger Price;
thereafter .......................... all of the shares of Preferred Stock
outstanding; provided, that on the date
notice of redemption is given, the
Average Trading Price of the Common
Stock is greater than $24.00.
For purposes of this subsection (I), the number of shares of Preferred Stock at
any time outstanding shall not include shares
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held in the treasury of the Corporation but shall include shares Isabel in
respect of scrip certificates issued in lieu of fractions of shares of Preferred
Stock.
(II) Holders of shares of Preferred Stock which have been called for
redemption may elect to receive the redemption price for such shares in the form
of securities which are direct obligations of the United States of America and
have a fair market value (as determined jointly by the Board and the Investor
(if the Investor shall be a holder of any shares of Preferred Stock) on the date
notice of such redemption is given, or by an internationally recognized
investment banking firm selected by them if they are unable to agree, or by the
Board in its reasonable discretion (if the Investor shall not be a holder of any
shares of Preferred Stock on the date notice of such redemption is given)) equal
to the redemption price otherwise payable by the Corporation upon redemption of
such shares. Any such election may specify a requested coupon rate or range of
rates, maturity or range of maturities and denominations of such securities.
Such requests with respect to coupon rate, maturity and denomination shall be
satisfied by the Corporation to the extent reasonably practicable. Any such
election shall be effective upon the giving of receipt of written notice of such
election to the Corporation not later than 20 days prior to the date fixed for
redemption.
(III) Notice of any proposed redemption of shares of Preferred Stock shall
be given by the Corporation by airmailing a copy of such notice to holders of
record of the shares of such Preferred Stock to be redeemed at their respective
addresses appearing on the stock books of the Corporation. Said notice shall
specify the shares called for redemption, the redemption price and the price
at which and the date on which the shares called for redemption will, upon
presentation and surrender of the certificates of stock evidencing such shares,
be redeemed and the redemption price therefor paid. From and after the date
fixed in any
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such notice as the date of redemption of shares of Preferred Stock, unless
default shall be made by the Corporation in providing monies at the time and
place specified for the payment of the redemption price pursuant to said notice,
all dividends on the Preferred Stock thereby called for redemption shall cease
to accrue and all rights of the holders thereof as stockholders of the
Corporation, except the right to receive the redemption price upon surrender of
the certificates, shall cease and terminate.
(ix) The Preferred Stock shall be subject to the provisions of the
Agreement and may not be sold or transferred except in accordance therewith.
(x) Certificates representing shares of the Preferred Stock shall be
exchangeable, at the option of the holder, for a new certificate or certificates
of the same or different denominations representing in the aggregate the same
number of shares.
(xi) Subject to conversion as set forth in paragraph (v) and redemption as
set forth
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<PAGE> 96
in paragraph (viii), the Preferred Stock shall be perpetual.
IN WITNESS WHEREOF, PAINE WEBBER GROUP INC. has caused this Certificate to
be made under the seal of the Corporation and signed by Donald B. Marron, its
Chairman of the Board and Chief Executive Officer, and attested by Dorothy F.
Haughtey, its Assistant Secretary, this day of November 1992.
PAINE WEBBER GROUP INC.
---------------------------------------------
Name: Donald B. Marron
Title: Chairman of the Board and Chief
Executive
Officer
Attest:
- ---------------------------------
Dorothy F. Haughey
Assistant Secretary
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Exhibit 3 to the Amended and Restated
Investment Agreement
REGISTRATION RIGHTS
Section 1. Effectiveness of Registration Rights. The registration rights
pursuant to Sections 2 and 3 hereof shall become effective on the Closing Date.
Section 2. Registration on Request.
2.1. Notice. Upon written notice of a Holder requesting that the Company
effect the registration under the Securities Act of all or part of the
Registrable Securities held by it, which notice shall specify the intended
method or methods of disposition of such Registrable Securities, the Company
will use its best efforts to effect (at the earliest possible date) the
registration, under the Securities Act, of such Registrable Securities for
disposition in accordance with the intended method or methods of disposition
stated in such request, provided that:
(a) if the Company shall have previously effected a registration with
respect to Registrable Securities pursuant to this Section 2 or Section 3,
the Company shall not be required to effect a registration pursuant to this
Section 2 until a period of 60 days shall have elapsed from the effective
date of the most recent such previous registration;
(b) if, in the reasonable judgment of the Company, a registration at
the time and on the terms requested would adversely affect any public
financing by the Company that had been contemplated by the Company prior to
the notice by Investor requesting registration, the Company shall not be
required to commence using its best efforts to effect a registration
pursuant to this Section 2 until the earlier of (i) 60 days after the
completion or abandonment of such financing and (ii) the termination of any
"black out" period required by the underwriters, if any, in connection with
such financing;
(c) if, while a registration request is pending pursuant to this
Section 2, the Company determines in the good faith judgment of the General
Counsel of the Company that the filing of a registration statement would
require the disclosure of material information which the Company has a bona
fide business purpose for preserving as confidential or the Company is
unable to comply with Securities and Exchange Commission requirements, the
Company shall not be required to commence using its best efforts to effect
a
<PAGE> 98
registration pursuant to this Section 2 until the earlier of (i) the date
upon which such material information is disclosed to the public or ceases
to be material or (ii) 135 days after the Company makes such good faith
determination; and
(d) the Holders shall have the right to exercise registration rights
pursuant to this Section 2 up to eight times; provided, however, that any
such exercise shall relate to not less than 500,000 Registrable Securities,
provided further that unless and until Bank of England Approval has been
obtained any such exercise shall relate to not less than the lesser of (x)
500,000 Registrable Securities and (y) a number of Registrable Securities
such that, after giving effect to the disposition of such Registrable
Securities as of the date written notice is provided to the Company
pursuant to Section 2.1, the Holder and its subsidiaries would be entitled
to exercise not more than 14.99% of the total voting power of all Voting
Securities (without regard to the limitation on voting contained in Section
5.2(d) of the Agreement).
2.2. Registration Expenses. The Holders shall pay all Registration Expenses
(other than those specified in clause (i) in the definition of Registration
Expenses, which shall be paid by the Company) in connection with any
registration pursuant to this Section 2; provided that if any securities are
registered for sale for the account of any Person other than a Holder pursuant
to Section 2.3, each such Person shall bear its pro rata share of all
Registration Expenses (other than those specified in clauses (i) in the
definition of Registration Expenses); provided further that in no event shall
the Holder be required to pay any internal costs of the Company.
2.3. Third Person Shares. The Company shall have the right to cause the
registration of securities for sale for the account of any Person (excluding the
Company in a primary offering of its Voting Securities) in any registration of
Registrable Securities requested pursuant to this Section 2, provided that the
Company shall not have the right to cause the registration of such securities
if:
(a) in the reasonable judgment of a Holder, registration of such
securities would adversely affect the offering and sale of Registrable
Securities then contemplated by such Holder, until the earlier of (i) 60
days after the completion or abandonment of such financing and (ii) the
termination of any "black-out"
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period required by the underwriters, if any, in connection with such
financing, or
(b) such Holder does not receive assurances satisfactory to it that
the Person for which such securities are being registered will pay its pro
rata share of the Registration Expenses pursuant to Section 2.2 (provided
that for purposes of this clause (b), the guarantee by the Company to such
Holder of payment of such Registration Expenses shall be satisfactory
assurance to such Holder).
2.4. Broad Distribution. The Company shall be required to register
Registrable Securities pursuant to this Section 2 only if such Registrable
Securities are to be offered and sold in a broad distribution within or outside
the United States (or simultaneously in both) to be lead-managed by the
Company's principal broker-dealer subsidiary (provided that, in the reasonable
judgment of a Holder, the proposed terms of offering by such subsidiary are
customary and reasonably competitive, and provided, further, that such Holder in
all cases shall have the right to designate a non-book-running co-lead manager
for any such offering).
Section 3. Incidental Registration
3.1. Notice and Registration. If the Company proposes to register any of
its Voting Securities ("Other Securities") for public sale under the Securities
Act, on a form and in a manner which would permit registration of Registrable
Securities for sale to the public under the Act, it will give prompt written
notice to the Investor of its intention to do so, and upon the written request
of a Holder or Holders delivered to the Company within 15 Business Days after
the giving of any such notice (which request shall specify the Registrable
Securities intended to be disposed of by such Holder or Holders and the intended
method of disposition thereof) the Company will use its best efforts to effect,
in connection with the registration of the Other Securities, the registration
under the Securities Act of all Registrable Securities which the Company has
been so requested to register by such Holder or Holders, to the extent required
to permit the disposition (in accordance with the intended method or methods
thereof as aforesaid) of the Registrable Securities so to be registered,
provided that:
(a) if, at any time after giving such written notice of its intention
to register any Other Securities and prior to the effective date of the
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registration statement filed in connection with such registration, the
Company shall determine for any reason not to register the Other
Securities, the Company may, at its election, give written notice of such
determination to such Holder or Holders and thereupon the Company shall be
relieved of its obligation to register such Registrable Securities in
connection with the registration of such Other Securities (but not from its
obligation to pay Registration Expenses to the extent incurred in
connection therewith as provided in Section 3.2), without prejudice,
however, to the rights of the Holders immediately to request that such
registration be effected as a registration under Section 2;
(b) the Company will not be required to effect any registration of
Registrable Securities under this Section 3 if, in the reasonable judgment
of the Company, inclusion of any Registrable Securities in the Company's
registration statement at that time would adversely affect the Company's
own financing; and
(c) the Company shall not be required to effect any registration of
Registrable Securities under this Section 3 incidental to the registration
of any of its securities in connection with mergers, acquisitions, exchange
offers, subscription offers, dividend reinvestment plans or stock option or
other employee benefit plans.
No registration of Registrable Securities effected under this Section 3 shall
relieve the Company of its obligation to effect registrations of Registrable
Securities pursuant to Section 2.
3.2. Registration Expenses. The Company will pay all Registration Expenses
in connection with any registration pursuant to this Section 3; provided that
with respect to any such registration the Holders shall bear their pro rata
share of all Registration Expenses attributable to their Registrable Securities,
transfer taxes applicable to their Registrable Securities and the fees and
expenses of their own counsel; and provided, further, that in no event shall the
Holders be required to pay any internal costs of the Company.
3.3. Broad Distribution. The Company shall be required to register
Registrable Securities pursuant to this Section 3 only if such Registrable
Securities are to be offered and sold in a broad distribution within or outside
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the United States (or simultaneously in both) to be lead-managed by the
Company's principal broker-dealer subsidiary.
Section 4. Registration Procedures.
4.1. Registration and Qualification. (a) If and whenever the Company is
required to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act as provided in Sections 2 and 3, the Company
will as promptly as is practicable:
(i) prepare, file and use its best efforts to cause to become
effective a registration statement under the Securities Act regarding the
Registrable Securities to be offered;
(ii) prepare and file with the Securities and Exchange Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable
Securities until the earlier of such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the Holder or Holders set forth in such registration
statement or the expiration of nine months after such registration
statement becomes effective;
(iii) furnish to each Holder and to any underwriter of such
Registrable Securities such number of conformed copies of such registration
statement and of each such amendment and supplement thereto (in the case of
any Holder or managing underwriter, including all exhibits), such number of
copies of the prospectus included in such registration statement (including
each preliminary prospectus and any summary prospectus) or filed under Rule
424(b) under the Securities Act in accordance with Rule 430A thereunder, in
conformity with the requirements of the Securities Act, such documents
incorporated by reference in such registration statement or prospectus, and
such other documents, as such Holder or Holders or such underwriter may
reasonably request;
(iv) use its best efforts to register or qualify all Registrable
Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as the Holder or Holders
or any underwriter of such Registrable Securities shall
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reasonably request, and do any and all other acts and things which may be
necessary or advisable to enable such Holder or Holders or any underwriter
to consummate the disposition in such jurisdictions of its Registrable
Securities covered by such registration statement, except that the Company
shall not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction wherein it is not so
qualified, or to subject itself to taxation in any such jurisdiction, or to
consent to general service of process in any such jurisdiction;
(v) furnish to such Holder or Holders, addressed to them, (A) an
opinion of counsel for the Company, dated the date of the closing under the
underwriting agreement relating to any underwritten offering, and (B) a
"cold comfort" letter signed by the independent public accountants who have
certified the Company's financial statements included in such registration
statement, covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the
case of such accountants' letter, with respect to events subsequent to the
date of such financial statements, as are customarily covered in opinions
of issuer's counsel and in accountants' letters delivered to underwriters
in underwritten public offerings of securities and such other matters as
such Holder or Holders may reasonably request; and
(vi) immediately notify such Holder or Holders at any time when a
prospectus relating to a registration pursuant to Section 2 or 3 is
required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing, and at the request of such Holder or Holders
prepare and furnish to such Holder or Holders a reasonable number of copies
of a supplement to or an amendment of such prospectus as may be necessary
so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing.
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The Company may require each Holder to furnish the Company such information
regarding such Holder and the distribution of such securities as the Company may
from time to time reasonably request in writing and as shall be required by law
or by the SEC in connection with any registration.
(b) Each Holder agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 4.1(a)(vi) hereof,
such Holder will forthwith discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 4.1(a)(vi) hereof.
4.2. Underwriting. (a) If requested by the underwriters for any
underwritten offering of Registrable Securities pursuant to a registration
requested hereunder, the Company will enter into an underwriting agreement with
such underwriters for such offering, such agreement to contain such
representations and warranties by the Company and such other terms and
provisions as are customarily contained in the underwriting agreements with
respect to secondary distributions, including, without limitation, indemnities
and contribution to the effect and to the extent provided in Section 7 and the
provision of opinions of counsel and accountants' letters to the effect and to
the extent provided in Section 4.l(v). Each Holder shall be a party to any such
underwriting agreement and the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriter, shall also be made to and for the benefit of such Holder.
(b) In the event that any registration pursuant to Section 3 shall involve,
in whole or in part, an underwritten offering, the Company may require the
Registrable Securities requested to be registered pursuant to Section 3 to be
included in such underwriting on the same terms and conditions as shall be
applicable to the Other Securities being sold through underwriters under such
registration. In such case, each Holder shall be a party to any such
underwriting agreement. Such agreement shall contain such representations,
warranties and covenants by each Holder and such other terms and provisions as
are customarily contained in underwriting agreements with respect to secondary
distributions, including, without limitation, indemnities and contribution to
the effect and to the extent provided in Section 7. The representations and
warranties in such underwriting agreement by, and the
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other agreements on the part of, the Company to and for the benefit of such
underwriters, shall also be made to and for the benefit of each Holder.
Section 5. Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement registering Registrable
Securities under the Securities Act, the Company will give each Holder and the
underwriters, if any, and their respective counsel and accountants
(collectively, the "Inspectors"), such reasonable and customary access to its
books and records (collectively, the "Records") and such opportunities to
discuss the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of such Holder and such underwriters or their respective counsel,
to conduct a reasonable investigation within the meaning of the Securities Act.
Records which the Company reasonably determines to be confidential and which it
notifies the Inspectors in writing are confidential shall not be disclosed by
the Inspectors unless (i) the disclosure of such Records is necessary or
appropriate to avoid or correct a misstatement or omission in the registration
statement, (ii) the portion of the Records to be disclosed has otherwise become
publicly known, (iii) the information in such Records is to be used in
connection with any litigation or governmental investigation or hearing relating
to any registration statement or (iv) the release of such Records is ordered
pursuant to a subpoena or other order. Each Holder agrees that it will, upon
learning that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company.
Section 6. Holdback Agreements.
(a) Restriction on Public Sale by Holders. Each Holder agrees not to effect
any substantial public sale or distribution of Voting Securities of the Company,
during the three days prior to, and during the 30-day period beginning on, the
effective date of a registration statement (except as part of such
registration), if requested by the Company in the case of a non-underwritten
public offering or if requested by the managing underwriter (or underwriters) in
the case of an underwritten public offering.
(b) Restriction on Public Sale by the Company and Other. The Company agrees
not to effect any substantial public sale or distribution of its Voting
Securities (other than any sale or distribution of such securities in connection
with any offering of securities under an employee or director benefit plan or
dividend reinvestment plan)
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during the three days prior to, and during the 30-day period beginning on, the
effective date of a registration statement filed pursuant to Section 2 hereof
(except as part of such registration statement).
Section 7. Indemnification and Contribution. (a) In the event of any
registration of any Registrable Securities hereunder, the Company will enter
into customary indemnification arrangements to indemnify and hold harmless each
Holder, its directors and officers, each other person who participates as an
underwriter in the offering or sale of such securities, each officer and
director of each underwriter, and each other person, if any, who controls such
Holder or any such underwriter within the meaning of the Securities Act against
any losses, claims, damages, liabilities and expenses, joint or several, to
which such person may be subject under the Securities Act or otherwise insofar
as such losses, claims, damages, liabilities or expenses (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such securities were registered under the
Securities Act, any preliminary prospectus or final prospectus included therein
or filed under Rule 424(b) under the Securities Act, or any amendment or
supplement thereto, or any document incorporated by reference therein, or (ii)
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the company will reimburse each such person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding; provided that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, any such
preliminary prospectus or final prospectus, amendment or supplement in reliance
upon and in conformity with written information furnished to the Company by a
Holder or such underwriter for use in the preparation thereof. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of a Holder or any such Underwriter and shall survive the transfer of
such securities by a Holder. The Company also shall agree to provide provision
for contribution as shall be reasonably requested by a Holder or any
underwriters in circumstances where such indemnity is held unenforceable.
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<PAGE> 106
(b) Each Holder, by virtue of exercising its registration rights hereunder,
agrees and undertakes severally to enter into customary indemnification
arrangements to indemnify and hold harmless (in the same manner and to the same
extent as set forth in clause (a) of this Section 7) the Company, each director
of the Company, each officer of the Company who shall sign such registration
statement, each other person who participates as an underwriter in the offering
or sale of such securities, each officer and director of each underwriter, and
each other person, if any, who controls the Company or any such underwriter
within the meaning of the Securities Act, with respect to any statement in or
omission from such registration statement, any preliminary prospectus or final
prospectus included therein, or any amendment or supplement thereto, if such
statement or omission was made in reliance upon and in conformity with written
information furnished by it to the Company. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Company or any such director, officer or controlling person and shall survive
the transfer of the registered securities by such holder of Registered
Securities. Such holder also shall agree to provide provision for contribution
as shall reasonably be requested by the Company or any underwriters in
circumstances where such indemnity is held unenforceable.
(c) In case any proceeding (including any governmental investigation) shall
be instituted involving any indemnified Person in respect of which indemnity may
be sought pursuant to this Section, such indemnified Person shall promptly
notify the indemnifying Person in writing and the indemnifying Persons, upon
request of the indemnified Person, shall retain counsel satisfactory to the
indemnified Person to represent the indemnified Person and any others the
indemnifying Person may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified Person shall have the right to retain its own
counsel, but the fees and disbursements of such counsel shall be at the expense
of such indemnified Person unless (i) the indemnifying Person shall have failed
to retain counsel for the indemnified Person as aforesaid, (ii) the indemnifying
Person and such indemnified Person shall have mutually agreed to the retention
of such counsel or (iii) in the reasonable opinion of such indemnified Person
representation of such indemnified Person by the counsel retained by the
indemnifying Person would be inappropriate due to actual or potential differing
interests between such indemnified Person and any other Person represented by
such counsel in such proceeding. The indemnifying Person shall not be
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liable for any settlement of any proceeding effected without its written consent
(which shall not be unreasonably withheld) but if settled with such consent or
if there by a final judgement for the plaintiff, the indemnifying Person agrees
to indemnify the indemnified Person from and against any loss or liability by
reason of such settlement or judgment.
(d) Indemnification and contribution similar to that specified in the
preceding subdivisions of this Section 7 (with appropriate modifications) shall
be given by the Company and each Holder with respect to any required
registration or other qualification of such Registrable Securities under any
federal or state law or regulation of governmental authority other than the
Securities Act.
Section 8. Participation in Underwritten Registrations. No Person may
participate in any underwritten registration hereunder unless such Person (a)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, agreements of contribution, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangement.
Section 9. Benefits of Registration Rights. The Investor and any holder of
Registrable Securities permitted under the Agreement may exercise and have the
benefits of the registration rights initially granted to the Investor hereunder
in such manner and in such proportion as shall be determined by the Investor
(the Investor and such holders exercising registration rights each shall be
termed a "Holder" hereunder); provided that each Holder shall also be subject
to the obligations provided hereunder. The Company shall not be obligated to
effect any registration pursuant to Section 2.1 or Section 3.1 hereof if, in the
written opinion of counsel to the Company who shall be reasonably satisfactory
to any affected Holder, the intended method or methods of disposition of any
Registrable Securities by such Holder may be effected without registration under
the Securities Act and any certificate evidencing the Registrable Securities so
to be disposed need not bear the restrictive legend set forth in Section 8.3 of
the Agreement.
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Exhibit 4 to the
Amended and Restated
Investment Agreement
PAINE WEBBER GROUP INC.
Officers' Certificate
Donald B. Marron, Chairman of the Board of Directors, President and Chief
Executive Officer, and Regina A. Dolan, principal financial officer and
accounting officer, of Paine Webber Group Inc., a Delaware corporation (the
"Company"), pursuant to Section 3.3(iv) of the Amended and Restated Investment
Agreement, dated as of November 5, 1992 (the "Agreement"), between the Company
and The Yasuda Mutual Life Insurance Company (the "Investor"), each hereby
certifies that, to the best of his or her knowledge, after reasonable
investigation:
1) The representations and warranties made by the Company in the
Agreement were true and correct when made and are true and correct on
the date hereof as though made on and as of this date.
2) The Company has performed and complied in all material respects with
all agreements, obligations and conditions required by the Agreement
to be performed by it at or before the date hereof.
IN WITNESS WHEREOF, we have hereunto signed our names.
Dated: _____________
---------------------------------------
Chairman of the Board of Directors,
President and Chief Executive Officer
---------------------------------------
principal financial officer and
accounting officer
<PAGE> 109
Exhibit 5-A to the
Amended and Restated
Investment Agreement
(Letterhead of James Treadway)
(Closing Date]
The Yasuda Mutual Life Insurance Company
9-1, Nishishinjuku 1-chome
Shinjuku-ku
Tokyo 160
Japan
Dear Sirs:
As the General Counsel of Paine Webber Group Inc., a Delaware corporation
"the "Company"), I am rendering this opinion in satisfaction of Section 3.3(v)
of the Amended and Restated Investment Agreement, dated as of November 5, 1992
(the "Agreement"), by and between the Company and The Yasuda Mutual Life
Insurance Company, a mutual life insurance company organized under the laws of
Japan (the "Investor"). As used herein, "Significant Subsidiaries" include Paine
Webber Incorporated, PW Treasury Funding Inc. and Mitchell Hutchins Asset
Management Inc., each of which is a Delaware corporation; and all other
initially capitalized terms used herein and not otherwise defined herein have
the meaning ascribed to them by Exhibit 1 to the Agreement.
As a basis for rendering this opinion, I have reviewed the Agreement and
certain agreements, instruments and documents (or the forms thereof) referred to
or contained therein. I have also reviewed such other corporate records,
certificates, instruments and other documents and considered such questions of
law as I deemed necessary or appropriate. As to certain factual matters relating
to the due incorporation, valid existence and good standing of each
<PAGE> 110
of the Significant Subsidiaries and of the qualification as a foreign
corporation of the Company and each of the Significant Subsidiaries, I have
relied upon certificates of official governmental authorities and, as to factual
matters not personally within my knowledge, upon certificates or representations
of responsible officers of the Company.
On the basis of the foregoing, I am of the opinion that:
(l) Each Significant Subsidiary is a corporation duly incorporated, validly
existing and in good standing under the laws of the state of its incorporation
and has full corporate power and authority to own and operate its properties and
conduct its business as now conducted by it.
(2) Each of the Company and each Significant Subsidiary is duly qualified
as a foreign corporation to transact business and is in good standing in each
jurisdiction in which failure of such corporation to be so qualified and in good
standing would have a material adverse effect upon the business, financial
condition or results of operations of the Company and its consolidated
subsidiaries considered as a whole.
(3) All the outstanding shares of capital stock of each Significant
Subsidiary have been duly and validly authorized and issued, are fully paid and
nonassessable and are owned by the Company either directly or through
wholly-owned subsidiaries.
(4) To the best of my knowledge, (a) there is not in effect any order
enjoining or restraining the transactions contemplated by the Agreement; and
there has not been threatened or instituted any action or proceeding by any
governmental body or agency with respect to the repurchase
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and sale of Series A Shares, the replacement of Series A Shares with
Participating Preferred Shares or the other transactions contemplated by the
Agreement and (b) there are no legal or governmental proceedings pending to
which the Company or any of its subsidiaries is a party or of which any property
of the Company or any of its subsidiaries is the subject, other than (i) as set
forth in the SEC Documents or as otherwise previously disclosed in writing to
the Investor by the Company and identified as an exception to the Company's
representation and warranty set forth in Section 4.l(h) of the Agreement and
(ii) proceedings incident to the kind of business conducted by the Company and
its subsidiaries which do not have a substantial potential to affect materially
adversely the business, financial condition or results of operations of the
Company and its consolidated subsidiaries considered as a whole or the Company's
ability to perform or observe any obligation or condition under the Agreement or
the Participating Preferred Shares; and no such proceedings are threatened or
contemplated by governmental authorities or threatened by others.
(5) To the best of my knowledge, the Company is not in violation of any
statute, regulation or order of, or any restriction imposed by, the United
States of America, any state, municipality or other political subdivision having
jurisdiction over it or any agency thereof, in respect of the conduct of its
business or the ownership of its properties, that is expected by me materially
and adversely to affect the business, financial condition or results of
operations of the Company and its consolidated subsidiaries considered as a
whole.
(6) The execution and delivery by the Company of the Agreement and the
issuance and delivery of the Partici-
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pating Preferred Shares do not and the performance by the Company of its
obligations under the Agreement and the Participating Preferred Shares and the
transactions contemplated thereby will not violate any provision of any material
law or regulation applicable to the Company, or any existing writ or decree of
any court or governmental authority applicable to the Company, or violate,
conflict with or constitute a breach of, or a default under, the Company's
Restated Certificate of Incorporation or By-laws, or, to the best of my
knowledge, any other material agreement or instrument to which the Company's is
a party or which is binding on it or its assets, and, to the best of my
knowledge, will not result in the creation of any lien on, or security interest
in, any of its assets.
This opinion is being rendered to the Investor solely for its use and
reliance thereon.
Very truly yours,
<PAGE> 113
Exhibit 5-B to the
Amended and Restated
Investment Agreement
(Letterhead of Cravath, Swaine & Moore)
(Closing Date]
Paine Webber Group Inc.
Cumulative Participating Convertible
Voting Preferred Stock. Series A
Dear Sirs:
We have acted as counsel for Paine Webber Group Inc., a Delaware
corporation (the "Company"), in connection with (i) the sale by you and
repurchase by the Company pursuant to the Amended and Restated Investment
Agreement, dated as of November 5, 1992 (the "Agreement"), between you and the
Company of 1,685,394 shares of 7% Cumulative Convertible Exchangeable Voting
Preferred Stock, Series A, par value $20 per share (The "Series A Shares"), and
(ii) the issuance and delivery by the Company pursuant to the Agreement of
7,758,632 shares of Cumulative Participating Convertible Voting Preferred Stock,
Series A, par value $20 per share (The "Participating Preferred Shares")
convertible into shares of Common Stock, par value $1 per share, of the Company
(the "Common Stock"), to replace the remaining 3,370,786 Series A Shares held by
you which shall be delivered to the Company for cancellation.
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary or appropriate for the purpose
of this opinion, including (a) the Restated Certificate of Incorporation of the
Company, including the
<PAGE> 114
Certificate of Designation relating to the Series A Shares and the Certificate
of Designation relating to the Participating Preferred Shares, certified by, in
the case of the Certificate of Designation relating to the Series A Shares, and
duly filed with, in the case of the Certificate of Designation relating to the
Participating Preferred Shares, the Secretary of State of the State of Delaware,
(b) the By-laws, as amended to date, of the Company certified by the Secretary
of the Company and (c) the Agreement. In such examination, we have assumed the
authenticity of all documents submitted to us as originals and the conformity
with the originals of all documents submitted to us as certified or otherwise
satisfactorily identified copies. We have also assumed that the Agreement has
been duly executed and delivered by you pursuant to appropriate corporate
authorities. The opinions given below are limited to matters concerning the laws
of the United States of America and the State of New York and the General
Corporation Law of the State of Delaware. Capitalized terms used but not defined
herein have the meanings assigned to them in the Agreement.
Based on the foregoing, we are of opinion as follows:
(l) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with full
corporate power and authority to own and operate its properties and conduct its
business as now conducted by it.
(2) The Company has full corporate power and authority, to execute and
deliver the Agreement and to perform its obligations thereunder in accordance
with its terms, to repurchase and replace the Series A Shares as
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<PAGE> 115
provided in the Agreement, and to issue and deliver the Participating Preferred
Shares and to perform its obligations thereunder in accordance with their terms.
The Company has taken all necessary action to authorize the execution and
delivery of the Agreement, the repurchase and replacement of Series A Shares as
provided in the Agreement, the issuance and delivery of the Participating
Preferred Shares, and the consummation of the transactions contemplated thereby.
(3) The Agreement constitutes a valid and legally binding obligation of the
Company, enforceable in accordance with its terms, subject, to bankruptcy,
insolvency, reorganization and other laws affecting creditors' rights generally
and to general equity principles.
(4) The Participating Preferred Shares have been duly authorized, validly
issued and are fully paid and nonassessable; the Participating Preferred Shares
are convertible into Common Stock in accordance with their terms; the shares of
Common Stock initially issuable upon conversion of the Participating Preferred
Shares have been duly authorized and reserved for issuance upon such conversion,
and when issued upon such conversion, will be validly issued, fully paid and
nonassessable.
(5) The stockholders of the Company are not entitled to any preemptive
rights with respect to the Participating Preferred Shares, or the shares of
Common Stock initially issuable upon conversion of the Participating Preferred
Shares.
(6) Except for the rights granted to the Investor pursuant to Section
5.1(c) of the Agreement, there are no preemptive rights in respect of the
capital stock of the Company.
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<PAGE> 116
(7) All regulatory consents, authorizations, approvals and filings required
to be made or obtained by the Company on or prior to the date hereof under
Federal laws of the United States and the laws of the State of New York (other
than with respect to the exercise of rights to registration of Registrable
Securities, on the terms and subject to the conditions set forth in Exhibit 3 to
the Agreement, under the Securities Act and the state securities or Blue Sky
laws) of governmental or other third parties for the Company to execute and
deliver the Agreement and to issue and deliver the Participating Preferred
Shares and to consummate the transactions contemplated thereby have been
obtained or made.
Very truly yours,
The Yasuda Mutual Life Insurance Company
9-1, Nishishinjuku 1-chome
Shinjuku-ku
Tokyo 160
Japan
-4-
<PAGE> 117
Exhibit 6 to the
Amended and Restated
Investment Agreement
THE YASUDA MUTUAL LIFE INSURANCE COMPANY
Officer's Certificate
_____________________, a Director of The Yasuda Mutual Life Insurance
Company, a mutual life insurance company organized under the laws of Japan (the
"Investor"), pursuant to Section 3.4 (iv) of the Amended and Restated Investment
Agreement, dated as of November 5, 1992 (the "Agreement"), between the Investor
and Paine Webber Group Inc., a Delaware corporation (the "Company"), hereby
certifies that, to the best of his knowledge, after reasonable investigation:
1) The representations and warranties made by the Investor in the
Agreement were true and correct when made and are true and correct on
the date hereof as though made on and as of this date.
2) The Investor has performed and complied in all material respects with
all agreements, obligations and conditions required by the Agreement,
to be performed by the Investor at or before the date hereof.
IN WITNESS WHEREOF, I have hereunto signed my name.
Dated: ____________
------------------------
Director
<PAGE> 118
Exhibit 7-A to the
Amended and Restated
Investment Agreement
[Form of Opinion of Braun Moriya Hoashi & Kubota]
[Closing Date]
Paine Webber Group Inc.,
1285 Avenue of the Americas,
New York, New York 10019.
Amended and Restated Investment Agreement
by and between Paine Webber Group Inc. and
The Yasuda Mutual Life Insurance Company
Dear Sirs:
In connection with the Amended and Restated Investment Agreement, dated as
of November 5, 1992 (the "Agreement"), between The Yasuda Mutual Life Insurance
Company, a mutual life insurance company organized under the laws of Japan (the
"Investor"), and Paine Webber Group Inc., a Delaware corporation (the
"Company"), we, as Japanese counsel for the Investor, have examined such
corporate records, certificates and other documents and such questions of law as
we have considered necessary or appropriate for the purposes of this opinion.
Upon the basis of such examination, it is our opinion that:
(l) The Investor is a mutual life insurance company, duly organized,
validly existing and in good standing under the laws of Japan.
(2) The Investor has full power and authority to execute and deliver
the Agreement and to perform its obligations under the Agreement in
accordance with its terms. The Investor has taken
<PAGE> 119
all necessary action to authorize the execution and delivery of the
Agreement and the transactions contemplated thereby. The Agreement is,
assuming it constitutes a valid and legally binding obligation of the
Investor enforceable in accordance with its terms under the law in
accordance with which it is governed and construed, a valid and legally
binding obligation of the Investor enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles.
(3) All regulatory consents, authorizations, approvals, and filings
required to be obtained or made by the Investor on or prior to the date
hereof of governmental authorities under the laws of Japan for the
execution, delivery and performance by the Investor of the Agreement have
been obtained or made.
In rendering the foregoing opinion, we have, with your approval, relied as
to all matters of New York law upon the opinion, dated the date hereof, of
Sullivan & Cromwell, United States counsel to the Investor, delivered to you
pursuant to Section 3.4(v) of the Agreement. In rendering the opinion set forth
in paragraph (3) above, we have relied upon the advice of the competent official
of the Ministry of Finance of Japan given to the Investor that prior
notification under Foreign Exchange and Foreign Trade Control Law of Japan is
not required.
-2-
<PAGE> 120
Also, with your approval, we have relied as to certain matters upon
information obtained from public officials, officers of the Investor and other
sources believed by us to be responsible and we have assumed that the Agreement
has been duly authorized, executed and delivered by the Company and that the
signatures on all documents examined by us are genuine, assumptions which we
have not independently verified.
We do not express any opinion as to any matters governed by any law other
than the law of Japan.
Very truly yours,
BRAUN MORIYA HOASHI
& KUBOTA
By:
---------------------
By:
---------------------
-3-
<PAGE> 121
Exhibit 7-B to the
Amended and Restated
Investment Agreement
(Form of Opinion of Sullivan & Cromwell]
(Closing Date]
Paine Webber Group Inc.,
1285 Avenue of the Americas,
New York, New York 10019.
Dear Sirs:
In connection with the Amended and Restated Investment Agreement, dated as
of November 5, 1992 (the "Agreement"), by and between The Yasuda Mutual Life
Insurance Company, a mutual life insurance company organized under the laws of
Japan (the "Investor"), and Paine Webber Group Inc., a Delaware corporation (the
"Company"), we, as United States counsel for the Investor, have examined such
certificates and other documents, and such questions of law, as we have
considered necessary or appropriate for the purposes of this opinion. Upon the
basis of such examination, it is our opinion that:
(1) The Agreement is a valid and legally binding obligation of the
Investor enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
(2) All regulatory consents, authorizations, approvals and filings
required to be made or obtained by the Investor on or prior to the date
hereof under the Federal laws of the United States and the laws of
<PAGE> 122
the State of New York for the execution, delivery and performance by the
Investor of the Agreement, have been obtained or made.
The foregoing opinion is limited to the Federal laws of the United States
and the laws of the State of New York, and we are expressing no opinion as to
the effect of the laws of any other jurisdiction. In connection with our opinion
in paragraph (1) above, we have, with your approval, assumed that the Agreement
has been duly authorized, executed and delivered by the Company and the
Investor, that the Agreement is not in conflict with the laws of Japan and
constitutes, insofar as the laws of Japan are concerned, a valid and legally
binding obligation of the Investor in accordance with its terms, and that the
terms of the Agreement and their implementation during its term will conform
with the provisions and underlying policies of the Delaware General Corporation
Law relating to voting agreements and the duties of corporate directors.
Also, with your approval, we have relied as to certain matters on
information obtained from public officials, officers or directors of the
Investor and other sources believed by us to be responsible, and we have assumed
that the signatures on all documents examined by us are genuine, assumptions
which we have not independently verified.
Very truly yours,
-2-
<PAGE> 123
Exhibit 8 to
Amended and Restated
Investment Agreement
Options, Warrants, Etc. for Company
or Significant Subsidiary
Capital Stock
-----------------------------------
Capital Stock of the Company
(i) For the period January 1, 1992 to November 4,
1992, the Company has issued options for a total
of 158,800 shares of Paine Webber Group Common
Stock
(ii) For the period January 1, 1992 to November 4,
1992, the Company has issued options for a total
of 481,622 shares under its Investment Executive
Stock Option Plan
Capital Stock of Significant Subsidiaries
Reserved as of November 4, 1992 ................................. None
2159Q
<PAGE> 124
PAGE 1
State of Delaware
Annex 9
Office of the Secretary of State
I, MICHAEL RATCHFORD, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF RESTATED
CERTIFICATE OF INCORPORATION OF PAINE WEBBER GROUP INC. FILED IN THIS OFFICE ON
THE [ILLEGIBLE] DAY OF MAY, A.D. 1987, AT 10 O'CLOCK A.M.
/s/ Michael Ratchford
----------------------------------------
[SEAL] Michael Ratchford, Secretary of State
AUTHENTICATION: [ILLEGIBLE]
DATE: [ILLEGIBLE]
<PAGE> 125
5-4-87
RESTATED CERTIFICATE OF INCORPORATION
OF
PAINE WEBBER GROUP INC.
Paine Webber Group Inc., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Paine Webber Group Inc. The date of the
filing of its original Certificate of Incorporation with the Secretary of State
of the State of Delaware was October 30, 1973, under the name Paine Webber
Incorporated.
2. This Restated Certificate of Incorporation only restates and integrates
and does not further amend the provisions of the Certificate of Incorporation of
this corporation as heretofore amended or supplemented and there is no
discrepancy between these provisions and the provisions of this Restated
Certificate of Incorporation, except that the names and places of residence of
the original incorporators of the corporation have, pursuant to Section 245 of
the General Corporation Law of the State of Delaware, been omitted, and,
accordingly, the provisions of the Certificate of Incorporation have been
renumbered.
3. The text of the Certificate of Incorporation as amended or supplemented
heretofore is hereby stated without further amendments or changes to read as
herein set forth in full:
ARTICLE I
Name
The name of the Corporation is:
Paine Webber Group Inc.
ARTICLE II
Registered Office and Registered Agent
The registered office of the Corporation in the State of Delaware is to be
located at No. 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name and address of the Corporations registered agent is The
Corporation Trust
<PAGE> 126
-2-
Company, Corporation Trust Center, NO. 1209 Orange Street, in the City of
Wilmington, County of New Castle, State of Delaware.
ARTICLE III
Corporate Purposes and Powers
The purpose of the Corporation is to engage in any part of the world in any
capacity whether by itself of by or through any other person, organization,
association, partnership, corporation or other entity in which the Corporation
may have an interest in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware, and the Corporation
shall be authorized to exercise and enjoy all powers, rights and privileges
conferred upon corporations by the laws of the State of Delaware as in force
from time to time, including without limitation all powers necessary or
appropriate to carry out all those acts and activities in which it may lawfully
engage.
ARTICLE IV
Capital Stock
SECTION 1. Shares, Classes and Series Authorized. The total number of
shares of capital stock which the Corporation shall have authority to issue is
20,000,000 shares of Series Preferred Stock of the par value of $20 each and
100,000,000 shares of Common Stock of the par value of $1 each. Such Series
Preferred Stock and Common Stock are sometimes hereinafter collectively called
"capital stock."
SECTION 2. Designations, Powers, Preferences, Rights, Qualifications,
Limitations and Restrictions of Capital Stock. The following is a statement of
the designations and the powers, preferences and rights, and the qualifications,
limitations or restrictions thereof, in respect of the classes of the capital
stock, and of the authority with respect thereto expressly vested in the Board
of Directors of the Corporation:
PART I -- SERIES PREFERRED STOCK
(a) The Series Preferred Stock may be issued from time to time in one or
more series, the shares of each series to have such powers, designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as are stated and expressed
herein or in a resolution or resolutions providing for the issue of such series,
adopted by the Board of Directors as hereinafter provided.
<PAGE> 127
-3-
(b) Authority is hereby expressly granted to the Board of Directors,
subject to the provisions of this Section 2, to authorize the issue of one or
more series of Series Preferred Stock, and with respect to each such series to
fix by resolution or resolutions providing for the issue of such series:
(i) the maximum number of shares to constitute such series and the
distinctive designation thereof;
(ii) whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms of
such voting rights;
(iii) the dividend rate, if any, on the shares of such series, the
conditions and dates upon which such dividends shall be payable, the
preference or relation which such dividends shall bear to the dividends
payable on any other class or classes or on any other series of capital
stock, and whether such dividends shall be cumulative or noncumulative;
(iv) whether the shares of such series shall be subject to redemption by
the Corporation, and, if made subject to redemption, the times, prices and
other terms and conditions of such redemption;
(v) the rights of the holders of shares of such series upon the
liquidation, dissolution or winding up of the Corporation;
(vi) whether or not the shares of such series shall be subject to the
operation of a retirement or sinking fund, and, if so, the extent to and
manner in which any such retirement or sinking fund shall be applied to the
purchase or redemption of the shares of such series for retirement or to
other corporate purposes and the terms and provisions relative to the
operation thereof;
(vii) whether or not the shares of such series shall be convertible into,
or exchangeable for, shares of stock of any other class or classes, or of
any other series of the same class, and if so convertible or exchangeable,
the price or prices or the rate or rates of conversion or exchange and the
method, if any, of adjusting the same;
(viii) the limitations and restrictions, if any, to be effective while any
shares of such series are outstanding upon the payment of dividends or
making of other distributions on, and upon the purchase, redemption or
other acquisition by the Corporation of,
<PAGE> 128
-4-
Common Stock or any other class or classes of stock of the Corporation
ranking junior to the shares of such series either as to dividends or upon
liquidation;
(ix) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation `or upon the issue of any additional stock
(including additional shares of such series or of any other series or of
any other class) ranking on a parity with or prior to the shares of such
series as to dividends or distribution of assets on liquidation,
dissolution or winding up; and
(x) any other preference and relative, participating, optional, or other
special rights, and qualifications, limitations or restrictions thereof as
shall not be inconsistent with this Section 2.
