-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, fyR3pMvJHPfkKl+GCRn7yy6SDEkQApEGwTaCulfCjPLwTBQIDfCp/nrnOsZE/JJ/ p3C0RQNVAy8vYvZqRlxESA== 0000950115-94-000049.txt : 19940310 0000950115-94-000049.hdr.sgml : 19940310 ACCESSION NUMBER: 0000950115-94-000049 CONFORMED SUBMISSION TYPE: 424B5 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19940309 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAINE WEBBER GROUP INC CENTRAL INDEX KEY: 0000075754 STANDARD INDUSTRIAL CLASSIFICATION: 6211 IRS NUMBER: 132760086 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B5 SEC ACT: 33 SEC FILE NUMBER: 033-53776 FILM NUMBER: 94515282 BUSINESS ADDRESS: STREET 1: 1285 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2127132000 FORMER COMPANY: FORMER CONFORMED NAME: PAINE WEBBER INC DATE OF NAME CHANGE: 19840523 424B5 1 PROSPECTUS SUPPLEMENT AND PROSPECTUS Rule 424(b)(5) File No. 33-53776 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED JANUARY 19, 1993) 5,000,000 WARRANTS PAINE WEBBER GROUP INC. U.S. Dollar Increase Warrants on the Japanese Yen Expiring March 6, 1996 ------------------------ Each Warrant will entitle the holder thereof to receive from Paine Webber Group Inc. (the 'Company'), upon exercise (including automatic exercise), an amount in U.S. dollars calculated by reference to decreases in the value of the Japanese yen relative to the U.S. dollar. Such amount (the 'Cash Settlement Value') will equal the greater of (i) zero and (ii) the amount (rounded down to the nearest cent) computed by subtracting from U.S. $50 an amount equal to the product of U.S. $50 times a fraction, the numerator of which is Yen 105.40 per U.S. $1.00 (the 'Strike Rate') and the denominator of which is the spot exchange rate of the Japanese yen for the U.S. dollar (expressed as a number of Japanese yen per U.S. dollar and determined by the Spot Rate Reference Agent (as hereinafter defined) as provided herein) on the applicable valuation date (the 'Spot Rate'). If the Strike Rate is equal to or exceeds the Spot Rate for such valuation date, the Cash Settlement Value will be zero; in which case, the Warrantholder will be permitted, subject to certain exceptions, to re-exercise such Warrant prior to the Expiration Date (as hereinafter defined) or the Delisting Date (as hereinafter defined). The Strike Rate is equal to the spot exchange rate of the Japanese yen for the U.S. dollar quoted by the Spot Rate Reference Agent at approximately 4:00 P.M., New York City time, on March 8, 1994, and, accordingly, the Cash Settlement Value of the Warrants as of such time was zero. The Warrants are unsecured contractual obligations of the Company and will rank on a parity with the Company's other unsecured contractual obligations and with the Company's unsecured and unsubordinated debt. The Warrants will be exercisable immediately upon issuance and may be exercised until 3:00 P.M., New York City time, on the New York Business Day (as hereinafter defined) immediately preceding the expiration date for the Warrants, which will be March 6, 1996 (the 'Expiration Date'), or until their earlier expiration on the last New York Business Day prior to the effective date of their delisting from, or permanent suspension from trading on, the American Stock Exchange (the 'AMEX') and failure to list the Warrants on another national securities exchange (the 'Delisting Date'). Any Warrant not exercised at or before 3:00 P.M., New York City time, on such New York Business Day will be automatically exercised on such date. See 'Description of the Warrants -- Exercise and Settlement of Warrants' herein. THE WARRANTS INVOLVE A HIGH DEGREE OF RISK, INCLUDING FOREIGN EXCHANGE RISKS AND THE RISK OF EXPIRING WORTHLESS IF THE U.S. DOLLAR DOES NOT APPRECIATE, OR IF IT DEPRECIATES, AGAINST THE JAPANESE YEN. IN ADDITION, IN THE ABSENCE OF COUNTERVAILING FACTORS, SUCH AS AN APPRECIATION OF THE U.S. DOLLAR AGAINST THE JAPANESE YEN, THE TRADING VALUE OF THE WARRANTS IS EXPECTED TO DECREASE AS THE TIME REMAINING TO THE EXPIRATION DATE DECREASES. SEE 'RISK FACTORS -- CERTAIN FACTORS AFFECTING VALUE AND TRADING PRICE OF WARRANTS' IN THE PROSPECTUS. PURCHASERS SHOULD BE PREPARED TO SUSTAIN A TOTAL LOSS OF THE PURCHASE PRICE OF THEIR WARRANTS AND ARE ADVISED TO CONSIDER CAREFULLY THE INFORMATION UNDER 'CERTAIN IMPORTANT INFORMATION CONCERNING THE WARRANTS' AND 'EXCHANGE RATES' HEREIN AND 'RISK FACTORS' IN THE PROSPECTUS, AS WELL AS THE OTHER INFORMATION HEREIN AND IN THE PROSPECTUS. The Warrants have been approved for listing on the AMEX, subject to official notice of issuance. The AMEX symbol for the Warrants is PWY.WS. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting Price to Discounts and Proceeds to Public Commissions(1) Company(2) Per Warrant................................................ $3.25 $.16 $3.09 Total...................................................... $16,250,000 $800,000 $15,450,000