(c) All shares of any one series of Series Preferred Stock shall be
identical with each other in all respects, except that shares of any one series
issued at different times may differ as to the dates from which dividends, if
any, thereon shall be cumulative; and all series shall rank equally and be
identical in all respects, except as permitted by the foregoing provisions of
Paragraph (b) hereof; and all shares of Series Preferred Stock shall rank senior
to the Common Stock both as to dividends and upon liquidation.
(d) In the event of any liquidation, dissolution or winding up of the
Corporation, before any payment or distribution of the assets of the
Corporation, (whether capital or surplus) shall be made to or set apart for the
holders of any class or classes of stock of the Corporation ranking junior to
the Series Preferred Stock upon liquidation, the holders of the shares of the
Series Preferred Stock shall be entitled to receive payment at the rate fixed
herein or in the resolution or resolutions adopted by the Board of Directors
providing for the issue of such series, plus (if dividends on shares of such
series of Series Preferred Stock shall be cumulative) an amount equal to all
dividends (whether or not earned or declared) accumulated to the date of final
distribution to such holders; but they shall be entitled to no further payment.
If, upon any liquidation, dissolution or winding up of the Corporation, the
assets of the Corporation or proceeds thereof, distributable among the holders
of the shares of the Series preferred Stock shall be insufficient to pay in full
the preferential amount aforesaid, then such assets, or the proceeds thereof,
shall be distributed among such holders ratably in accordance with the
respective amounts which would be payable on such shares if all amounts payable
thereon were paid in full. For the purposes of this Paragraph (d), the voluntary
sale, conveyance, exchange or transfer (for cash, shares of stock, securities,
or other
<PAGE> 129
-5-
consideration) of all or substantially all the property or assets of the
Corporation shall be deemed a voluntary liquidation, dissolution or winding up
of the Corporation, but a consolidation or merger of the Corporation with one or
more other corporations shall not be deemed to be a liquidation, dissolution or
winding up, voluntary or involuntary.
(e) Except as shall be otherwise stated and expressed herein or in the
resolution or resolutions of the Board of Directors providing for the issue of
any series and except as otherwise required by the laws of the State of
Delaware, the holders of shares of Series Preferred Stock shall have, with
respect to such shares, no right or power to vote on any question or in any
proceeding or to be represented at, or to receive notice of, any meeting of
stockholders.
(f) One series of Series Preferred Stock authorized hereby shall be $1.375
Convertible Exchangeable Preferred Stock (the Convertible Preferred Stock"). The
number of shares of Convertible Preferred Stock shall be 4,600,000.
(i) Holders of shares of Convertible Preferred Stock will be entitled
to receive, when and as declared by the Board of Directors of the
Corporation (the "Board") out of assets of the Corporation legally
available for payment, an annual cash dividend of $1.375 per share, payable
in quarterly installments on March 15, June 15, September 15 and December
15, commencing June 15, 1987. Dividends on the Convertible Preferred Stock
will be cumulative from the date of initial issuance of any shares of
Convertible Preferred Stock. Dividends will be payable to holders of record
as they appear on the stock books of the Corporation on such record dates
not more than 60 days nor less than 10 days preceding the payment dates
thereof, as shall be fixed by the Board. When dividends are not paid in
full upon the Convertible Preferred Stock and any other preferred stock
ranking on a parity as to dividends with the Convertible Preferred Stock
(such other preferred stock and the Convertible Preferred Stock hereinafter
being collectively referred to Parity Preferred Stock"), all dividends
declared upon shares of Parity Preferred Stock will be declared pro rata so
that in all cases the amount of dividends declared per share on the
Convertible Preferred Stock and such other Parity Preferred Stock shall
bear to each other the same ratio that accumulated and unpaid dividends per
share on the shares of Convertible Preferred Stock
<PAGE> 130
-6-
and such other Parity Preferred Stock bear to each other. Except as set
forth in the preceding sentence, unless full cumulative dividends on the
Convertible Preferred Stock have been paid, no dividends (other than in
Common Stock of the Corporation (as defined in paragraph (iii)(I) below) or
any other stock of the Corporation ranking junior to the Convertible
Preferred Stock as to dividends) may be paid or declared and set aside for
payment or other distribution made upon the Common Stock or on any other
stock of the Corporation ranking junior to or on a parity with the
Convertible Preferred Stock as to dividends, nor may any Common Stock or
any other stock of the Corporation ranking junior to or on a parity with
the Convertible Preferred Stock as to dividends be redeemed, purchased or
otherwise acquired for any consideration (or any payment made to or
available for a sinking fund for the redemption of any shares of such
stock) by the Corporation (except by conversion into or exchange for stock
of the Corporation ranking junior to the Convertible Preferred Stock as to
dividends). Dividends payable for any partial dividend period shall be
calculated on the basis of a 360-day year of 12 30-day months.
(ii) The shares of Convertible Preferred Stock shall rank prior to the
shares of Common Stock and of any other class of stock of the Corporation
ranking junior to the Series Preferred Stock upon liquidation, so that in
the event of any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, the holders of the Convertible Preferred
Stock shall be entitled to receive out of the assets of the Corporation
available for distribution to its stockholders, whether from capital,
surplus or earnings, before any distribution is made to holders of shares
of Common Stock or any other such junior stock, an amount equal to $25 per
share (the "Liquidation Preference" of a share of Convertible Preferred
Stock) plus an amount equal to all dividends (whether or not earned or
declared) accumulated and unpaid on the shares of Convertible Preferred
Stock to the date of final distribution. If, upon any liquidation,
dissolution or winding up of the Corporation, the assets of the
Corporation, or proceeds thereof, distributable among the holders of shares
of Parity Preferred Stock shall be insufficient to pay in full the
preferential amount aforesaid, then such assets, or the proceeds thereof,
shall be distribut-
<PAGE> 131
-7-
able among such holders ratably in accordance with the respective amounts
which would be payable on such shares if all amounts payable thereon were
payable in full. For the purposes hereof, the voluntary sale, conveyance,
exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all the property or assets of the
Corporation shall be deemed a voluntary liquidation, dissolution or winding
up of the Corporation, but a consolidation or merger of the Corporation
with one or more other corporations shall not be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary.
(iii) (I) Subject to and upon compliance with the provisions of this
paragraph (iii), the holder of a share of Convertible Preferred Stock shall
have the right, at his option, at any time, except that, if such share is
called for redemption, not after the close of business on the fifth day
next preceding the date fixed for such redemption, to convert such share
into that number of fully paid and non-assessable shares of Common Stock
(calculated as to each conversion to the nearest 1/100th of a share)
obtained by dividing the Liquidation Preference of such share being
converted by the Conversion Price (as defined below) and by surrender of
such share so to be converted, such surrender to be made in the manner
provided in subsection (II) of this paragraph (iii).
The term "Common Stock" shall mean the Common Stock, $1 par value, of
the Corporation as the same exists at the date of this Certificate or as
such stock may be constituted from time to time, except that for the
`purpose of subsection (V) of this paragraph (iii) the term "Common Stock"
shall also mean and include stock of the Corporation of any class, whether
now or hereafter authorized, which shall have the right to participate in
the distribution of either earnings or assets of the Corporation without
limit as to amount or percentage
The term "Conversion Price" shall mean $44-1/8, as adjusted in
accordance with the provisions of this paragraph (iii).
(II) In order to exercise the conversion privilege, the holder of each
share of Convertible Preferred Stock to be converted shall surrender the
certificate representing such share at the office of the conversion agent
for the Convertible
<PAGE> 132
-8-
Preferred Stock in the Borough of Manhattan, City of New York, appointed
for such purpose by the Corporation, with the Notice of Election to Convert
on the back of said certificate completed and signed. Unless the shares
issuable on conversion are to be issued in the same name as the `name in
which such share of Convertible Preferred Stock is registered, each share
surrendered for conversion shall be accompanied by instruments of transfer,
in form satisfactory to the Corporation, duly executed by the holder or his
duly authorized attorney and an amount sufficient to pay any transfer or
similar tax. No payment or adjustment shall be made on conversion for
dividends accumulated on the Convertible Preferred Stock surrendered for
conversion or for dividends on Common Stock delivered on such conversion.
As promptly as practicable after the surrender of the certificates for
shares of Convertible Preferred Stock as aforesaid, the Corporation shall
issue and shall deliver at such office to such holder, or on his written
order, a certificate or certificates for the number of full shares of
Common Stock issuable upon the conversion of such shares in accordance with
the provisions of this paragraph (iii), and any fractional interest in
respect of a share of Common Stock arising upon such conversion shall be
settled as provided in subsection (III) of this paragraph (iii).
Each conversion shall be deemed to have been effected immediately
prior to the close of business ness on the date on which the certificates
for shares of Convertible Preferred Stock shall have been surrendered and
such notice received by the Corporation as aforesaid, and the person or
persons in whose name or names any certificate or certificates for shares
of Common Stock shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the shares represented
thereby at such time on such date and such conversion shall be at the
Conversion Price in effect at such time on such date, unless the stock
transfer books of the Corporation shall be closed on that date, in which
event such person or persons shall be deemed to have become such holder or
holders of record at the close of business on the next succeeding day on
which such stock transfer books are open, but such conversion
<PAGE> 133
-9-
shall be at the Conversion Price in effect on the date upon which such
shares shall have been surrendered and such notice received by the
Corporation. All shares of Common Stock delivered upon conversions of the
Convertible Preferred Stock will upon delivery be duly and validly issued
and fully paid and non-assessable, free of all liens and charges and not
subject to any preemptive rights.
(III) No fractional shares or scrip representing fractions of shares
of Common Stock shall be issued upon conversion of the Convertible
Preferred Stock. Instead of any fractional interest in a share of Common
Stock which would otherwise be deliverable upon the conversion of a share
of Convertible Preferred Stock, the Corporation shall pay to the holder of
such share an amount in cash (computed to the nearest cent) equal to the
current market price (as defined in subsection (IV)(d) of this paragraph
(iii)) thereof at the close of business on the business day next preceding
the day of conversion. If more than one share shall be surrendered for
conversion at one time by the same holder, the number of full shares of
Common Stock issuable upon conversion thereof shall be computed on the
basis of the aggregate Liquidation Preference of the shares of Convertible
preferred Stock so surrendered.
(IV) The Conversion Price shall be adjusted from time to time as
follows:
(a) In case the Corporation shall hereafter (i) pay a dividend or
make a distribution on the Common Stock in shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into a greater
number of shares, (iii) combine its outstanding shares of Common Stock
into a smaller number of shares, or (iv) issue by reclassification of
the Common Stock any shares of capital stock of the Corporation, the
Conversion Price in effect immediately prior to such action shall be
adjusted so that the holder of any share of Convertible preferred
Stock thereafter surrendered for conversion shall be entitled to
receive the number of shares of Common Stock or other capital stock of
the Corporation which he would have owned or been entitled to receive
immediately following
<PAGE> 134
-10-
such action had such share been converted immediately prior thereto.
An adjustment made pursuant to this subdivision (a) shall become
effective immediately after the record date, in the case of a dividend
or distribution, or immediately after the effective date, in the case
of a subdivision, combination or reclassification. If, as a result of
an adjustment made pursuant to this subdivision (a), the holder of any
share of Convertible Preferred Stock thereafter surrendered for
conversion shall become entitled to receive shares of two or more
classes of capital stock or shares of Common Stock and other capital
stock of the Corporation, the Board (whose determination shall be
conclusive and shall be described in a statement filed with the
conversion agent by the Corporation as soon as practicable) shall
determine the allocation of the adjusted Conversion Price between or
among shares of such classes of capital stock or shares of Common
Stock and other capital stock.
(b) In case the Corporation shall hereafter issue rights or
warrants to holders of its outstanding shares of Common Stock
generally entitling them (for a period expiring within 45 days after
the record date mentioned below) to subscribe for or purchase shares
of Common Stock at a price per share less than the current market
price per share (as determined pursuant to subdivision (d) of this
subsection (IV)) of the Common Stock on the record date mentioned in
the next sentence (other than pursuant to an automatic dividend
reinvestment plan of the Corporation or any substantially similar
plan), the Conversion Price shall be adjusted so that the same shall
equal the price determined by multiplying the Conversion Price in
effect immediately prior to the date of issuance of such rights or
warrants by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding on the date of issuance of such
rights or warrants plus the number of shares which the aggregate
offering price of the total number of shares so offered would purchase
at such current market price, and of which the denominator shall be
the number of shares of Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of additional
shares of Common
<PAGE> 135
-11-
Stock offered for subscription or purchase. Such adjustment shall
become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or
warrants.
(c) In case the Corporation shall hereafter distribute to holders
of its outstanding shares of Common Stock generally evidences of its
indebtedness or assets (excluding any cash dividend paid from retained
earnings of the Corporation and dividends or distributions payable in
stock for which adjustment is made pursuant to subdivision (a) of this
subsection (IV)) or rights or warrants to subscribe to securities of
the Corporation (excluding those referred to in subdivision (b) of
this subsection (IV)), then in each such case the Conversion Price
shall be adjusted so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the
date of such distribution by a fraction of which the numerator shall
be the current market price per share (determined as provided in
subdivision (d) of this subsection (IV)) of the Common Stock on the
record date mentioned in the next sentence less the then fair market
value (as determined by the Board, whose determination shall be
conclusive and shall be described in a statement filed with the
conversion agent by the Corporation as soon as practicable) of the
portion of the evidences of indebtedness or assets so distributed to
the holder of one share of Common Stock or of such subscription rights
or warrants applicable to one share of Common Stock, and of which the
denominator shall be such current market price per share of Common
Stock. Such adjustment shall become effective immediately after the
record date for the determination of stockholders entitled to receive
such distribution.
(d) For the purpose of any computation under subdivisions (b) and
(c) of this subsection (IV), the current market price per share of
Common Stock on any date shall be deemed to be the average of the
daily market prices for the 30 consecutive days on which the New York
Stock Exchange is open for trading commencing 45 trading days before
the day in question. The term "daily market price"
<PAGE> 136
-12-
when used with reference to the Common Stock shall mean the price of a
share of Common Stock on the relevant date, determined on the basis of
the last reported sale price regular way of the Common Stock as
reported on the composite tape, or similar reporting system, for
issues listed on the New York Stock Exchange (or if the Common Stock
is not then listed on that Exchange, for issues listed on such other
national securities exchange upon which the. Common Stock is listed as
may be designated by the Board for the purposes hereof) or, if there
is no such reported sale on the day in question, on the basis of the
average of the closing bid and asked quotations as so reported, or, if
the Common Stock is not then listed on any national securities
exchange, on the basis of the average of the high bid and low asked
quotations on the day in question in the over-the-counter market as
reported by the National Association of Securities Dealers' Automated
Quotations System, or if not so quoted, as reported by National
Quotation Bureau, Incorporated, or a similar organization.
(e) In any case in which this paragraph (iii) shall require that
an adjustment be made immediately following a record date or an
effective date, the Corporation may elect to defer (but only until
five business days following the filing by the Corporation with the
conversion agent of the certificate of independent public accountants
required by subdivision (g) of this subsection (IV)) issuing to the
holder of any share of Convertible Preferred Stock converted after
such record date or effective date the additional shares of Common
Stock or other capital stock issuable upon such conversion over and
above the shares of Common Stock or other capital stock issuable upon
such conversion on the basis of the Conversion Price prior to
adjustment, and paying to such holder any amount of cash in lieu of a
fractional share.
(f) No adjustment in the Conversion Price shall be required to be
made unless such adjustment would require an increase or decrease of
at least 1% of such price; provided, however, that any adjustments
which by reason of this subdivision (f) are not required to be made
shall be
<PAGE> 137
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carried forward and taken into account in any subsequent adjustment.
All calculations under this paragraph (iii) shall be made to the
nearest cent or to the nearest 1/100th of a share, as the case may be.
Anything in this paragraph (iii) to the contrary notwithstanding, the
Corporation shall be entitled to make such reduction in the Conversion
Price, in addition to those required by this paragraph (iii), as it in
its discretion shall determine to be advisable in order that any stock
dividend, subdivision of shares, distribution of rights to purchase
stock or securities, or distribution of securities convertible into or
exchangeable for stock hereafter made by the Corporation to its
stockholders shall not be taxable to the recipients.
(g) Whenever the Conversion Price is adjusted as herein provided,
(i) the Corporation shall promptly file with the conversion agent a
certificate of a firm of independent public accountants (who may be
the regular accountants employed by the Corporation) setting forth the
Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment and the manner of
computing the same, which certificate shall be conclusive evidence of
the correctness of such adjustment, and (ii) a notice stating that the
Conversion Price has been adjusted and setting forth the adjusted
Conversion Price shall forthwith be mailed by the Corporation to the
holders of the Convertible Preferred Stock at their addresses as shown
on the stock books of the Corporation.
(h) In the event that any time as a result of an adjustment made
pursuant to subdivision (a) of this subsection (IV), the holder of any
share of Convertible Preferred Stock thereafter surrendered for
conversion shall become entitled to receive any shares of the
Corporation other than shares of Common Stock, thereafter the
Conversion Price of such other shares so receivable upon conversion of
any share shall be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the provisions
with respect to Common Stock contained in this paragraph (iii).
<PAGE> 138
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(V) In case:
(a) the Corporation shall take any action which would require any
adjustment in the Conversion Price pursuant to subsection (IV)(c); or
(b) the Corporation shall authorize the granting to the holders
of the Common Stock of rights or warrants to subscribe for or purchase
any shares of stock of any class or of any other rights; or
(c) there shall be any capital stock reorganization or
reclassification of the Common Stock (other than a subdivision or
combination of the outstanding Common Stock and other than a change in
the par value of the Common Stock), or any consolidation or merger to
which the Corporation is a party or any statutory exchange of
securities with another corporation and for which approval of any
stockholders of the Corporation is required, or any sale or transfer
of all or substantially all the assets of the Corporation; or
(d) there shall be a voluntary dissolution, liquidation or
winding up of the Corporation; then the Corporation shall cause to be
filed with the conversion agent, and shall cause to be mailed to the
holders of shares of the Convertible Preferred Stock at their
addresses as shown on the stock books of the Corporation, at least 10
days prior to the applicable date hereinafter specified, a notice
stating (i) the date on which a record is to be taken for the purpose
of such distribution or rights, or, if a record is not to be taken,
the date as of which the holders of Common Stock of record to be
entitled to such distribution or rights are to be determined, or (ii)
the date on which such reorganization, reclassification,
consolidation, merger, statutory exchange, sale, transfer,
dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reorganizational reclassification, consolidation, merger, statutory
exchange, sale, transfer, dissolution, liquidation or winding up.
Failure to give such
<PAGE> 139
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notice or any defect therein shall not affect the legality or validity
of the proceedings described in subdivision (a), (b), (c) or (d) of
this subsection (V).
(VI) The Corporation covenants that it will at all times reserve
and keep available, free from preemptive rights, out of the aggregate
of its authorized but unissued shares of Common Stock or its issued
shares of Common Stock held in its treasury, or both, for the purpose
of effecting conversions of the Convertible Preferred Stock, the full
number of shares of Common Stock deliverable upon the conversion of
all outstanding shares of Convertible Preferred Stock not theretofore
converted. For purposes of this subsection (VI), the number of shares
of Common Stock which shall be deliverable upon the conversion of all
outstanding shares of Convertible Preferred Stock shall be computed as
if at the time of computation all such outstanding shares were held by
a single holder.
Before taking any action which would cause an adjustment reducing
the Conversion Price below the then par value (if any) of the shares
of Common Stock deliverable upon conversion of the Convertible
Preferred Stock, the Corporation will take any corporate action which
may, in the opinion of its counsel, be necessary in order that the
Corporation may validly and legally issue fully paid and
non-assessable shares of Common Stock at such adjusted Conversion
Price.
The Corporation will endeavor to list the shares of Common Stock
required to be delivered upon conversion of the Convertible Preferred
Stock prior to such delivery upon each national securities exchange,
if any, upon which the outstanding Common Stock is listed at the time
of such delivery.
Prior to the delivery of any securities which the Corporation
shall be obligated to deliver upon conversion of the Convertible
Preferred Stock, the Corporation will endeavor to comply with all
Federal and State laws and regulations thereunder requiring the
registration of such securities
<PAGE> 140
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with, or any approval of or consent to the delivery thereof by, any
governmental authority.
(VII) The Corporation will pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issue or
delivery of shares of Common Stock on conversions of the Convertible
Preferred Stock pursuant hereto; provided, however that the
Corporation shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issue or delivery of shares
of Common Stock in a name other than that of the holder of the
Convertible Preferred Stock to be converted and no such issue or
delivery shall be made unless and until the person requesting such
issue or delivery has paid to the Corporation the amount of any such
tax or has established, to the satisfaction of the Corporation, that
such tax has been paid.
(VIII) Notwithstanding any other provision herein to the
contrary, in case of any consolidation or merger to which the
Corporation is a party (other than a merger or consolidation in which
the Corporation is the continuing corporation), or in case of any sale
or conveyance to another corporation of the property of the
Corporation as an entirety or substantially as an entirety, or in the
case of any statutory exchange of securities with another corporation
(including any exchange effected in connection with a merger of a
third corporation into the Corporation), the holder of each share of
Convertible Preferred Stock then outstanding shall have the right
thereafter to convert such share into the kind and amount of
securities, cash or other property receivable upon such consolidation,
merger, statutory exchange, sale or conveyance by a holder of the
number of shares of Common Stock into which such share of Convertible
Preferred Stock might have been converted immediately prior to such
consolidation, merger, statutory exchange, sale or conveyance,
assuming such holder of Common Stock failed to exercise his rights of
election, if any, as to the kind or amount of securities, cash or
other property receivable upon such consolidation, merger, statutory
exchange, sale or conveyance (provided that if the kind or amount of
securities, cash or other property receivable upon such
<PAGE> 141
-17-
Consolidation, merger, statutory exchange, sale or Conveyance is not
the same for each share of Common Stock in respect of which such
rights of election shall not have been exercised ("non-electing
share"), then for the purpose of this subsection (VIII) the kind and
amount of securities, cash or other property receivable upon such
consolidation, merger, statutory exchange, sale or conveyance for each
non-electing share shall be deemed to be the kind and amount so
receivable per share by a plurality of the non-electing shares).
Thereafter, the holders of the Convertible Preferred Stock shall be
entitled to appropriate adjustments with respect to their conversion
rights to the end that the provisions set forth in this paragraph
(iii) shall correspondingly be made applicable, as nearly as may
reasonably be, in relation to any shares of stock or other securities
or property thereafter deliverable on the conversion of the
Convertible Preferred Stock. Any such adjustment shall be approved by
a firm of independent public accountants, evidenced by a certificate
to that effect delivered to the conversion agent; and any adjustment
so approved shall for all purposes hereof conclusively be deemed to be
an appropriate adjustment.
The above provisions of this subsection (VIII) shall similarly
apply to successive consolidations, mergers, statutory exchanges,
sales or conveyances.
(iv) Upon any conversion or redemption of shares of Convertible
Preferred Stock, the shares of Convertible Preferred Stock so
converted or redeemed shall have the status of authorized and unissued
shares of Series Preferred Stock, and the number of shares of Series
Preferred Stock which the Corporation shall have authority to issue
shall not be decreased by the conversion or redemption of shares of
Convertible preferred Stock.
(v) The holders of shares of Convertible Preferred Stock shall
have no voting rights whatsoever, except for any voting rights to
which
<PAGE> 142
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they may be entitled under the laws of the State of Delaware, and
except as follows:
(I) If and whenever at any time or times dividends payable on the
Convertible Preferred Stock or on any other Parity Preferred Stock
shall have been in arrears and unpaid in an aggregate amount equal to
or exceeding the amount of dividends payable thereon for six quarterly
periods, then the holders of Parity Preferred Stock shall have, in
addition to the other voting rights set forth herein, the exclusive
right, voting separately as a class, to elect two directors of the
Corporation, such directors to be in addition to the number of
directors constituting the Board of Directors immediately prior to the
accrual of such right, the remaining directors to be elected by the
other class or classes of stock entitled to vote therefor at each
meeting of stockholders held for the purpose of electing directors.
Such voting right shall continue until such time as all cumulative
dividends accumulated on all the Parity Preferred Stock having
cumulative dividends shall have been paid in full and until any
noncumulative dividends payable on all the Parity Preferred Stock
having noncumulative dividends shall have been paid regularly for at
least one year, at which time such voting right of the holders of the
Parity Preferred Stock shall terminate, subject to revesting in the
event of each and every subsequent event of default of the character
indicated above.
Whenever such voting right shall have vested, such right may be
exercised initially either at a special meeting of the holders of the
Parity Preferred Stock, called as hereinafter provided, or at any
annual meeting of stockholders held for the purpose of electing
directors, and thereafter at each successive annual meeting.
At any time when such voting right shall have vested in the
holders of the Parity Preferred Stock, and if such right shall not
already have been initially exercised, a proper officer of the
Corporation shall, upon the written request of the holders of record
of 10% in number of shares of the Parity Preferred Stock then
outstanding, addressed to the Secretary of the Corporation,
<PAGE> 143
-19-
call a special meeting of the holders of the Parity Preferred Stock
and of any other class or classes of stock having voting power with
respect thereto for the purpose of electing directors. Such meeting
shall be held at the earliest practicable date upon the notice
required for annual meetings of stockholders at the place for holding
of annual meetings of stockholders of the Corporation, or, if none, at
a place designated by the Secretary of the Corporation. If such
meeting shall not be called by the proper officers of the Corporation
within 30 days after the personal service of such written request upon
the Secretary of the Corporation, or within 30 days after mailing the
same within the United States of America, by registered mail,
addressed to the Secretary of the Corporation at its principal office
(such mailing to be evidenced by the registry receipt issued by the
postal authorities), then the holders of record of 10% in number of
shares of the Parity Preferred Stock then outstanding may designate in
writing one of their number to call such meeting at the expense of the
Corporation, and such meeting may be called by such person so
designated upon the notice required for annual meetings of
stockholders and shall be held at the same place as is elsewhere
provided for in this subsection (I). Any holder of the Parity
Preferred Stock shall have access to the stock books of the
Corporation for the purpose of causing a meeting of stockholders to be
called pursuant to the provisions of this paragraph. Notwithstanding
the provisions of this paragraph, however, no such special meeting
shall be called during a period within 90 days immediately preceding
the date fixed for the next annual meeting of stockholders.
At any meeting held for the purpose of electing directors at
which the holders of the Parity Preferred Stock shall have the right
to elect directors as provided herein, the presence in person or by
proxy of the holders of 33-1/3% of the then outstanding shares of the
Parity Preferred Stock shall be required and be sufficient to
constitute a quorum of the Parity Preferred Stock for the election of
directors by the Parity Preferred Stock. At any such meeting or
adjournment thereof (A) the absence of a quorum of the
<PAGE> 144
-20-
holders of the Parity Preferred Stock shall not prevent the election
of directors other than those to be elected by the holders of the
Parity Preferred Stock and the absence of a quorum or quorums of the
holders of other classes of capital stock entitled to elect such other
directors shall not prevent the election of directors to be elected by
the holders of the Parity Preferred Stock and (B) in the absence of a
quorum of the holders of any class of stock entitled to vote for the
election of directors, a majority of the holders present in person or
by proxy of such class shall have the power to adjourn the meeting for
the election of directors which the holders of such class are entitled
to elect, from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
The directors elected pursuant to this subsection (I) shall serve
until the next annual meeting or until their respective successors
shall be elected and shall qualify; provided, however, that when the
right of the holders of the Parity Preferred Stock to elect directors
as herein provided shall terminate, the terms of office of all persons
so elected by the holders of the Parity Preferred Stock shall
terminate, and the number of directors of the Corporation shall
thereupon be such number as may be provided in the By-Laws of the
Corporation irrespective of any increase made pursuant to this
subsection (I).
(II) So long as any shares of the Convertible Preferred Stock
remain outstanding, the Corporation will not, either directly or
indirectly or through merger or consolidation with any other
corporation:
(a) without the affirmative vote at a meeting or the written
consent with or without a meeting of the holders of at least 66-2/3%
in number of shares of the Series Preferred Stock of all series then
outstanding, (A) create any class or classes of stock ranking equal or
prior to the Series Preferred Stock either as to dividends or upon
liquidation or increase the authorized number of shares of any class
or classes of stock ranking equal or prior to the Series Preferred
Stock either as to dividends or upon liquidation,
<PAGE> 145
-21-
(B) amend, alter or repeal any of the provisions of the Certificate of
Incorporation so as to affect adversely the preferences, special
rights or powers of the Series Preferred Stock or (C) authorize any
reclassification of the Series Preferred Stock;
(b) without the affirmative vote at a meeting or the written
consent with or without a meeting of the holders of at least 66-2/3%
in number of shares of the Convertible Preferred Stock then
outstanding, amend, alter or repeal any of the provisions hereof so as
to affect adversely the preferences, special rights or powers of the
Convertible Preferred Stock; or
(c) without the affirmative vote at a meeting or the written
consent with or without a meeting of the holders of at least a
majority in number of shares of the Series Preferred Stock of all
series then outstanding, increase the authorized number of shares of
the Series Preferred Stock.
(vi) The Convertible Preferred Stock is exchangeable in whole at
the option only of the Corporation on any dividend payment date
beginning June 15, 1989, for the Corporation's 5-1/2% Convertible
Subordinated Debentures due June 15, 2017 (the "Debentures") as
described in the Corporation's Registration Statement on Form S-3
(Registration No. 33-12264), as filed with the Securities and
Exchange Commission. Holders of outstanding shares of Convertible
Preferred Stock will be entitled to receive $25 principal amount of
Debentures in exchange for each share of Convertible Preferred Stock
held by them at the time of exchange. The Corporation will mail to
each record holder of the Convertible Preferred Stock written notice
of its intention to exchange not less than 20 nor more than 60 days
prior to the date of exchange. Prior to giving notice of intention to
exchange, the Corporation shall execute and deliver with a bank or
trust company selected by the Corporation an Indenture substantially
in the form filed as an Exhibit to such Registration Statement with
such changes as may be required by law, stock exchange rule or usage.
The Corporation will cause the Debentures
<PAGE> 146
-22-
to be authenticated on the dividend payment date on which the exchange
is effective; at such time the rights of the holders of Convertible
Preferred Stock as stockholders of the Company shall cease (except the
right to receive accumulated and unpaid dividends to the date of
exchange), and the shares of Convertible Preferred Stock shall no
longer be deemed outstanding and shall represent only the right to
receive the Debentures. The Debentures will be delivered to the
persons entitled thereto upon surrender to the Corporation or its
agent appointed for that purpose of the certificates for the shares of
Convertible Preferred Stock being exchanged therefor. If the
Corporation has not paid full cumulative dividends on the Convertible
Preferred Stock to the date of exchange (or set aside a sum therefor)
the Convertible Preferred Stock may not be exchanged for the
Debentures.
(vii) The shares of the Convertible Preferred Stock may be
redeemed at the option of the Corporation as a whole at any time, or
from time to time in part, upon not less than 25 nor more than 60
days' prior notice mailed to the holders of the shares to be redeemed
at their addresses as shown on the stock books of the Corporation, at
the following redemption prices, but the shares of the Convertible
Preferred Stock may not be redeemed before March 15, 1989, unless the
daily market price (as defined in paragraph (iii)(IV)(d)) of the
Common Stock for any 20 trading days during a period of 30 consecutive
trading days ending within five trading days before the date notice of
redemption is mailed to each holder equals or exceeds 140% of the
Conversion Price then in effect. If redeemed during the 12-month
period beginning March 15,
<TABLE>
<CAPTION>
Year Price Year Price
<S> <C> <C> <C>
1987 $26.38 1993 $25.55
1988 26.24 1994 25.41
1989 26.10 1995 25.28
1990 25.96 1996 25.14
1991 25.83 1997
1992 25.69 and there-
after 25.000
</TABLE>
<PAGE> 147
-23-
in each case together with an amount equal to all dividends (whether
or not earned or declared) accumulated and unpaid to the date fixed
for redemption.
If full cumulative dividends on the Convertible Preferred Stock
have not been paid, the Convertible Preferred Stock may not be
redeemed in part and the Corporation may not purchase or acquire any
shares of the Convertible Preferred Stock otherwise than pursuant to a
purchase or exchange offer made on the same terms to all holders of
the Convertible Preferred Stock. If less than all the outstanding
shares of Convertible Preferred Stock are to be redeemed, the
Corporation will select those to be redeemed by lot or a substantially
equivalent method. Upon such redemption date, holders of shares of
Convertible Preferred Stock called for redemption shall cease to be
stockholders with respect to such shares and thereafter such shares
shall no longer be transferable on the books of the Corporation and
such holders shall have no interest or claim against the Corporation
with respect to such shares except the right to receive payment of the
redemption price upon surrender of their certificates.
(viii) No consent of the holders of the Convertible Preferred
Stock shall be required for (i) the creation of any indebtedness of
any kind of the Corporation, (ii) the creation of any class of stock
of the Corporation ranking junior as to dividends or upon liquidation
to the Series Preferred Stock or (iii) any increase or decrease in the
amount of authorized Common Stock or any increase, decrease or change
in the par value thereof or in any other terms thereof.
(ix) The Board reserves the right by subsequent amendment of this
resolution from time to time to increase (subject to the provisions of
paragraph (v)(II)(c)) or decrease the number of shares which
constitute the Convertible Preferred Stock (but not below the number
of shares thereof then outstanding) and in other respects to amend
<PAGE> 148
-24-
this resolution within the limitations provided by law, this
resolution and the Certificate of Incorporation.
PART II - COMMON STOCK
(g) All shares of Common Stock shall be identical with each other
in every respect. The shares of Common Stock shall entitle the holders
thereof to one vote for each share upon all matters upon which
stockholders have the right to vote.
(h) The Common Stock is subject to all the powers, rights,
privileges, preferences and priorities of the Series Preferred Stock
as are stated and expressed herein and as shall be stated and
expressed in any resolution or resolutions adopted by the Board of
Directors pursuant to authority expressly granted to and vested in it
by the provisions of this Section 2.
ARTICLE V
Restriction on Dividends
No dividend shall be declared or paid which shall impair the capital of the
Corporation nor shall any distribution of assets be made to any stockholder
unless the value of the assets of the Corporation remaining after such payment
or distribution is at least equal to the aggregate of its debts, liabilities and
capital. A director shall be fully protected in relying in good faith upon the
books of account of the Corporation or statements prepared by any of its
officers or by independent public accountants as to the value and amount of the
assets, liabilities, net profits, capital stock and surplus of the Corporation,
or any other facts pertinent to the existence and amount of surplus or other
funds from which dividends might properly be declared and paid.
ARTICLE VI
Board of Directors
SECTION 1. Powers of the Board of Directors. In furtherance and not in
limitation of the powers conferred by statute, the Board of Directors of the
Corporation is expressly authorized:
(a) To authorize and cause to be executed mortgages and liens upon the
real and personal property of the Corporation.
<PAGE> 149
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(b) To determine the use and disposition of any surplus and net
profits of the Corporation, including the determination of the amount of
working capital required, to set apart out of any of the funds of the
Corporation, whether or not available for dividends, a reserve or reserves
for any proper purpose and to abolish any such reserve in the manner in
which it was created.
(c) To designate, by resolution passed by a majority of the whole
Board, one or more committees, each committee to consist of one or more
directors of the Corporation, which, to the extent provided in the
resolution designating the committee or in the By-Laws of the Corporation,
shall have and may exercise subject to the provisions of the General
Corporation Law of Delaware the powers of the Board of Directors in the
management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it. Such committee or committees shall have such name or names as
may be provided in the By-Laws of the Corporation or as may be determined
from time to time by resolution adopted by the Board of Directors.
(d) To grant rights or options entitling the holders thereof to
purchase from the Corporation shares of its capital stock of any class or
series. The terms upon which, the time or times at or within which, and the
price or prices at which any such rights or options may be issued and any
such shares may be purchased from the Corporation upon the exercise of any
such right or option, shall be determined by the Board of Directors. In the
absence of actual fraud in the transaction, the judgment of the Board of
Directors as to the consideration for the issuance of such rights or
options and for the issuance of shares of capital stock upon exercise
thereof and the sufficiency of such consideration shall be conclusive. No
such rights or options shall be invalidated or in any way affected by the
fact that any director shall be a grantee thereof or shall vote for the
issuance of such rights or options to himself or for any plan pursuant to
which he may receive any such rights or options.
(e) To adopt or assume such plans as may from time to time be approved
by it for the purchase by officers or employees of the Corporation of
shares of capital stock of the Corporation of any class or series. The
terms upon which, the time or times at or within which, and the price or
prices at which shares may be purchased from the Corporation pursuant to
such a plan shall be determined by the Board of Directors in the plan. In
the absence of actual fraud in the transaction, the judgment of the Board
<PAGE> 150
-26-
SECTION 3. Classification of the Board of Directors.
(a) Subject to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation,
the number of the directors of the Corporation shall be fixed from time to time
by or pursuant to the By-Laws of the Corporation. The directors, other than
those who may be elected by the holders of the Preferred Stock or any other
class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation pursuant to the terms of this Certificate of
Incorporation or any resolution or resolutions providing for the issue of such
class or series of stock adopted by the Board of Directors, shall be classified,
with respect to the time for which they severally hold office, into three
classes, as nearly equal in number as possible, as shall be provided in the
By-Laws of the Corporation, one class to be originally elected for a term
expiring at the annual meeting of stockholders to be held in 1988, another class
to be originally elected for a term expiring at the annual meeting of
stockholders to be held in 1989, and another class to be originally elected for
a term expiring at the annual meeting of stockholders to be held in 1990, with
each class to hold office until its successors are elected and qualified. At
each annual meeting of the stockholders of the Corporation, the date of which
shall be fixed by or pursuant to the By-Laws of the Corporation, the successors
of the class of directors whose term expires at that meeting shall be elected to
hold office for a term expiring at the annual meeting of stockholders held in
the third year following the year of their election. Unless and except to the
extent that the By-Laws of the Corporation shall so require, the election of
directors need not be by written ballot. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
(b) Subject to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation,
newly created directorships resulting from any increase in the number of
directors may be filled by the Board of Directors, or as otherwise provided in
the By-Laws, and any vacancies on the Board of Directors resulting from death,
resignation, removal or other cause shall only be filled by the affirmative vote
of a majority of the remaining directors then in office, even though less than a
quorum of the Board of Directors, or by a sole remaining director, or as
otherwise provided in the By-Laws. Any director elected in accordance with the
preceding sentence of this Paragraph (b) shall hold office for the remainder of
the full term of
<PAGE> 151
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of Directors as to the consideration for the issuance of such shares and the
sufficiency thereof shall be conclusive. No such plan which is not at the time
of adoption or assumption unreasonable or unfair shall be invalidated or in any
way affected because any director shall be entitled to purchase shares of
capital stock of the Corporation thereunder and shall vote for any such plan.
(f) To adopt or assume and carry out such plans as may from time to time be
approved by it for the distribution among the officers or employees of the
Corporation, or any of them, in addition to their regular salaries or wages, of
part of the earnings of the Corporation in consideration for or in recognition
of the services rendered by such officers or employees or as an inducement to
future efforts. No such plan which is not at the time of adoption or assumption
unreasonable or unfair shall be invalidated or in any way affected because any
director shall be a beneficiary thereunder or shall vote for any plan under
which he may benefit or for any distribution thereunder in which he may
participate.
(g) To adopt or assume and carry out such pension, deferred compensation,
profit-sharing or retirement plans as may from time to time be approved by it,
providing for pensions, deferred compensation, profit-sharing plan benefits or
retirement income for officers or employees of the Corporation, in consideration
for or in recognition of the services rendered by such officers or employees or
as an inducement to future efforts. No such plan which is not at the time of
adoption or assumption unreasonable or unfair shall be invalidated or in any way
affected because any director shall be a beneficiary thereunder or shall vote
for any plan under which he may benefit or for any distribution thereunder in
which he may participate.
(h) To exercise, in addition to the powers and authorities hereinbefore or
by law conferred upon it, any such powers and authorities and do all such acts
and things as may be exercised or done by the Corporation, subject,
nevertheless, to the provisions of the laws of the State of Delaware and of this
Certificate of Incorporation and to the By-Laws of the Corporation.
SECTION 2. Reliance on Books. A director shall be fully protected in
relying in good faith upon the books of account of the Corporation or statements
prepared by any of its officers or by independent public accountants as to the
value and amount of the assets, liabilities and/or net profits of the
Corporation or any facts pertinent to the existence and amount of surplus or
other funds with which the Corporation's capital stock might properly be
purchased or redeemed.
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the class of directors in which the new directorship was created or the vacancy
occurred and until such director's successor shall have been elected and
qualified.
(c) Subject to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation,
any director may be removed from office only for cause, and in such case, only
by the affirmative vote of the holders of a majority of the combined voting
power of the then outstanding shares of stock of all classes and series of the
Corporation entitled to vote generally in the election of directors ("Voting
Stock"), voting together as a single class. For purposes of this Paragraph (c),
cause shall mean the wilful and continuous failure of a director substantially
to perform such director's duties to the Corporation (other than any such
failure resulting from incapacity due to physical or mental illness) or the
wilful engaging by a director in gross misconduct materially and demonstrably
injurious to the Corporation. Any officer of the Corporation may be removed at
any time in such manner as provided in the By-Laws of the Corporation.
(d) In addition to any requirements of law and any other provisions of this
Certificate of Incorporation or any resolution or resolutions of the Board of
Directors adopted pursuant to Article IV of this Certificate of Incorporation
(and notwithstanding the fact that a lesser percentage may be specified by law
or this Certificate of Incorporation or any such resolution or resolutions), the
affirmative vote of the holders of 80% or more of the combined voting power of
the then outstanding shares of voting Stock, voting together as a single class,
shall be required to amend, alter or repeal, or adopt any provision inconsistent
with, this Section 3.