(1) See 'Underwriting' herein. (2) Before deducting expenses estimated at $220,000, which are payable by the Company. ------------------------ The Warrants are offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to their right to reject orders in whole or in part. It is expected that delivery of the Warrants will be made in New York City on or about March 16, 1994. ------------------------ PAINEWEBBER INCORPORATED KEMPER SECURITIES, INC. ------------------------ THE DATE OF THIS PROSPECTUS SUPPLEMENT IS MARCH 9, 1994. The valuation of and payment for any exercised Warrant may be postponed as a result of the exercise of a number of Warrants exceeding the limits on exercise described herein under 'Description of the Warrants -- Maximum Exercise Amount', in which case the Warrantholder will receive a Cash Settlement Value for such Warrant determined as of a later date. See 'Description of the Warrants - -- Maximum Exercise Amount' herein. A Warrantholder may exercise no fewer than 500 Warrants at any one time, except in the event of automatic exercise. A Warrantholder tendering Warrants for exercise will have the option of specifying that such Warrants are not to be exercised if the Spot Rate for the applicable valuation date has declined by five or more Japanese yen per U.S. dollar from the Spot Rate for the applicable exercise date. All exercises of Warrants (other than on the Expiration Date for the Warrants or on the Delisting Date) are subject, at the Company's option, to the limitation that not more than 1,000,000 Warrants in total may be exercised on any exercise date for the Warrants and not more than 250,000 Warrants may be exercised by or on behalf of any person or entity, either individually or in concert with any other person or entity, on any exercise date for the Warrants. See 'Certain Important Information Concerning the Warrants' and 'Description of the Warrants' herein and 'Description of Warrants' in the Prospectus. ------------------------ IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE WARRANTS OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. ------------------------ FOR NORTH CAROLINA INVESTORS ONLY: THE COMMISSIONER OF INSURANCE OF THE STATE OF NORTH CAROLINA HAS NOT APPROVED OR DISAPPROVED THIS OFFERING, NOR HAS THE COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ------------------------ S-2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information appearing elsewhere in the Prospectus and this Prospectus Supplement and in the documents incorporated therein and herein by reference. Appendix A hereto ('Index of Terms') contains a listing of defined terms and pages on which they are defined in this Prospectus Supplement. PAINE WEBBER GROUP INC. Paine Webber Group Inc. (the 'Company') is a holding company which, together with its operating subsidiaries, forms one of the largest full-service securities firms in the industry. Founded in 1879, the Company has offices located throughout the United States and in many major foreign cities. The Company's principal line of business is to serve the investment and capital needs of individual, corporate, institutional and public agency clients through its broker-dealer subsidiary, PaineWebber Incorporated ('PaineWebber'), and other specialized subsidiaries. The Company is comprised of four interrelated core business groups -- Retail Sales and Marketing, Asset Management, Institutional Sales and Trading, and Investment Banking. See 'Selected Consolidated Financial Data' in the Prospectus and 'Paine Webber Group Inc. Recent Developments' herein for information concerning the Company's earnings and financial condition. THE OFFERING SECURITIES OFFERED.................. U.S. Dollar Increase Warrants on the Japanese Yen Expiring March 6, 1996 (the 'Warrants'). DETERMINATION OF CASH SETTLEMENT VALUE OF WARRANTS................. Each Warrant will entitle the holder thereof to receive from the Company, upon exercise (including automatic exercise), an amount in U.S. dollars calculated by reference to decreases in the value of the Japanese yen relative to the U.S. dollar. Such amount (the 'Cash Settlement Value') will equal the greater of (i) zero and (ii) the amount (rounded down to the nearest cent) computed by subtracting from U.S. $50 an amount equal to the product of U.S. $50 times a fraction, the numerator of which is Yen 105.40 per U.S. dollar (the 'Strike Rate') and the denominator of which is the noon buying rate per U.S. $1.00 in The City of New York on the applicable valuation date for cable transfers in Japanese yen as certified