Article VII
Meetings of Stockholders
SECTION 1. Subject to the rights of the holders of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation, any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders. Except as otherwise required by law and subject to
the rights of the holders of the Preferred Stock or any other class or series of
stock having a preference over the Common Stock as to dividends or upon
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liquidation, special meetings of stockholders of the Corporation may be called
only by the Board of Directors pursuant to a resolution approved by a majority
of the entire Board of Directors or as otherwise provided in the By-Laws of the
Corporation.
SECTION 2. In addition to any requirements of law and any other provisions
of this Certificate of Incorporation or any resolution or resolutions of the
Board of Directors adopted pursuant to Article IV of this Certificate of
Incorporation (and notwithstanding the fact that a lesser percentage may be
specified by law or this Certificate of Incorporation or any such resolution or
resolutions), the affirmative vote of the holders of 80% or more of the combined
voting power of the then outstanding shares of Voting Stock, voting together as
a single class, shall be required to amend, alter or repeal, or adopt any
provision inconsistent with, this Article VII.
ARTICLE VIII
Transactions with Directors or Officers
No contract or transaction between the Corporation and one or more of its
directors or officers, or between the Corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board of
Directors or committee thereof which authorizes the contract or transaction, or
solely because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board of Directors or committee in good
faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(2) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the
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Corporation as of the time it is authorized, approved or ratified, by the
Board of Directors, a committee thereof, or the stockholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
ARTICLE IX
Liability of Directors
(a) To the fullest extent that the General Corporation Law of the State of
Delaware as it exists on the date hereof or as it may hereafter be amended
permits the limitation or elimination of the liability of directors, no director
of the Corporation shall be liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. No amendment to or
repeal of this Article shall apply to or have any effect on the liability or
alleged liability of any director of the Corporation for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
(b) In addition to any requirements of law and any other provisions of this
Certificate of Incorporation or any resolution or resolutions of the Board of
Directors adopted pursuant to Article IV of this Certificate of Incorporation
(and notwithstanding the fact that a lesser percentage may be specified by law
or this Certificate of Incorporation or any such resolution or resolutions), the
affirmative vote of the holders of 80% or more of the combined voting power of
the then outstanding shares of Voting Stock, voting together as a single class,
shall be required to amend, alter or repeal, or adopt any provision inconsistent
with, this Article IX.
ARTICLE X
Compromise or Arrangement between Corporation
and its Creditors or Stockholders
Whenever a compromise or arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof, or on the application of
any receiver or receivers appointed for this
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Corporation under the provisions of Section 291 of Title 8 of the Delaware Code,
or on the application of trustees in dissolution, or of any receiver or
receivers appointed for this Corporation under the provisions of Section 279 of
Title 8 of the Delaware Code, order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders, of this
Corporation, as the case may be, to be summoned in such manner as said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders, of this Corporation as the case may be, agrees to any compromise
or arrangement and to any reorganization of this Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding upon all the creditors or class of creditors, and/or
upon all the stockholders or class of stockholders, of this Corporation, as the
case may be, and also on this Corporation.
ARTICLE XI
Reservation of Right to Amend
Certificate of Incorporation
The Corporation reserves the right to amend, alter, change or repeal any
provisions contained in this Certificate of Incorporation in the manner now or
hereafter prescribed by law, and all the provisions of this Certificate of
Incorporation and all rights and powers conferred in this Certificate of
Incorporation on stockholders, directors and officers are subject to this
reserve power.
ARTICLE XII
Adopting and Amending the By-Laws
SECTION 1. The Board of Directors may adopt, repeal, alter or amend the
By-Laws of the Corporation by the vote of a majority of the entire Board of
Directors. Without limiting its authority to adopt, repeal, alter or amend the
By-Laws of the Corporation, the Board of Directors is expressly authorized to
adopt By-Laws which a majority of the entire Board of Directors may deem
necessary or desirable for the efficient conduct of the affairs of the
Corporation, including, without limitation, provisions governing the conduct of,
and the matters which may properly be brought before, meetings of the
stockholders and provisions specifying the manner and extent to which prior
notice shall be given of the submission of proposals to be considered at any
meeting of stockholders or of nominations for the election of directors to be
held at any such meeting.
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SECTION 2. In addition to any requirements of law and any other provisions
of this Certificate of Incorporation or any resolution or resolutions of the
Board of Directors adopted pursuant to Article IV of this Certificate of
Incorporation (and notwithstanding the fact that a lesser percentage may be
specified by law, this Certificate of Incorporation or any such resolution or
resolutions), the stockholders may not adopt, amend, alter or repeal any
provision of the By-Laws of the Corporation, except by the affirmative vote of
the holders of 80% or more of the combined voting power of the then outstanding
shares of Voting Stock, voting together as a single class, unless recommended to
the stockholders for their approval by two-thirds of the Disinterested Directors
as such term is defined in Article XIII of this Certificate of Incorporation.
SECTION 3. In addition to any requirements of law and any other provisions
of this Certificate of Incorporation or any resolution or resolutions of the
Board of Directors adopted pursuant to Article IV of this Certificate of
Incorporation (and notwithstanding the fact that a lesser percentage may be
specified by law or this Certificate of Incorporation or any such resolution or
resolutions), the affirmative vote of the holders of 80% or more of the combined
voting power of the then outstanding shares of Voting Stock, voting together as
a single class, shall be required to amend, alter or repeal, or adopt any
provision inconsistent with, this Article XII.
ARTICLE XIII
Approval of Business Combinations
The vote of stockholders of the Corporation required to approve Business
Combinations (as hereinafter defined) shall be as set forth in this Article
XIII.
SECTION 1. In addition to any affirmative vote required by law or by this
Certificate of Incorporation or any resolution or resolutions of the Board of
Directors adopted pursuant to Article IV of this Certificate of Incorporation,
and except as otherwise expressly provided in Section 3 of this Article XIII:
(a) any merger or consolidation of the Corporation or any Subsidiary
with (i) any Interested Stockholder or (ii) any other corporation (whether
or not itself an Interested Stockholder) which is, or after such merger or
consolidation would be, an Affiliate or Associate of an Interested
Stockholder; or
(b) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Interested Stockholder or any Affiliate or Associate of any Interested
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Stockholder of any assets of the Corporation or of any Subsidiary having an
aggregate Fair Market Value equal to 10% or more of the consolidated
stockholders' equity of the Corporation and its subsidiaries as shown in
the most recent audited consolidated balance sheet of the Corporation and
its consolidated subsidiaries; or
(c) the issuance, sale or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) to any
Interested Stockholder or any Affiliate or Associate of any Interested
Stockholder of any securities of the Corporation or any Subsidiary in
exchange for cash, securities or other property (or a combination thereof)
having an aggregate Fair Market Value equal to 10% or more of the
consolidated stockholders' equity of the Corporation and its subsidiaries,
as shown in the most recent audited consolidated balance sheet of the
Corporation and its consolidated subsidiaries, other than the issuance of
securities upon the conversion of convertible securities of the Corporation
or any Subsidiary which were not acquired by such Interested Stockholder
(or such Affiliate or Associate) from the Corporation or a Subsidiary; or
(d) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of any Interested
Stockholder or any Affiliate or Associate of any Interested Stockholder; or
(e) any reclassification of securities (including any reverse stock
split) or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries, or any other
transaction (whether or not with or into or otherwise involving any
Interested Stockholder), which in any such case has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding shares
of any class or series of stock or securities convertible into stock of the
Corporation or any Subsidiary which is directly or indirectly beneficially
owned by any Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder;
shall not be consummated without (i) the affirmative vote of the holders of at
least 80% of the combined voting power of the then outstanding shares of Voting
Stock and (ii) the affirmative vote of a majority of the combined voting power
of the then outstanding shares of Voting Stock held by Disinterested
Stockholders, in each case voting together as a single class. Such affirmative
vote shall be required notwithstanding the fact that no vote may be required, or
that
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a lesser Percentage may be specified, by law or by this Certificate of
Incorporation or any resolution or resolutions of the Board of Directors adopted
pursuant to Article IV of this Certificate of Incorporation or in any agreement
with any national securities exchange or otherwise.
SECTION 2. The term "Business Combination" as used in this Article XIII
shall mean any transaction which is referred to in any one or more of Paragraphs
(a) through (e) of Section 1 of this Article XIII.
SECTION 3. The provisions of Section 1 of this Article XIII shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only such affirmative vote as is required by law and any other
provision of this Certificate of Incorporation and any resolution or resolutions
of the Board of Directors adopted pursuant to Article IV of this Certificate of
Incorporation, if all the conditions specified in either of the following
Paragraphs (a) or (b) are met:
(a) such Business Combination shall have been approved by a majority
of the Disinterested Directors; or
(b) all the six conditions specified in the following clauses (i)
through (vi) shall have been met;
(i) the transaction constituting the Business Combination shall
provide for a consideration to be received by holders of Common Stock in
exchange for all their shares of Common Stock, and the aggregate amount of
the cash and the Fair Market Value as of the date of the consummation of
the Business Combination of any consideration other than cash to be
received per share by holders of Common Stock in such Business Combination
shall be at least equal to the higher of the following:
(A) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees)
paid in order to acquire any shares of Common Stock beneficially owned
by the Interested Stockholder which were acquired (i) within the
two-year period immediately prior to the Announcement Date or (ii) in
the transaction in which it became an Interested Stockholder,
whichever is higher; and
(B) the Fair Market Value per share of Common Stock on the
Announcement Date or on the Determination Date, whichever is higher;
and
(ii) if the transaction constituting the Business Combination shall
provide for a consideration to be
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received by holders of any class or series of outstanding Voting Stock
other than Common Stock, the aggregate amount of the cash and the Fair
Market Value as of the date of the consummation of the Business Combination
of any consideration other than cash to be received per share by holders of
shares of such Voting Stock shall be at least equal to the highest of the
following (it being intended that the requirements of this clause (ii)
shall be required to be met with respect to every class and series of such
outstanding Voting Stock, whether or not the Interested Stockholder
beneficially owns any shares of a particular class or series of Voting
Stock):
(A) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees)
paid in order to acquire any shares of such class or series of Voting
Stock beneficially owned by the Interested Stockholder which were
acquired (i) within the two-year period immediately prior to the
Announcement Date or (ii) in the transaction in which it became an
Interested Stockholder, whichever is higher;
(B) (if applicable) the highest preferential amount per share to
which the holders of shares of such class or series of Voting Stock
are entitled in the event of the redemption thereof or of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; and
(C) the Fair Market Value per share of such class or series of
Voting Stock on the Announcement Date or on the Determination Date,
whichever is higher; and
(iii) the consideration to be received by holders of a particular
class or series of outstanding Voting Stock (including Common Stock) shall
be in cash or in the same form as was previously paid in order to acquire
shares of such class or series of Voting Stock which are beneficially owned
by the Interested Stockholder and, if the Interested Stockholder
beneficially owns shares of any class or series of Voting Stock which were
acquired with varying forms of consideration, the form of consideration to
be received by holders of such class or series of Voting Stock shall be
either cash or the form used to acquire the largest number of shares of
such class or series of Voting Stock beneficially owned by it; and
(iv) after such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business Combination:
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(A) except as approved by a majority of the Disinterested
Directors, there shall have been no failure to declare and pay at the
regular dates therefor the full amount of any dividends (whether or
not cumulative) payable on the Preferred Stock or any class or series
of stock having a preference over the Common Stock as to dividends or
upon liquidation;
(B) there shall have been (x) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to reflect any
subdivision of the Common Stock), except as approved by a majority of
the Disinterested Directors, and (y) an increase in such annual rate
of dividends (as necessary to prevent any such reduction) in the event
of any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which has
the effect of reducing the number of outstanding shares of the Common
Stock, unless the failure so to increase such annual rate is approved
by a majority of the Disinterested Directors; and
(C) such Interested Stockholder shall not have become the
beneficial owner of any additional shares of Voting Stock except as
part of the transaction in which it became an Interested Stockholder;
and
(v) after such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received the
benefit, directly or indirectly (except proportionately as a stockholder),
of any loans, advances, guarantees, pledges or other financial assistance
provided by the Corporation, whether in anticipation of or in connection
with such Business Combination or otherwise; and
(vi) a proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities Exchange
Act of 1934 and the rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations) shall be mailed to the
stockholders of the Corporation at least 30 calendar days prior to the
consummation of such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to such Act or
subsequent provisions).
SECTION 4. For the purposes of this Article XIII:
(a) A "person" shall mean any individual, firm, corporation, partnership,
trust or other entity.
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(b) "Interested Stockholder" shall mean any person (other than the
Corporation or any Subsidiary) who or which:
(1) is the beneficial owner, directly or indirectly, of 20% or more of
the combined voting power of the then outstanding shares of Voting Stock;
or
(2) is an Affiliate of the Corporation and at any time within the
two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of 20% or more of the combined
voting power of the then outstanding shares of Voting Stock; or
(3) is an assignee of or has otherwise succeeded to the beneficial
ownership of any shares of Voting Stock which were at any time within the
two-year period immediately prior to the date in question beneficially
owned by any Interested Stockholder, if such assignment or succession,
shall have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning of the
Securities Act of 1933.
(c) "Disinterested Stockholder" shall mean a stockholder of the Corporation
(other than the Corporation or a Subsidiary) who is not an Interested
Stockholder or an Affiliate or an Associate of an Interested Stockholder.
(d) A person shall be a "beneficial owner" of any Voting Stock:
(1) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly; or
(2) which such, person or any of its Affiliates or Associates has (a)
the right to acquire (whether such right is exercisable immediately or only
after the passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (b) the right to vote or to direct
the vote pursuant to any agreement, arrangement or understanding; or
(3) which are beneficially owned, directly or indirectly, by any other
person with which such person or any of its Affiliates or Associates has
any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of Voting Stock.
(e) For the purposes of determining whether a person is an Interested
Stockholder pursuant to Paragraph (b) of
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this Section 4, the number of shares of Voting Stock deemed to be outstanding
shall include shares deemed owned by such person through application of
Paragraph (d) of this Section 4 but shall not include any other shares of Voting
Stock which may be issuable to other persons pursuant to any agreement,
arrangement or understanding or upon-exercise of conversion rights, exchange
rights, warrants or options, or otherwise.
(f) "Affiliate" and "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as in effect on December 16, 1986.
(g) "Subsidiary" shall mean any corporation of which a majority of the
outstanding stock having ordinary voting power for the election of directors is
owned by the Corporation, by a Subsidiary or by the Corporation and one or more
Subsidiaries, provided, however, that for the purposes of the definitions set
forth in Paragraphs (b) and (c) of this Section 4, the term "Subsidiary" shall
mean only a corporation of which a majority of each class of equity security is
owned by the Corporation, by a Subsidiary or by the Corporation and one or more
Subsidiaries.
(h) "Disinterested Director" means any member of the Board of Directors of
the Corporation who is unaffiliated with, and not a nominee of, the Interested
Stockholder and was a member of the Board of Directors prior to the time that
the Interested Stockholder became an Interested Stockholder, and any successor
of a Disinterested Director who is unaffiliated with, and not a nominee of, the
Interested Stockholder and who is recommended to succeed a Disinterested
Director by a majority of the Disinterested Directors then on the Board of
Directors.
(i) "Fair Market Value" means: (1) in the case of stock, the highest
closing sale price during the 30 calendar day period immediately preceding the
date in question of a share of such stock on the New York Stock Exchange
Composite Tape, or, if such stock is not quoted on the Composite Tape, on the
New York Stock Exchange, or, if such stock is not listed on such Exchange, on
the principal United States securities exchange registered under the Securities
Exchange Act of 1934 on which such stock is listed, or, if such stock is not
listed on any such exchange, the highest closing sales price or bid quotation
with respect to a share of such stock during the 30 calendar day period
preceding the date in question on the
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National Association of Securities Dealers, Inc. Automated Quotations System or
any system then in use, or, if no such quotations are available, the fair market
value on the date in question of a share of such stock as determined by a
majority of the Disinterested Directors in good faith; and (2) in the case of
stock of any class or series which is not traded on any securities exchange or
in the over-the-counter market or in the case of property other than cash or
stock, the fair market value of such stock or property, as the case may be, on
the date in question as determined by a majority of the Disinterested Directors
in good faith.
(j) "Announcement Date" means the date of first public announcement of the
proposed Business Combination.
(k) "Determination Date" means the date on which the Interested Stockholder
became an Interested Stockholder.
SECTION 5. A majority of the Disinterested Directors of the Corporation
shall have the power and duty to determine, on the basis of information known to
them after reasonable inquiry, all facts necessary to determine compliance with
this Article XIII, including, without limitation, (a) whether a person is an
Interested Stockholder, (b) the number of shares of Voting Stock beneficially
owned by any person, (c) whether a person is an Affiliate or Associate of
another person, (d) whether the requirements of Section 3 of this Article XIII
have been met with respect to any Business Combination, and (e) whether the
assets which are the subject of any Business Combination have, or the
consideration to be received for the issuance or transfer of securities by the
Corporation or any Subsidiary in any Business Combination, has an aggregate Fair
Market Value equal to or in excess of 10% of the consolidated stockholders'
equity of the Corporation and its subsidiaries reflected in the Corporation's
most recent audited consolidated balance sheet; and the good faith determination
of a majority of the Disinterested Directors on such matters shall be conclusive
and binding for all purposes of this Article XIII.
SECTION 6. Nothing contained in this Article XIII shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by law.
SECTION 7. In addition to any requirements of law and any other provisions
of this Certificate of Incorporation or any resolution or resolutions of the
Board of Directors adopted pursuant to Article IV of this Certificate of
Incorporation (and notwithstanding the fact that a lesser percentage may be
specified by law, this Certificate of Incorporation or any such resolution or
resolutions), the affirmative vote of the holders
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of 80% or more of the combined voting power of the then outstanding shares of
Voting Stock, voting together as a single class, shall be required to amend,
alter or repeal, or adopt any provision inconsistent with, this Article XIII;
however, that the affirmative vote of a majority of the combined voting power
of the then outstanding shares of Voting Stock held by the Disinterested
Stockholders (as defined in Section 4 of Article XIII) voting together as a
single class, shall also be required to amend, alter or repeal, or adopt any
provision inconsistent with, this Article XIII.
4. This Restated Certificate of Incorporation was duly adopted by the Board
of Directors of the Corporation on April 22, 1987 in accordance with Section 245
of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Paine Webber Group Inc. has caused this certificate to
be signed by Donald B. Marron, its Chairman of the Board, President and Chief
Executive Officer, and attested by Sam Scott Miller, its Secretary, this 3Oth
day of April, 1987.
/s/ Donald B. Marron
------------------------------------------
Donald B. Marron,
Chairman of the Board, President
and Chief Executive Officer
[Seal]
Attest:
/s/ Sam Scott Miller
- ------------------------------------------
Sam Scott Miller, Secretary
<PAGE> 165
PAGE 1
State of Delaware
Office of the Secretary of State
I, MICHAEL RATCHFORD, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF STOCK
DESIGNATION OF PAINE WEBBER GROUP INC. FILED IN THIS OFFICE ON THE FIFTEENTH DAY
OF DECEMBER, A.D. 1987, AT 8:30 O'CLOCK A.M.
**********
/s/ Michael Ratchford
----------------------------------------
[SEAL] Michael Ratchford, Secretary of State
AUTHENTICATION: [ILLEGIBLE]
DATE: [ILLEGIBLE]
<PAGE> 166
to subdivision (a) of this subsection (IV), the holder of any share of
Preferred Stock thereafter surrendered for conversion shall become entitled
to receive any shares of the Corporation other than shares of Common Stock,
thereafter the Conversion Price of such other shares so receivable upon
conversion of any share shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions
with respect to Common Stock contained in this paragraph (v).
(V) In case:
(a) the Corporation shall declare a dividend (or any other
distribution) on its Common Stock other than a regular periodic cash
dividend payable in cash out of its retained earnings; or
(b) the Corporation shall authorize the granting to the holders
of the Common Stock of rights or warrants to subscribe for or purchase
any shares of stock of any class or of any other rights; or
(c) there shall be any capital stock reorganization or
reclassification of the Common Stock (other than a subdivision or
combination of the outstanding Common Stock and other than a change in
the par value of the Common Stock), or any consolidation or merger to
which the Corporation is a party or any statutory exchange of
securities with another corporation and for which approval of any
stockholders of the Corporation is required, or any sale or transfer
of all or substantially all the assets of the Corporation; or
(d) there shall be a voluntary dissolution, liquidation or
winding up of the Corporation; then the Corporation shall cause to be
filed with the conversion agent, and
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shall cause to be airmailed to the holders of shares of the Preferred
Stock at their addresses as shown on the stock books of the
Corporation, at least ten days prior to the applicable date
hereinafter specified, a notice stating (i) the date on which a record
is to be taken for the purpose of such dividend, distribution, rights
or warrants, or, if a record is not to be taken, the date as of which
the holders of Common Stock of record to be entitled to such dividend,
distribution, rights or warrants are to be determined, or (ii) the
date on which such reorganization, reclassification, consolidation,
merger, statutory exchange, sale, transfer, dissolution, liquidation
or winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, statutory exchange, sale, transfer,
dissolution, liquidation or winding up.
(VI) The Corporation covenants that it will at all times reserve
and keep available, free from preemptive rights, out of the aggregate
of its authorized but unissued shares of Common Stock or its issued
shares of Common Stock held in its treasury, or both, for the purpose
of effecting conversions of the Preferred Stock, the full number of
shares of Common Stock deliverable upon the conversion of all
outstanding shares of Preferred Stock not theretofore converted. For
purposes of this subsection (VI), the number of shares of Common Stock
which shall be deliverable upon the conversion of all outstanding
shares of Preferred Stock shall be computed as if at the time of
computation all such outstanding shares were held by a single holder.
Before taking any action which would cause an adjustment reducing
the
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<PAGE> 168
(VIII) In case of any consolidation or merger in which the
Corporation is a party (other than a merger in which the Corporation
is the continuing corporation), or in case of any sale or conveyance
to another corporation of the property of the Corporation as an
entirety or substantially as an entirety, or in the case of any
statutory exchange of securities with another corporation (including
any exchange effected in connection with a merger of a third
corporation into the Corporation), the holder of each share of
Preferred Stock then outstanding shall have the right thereafter to
convert such share into the kind and amount of securities, cash or
other property receivable upon such consolidation, merger, statutory
exchange, sale or conveyance by a holder of the number of shares of
Common Stock into which such share of Preferred Stock might have been
converted immediately prior to such consolidation, merger, statutory
exchange, sale or conveyance, assuming such holder of Common Stock
failed to exercise his rights of election, if any, as to the kind or
amount of securities, cash or other property receivable upon such
consolidation, merger, statutory exchange, sale or conveyance
(provided that if the kind or amount of securities, cash or other
property receivable upon such consolidation, merger, statutory
exchange, sale or conveyance is not the same for each share of Common
Stock in respect of which such rights of election shall not have been
exercised ("non-electing share"), then for the purpose of this
subsection (VIII) the kind and amount of securities, cash or other
property receivable upon such consolidation, merger, statutory
exchange, sale or conveyance for each non-electing share shall be
deemed to be the kind and amount so receivable per share by a
plurality of the non-electing shares). Thereafter, the holders of the
Preferred Stock shall be entitled to appropriate adjustments with
respect to their conversion rights
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<PAGE> 169
to the end that the provisions set forth in this paragraph (v) shall
correspondingly be made applicable, as nearly as may reasonably be, in
relation to any shares of stock or other securities or property
thereafter deliverable on the conversion of the Preferred Stock. Any
such adjustment shall be approved by a firm of independent public
accountants (who may be the regular accountants employed by the
Corporation), evidenced by a certificate to that effect delivered to
the conversion agent.
The above provisions of this subsection (VIII) shall similarly
apply to successive consolidations, mergers, statutory exchanges,
sales or conveyances.
(vi) Upon any conversion or redemption of shares of Preferred
Stock, the shares of Preferred Stock so converted or redeemed shall
have the status of authorized and unissued shares of Series Preferred
Stock, and the number of shares of Series Preferred Stock which the
Corporation shall have authority to issue shall not be decreased by
the conversion or redemption of shares of Preferred Stock.
(vii) (I) The Shares of Preferred Stock shall not be entitled to
vote pursuant to this subsection (I) until the expiration or early
termination of the applicable waiting period under the HSR Act.
Thereafter, each share of Preferred Stock shall be entitled to one
vote (subject to adjustment as provided in subsection (V) of this
paragraph (vii)) and the shares of Preferred Stock shall vote together
with the shares of Common Stock (and of any other class or series
which may similarly be entitled to vote with the shares of Common
Stock) as a single class upon all matters upon which holders of Common
Stock are entitled to vote.
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<PAGE> 170
(II) If and whenever at any time or times dividends payable on
the Preferred Stock or on any other Parity Preferred Stock shall have
been in arrears and unpaid in an aggregate amount equal to or
exceeding the amount of dividends payable thereon for six quarterly
periods, then the holders of Parity Preferred Stock shall have, in
addition to the other voting rights set forth herein, the exclusive
right, voting separately as a class, to elect two directors of the
Corporation, such directors to be in addition to the number of
directors constituting the Board of Directors immediately prior to the
accrual of such right, the remaining directors to be elected by the
other class or classes of stock entitled to vote therefor at each
meeting of stockholders held for the purpose of electing directors.
Such voting right shall continue until such time as all cumulative
dividends accumulated on all the Parity Preferred Stock having
cumulative dividends shall have been paid in full and until any
noncumulative dividends payable on all the Parity Preferred Stock
having noncumulative dividends shall have been paid regularly for at
least one year, at which time such voting right of the holders of the
Parity Preferred Stock shall terminate, subject to revesting in the
event of each and every subsequent event of default of the character
indicated above.
Whenever such voting right shall have vested, such right may be
exercised initially either at a special meeting of the holders of the
Parity Preferred Stock, called as hereinafter provided, or at any
annual meeting of stockholders held for the purpose of electing
directors, and thereafter at each successive annual meeting.
At any time when such voting right shall have vested in the
holders of the Parity Preferred Stock, and if such right shall not
already have been
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<PAGE> 171
initially exercised, a proper officer of the Corporation shall, upon
the written request of the holders of record of 10% in number of
shares of the Parity Preferred Stock then outstanding, addressed to
the Secretary of the Corporation, call a special meeting of the
holders of the Parity Preferred Stock and of any other class or
classes of stock having voting power with respect thereto for the
purpose of electing directors. Such meeting shall be held at the
earliest practicable date upon the notice required for annual meetings
of stockholders at the place for holding of annual meetings of
stockholders of the Corporation, or, if none, at a place designated by
the Secretary of the Corporation. If such meeting shall not be called
by the proper officers of the Corporation within 30 days after the
personal service of such written request upon the Secretary of the
Corporation, or within 30 days after mailing the same within the
United States of America, by registered mail, addressed to the
Secretary of the Corporation at its principal office (such mailing to
be evidenced by the registry receipt issued by the postal
authorities), then the holders of record of 10% in number of shares of
the Parity Preferred Stock then outstanding may designate in writing
one of their number to call such meeting at the expense of the
Corporation, and such meeting may be called by such person so
designated upon the notice required for annual meetings of
stockholders and shall be held at the same place as is elsewhere
provided for in this subsection (II). Any holder of the Parity
Preferred Stock shall have access to the stock books of the
Corporation for the purpose of causing a meeting of stockholders to be
called pursuant to the provisions of this paragraph. Notwithstanding
the provisions of this paragraph, however, no such special meeting
shall be called during a period within 90 days immediately preceding
the date fixed for the next annual meeting of stockholders.
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<PAGE> 172
At any meeting held for the purpose of electing directors at
which the holders of the Parity Preferred Stock shall have the right
to elect directors as provided herein, the presence in person or by
proxy of the holders of 33-1/3% of the then outstanding shares of the
Parity Preferred Stock shall be required and be sufficient to
constitute a quorum of the Parity Preferred Stock for the election of
directors by the Parity Preferred Stock. At any such meeting or
adjournment thereof (A) the absence of a quorum of the holders of the
Parity Preferred Stock shall not prevent the election of directors
other than those to be elected by the holders of the Parity Preferred
Stock and the absence of a quorum or quorums of the holders of other
classes of capital stock entitled to elect such other directors shall
not prevent the election of directors to be elected by the holders of
the Parity Preferred Stock and (B) in the absence of a quorum of the
holders of any class of stock entitled to vote for the election of
directors, a majority of the holders present in person or by proxy of
such class shall have the power to adjourn the meeting for the
election of directors which the holders of such class are entitled to
elect, from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
The directors elected pursuant to this subsection (II) shall
serve until the next annual meeting or until their respective
successors shall be elected and shall qualify; provided, however, that
when the right of the holders of the Parity Preferred Stock to elect
directors as herein provided shall terminate, the terms of office of
all persons so elected by the holders of the Parity Preferred Stock
shall terminate, and the number of directors of the Corporation shall
thereupon be such number as may be provided in the By-laws of the
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<PAGE> 173
Corporation irrespective of any increase made pursuant to this
subsection (II).
(III) So long as any shares of the Preferred Stock remain
outstanding, the Corporation will not, either directly or indirectly
or through merger or consolidation with any other corporation:
(a) without the affirmative vote at a meeting or the written
consent with or without a meeting of the holders of at least 66-2/3%
in number of shares of the Preferred Stock, (A) create any class or
classes of stock ranking equal or prior to the Preferred Stock either
as to dividends or upon liquidation or increase the authorized number
of shares of any class or classes of stock ranking equal or prior to
the Preferred Stock either as to dividends or upon liquidation, (B)
amend, alter or repeal any of the provisions of the Certificate of
Incorporation so as to affect adversely the preferences, special
rights or powers of the Preferred Stock or (C) authorize any
reclassification of the Preferred Stock;
(b) without the affirmative vote at a meeting or the written
consent with or without a meeting of the holders of at least 66-2/3%
in number of shares of the Preferred Stock then outstanding, amend,
alter or repeal any of the provisions hereof so as to affect adversely
the preferences, special rights or powers of the Preferred Stock; or
(c) without the affirmative vote at a meeting or the written
consent with or without a meeting of the holders of at least a
majority in number of shares of the Series Preferred Stock of all
series then outstanding, increase the authorized number of shares of
the Series Preferred Stock.
(IV) No consent of the holders of the Preferred Stock shall be
required for (i) the creation of any indebtedness
-23-
<PAGE> 174
of any kind of the Corporation, (ii) the creation of any class of
stock of the Corporation ranking junior as to dividends or upon
liquidation to the Series Preferred Stock or (iii) any increase or
decrease in the amount of authorized Common Stock or any increase,
decrease or change in the par value thereof or in any other terms
thereof.
(V) In case the Corporation shall hereafter (i) pay a dividend or
make a distribution on the Common Stock in shares of Common Stock,
(ii) subdivide or reclassify its outstanding shares of Common Stock
into a greater number of shares or (iii) combine or reclassify its
outstanding shares of Common Stock into a smaller number of shares,
then in each such case the number of votes to which a holder of a
share of Preferred Stock is entitled pursuant to subsection (I) of
this paragraph (vii) shall be adjusted so that, after the happening of
any of the events described above, such holder shall be entitled to a
number of votes equal to the number of votes to which such holder was
entitled pursuant to subsection (I) immediately prior to such
happening multiplied by a fraction of which the numerator is the
number of shares of Common Stock into which one share of Preferred
Stock was convertible immediately after such happening and the
denominator is the number of shares of Common Stock into which one
share of Preferred Stock was convertible immediately prior to such
happening. An adjustment made pursuant to this subsection (V) shall
become effective immediately after the date of payment, in the case of
a dividend or distribution, or immediately after the effective date,
in the case of a subdivision, combination or reclassification.
(viii) The Preferred Stock is exchangeable in whole at the option
only of the Corporation on any Dividend Payment Date commencing the
first Dividend Payment Date following the Closing Date,
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<PAGE> 175
for the COrporation's 7% Voting Convertible Subordinated Debentures
Due 2007 (the "Debentures") which shall be issued pursuant to the
Indenture and shall be substantially in the form set forth in Article
Two thereof. Holders of outstanding shares of Preferred Stock will be
entitled to receive a principal amount of Debentures equal to the
Liquidation Preference in exchange for each share of Preferred Stock
held by them at the time of exchange. The Corporation will mail to
each record holder of the Preferred Stock written notice of its
intention to exchange not less than 30 nor more than 60 days prior to
the date of exchange. Prior to giving notice of intention to exchange,
the Corporation shall execute and deliver the Indenture substantially
in the form set forth in Exhibit 4 to the Agreement and shall adopt a
Board Resolution (as such term is defined in the Indenture)
incorporating the terms set forth in Article Two thereof, in each case
with such changes as may be required by law or usage. The Corporation
will cause the Debentures to be authenticated on the Dividend Payment
Date on which the exchange is effective; at such time the rights of
the holders of Preferred Stock as stockholders of the Company shall
cease (except the right to receive accumulated and unpaid dividends to
the date of exchange), and the Preferred Stock shall no longer be
deemed outstanding and shall represent only the right to receive the
Debentures. The Debentures will be delivered to the persons entitled
thereto upon surrender to the Corporation or its agent appointed for
that purpose of the certificates for the shares of Preferred Stock
being exchanged therefor. If the Corporation has not paid full
cumulative dividends on the Preferred Stock to the date of exchange or
set aside a sum therefor), or if the Corporation has not obtained any
required stockholder approval in connection with the granting of
voting rights to the holders of Exchange Debentures as set forth in
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<PAGE> 176
Article Two of, the Indenture, the Preferred Stock may not be
exchanged for the Debentures.
(ix) (I) Shares of the Preferred Stock may not be redeemed on or
prior to the third anniversary of the Closing Date. Thereafter, the
shares of the Preferred Stock may be redeemed to the extent specified
below, at the option of the Corporation on any Dividend Payment Date
upon at least 30 days' and not more than 45 days' prior written notice
to the holders of the shares to be redeemed, at an amount equal to the
sum of the Liquidation Preference of such shares plus accumulated and
unpaid dividends (whether or not earned or declared) to the date fixed
for redemption:
Number of Shares Subject
to Redemption
to and including the fourth
anniversary of the Closing
Date ........................................... up to 25% of the shares of
Preferred Stock initially
issued
thereafter, to and including
the fifth anniversary of the
Closing Date ................................... up to 25% of the shares of
Preferred Stock initially
issued
thereafter, to and including
the sixth anniversary of the
Closing Date ................................... up to 50% of the shares of
Preferred Stock
outstanding at the
commencement of such
period (the "Reference
Period")
thereafter, during any 12 month
period ......................................... up to 50% of the shares of
Preferred Stock
outstanding at the
commencement of the
Reference Period
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<PAGE> 177
Provided, however, that the shares of Preferred Stock shall not be
redeemable by the Corporation on or prior to the fifth anniversary of
the Closing Date unless the Average Market Price of the Common Stock
on the date upon which notice of redemption is first given is greater
than the product of 1.20 times the Conversion Price (as defined in
paragraph (v) hereof) then in effect, or after the fifth anniversary
of the Closing Date, unless the Average Market Price of the Common
Stock on the date upon which notice of redemption is first given is
greater than the Conversion Price (as defined in paragraph (v) hereof)
then in effect.
For purposes of this subsection (I), the number of shares of Preferred
Stock at any time outstanding shall not include shares held in the
treasury of the Corporation but shall include shares issuable in
respect of scrip certificates issued in lieu of fractions of shares of
Preferred Stock.
(II) Holders of shares of Preferred Stock which have been called
for redemption may elect to receive the redemption price for such
shares in the form of securities which are direct obligations of the
United States of America and have a fair market value (as determined
jointly by the Board and the Investor (if the Investor shall be a
holder of any shares of Preferred Stock) on the date notice of such
redemption is given, or by an internationally recognized investment
banking firm selected by them if they are unable to agree, or by the
Board in its reasonable discretion (if the Investor shall not be a
holder of any shares of Preferred Stock on the date notice of such
redemption is given)) equal to the redemption price otherwise payable
by the Corporation upon redemption of such shares. Any such election
may specify a requested
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<PAGE> 178
coupon rate or range of rates, maturity or range of maturities and
denominations of such securities. Such requests with respect to coupon
rate, maturity and denomination shall be satisfied by the Corporation
to the extent reasonably practicable. Any such election shall be
effective upon the giving of receipt of written notice of such
election to the Corporation not later than 20 days prior to the date
fixed for redemption.
(III) Notice of any proposed redemption of shares of Preferred
Stock shall be given by the Corporation by airmailing a copy of such
notice to holders of record of the shares of such Preferred Stock to
be redeemed at their respective addresses appearing on the stock books
of the Corporation. Said notice shall specify the shares called for
redemption, the redemption price and the price at which and the date
on which the shares called for redemption will, upon presentation and
surrender of the certificates of stock evidencing such shares, be
redeemed and the redemption price therefor paid. From and after the
date fixed in any such notice as the date of redemption of shares of
Preferred Stock, unless default shall be made by the Corporation in
providing monies at the time and place specified for the payment of
the redemption price pursuant to said notice, all dividends on the
Preferred Stock thereby called for redemption shall cease to accrue
and all rights of the holders thereof as stockholders of the
Corporation, except the right to receive the redemption price upon
surrender of the certificates, shall cease and terminate.
(x) The Preferred Stock shall be subject to the provisions of the
Investment Agreement and may not be sold or transferred except in
accordance therewith.
(xi) Certificates representing shares of the Preferred Stock
shall be
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<PAGE> 179
exchangeable, at the option of the holder, for a new certificate or
certificates of the same or different denominations representing in
the aggregate the same number of shares.
(xii) Subject to conversion as set forth in paragraph (v), to
exchange as set forth in paragraph (viii) or to redemption as set
forth in paragraph (ix), and to the respective rights and obligations
of the Investor and the Company set forth in Sections 5.1(d) and 6.2
of the Investment Agreement (which provisions are incorporated by
reference herein), the Preferred Stock shall be perpetual. In the case
of exchanges pursuant to Section 6.2 of the Investment Agreement, a
payment shall be made upon exchange for dividends accumulated on the
shares of Preferred Stock surrendered for exchange but not for
dividends on shares of preferred stock delivered upon such exchange.
IN WITNESS WHEREOF, Paine Webber Group Inc. has caused this Certificate to
be made under the seal of the Corporation and signed by Donald B. Marron, its
Chairman of the Board of Directors, President and Chief Executive Officer, and
attested by Dorothy F. Haughey, its Assistant Secretary, this 11th day of
December 1987.
PAINE WEBBER GROUP INC.
/s/ Donald B. Marron
----------------------------------------
Donald B. Marron
Chairman of the Board of
Directors, President and Chief
Executive Officer
[Seal]
Attest:
/s/ Dorothy F. Haughey
- ----------------------------
Dorothy F. Haughey
Assistant Secretary
-29-
<PAGE> 180
-3-
which Yasuda shall be entitled to purchase, any other person has preemptive or
other equity purchase rights similar to those granted to Yasuda, the amount
Yasuda is entitled to purchase shall be recalculated to take into account the
amount of voting securities to be sold to such persons, rounding up the amount
of Equity Purchase Shares which Yasuda shall be entitled to purchase to the
nearest whole Equity Purchase Share. The terms upon which, the time or times at
or within which, and the price or prices at which any such preemptive rights or
equity purchase rights may be exercised shall, if applicable, be as set forth in
the Investment Agreement or, if not applicable, as determined by the Board of
Directors.
2. That, thereafter, at an Annual Meeting of Stockholders of the Corporation,
duly noticed and held on May 3, 1988, the stockholders of the Corporation voted
the necessary number of shares as required by statute in favor of the
amendments.
3. That said amendments were duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Paine Webber Group Inc. has caused this Certificate to
be signed by James C. Treadway, Jr., its Vice President and Secretary and
attested by Dorothy F. Haughey, its Assistant Secretary, this 31st day of May,
1988.
PAINE WEBBER GROUP INC.
/s/ James C. Treadway, Jr.
-------------------------------
James C. Treadway, Jr.,
Vice President and Secretary
Attest:
/s/ Dorothy F. Haughey
-------------------------------
Dorothy F. Haughey
Assistant Secretary
<PAGE> 181
PAGE 1
State of Delaware
Office of the Secretary of State
I, MICHAEL RATCHFORD, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF PAINE WEBBER GROUP INC. FILED IN THIS OFFICE ON THE THIRD DAY OF JUNE, A.D.
1988, AT 10 O'CLOCK A.M.
**********
/s/ Michael Ratchford
----------------------------------------
[SEAL] Michael Ratchford, Secretary of State
AUTHENTICATION: [ILLEGIBLE]
DATE: [ILLEGIBLE]
<PAGE> 182
6-3-88
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
PAINE WEBBER GROUP INC.
Pursuant to Section 242 of the General Corporation Law
of the State of Delaware
Paine Webber Group Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (hereinafter
sometimes called the "Corporation"), DOES HEREBY CERTIFY as follows:
1. At a meeting of the Board of Directors of the Corporation, duly called and
held on February 16, 1988, resolutions were duly adopted setting forth proposed
amendments to the Restated Certificate of Incorporation of the Corporation,
declaring said amendments to be advisable, and directing that the amendments be
submitted to the stockholders of the Corporation at the next annual meeting of
stockholders for consideration thereof. The resolutions setting forth the
proposed amendments are as follows:
RESOLVED, that each of the proposed amendments to the Restated Certificate
of Incorporation of the corporation set forth below be, and it hereby is,
approved and adopted in all respects and declared advisable; that such proposed
amendments be submitted to the stockholders of the corporation for their
consideration at the next annual meeting of stockholders; and that, if such
proposed amendments are approved and adopted by the stockholders of the
corporation, the proper officers of the corporation be, and they hereby are,
authorized to execute and acknowledge and cause to be filed and recorded in
accordance with Section 103 of the General Corporation Law of the State of
Delaware a certificate setting forth such amendments and certifying that such
amendments have been duly adopted in accordance with the provisions of Section
242 of the General Corporation Law of the State of Delaware:
That Article IV be amended by inserting the following new Article:
ARTICLE IV (A)
Voting Debentures
The holders of the Corporation's 7% Convertible Subordinated Voting
Debentures Due 2007 ("Exchange Debentures") which may be issued from time to
time pursuant to the Investment Agreement dated as of November 30, 1987, between
the Corporation and The Yasuda Mutual Life Insurance Company, in
<PAGE> 183
-2-
exchange for the Corporation's 7% Cumulative Convertible Exchangeable Voting
Preferred Stock, Series A, shall be entitled to vote together with the shares of
Common Stock (and of any other class of series of capital stock which may, now
or in the future, similarly be entitled to vote with shares of Common Stock) as
a single class upon all matters upon which holders of Common Stock are entitled
to vote, as follows: each $1,000 aggregate principal amount of Exchange
Debentures shall be entitled to a number of votes equal to the product of (x)
the number of votes to which each share of the Series A Preferred was entitled
on the effective date of the exchange of such share of Series A Preferred for
any Exchange Debenture times (y) the quotient of $1,000 divided by $44.50.