for customs purposes by the Federal Reserve Bank of New York (the 'Noon Buying Rate'), as determined by the Spot Rate Reference Agent as described herein, or, if such Noon Buying Rate is not available, such other rate as described herein on such valuation date (the 'Spot Rate'). This amount is described by the following formula: CASH SETTLEMENT VALUE = THE GREATER OF YEN 105.40/U.S. $1.00 --------------------- (I) $0 AND (II) $50 - ( $50 X ( SPOT RATE )) If the Strike Rate is equal to or exceeds the Spot Rate for such valuation date, the Cash Settlement Value will be zero; in which case, the Warrantholder will be permitted, subject to certain exceptions, to re- exercise such Warrant prior to the Expiration Date or the Delisting Date. The Strike Rate is equal to the spot exchange rate of the Japanese yen for the U.S. dollar quoted by the Spot Rate Reference Agent at approximately 4:00 P.M., New York City time, on March 8, 1994, and, accordingly, the Cash Settlement Value of the Warrants as of such time was zero. See 'Description of the Warrants -- Determination of Cash Settlement Value
S-3 of Warrants' herein for the method by which the Spot Rate and the Cash Settlement Value will be calculated. PRICE............................... $3.25 per Warrant. EXERCISE OF WARRANTS................ The Warrants will be exercisable immediately upon issuance and may be exercised until 3:00 P.M., New York City time, on the New York Business Day (as hereinafter defined) immediately preceding the expiration date for the Warrants, which will be March 6, 1996 (the 'Expiration Date'), or until their earlier expiration on the last New York Business Day prior to the effective date of their delisting from, or permanent suspension from trading on, the American Stock Exchange (the 'AMEX') and failure to list the Warrants on another national securities exchange (the 'Delisting Date'). See 'Description of the Warrants -- Exercise and Settlement of Warrants' herein. EXERCISE AMOUNT..................... A Warrantholder may exercise no fewer than 500 Warrants at any one time, except in the event of automatic exercise. See 'Description of the Warrants -- Minimum Exercise Amount' herein. All exercises of Warrants (other than on the Expiration Date or the Delisting Date) are subject, at the Company's option, to the limitation that not more than 1,000,000 Warrants in total may be exercised on any Exercise Date and not more than 250,000 Warrants may be exercised by or on behalf of any person or entity, either individually or in concert with any other person or entity, on any Exercise Date. See 'Description of the Warrants -- Maximum Exercise Amount' herein. CERTAIN RISK FACTORS................ The Warrants involve a high degree of risk, including foreign exchange risks and the risk of expiring worthless if the U.S. dollar does not appreciate, or if it depreciates, against the Japanese yen. In addition, in the absence of countervailing factors, such as an appreciation of the U.S. dollar against the Japanese yen, the trading value of the Warrants is expected to decrease as the time remaining to the Expiration Date decreases. See 'Risk Factors -- Certain Factors Affecting Value and Trading Price of Warrants' in the Prospectus. If a Warrant is not exercised and if at expiration one U.S. dollar is worth Yen 105.40 or less, the Warrant will expire worthless. Investors therefore should be prepared to sustain a total loss of the purchase price of their Warrants. Warrantholders will bear the foreign exchange risks of the U.S. dollar as compared to the Japanese yen. The Warrants are appropriate investments only for investors who are able to understand and bear the risk of a speculative investment in the Warrants. See 'Risk Factors' in the Prospectus and 'Certain Important Information Concerning the Warrants', 'Description of the Warrants', 'Exchange Rates' and 'Certain United States Federal Income Tax Considerations' herein. Warrantholders will be subject to foreign exchange risk which may have important economic and tax consequences to them. See 'Exchange Rates' and 'Certain United States Federal Income Tax Considerations' herein. It is not possible to predict how the Warrants will trade in the secondary market or whether such market will be liquid or illiquid. The Warrants have been approved for listing on the AMEX, subject to official notice of issuance. In the event the Warrants are delisted from, or permanently suspended from trading (within the meaning of the Securities Exchange Act of 1934 and the rules and regulations thereunder) on, the