That Article IV, be amended further by inserting the following new Article:
ARTICLE IV(B)
Preemptive Rights
The Yasuda Mutual Life Insurance Company ("Yasuda") shall be entitled,
subject to the conditions set forth in Section 5.1(c) of the Investment
Agreement dated as of November 30, 1987, between the Corporation and Yasuda (the
"Investment Agreement"), to (1) equity purchase rights that are no less
favorable than the preemptive or equity purchase rights, if any, that might be
granted by the Corporation to any other person or (2) if the Corporation has no
class or series of voting securities which is registered under the Securities
Exchange Act of 1934 and broadly held and actively traded or if permitted by the
rules of any national stock exchange on which any such class or series of voting
securities is listed, or the over-the-counter market in which any such class or
series of voting securities is traded if no longer listed, equity purchase
rights which allow Yasuda a preemptive right to purchase the amount of voting
securities of the Corporation or any securities convertible into or exchangeable
for voting securities of the Corporation or any options, warrants or rights
exercisable for voting securities of the Corporation ("Equity Purchase Shares")
equal to the product of (A) the quotient of (x) the number of voting securities
of the Corporation owned by Yasuda immediately prior to the issuance of Equity
Purchase Shares divided by (y) the aggregate number of outstanding voting
securities owned by persons other than Yasuda immediately prior to the issuance
of Equity Purchase Shares (for purposes of this calculation, treating all
securities of the Corporation convertible into voting securities as though they
have been so converted), multiplied by (B) the aggregate number of Equity
Purchase Shares being issued by the Corporation to persons other than Yasuda,
rounded up to the nearest whole Equity Purchase Share. If, at the time of the
determination of the amount of Equity Purchase Shares
<PAGE> 184
-3-
which Yasuda shall be entitled to purchase, any other person has preemptive or
other equity purchase rights similar to those granted to Yasuda, the amount
Yasuda is entitled to purchase shall be recalculated to take into account the
amount of voting securities to be sold to such persons, rounding up the amount
of Equity Purchase Shares which Yasuda shall be entitled to purchase to the
nearest whole Equity Purchase Share. The terms upon which, the time or times at
or within which, and the price or prices at which any such preemptive rights or
equity purchase rights may be exercised shall, if applicable, be as set forth in
the Investment Agreement or, if not applicable, as determined by the Board of
Directors.
2. That, thereafter, at an Annual Meeting of Stockholders of the Corporation,
duly noticed and held on May 3, 1988, the stockholders of the Corporation voted
the necessary number of shares as required by statute in favor of the
amendments.
3. That said amendments were duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Paine Webber Group Inc. has caused this Certificate to
be signed by James C. Treadway, Jr., its Vice President and Secretary and
attested by Dorothy F. Haughey, its Assistant Secretary, this 31st day of May,
1988.
PAINE WEBBER GROUP INC.
/s/ James C. Treadway, Jr.
-------------------------------
James C. Treadway, Jr.,
Vice President and Secretary
Attest:
/s/ Dorothy F. Haughey
-------------------------------
Dorothy F. Haughey,
Assistant Secretary
<PAGE> 185
PAGE 1
State of Delaware
Office of the Secretary of State
I, MICHAEL RATCHFORD, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF STOCK
DESIGNATION OF PAINE WEBBER GROUP INC. FILED IN THIS OFFICE ON THE SIXTEENTH DAY
OF JANUARY, A.D. 1992, AT 10 O'CLOCK A.M.
**********
/s/ Michael Ratchford
----------------------------------------
[SEAL] Michael Ratchford, Secretary of State
AUTHENTICATION: [ILLEGIBLE]
DATE: [ILLEGIBLE]
<PAGE> 186
1
CERTIFICATE OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND THE QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS THEREOF, WHICH HAVE NOT BEEN SET FORTH IN THE
CERTIFICATE OF INCORPORATION OR IN ANY AMENDMENT THERETO, OF THE
7.5% CONVERTIBLE PREFERRED STOCK, SERIES B
($20 Par Value)
PAINE WEBBER GROUP INC.
----------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
----------
The undersigned DOES HEREBY CERTIFY that the following resolution was duly
adopted on February 11, 1991, by the Special Committee of the Board of Directors
of Paine Webber Group Inc., a Delaware corporation (hereinafter called the
"Corporation"), pursuant to provisions of Section 141(c) of the General
Corporation Law of the State of Delaware and Article IV, Section 1 of the
By-laws of the Corporation;
RESOLVED, that pursuant to authority expressly granted to and vested
in the Board of Directors of the Corporation by provisions of the
Certificate of Incorporation of the Corporation (the "Certificate of
Incorporation"), the issuance of a series of the Series Preferred Stock,
par value $20 per share (the "Series Preferred Stock"), which shall consist
of up to 240,000 of the 20,000,000 shares of Series Preferred Stock which
the Corporation now has authority to issue, be, and the same hereby is,
authorized, and this Board of Directors hereby fixes the powers,
designations, preferences and relative, participating, optional or other
special rights, and the qualifications, limitations or restrictions
thereof, of the shares of such series (in addition to the powers,
designations, preferences and relative, participating, optional or other
special rights, and the qualifications, limitations or restrictions
thereof, set forth in the Certificate of Incorporation which are applicable
to the Series Preferred Stock) as follows:
The designation of such series of the Series Preferred Stock
authorized by this resolution shall be the 7.5% Convertible Preferred
Stock, Series B (the "Convertible Preferred Stock"). The number of shares
of Convertible Preferred Stock shall be 240,000.
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2
(i) Holders of shares of Convertible Preferred Stock will be entitled
to receive, when and as declared by the Board of Directors (the "Board") of
Paine Webber Group Inc. (the "Corporation") out of assets of the
Corporation legally available for payment, an annual cash dividend of
$1.875 per share, payable in semi-annual installments on June 30 and
December 31, commencing June 30, 1991. Dividends on the Convertible
Preferred Stock will be cumulative from the date of initial issuance of any
shares of Convertible Preferred Stock. Dividends will be payable to holders
of record as they appear on the stock books of the Corporation on such
record dates, not more than 60 days nor less than 10 days preceding the
payment dates thereof, as shall be fixed by the Board. When dividends are
not paid in full upon the Convertible Preferred Stock and any other
preferred stock ranking on a parity as to dividends with the Convertible
Preferred Stock (such other preferred stock and the Convertible Preferred
Stock hereinafter being collectively referred to as "Parity Preferred
Stock"), all dividends declared upon shares of Parity Preferred Stock will
be declared pro rata so that in all cases the amount of dividends declared
per share on the Convertible Preferred Stock and such other Parity
Preferred Stock shall bear to each other the same ratio that accumulated
and unpaid dividends per share on the shares of Convertible Preferred Stock
and such other Parity Preferred Stock bear to each other. Except as set
forth in the preceding sentence, unless full cumulative dividends on the
Convertible Preferred Stock have been paid, no dividends (other than in
Common Stock of the Corporation (as defined in paragraph (iii)(I) below) or
any other stock of the Corporation ranking junior to the Convertible
<PAGE> 188
3
Preferred Stock as to dividends) may be paid or declared and set aside for
payment or other distribution made upon the Common Stock or on any other
stock of the Corporation ranking junior to or on a parity with the
Convertible Preferred Stock as to dividends, nor may any Common Stock or
any other stock of the Corporation ranking junior to or on a parity with
the Convertible Preferred Stock as to dividends be redeemed, purchased or
otherwise acquired for any consideration (or any payment made to or
available for a sinking fund for the redemption of any shares of such
stock) by the Corporation (except by conversion into or exchange for stock
of the Corporation ranking junior to the Convertible Preferred Stock as to
dividends). Dividends payable for any partial dividend period shall be
calculated on the basis of a 360-day year of 12 30-day months.
(ii) The shares of Convertible Preferred Stock shall rank prior to the
shares of Common Stock and of any other class of stock of the Corporation
ranking junior to the Series Preferred Stock upon liquidation, so that in
the event of any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, the holders of the Convertible Preferred
Stock shall be entitled to receive out of the assets of the Corporation
available for distribution to its stockholders, whether from capital,
surplus or earnings, before any distribution is made to holders of shares
of Common Stock or any other such junior stock, an amount equal to $25 per
share (the "Liquidation Preference" of a share of Convertible Preferred
Stock) plus an amount equal to all dividends (whether or not earned or
declared) accumulated and unpaid on the shares of Convertible Preferred
Stock to the date of final distribution. If, upon any liquidation,
dissolution or winding up of the Corporation, the assets of the
Corporation, or proceeds thereof, distributable among the holders of shares
of Parity Preferred Stock shall be insufficient to pay in full the
liquidation preference amounts of the Parity Preferred Stock and all
dividends (whether or not earned or declared) accumulated and unpaid
thereon, then such assets, or the proceeds thereof, shall be distributable
among such holders ratably in accordance with the respective amounts which
would be payable on such shares if all, amounts payable thereon were paid
in full. For the purposes hereof, the voluntary sale, conveyance, exchange
or transfer (for cash, shares of stock, securities or other
<PAGE> 189
4
consideration) of all or substantially all the property or assets of the
Corporation shall be deemed a voluntary liquidation, dissolution or winding
up of the Corporation, but a consolidation or merger of the Corporation
with one or more other corporations shall not be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary.
(iii) (I) Subject to and upon compliance with the provisions of this
paragraph (iii), the holder of a share of Convertible Preferred Stock shall
have the right, at his option, at any time, except that, if such share is
called for redemption, not after the close of business on the fifth day
next preceding the date fixed for such redemption, to convert such share
into that number of fully paid and nonassessable shares of Common Stock
(calculated as to each conversion to the nearest 1/100th of a share)
obtained by dividing the Liquidation Preference of such share being
converted by the Conversion Price (as defined below), upon surrender of
such share so to be converted, such surrender to be made in the manner
provided in subsection (II) of this paragraph (iii).
The term "Common Stock" shall mean the Common Stock, $1 par value, of
the Corporation as the same exists at the date of this Certificate or as
such stock may be constituted from time to time, except that for the
purpose of subsection (V) of this paragraph (iii) the term "Common Stock"
shall also mean and include stock of the Corporation of any class, whether
now or hereafter authorized, which shall have the right to participate in
the distribution of either earnings or assets of the Corporation without
limit as to amount or percentage.
The term "Conversion Price" shall mean $20.80 as adjusted in
accordance with the provisions of this paragraph (iii).
(II) In order to exercise the conversion privilege, the holder of each
share of Convertible Preferred Stock to be converted shall surrender the
certificate representing such share at the office of the conversion agent
for the Convertible Preferred Stock in the Borough of Manhattan, City of
New York, appointed for such purpose by the Corporation, with the Notice of
Election to Convert on the back of said certificate completed and signed.
Unless the shares issuable on conversion are to be issued in the same
<PAGE> 190
5
name as the name in which such share of Convertible Preferred Stock is
registered, each share surrendered for conversion shall be accompanied by
instruments of transfer, in form satisfactory to the Corporation and duly
executed by the holder or his duly authorized attorney, and an amount
sufficient to pay any transfer or similar tax. No payment or adjustment
shall be made on conversion for dividends accumulated on the Convertible
Preferred Stock surrendered for conversion or for dividends on Common Stock
delivered on such conversion. As promptly as practicable after the
surrender of the certificates for shares of Convertible Preferred Stock as
aforesaid, the Corporation shall issue and shall deliver at such office to
such holder, or on his written order, a certificate or certificates for the
number of full shares of Common Stock issuable upon the conversion of such
shares in accordance with the provisions of this paragraph (iii), and any
fractional interest in respect of a share of Common Stock arising upon such
conversion shall be settled as provided in subsection (III) of this
paragraph (iii).
Each conversion shall be deemed to have been effected immediately
prior, to the close of business on the date on which the certificates for
shares of Convertible Preferred Stock shall have been surrendered and such
notice received by the Corporation as aforesaid, and the person or persons
in whose name or names any certificate or certificates for shares of Common
Stock shall be issuable upon such conversion shall be deemed to have become
the holder or holders of record of the shares represented thereby at such
time on such date and such conversion shall be at the Conversion Price in
effect at such time on such date, unless the stock transfer books of the
Corporation shall be closed on that date, in which event such person or
persons shall be deemed to have become such holder or holders of record at
the close of business on the next succeeding day on which such stock
transfer books are open, but such conversion shall be at the Conversion
Price in effect on the date upon which such shares shall have been
surrendered and such notice received by the Corporation. All shares of
Common Stock delivered upon conversion of the Convertible Preferred Stock
will upon delivery be duly and validly issued and fully paid and
nonassessable, free of all liens and charges and not subject to any
preemptive rights.
<PAGE> 191
6
(III) No fractional shares or scrip representing fractions of shares
of Common Stock shall be issued upon conversion of the Convertible
Preferred Stock. Instead of any fractional interest in a share of Common
Stock which would otherwise be deliverable upon the conversion of a share
of Convertible Preferred Stock, the Corporation shall pay to the holder of
such share an amount in cash (computed to the nearest cent) equal to the
current market price (as defined in subsection (IV)(d) of this paragraph
(iii)) thereof at the close of business on the business day next preceding
the day of conversion. If more than one share shall be surrendered for
conversion at one time by the same holder, the number of full shares of
Common Stock issuable upon conversion thereof shall be computed on the
basis of the aggregate Liquidation Preference of the shares of Convertible
Preferred Stock so surrendered.
(IV) The Conversion Price shall be adjusted from time to time as
follows:
(a) In case the Corporation shall hereafter (i) pay a dividend or
make a distribution on the Common Stock in shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into a greater
number of shares, (iii) combine its outstanding shares of Common Stock
into a smaller number of shares, or (iv) issue by reclassification of
the Common Stock any shares of capital stock of the Corporation, the
Conversion Price in effect immediately prior to such action shall be
adjusted so that the holder of any share of Convertible Preferred
Stock thereafter surrendered for conversion shall be entitled to
receive the number of shares of Common Stock or other capital stock of
the Corporation which he would have owned or been entitled to receive
immediately following such action had such share been converted
immediately prior thereto. An adjustment made pursuant to this
subdivision (a) shall become effective immediately after the record
date, in the case of a dividend or distribution, or immediately after
the effective date, in the case of a subdivision, combination or
reclassification. If, as a result of an adjustment made pursuant to
this subdivision (a), the holder of any share of Convertible Preferred
Stock thereafter surrendered for conversion shall become entitled to
receive shares of two or more classes of capital stock or shares of
<PAGE> 192
7
Common Stock and other capital stock of the Corporation, the Board
(whose determination shall be conclusive and shall be described in a
statement filed with the conversion agent by the Corporation as soon
as practicable) shall determine the allocation of the adjusted
Conversion Price between or among shares of such classes of capital
stock or shares of Common Stock and other capital stock.
(b) In case the Corporation shall hereafter issue rights or
warrants to holders of its outstanding shares of Common Stock
generally entitling them (for a period expiring within 45 days after
the record date mentioned below) to subscribe for or purchase shares
of Common Stock at a price per share less than the current market
price per share (as determined pursuant to subdivision (d) of this
subsection (IV)) of the Common Stock on the record date mentioned in
the next sentence (other than pursuant to an automatic dividend
reinvestment plan of the Corporation or any substantially similar
plan), the Conversion Price shall be adjusted so that the same shall
equal the price determined by multiplying the Conversion Price in
effect immediately prior to the date of issuance of such rights or
warrants by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding on the date of issuance of such
rights or warrants plus the number of shares which the aggregate
offering price of the total number of shares so offered would purchase
at such current market price, and of which the denominator shall be
the number of shares of Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of additional
shares of Common Stock offered for subscription or purchase. Such
adjustment shall become effective immediately after the record date
for the determination of stockholders entitled to receive such rights
or warrants.
(c) In case the Corporation shall hereafter distribute to holders
of its outstanding shares of Common Stock generally evidences of its
indebtedness or assets (excluding any cash dividend paid from retained
earnings of the Corporation and dividends or distributions payable in
stock for which adjustment is made pursuant to subdivision (a) of this
subsection (IV)) or rights or warrants to subscribe to securities of
the Corporation (excluding those referred to in subdivision (b) of
this subsection (IV)), then in each such case the
<PAGE> 193
8
Conversion Price shall be adjusted so that the same shall equal the
price determined by multiplying the Conversion Price in effect
immediately prior to the date of such distribution by a fraction of
which the numerator shall be the current market price per share
(determined as provided in subdivision (d) of this subsection (IV)) of
the Common Stock on the record date mentioned in the next sentence
less the then fair market value (as determined by the Board, whose
determination shall be conclusive and shall be described in a
statement filed with the conversion agent by the Corporation as soon
as practicable) of the portion of the evidences of indebtedness or
assets so distributed to the holder of one share of Common Stock or of
such subscription rights or warrants applicable to one share of Common
Stock, and of which the denominator shall be such current market price
per share of Common Stock. Such adjustment shall become effective
immediately after the record date for the determination of
stockholders entitled to receive such distribution.
(d) For the purpose of subsection (III) and subdivisions (b) and
(c) of this subsection (IV), the current market price per share of
Common Stock on any date shall be deemed to be the average of the
daily market prices for the 30 consecutive days on which the New York
Stock Exchange is open for trading commencing 45 trading days before
the day in question. The term "daily market price" when used with
reference to the Common Stock shall mean the price of a share of
Common Stock on the relevant date, determined on the basis of the last
reported sale price regular way of the Common Stock as reported on the
composite tape, or similar reporting system, for issues listed on the
New York Stock Exchange (or if the Common Stock is not then listed on
that Exchange for issues listed on such other national securities
exchange upon which the Common Stock is listed as may be designated by
the Board for the purposes hereof) or, if there is no such reported
sale on the day in question, on the basis of the average of the
closing bid and asked quotations as so reported, or, if the Common
Stock is not then listed on any national securities exchange, on the
basis of the closing price, if the Common Stock is a national market
issue, or the average of the high bid and low asked quotations on the
day in question in the over-the-counter market as reported by the
National Association of Securities Dealers Automated Quotations
System, or if not so quoted, as reported by
<PAGE> 194
9
National Quotation Bureau, Incorporated, or a similar organization.
(e) In any case in which this paragraph (iii) shall require that
an adjustment be made immediately following a record date or an
effective date, the Corporation may elect to defer (but only until
five business days following the filing by the Corporation with the
conversion agent of the certificate of independent public accountants
required by subdivision (g) of this subsection (IV)) issuing to the
holder of any share of Convertible Preferred Stock converted after
such record date or effective date the additional shares of Common
Stock or other capital stock issuable upon such conversion over and
above the shares of Common Stock or other capital stock issuable upon
such conversion on the basis of the Conversion Price prior to
adjustment, and paying to such holder any amount of cash in lieu of a
fractional share.
(f) No adjustment in the Conversion Price shall be required to be
made unless such adjustment would require an increase or decrease of
at least 1% of such price; provided, however, that any adjustments
which by reason of this subdivision (f) are not required to be made
shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this paragraph (iii) shall be made
to the nearest cent or to the nearest 1/100th of a share, as the case
may be. Anything in this paragraph (iii) to the contrary
notwithstanding, the Corporation shall be entitled to make such
reduction in the Conversion Price, in addition to those required by
this paragraph (iii), as it in its discretion shall determine to be
advisable in order that any stock dividend, subdivision of shares,
distribution of rights to purchase stock or securities, or
distribution of securities convertible into or exchangeable for stock
hereafter made by the Corporation to its stockholders shall not be
taxable to the recipients.
(g) Whenever the Conversion Price is adjusted as herein provided,
(i) the Corporation shall promptly file with the conversion agent a
certificate of a firm of independent public accountants (who may be
the regular accountants employed by the Corporation) setting forth the
Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment and the manner of
<PAGE> 195
10
computing the same, which certificate shall be conclusive evidence of
the correctness of such adjustment, and (ii) a notice stating that the
Conversion Price has been adjusted and setting forth the adjusted
Conversion Price shall forthwith be mailed by the Corporation to the
holders of the Convertible Preferred Stock at their addresses as shown
on the stock books of the Corporation.
(h) In the event that at any time as a result of an adjustment
made pursuant to subdivision (a) of this subsection (IV), the holder
of any share of Convertible Preferred Stock thereafter surrendered for
conversion shall become entitled to receive any shares of the
Corporation other than shares of Common Stock, thereafter the
Conversion Price of such other shares so receivable upon conversion of
any share shall be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the provisions
with respect to Common Stock contained in this paragraph (iii).
(V) In case:
(a) the Corporation shall take any action which would
require any adjustment in the Conversion Price pursuant to
subsection (IV)(c); or
(b) the Corporation shall authorize the granting to the
holders of the Common Stock of rights or warrants to subscribe
for or purchase any shares of stock of any class or of any other
rights; or
(c) there shall be any capital stock reorganization or
reclassification of the Common Stock (other than a subdivision or
combination of the outstanding Common Stock and other than a
change in the par value of the Common Stock), or any
consolidation or merger to which the Corporation is a party or
any statutory exchange of securities with another corporation and
for which approval of any stockholders of the Corporation is
required, or any sale or transfer of all or substantially all the
assets of the Corporation; or
(d) there shall be a voluntary dissolution, liquidation or
winding up of the Corporation;
then the Corporation shall cause to be filed with the conversion
agent, and shall cause to be mailed to the
<PAGE> 196
11
holders of shares of the Convertible Preferred Stock at their
addresses as shown on the stock books of the Corporation, at
least 10 days prior to the applicable date hereinafter specified,
a notice stating (i) the date on which a record is to be taken
for the purpose of such distribution or rights, or, if a record
is not to be taken, the date as of which the holders of Common
Stock of record to be entitled to such distribution or rights are
to be determined, or (ii) the date on which such reorganization,
reclassification, consolidation, merger, statutory exchange,
sale, transfer, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be entitled
to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification,
consolidation, merger, statutory exchange, sale, transfer,
dissolution, liquidation or winding up. Failure to give such
notice or any defect therein shall not affect the legality or
validity of the proceedings described in subdivision (a), (b),
(c) or (d) of this subsection (V).
(VI) The Corporation covenants that it will at all times reserve
and keep available, free from preemptive rights, out of the aggregate
of its authorized but unissued shares of Common Stock or its issued
shares of Common Stock held in its treasury, or both, for the purpose
of effecting conversions of the Convertible Preferred Stock, the full
number of shares of Common Stock deliverable upon the conversion of
all shares of Convertible Preferred Stock then outstanding and not
theretofore converted or then deliverable upon conversion of the
CorporatiOn's 8% Convertible Debentures Due 2000 (the "2000
Debentures"). For purposes of this subsection (VI), the number of
shares of Common Stock which shall be deliverable upon the conversion
of all such shares of Convertible Preferred Stock shall be computed as
if at the time of computation all such shares were held by a single
holder.
Before taking any action which would cause an adjustment reducing
the Conversion Price below the then par value (if any) of the shares
of Common Stock deliverable upon conversion of the Convertible
Preferred Stock, the Corporation will take any corporate action which
may, in the opinion of its counsel, be necessary in order that the
Corporation
<PAGE> 197
12
may validly and legally issue fully paid and nonassessable shares of
Common Stock at such adjusted Conversion Price.
To the extent not already listed, the Corporation will endeavor
to list the shares of Common Stock required to be delivered upon
conversion of the Convertible Preferred Stock prior to such delivery
upon each national securities exchange, if any, upon which the
outstanding Common Stock is listed at the time of such delivery.
Prior to the delivery of any securities which the Corporation
shall be obligated to deliver upon conversion of the Convertible
Preferred Stock, the Corporation will endeavor to comply with all
Federal and state laws and regulations thereunder requiring the
registration of such securities with, or any approval of or consent to
the delivery thereof by, any governmental authority.
(VII) The Corporation will pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issue or
delivery of shares of Common Stock on conversions of the Convertible
Preferred Stock pursuant hereto; provided, however, that the
Corporation shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issue or delivery of shares
of Common Stock in a name other than that of the holder of the
Convertible Preferred Stock to be converted and no such issue or
delivery shall be made unless and until the person requesting such
issue or delivery has paid to the Corporation the amount of any such
tax or has established, to the satisfaction of the Corporation, that
such tax has been paid.
(VIII) Notwithstanding any other provision herein to the
contrary, in case of any consolidation or merger to which the
Corporation is a party (other than a merger or consolidation in which
the Corporation is the continuing corporation), or in case of any
statutory exchange of securities with another corporation (including
any exchange effected in connection with a merger of a third
corporation into the Corporation), the holder of each share of
Convertible Preferred Stock then outstanding shall have the right
thereafter to convert such share into the kind and amount of
securities, cash or other property receivable upon such consolidation,
merger or
<PAGE> 198
13
statutory exchange by a holder of the number of shares of Common Stock
into which such share of Convertible Preferred Stock might have been
converted immediately prior to such consolidation, merger or statutory
exchange, assuming such holder of Common Stock failed to exercise his
rights of election, if any, as to the kind or amount of securities,
cash or other property receivable upon such consolidation, merger or
statutory exchange (provided that if the kind or amount of securities,
cash or other property receivable upon such consolidation, merger or
statutory exchange is not the same for each share of Common Stock in
respect of which such rights of election shall not have been exercised
("non-electing share"), then for the purpose of this subsection (VIII)
the kind and amount of securities, cash or other property receivable
upon such consolidation, merger or statutory exchange for each
non-electing share shall be deemed to be the kind and amount so
receivable per share by a plurality of the non-electing shares).
Thereafter, the holders of the Convertible Preferred Stock shall be
entitled to appropriate adjustments with respect to their conversion
rights to the end that the provisions set forth in this paragraph
(iii) shall correspondingly be made applicable, as nearly as may
reasonably be, in relation to any shares of stock or other securities
or property thereafter deliverable on the conversion of the
Convertible Preferred Stock. Any such adjustment shall be approved by
a firm of independent public accountants, evidenced by a certificate
to that effect delivered to the conversion agent; and any adjustment
so- approved shall for all purposes hereof conclusively be deemed to
be an appropriate adjustment.
The above provisions of this subsection (VIII) shall similarly
apply to successive consolidations, mergers or statutory exchanges.
(iv) Upon any conversion or redemption of shares of Convertible
Preferred Stock, the shares of Convertible Preferred Stock so
converted or redeemed shall have the status of authorized and unissued
shares of Series Preferred Stock, and the number of shares of Series
Preferred Stock which the Corporation shall have authority to issue
shall not be decreased by the conversion or redemption of shares of
Convertible Preferred Stock.
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14
(v) The holders of shares of Convertible Preferred Stock shall
have no voting rights whatsoever, except for any voting rights to
which they may be entitled under the laws of the State of Delaware,
and except as follows:
(I) If and whenever at any time or times dividends payable on the
Convertible Preferred Stock or on any other Parity Preferred Stock
shall have been in arrears and unpaid in an aggregate amount equal to
or exceeding the amount of dividends payable thereon for six quarterly
periods or three semi-annual periods, as the case may be, then the
holders of Parity Preferred Stock shall have, in addition to the other
voting rights set forth herein, the exclusive right, voting separately
as a class, to elect two directors of the Corporation, such directors
to be in addition to the number of directors constituting the Board of
Directors immediately prior to the accrual of such right, the
remaining directors to be elected by the other class or classes of
stock entitled to vote therefor at each meeting of stockholders held
for the purpose of electing directors. Such voting right shall
continue until such time as all cumulative dividends accumulated on
all the Parity Preferred Stock having cumulative dividends shall have
been paid in full and until any noncumulative dividends payable on all
the Parity Preferred Stock having noncumulative dividends shall have
been paid regularly for at least one year, at which time such voting
right of the holders of the Parity Preferred Stock shall terminate,
subject to revesting in the event of each and every subsequent event
of default of the character indicated above.
Whenever such voting right shall have vested, such right may be
exercised initially either at a special meeting of the holders of the
Parity Preferred Stock, called as hereinafter provided, or at any
annual meeting of stockholders held for the purpose of electing
directors, and thereafter at each successive annual meeting.
At any time when such voting right shall have vested in the
holders of the Parity Preferred Stock, and if such right shall not
already have been initially exercised, .a proper officer of the
Corporation shall, upon the written request of the holders of record
of 10% in number of shares of the Parity Preferred Stock then
outstanding, addressed to
<PAGE> 200
15
the Secretary of the Corporation, call a special meeting of the
holders of the Parity Preferred Stock and of any other class or
classes of stock having voting power with respect thereto for the
purpose of electing directors. Such meeting shall be held at the
earliest practicable date upon the notice required for annual meetings
of stockholders at the place for holding of annual meetings of
stockholders of the Corporation, or, if none, at a place designated by
the Secretary of the Corporation. If such meeting shall not be called
by the proper officers of the Corporation within 30 days after the
personal service of such written request upon the Secretary of the
Corporation, or within 30 days after mailing the same within the
United States of America, by registered mail, addressed to the
Secretary of the Corporation at its principal office (such mailing to
be evidenced by the registry receipt issued by the postal
authorities), then the holders of record of 10% in number of shares of
the Parity Preferred Stock then outstanding may designate in writing
one of their number to call such meeting at the expense of the
Corporation, and such meeting may be called by such person so
designated upon the notice required for annual meetings of
stockholders and shall be held at the same place as is elsewhere
provided for in this subsection (I). Any holder of the Parity
Preferred Stock shall have access to the stock books of the
Corporation for the purpose of causing a meeting of stockholders to be
called pursuant to the provisions of this paragraph. Notwithstanding
the provisions of this paragraph, however, no such special meeting
shall be called during a period within 90 days immediately preceding
the date fixed for the next annual meeting of stockholders.
At any meeting held for the purpose of electing directors at
which the holders of the Parity Preferred Stock shall have the right
to elect directors as provided herein, the presence in person or by
proxy of the holders of 33 1/3% of the then outstanding shares of the
Parity Preferred Stock shall be required and be sufficient to
constitute a quorum of the Parity Preferred Stock for the election of
directors by the holders of the Parity Preferred Stock. At any such
meeting or adjournment thereof (A) the absence of a quorum of the
holders of the Parity Preferred Stock shall not prevent the election
of directors other than those to be elected by the holders of the
Parity Preferred Stock and the absence of a quorum or quorums
<PAGE> 201
16
of the holders of other classes of capital stock entitled to elect
such other directors shall not prevent the election of directors to be
elected by the holders of the Parity Preferred Stock and (B) in the
absence of a quorum of the holders of any class of stock entitled to
vote for the election of directors, a majority of the holders present
in person or by proxy of such class shall have the power to adjourn
the meeting for the election of directors which the holders of such
class are entitled to elect, from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.
The directors elected pursuant to this subsection (I) shall serve
until the next annual meeting or until their respective successors
shall be elected and shall qualify; provided, however, that when the
right of the holders of the Parity Preferred Stock to elect directors
as herein provided shall terminate, the terms of office of all persons
so elected by the holders of the Parity Preferred Stock shall
terminate, and the number of directors of the Corporation shall
thereupon be such number as may be provided in the By-Laws of the
Corporation irrespective of any increase made pursuant to this
subsection (I).
(II) So long as any shares of the Convertible Preferred Stock
remain outstanding, the Corporation will not, either directly or
indirectly or through merger or consolidation with any other
corporation:
(a) without the affirmative vote at a meeting or the written
consent with or without a meeting of the holders of at least
66-2/3% in number of shares of the Series Preferred Stock of all
series then outstanding, (A) create any class or classes of stock
ranking equal or prior to the Series Preferred Stock either as to
dividends or upon liquidation or increase the authorized number
of shares of any class or classes of stock ranking equal or prior
to the Series Preferred Stock either as to dividends or upon
liquidation, (B) amend, alter or repeal any of the provisions of
the Certificate of Incorporation so as to affect adversely the
preferences, special rights or powers of the Series Preferred
Stock or (C) authorize any reclassification of the Series
Preferred Stock;
<PAGE> 202
(b) without the affirmative vote at a meeting or the written
consent with or without a meeting of the holders of at least
66-2/3% in number of shares of the Convertible Preferred Stock
then outstanding, amend, alter or repeal any of the provisions
hereof so as to affect adversely the preferences, special rights
or powers of the Convertible Preferred Stock; or
(c) without the affirmative vote at a meeting or the written
consent with or without a meeting of the holders of at least a
majority in number of shares of the Series Preferred Stock of all
series then outstanding, increase the authorized number of shares
of the Series Preferred Stock.
(vi) The shares of the Convertible Preferred Stock may be
redeemed at the option of the Corporation as a whole at any time,
upon not less than 25 nor more than 60 days prior notice mailed
to the holders of the shares to be redeemed at their addresses as
shown on the stock books of the Corporation, at a redemption
price of $25.00 per share, together with an amount equal to all
dividends (whether or not earned or declared) accumulated and
unpaid to the date fixed for redemption. Upon such redemption
date, all holders of shares of Convertible Preferred Stock shall
cease to be stockholders with respect to such shares and
thereafter such shares shall no longer be transferable on the
books of the Corporation and such holders shall have no interest
or claim against the Corporation with respect to such shares
except the right to receive payment of the redemption price upon
surrender of their certificates.
If full cumulative dividends on the Convertible Preferred
Stock have not been paid, the Corporation may not purchase or
acquire any shares of the Convertible Preferred Stock otherwise
than pursuant to a purchase or exchange offer made on the same
terms to all holders of the Convertible Preferred Stock.
(vii) No consent of the holders of the Convertible Preferred
Stock shall be required for (i) the creation of any indebtedness
of any kind of the Corporation, (ii) the creation of any class of
stock of the Corporation ranking junior as to dividends or upon
liquidation to the Series Preferred Stock or (iii) any increase
or decrease in the amount of authorized Common Stock or any
increase, decrease or
<PAGE> 203
18
change in the par value thereof or in any other terms thereof.
(viii) The Board reserves the right by subsequent amendment
from time to time to increase (subject to the provisions of
paragraph (v)(II)(c)) or decrease the number of shares which
constitute the Convertible Preferred Stock (but not below the
aggregate number of shares thereof then outstanding or then
deliverable upon conversion of the 2000 Debentures) and in other
respects to amend the terms of the Convertible Preferred Stock
within the limitations provided by law, resolutions of the Board
and the Certificate of Incorporation.
IN WITNESS WHEREOF. Paine Webber Group Inc. has caused this Certificate to
be made under the seal of the Corporation and signed by James Treadway, its Vice
President, and attested by Dorothy F. Haughey, its Assistant Secretary, this
14th day of January, 1992.
PAINE WEBBER GROUP INC.
/s/ James Treadway
------------------------------
James Treadway
Vice President
[Seal]
Attest:
/s/ Dorothy F. Haughey
- --------------------------
Dorothy F. Haughey
Assistant Secretary
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
This instrument was acknowledged before me this 14th day of January, 1992
by JAMES TREADWAY and DOROTHY F. HAUGHEY as Vice President and Assistant
Secretary, respectively, of PAINE WEEDER GROUP INC., a Delaware corporation,
being authorized so to do on its behalf.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
ELISA A. BELL
NOTARY PUBLIC, State of New York /s/ Elisa A. Bell
No. 03-4818330 ----------------------
Qualified in Bronx County Notary Public
Commission Expires June 30, 1992
<PAGE> 204
PAGE 1
State of Delaware
Office of the Secretary of State
I, MICHAEL RATCHFORD, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
STOCK DESIGNATION OF PAINE WEBBER GROUP INC. FILED IN THIS OFFICE ON THE
SIXTEENTH DAY OF JANUARY, A.D. 1992, AT 10 O'CLOCK A.M.
**********
/s/ Michael Ratchford
----------------------------------------
[SEAL] Michael Ratchford, Secretary of State
AUTHENTICATION: [ILLEGIBLE]
DATE: [ILLEGIBLE]
<PAGE> 205
1
1-16-9
CERTIFICATE OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND THE QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS THEREOF, WHICH HAVE NOT BEEN SET FORTH IN THE
CERTIFICATE OF INCORPORATION OR IN ANY AMENDMENT THERETO, OF THE
7.5% CONVERTIBLE PREFERRED STOCK
($20 Par Value)
PAINE WEEDER GROUP INC.
----------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
----------
The undersigned DOES HERESY CERTIFY that the following resolution was duly
adopted on December 15, 1988, by the Special Committee of the Board of Directors
of Paine Webber Group Inc., a Delaware corporation (hereinafter called the
"Corporation"), pursuant to provisions of Section 141(c) of the General
Corporation Law of the State of Delaware and Article IV, Section 1 of the
By-laws of the Corporation;
RESOLVED, that pursuant to authority expressly granted to and vested
in the Board of Directors of the Corporation by provisions of the
Certificate of Incorporation of the Corporation (the Certificate of
Incorporation), the issuance of a series of the Series Preferred Stock, par
value $20 per share (the "Series Preferred Stock"), which shall consist of
up to 2,200,000 of the 20,000,000 shares of Series Preferred Stock which
the Corporation now has authority to issue, be, and the same hereby is,
authorized, and this Board of Directors hereby fixes the powers,
designations, preferences and relative, participating, optional or other
special rights, and the qualifications, limitations or restrictions
thereof, of the shares of such series (in addition to the powers,
designations, preferences and relative, participating, optional or other
special rights, and the qualifications, limitations or restrictions
thereof, set forth in the Certificate of Incorporation which are applicable
to the Series Preferred Stock) as follows:
The designation of such series of the Series Preferred Stock
authorized by this resolution shall be the 7.5% Convertible Preferred Stock
(the Convertible Preferred Stock). The number of shares of Convertible
Preferred Stock shall be 2,200,000.
<PAGE> 206
2
(i) Holders of shares of Convertible Preferred Stock will be entitled
to receive, when and as declared by the Board of Directors (the "Board") of
Paine Webber Group Inc. (the "Corporation") out of assets of the
Corporation legally available for payment, an annual cash dividend of
$1.875 per share, payable in semi-annual installments on June 30 and
December 31, commencing June 30, 1989. Dividends on the Convertible
Preferred Stock will be cumulative from the date of initial issuance of any
shares of Convertible Preferred Stock. Dividends will be payable to holders
of record as they appear on the stock books of the Corporation on such
record dates, not more than 60 days nor less than 10 days preceding the
payment dates thereof, as shall be fixed by the Board. When dividends are
not paid in full upon the Convertible Preferred Stock and any other
preferred stock ranking on a parity as to dividends with the Convertible
Preferred Stock (such other preferred stock and the Convertible Preferred
Stock hereinafter being collectively referred to as "Parity Preferred
Stock"), all dividends declared upon shares of Parity Preferred Stock will
be declared pro rata so that in all cases the amount of dividends declared
per share on the Convertible Preferred Stock and such other Parity
Preferred Stock shall bear to each other the same ratio that accumulated
and unpaid dividends per share on the shares of Convertible Preferred Stock
and such other Parity Preferred Stock bear to each other. Except as set
forth in the preceding sentence, unless full cumulative dividends on the
Convertible Preferred Stock have been paid, no dividends (other than in
Common Stock of the Corporation (as defined in paragraph (iii)(I) below) or
any other stock of the Corporation ranking junior to the Convertible
<PAGE> 207
3
Preferred Stock as to dividends) may be paid or declared and set aside for
payment or other distribution made upon the Common Stock or on any other
stock of the Corporation ranking junior to or on a parity with the
Convertible Preferred Stock as to dividends, nor may any Common Stock or
any other stock of the Corporation ranking junior to or on a parity with
the Convertible Preferred Stock as to dividends be redeemed, purchased or
otherwise acquired for any consideration (or any payment made to or
available for a sinking fund for the redemption of any shares of such
stock) by the Corporation (except by conversion into or exchange for stock
of the Corporation ranking junior to the Convertible Preferred Stock as to
dividends). Dividends payable for any partial dividend period shall be
calculated on the basis of a 360-day year of 12 30-day months.
(ii) The shares of Convertible Preferred Stock shall rank prior to the
shares of Common Stock and of any other class of stock of the Corporation
ranking junior to the Series Preferred Stock upon liquidation, so that in
the event of any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, the holders of the Convertible Preferred
Stock shall be entitled to receive out of the assets of the Corporation
available for distribution to its stockholders, whether from capital,
surplus or earnings, before any distribution is made to holders of shares
of Common Stock or any other such junior stock, an amount equal to $25 per
share (the "Liquidation Preference" of a share of Convertible Preferred
Stock) plus an amount equal to all dividends (whether or not earned or
declared) accumulated and unpaid on the shares of Convertible Preferred
Stock to the date of final distribution. If, upon any liquidation,
dissolution or winding up of the Corporation, the assets of the
Corporation, or proceeds thereof, distributable among the holders of shares
of Parity Preferred Stock shall be insufficient to pay in full the
liquidation preference amounts of the Parity Preferred Stock and all
dividends (whether or not earned or declared) accumulated and unpaid
thereon, then such assets, or the proceeds thereof, shall be distributable
among such holders ratably in accordance with the respective amounts which
would be payable on such shares, if all amounts payable thereon were paid
in full. For the purposes hereof, the voluntary sale, conveyance, exchange
or transfer (for cash, shares of stock, securities or other
<PAGE> 208
4
consideration) of all or substantially all the property or assets of the
Corporation shall be deemed a voluntary liquidation, dissolution or winding
up of the Corporation, but a consolidation or merger of the Corporation
with one or more other corporations shall not be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary.
(iii) (I) Subject to and upon compliance with the provisions of this
paragraph (iii), the holder of a share of Convertible Preferred Stock shall
have the right, at his option, at any time, except that, if such share is
called for redemption, not after the close of business on the fifth day
next preceding the date fixed for such redemption, to convert such share
into that number of fully paid and nonassessable shares of Common Stock
(calculated as to each conversion to the nearest 1/100th of a share)
obtained by dividing the Liquidation Preference of such share being
converted by the Conversion Price (as defined below), upon surrender of
such share so to be converted, such surrender to be made in the manner
provided in subsection (II) of this paragraph (iii).
The term "Common Stock" shall mean the Common Stock, $1 par value, of
the Corporation as the same exists at the date of this Certificate or as
such stock may be constituted from time to time, except that for the
purpose of subsection (V) of this paragraph (iii) the term Common Stock
shall also mean and include stock of the Corporation of any class, whether
now or hereafter authorized, which shall have the right to participate in
the distribution of either earnings or assets of the Corporation without
limit as to amount or percentage.
The term "Conversion Price" shall mean $20.475, as adjusted in
accordance with the provisions, of this paragraph (iii).
(II) In order to exercise the conversion privilege, the holder of each
share of Convertible Preferred Stock to be converted shall surrender the
certificate representing such share at the office of the conversion agent
for the Convertible Preferred Stock in the Borough of Manhattan, City of
New York, appointed for such purpose by the Corporation, with the Notice of
Election to Convert on the back of said certificate completed and signed.
Unless the shares issuable on conversion are to be issued in the same
<PAGE> 209
5
name as the name in which such share of Convertible Preferred Stock is
registered, each share surrendered for conversion shall be accompanied by
instruments of transfer, in form satisfactory to the Corporation and duly
executed by the holder or his duly authorized attorney, and an amount
sufficient to pay any transfer or similar tax. No payment or adjustment
shall be made on conversion for dividends accumulated on the Convertible
Preferred Stock surrendered for conversion or for dividends on Common Stock
delivered on such conversion. As promptly as practicable after the
surrender of the certificates for shares of Convertible Preferred Stock as
aforesaid, the Corporation shall issue and shall deliver at such office to
such holder, or on his written order, a certificate or certificates for the
number of full shares of Common Stock issuable upon the conversion of such
shares in accordance with the provisions of this paragraph (iii), and any
fractional interest in respect of a share of Common Stock arising upon such
conversion shall be settled as provided in subsection (III) of this
paragraph (iii).
Each conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which the certificates for
shares of Convertible Preferred Stock shall have been surrendered and such
notice received by the Corporation as aforesaid, and the person or persons
in whose name or names any certificate or certificates for shares of Common
Stock shall be issuable upon such conversion shall be deemed to have become
the holder or holders of record of the shares represented thereby at such
time on such date and such conversion shall be at the Conversion Price in
effect at such time on such date, unless the stock transfer books of the
Corporation shall be closed on that date, in which event such person or
persons shall be deemed to have become such holder or holders of record at
the close of business on the next succeeding day on which such stock
transfer books are open, but such conversion shall be at the Conversion
Price in effect on the date upon which such shares shall have been
surrendered and such notice received by the Corporation. All shares of
Common Stock delivered upon conversions of the Convertible Preferred Stock
will upon delivery be duly and validly issued and fully paid and
nonassessable, free of all liens and charges and not subject to any
preemptive rights.
<PAGE> 210
6
(III) No fractional shares or scrip representing fractions of shares
of Common Stock shall be issued upon conversion of the Convertible
Preferred Stock. Instead of any fractional interest in a share of Common
Stock which would otherwise be deliverable upon the conversion of a share
of Convertible Preferred Stock, the Corporation shall pay to the holder of
such share an amount in cash (computed to the nearest cent) equal to the
current market price (as defined in subsection (IV)(d) of this paragraph
(iii)) thereof at the close of business on the business day next preceding
the day of conversion. If more than one share shall be surrendered for
conversion at one time by the same holder, the number of full shares of
Common Stock issuable upon conversion thereof shall be computed on the
basis of the aggregate Liquidation Preference of the shares of Convertible
Preferred Stock so surrendered.
(IV) The Conversion Price shall be adjusted from time to time as
follows:
(a) In case the Corporation shall hereafter (i) pay a dividend or
make a distribution on the Common Stock in shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into a greater
number of shares, (iii) combine its outstanding shares of Common Stock
into a smaller number of shares, or (iv) issue by reclassification of
the Common Stock any shares of capital stock of the Corporation, the
Conversion Price in effect immediately prior to such action shall be
adjusted so that the holder of any share of Convertible Preferred
Stock thereafter surrendered for conversion shall be entitled to
receive the number of shares of Common Stock or other capital stock of
the Corporation which he would have owned or been entitled to receive
immediately following such action had such share been converted
immediately prior thereto. An adjustment made pursuant to this
subdivision (a) shall become effective immediately after the record
date, in the case of a dividend or distribution, or immediately after
the effective date, in the case of a subdivision, combination or
reclassification. If, as a result of an adjustment made pursuant to
this subdivision (a). the holder of any share of Convertible Preferred
Stock thereafter surrendered for conversion shall become entitled to
receive shares of two or more classes of capital stock or shares of
<PAGE> 211
7
Common Stock and other capital stock of the Corporation, the Board
(whose determination shall be conclusive and shall be described in a
statement filed with the conversion agent by the Corporation as soon
as practicable) shall determine the allocation of the adjusted
Conversion Price between or among shares of such classes of capital
stock or shares of Common Stock and other capital stock.
(b) In case the Corporation shall hereafter issue rights or
warrants to holders of its outstanding shares of Common Stock
generally entitling them (for a period expiring within 45 days after
the record date mentioned below) to subscribe for or purchase shares
of Common Stock at a price per share less than the current market
price per share (as determined pursuant to subdivision (d) of this
subsection (IV)) of the Common Stock on the record date mentioned in
the next sentence (other than pursuant to an automatic dividend
reinvestment plan of the Corporation or any substantially similar
plan), the Conversion Price shall be adjusted so that the same shall
equal the price determined by multiplying the Conversion Price in
effect immediately prior to the date of issuance of such rights or
warrants by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding on the date of issuance of such
rights or warrants plus the number of shares which the aggregate
offering price of the total number of shares so offered would purchase
at such current market price, and of which the denominator shall be
the number of shares of Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of additional
shares of Common Stock offered for subscription or purchase. Such
adjustment shall become effective immediately after the record date
for the determination of stockholders entitled to receive such rights
or warrants.
(c) In case the Corporation shall hereafter distribute to holders
of its outstanding shares of Common Stock generally evidences of its
indebtedness or assets (excluding any cash dividend paid from retained
earnings of the Corporation and dividends or distributions payable in
stock for which adjustment is made pursuant to subdivision (a) of this
subsection (IV)) or rights or warrants to subscribe to securities of
the Corporation (excluding those referred to in subdivision (b) of
this subsection (IV)), then in each such case the
<PAGE> 212
8
Conversion Price shall be adjusted so that the same shall equal the
price determined by multiplying the Conversion Price in effect
immediately prior to the date of such distribution by a fraction of
which the numerator shall be the current market price per share
(determined as provided in subdivision (d) of this subsection (IV)) of
the Common Stock on the record date mentioned in the next sentence
less the then fair market value (as determined by the Board, whose
determination shall be conclusive and shall be described in a
statement filed with the conversion agent by the Corporation as soon
as practicable) of the portion of the evidences of indebtedness or
assets so distributed to the holder of one share of Common Stock or of
such subscription rights or warrants applicable to one share of Common
Stock, and of which the denominator shall be such current market price
per share of Common Stock. Such adjustment shall become effective
immediately after the record date for the determination of
stockholders entitled to receive such distribution.
(d) For the purpose of subsection (III) and subdivisions (b) and
(c) of this subsection (IV), the current market price per share of
Common Stock on any date shall be deemed to be the average of the
daily market prices for the 30 consecutive days on which the New York
Stock Exchange is open for trading commencing 45 trading days before
the day in question. The term daily market price when used with
reference to the Common Stock shall mean the price of a share of
Common Stock on the relevant date, determined on the basis of the last
reported sale price regular way of the Common Stock as reported on the
composite tape, or similar reporting system, for issues listed on the
New York Stock Exchange (or if the Common Stock is not then listed on
that Exchange, for issues listed on such other national securities
exchange upon which the Common Stock is listed, as may be designated
by the Board for the purposes hereof) or, if there is no such reported
sale on the day in question, on the basis of the average of the
closing bid and asked quotations as so reported, or, if the Common
Stock is not then listed on any national securities exchange, on the
basis of the closing price, if the Common Stock is a national market
issue, or the average of the high bid and low asked quotations on the
day in question in the over-the-counter market as reported by the
National Association of Securities Dealers Automated Quotations
System, or if not so quoted, as reported by
<PAGE> 213
9
National Quotation Bureau. Incorporated, or a similar organization.
(e) In any case in which this paragraph (iii) shall require that
an adjustment be made immediately following a record date or an
effective date, the Corporation may elect to defer (but only until
five business days following the filing by the Corporation with the
conversion agent of the certificate of independent public accountants
required by subdivision (g) of this subsection (IV)) issuing to the
holder of any share of Convertible Preferred Stock converted after
such record date or effective date the additional shares of Common
Stock or other capital stock issuable upon such conversion over and
above the shares of Common Stock or other capital stock issuable upon
such conversion on the basis of the Conversion Price prior to
adjustment, and paying to such holder any amount of cash in lieu of a
fractional share.
(f) No adjustment in the Conversion Price shall be required to be
made unless such adjustment would require an increase or decrease of
at least 1% of such price; provided, however, that any adjustments
which by reason of this subdivision (f) are not required to be made
shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this paragraph (iii) shall be made
to the nearest cent or to the nearest 1/100th of a share, as the case
may be. Anything in this paragraph (iii) to the contrary
notwithstanding, the Corporation shall be entitled to make such
reduction in the Conversion Price, in addition to those required by
this paragraph (iii), as it in its discretion shall determine to be
advisable in order that any stock dividend, subdivision of shares,
distribution of rights to purchase stock or securities, or
distribution of securities convertible into or exchangeable for stock
hereafter made by the Corporation to its stockholders shall not be
taxable to the recipients.
(g) Whenever the Conversion Price is adjusted as herein provided,
(i) the Corporation shall promptly file with the conversion agent a
certificate of a firm of independent public accountants (who may be
the regular accountants employed by the Corporation) setting forth the
Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment and the manner of
<PAGE> 214
10
computing the same, which certificate shall be conclusive evidence of
the correctness of such adjustment, and (ii) a notice stating that the
Conversion Price has been adjusted and setting forth the adjusted
Conversion Price shall forthwith be mailed by the Corporation to the
holders of the Convertible Preferred Stock at their addresses as shown
on the stock books of the Corporation.
(h) In the event that at any time as a result of an adjustment
made pursuant to subdivision (a) of this subsection (IV), the holder
of any share of Convertible Preferred Stock thereafter surrendered for
conversion shall become entitled to receive any shares of the
Corporation other than shares of Common Stock, thereafter the
Conversion Price of such other shares so receivable upon conversion of
any share shall be subject to adjustment from time, to time in a
manner and on terms as nearly equivalent as practicable to the
provisions with respect to Common Stock contained in this paragraph
(iii).
(V) In case:
(a) the Corporation shall take any action which would
require any adjustment in the Conversion Price pursuant to
subsection (IV)(c); or
(b) the Corporation shall authorize the granting to the
holders of the Common Stock of rights or warrants to subscribe
for or purchase any shares of stock of any class or of any other
rights; or
(c) there shall be any capital stock reorganization or
reclassification of the Common Stock (other than a subdivision or
combination of the outstanding Common Stock and other than a
change in the par value of the Common Stock), or any
consolidation or merger to which the Corporation is a party or
any statutory exchange of securities with another corporation and
for which approval of any stockholders of the Corporation is
required, or any sale or transfer of all or substantially all the
assets of the Corporation; or
(d) there shall be a voluntary dissolution, liquidation or
winding up of the Corporation;
then the Corporation shall cause to be filed with the conversion
agent, and shall cause to be mailed to the
<PAGE> 215
11
holders of shares of the Convertible Preferred Stock at their
addresses as shown on the stock books of the Corporation, at
least 10 days prior to the applicable date hereinafter specified,
a notice stating (i) the date on which a record is to be taken
for the purpose of such distribution or rights, or, if a record
is not to be taken, the date as of which the holders of Common
Stock of record to be entitled to such distribution or rights are
to be determined, or (ii) the date on which such reorganization,
reclassification, consolidation, merger, statutory exchange,
sale, transfer, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be entitled
to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification,
consolidation, merger, statutory exchange, sale, transfer,
dissolution, liquidation or winding up. Failure to give such
notice or any defect therein shall not affect the legality or
validity of the proceedings described in subdivision (a), (b),
(c) or (d) of this subsection (V).
(VI) The Corporation covenants that it will at all times
reserve and keep available, free from preemptive rights, out of
the aggregate of its authorized but unissued shares of Common
Stock or its issued shares of Common Stock held in its treasury,
or both, for the purpose of effecting conversions of the
Convertible Preferred Stock, the full number of shares of Common
Stock deliverable upon the conversion of all shares of
Convertible Preferred Stock then outstanding and not theretofore
converted or then deliverable upon conversion of the
Corporation's 8% Convertible Debentures Due 1998 (the "1998
Debentures"). For purposes of this subsection (VI), the number of
shares of Common Stock which shall be deliverable upon the
conversion of all such shares of Convertible Preferred Stock
shall be computed as if at the time of computation all such
shares were held by a single holder.
Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value (if any)
of the shares of Common Stock deliverable upon conversion of the
Convertible Preferred Stock, the Corporation will take any
corporate action which may, in the opinion of its counsel, be
necessary in order that the Corporation
<PAGE> 216
12
may validly and legally issue fully paid and nonassessable shares
of Common Stock at such adjusted Conversion Price.
To the extent not already listed, the Corporation will
endeavor to list the shares of Common Stock required to be
delivered upon conversion of the Convertible Preferred Stock
prior to such delivery upon each national securities exchange, if
any, upon which the outstanding Common Stock is listed at the
time of such delivery.
Prior to the delivery of any securities which the
Corporation shall be obligated to deliver upon conversion of the
Convertible Preferred Stock, the Corporation will endeavor to
comply with all Federal and state laws and regulations thereunder
requiring the registration of such securities with, or any
approval of or consent to the delivery thereof by, any
governmental authority.
(VII) The Corporation will pay any and all documentary stamp
or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Common Stock on conversions of the
Convertible Preferred Stock pursuant hereto; provided, however,
that the Corporation shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issue
or delivery of shares of Common Stock in a name other than that
of the holder of the Convertible Preferred Stock to be converted
and no such issue or delivery shall be made unless and until the
person requesting such issue or delivery has paid to the
Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(VIII) Notwithstanding any other provision herein to the
contrary, in case of any consolidation or merger to which the
Corporation is a party (other than a merger or consolidation in
which the Corporation is the continuing corporation), or in case
of any statutory exchange of securities with another corporation
(including any exchange effected in connection with a merger of a
third corporation into the Corporation), the holder of each share
of Convertible Preferred Stock then outstanding shall have the
right thereafter to convert such share into the kind and amount
of securities, cash or other property receivable upon such
consolidation, merger or
<PAGE> 217
13
statutory exchange by a holder of the number of shares of Common
Stock into which such share of Convertible Preferred Stock might
have been converted immediately prior to such consolidation,
merger or statutory exchange, assuming such holder of Common
Stock failed to exercise his rights of election, if any, as to
the kind or amount of securities, cash or other property
receivable upon such consolidation, merger or statutory exchange
(provided that if the kind or amount of securities, cash or other
property receivable upon such consolidation, merger or statutory
exchange is not the same for each share of Common Stock in
respect of which such rights of election shall not have been
exercised ("non-electing share"), then for the purpose of this
subsection (VIII) the kind and amount of securities, cash or
other property receivable upon such consolidation, merger or
statutory exchange for each non-electing share shall be deemed to
be the kind and amount so receivable per share by a plurality of
the non-electing shares). Thereafter, the holders of the
Convertible Preferred Stock shall be entitled to appropriate
adjustments with respect to their conversion rights to the end
that the provisions set forth in this paragraph (iii) shall
correspondingly be made applicable, as nearly as may reasonably
be, in relation to any shares of stock or other securities or
property thereafter deliverable on the conversion of the
Convertible Preferred Stock. Any such adjustment shall be
approved by a firm of independent public accountants, evidenced
by a certificate to that effect delivered to the conversion
agent; and any adjustment so approved shall for all purposes
hereof conclusively be deemed to be an appropriate adjustment.
The above provisions of this subsection (VIII) shall
similarly apply to successive consolidations, mergers or
statutory exchanges.
(iv) Upon any conversion or redemption of shares of
Convertible Preferred Stock, the shares of Convertible Preferred
Stock so converted or redeemed shall have the status of
authorized and unissued shares of Series Preferred Stock, and the
number of shares of Series Preferred Stock which the Corporation
shall have authority to issue shall not be decreased by the
conversion or redemption of shares of Convertible Preferred
Stock.
<PAGE> 218
14
(v) The holders of shares of Convertible Preferred Stock
shall have no voting rights whatsoever, except for any voting
rights to which they may be entitled under the laws of the State
of Delaware, and except as follows:
(I) If and whenever at any time or times dividends payable
on the Convertible Preferred Stock or on any other Parity
Preferred Stock shall have been in arrears and unpaid in an
aggregate amount equal to or exceeding the amount of dividends
payable thereon for six quarterly periods or three semi-annual
periods, as the case may be, then the holders of Parity Preferred
Stock shall have, in addition to the other voting rights set
forth herein, the exclusive right, voting separately as a class,
to elect two directors of the Corporation, such directors to be
in addition to the number of directors constituting the Board of
Directors immediately prior to the accrual of such right, the
remaining directors to be elected by the other class or classes
of stock entitled to vote therefor at each meeting of
stockholders held for the purpose of electing directors. Such
voting right shall continue until such time as all cumulative
dividends accumulated on all the Parity Preferred Stock having
cumulative dividends shall have been paid in full and until any
noncumulative dividends payable on all the Parity Preferred Stock
having noncumulative dividends shall have been paid regularly for
at least one year, at which time such voting right of the holders
of the Parity Preferred Stock shall terminate, subject to
revesting in the event of each and every subsequent event of
default of the character indicated above.
Whenever such voting right shall have vested, such right may
be exercised initially either at a special meeting of the holders
of the Parity Preferred Stock, called as hereinafter provided, or
at any annual meeting of stockholders held for the purpose of
electing directors, and thereafter at each successive annual
meeting.
At any time when such voting right shall have vested in the
holders of the Parity Preferred Stock, and if such right shall
not already have been initially exercised, a proper officer of
the Corporation shall, upon the written request of the holders of
record of 10% in number of shares of the Parity Preferred Stock
then outstanding, addressed to
<PAGE> 219
15
the Secretary of the Corporation, call a special meeting of the
holders of the Parity Preferred Stock and of any other class or
classes of stock having voting power with respect thereto for the
purpose of electing directors. Such meeting shall be held at the
earliest practicable date upon the notice required for annual
meetings of stockholders at the place for holding of annual
meetings of stockholders of the Corporation, or, if none, at a
place designated by the Secretary of the Corporation. If such
meeting shall not be called by the proper officers of the
Corporation within 30 days after the personal service of such
written request upon the Secretary of the Corporation, or within
30 days after mailing the same within the United States of
America, by registered mail, addressed to the Secretary of the
Corporation at its principal office (such mailing to be evidenced
by the registry receipt issued by the postal authorities), then
the holders of record of 10% in number of shares of the Parity
Preferred Stock then outstanding may designate in writing one of
their number to call such meeting at the expense of the
Corporation, and such meeting may be called by such person so
designated upon the notice required for annual meetings of
stockholders and shall be held at the same place as is elsewhere
provided for in this subsection (I). Any holder of the Parity
Preferred Stock shall have access to the stock books of the
Corporation for the purpose of causing a meeting of stockholders
to be called pursuant to the provisions of this paragraph.
Notwithstanding the provisions of this paragraph, however, no
such special meeting shall be called during a period within 90
days immediately preceding the date fixed for the next annual
meeting of stockholders.
At any meeting held for the purpose of electing directors at
which the holders of the Parity Preferred Stock shall have the
right to elect directors as provided herein, the presence in
person or by proxy of the holders of 33-1/3% of the then
outstanding shares of the Parity Preferred Stock shall be
required and be sufficient to constitute a quorum of the Parity
Preferred Stock for the election of directors by the holders of
the Parity Preferred Stock. At any such meeting or adjournment
thereof (A) the absence of a quorum of the holders of the Parity
Preferred Stock shall not prevent the election of directors other
than those to be elected by the holders of the Parity Preferred
Stock and the absence of a quorum or quorums
<PAGE> 220
16
of the holders of other classes of capital stock entitled to
elect such other directors shall not prevent the election of
directors to be elected by the holders of the Parity Preferred
Stock and (B) in the absence of a quorum of the holders of any
class of stock entitled to vote for the election of directors, a
majority of the holders present in person or by proxy of such
class shall have the power to adjourn the meeting for the
election of directors which the holders of such class are
entitled to elect, from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
The directors elected pursuant to this subsection (I) shall
serve until the next annual meeting or until their respective
successors shall be elected and shall qualify; provided, however,
that when the right of the holders of the Parity Preferred Stock
to elect directors as herein provided shall terminate, the terms
of office of all persons so elected by the holders of the Parity
Preferred Stock shall terminate, and the number of directors of
the Corporation shall thereupon be such number as may be provided
in the By-Laws of the Corporation irrespective of any increase
made pursuant to this subsection (I).
(II) So long as any shares of the Convertible Preferred
Stock remain outstanding, the Corporation will not, either
directly or indirectly or through merger or consolidation with
any other corporation:
(a) without the affirmative vote at a meeting or the
written consent with or without a meeting of the holders of
at least 66-2/3% in number of shares of the Series Preferred
Stock of all series then outstanding, (A) create any class
or classes of stock ranking equal or prior to the Series
Preferred Stock either as to dividends or upon liquidation
or increase the authorized number of shares of any class or
classes of stock ranking equal or prior to the Series
Preferred Stock either as to dividends or upon liquidation,
(B) amend, alter or repeal any of the provisions of the
Certificate of Incorporation so as to affect adversely the
preferences, special rights or powers of the Series
Preferred Stock or (C) authorize any reclassification of the
Series Preferred Stock;
<PAGE> 221
17
(b) without the affirmative vote at a meeting or the
written consent with or without a meeting of the holders of
at least 66-2/3. in number of shares of the Convertible
Preferred Stock then outstanding, amend, alter or repeal any
of the provisions hereof so as to affect adversely the
preferences, special rights or powers of the Convertible
Preferred Stock; or
(c) without the affirmative vote at a meeting or the
written consent with or without a meeting of the holders of
at least a majority in number of shares of the Series
Preferred Stock of all series then outstanding, increase the
authorized number of shares of the Series Preferred Stock.
(vi) The shares of the Convertible Preferred Stock may
be redeemed at the option of the Corporation as a whole at
any time, upon not less than 25 nor more than 60 days' prior
notice mailed to the holders of the shares to be redeemed at
their addresses as shown on the stock books of the
Corporation, at a redemption price of $25.00 per share,
together with an amount equal to all dividends (whether or
not earned or declared) accumulated and unpaid to the date
fixed for redemption. Upon such redemption date, all holders
of shares of Convertible Preferred Stock shall cease to be
stockholders with respect to such shares and thereafter such
shares shall no longer be transferable on the books of the
Corporation and such holders shall have no interest or claim
against the Corporation with respect to such shares except
the right to receive payment of the redemption price upon
surrender of their certificates.
If full cumulative dividends on the Convertible
Preferred Stock have not been paid, the Corporation may not
purchase or acquire any shares of the Convertible Preferred
Stock otherwise than pursuant to a purchase or exchange
offer made on the same terms to all holders of the
Convertible Preferred Stock.
(vii) No consent of the holders of the Convertible
Preferred Stock shall be required for (i) the creation of
any indebtedness of any kind of the Corporation, (ii) the
creation of any class of stock of the Corporation ranking
junior as to dividends or upon liquidation to the Series
Preferred Stock or (iii) any increase or decrease in the
amount of authorized Common Stock or any increase, decrease
or
<PAGE> 222
18
change in the par value thereof or in any other terms
thereof.
(viii) The Board reserves the right by subsequent
amendment from time to time to increase (subject to the
provisions of paragraph (v)(II)(c)) or decrease the number
of shares which constitute the Convertible Preferred Stock
(but not below the aggregate number of shares thereof then
outstanding or then deliverable upon conversion of the 1998
Debentures) and in other respects to amend the terms of the
Convertible Preferred Stock within the limitations provided
by law, resolutions of the Board and the Certificate of
Incorporation.
IN WITNESS WHEREOF, Paine Webber Group Inc. has caused this Certificate to
be made under the seal of the Corporation and signed by James Treadway, its Vice
President, and attested by Dorothy F. Haughey, its Assistant Secretary, this
14th day of January, 1992.
PAINE WEBBER GROUP INC.
/s/ James Treadway
-----------------------------
James Treadway
Vice President
[Seal]
Attest:
/s/ Dorothy F. Haughey
- ------------------------------
Dorothy F. Haughey
Assistant Secretary
STATE OF NEW YORK )
) is.:
COUNTY OF NEW YORK )
This instrument was acknowledged before me this 14th day of January, 1992
by JAMES TREADWAY and DOROTHY F. HAUGHEY, as Vice President and Assistant
Secretary, respectively, of PAINE WEEDER GROUP INC., a Delaware corporation,
being authorized so to do on its behalf.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
ELISA A. BELL
NOTARY PUBLIC, State of New York /s/ Elisa A. Bell
No. 03-4818330 ----------------------
Qualified in Bronx County Notary Public
Commission Expires June 30, 1992
<PAGE> 223
================================================================================
BY-LAWS
OF
PAINE WEBBER GROUP INC.
----------
Incorporated under the laws
of the State of Delaware
----------
As Amended on March 1, 1988
================================================================================
<PAGE> 224
TABLE OF CONTENTS
PAGE
----
ARTICLE I -OFFICES ............................................ 1
ARTICLE II -MEETINGS OF STOCKHOLDERS ........................... 1
SECTION 1. Purpose of Annual Meetings .......................... 1
SECTION 2. Special Meetings .................................... 2
SECTION 3. Place of Meetings ................................... 2
SECTION 4. Notice of Meetings .................................. 2
SECTION 5. Waiver of Notice .................................... 2
SECTION 6. Organization ........................................ 3
SECTION 7. Stockholders Entitled to Vote ....................... 3
SECTION 8. Quorum and Adjournment .............................. 4
SECTION 9. Order of Business ................................... 4
SECTION 10. Vote of Stockholders ................................ 4
SECTION 11. Proxies ............................................. 5
SECTION 12. Attendance at Stockholders Meetings ................. 5
ARTICLE III -BOARD OF DIRECTORS ................................. 6
SECTION 1. Number, Qualification and Election .................. 6
SECTION 2. Number .............................................. 7
SECTION 3. General Powers ...................................... 7
SECTION 4. Place of Meetings ................................... 7
SECTION 5. Organization Meeting ................................ 7
SECTION 6. Regular Meetings .................................... 7
SECTION 7. Special Meetings; Notice and Waiver of
Notice ............................................. 8
SECTION 8. Organization ........................................ 8
SECTION 9. Quorum and Adjournment; Manner of Acting ............ 8
<PAGE> 225
ii
PAGE
----
SECTION 10. Voting .............................................. 9
SECTION 11. Acting Without a Meeting ............................ 9
SECTION 12. Resignations ........................................ 9
SECTION 13. Removal of Directors ................................ 9
SECTION 14. Senior Advisor ...................................... 10
ARTICLE IV -COMMITTEES OF THE BOARD ............................ 10
SECTION 1. Appointing Committes of the Board ................... 10
SECTION 2. Place and Time of Meetings; Notice and
Waiver of Notice; Records .......................... 11
ARTICLE V -THE OFFICERS ....................................... 11
SECTION 1. Officers ............................................ 11
SECTION 2. Terms of Office; Vacancies .......................... 12
SECTION 3. Removal of Officers ................................. 12
SECTION 4. Resignations ........................................ 12
SECTION 5. Officers Holding More Than One Office ............... 12
SECTION 6. The Chairman of the Board ........................... 12
SECTION 7. The President ....................................... 13
SECTION 8. The Vice Presidents ................................. 13
SECTION 9. The Secretary ....................................... 13
SECTION 10. The Treasurer ....................................... 13
SECTION 11. Additional Powers and Duties ........................ 14
ARTICLE VI -STOCK AND TRANSFERS OF STOCK ....................... 14
SECTION 1. Stock Certificates .................................. 14
SECTION 2. Registration of Transfers of Stock .................. 14
SECTION 3. Lost Certificates ................................... 15
SECTION 4. Determination of Stockholders of Record for
Certain Purposes ................................... 15
<PAGE> 226
iii
ARTICLE VII -INDEMNIFICATION .................................... 15
SECTION 1. Right to Indemnification ............................ 15
SECTION 2. Insurance, Contracts and Funding .................... 16
SECTION 3. Indemnification; Not Exclusive Right ................ 16
SECTION 4. Advancement of Expenses; Procedures;
Presumptions and Effect of Certain
Proceedings; Remedies .............................. 16
SECTION 5 Severability ........................................ 20
SECTION 6 Indemnification of Employees and Agents ............. 21
ARTICLE VIII -MISCELLANEOUS ...................................... 21
SECTION 1. Seal ................................................ 21
SECTION 2. Fiscal Year ......................................... 21
SECTION 3. References to Article and Section Numbers ........... 21
and to the By-Laws and the Certificate of
Incorporation ...................................... 21
SECTION 4. Books of the Corporation ............................ 21
ARTICLE IX -AMENDMENTS ......................................... 22
<PAGE> 227
BY-LAWS
of
PAINE WEBBER GROUP INC.
-----------------------
ARTICLE I
Offices
The registered office of Paine Webber Group Inc. (hereinafter referred to
as the "Corporation) in the State of Delaware shall be located in the City of
Wilmington, County of New Castle. The Corporation's principal place of business
shall be in the City, County and State of New York. The Corporation may
establish and discontinue, from time to time, such offices and places of
business within or without the State of Delaware as may be deemed proper for the
conduct of the Corporation's business.
ARTICLE II
Meetings of Stockholders
Section 1. Purpose of Annual Meeting. An annual meeting of stockholders
shall be held on such date and at such time and place as may be designated by
the Board of Directors. At each annual meeting, the stockholders shall elect the
members of the Board of Directors for the succeeding year. At any such annual
meeting any proper business properly brought before the meeting may be
transacted. To be properly brought before an annual meeting, business must be
(i) specified in the notice of the meeting (or any supplement thereto) given by
or at the direction of the Board of Directors, (ii) otherwise properly brought
before the meeting by or at the direction of the Board of Directors or (iii)
otherwise properly brought before the meeting by a stockholder. For business to
be properly brought before an annual meeting by a stockholder, the stockholder
must have given written notice thereof, either by personal delivery or by United
States mail, postage pre-paid, to the Secretary of the Corporation, not later
than 90 days in advance of such meeting. Any such notice shall set forth as to
each matter the stockholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting and, in the event that
such business includes a proposal to amend either the Certificate of
Incorporation or By-laws of the Corporation, the language of the proposed
amendment, (ii) the name and address of the
<PAGE> 228
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stockholder proposing such business, (iii) a representation that the stockholder
is a holder of record of stock of the Corporation entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting to propose
such business, and (iv) any material interest of the stockholder in such
business. No business shall be conducted at an annual meeting of stockholders
except in accordance with this paragraph, and the chairman of any annual meeting
of stockholders may refuse to permit any business to be brought before an annual
meeting without compliance with the foregoing procedures.
Section 2. Special Meetings. In addition to such special meetings as are
provided for by law or by the Certificate of Incorporation, special meetings of
the holders of any class or series or of all classes or series of the
Corporation's capital stock may be called at any time by the Board of Directors.
Special meetings shall be called by means of a notice as provided for in Section
4 of this Article II.
Section 3. Place of Meetings. All meetings of the stockholders shall be
held at such place within or without the State of Delaware as shall be
designated by the Board of Directors.
Section 4. Notice of Meetings. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting and, in case
of a special meeting, the purpose or purposes for which the meeting is called.
The notice of annual meeting of stockholders shall identify each matter intended
to be acted upon at such meeting. If mailed, the notice shall be addressed to
the stockholder in a postage-prepaid envelope at his address as it appears on
the records of the Corporation unless, prior to the time of mailing, the
Secretary shall have received from any such stockholder a written request that
notices intended for him be mailed to some other address, in which case notices
intended for such stockholder shall be mailed to the address designated in such
request. Notice of each meeting of stockholders shall be delivered personally or
mailed not less than ten nor more than 60 days before the day of the meeting to
each stockholder entitled to vote at such meeting.
Section 5. Waiver of Notice. Whenever notice is required to be given, a
written waiver thereof signed by the person entitled to notice or by his proxy
or attorney duly authorized, whether before or after the time stated thereon,
shall be deemed equivalent to notice. Attendance of a person at a meeting of
stockholders shall constitute a waiver of notice of such meeting, except as
otherwise provided by law.
<PAGE> 229
-3-
Neither the business to be transacted at nor the purpose of any regular or
special meeting of the stockholders need be specified in any written waiver of
notice.
Section 6. Organization. The Chairman of the Board shall act as chairman at
all meetings of stockholders at which he is present, and as such chairman shall
call such meetings of stockholders to order and preside thereat. If the Chairman
of the Board shall be absent from any meeting of stockholders, the duties
otherwise provided in this Section 6 to be performed by him at such meeting
shall be performed at such meeting by the President. If neither of such officers
is present at such meeting, such duties shall be performed by an officer
designated by the Chairman of the Board. If no such designated officer is
present at such meeting, any stockholder or the proxy of any stockholder
entitled to vote at the meeting may call the meeting to order and a chairman to
preside thereat shall be elected by a majority of those present and entitled to
vote. The Secretary of the Corporation shall act as secretary at all meetings of
the stockholders, but in his absence the chairman of the meeting may appoint any
person present to act as secretary of the meeting.
Section 7. Stockholders Entitled to Vote. The Board of Directors may fix a
date not more than 60 nor less than ten days preceding the date of any meeting
of stockholders, or preceding the last day on which the consent of stockholders
may be effectively expressed for any purpose without a meeting, as a record date
for the determination of the stockholders entitled (a) to notice of, and to vote
at, such meeting and any adjournment thereof or (b) to express such consent and
in such case such stockholders, and only such stockholders as shall be
stockholders of record on the date so fixed, shall be entitled to notice of, and
to vote at, such meeting and any adjournment thereof, or to express such
consent, as the case may be, notwithstanding any transfer of any stock on the
books of the Corporation after any such record date fixed as aforesaid. The
Secretary shall prepare and make or cause to be prepared and made, at least ten
days before every meeting of stockholders, a complete list of the stockholders
entitled to vote at such meeting, arranged in alphabetical order and showing the
address of each such stockholder as it appears on the records of the Corporation
and the number of shares registered in the name of each such stockholder. Such
list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting. If the meeting is to be held in the City of New
York, such list will be open to examination at the principal place of business
of the Corporation, and, unless the meeting is to be held at such principal
place of business, the notice of meeting shall
<PAGE> 230
-4-
specify that the list is so located. If the meeting is to be held in a city
other than New York, the list shall be open to examination either at a place,
specified in the notice of meeting, within the city where the meeting is to be
held, or, if not so specified, at the place where the meeting is to be held, and
a duplicate list shall be similarly open to examination at the principal place
of business of the Corporation. Such list shall be produced and kept at the time
and place of the meeting during the whole time thereof, and may be inspected by
any stockholder who is present.
Section 8. Quorum and Adjournment. Except as otherwise provided by law, the
holders of a majority of the shares of capital stock entitled to vote at the
meeting shall constitute a quorum at all meetings of the stockholders. Where
more than one class or series of capital stock is entitled to vote as such class
or series at such a meeting, a majority of the shares of each such class or
series of capital stock entitled to vote at such meeting shall constitute a
quorum at such meeting. In the absence of a quorum, the holders of a majority of
all such shares of capital stock present in person or by proxy may adjourn any
meeting, from time to time, until a quorum shall attend. At any such adjourned
meeting at which a quorum may be present, any business may be transacted which
might have been transacted at the meeting as originally called. No notice of any
adjourned meeting need be given if the time and place thereof are announced at
the meeting at which the adjournment is taken. If the adjournment is for more
than 30 days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 9. Order of Business. The order of business at all meetings of
stockholders shall be as determined by the chairman of the meeting.
Section 10. Vote of Stockholders. Except as otherwise permitted by law, by
the Certificate of Incorporation or by Section 12 of this Article II, all action
by stockholders shall be taken at a stockholders' meeting. Except as otherwise
provided by law or by the Certificate of Incorporation, every stockholder of
record, as determined pursuant to Section 7 of this Article II, who is entitled
to vote, shall at every meeting of the stockholders be entitled to one vote for
each share of stock entitled to vote held by such stockholder on the record
date. Every stockholder entitled to vote shall have the right to vote in person
or by proxy. Except as otherwise provided by law, no vote on any question upon
which a vote of the stockholders may be taken need be by ballot unless the
chairman of the meeting shall determine that it shall be by
<PAGE> 231
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ballot or the holders of a majority of the shares of capital stock present in
person or by proxy and entitled to participate in such vote shall so demand. In
a vote by ballot each ballot shall state the number of shares voted and the name
of the stockholder or proxy voting. Unless otherwise provided by law, by the
Certificate of Incorporation or by Section 13 of Article III hereof, each
director shall be elected and all other questions shall be decided by the vote
of the holders of a majority of the shares of capital stock present in person or
by proxy at the meeting and entitled to vote on the question; provided, however,
that the Board of Directors may require on any question a vote of a majority of
the shares of capital stock outstanding and entitled to vote thereon.
Section 11. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent to corporate action in writing without a
meeting may authorize another person or persons to act for him by proxy. A proxy
acting for any stockholder shall be duly appointed by an instrument in writing
subscribed by such stockholder.
Section 12. Attendance at Stockholders' Meetings. Any stockholder of the
Corporation not entitled to notice of the meeting or to vote at such meeting
shall nevertheless be entitled to attend any meeting of stockholders of the
Corporation.
ARTICLE III
Board of Directors
Section 1. Number, Qualification and Election. Subject to the rights of the
holders of any class or series of stock having a preference over the Common
Stock of the Corporation as to dividends or upon liquidation, the number of
directors which shall constitute the whole Board shall be 11, but by vote of a
majority of the entire Board of Directors, the number thereof may be increased
without limit, or decreased to not less than three, by amendment of this Section
1.
The directors, other than those who may be elected by the holders of shares
of any class or series of stock having a preference over the Common Stock of the
Corporation as to dividends or upon liquidation pursuant to Article IV of the
Certificate of Incorporation, shall be classified with respect to the time for
which they severally hold office, into three classes as follows: one class of
three directors shall be originally elected for a term expiring at the annual
meeting of stockholders to be held in 1988, another class of four directors
shall be originally elected for a term expiring at the annual meeting of
stockholders to be held in 1989, and another class of four directors shall be
originally elected for
<PAGE> 232
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a term expiring at the annual meeting of stockholders to be held in 1990, with
each class to hold office until its successors are elected and qualified. At
each annual meeting of the stockholders of the Corporation, the successors of
the class of directors whose term expires at that meeting shall be elected to
hold office for a term expiring at the annual meeting of stockholders held in
the third year following the year of their election.
Subject to the rights of the holders of any class or series of stock having
a preference over the Common Stock of the Corporation as to dividends or upon
liquidation, at each annual meeting of the stockholders there shall be elected
the directors of the class the term of office of which shall then expire.
In any election of directors, the persons receiving a plurality of the
votes cast, up to the number of directors to be elected in such election, shall
be deemed elected.
Nominations for the election of directors may be made by the Board of
Directors or by any stockholder entitled to vote for the election of directors.
Any stockholder entitled to vote for the election of directors at a meeting may
nominate a person or persons for election as directors only if written notice of
such stockholder's intent to make such nomination is given, either by personal
delivery or by United States mail, postage prepaid, to the Secretary of the
Corporation not later than (i) with repect to an election to be held at an
annual meeting of stockholders, 90 days in advance of such meeting, and (ii)
with respect to an election to be held at a special meeting of stockholders for
the election of directors, the close of business on the seventh day following
the date on which notice of such meeting is first given stockholders. Each such
notice shall set forth: (a) the name and address of the stockholder who intends
to make the nomination and the person or persons to be nominated; (b) a
representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote at the meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (c) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the stockholder; (d) such other information regarding each nominee proposed by
the stockholder as would have been required to be included in a proxy statement
filing pursuant to the proxy rules of the Securities and Exchange Commission had
each nominee been nominated, or intended to be nominated, by the Board of
Directors; and (e) the consent of each nominee to serve as a Director of the
Corporation if so elected. The
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chairman of any meeting of stockholders to elect directors and the Board of
Directors may refuse to acknowledge the nomination of any person not made in
compliance with the foregoing procedure.
Section 2. Number. The number of directors may be fixed from time to time
by resolution of the Board of Directors but shall not be less than three.
Section 3. General Powers. The business, properties and affairs of the
Corporation shall be managed by the Board of Directors which, without limiting
the generality of the foregoing, shall have power to appoint the officers and
agents of the Corporation, to fix and alter the salaries of officers, employees
and agents of the Corporation, to grant general or limited authority (including
authority to delegate and sub-delegate) to officers, employees and agents of the
Corporation to make, execute, affix the corporate seal to, and deliver contracts
and other instruments and documents, including bills, notes, checks or other
instruments for the payment of money, in the name and on behalf of the
Corporation without specific authority in each case, and to appoint committees,
in addition to those provided for in Article IV hereof, with such powers and
duties as the Board of Directors may duly determine. The membership of such
committees shall consist of such persons as are designated by the Board of
Directors whether or not any of such persons is then a director of the
Corporation. In addition, the Board of Directors may exercise all the powers of
the Corporation and do all lawful acts and things which are not reserved to the
stockholders by law, by the Certificate of Incorporation or by the By-Laws.
Section 4. Place of Meetings. Meetings of the Board of Directors may be
held at the principal place of business of the Corporation in the City of New
York or at any other place, within or without the State of Delaware, from time
to time designated by the Board of Directors.
Section 5. Organization Meeting. A newly elected Board of Directors shall
meet and organize without notice and as soon as practicable after each annual
meeting of stockholders, at the place at which such meeting of stockholders took
place. If a quorum is not present, such organization meeting may be held at any
other time or place which may be specified in a notice given in the manner
provided in Section 7 of this Article III for special meeting of the Board of
Directors, or in a waiver of notice thereof.
Section 6. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such times as may be determined by resolution of the Board of
Directors and no
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notice shall be required for any regular meeting. Except as otherwise provided
by law, any business may be transacted at any regular meeting of the Board of
Directors.
Section 7. Special Meetings; Notice and Waiver of Notice. Special meetings
of the Board of Directors shall be called by the Secretary or an Assistant
Secretary on the request of the Chairman of the Board or the President, or on
the request in writing of one-third of the whole Board of Directors stating the
purpose or purposes of such meeting. Notices of special meetings shall be mailed
to each director, addressed to him at his residence or usual place of business,
not later than three days before the day on which the meeting is to be held, or
shall be sent to him at either of such places by telegraph, or be communicated
to him personally or by telephone, not later than the day before such day of
meeting. Notice of any meeting of the Board of Directors need not be given to
any director if he shall sign a written waiver thereof either before or after
the time stated therein for such meeting. Attendance of a person at a meeting
shall constitute a waiver of notice of such meeting, except when the person
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or covened. Unless limited by law, the Certificate of Incorporation, the
By-Laws, or by the terms of the notice thereof, any and all business may be
transacted at any special meeting without the notice thereof having so
specifically enumerated the matters to be acted upon. Only such business as is
specified in the notice of any special meeting of the stockholders shall come
before such meeting.
Section 8. Organization. The Chairman of the Board shall preside at all
meetings of the Board of Directors at which he is present. If the Chairman of
the Board shall be absent from any meeting of the Board of Directors, the duties
otherwise provided in this Section 8 to be performed by him at such meeting
shall be performed at such meeting by the President. If neither of such officers
is present at such meeting, such duties shall be performed by a director
designated by the Chairman of the Board. If no such designated officer or
director is present at such meeting, one of the directors present shall be
chosen by the members of the Board of Directors present to preside at such
meeting. The Secretary of the Corporation shall act as the secretary at all
meetings of the Board of Directors and in his absence a temporary secretary
shall be appointed by the chairman of the meeting.
Section 9. Quorum and Adjournment; Manner of Acting. Except as otherwise
provided by Section 14 of this Article III, at every meeting of the Board of
Directors a majority of the
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total number of directors shall constitute a quorum but in no event shall a
quorum be constituted by less than two directors. Except as otherwise provided
by law, or by Section 14 of this Article III, by Section 1 of Article IV, or by
Section 3 of Article V, or by Article VIII, the vote of a majority of the
directors present at any such meeting at which a quorum is present shall be the
act of the Board of Directors. In the absence of a quorum, any meeting may be
adjourned, from time to time, until a quorum is present. No notice of any
adjourned meeting need be given other than by announcement at the meeting that
is being adjourned. Members of the Board of Directors may participate in a
meeting thereof by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at such meeting.
Section 10. Voting. On any question on which the Board of Directors shall
vote, the names of those voting and their votes shall be entered in the minutes
of the meeting when any member of the Board of Directors present at the meeting
so requests.
Section 11. Acting Without a Meeting. Any action required or permitted to
be taken at any meeting of the Board of Directors may be taken without a
meeting, if (a) all members of the Board of Directors consent thereto in writing
and such written consents are filed with the minutes of proceedings of the Board
of Directors, or (b) a quorum of members of the Board of Directors participate
in such action by means of conference telephone or similar communications
equipment by means of which all such members participating in such action can
hear each other.
Section 12. Resignations. Any director may resign at any time either by
oral tender of resignation at any meeting of the Board of Directors or by oral
tender to the Chairman of the Board or the President or by written notice
thereof to the Corporation. Any resignation shall be effective immediately
unless some other time is specified for it to take effect. Acceptance of any
resignation shall not be necessary to make it effective unless such resignation
is tendered subject to such acceptance.
Section 13. Removal of Directors. Directors may only be removed as provided
in Section 3(c) of Article VI of the Certificate of Incorporation of the
Corporation.
Subject to the rights of the holders of any class or series of stock having
a preference over the Common Stock of the Corporation as to dividends or upon
liquidation, any vacancies on the Board of Directors resulting from death,
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resignation, removal or other cause shall only be filled by the affirmative vote
of a majority of the remaining directors then in office, even though less than a
quorum of the Board of Directors, or by a sole remaining director, and newly
created directorships resulting from any increase in the number of directors
shall be filled by the Board, or if not so filled, by the stockholders at the
next annual meeting thereof or at a special meeting called for that purpose in
accordance with Section 2 of Article II of these By-Laws. Any director elected
in accordance with the preceding sentence of this paragraph shall hold office
for the remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified.
Section 14. Senior Advisor. The Corporation may appoint a Senior Advisor to
the Board of Directors of the Corporation. The Senior Advisor shall be entitled,
but not required, to attend all meetings of the Board of Directors of the
Corporation. The Senior Advisor will not have voting rights on any matters on
which the Board of Directors of the Corporation shall vote.
ARTICLE IV
Committees of the Board
Section 1. Appointing Committees of the Board. The Board of Directors may
from time to time, by resolution adopted by affirmative vote of a majority of
the whole Board of Directors, appoint committees of the Board of Directors which
shall have such powers of the Board of Directors and such duties as the Board of
Directors may properly determine. The Board of Directors may designate one or
more directors as alternate members of any such committee who may replace any
absent or disqualified member at any meeting of such
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committee. In the absence or disqualification of any member of such committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not constituting a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. Except as may be otherwise provided by the
resolution designating any such committee, at all meetings of any such committee
the presence of members (or alternative members, if any) consisting of a
majority of the total authorized membership of such committee, but in no event
less than two, shall be necessary and sufficient to constitute a quorum for the
transaction of business, and the act of the majority of the members (or such
alternates) present at any meeting at which a quorum is present, but in no event
less than two, shall be the act of such committee.
Section 2. Place and Time of Meetings; Notice and Waiver of Notice;
Records. Meetings of such committees of the Board of Directors may be held at
any place, within or without the State of Delaware, from time to time designated
by the Board of Directors or the committee in question. Regular meetings of any
such committee shall be held at such times as may be determined by resolution of
the Board of Directors or the committee in question, an no notice shall be
required for any regular meeting. A special meeting of any such committee shall
be called by resolution of the Board of Directors, or by the Secretary or an
Assistant Secretary upon the request of any member of the committee. The
provisions of Section 7 of Article III with respect to notice and waiver of
notice of special meetings of the Board of Directors shall also apply to all
special meetings, and the provisions of Section 11 of Article III with respect
to action taken without a meeting and with respect to participation in meetings
of the Board of Directors by means of telephone or similar communications
equipment shall apply to all meetings, of committees of the Board of Directors.
Any such committee may make rules for holding and conducting its meetings and
shall keep minutes of all meetings.
ARTICLE V
The Officers
Section 1. Officers. The officers of the Corporation shall be a Chairman of
the Board, a President, a Secretary, a Treasurer and, in the discretion of the
Board of Directors, one or more Vice Presidents. The officers shall be appointed
by the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers and other officers and agents as in
their judgment may be
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necessary or desirable. The Board of Directors may appoint persons as officers
of divisions of the Corporation who shall not for any purpose be considered
officers of the Corporation. The Chairman of the Board and the President shall
be selected from the directors.
Section 2. Terms of Office; Vacancies. So far as is practicable, all
officers shall be appointed at the organization meeting of the Board of
Directors in each year, and, except as otherwise provided in Sections 3 and 4 of
this Article V, shall hold office until the organization meeting of the Board of
Directors in the next subsequent year and until their respective successors are
elected and qualify, or until they sooner die, retire, resign or are removed. If
any vacancy shall occur in any office, the Board of Directors may appoint a
successor to fill such vacancy for the remainder of the term.
Section 3. Removal of Officers. Any officer may be removed at any time,
either for or without cause, by affirmative vote of a majority of the whole
Board of Directors, at any regular meeting or at any special meeting called for
that purpose.
Section 4. Resignations. Any officer may resign at any time, either by oral
tender of resignation to the Chairman of the Board or the President or by giving
written notice thereof to the Corporation. Any resignation shall be effective
immediately unless some other time is specified for it to take effect and
acceptance of any resignation shall not be necessary to make it effective unless
such resignation is tendered subject to such acceptance.
Section 5. Officers Holding More Than One Office. Any officer may hold two
or more offices, the duties of which can be consistently performed by the same
person.
Section 6. The Chairman Of The Board. The Chairman of the Board shall be a
member of the Board of Directors. He shall be the Chief Executive Officer of the
Corporation and, subject to the control of the Board of Directors, shall have
general and active charge of all the policies and affairs of the Corporation. As
provided in Section 6 of Article II, and Section 8 of Article III, he shall
preside at the various meetings at which he is present. The Chairman of the
Board shall also perform such other duties and have such other powers as are
described in Section 7 of this Article V and as may from time to time be
assigned to him by the Board of Directors. In the absence or disability of the
Chairman of the Board his duties shall be performed and his powers may be
exercised by the President. In the absence or disability of both aforementioned
officers, the powers of the Chairman of the
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Board may be exercised by such member of the Board of Directors as may be
designated by the Board of Directors.
Section 7. The President. The President shall be a member of the Board of
Directors. As provided in Section 6 of Article II, and Section 8 of Article III,
the President shall preside at the various meetings under the circumstances
described in such Sections. If such officer is not available, the duties of the
President shall be performed and his powers may be exercised by such member of
the Board of Directors as may be designated by the Chairman of the Board, and
failing such designation or in the absence of the person so designated, by such
member of the Board of Directors as may be designated by the Board of Directors.
The President shall also perform such other duties and have such other powers as
may from time to time be assigned to him by the Board of Directors.
Section 8. The Vice Presidents. The Vice Presidents shall perform such
duties and have such powers as may, from time to time, be assigned to them by
the Board of Directors, the Chairman of the Board or the President.
Section 9. The Secretary. The Secretary shall attend to the giving of
notice of all meetings of stockholders and of the Board of Directors and
committees thereof, and, as provided in Section 6 of Article II, and Section 8
of Article III, shall act as secretary at all meetings of stockholders and
directors, and keep minutes of all proceedings at such meetings, as well as of
all proceedings at all meetings of such committees of the Board of Directors as
shall designate him to so serve. The Secretary shall have charge of the
corporate seal and he or any Assistant Secretary shall have authority to attest
any and all instruments or writings to which the same may be affixed. He shall
keep and account for all books, documents, papers and records of the
Corporation, except those for which some other officer or agent is properly
accountable. He shall generally perform all the duties usually appertaining to
the office of secretary of a corporation. In the absence of the Secretary, such
person as shall be designated by the chairman of any meeting shall perform his
duties.
Section 10. The Treasurer. The Treasurer shall have the care and custody of
all the funds of the Corporation and shall deposit the same in such banks or
other depositories as the Board of Directors, or any officer or officers
thereunto duly authorized by the Board of Directors, shall, from time to time,
direct or approve. He shall generally perform all the duties usually
appertaining to the affairs of the treasurer of a corporation. When required by
the Board of Directors, he shall give bonds for the faithful discharge of his
duties in such sums and with such sureties as the Board of Directors
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shall approve. In the absence of the Treasurer, such person as shall be
designated by the Chairman of the Board shall perform his duties.
Section 11. Additional Powers and Duties. In addition to the foregoing
especially enumerated duties and powers, the several officers of the Corporation
shall perform such other duties and exercise such further powers as the Board of
Directors may, from time to time, determine, or as may be assigned to them by
any superior officer.
ARTICLE VI
Stock and Transfers of Stock
Section 1. Stock Certificates. The capital stock of the Corporation shall
be represented by certificates signed by two officers of the Corporation, one
being the Chairman of the Board, the President or a Vice President and the other
being the Secretary or an Assistant Secretary, and sealed with a seal of the
Corporation. Stock certificates may, in the discretion of the Board of
Directors, also be countersigned by a Transfer Agent or Agents, and registered
by a Registrar of transfers, to be appointed by the Board. Any of or all
signatures on a stock certificate, may, if the Board of Directors so determines,
be a facsimile. The seal may be a facsimile, engraved or printed. In case any
such officer who has signed any such certificate shall have ceased to be such
officer before such certificate is issued, it may nevertheless be issued by the
Corporation with the same effect as if he were such officer at the date of
issue. The certificates representing the voting capital stock of the Corporation
shall be in such form as shall be approved by the Board of Directors and shall
bear the following legend:
"The Corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative
participating, optional or other special rights of each class of stock
or series thereof of the Corporation and the qualifications,
limitations or restrictions of such preference and/or rights. Such
request may be made to the Corporation or to the Transfer Agent or
Registrar."
Section 2. Registration of Transfers of Stock. Registration of a transfer
of stock shall be made on the books of the Corporation only upon presentation by
the person named in the certificate evidencing such stock, or by an attorney
lawfully constituted in writing, and upon surrender and cancellation of such
certificate, with duly executed assignment and power of transfer endorsed
thereon or attached thereto, and
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with such proof of the authenticity of the signature thereon as the Corporation
or its agents may reasonably require.
Section 3. Lost Certificates. In case any certificate of stock shall be
lost, stolen or destroyed, the Board of Directors, in its discretion, or any
officer or officers thereunto duly authorized by the Board of Directors, may
authorize the issuance of a substitute certificate in the place of the
certificate so lost, stolen or destroyed; provided, however, that, in each such
case, the Corporation may require the owner of the lost, stolen or destroyed
certificate, or his legal representative, to give the Corporation evidence which
the Corporation determines in its discretion is satisfactory of the loss, theft
or destruction of such certificate and of the ownership thereof, and may also
require a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 4. Determination of Stockholders of Record for Certain Purposes. In
order that the Corporation may determine the stockholders entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock or for the purpose of any other lawful action, the Board of Directors
may fix, in advance, a record date, which shall not be more than 60 or less than
ten days prior to any such action.
ARTICLE VII
Indemnification
Section 1. Right to Indemnification. The Corporation shall to the fullest
extent permitted by applicable law as then in effect, indemnify any person (the
"Indemnitee") who is or was a director or officer of the Corporation or is or
was involved in any manner (including, without limitation, as a party or a
witness) or is threatened to be made so involved in any threatened, pending or
completed investigation, claim, action, suit or proceeding, whether civil,
criminal, administrative or investigative (including without limitation, any
action, suit or proceeding by or in the right of the Corporation to procure a
judgment in its favor) (a "Proceeding") by reason of the fact that such person
is or was a director or officer of the Corporation, or is or was serving at the
request of the Corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise (including, without
limitation, any employee benefit plan) against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
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reasonably incurred by such person in connection with such proceeding. Such
indemnification shall be a contract right and shall include the right to receive
payment in advance of any expenses incurred by the Indemnitee in connection with
such proceeding, consistent with the provisions of applicable law as then in
effect.
Section 2. Insurance, Contracts and Funding. The Corporation may purchase
and maintain insurance to protect itself and any person entitled to indemnity
under this Article VII against any expenses, judgments, fines and amounts paid
in settlement as specified in the first section of this Article or incurred by
any such person in connection with any Proceeding referred to in this Article
VII, to the fullest extent permitted by applicable law as then in effect. The
Corporation may enter into contracts with any person entitled to indemnity under
this Article VII in furtherance of the provisions of this Article VII and may
create a trust fund, grant a security interest or use other means (including,
without limitation, a letter of credit) to ensure the payment of such amounts as
may be necessary to effect indemnification as provided in this Article.
Section 3. Indemnification; Not Exclusive Right. The right of
indemnification provided in this Article VII shall not be exclusive of any other
rights to which those seeking indemnification may otherwise be entitled, and the
provisions of this Article VII shall inure to the benefit of the heirs and legal
representatives of any person entitled to indemnity under this Article VII and
shall be applicable to Proceedings commenced or continuing after the adoption of
this Article VII, whether arising from acts or omissions occurring before or
after such adoption.
Section 4. Advancement of Expenses; Procedures; Presumptions and Effect of
Certain Proceedings; Remedies. In furtherance, but not in limitation of the
foregoing provisions, the following procedures, presumptions and remedies shall
apply with respect to advancement of expenses and the right to indemnification
under this Article VII:
(a) Advancement of Expenses. All reasonable expenses incurred by or on
behalf of the Indemnitee in connection with any Proceeding shall be advanced to
the Indemnitee by the Corporation within 20 days after the receipt by the
Corporation of a statement or statements from the Indemnitee requesting such
advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the expenses incurred by the Indemnitee and, if required by law at the
time of such advance, shall include or be accompanied by an undertaking by
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or on behalf of the Indemnitee to repay the amounts advanced if it should
ultimately be determined that the Indemnitee is not entitled to be indemnified
against such expenses pursuant to this Article VII.
(b) Procedure for Determination of Entitlement to Indemnification. (i) to
obtain indemnification under this Article VII, an Indemnitee shall submit to the
Secretary of the Corporation a written request, including such documentation and
information as is reasonably available to the Indemnitee and reasonably
necessary to determine whether and to what extent the Indemnitee is entitled to
indemnification (the "Supporting Documentation"). The determination of the
Indemnitee's entitlement to indemnification shall be made not later than 60 days
after receipt by the Corporation of the written request for indemnification
together with the Supporting Documentation. The Secretary of the Corporation
shall, promptly upon receipt of such a request for indemnification, advise the
Board of Directors in writing that the Indemnitee has requested indemnification.
(ii) The Indemnitee's entitlement to indemnification under this Article VII
shall be determined in one of the following ways: (A) by a majority vote of the
Disinterested Directors (as hereinafter defined), if they constitute a quorum of
the Board of directors; (B) by a written opinion of Independent Counsel (as
hereinafter defined) if (x) a Change of Control (as hereinafter defined) shall
have occurred and the Indemnitee so requests or (y) a quorum of the Board of
Directors consisting of Disinterested Directors is not obtainable or, even if
obtainable, a majority of such Disinterested Directors so directs; (C) by the
stockholders of the Corporation (but only if a majority of the Disinterested
Directors, if they constitute a quorum of the Board of Directors, presents the
issue of entitlement to indemnification to the stockholders for their
determination); or (D) as provided in Section 4(c).
(iii) In the event the determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 4(b)(ii), a majority of
the Disinterested Directors shall select the Independent Counsel, but only an
Independent Counsel to which the Indemnitee does not reasonably object;
provided, however, that if a Change of Control shall have occurred, the
Indemnitee shall select such Independent Counsel, but only an Independent
Counsel to which the Board of Directors does not reasonable object. If no
Independent Counsel is so selected to act as provided in Section 4(b)(ii), the
Indemnitee shall be entitled to seek adjudication to indemnification in an
appropriate court of the State of Delaware or any other court of competent
jurisdiction.
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(c) Presumptions and Effect of Certain Proceedings. Except as otherwise
expressly provided in this Article VII, if a Change of Control shall have
occurred, the Indemnitee shall be presumed to be entitled to indemnification
under this Article VII upon submission of a request for indemnification together
with the Supporting Documentation in accordance with Section 4(b)(i), and
thereafter the Corporation shall have the burden of proof to overcome that
presumption in reaching a contrary determination. In any event, if the person or
persons empowered under Section 4(b) to determine entitlement to indemnification
shall not have been appointed or shall not have made a determination within 60
days after receipt by the Corporation of the request therefor together with the
Supporting Documentation, the Indemnitee shall be deemed to be entitled to
indemnification and the Indemnitee shall be entitled to such indemnification
unless (A) the Indemnitee misrepresented or failed to disclose a material fact
in making the request for indemnification or in the Supporting Documentation or
(B) such indemnification is prohibited by law. The termination of any Proceeding
described in Section 1, or of any claim, issue or matter therein, by judgment,
order, settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, adversely affect the right the Indemnitee to
indemnification or create a presumption that the Indemnitee did not act in good
faith and in a manner which the Indemnitee reasonably believed to be in or not
opposed to the best interests of the Corporation or, with respect to any
criminal Proceeding, that the Indemnitee had reasonable cause to believe that
his conduct was unlawful.
(d) Remedies of Indemnitee. (i) In the event that a determination is made
pursuant to Section 4(b) that the Indemnitee is not entitled to indemnification
under this Article VII, (A) the Indemnitee shall be entitled to seek an
adjudication of his entitlement to such indemnification either, at the
Indemnitee's sole option, in an appropriate court of the State of Delaware or
any other court of competent jurisdiction; (B) any such judicial proceeding
shall be de novo and the Indemnitee shall not be prejudiced by reason of such
adverse determination; and (C) if a Change of Control shall have occurred, in
any such judicial proceeding the Corporation shall have the burden of proving
that the Indemnitee is not entitled to indemnification under this Article VII.
(ii) If a determination shall have been made or deemed to have been made,
pursuant to Section 4(b) or (c), that the Indemnitee is entitled to
indemnification, the Corporation shall be obligated to pay the amounts
constituting such indemnification within five days after such determination has
been made or deemed to have been made and shall be conclusively
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bound by such determination unless (A) the Indemnitee misrepresented or failed
to disclose a material fact in making the request for indemnification or in the
Supporting Documentation or (B) such indemnification is prohibited by law. In
the event that (x) advancement of expenses is not timely made pursuant to
Section 4(a) or (y) payment of indemnification is not made within five days
after a determination of entitlement to indemnification has been made or deemed
to have been made pursuant to section 4(b) or (c), the Indemnitee shall be
entitled to seek judicial enforcement of the Corporation's obligation to pay to
the Indemnitee such advancement of expenses or indemnification. Notwithstanding
the foregoing, the Corporation may bring an action, in an appropriate court in
the State of Delaware or any other court of competent jurisdiction, contesting
the right of the Indemnitee to receive indemnification hereunder due to the
occurrence of an event described in subclause (A) or (B) of this clause (ii) (a
"Disqualifying Event"); provided, however, that in any such action the
Corporation shall have the burden of proving the occurrence of such
Disqualifying Event.
(iii) The Corporation shall be precluded from asserting in any judicial
proceeding commenced pursuant to this Section 4(d) that the procedures and
presumptions of this Article VII are not valid, binding and enforceable and
shall stipulate in any such court that the Corporation is bound by all the
provisions of this Article VII.
(iv) In the event that the Indemnitee, pursuant to this Section 4(d), seeks
a judicial adjudication to enforce his rights under, or to recover damages for
breach of, this Article VII, the Indemnitee shall be entitled to recover from
the Corporation, and shall be indemnified by the Corporation against, any
expenses actually and reasonably incurred by the Indemnitee if the Indemnitee
prevails in such judicial adjudication. If it shall be determined in such
judicial adjudication that the Indemnitee is entitled to receive part but not
all of the indemnification or advancement of expenses sought, the expenses
incurred by the Indemnitee in connection with such judicial adjudication shall
be prorated accordingly.
(e) Definitions. For purposes of this Section 4: (i) "Change in Control"
means a change in control of the Corporation of a nature that would be required
to be reported in response to Item 6(e) (or any successor provision) of Schedule
14A of Regulation 14A promulgated under the Securities Exchange Act of l934 (the
"Act"), whether or not the Corporation is then subject to such reporting
requirement; provided that, without limitation, such a change in control shall
be deemed to have occurred if (A) any "person" ((as such term is defined in
Sections 4 of Article XIII of the
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Certificate of Incorporation)]* is or becomes an "Interested Stockholder" (as
defined therein)]*; (B) the Corporation is a party to any merger or
consolidation in which the Corporation is not the continuing or surviving
corporation or pursuant to which shares of the Corporation's Common Stock would
be converted into cash, securities or other property, other than a merger of the
Corporation in which the holders of the Corporation's Common Stock immediately
prior to the merger have the same proportionate ownership of common stock of the
surviving corporation immediately after the merger; (C) there is a sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, the assets of the Corporation, or a
liquidation or dissolution of the Corporation; or (D) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors (including for this purpose any new director whose
election or nomination for election by the Corporation's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of such period) cease for any reason to
constitute at least a majority of the Board of Directors.
(ii) "Disinterested Director" means a director of the Corporation who is
not or was not a party to the Proceeding in respect of which indemnification is
sought by the Indemnitee.
(iii) "Independent Counsel" means a law firm or a member of a law firm that
neither presently is, nor in the past five years has been, retained to
represent: (i) the Corporation or the Indemnitee in any matter material to
either such party or (ii) any other party to the Proceeding giving rise to a
claim for indemnification under this Article VII. Notwithstanding the foregoing,
the term "Independent Counsel" shall not include any person who, under the
applicable standards of professional conduct then prevailing under the law of
the State of Delaware, would have conflict of interest in representing either
the Corporation or the Indemnitee in an action to determine the Indemnitee's
rights under this Article VII.
Section 5. Severability. If any provision or provisions of this Article VII
shall be held to be invalid, illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining provisions of
this Article VII containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or uenforceable) shall
not in any way be affected or impaired thereby; and (b) to the fullest extent
possible, the provisions of this Article VII (including, without limitation, all
portions of any section of this Article VII containing any such provision held
to be invalid, illegal
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or unenforceable, that are not themselves invalid, illegal or unenforceable)
shall be construed so as to give effect to the intent manifested by the
provision held invalid, illegal or unenforceable.
Section 6. Indemnification of Employees and Agents Notwithstanding any
other provision or provisions of this Article VII, the Corporation may indemnify
(including, without limitation, by direct payment) any person (other than a
director or officer of the Corporation) who is or was involved in any manner
(including, without limitation, as a party or witness) or is threatened to be
made so involved in any Proceeding by reason of the fact that such person is or
was an employee or agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise (including,
without limitation, any employee benefit plan), against any or all expenses
(including attorneys' fees), judgments, fines amounts paid in settlement
incurred in connection with such Proceeding.
ARTICLE VIII
Miscellaneous
Section 1. Seal. The seal of the Corporation shall have inscribed thereon
the name of the Corporation, the year of its organization and the state of its
incorporation.
Section 2. Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board of Directors.
Section 3. References to Article and Section Numbers and to the By-Laws and
the Certficate of Incorporation. Whenever in the By-Laws reference is made to an
Article or Section number, such reference is to the number of an Article or
Section of the By-Laws. Whenever in the By-Laws reference is made to the
By-Laws, such reference is to these By-Laws of the Corporation, as the same may
from time to time be amended, and whenever reference is made to the Certificate
of Incorporation, such reference is to the Certificate of Incorporation of the
Corporation, as the same may from time to time be amended.
Section 4. Books of the Corporation. Except as otherwise provided by law,
the books of the Corporation shall be kept at the principal place of business of
the Corporation and at such other locations as the Board of Directors may from
time to time determine.
<PAGE> 248
-22-
ARTICLE IX
Amendments
The By-Laws may be altered, amended or repealed, from time to time, in
accordance with the provisions of Article XII of the Certificate of
Incorporation.
----------
<PAGE> 249
Exhibit 10 to
Amended and Restated
Investment Agreement
Form of Legend
THESE SECURITIES WERE SOLD IN A PRIVATE PLACEMENT, WITHOUT REGISTRATION UNDER
THE SECURITIES ACT OF 1933 AND MAY BE OFFERED OR SOLD ONLY IF REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR IF AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
THESE SECURITIES ARE SUBJECT TO THE PROVISIONS OF THE AMENDED AND RESTATED
INVESTMENT AGREEMENT DATED AS OF NOVEMBER 5, 1992 BY AND BETWEEN THE COMPANY AND
THE INVESTOR AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN ACCORDANCE THEREWITH.
<PAGE> 250
Exhibit 11 to
Amended and Restated
FUNCTIONAL AREAS: Investment Agreement
1. Underwriting and distribution of domestic and foreign public and
private securities;
2. Mergers and acquisitions, divestitures and restructuring;
3. Merchant banking, including leveraged buy-outs and high-yield
financings;
4. Market making and trading activities in various types of government
and corporate securities;
5. Institutional sales activities;
6. Securities arbitrage;
7. Equipment leasing and other asset-based financings;
8. Real estate financing, including limited partnerships;
9. Mortgage banking;
10. Investment counseling and investment management services;
11. Equity, fixed income and quantitative research;
12. Treasury/funding/Asset liability management;
13. Administration and operations/data processing and corporate
planning/management;
14. Futures, options;
15. Swaps;
16. Macroeconomic and market research;
17. Trading/portfolio risk control; and
18. Product development including insurance.
<PAGE> 251
Exhibit 12 to the
Amended and Restated
Investment Agreement
Foreign Exchange Market Makers
Chemical Bank
Citibank
Morgan Guaranty
Bank of New York
Sumitomo Bank, New York
Royal Bank of Canada
Sakura Bank
Chase Manhattan Bank
<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,
1997* 1996* 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income before taxes $ 644,075 $ 558,999 $ 102,677 $ 44,385 $ 407,576
---------- ---------- ---------- ---------- ----------
Preferred stock dividends 44,186 43,712 36,260 1,710 5,828
---------- ---------- ---------- ---------- ----------
Fixed charges:
Interest 2,573,582 1,971,788 1,969,811 1,428,653 1,130,712
Interest factor in rents 53,665 54,537 59,491 51,102 50,133
---------- ---------- ---------- ---------- ----------
Total fixed charges 2,627,247 2,026,325 2,029,302 1,479,755 1,180,845
---------- ---------- ---------- ---------- ----------
Total fixed charges and preferred
stock dividends 2,671,433 2,070,037 2,065,562 1,481,465 1,186,673
---------- ---------- ---------- ---------- ----------
Income before taxes and fixed charges $3,271,322 $2,585,324 $2,131,979 $1,524,140 $1,588,421
========== ========== ========== ========== ==========
Ratio of earnings to fixed charges
and preferred stock dividends 1.2 1.2 1.0 1.0 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 principally 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
trusts.
<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,
1997* 1996* 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income before taxes $ 644,075 $ 558,999 $ 102,677 $ 44,385 $ 407,576
---------- ---------- ---------- ---------- ----------
Fixed charges:
Interest 2,573,582 1,971,788 1,969,811 1,428,653 1,130,712
Interest factor in rents 53,665 54,537 59,491 51,102 50,133
---------- ---------- ---------- ---------- ----------
Total fixed charges 2,627,247 2,026,325 2,029,302 1,479,755 1,180,845
---------- ---------- ---------- ---------- ----------
Income before taxes and
fixed charges $3,271,322 $2,585,324 $2,131,979 $1,524,140 $1,588,421
========== ========== ========== ========== ==========
Ratio of earnings to fixed charges 1.2 1.3 1.1 1.0 1.3
========== ========== ========== ========== ==========
</TABLE>
For purposes of computing the ratio of earnings to fixed charges,
"earnings" consist of income before taxes and fixed charges. "Fixed
charges" consist principally 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
trusts.
<PAGE> 1
FINANCIAL HIGHLIGHTS
(In thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
Year ended December 31 1997 1996 1995(1) 1994(2) 1993
==============================================================================================================
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Total revenues $ 6,656,952 $ 5,705,966 $ 5,320,090 $ 3,964,077 $ 4,004,717
Net revenues
(including net interest) $ 4,112,402 $ 3,735,212 $ 3,350,279 $ 2,535,424 $ 2,874,005
Income before taxes and
minority interest $ 673,107 $ 560,033 $ 102,677 $ 44,385 $ 407,576
Net income $ 415,449 $ 364,350 $ 80,750 $ 31,631 $ 246,183
- --------------------------------------------------------------------------------------------------------------
PER COMMON SHARE(3)
Basic earnings(4) $ 2.84 $ 2.55 $ 0.37 $ 0.28 $ 2.36
Diluted earnings(4) $ 2.56 $ 2.24 $ 0.35 $ 0.26 $ 1.95
Dividends declared $ 0.41 $ 0.32 $ 0.32 $ 0.32 $ 0.25
Book value $ 13.80 $ 12.19 $ 10.41 $ 10.64 $ 10.86
- --------------------------------------------------------------------------------------------------------------
FINANCIAL CONDITION
Total assets $57,065,033 $52,513,500 $45,671,294 $35,856,125 $37,026,909
Long-term borrowings,
Redeemable Preferred Stock
and Preferred Trust Securities $ 3,980,379 $ 3,164,349 $ 2,622,797 $ 2,501,384 $ 1,936,082
Stockholders' equity $ 1,930,963 $ 1,730,425 $ 1,552,288 $ 1,630,499 $ 1,195,047
Total capitalization $ 5,911,342 $ 4,894,774 $ 4,175,085 $ 4,131,883 $ 3,131,129
- --------------------------------------------------------------------------------------------------------------
</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 ($57 million before income taxes)
related to the purchase of certain net assets and specific businesses of
Kidder, Peabody Group Inc. and a non-recurring mutual fund charge,
respectively.
(3) All per share data have been restated to reflect three-for-two common
stock splits in November 1997 and March 1994.
(4) Earnings per share have been restated as required to comply with Statement
of Financial Accounting Standards No. 128.
NET INCOME
($ in millions)
[BAR CHART - PLOT POINTS FOLLOW]
<TABLE>
<CAPTION>
Year $
<S> <C>
93 246.183
94 31.631
95 80.75
96 364.35
97 415.449
</TABLE>
COMMON STOCK PRICE(3)
(price per share)
[BAR CHART - PLOT POINTS FOLLOW]
<TABLE>
<CAPTION>
Year $
<S> <C>
93 12
94 10
95 13.3
96 18.75
97 34
</TABLE>
BOOK VALUE
(per common share)
[BAR CHART - PLOT POINTS FOLLOW]
<TABLE>
<CAPTION>
Year $
<S> <C>
93 10.86
94 10.64
95 10.41
96 12.19
97 13.8
</TABLE>
11
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
BUSINESS DESCRIPTION
Paine Webber Group Inc. ("PWG") is a holding company which, together with its
operating subsidiaries (collectively, the "Company"), forms one of the largest
full-service securities and commodities firms in the industry. Founded in 1879,
the Company employs approximately 16,600 people in 299 offices worldwide.
The Company's principal line of business is to serve the investment and
capital needs of individual and institutional clients through its broker-dealer
subsidiary, PaineWebber Incorporated ("PWI"), and other specialized
subsidiaries. These activities are conducted through interrelated business
groups, which utilize common operational and administrative personnel and
facilities. 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 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, wrap-fee
assets, 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. Also
part of the Private Client Group is the Municipal Securities Group, which
structures, underwrites, sells and trades taxable and tax-exempt issues for
municipal and public agency clients.
Capital Markets is comprised of Research, Global Fixed Income and
Commercial Real Estate, Global Equities and Investment Banking.
The Research group provides investment advice to institutional and
individual investors, and other business areas of the Company, covering more
than 850 companies in 61 industries.
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. To facilitate client transactions or for
the Company's product development efforts, the Company takes positions in fixed
income securities, listed and over-the-counter equity securities and holds
direct equity investments in partnerships and other entities that invest in
fixed income securities, equity securities and other financial instruments.
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, debt restructuring, property sales and bulk sales
services, and a broad range of other advisory services.
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., including Mitchell Hutchins
25
<PAGE> 3
PAINEWEBBER 1997 ANNUAL REPORT
Investment Advisory division, Mitchell Hutchins Institutional Investors Inc.,
Financial Counselors Inc. and NewCrest Advisors Inc. The Asset Management group
provides investment advisory and portfolio management services to mutual funds,
institutions, pension funds, endowment funds, individuals and trusts.
The Transaction Services group includes the correspondent services, prime
brokerage, securities lending and specialist trading businesses. 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, on several different exchanges, responsible for executing
transactions and maintaining an orderly market in certain securities.
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"), the National Association of Securities
Dealers, and the Securities and Futures Authority.
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.
Certain statements included in this discussion are "forward-looking
statements" that involve known and unknown risks and uncertainties including
those mentioned above. Actual results could differ materially from those
projected in the forward-looking statements.
GENERAL BUSINESS ENVIRONMENT
The general business environment remained favorable in 1997 as the U.S. Real
Gross Domestic Product increased 3.8% and inflation, as measured by the Consumer
Price Index, increased only 1.7%. In March 1997, the Federal Reserve increased
the Federal Funds rate 1/4%. The S&P 500 Index appreciated 31% versus 20% in
1996, and the NASDAQ Composite Index was up 22% versus 23% in 1996. The yield on
the thirty-year U.S. treasury bond rose 1/2% in the first few months of the year
before the market began to rally on news of continued growth and low inflation.
In the final quarter of the year the price of the thirty-year U.S. treasury bond
increased from news of economic and financial problems in Asia, which heightened
deflationary pressures.
This market environment helped sustain the high level of corporate finance
activity we have seen in the last couple of years. Fueled by low interest rates,
high stock prices and large cash reserves, the value of U.S. mergers and
acquisitions in 1997 was 47% above the 1996 level. The combined value of U.S.
debt and equity offerings was over $900 billion, 29% higher than in 1996. This
supply was absorbed in part by cash flows into mutual funds that surpassed the
record flows in 1996.
An important event impacting the U.S. markets in 1997 was the economic
turmoil during the second half of the year in several Asian economies. Equity
markets in the U.S. reacted negatively on fears that problems in these economies
could hinder the growth of the U.S. economy in 1998 and hurt the profits of many
U.S. companies. The U.S. treasury bond market, on the other hand, benefited as
investors removed their money from troubled countries and bought into the more
stable U.S. treasury market. Stronger demand for these bonds drove prices up and
yields down.
The impact of these economic troubles on equity markets was more
substantial outside the U.S. The Morgan Stanley EAFE Index of world stock
markets was flat for the year but down 8% in the final quarter of 1997. The IFC
Global Composite of emerging markets was down 16% for the year and down 20% in
the final quarter.
Robust, expanding markets, combined with uncertainty created by economic
volatility abroad, led to a significant increase in the volume of transactions
in 1997. Average daily volume on the NYSE was 521 million shares, an increase of
26% from 1996. In the NASDAQ market average daily volume was 646 million shares,
19% above 1996 levels.
RESULTS OF OPERATIONS
COMMON STOCK SPLIT
On October 13, 1997, the Company's Board of Directors approved a three-for-two
common stock split in the form of a 50% stock dividend, effective November 17,
1997. All share and per share information included in the Management's
Discussion and Analysis have been adjusted to reflect the split.
1997 COMPARED WITH 1996
Net income for the year ended December 31, 1997 was a record $415.4 million, a
14% increase over the previous record of $364.4 million earned during the year
ended December 31, 1996. Earnings per common share were $2.84 per basic share
($2.56 per diluted share) compared to $2.55 per basic share ($2.24 per diluted
share) for the prior year period.(1) Revenues, net of interest expense, were a
(1) Earnings per share for 1996 and 1995 are restated as required to comply
with SFAS No. 128.
26
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
record $4,112.4 million for 1997, an increase of 10% from the previous record
$3,735.2 million in 1996.
Commission revenues earned during 1997 were a record $1,496.8 million, an
increase of 8% from the previous record $1,381.5 million earned in the prior
year. Commissions on listed securities and options increased $62.8 million, or
8%, mutual fund and insurance commissions increased $34.9 million, or 9%, and
commissions from over-the-counter securities and other commissions increased
$17.6 million, or 10%, reflecting higher levels of investor activity.
Revenues from principal transactions set a new record, increasing $32.0
million, or 3% from 1996. 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 taxable fixed income trading
activities, partially offset by lower results in municipal securities. These
increases reflect the favorable market environment and increased customer
demand.
Asset management fees increased 20% to a record $542.8 million, primarily
due to higher fees earned on managed or wrap accounts and trust accounts.
Average assets in wrap and trust accounts during 1997 were 42% higher than
during 1996. 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 $47
billion during 1997 compared to $45 billion in 1996.
Investment banking revenues were a record $460.0 million, 18% higher than
the $391.2 million earned during the prior year period, reflecting increases in
private placement and other fees, and underwriting fees, management fees and
selling concessions on increased volume of lead-managed and co-managed municipal
issues and in the commercial real estate business.
Net interest increased $79.6 million, or 23% to a record $418.6 million.
Interest revenue was $2,963.1 million, 28% higher than the previous record
$2,309.7 million earned in the prior year period, reflecting an increased level
of securities purchased under agreements to resell and securities borrowed, and
increased margin lending to clients. Interest expense increased 29% to $2,544.6
million due principally to higher levels of securities sold under agreements to
repurchase and securities loaned.
Compensation and benefit expenses for 1997 increased $201.2 million, or
9%, versus 1996. The number of employees increased by 730, or 5%, during 1997,
principally due to an expansion in Private Client Group investment executives,
selective hirings in Capital Markets and technology personnel working on the
millennium and other technology initiatives. In addition, the Company's
aforementioned improved 1997 operating results resulted in higher
production-based compensation to Private Client Group investment executives, and
higher performance-based compensation. The ratio of compensation and benefits as
a percentage of net revenues declined to 58.9% in 1997 versus 59.4% in 1996, as
growth in net revenues exceeded the growth in these expenses.
All other operating expenses increased $62.9 million, or 7%, from 1996.
The principal items accounting for this increase were higher
technology-associated expenses (principally related to the millennium and other
technology initiatives), higher promotional costs and increased
litigation-related expenses. The ratio of other operating expenses as a
percentage of net revenues declined to 24.8% for 1997 versus 25.6% in 1996, as
the growth in net revenues exceeded the growth in these expenses.
In December 1997, the Company, along with 29 other NASDAQ market-makers,
entered into an agreement to settle the class actions in In Re NASDAQ
Market-Makers Antitrust Litigation. The Company's contribution to the settlement
will be approximately $50 million. In anticipation of the settlement, the
Company had set aside sufficient legal reserves and at December 31, 1997 was
fully reserved for its portion of the settlement. The agreement is subject to a
number of contingencies, including court approval after notice to the class.
1996 COMPARED WITH 1995
Net income for the year ended December 31, 1996 was $364.4 million. This
compared to net income of $226.8 million in 1995, 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. Earnings per common share were
$2.55 per basic share ($2.24 per diluted share) in 1996 compared with earnings
per common share of $1.43 per basic share ($1.26 per diluted share), before
giving effect to the limited partnership charges in 1995.(1) Net income for
1995, including the non-recurring charges, was $80.8 million, or $0.37 per basic
share ($0.35 per diluted share).(1)
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
(1) Earnings per share for 1996 and 1995 are restated as required to comply
with SFAS No. 128.
27
<PAGE> 5
PAINEWEBBER 1997 ANNUAL REPORT
in the 1980s and early 1990s. The charges were 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. 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.
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% for 1996,
as compared to 59.8% for 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.
INCOME TAXES
The effective tax rate for the year ended December 31, 1997 was 34.0% which was
comparable to the 34.8% for 1996. The effective tax rate for the year ended
December 31, 1996 increased to 34.8% from the 1995 rate of 21.4%. This increase
was primarily due to higher state and local taxes and lower 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 assets and
liabilities 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, 1997 were $57.1 billion
compared to $52.5 billion at December 31, 1996. The increase is primarily
attributable to growth in securities purchased under agreements to resell,
securities borrowed and receivables from clients. 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. In December 1997, the Company entered into a new
unsecured revolving credit agreement to provide up to $1.2 billion, which
expires in December 1998 with provisions for renewal through December 2001. The
new revolving credit agreement replaced the Company's previous $1.2 billion
28
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
facility which expired in 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 1998, with provisions for renewal
through August 2000. The secured borrowings under these facilities can be
collateralized using a variety of financial instruments. The facilities are
available for general corporate purposes. At December 31, 1997, there were no
outstanding borrowings under these credit facilities. Additionally, the Company
had more than $5.6 billion in uncommitted lines of credit at December 31, 1997.
The Company maintains a public shelf registration statement with the SEC
for the issuance of debt securities. The Company issued $1,054.5 million of debt
under this registration statement in 1997, which included $252.0 million of
short-term borrowings. At December 31, 1997, the Company had approximately $1.3
billion in debt securities available for issuance under this registration
statement.
Long-term borrowings at December 31, 1997 grew to $3,398.0 million from
$2,781.7 million at December 31, 1996. This increase primarily reflects the
issuances of $802.5 million of Medium-Term Notes with maturities of one year or
greater at issuance date, offset by the maturities of $168.8 million of
Medium-Term Notes. At December 31, 1997, $296.2 million of long-term borrowings
had maturity dates in 1998.
The Company also maintains a shelf registration statement with the SEC for
issuance of preferred trust securities of PWG Capital Trusts III and IV,
business trusts formed under Delaware law which are wholly owned subsidiaries of
the Company, and debt securities of the Company. In March 1997, PWG Capital
Trust II issued $198.8 million of 8.08% Preferred Trust Securities ("Preferred
Trust Securities"), under this registration statement. At December 31, 1997,
$106.2 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.)
The weighted-average maturity on all outstanding long-term borrowings,
Preferred Trust Securities, and Redeemable Preferred Stock at December 31, 1997
was 9.6 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 securities and
stockholders' equity, grew to $5.9 billion at December 31, 1997, an increase of
$1.0 billion from the prior year. The growth in total capital is due to the net
increase in long-term borrowings of $616.3 million, the issuance of $198.8
million of Preferred Trust Securities, and an increase in stockholders' equity
of $200.5 million.
On December 4, 1997, the Company's 6% Convertible Preferred Stock was
converted into 8,273,600 shares of the Company's common stock.
In August 1997, the Company acquired a subsidiary from General Electric
Capital Services, Inc. ("GECS"), the principal asset of which consisted of the
Company's common stock acquired by General Electric Company in connection with
the sale of certain assets and businesses of Kidder, Peabody Group Inc.
("Kidder") to the Company in 1994. The principal effect of the transaction was
the repurchase of 9,000,000 shares of the Company's common stock for $219.0
million ($24.33 per share).
During 1997, the Company repurchased 7,915,477 shares of its common stock
(excluding the aforementioned shares repurchased in the Kidder transaction), at
an aggregate cost of $192.7 million. A portion of the shares repurchased during
the third quarter (those expected to be issued within the next year in
connection with certain of the Company's employee compensation programs) were
recorded as "Other assets" in the Consolidated Statement of Financial Condition
at September 30, 1997 and were subsequently reissued during the fourth quarter.
During 1997, the Company issued 9,366,741 shares of common stock related to
employee compensation programs. Issuances and tax credits related to these
programs had the effect of increasing equity capital by $184.3 million. At
December 31, 1997, the remaining number of shares of common stock authorized to
be repurchased by the Company's Board of Directors was 13,079,096.
The Board of Directors declared quarterly cash dividends of $0.10 per
share on the Company's common stock for the first three quarters of 1997. In the
fourth quarter of 1997, the Board of Directors increased the common dividend to
$0.11 per share in addition to declaring the three-for-two common stock split.
Dividends were also declared during the year on the Redeemable Preferred Stock
and the Convertible Preferred Stock. On February 5, 1998, the Board of Directors
declared a 1998 first quarter dividend of $0.11 per share payable on April 3,
1998.
Subsequent to December 31, 1997, the Company's Board of Directors
approved, subject to shareholder approval, an increase to the number of common
shares authorized for issuance from 200,000,000 to 400,000,000 shares.
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.
29
<PAGE> 7
PAINEWEBBER 1997 ANNUAL REPORT
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, 1997, the Company had investments in merchant banking
transactions which were affected by liquidity, reorganization or restructuring
issues amounting to $31.9 million, net of reserves, compared to $41.8 million,
net of reserves, at December 31, 1996. These investments have not had a material
effect on the Company's results of operations.
The Company's activities include underwriting and market-making
transactions in high-yield corporate debt, non-investment-grade mortgage-backed
securities, and emerging market securities (collectively, "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, 1997, the Company
held $526.3 million of high-yield securities, with approximately 16% of such
securities attributable to two 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. These high yield securities have not had a
material effect on the Company's results of operations.
YEAR 2000
The Company uses a wide variety of computer programs and devices, some of which
use only the last two digits of each year to represent the calendar year portion
of dates. As a result, calculations performed with these abbreviated date fields
may misinterpret the Year 2000 as 1900, resulting in erroneous calculations or
program failures that could cause significant disruptions in the Company's
operations.
The Company is now executing a detailed plan to achieve Year 2000
compliance which provides in part for surveying, remediating, testing and
returning to production all software expected to be retained in service. In
addition, the Company is assessing the Year 2000 plans and status of significant
suppliers and counterparties. The Company expects to complete its remediation
and testing program in 1998 and 1999, and will participate in industry-wide
testing beginning in 1998.
The Company estimates the incremental cost of achieving Year 2000
compliance to be approximately $65 million of which approximately $22 million
was incurred through 1997. Costs relating to the Year 2000 conversion are
expensed as incurred.
The estimated cost to resolve the Year 2000 issue and the timing of
achieving compliance are management's best estimates based on current
assessments of the scope of efforts required, the availability and cost of
trained personnel and of third party resources. They are also dependent on the
success of suppliers and counterparties in achieving Year 2000 compliance or
delivering compliant products to the Company. There can be no guarantee that
future results will not differ materially from the plan, resulting in changes to
actual costs incurred and the timing of compliance. If the plan is not completed
on a timely basis, it could have a material impact on the Company's operations.
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 manage the interest rate
characteristics of its assets and liabilities.
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.
30
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company had off-balance-sheet derivative contracts outstanding with gross
notional amounts of $61.1 billion and $41.1 billion at December 31, 1997 and
1996, respectively. These amounts included $42.3 billion and $22.4 billion,
respectively, related to "to be announced" mortgage-backed securities requiring
forward settlement. Also included in these amounts were $2.7 billion and $2.1
billion notional amounts of interest rate swap agreements used to change the
interest rate characteristics of the Company's fixed rate debt at December 31,
1997 and 1996, respectively. (For further discussion on the Company's derivative
financial instruments, see Notes 1 and 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" revenues. The Company accrues interest income and
expense on interest rate swap agreements used to change the interest rate
characteristics of the Company's fixed rate debt. These interest rate swap
agreements had the effect of reducing net interest expense on the Company's
fixed rate debt by $11.0 million and $7.9 million for the years ended December
31, 1997 and 1996, respectively, and increasing net interest expense on the
Company's fixed rate debt by $1.7 million for the year ended December 31, 1995.
The Company had no deferred gains or losses recorded at December 31, 1997 and
1996 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, 1997 were $182.4
million and $178.2 million of assets and liabilities, respectively, and are
reflected on the Consolidated Statements of Financial Condition. The fair values
of these instruments at December 31, 1996 were $185.4 million and $242.4 million
of assets and liabilities, respectively.
The Company's exposure to market risk relates to changes in interest
rates, equity prices, foreign currency exchange rates or the market values of
the assets underlying the financial instruments. The Company's exposure to
credit risk at any point is represented by the fair value or replacement cost on
contracts in which the Company has recorded an unrealized gain. At December 31,
1997 and 1996, the fair values amounted to $182.4 million and $185.4 million,
respectively. The risks inherent in derivative financial instruments are managed
consistent with the Company's overall risk management policies. (See Risk
Management section)
RISK MANAGEMENT
Risk is an inherent part of the Company's principal business activities.
Managing risk is critical to the Company's profitability and to reducing the
likelihood of earnings volatility. The Company's risk management policies and
procedures have been established to continually identify, monitor and manage
risk. The Company's principal risks are market, credit, liquidity, legal and
operating risks, which are discussed below, except for liquidity risk which is
discussed in the Liquidity and Capital Resources section of the Management's
Discussion and Analysis.
The Company seeks to manage risk and its impact on earnings volatility
through strategic planning and by focusing on the diversification of its
business activities. Through capital allocation, and the establishment of
trading limits by product and credit limits by counterparty, the Company manages
the risk associated with the various businesses. The Company may reallocate or
deploy capital to the business groups based upon changes in market conditions or
opportunities in the marketplace that are consistent with the Company's
long-term strategy.
The discussion of the Company's principal risks and the estimated amounts
of the Company's market risk exposure generated from the sensitivity analysis
performed by the Company are forward-looking statements assuming certain adverse
conditions occur. Actual results in the future may differ materially from these
projected results due to actual events in the markets in which the Company
operates and other factors. The analysis methods used by the Company to assess
and mitigate risks discussed below should not be considered projections of
future events or losses.
MARKET RISK
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, equity prices and foreign currency exchange rates. Market risk
is inherent to both derivative and non-derivative financial instruments.
The Company actively monitors its market risk profile through a variety of
control procedures including market risk modeling, review of trading positions
and hedging strategies, and monitoring adherence to established limits. Each
department's trading positions, exposures, profits and losses, and trading
strategies are reviewed by the senior management of each business group.
Independent of the
31
<PAGE> 9
PAINEWEBBER 1997 ANNUAL REPORT
trading departments is a risk management group. The Company's risk management
group reviews the Company's risk profile and adherence to established trading
limits, and aids in the development of risk management policies. In addition the
Company has in place committees and management controls to review inventory
positions, other asset accounts and asset agings on a regular basis.
Trading position and exposure limits are established by the
Asset/Liability Management Committee, which meets regularly and is comprised of
senior corporate and business group managers.
The following is a discussion of the Company's primary market risk
exposures at December 31, 1997 and how those exposures are managed:
Interest Rate Risk
In connection with the Company's dealer activities, the Company is exposed
to interest rate risk due to changes in the level or volatility of interest
rates, changes in the yield curve, mortgage prepayments and credit spreads. The
Company attempts to mitigate its exposure to interest rate risk by entering into
hedging transactions such as U.S. government and Eurodollar forward and futures
contracts, options, and interest rate swap and cap agreements. The Company also
issues fixed rate instruments in connection with its nontrading activities,
which expose the Company to interest rate risk. The Company enters into interest
rate swap agreements which are designed to mitigate its exposure by effectively
converting its fixed rate liabilities into floating rate liabilities.
Equity Price Risk
In connection with the Company's dealer activities, the Company buys and sells
equity and equity derivative instruments. The Company is exposed to equity price
risk due to changes in the level or volatility of equity prices. The Company
attempts to mitigate its exposure to equity price risk by entering into hedging
transactions including equity option agreements.
Sensitivity Analysis
For purposes of the new SEC disclosure requirements, the Company has elected to
use a sensitivity approach to express the potential loss in future earnings of
its financial instruments. In preparing the analysis, the Company has combined
both derivative and non-derivative financial instruments held for trading
purposes with those held for purposes other than trading because the amounts
were not material.
The sensitivity calculation employed to analyze interest rate risk on its
fixed income financial instruments was based on a proprietary methodology which
converted substantially all the Company's interest rate sensitive financial
instruments into a uniform benchmark (a ten-year U.S. Treasury note equivalent),
and evaluated the impact assuming a 10 basis point change to the ten-year U.S.
Treasury note at December 31, 1997. The hypothetical 10 basis point change was
derived from a proprietary model which used a one-day interval and a 95%
confidence level, and was based on historical data over a one-year period. This
analysis does not consider other factors that may influence these results, such
as credit spread risk, prepayment risk on mortgage-backed securities, or changes
in the shape of the yield curve. The sensitivity calculation employed to analyze
equity price risk on its equity financial instruments was based on a 2% move in
the Dow Jones Industrial Average at December 31, 1997, using a one-day interval
and a 95% confidence level, and was based on historical data over a one-year
period. Based upon the aforementioned methodologies, the Company's potential
daily loss in future earnings at December 31, 1997 was approximately $4 million
and $0.5 million for interest rate risk and equity price risk, respectively.
CREDIT RISK
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. Credit risk is substantially reduced
by the industry practice of obtaining and maintaining adequate collateral until
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 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.
LEGAL RISK
Legal risk focuses on the Company's non-compliance with legal and regulatory
requirements, and counterparty non-performance. As a securities broker-dealer,
the Company is subject to regulations which cover all aspects of the securities
business, including sales methods, trade practices among broker-dealers, use and
safekeeping of customers'
32
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
funds and securities, capital structure of securities firms, record-keeping, and
the conduct of directors, officers and employees. The Company has established
procedures in accordance with legal and regulatory requirements that are
designed to reasonably ensure compliance in these matters. The Company has also
established procedures reasonably designed to mitigate counterparty
nonperformance including adequacy of legal documentation and consideration of
counterparty legal authority and capacity.
OPERATING RISK
Operating risk focuses on the Company's ability to accumulate, process and
communicate information necessary to conduct its daily operations. Deficiencies
in technology, financial systems and controls, and losses attributable to
operational problems all pose potential operating risks. In order to mitigate
these risks, the Company has established and maintains an effective internal
control environment which incorporates various control mechanisms throughout the
organization and involves various independent oversight groups.
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 groups 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 introduced 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. In December 1996, the FASB issued SFAS No. 127,
"Deferral of the Effective Date of Certain Provisions of SFAS No. 125," which
delayed until January 1, 1998 the implementation of SFAS No. 125 as it related
to 1) secured borrowings and collateral, and 2) the transfer of financial assets
that are part of repurchase agreements, dollar-roll, securities lending and
similar transactions. On January 1, 1997, the Company adopted SFAS No. 125
(those portions not deferred by SFAS No. 127) which did not have a material
impact on the Company's consolidated financial statements, taken as a whole. On
January 1, 1998, the Company adopted those portions of SFAS No. 125 deferred by
SFAS No. 127. The adoption did not have a material impact on the Company's
consolidated financial statements, taken as a whole.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which is effective for fiscal years beginning after December 15, 1997.
SFAS No. 130 establishes standards for the reporting and display of a new
reporting item, termed comprehensive income, which will combine net income and
certain items that directly affect stockholders' equity, such as foreign
currency translation adjustments. The Company has not yet determined the impact
of this statement on the Company's financial statement disclosures.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 establishes new standards for
defining how operating segments are determined and requires more comprehensive
disclosures about the Company's reportable operating segments. The Company
believes that SFAS No. 131 will require expanded financial and descriptive
disclosure about the Company's operating segments. However, the Company has not
yet determined the impact of this statement on the Company's financial statement
disclosures.
In 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which is effective for fiscal years
beginning after December 15, 1997. SFAS No. 132 revises the disclosures of SFAS
No. 87, "Employers' Accounting for Pensions," and SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The effect of SFAS
No. 132 will not be material to the Company's financial statement disclosures.
33
<PAGE> 11
PAINEWEBBER 1997 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of dollars except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Commissions $1,496,791 $ 1,381,475 $1,272,766
Principal transactions 1,055,648 1,023,615 914,201
Asset management 542,755 453,267 399,540
Investment banking 460,001 391,164 326,777
Interest 2,963,124 2,309,737 2,256,750
Other 138,633 146,708 150,056
- ------------------------------------------------------------------------------------------------------------------------
Total revenues 6,656,952 5,705,966 5,320,090
Interest expense 2,544,550 1,970,754 1,969,811
- ------------------------------------------------------------------------------------------------------------------------
Net revenues 4,112,402 3,735,212 3,350,279
- ------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSES
Compensation and benefits 2,420,296 2,219,129 2,004,585
Office and equipment 275,532 267,006 266,291
Communications 153,285 153,301 149,047
Business development 82,099 75,981 90,752
Brokerage, clearing and exchange fees 86,808 87,839 93,657
Professional services 129,066 108,123 101,911
Other 292,209 263,800 541,359
- ------------------------------------------------------------------------------------------------------------------------
Total non-interest expenses 3,439,295 3,175,179 3,247,602
- ------------------------------------------------------------------------------------------------------------------------
Income before taxes and minority interest 673,107 560,033 102,677
Provision for income taxes 228,626 194,649 21,927
- ------------------------------------------------------------------------------------------------------------------------
Income before minority interest 444,481 365,384 80,750
Minority interest 29,032 1,034 --
- ------------------------------------------------------------------------------------------------------------------------
Net income $ 415,449 $ 364,350 $ 80,750
========================================================================================================================
Net income applicable to common shares(1) $ 385,936 $ 334,955 $ 51,459
========================================================================================================================
EARNINGS PER COMMON SHARE(1)(2)
Basic $ 2.84 $ 2.55 $ 0.37
Diluted $ 2.56 $ 2.24 $ 0.35
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Amounts for 1996 and 1995 have been restated as required to comply with
SFAS No. 128.
(2) Amounts for 1996 and 1995 have been retroactively adjusted to reflect a
three-for-two common stock split in the form of a 50% stock dividend,
which became effective on November 17, 1997.
See Notes to Consolidated Financial Statements.
34
<PAGE> 12
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands of dollars except share and per share amounts)
<TABLE>
<CAPTION>
December 31, 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 233,787 $ 383,856
Cash and securities segregated and on deposit for federal and other regulations 569,138 499,761
Trading assets, at fair value 16,373,792 16,823,307
Securities purchased under agreements to resell 21,562,739 20,746,831
Securities borrowed 9,573,187 7,380,374
Receivables:
Clients, net of allowance for doubtful accounts of $21,315 and $12,109
in 1997 and 1996, respectively 5,668,653 4,327,996
Brokers and dealers 494,855 273,737
Dividends and interest 337,409 350,796
Fees and other 403,575 136,545
Office equipment and leasehold improvements, net of accumulated depreciation
and amortization of $400,346 and $343,322 in 1997 and 1996, respectively 334,401 313,261
Other assets 1,513,497 1,277,036
- ------------------------------------------------------------------------------------------------------------------------
$ 57,065,033 $52,513,500
========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 1,666,216 $ 1,337,646
Trading liabilities, at fair value 7,102,144 6,621,891
Securities sold under agreements to repurchase 29,628,902 28,797,276
Securities loaned 4,733,961 3,459,860
Payables:
Clients 5,052,516 4,883,344
Brokers and dealers 268,050 205,437
Dividends and interest 343,391 285,341
Other liabilities and accrued expenses 1,476,260 1,290,555
Accrued compensation and benefits 882,251 737,376
Long-term borrowings 3,397,961 2,781,694
- ------------------------------------------------------------------------------------------------------------------------
54,551,652 50,400,420
Commitments and contingencies
Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary
Trusts holding solely Company Guaranteed Related Subordinated Debt 393,750 195,000
Redeemable Preferred Stock 188,668 187,655
Stockholders' equity:
Convertible Preferred Stock -- 100,000
Common stock, $1 par value, 200,000,000 shares authorized; issued
188,458,083 shares and 162,537,267 shares in 1997 and 1996, respectively(1) 188,458 162,537
Additional paid-in capital(1) 1,405,329 792,215
Retained earnings 1,340,966 1,009,448
Treasury stock, at cost; 48,557,788 shares and 23,049,351 shares in
1997 and 1996, respectively(1) (998,300) (331,907)
Foreign currency translation adjustment (5,490) (1,868)
- ------------------------------------------------------------------------------------------------------------------------
1,930,963 1,730,425
- ------------------------------------------------------------------------------------------------------------------------
$ 57,065,033 $52,513,500
========================================================================================================================
</TABLE>
(1) Amounts for 1996 have been retroactively adjusted to reflect a
three-for-two common stock split in the form of a 50% stock dividend,
which became effective on November 17, 1997.
See Notes to Consolidated Financial Statements.
35
<PAGE> 13
PAINEWEBBER 1997 ANNUAL REPORT
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 Retained Treasury
Preferred Stock Stock Capital Earnings Stock
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 100,000 $150,921 $ 682,864 $ 715,052 $ (21,981)
- -----------------------------------------------------------------------------------------------------------------------------------
Net income 80,750
Dividends declared:
Common stock, $.32 per share (47,203)
Redeemable Preferred Stock, $9.00 per share (22,500)
Convertible Preferred Stock, $6.00 per share (6,000)
Exercises of stock options 1,413 (4,848) 34,388
Restricted stock awards 4,404 47,504
Conversion of debentures (4,252) 9,502
Tax benefit relating to employee compensation programs 2,947
Other (774)
Repurchases of common stock (173,525)
Foreign currency translation
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $ 100,000 $156,738 $ 724,215 $ 719,325 $(151,616)
- -----------------------------------------------------------------------------------------------------------------------------------
Net income 364,350
Dividends declared:
Common stock, $.32 per share (44,832)
Redeemable Preferred Stock, $9.00 per share (22,500)
Convertible Preferred Stock, $6.00 per share (6,000)
Exercises of stock options 2,116 726 32,699
Restricted stock awards 3,683 56,262
Conversion of debentures (10,214) 24,776
Tax benefit relating to employee compensation programs 21,226
Other (895)
Repurchases of common stock (237,766)
Foreign currency translation
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $ 100,000 $162,537 $ 792,215 $ 1,009,448 $(331,907)
- -----------------------------------------------------------------------------------------------------------------------------------
Net income 415,449
Dividends declared:
Common stock, $.41 per share (54,418)
Redeemable Preferred Stock, $9.00 per share (22,500)
Convertible Preferred Stock, $6.00 per share (6,000)
Exercises of stock options 3,528 14,164
Restricted stock awards (857) 83,599 5,061
Conversion of Convertible Preferred Stock (100,000) (69,443) 169,443
Conversion of debentures (14,633) 34,721
Tax benefit relating to employee compensation programs 58,738
Other (1,811) (1,013) (400)
Repurchases of common stock:
Kidder-related repurchase 23,250 542,500 (784,750)
Other (90,468)
Foreign currency translation
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 -- $188,458 $1,405,329 $ 1,340,966 $(998,300)
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Foreign Number of Shares
Currency Total ----------------------------------
Translation Stockholders' Common Treasury
Adjustment Equity Stock Stock
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $ 3,643 $1,630,499 150,920,606 (1,945,622)
- ---------------------------------------------------------------------------------------------------------------------------------
Net income 80,750
Dividends declared:
Common stock, $.32 per share (47,203)
Redeemable Preferred Stock, $9.00 per share (22,500)
Convertible Preferred Stock, $6.00 per share (6,000)
Exercises of stock options 30,953 1,413,766 2,990,756
Restricted stock awards 51,908 4,403,765
Conversion of debentures 5,250 786,455
Tax benefit relating to employee compensation programs 2,947
Other (774)
Repurchases of common stock (173,525) (12,958,356)
Foreign currency translation (17) (17)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $ 3,626 $1,552,288 156,738,137 (11,126,767)
- ---------------------------------------------------------------------------------------------------------------------------------
Net income 364,350
Dividends declared:
Common stock, $.32 per share (44,832)
Redeemable Preferred Stock, $9.00 per share (22,500)
Convertible Preferred Stock, $6.00 per share (6,000)
Exercises of stock options 35,541 2,116,227 2,386,165
Restricted stock awards 59,945 3,682,903
Conversion of debentures 14,562 1,811,025
Tax benefit relating to employee compensation programs 21,226
Other (895)
Repurchases of common stock (237,766) (16,119,774)
Foreign currency translation (5,494) (5,494)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $ (1,868) $1,730,425 162,537,267 (23,049,351)
- ---------------------------------------------------------------------------------------------------------------------------------
Net income 415,449
Dividends declared:
Common stock, $.41 per share (54,418)
Redeemable Preferred Stock, $9.00 per share (22,500)
Convertible Preferred Stock, $6.00 per share (6,000)
Exercises of stock options 17,692 3,528,030
Restricted stock awards 87,803 (857,214) 271,716
Conversion of Convertible Preferred Stock -- 8,273,600
Conversion of debentures 20,088 2,224,209
Tax benefit relating to employee compensation programs 58,738
Other (3,224) (312,485)
Repurchases of common stock:
Kidder-related repurchase (219,000) 23,250,000 (32,250,000)
Other (90,468) (3,715,477)
Foreign currency translation (3,622) (3,622)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $(5,490) $1,930,963 188,458,083 (48,557,788)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Common shares and per share amounts and the balances for Common Stock and
Additional Paid-in Capital have been retroactively adjusted to reflect the
three-for-two common stock split in the form of a 50% stock dividend, which
became effective on November 17, 1997.
See Notes to Consolidated Financial Statements.
36 & 37
<PAGE> 14
PAINEWEBBER 1997 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 415,449 $ 364,350 $ 80,750
Adjustments to reconcile net income to cash (used for)
provided by operating activities:
Noncash items included in net income:
Depreciation and amortization 68,700 64,116 54,100
Deferred income taxes (119,934) 27,134 (90,778)
Amortization of deferred charges 131,771 189,519 174,122
Other 120,554 46,204 213,852
(Increase) decrease in operating receivables:
Clients (1,343,942) (262,538) 189,652
Brokers and dealers (221,118) 5,939 152,889
Dividends and interest 13,387 (86,848) (33,608)
Fees and other (267,030) 63,899 37,124
Increase (decrease) in operating payables:
Clients 169,172 1,184,867 587,798
Brokers and dealers 62,613 50,319 (148,126)
Dividends and interest 58,050 29,003 37,602
Other 334,516 (203,565) 739,065
(Increase) decrease in:
Cash and securities on deposit (69,377) (72,693) (57,483)
Trading assets 449,515 (2,727,861) (3,310,637)
Securities purchased under agreements to resell (815,908) (4,047,536) (5,820,114)
Securities borrowed (2,192,813) (153,859) 599,696
Other assets (158,409) 306,054 (820,625)
Increase in:
Trading liabilities 480,253 388,837 198,348
Securities sold under agreements to repurchase 831,626 3,597,899 8,285,379
Securities loaned 1,274,101 707,431 526,511
- ------------------------------------------------------------------------------------------------------------------------
Cash (used for) provided by operating activities (778,824) (529,329) 1,595,517
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from (payments for):
Net assets acquired in business acquisition -- -- (624,090)
Acquisition-related expenditures -- (3,843) (46,157)
Sales of investments -- 122,032 112,499
Office equipment and leasehold improvements (90,947) (51,583) (81,880)
- ------------------------------------------------------------------------------------------------------------------------
Cash (used for) provided by investing activities (90,947) 66,606 (639,628)
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments on):
Short-term borrowings 328,570 346,419 (898,382)
Proceeds from:
Long-term borrowings 822,011 484,786 493,357
Employee stock transactions 72,820 50,103 36,203
Issuances of Preferred Trust Securities 198,750 195,000 --
Payments for:
Long-term borrowings (207,863) (141,128) (374,580)
Repurchases of common stock (411,668) (237,766) (173,525)
Dividends (82,918) (73,332) (75,703)
- ------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) financing activities 719,702 624,082 (992,630)
- ------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (150,069) 161,359 (36,741)
Cash and cash equivalents, beginning of year 383,856 222,497 259,238
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 233,787 $ 383,856 $ 222,497
========================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
38
<PAGE> 15
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 and institutional clients.
In early 1995, the Company completed its acquisition of certain assets and
liabilities, and specific businesses of Kidder, Peabody Group Inc. ("Kidder").
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 is
being amortized on a straight-line basis over 35 years.
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. Certain reclassifications have been made to prior year amounts
to conform to current year presentations. 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 ASSETS AND LIABILITIES
Trading assets and liabilities are recorded in the Consolidated Statements of
Financial Condition on a trade date basis at December 31, 1997 and a settlement
date basis at December 31, 1996. The difference between trade date and
settlement date basis was not material. Related revenues and expenses are
recorded in the accounts on trade date.
Trading assets and liabilities 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 or price activity of similar
instruments.
DERIVATIVE FINANCIAL INSTRUMENTS
A derivative is typically defined as an instrument whose value is "derived" from
an underlying instrument or index such as a forward, future, swap or option
contract and other financial instruments with similar characteristics. A
derivative financial instrument also includes firm or standby commitments for
the purchase of securities. The derivative definition does not include cash
instruments whose values are derived from changes in the value of some asset or
index, such as mortgage-backed securities and structured notes. Derivative
contracts generally represent future commitments to exchange interest payment
streams based on the gross contract or notional amount or to purchase or sell
financial instruments at specified terms and future dates.
39
<PAGE> 16
PAINEWEBBER 1997 ANNUAL REPORT
In connection with the Company's market risk management and 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.
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 securities business, the Company has outstanding forward
purchase and sale agreements committing the Company to receive or deliver
mortgage-backed securities and participation certificates. These forward
contracts are generally short-term with maturity or settlement dates ranging
from 30 to 90 days.
Derivative instruments held or issued for trading purposes or to hedge
trading positions are marked-to-market daily with the resulting unrealized gains
and losses recorded on the Consolidated Statements of Financial Condition in
trading assets or liabilities and the related profit or loss reflected in
"Principal transactions" revenues on the Consolidated Statements of Income. The
fair value of an exchange-traded derivative, such as futures and certain option
contracts, is determined by quoted market prices while the fair value of
derivatives negotiated in over-the-counter markets are valued based upon dealer
price quotations or pricing models which consider time value and the volatility
of the underlying instruments, as well as other economic factors.
The Company also enters into interest rate swap agreements to modify the
interest rate characteristics of its outstanding fixed rate debt. These
agreements involve the exchange of amounts based on a fixed interest rate for
amounts based on a variable interest rate over the life of the agreement without
the exchange of the notional amount upon which the payments are based. The
Company accounts for interest rate swap agreements used for hedging purposes on
the accrual method. The difference to be paid or received on the swap agreements
is accrued as an adjustment to interest expense as incurred. The related
receivable from or payable to counterparties is reflected as an asset or
liability, accordingly. The fair value of the swap agreements are not recognized
in the financial statements. Any gains and losses on early terminations of swap
agreements are deferred as an adjustment to the carrying amount of the debt and
amortized as an adjustment to interest expense over the remaining term of the
original contract life of the terminated swap agreement. In the event of the
early extinguishment of debt, any realized or unrealized gain or loss from the
related swap would be recognized in income coincident with the extinguishment.
COLLATERALIZED SECURITIES TRANSACTIONS
Securities purchased under agreements to resell ("resale agreements") and
securities sold under agreements to repurchase ("repurchase agreements"),
principally 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 required to provide
securities to counterparties in order to collateralize repurchase agreements. On
a daily basis, the Company monitors the fair value of the securities purchased
and sold under these agreements versus the related receivable or payable
balances. Should the fair value of the securities purchased decline or the fair
value of the securities sold increase, additional collateral is requested or
excess collateral is returned when deemed appropriate to maintain contractual
margin protection. 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.
40
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 of the Company's stock 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, 1997, 1996 and 1995 were $2,486,500, $1,941,751 and
$1,932,192, respectively.
COMMON STOCK SPLIT
Common share, per share and stock option data for all periods presented have
been restated to reflect a three-for-two common stock split in the form of a 50%
stock dividend paid on November 17, 1997 to stockholders of record on October
24, 1997.
ACCOUNTING CHANGES AND DEVELOPMENTS
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 125
introduced 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. In December 1996, the FASB issued SFAS
No. 127, "Deferral of the Effective Date of Certain Provisions of SFAS No. 125,"
which delayed until January 1, 1998 the implementation of SFAS No. 125 as it
related to 1) secured borrowings and collateral, and 2) the transfer of
financial assets that are part of repurchase agreements, dollar-roll, securities
lending and similar transactions. On January 1, 1997 the Company adopted SFAS
No. 125 (those portions not deferred by SFAS No. 127) which did not have a
material impact on the Company's consolidated financial statements, taken as a
whole. On January 1, 1998, the Company adopted those portions of SFAS No. 125
deferred by SFAS No. 127. The adoption did not have a material impact on the
Company's consolidated financial statements, taken as a whole.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share,"
which was effective for financial statements issued for periods ending after
December 15, 1997. SFAS No. 128 replaced the previously reported primary and
fully diluted earnings per share with basic and diluted earnings per share.
Basic earnings per share excludes the dilutive effects of options and
convertible securities and is calculated by dividing net income available to
common shareholders by the weighted-average number of common shares outstanding
for the period. Diluted earnings per share reflects all potentially dilutive
securities similar to the previously reported fully diluted earnings per share.
All earnings per share amounts for all periods presented have been restated to
conform to the SFAS No. 128 requirements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which is effective for fiscal years beginning after December 15, 1997.
SFAS No. 130 establishes standards for the reporting and display of a new
reporting item, termed comprehensive income, which will combine net income and
certain items that directly affect stockholders' equity, such as foreign
currency translation adjustments. The Company has not yet determined the impact
of this statement on the Company's financial statement disclosures.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 establishes new standards for
defining how operating segments are determined and requires more comprehensive
disclosures about the Company's reportable operating segments. The Company
believes that SFAS No. 131 will require expanded financial and descriptive
disclosure about the Company's operating segments. However, the Company has not
yet determined the impact of this statement on the Company's financial statement
disclosures.
41
<PAGE> 18
PAINEWEBBER 1997 ANNUAL REPORT
In 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which is effective for fiscal years
beginning after December 15, 1997. SFAS No. 132 revises the disclosures of SFAS
No. 87, "Employers' Accounting for Pensions," and SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The effect of SFAS
No. 132 will not be material to the Company's financial statement disclosures.
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. During
1995, 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, 1997 and 1996, the fair values of long-term borrowings
were $3,469,950 and $2,813,699, respectively, as compared to the carrying
amounts of $3,397,961 and $2,781,694, 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.
The fair value of interest rate swaps used to hedge the Company's fixed
rate debt 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 $50,796 receivable and $21,170 payable at December 31, 1997 and 1996,
respectively. The carrying amounts of the interest rate swap agreements included
in the Company's Consolidated Statements of Financial Condition at December 31,
1997 and 1996 were net receivables of $7,193 and $3,252, respectively. See Notes
1 and 10 for a further discussion of interest rate swap agreements used for
hedging purposes.
42
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4
Trading Assets and Liabilities
At December 31, 1997 and 1996, trading assets and liabilities, recorded at fair
value, consisted of the following:
<TABLE>
<CAPTION>
====================================================================================================================================
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TRADING ASSETS
U.S. government and agency obligations $ 3,449,159 $ 4,767,991
Mortgages and mortgage-backed securities 6,557,629 5,968,704
Corporate debt securities 3,820,317 3,284,235
Commercial paper and other short-term debt 1,410,726 1,457,226
State and municipal obligations 482,678 568,799
Corporate equity securities 653,283 776,352
- ------------------------------------------------------------------------------------------------------------------------------------
$16,373,792 $16,823,307
====================================================================================================================================
TRADING LIABILITIES
U.S. government and agency obligations $ 5,882,082 $ 5,118,658
Mortgages and mortgage-backed securities 81,330 53,845
Corporate debt securities 851,413 672,683
State and municipal obligations 14,191 20,019
Corporate equity securities 273,128 756,686
- ------------------------------------------------------------------------------------------------------------------------------------
$ 7,102,144 $ 6,621,891
====================================================================================================================================
</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 Statements 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, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
========================================================================================================================
1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial paper $ 606,012 $ 688,910
Bank loans and other 808,204 648,736
Medium-Term Notes 252,000 --
- ------------------------------------------------------------------------------------------------------------------------
$ 1,666,216 $1,337,646
========================================================================================================================
</TABLE>
The interest rate on commercial paper fluctuates throughout the year. The
weighted-average interest rates on commercial paper borrowings outstanding at
December 31, 1997 and 1996 were 5.94% and 5.66%, respectively, and during 1997
and 1996 were 5.62% and 5.61%, 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 rates on bank loans outstanding at December 31, 1997 and 1996 were
5.83% and 5.63%, respectively, and during 1997 and 1996 were 5.56% and 5.64%,
respectively.
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, 1997, the Company
had outstanding $50,000 of fixed rate Medium-Term Notes and $202,000 of variable
rate Medium-Term Notes with maturities less than one year from the date of
issuance. The weighted-average interest rate on these Medium-Term Notes
outstanding at December 31, 1997 was 6.05% and during 1997 was 6.23%.
The Company has a $1,200,000 committed unsecured revolving credit facility
with a group of banks which expires
43
<PAGE> 20
PAINEWEBBER 1997 ANNUAL REPORT
in December 1998, with provisions for renewal through December 2001. 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 1998, 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, 1997 and
1996, there were no outstanding borrowings under these credit facilities.
NOTE 6
LONG-TERM BORROWINGS
Long-term borrowings at December 31, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
========================================================================================================================
1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fixed Rate Notes due 1998-2014 $ 1,547,817 $1,547,398
Fixed Rate Subordinated Notes due 2002 174,588 174,500
Medium-Term Senior Notes 1,461,185 747,725
Medium-Term Subordinated Notes 186,950 276,150
Convertible Debentures and other 27,421 35,921
- ------------------------------------------------------------------------------------------------------------------------
$ 3,397,961 $2,781,694
========================================================================================================================
</TABLE>
Interest rates on the fixed rate notes and the fixed rate subordinated
notes outstanding at December 31, 1997 and 1996 ranged from 6.25% to 9.25%. The
weighted-average interest rates on these notes outstanding at December 31, 1997
and 1996 was 7.52%. Interest on the notes is payable semi-annually.
At December 31, 1997 and 1996, the Company had outstanding $989,485 and
$764,925 of fixed rate Medium-Term Notes and $658,650 and $258,950 of variable
rate Medium-Term Notes, respectively, with maturities of greater than one year
from the issuance date. The Medium-Term Notes outstanding at December 31, 1997
and 1996 had weighted-average interest rates of 6.81% and 6.98%, respectively.
At December 31, 1997, these notes had a weighted-average maturity of 5.2 years.
The Company has entered into interest rate swap agreements which
effectively convert substantially all of its fixed rate debt 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 6.88%
and 6.92% at December 31, 1997 and 1996, respectively. The notional amounts and
maturities of the interest rate swap agreements outstanding at December 31, 1997
were as follows:
<TABLE>
<CAPTION>
=============================================================
<S> <C>
1998 - 2000 $ 966,975
2001 - 2003 504,000
2004 - 2006 665,200
2007 - Thereafter 522,310
- -------------------------------------------------------------
$ 2,658,485
=============================================================
</TABLE>
Pursuant to an employee benefit plan, the Company issued 8% Convertible
Debentures (the "8% Debentures") due December 2000, and 6.5% Convertible
Debentures (the "6.5% Debentures") due December 2002 (the 8% and 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. At December 31, 1997, there were no 8% Debentures
outstanding.
The 6.5% Debentures outstanding at December 31, 1997 are fully
convertible, at the option of the holders, into shares of 6.0% Convertible
Preferred Stock, which in turn, are convertible into 1,505,595 shares of common
stock. The Debentures are redeemable at the employees' option, subject to
certain conditions through 1998. During 1997, $20,088 principal amount of the
Debentures was converted into 2,224,209 shares of the Company's common stock.
The aggregate amount of principal repayment requirements on long-term
borrowings for each of the five years subsequent to December 31, 1997, and the
total amount due thereafter, are as follows:
<TABLE>
<CAPTION>
===========================================================
<S> <C>
1998 $ 296,244
1999 314,475
2000 576,627
2001 280,500
2002 490,112
Thereafter 1,440,003
- -----------------------------------------------------------
$ 3,397,961
===========================================================
</TABLE>
44
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 and specific businesses
of Kidder, Peabody Group Inc. ("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 was convertible into
the Company's common stock at any time, in whole or in part, at the option of
the holder. On December 4, 1997, the holder converted the Convertible Preferred
Stock into 8,273,600 shares of the Company's common stock at the stated
conversion price of $12.09 per common share.
PREFERRED STOCK ISSUED BY SUBSIDIARY TRUSTS
Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary
Trusts holding solely Company Guaranteed Related Subordinated Debt
In March 1997, PWG Capital Trust II, a business trust formed under Delaware law
and a wholly owned subsidiary of the Company, issued $198,750 (7,950,000
securities) of 8.08% Preferred Trust Securities to the public at $25.00 per
security and $6,147 (245,877 securities) of 8.08% Common Trust Securities to the
Company at $25.00 per security. In December 1996, PWG Capital Trust I, 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 to the public at $25.00 per security and $6,031 (241,238 securities)
of 8.30% Common Trust Securities to the Company at $25.00 per security. The
8.08% Preferred Trust Securities and the 8.30% Preferred Trust Securities
(collectively, the "Preferred Trust Securities") have a stated liquidation
amount of $25.00 per share.
PWG Capital Trust I and PWG Capital Trust II (collectively, the "Trusts")
exist for the sole purpose of issuing the Preferred Trust Securities and common
securities and investing the proceeds in an equivalent amount of junior
subordinated debentures of the Company. The sole assets of PWG Capital Trust I
at December 31, 1997 were $201,031 of 8.30% Junior Subordinated Debentures due
December 1, 2036 issued by the Company. The sole assets of PWG Capital Trust II
at December 31, 1997 were $204,897 of 8.08% Junior Subordinated Debentures due
March 1, 2037 issued by the Company. The 8.30% Junior Subordinated Debentures
and the 8.08% Junior Subordinated Debentures (collectively, the "Junior
Subordinated Debentures") held by the Trusts are redeemable by the Company, in
whole or in part, on or after December 1, 2001 and March 1, 2002, respectively.
If the Company redeems Junior Subordinated Debentures, the Trust must redeem
Preferred Trust Securities and common securities having an aggregate liquidation
amount equal to the aggregate principal amount of Junior Subordinated
Debentures.
The Company guarantees payment 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, provide a full and unconditional guarantee on a subordinated basis
of amounts due on the Preferred Trust Securities. Dividends on the Preferred
Trust Securities are cumulative, payable monthly in arrears, and are deferrable
at the Company's option for periods not to exceed sixty consecutive months. The
Company generally cannot pay dividends on its preferred and common stocks during
such deferments. Dividends on the Preferred Trust Securities have been
classified as "Minority interest" in the Company's Consolidated Statements of
Income.
45
<PAGE> 22
PAINEWEBBER 1997 ANNUAL REPORT
NOTE 8
COMMON STOCK
On October 13, 1997, the Company's Board of Directors approved a three-for-two
common stock split in the form of a 50% stock dividend, paid on November 17,
1997 to stockholders of record on October 24, 1997.
In August 1997, PWG acquired a subsidiary from General Electric Capital
Services, Inc. ("GECS"), the principal asset of which consisted of the Company's
common stock acquired by General Electric Company in connection with the sale of
certain assets and businesses of Kidder, Peabody Group Inc. ("Kidder") to the
Company in 1994. The principal effect of the transaction was the repurchase of
9,000,000 shares of the Company's common stock for $219,000 ($24.33 per share).
During 1997, the Company repurchased 7,915,477 shares (excluding the
shares repurchased in the Kidder transaction) of its common stock at an
aggregate cost of $192,668. A portion of the shares repurchased during the third
quarter (those expected to be issued within the next year in connection with
certain of the Company's employee compensation programs) were recorded as "Other
assets" in the Consolidated Statement of Financial Condition at September 30,
1997 and were subsequently reissued during the fourth quarter. In accordance
with the repurchase programs, the remaining number of common shares authorized
by the Company's Board of Directors to be repurchased at December 31, 1997 was
13,079,096.
Subsequent to December 31,1997, the Company's Board of Directors approved,
subject to shareholder approval, an increase to the number of common shares
authorized for issuance from 200,000,000 to 400,000,000 shares.
NOTE 9
CAPITAL REQUIREMENTS
PWI, a registered broker-dealer, is subject to the Securities and Exchange
Commission ("SEC") Uniform Net Capital Rule and New York Stock Exchange ("NYSE")
Growth and Business Reduction capital requirements. Under the method of
computing capital requirements adopted by PWI, minimum net capital shall not be
less than 2% of combined aggregate debit items arising from client transactions,
plus excess margin collected on securities purchased under agreements to resell,
as defined. A reduction of business is required if net capital is less than 4%
of such aggregate debit items. Business may not be expanded if net capital is
less than 5% of such aggregate debit items. As of December 31, 1997, PWI's net
capital of $975,366 was 14% of aggregate debit items and its net capital in
excess of the minimum required was $827,016.
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, 1997, the equity of the Company's
subsidiaries totaled approximately $2,145,000. Of this amount, approximately
$459,000 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, 1997, these restrictions did not affect the
Company's ability to pay dividends.
NOTE 10
FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK
HELD OR ISSUED FOR TRADING PURPOSES
Set forth on the following page are the gross contract or notional amounts of
the Company's outstanding off-balance-sheet derivative and other 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, 1997 and 1996. 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. The amounts are netted by counterparty only when the criteria of
FASB Interpretation No. 39 are met.
46
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
====================================================================================================================================
Notional or Contract Amount at December 31, 1997 December 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Purchases Sales Purchases Sales
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage-backed forward contracts
and options written and purchased $20,269,175 $22,948,068 $13,443,158 $16,383,162
Foreign currency forward contracts, futures
contracts, and options written and purchased 1,517,584 1,317,162 440,864 434,072
Equity securities contracts including futures,
forwards, and options written and purchased 139,800 517,327 442,500 888,784
Other fixed income securities contracts including futures,
forwards, and options written and purchased 3,580,697 7,906,777 2,916,929 3,183,749
Interest rate swaps and caps 143,961 140,292 438,562 415,597
====================================================================================================================================
</TABLE>
Set forth below are the fair values of derivative financial instruments held or
issued for trading purposes as of December 31, 1997 and 1996.
<TABLE>
<CAPTION>
====================================================================================================================================
Fair Value at December 31, 1997 December 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Assets Liabilities Assets Liabilities
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage-backed forward contracts
and options written and purchased $ 88,428 $ 84,400 $ 78,800 $ 50,480
Foreign currency forward contracts, futures contracts,
and options written and purchased 25,749 24,773 21,857 21,647
Equity securities contracts including futures,
forwards, and options written and purchased 30,561 39,276 56,679 30,919
Other fixed income securities contracts including futures,
forwards, and options written and purchased 13,080 26,588 15,431 131,088
Interest rate swaps and caps 24,579 3,160 12,654 8,216
====================================================================================================================================
</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, 1997 and
1996. 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, 1997 December 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Assets Liabilities Assets Liabilities
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage-backed forward contracts
and options written and purchased $112,763 $111,655 $150,053 $145,396
Foreign currency forward contracts, futures
contracts, and options written and purchased 30,875 32,808 37,872 43,132
Equity securities contracts including futures,
forwards, and options written and purchased 49,112 33,604 34,583 20,699
Other fixed income securities contracts including futures,
forwards, and options written and purchased 16,251 76,814 25,027 90,877
Interest rate swaps and caps 5,499 5,195 5,407 1,782
====================================================================================================================================
</TABLE>
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
Statements of Financial Condition.
The off-balance-sheet trading transactions are generally short-term. At
December 31, 1997, 99% of the off-balance-sheet trading-related derivative and
other 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
$182,397 and $185,421 at December 31, 1997 and 1996, respectively. Options
written
47
<PAGE> 24
PAINEWEBBER 1997 ANNUAL REPORT
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. See Note 1 for a further discussion
of derivative financial instruments.
The following table summarizes the Company's principal transactions
revenues by business activity for the years ended December 31, 1997 and 1996.
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, 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Taxable fixed income (includes futures, forwards,
options contracts and other securities) $ 514,976 $ 500,391
Equities (includes futures, forwards and options contracts) 408,969 379,446
Municipals 131,703 143,778
- ------------------------------------------------------------------------------------------------------------------------------------
$1,055,648 $1,023,615
====================================================================================================================================
</TABLE>
HELD OR ISSUED FOR PURPOSES OTHER THAN TRADING
The Company enters into interest rate swap agreements to manage the interest
rate characteristics of its assets and liabilities. As of December 31, 1997 and
1996, the Company had outstanding interest rate swap agreements with commercial
banks with notional amounts of $2,658,485 and $2,112,200, respectively. These
agreements effectively converted substantially all of the Company's fixed rate
debt at December 31, 1997 into floating rate debt. The interest rate swap
agreements entered into have had the effect of reducing net interest expense on
the Company's fixed rate debt by $10,966 and $7,890 for the years ended December
31, 1997 and 1996, respectively, and increasing net interest expense by $1,682
for the year ended December 31, 1995. The Company had no deferred gains or
losses related to terminated swap agreements at December 31, 1997 and 1996. 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 1 and 3 for further discussion of
interest rate swap agreements used for hedging purposes.
NOTE 11
RISK MANAGEMENT
Transactions involving derivative and non-derivative financial instruments
involve varying degrees of both market and credit risk. The Company monitors its
exposure to market and credit risk on a daily basis and through a variety of
financial, security position and credit exposure reporting and control
procedures.
MARKET RISK
Market risk is the potential change in value of the financial instrument caused
by unfavorable changes in interest rates, equity prices, and foreign currency
exchange rates. 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. The Company also has an independent risk management group which
reviews the Company's risk profile and 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 group managers, is responsible for
establishing trading position and exposure limits.
Market risk modeling is based on estimating loss exposure through
sensitivity 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.
48
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, agreements to resell
and repurchase securities, and securities borrowed and loaned are generally
collateralized by cash, government and government-agency securities, or 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, 1997, the market
value of client securities loaned to other brokers approximated the amounts due
or collateral obtained.
CREDIT RISK IN CLIENT ACTIVITIES
Client transactions are entered on either a cash or margin basis. In a margin
transaction, the Company extends credit to a client for the purchase of
securities, using the securities purchased and/or other securities in the
client's account as collateral for amounts loaned. Amounts loaned are limited by
margin regulations of the Federal Reserve Board and other regulatory authorities
and are subject to the Company's credit review and daily monitoring procedures.
Market declines could, however, reduce the value of any collateral below the
principal amount loaned, plus accrued interest, before the collateral can be
sold.
Client transactions include positions in commodities and financial
futures, 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, 1997
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,
1997, the aggregate minimum future rental payments required by operating leases
with initial or remaining lease terms exceeding one year were as follows:
<TABLE>
<CAPTION>
===========================================================
<S> <C>
1998 $ 150,438
1999 142,381
2000 117,873
2001 101,798
2002 91,584
Thereafter 717,223
- -----------------------------------------------------------
$1,321,297
===========================================================
</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 $21,023.
For the years ended December 31, 1997, 1996 and 1995, rent expense under
operating leases was $160,973, $163,612 and $169,852, respectively.
49
<PAGE> 26
PAINEWEBBER 1997 ANNUAL REPORT
OTHER COMMITMENTS AND CONTINGENCIES
At December 31, 1997 and 1996, the Company was contingently liable under
unsecured letters of credit totaling $186,279 and $303,543, respectively, which
approximates fair value. At December 31, 1997, certain of the Company's
subsidiaries were contingently liable as issuer of $46,073 of notes payable to
managing general partners of various limited partnerships pursuant to certain
partnership agreements. In addition, as part of the 1995 limited partnership
settlements, 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.
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 through February 2000. The Company entered into an
agreement with the bank to purchase the loans under certain specific
circumstances. At December 31, 1997, $62,377 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, 1997, the Company had outstanding $39,291
of such standby letters of credit. At December 31, 1997 and 1996, securities
with a fair value of $48,378 and $215,286, 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 other commitments. Also, clients may be extended
lines of credit collateralized by mortgages and other real estate interests; the
unused portion of such lines of credit amounted to $515,856 at December 31,
1997. These commercial real estate commitments are generally entered into at
variable rates of interest based upon LIBOR. Settlement of these transactions at
December 31, 1997 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 non-qualified 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 seven to ten years after the date of grant. A portion of
the options exercised during 1997 were issued against "Other assets" on the
Consolidated Statement of Financial Condition.
50
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The activity during the years ended December 31, 1995, 1996 and 1997 is set
forth below. Included in the options granted amount were certain options awarded
in 1998 that related to the 1997 performance year.
<TABLE>
<CAPTION>
====================================================================================================================================
Number of Exercise price Weighted-average
shares per share exercise price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding at December 31, 1994 (7,802,747 exercisable) 22,757,415 $ 4.37 - 13.61 $ 9.30
Granted 8,499,645 9.63 - 13.42 11.67
Exercised (4,401,147) 4.37 - 12.97 7.02
Terminated (1,437,778) 4.37 - 12.97 10.95
- ------------------------------------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1995 (4,782,998 exercisable) 25,418,135 $ 4.37 - 13.61 $ 10.39
Granted 7,186,146 12.63 - 17.71 14.41
Exercised (4,499,580) 4.37 - 13.42 7.89
Terminated (1,774,095) 4.76 -14.08 12.13
- ------------------------------------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1996 (6,351,551 exercisable) 26,330,606 $ 4.37 - 17.71 $ 11.80
Granted 7,726,325 18.50 - 34.22 27.58
Exercised (4,964,542) 4.37 - 14.08 10.60
Terminated (928,594) 4.37 - 22.50 13.89
- ------------------------------------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1997 (6,062,722 exercisable) 28,163,795 $ 4.43 - 34.22 $ 16.27
====================================================================================================================================
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------- ------------------------------------
Options Outstanding Options Exercisable
- ---------------------------------------------------------------------------------- ------------------------------------
Weighted-average
Range of Number of remaining Number of
exercise prices shares Weighted-average contractual life shares Weighted-average
per share outstanding exercise price (years) exercisable exercise price
- ---------------------------------------------------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C>
$ 4.43 - 8.00 1,356,443 $ 5.56 2.1 1,356,443 $ 5.56
8.01 - 12.00 9,567,137 10.92 6.4 3,713,463 11.18
12.01 - 16.00 9,289,640 13.91 7.0 987,566 13.24
16.01 - 20.00 2,838,000 18.38 6.0 5,250 18.05
20.01 - 34.22 5,112,575 32.22 6.9 -- --
- ---------------------------------------------------------------------------------- ------------------------------------
$ 4.43 - 34.22 28,163,795 $ 16.27 6.4 6,062,722 $ 10.26
- ---------------------------------------------------------------------------------- ------------------------------------
</TABLE>
The Company accounts for stock option grants in accordance with APB Opinion 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 1997, 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 1997, 1996 and 1995, respectively: dividend yields of 1.7%, 2.2%
and 2.8%; expected lives of 3.8 years, 4.2 years and 4.7 years; risk-free
interest rates of 6.2%, 5.9% and 6.9%; and expected volatility of 33% for 1997
and 28% for 1996 and 1995. The weighted-average fair value of options granted
during 1997, 1996 and 1995 were $8.52, $3.69 and $2.97, respectively.
For purposes of the pro forma information, the fair values of the 1997,
1996 and 1995 stock option grants are amortized over the vesting period. The pro
forma information for the years ended 1997, 1996, and 1995 was as follows:
<TABLE>
<CAPTION>
====================================================================================================================================
Years Ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income As reported $ 415,449 $ 364,350 $ 80,750
Pro forma $ 397,131 $ 356,475 $ 75,649
Earnings per common share:(1)
Basic As reported $ 2.84 $ 2.55 $ 0.37
Pro forma $ 2.70 $ 2.49 $ 0.34
Diluted As reported $ 2.56 $ 2.24 $ 0.35
Pro forma $ 2.44 $ 2.19 $ 0.31
====================================================================================================================================
</TABLE>
(1) Earnings per share for 1996 and 1995 are restated as required to comply
with SFAS No. 128 and have been retroactively adjusted to reflect a
three-for-two common stock split, which became effective on November 17,
1997.
51
<PAGE> 28
PAINEWEBBER 1997 ANNUAL REPORT
The Plans also provide for the granting of cash and restricted stock awards,
stock appreciation rights, restricted stock units, stock purchase rights and
other stock based awards. The Company had no stock appreciation rights or stock
purchase rights outstanding at December 31, 1997 and 1996. 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.
In 1997, the Company awarded 2,174,502 shares of restricted stock, net of
forfeitures, a portion of which was issued against "Other assets" on the
Consolidated Statement of Financial Condition. During the years ended December
31, 1996 and 1995, the Company awarded 3,682,903 and 4,403,765 shares,
respectively, of restricted stock, net of forfeitures. The charge to
compensation expense, net of forfeitures, amounted to $87,803, $59,945 and
$51,908 in the years ended December 31, 1997, 1996 and 1995, respectively.
At December 31, 1997 and 1996, there were 6,774,933 and 10,021,089 shares,
respectively, available for future stock option, common stock and restricted
stock awards under these plans.
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 1997, 1996 and 1995 for the Plan included the following components:
<TABLE>
<CAPTION>
====================================================================================================================================
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned during the period $ 19,373 $ 19,191 $ 14,641
Interest cost on projected benefit obligation 23,576 20,225 17,024
Actual return on Plan assets (60,122) (37,725) (47,269)
Net amortization and deferral 38,111 21,254 32,424
- ------------------------------------------------------------------------------------------------------------------------------------
Net periodic pension cost $ 20,938 $ 22,945 $ 16,820
====================================================================================================================================
</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, 1997 and 1996:
<TABLE>
<CAPTION>
====================================================================================================================================
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested $ 332,164 $ 273,085
Non-vested 35,422 8,446
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 367,586 281,531
Effect of projected future compensation levels 26,997 20,677
- ------------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation 394,583 302,208
Plan assets at fair value 399,010 311,171
- ------------------------------------------------------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 4,427 8,963
Unrecognized net assets existing at January 1, 1987
being recognized over fifteen years (3,685) (4,525)
Unrecognized prior service cost 1,742 3,780
Unrecognized net loss and actuarial experience 87,070 57,274
- ------------------------------------------------------------------------------------------------------------------------------------
Prepaid pension asset at year end $ 89,554 $ 65,492
====================================================================================================================================
</TABLE>
The projected benefit obligation for the Plan was determined for 1997 and 1996
using an assumed discount rate of 7% and 71/2%, respectively, and an assumed
rate of compensation increase of 5%. The weighted-average assumed rate of return
on Plan assets was 91/2% for 1997, 1996 and 1995.
The Company's funding policy is to contribute to the Plan amounts that can
be deducted for federal income tax purposes. The Company's contributions for the
Plan years 1997, 1996 and 1995 were $25,000, $20,000 and $34,000, respectively.
Plan assets consist primarily of equity securities and U.S. government and
agency obligations.
52
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SAVINGS INVESTMENT PLAN
The PaineWebber 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 $13,000, $12,100 and $7,100 for the years ended
December 31, 1997, 1996 and 1995, 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, 1997,
1996 and 1995 were $55,400, $55,700 and $55,600, respectively.
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, 1997, 1996
and 1995 were as follows:
<TABLE>
<CAPTION>
====================================================================================================================================
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEFERRED TAX ASSETS
Employee benefits $229,449 $141,929 $ 98,389
Accelerated income and deferred deductions 91,263 40,767 99,205
Acquired tax benefits 46,000 -- --
Other 23,627 39,065 26,998
- ------------------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 390,339 221,761 224,592
- ------------------------------------------------------------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES
Tax over book depreciation 16,450 16,520 15,543
Accelerated deductions and deferred income 36,753 11,864 16,809
Safe harbor leases 5,282 4,976 5,567
Valuation of trading assets and investments 57,781 31,827 5,270
Other 3,581 6,016 3,711
- ------------------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 119,847 71,203 46,900
- ------------------------------------------------------------------------------------------------------------------------------------
$270,492 $150,558 $177,692
====================================================================================================================================
</TABLE>
The significant components of the provision for income taxes for the years ended
December 31, 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
====================================================================================================================================
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT
Federal $ 235,349 $ 134,940 $ 64,953
State 56,476 11,436 27,033
Foreign 10,735 21,139 20,719
- ------------------------------------------------------------------------------------------------------------------------------------
Total current 302,560 167,515 112,705
- ------------------------------------------------------------------------------------------------------------------------------------
DEFERRED
Federal (56,373) 11,978 (65,601)
State (17,348) 23,984 (25,177)
Foreign (213) (8,828) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total deferred (73,934) 27,134 (90,778)
- ------------------------------------------------------------------------------------------------------------------------------------
$ 228,626 $ 194,649 $ 21,927
====================================================================================================================================
</TABLE>
53
<PAGE> 30
PAINEWEBBER 1997 ANNUAL REPORT
The reconciliation of income taxes, computed at the statutory federal rate, to
the provision for income taxes recorded for the years ended December 31, 1997,
1996 and 1995, was as follows:
<TABLE>
<CAPTION>
====================================================================================================================================
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Amount % Amount % Amount %
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory federal rate $ 235,587 35.0 $ 196,012 35.0 $ 35,937 35.0
State and local income taxes,
net of federal tax benefit 25,433 3.8 23,023 4.1 1,206 1.2
Foreign rate differential (1,926) (0.3) (9,227) (1.7) (2,500) (2.4)
Nontaxable dividends and interest (6,936) (1.0) (6,695) (1.2) (9,754) (9.5)
Restricted stock dividends (1,001) (0.2) (921) (0.2) (1,025) (1.0)
Nondeductible expenses 3,251 0.5 2,514 0.4 2,779 2.7
Minority interest (10,161) (1.5) (362) (0.1) -- --
Other, net (15,621) (2.3) (9,695) (1.5) (4,716) (4.6)
- ------------------------------------------------------------------------------------------------------------------------------------
$ 228,626 34.0 $ 194,649 34.8 $ 21,927 21.4
====================================================================================================================================
</TABLE>
Income taxes paid for the years ended December 31, 1997, 1996 and 1995 were
$278,553, $130,886 and $28,248, 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, 1997, such
earnings were estimated to be $176,000. 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. 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>
====================================================================================================================================
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL REVENUES
United States $ 6,461,976 $ 5,516,443 $ 5,107,476
Non-U.S.(1) 194,976 189,523 212,614
- ------------------------------------------------------------------------------------------------------------------------------------
$ 6,656,952 $ 5,705,966 $ 5,320,090
====================================================================================================================================
NET REVENUES
United States $ 3,965,289 $ 3,576,442 $ 3,161,799
Non-U.S.(1) 147,113 158,770 188,480
- ------------------------------------------------------------------------------------------------------------------------------------
$ 4,112,402 $ 3,735,212 $ 3,350,279
====================================================================================================================================
INCOME BEFORE TAXES AND MINORITY INTEREST
United States $ 647,268 $ 526,422 $ 58,498
Non-U.S.(1) 25,839 33,611 44,179
- ------------------------------------------------------------------------------------------------------------------------------------
$ 673,107 $ 560,033 $ 102,677
====================================================================================================================================
NET INCOME
United States $ 397,444 $ 333,711 $ 52,095
Non-U.S.(1) 18,005 30,639 28,655
- ------------------------------------------------------------------------------------------------------------------------------------
$ 415,449 $ 364,350 $ 80,750
====================================================================================================================================
IDENTIFIABLE ASSETS
United States $46,610,462 $39,549,604 $36,575,206
Non-U.S.(1) 10,454,571 12,963,896 9,096,088
- ------------------------------------------------------------------------------------------------------------------------------------
$57,065,033 $52,513,500 $45,671,294
====================================================================================================================================
</TABLE>
(1) Predominantly the United Kingdom
54
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17
EARNINGS PER COMMON SHARE
The Company adopted SFAS No. 128, "Earnings Per Share," which was effective for
financial statements issued for periods ending after December 15, 1997. SFAS No.
128 requires the disclosure of basic and diluted earnings per share ("EPS") in
the Consolidated Statements of Income. Basic EPS excludes the dilutive effects
of options and convertible securities and is calculated by dividing income
available to common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects all potentially dilutive
securities. All EPS amounts for all periods presented have been restated to
conform to the SFAS No. 128 requirements.
Set forth below is the reconciliation of net income applicable to common shares
and weighted-average common and common equivalent shares of the basic and
diluted earnings per common share computations:
<TABLE>
<CAPTION>
(In thousands of dollars except share and per share amounts)
- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NUMERATOR
Net income $ 415,449 $ 364,350 $ 80,750
Preferred stock dividends (29,513) (29,395) (29,291)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income applicable to common
shares for basic earnings per share 385,936 334,955 51,459
- ------------------------------------------------------------------------------------------------------------------------------------
Effect of dilutive securities:
Preferred stock dividends 6,000 6,000 --
Interest savings on convertible debentures 1,030 3,865 1,195
- ------------------------------------------------------------------------------------------------------------------------------------
7,030 9,865 1,195
Net income applicable to common
shares for diluted earnings per share $ 392,966 $ 344,820 $ 52,654
====================================================================================================================================
DENOMINATOR
Weighted-average common shares for basic earnings per share 135,943,063 131,547,207 138,045,626
Weighted-average effect of dilutive securities:
Employee stock options and awards 7,759,013 9,519,680 9,730,867
Convertible debentures 1,984,328 4,489,175 4,491,577
6% Convertible Preferred Stock 7,661,580 8,273,600 --
- ------------------------------------------------------------------------------------------------------------------------------------
Dilutive potential common shares 17,404,921 22,282,455 14,222,444
Weighted-average common and common equivalent
shares for diluted earnings per share 153,347,984 153,829,662 152,268,070
====================================================================================================================================
EARNINGS PER SHARE
Basic $ 2.84 $ 2.55 $ 0.37
Diluted $ 2.56 $ 2.24 $ 0.35
====================================================================================================================================
</TABLE>
The 6% Convertible Preferred Stock was converted into 8,273,600 common shares on
December 4, 1997. In 1995, the 6% Convertible Preferred Stock was outstanding
but was not included in the computation of diluted earnings per share because
inclusion would have had an anti-dilutive effect.
55
<PAGE> 32
PAINEWEBBER 1997 ANNUAL REPORT
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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
New York, New York
January 30, 1998
56
<PAGE> 33
COMMON STOCK AND QUARTERLY INFORMATION(1)
COMMON STOCK DIVIDEND HISTORY
During 1997, 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 4th 3rd 2nd 1st
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997 $ .11 $ .10 $ .10 $ .10
1996 .08 .08 .08 .08
1995 .08 .08 .08 .08
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
On February 5, 1998, Paine Webber Group Inc. declared a 1998 first quarter
dividend of $0.11 per share. However, there is no assurance that dividends will
continue to be paid in the future, since they are dependent upon income,
financial condition and other factors, including the restrictions described in
Note 9 in the Notes to Consolidated Financial Statements.
MARKET FOR COMMON STOCK
The common stock of Paine Webber Group Inc. is listed on the New York Stock
Exchange ("NYSE") and the Pacific Stock Exchange. The following table summarizes
the high and low sales prices per share of the common stock as reported on the
Composite Tape for the periods indicated:
<TABLE>
<CAPTION>
====================================================================================================================================
High Low
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CALENDAR 1997
4th Quarter $37.38 $26.33
3rd Quarter 32.67 23.50
2nd Quarter 25.25 18.58
1st Quarter 26.00 18.17
- ------------------------------------------------------------------------------------------------------------------------------------
CALENDAR 1996
4th Quarter $19.67 $14.00
3rd Quarter 15.83 12.67
2nd Quarter 15.83 13.25
1st Quarter 14.83 11.92
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
On February 13, 1998, the last reported sale price per share of Paine Webber
Group Inc. common stock on the NYSE was $321/16. The approximate number of
holders of record of Paine Webber Group Inc. common stock as of the close of
business on February 13, 1998 was 6,425. Included as one holder of record is
PaineWebber Incorporated, which holds securities beneficially owned by
approximately 8,800 clients.
Quarterly Financial Information (unaudited)
<TABLE>
<CAPTION>
Income before Earnings per
(In thousands of dollars Total Net taxes and Net common share
except per share amounts) Revenues Revenues minority interest Income Basic/Diluted(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CALENDAR 1997
4th Quarter $1,745,036 $ 1,069,685 $ 175,304 $ 108,708 $ .75/.68
3rd Quarter 1,764,456 1,081,943 181,572 112,782 .78/.70
2nd Quarter 1,619,769 975,940 151,327 93,124 .66/.58
1st Quarter 1,527,691 984,834 164,904 100,835 .72/.62
- ------------------------------------------------------------------------------------------------------------------------------------
CALENDAR 1996
4th Quarter $1,469,528 $ 939,968 $ 141,776 $ 91,482 $ .65/.57
3rd Quarter 1,375,248 882,986 123,315 80,155 .56/.49
2nd Quarter 1,431,164 949,623 140,326 92,212 .65/.56
1st Quarter 1,430,026 962,635 154,616 100,501 .70/.61
- ------------------------------------------------------------------------------------------------------------------------------------
</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) All share and per share data reflect a three-for-two common stock split,
effective November 17, 1997.
(2) Earnings per share for 1997 and 1996 are restated as required to comply
with SFAS No. 128.
57
<PAGE> 34
PAINEWEBBER 1997 ANNUAL REPORT
FIVE-YEAR FINANCIAL SUMMARY
(In thousands of dollars except share and per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995(1) 1994(2) 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Amount % Amount % Amount % Amount % Amount %
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
COMMISSIONS
Listed securities
and options $ 884,341 21.5 $ 821,499 22.0 $ 816,517 24.4 $ 580,323 22.9 $ 599,599 20.9
Mutual funds and
insurance 415,855 10.1 380,982 10.2 302,654 9.0 279,688 11.0 259,130 9.0
Over-the-counter
securities and other 196,595 4.8 178,994 4.8 153,595 4.6 110,283 4.4 137,398 4.8
- ------------------------------------------------------------------------------------------------------------------------------------
1,496,791 36.4 1,381,475 37.0 1,272,766 38.0 970,294 38.3 996,127 34.7
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL TRANSACTIONS
Taxable fixed income 514,976 12.5 500,391 13.4 396,787 11.8 56,221 2.2 396,310 13.8
Equities 408,969 9.9 379,446 10.2 377,650 11.3 324,178 12.8 272,539 9.5
Municipals 131,703 3.2 143,778 3.8 139,764 4.2 139,039 5.5 110,595 3.8
- ------------------------------------------------------------------------------------------------------------------------------------
1,055,648 25.6 1,023,615 27.4 914,201 27.3 519,438 20.5 779,444 27.1
- ------------------------------------------------------------------------------------------------------------------------------------
ASSET MANAGEMENT 542,755 13.2 453,267 12.1 399,540 11.9 356,368 14.1 325,690 11.3
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT BANKING
Underwriting fees,
management fees and
selling concessions:
Corporate securities 249,777 6.1 226,063 6.1 207,499 6.2 181,086 7.1 294,255 10.2
Municipal
obligations 76,964 1.9 53,914 1.4 43,578 1.3 39,641 1.6 68,876 2.4
Private placement
and other fees 133,260 3.2 111,187 3.0 75,700 2.2 63,776 2.5 50,512 1.8
- ------------------------------------------------------------------------------------------------------------------------------------
460,001 11.2 391,164 10.5 326,777 9.7 284,503 11.2 413,643 14.4
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER 138,633 3.4 146,708 3.9 150,056 4.5 138,902 5.5 113,253 3.9
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST 2,963,124 72.1 2,309,737 61.9 2,256,750 67.4 1,694,572 66.8 1,376,560 47.9
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 6,656,952 161.9 5,705,966 152.8 5,320,090 158.8 3,964,077 156.4 4,004,717 139.3
====================================================================================================================================
INTEREST EXPENSE 2,544,550 (61.9) 1,970,754 (52.8) 1,969,811 (58.8) 1,428,653 (56.4) 1,130,712 (39.3)
- ------------------------------------------------------------------------------------------------------------------------------------
NET REVENUES $ 4,112,402 100.0 $ 3,735,212 100.0 $ 3,350,279 100.0 $ 2,535,424 100.0 $ 2,874,005 100.0
====================================================================================================================================
</TABLE>
58
<PAGE> 35
FIVE-YEAR FINANCIAL SUMMARY
(In thousands of dollars except share and per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995(1) 1994(2) 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Amount % Amount % Amount % Amount % Amount %
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NON-INTEREST
EXPENSES
Compensation
and benefits $ 2,420,296 58.9 $ 2,219,129 59.4 $ 2,004,585 59.8 $ 1,546,467 61.0 $ 1,628,889 56.7
Office and equipment 275,532 6.7 267,006 7.1 266,291 7.9 225,375 8.9 211,880 7.4
Communications 153,285 3.7 153,301 4.1 149,047 4.5 130,095 5.1 123,601 4.3
Business development 82,099 2.0 75,981 2.0 90,752 2.7 85,430 3.4 93,962 3.3
Brokerage, clearing and
exchange fees 86,808 2.1 87,839 2.4 93,657 2.8 82,577 3.2 79,752 2.8
Professional services 129,066 3.1 108,123 2.9 101,911 3.0 78,856 3.1 66,825 2.2
Other 292,209 7.1 263,800 7.1 541,359 16.2 342,239 13.5 261,520 9.1
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL NON-INTEREST
EXPENSES 3,439,295 83.6 3,175,179 85.0 3,247,602 96.9 2,491,039 98.2 2,466,429 85.8
- ------------------------------------------------------------------------------------------------------------------------------------
Income before
taxes and
minority interest 673,107 16.4 560,033 15.0 102,677 3.1 44,385 1.8 407,576 14.2
Provision for
income taxes 228,626 5.6 194,649 5.2 21,927 0.7 12,754 0.5 161,393 5.6
- ------------------------------------------------------------------------------------------------------------------------------------
Income before
minority interest 444,481 10.8 365,384 9.8 80,750 2.4 31,631 1.3 246,183 8.6
Minority interest 29,032 0.7 1,034 0.0 -- 0.0 -- 0.0 -- 0.0
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 415,449 10.1 $ 364,350 9.8 $ 80,750 2.4 $ 31,631 1.3 $ 246,183 8.6
====================================================================================================================================
EARNINGS PER
COMMON SHARE(3)(4)
Basic $ 2.84 $ 2.55 $ 0.37 $ 0.28 $ 2.36
Diluted $ 2.56 $ 2.24 $ 0.35 $ 0.26 $ 1.95
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED-AVERAGE
COMMON SHARES(3)(4)
Basic 135,943,063 131,547,207 138,045,626 107,539,530 102,802,768
Diluted 153,347,984 153,829,662 152,268,070 123,955,127 129,852,698
DIVIDENDS DECLARED
PER SHARE:
Common stock(3) $ .41 $ .32 $ .32 $ .32 $ .25
Preferred stock:
Redeemable
Preferred Stock $ 9.00 $ 9.00 $ 9.00 $ -- $ --
Convertible
Preferred Stock $ 6.00 $ 6.00 $ 6.00 $ -- $ --
$1.375 Preferred
Stock $ -- $ -- $ -- $ -- $ 1.241
Participating
Preferred Stock $ -- $ -- $ -- $ -- $ .33
- ------------------------------------------------------------------------------------------------------------------------------------
</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 three-for-two
common stock splits in November 1997 and March 1994.
(4) Amounts have been restated as required to comply with SFAS No. 128.
59
<PAGE> 1
EXHIBIT 21
PAINE WEBBER GROUP INC.
SUBSIDIARIES OF THE REGISTRANT
A list of significant direct and indirect subsidiaries, all of which are
consolidated, of Paine Webber Group Inc. (the "Company") as of December
31, 1997 and the state or jurisdiction in which organized follows. In
each case, 100% of the voting securities are owned directly or indirectly
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
Paine Webber Real Estate Securities Inc. Delaware
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report on Form
10-K of Paine Webber Group Inc. of our report dated January 30, 1998,
included in the 1997 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, 333-17913, 333-43585 and 333-47223) of Paine Webber Group
Inc. and in the related prospectuses, of our reports dated January 30,
1998 with respect to the consolidated financial statements and financial
statement schedule of Paine Webber Group Inc. included and/or incorporated
by reference in this 1997 Annual Report on Form 10-K for the year ended
December 31, 1997.
ERNST & YOUNG LLP
New York, New York
March 31, 1998
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PAINE WEBBER GROUP INC. FOR THE PERIOD ENDED DECEMBER
31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.<F1>
</LEGEND>
<CIK> 0000075754
<NAME> PAINE WEBBER GROUP INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> DEC-31-1997 SEP-30-1997 JUN-30-1997 MAR-31-1997
<EXCHANGE-RATE> 1 1 1 1
<CASH> 802,925 716,370 719,863 749,382
<RECEIVABLES> 6,904,492 6,666,674 5,466,575 5,319,183
<SECURITIES-RESALE> 21,562,739 23,948,782 23,160,177 23,059,736
<SECURITIES-BORROWED> 9,573,187 9,247,513 9,118,209 8,778,900
<INSTRUMENTS-OWNED> 16,373,792 16,330,531 16,316,357 17,995,295
<PP&E> 334,401 320,853 316,200 313,029
<TOTAL-ASSETS> 57,065,033 58,925,521 56,463,533 57,631,365
<SHORT-TERM> 1,666,216 1,592,445 1,691,112 1,764,905
<PAYABLES> 7,140,217 6,790,859 6,505,999 6,248,747
<REPOS-SOLD> 29,628,902 31,449,651 30,333,462 30,893,690
<SECURITIES-LOANED> 4,733,961 4,693,489 4,678,835 4,614,652
<INSTRUMENTS-SOLD> 7,102,144 7,896,190 7,133,355 8,279,465
<LONG-TERM> 3,397,961 3,295,119 3,059,814 2,976,779
582,418 582,165 581,912 581,658
0 100,000 100,000 100,000
<COMMON> 188,458 187,882 164,146 163,206
<OTHER-SE> 1,742,505 1,569,133 1,579,127 1,515,786
<TOTAL-LIABILITY-AND-EQUITY> 57,065,033 58,925,521 56,463,533 57,631,365
<TRADING-REVENUE> 1,055,648 801,037 511,761 256,536
<INTEREST-DIVIDENDS> 2,963,124 2,176,655 1,391,091 643,953
<COMMISSIONS> 1,496,791 1,104,507 717,297 370,386
<INVESTMENT-BANKING-REVENUES> 460,001 337,126 208,712 97,774
<FEE-REVENUE> 542,755 388,002 246,295 120,968
<INTEREST-EXPENSE> 2,544,550 1,869,199 1,186,686 542,857
<COMPENSATION> 2,420,296 1,788,361 1,148,248 574,017
<INCOME-PRETAX> 673,107 497,803 316,231 164,904
<INCOME-PRE-EXTRAORDINARY> 415,449 306,741 193,959 100,835
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 415,449 306,741 193,959 100,835
<EPS-PRIMARY> 2.84<F2> 2.09<F2> 1.38<F2> 0.72<F2>
<EPS-DILUTED> 2.56<F2> 1.88<F2> 1.20<F2> 0.62<F2>
<FN>
<F1>
All share and per share data reflect a three-for-two common stock split,
effective November 17, 1997.
<F2>
Earnings per share for 1997, 1996 and 1995 are restated to comply with Statement
of Financial Accounting Standards No. 128.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PAINE WEBBER GROUP INC. FOR THE PERIOD ENDED DECEMBER
31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.<F1>
</LEGEND>
<CIK> 0000075754
<NAME> PAINE WEBBER GROUP INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> DEC-31-1996 SEP-30-1996 JUN-30-1996 MAR-31-1996
<EXCHANGE-RATE> 1 1 1 1
<CASH> 883,617 614,629 585,879 613,826
<RECEIVABLES> 5,089,074 5,045,851 5,125,145 5,580,849
<SECURITIES-RESALE> 20,746,831 22,248,702 21,047,424 20,397,008
<SECURITIES-BORROWED> 7,380,374 7,056,283 6,937,053 7,488,382
<INSTRUMENTS-OWNED> 16,823,307 15,674,064 14,274,463 14,282,418
<PP&E> 313,261 316,411 318,858 319,625
<TOTAL-ASSETS> 52,513,500 52,773,735 50,084,412 50,423,605
<SHORT-TERM> 1,337,646 951,186 1,229,472 1,340,081
<PAYABLES> 6,664,677 5,954,907 5,644,934 6,182,796
<REPOS-SOLD> 28,797,276 31,133,247 28,720,797 28,103,046
<SECURITIES-LOANED> 3,459,860 2,694,971 3,579,275 3,133,358
<INSTRUMENTS-SOLD> 6,621,891 6,992,858 6,025,159 7,005,301
<LONG-TERM> 2,781,694 2,565,440 2,552,306 2,518,726
382,655 187,431 187,208 186,984
100,000 100,000 100,000 100,000
<COMMON> 162,537 158,154 158,131 157,897
<OTHER-SE> 1,467,888 1,417,020 1,366,244 1,311,505
<TOTAL-LIABILITY-AND-EQUITY> 52,513,500 52,773,735 50,084,412 50,423,605
<TRADING-REVENUE> 1,023,615 788,485 548,224 296,376
<INTEREST-DIVIDENDS> 2,309,737 1,685,531 1,107,649 545,459
<COMMISSIONS> 1,381,475 1,037,053 730,880 368,185
<INVESTMENT-BANKING-REVENUES> 391,164 277,217 183,932 81,855
<FEE-REVENUE> 453,267 334,661 219,047 107,655
<INTEREST-EXPENSE> 1,970,754 1,441,194 948,932 467,391
<COMPENSATION> 2,219,129 1,660,293 1,135,681 566,991
<INCOME-PRETAX> 560,033 418,257 294,942 154,616
<INCOME-PRE-EXTRAORDINARY> 364,350 272,868 192,713 100,501
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 364,350 272,868 192,713 100,501
<EPS-PRIMARY> 2.55<F2> 1.90<F2> 1.34<F2> 0.70<F2>
<EPS-DILUTED> 2.24<F2> 1.66<F2> 1.17<F2> 0.61<F2>
<FN>
<F1>
All share and per share data reflect a three-for-two common stock split,
effective November 17, 1997.
<F2>
Earnings per share for 1997, 1996 and 1995 are restated to comply with Statement
of Financial Accounting Standards No. 128.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PAINE WEBBER GROUP INC. FOR THE PERIOD ENDED DECEMBER
31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.<F1>
</LEGEND>
<CIK> 0000075754
<NAME> PAINE WEBBER GROUP INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 649,565
<RECEIVABLES> 4,814,667
<SECURITIES-RESALE> 16,699,295
<SECURITIES-BORROWED> 7,226,515
<INSTRUMENTS-OWNED> 14,095,446
<PP&E> 322,056
<TOTAL-ASSETS> 45,671,294
<SHORT-TERM> 991,227
<PAYABLES> 5,749,336
<REPOS-SOLD> 25,199,377
<SECURITIES-LOANED> 2,752,429
<INSTRUMENTS-SOLD> 6,233,054
<LONG-TERM> 2,436,037
156,738
186,760
<COMMON> 100,000
<OTHER-SE> 1,295,550
<TOTAL-LIABILITY-AND-EQUITY> 45,671,294
<TRADING-REVENUE> 914,201
<INTEREST-DIVIDENDS> 2,256,750
<COMMISSIONS> 1,272,766
<INVESTMENT-BANKING-REVENUES> 326,777
<FEE-REVENUE> 399,540
<INTEREST-EXPENSE> 1,969,811
<COMPENSATION> 2,004,585
<INCOME-PRETAX> 102,677
<INCOME-PRE-EXTRAORDINARY> 80,750
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80,750
<EPS-PRIMARY> 0.37<F2>
<EPS-DILUTED> 0.35<F2>
<FN>
<F1>
All share and per share data reflect a three-for-two common stock split,
effective November 17, 1997.
<F2>
Earnings per share for 1997, 1996 and 1995 are restated to comply with Statement
of Financial Accounting Standards No. 128.
</FN>
</TABLE>