S-4 AMEX, and not accepted at the same time for listing on another national securities exchange, Warrants not previously exercised will be deemed automatically exercised on the Delisting Date, and the Cash Settlement Value, if any, shall be calculated and settled as provided below under 'Description of the Warrants -- Delisting of Warrants'. In the event of a delisting or suspension of trading on the AMEX, the Company will use its best efforts to list the Warrants on another United States national securities exchange. To the extent Warrants are exercised, the number of Warrants outstanding will decrease resulting in a lessening of the liquidity of the Warrants. Except in the event of automatic exercise, a Warrantholder must tender at least 500 Warrants at any one time in order to exercise his Warrants. Thus, except in such an event, Warrantholders with fewer than 500 Warrants will need either to sell their Warrants or to purchase additional Warrants, incurring transaction costs in each case, in order to realize upon their investment. A Warrantholder will not be able to determine, at the time of exercise of a Warrant, the Spot Rate that will be used in calculating the Cash Settlement Value of such Warrant (and will thus be unable to determine such Cash Settlement Value). In addition, the Valuation Date (as hereinafter defined) for exercised Warrants may be postponed as a result of the exercise of a number of Warrants exceeding the limits on exercise described below under 'Description of the Warrants -- Maximum Exercise Amount'. Any downward movement in the value of the U.S. dollar relative to the Japanese yen between the time a Warrantholder submits an Exercise Notice and the time the Spot Rate for such exercise is determined (which period will, at a minimum, represent an entire New York Business Day (as hereinafter defined) and, in the case of a postponement of a Valuation Date resulting from the exercise of a number of Warrants exceeding limits on exercise described below under 'Description of the Warrants -- Maximum Exercise Amount', may be substantially longer) will result, subject to such Warrantholder's previous election to use the Limit Option (as hereinafter defined; see 'Description of the Warrants -- Limit Option' herein), in such Warrantholder receiving a Cash Settlement Value that is less than the Cash Settlement Value anticipated by such Warrantholder (including a zero Cash Settlement Value) based on the Spot Rate most recently reported prior to exercise. Investors are advised to consider carefully the foregoing risk factors and the risks and other matters discussed under 'Risk Factors' in the Prospectus and 'Certain Important Information Concerning the Warrants', 'Description of the Warrants', 'Exchange Rates' and 'Certain United States Federal Income Tax Considerations' herein prior to purchasing the Warrants. WHO SHOULD INVEST................... The AMEX recommends that the Warrants be sold only to investors whose accounts have been approved for options trading, and further requires that its members and member organizations and registered employees thereof make certain suitability determinations before recommending transactions in Warrants. As indicated above, investors should be prepared to sustain a total loss of the purchase price of the Warrants. Investment decisions relating to exchange rate currency warrants require an investor to predict the direction of movements in the relevant currency
S-5 exchange rate as well as the amount and timing of those movements. Exchange rate currency warrants may change substantially in value, or lose all of their value, with relatively small movements in the relevant currency exchange rate. Moreover, an exchange rate currency warrant is a 'wasting asset' in that, in the absence of countervailing factors, such as an offsetting movement in the level of the relevant currency exchange rate, the market value of an exchange rate currency warrant will tend to decrease over time and the warrant will have no market value after the time for exercise has expired. Accordingly, exchange rate currency warrants involve a high degree of risk and are not appropriate for every investor. Investors who are considering purchasing the Warrants should be able to understand and bear the risk of a speculative investment in the Warrants, be experienced with respect to options and option transactions and understand the risks of foreign exchange transactions. Such investors should reach an investment decision only after careful consideration with their advisers of the suitability of the Warrants in light of their particular financial curcumstances and the information set forth in this Prospectus Supplement and the Prospectus. See 'Certain Important Information Concerning the Warrants' herein. As indicated above, investors should be prepared to sustain a total loss of the purchase price of the Warrants. LISTING............................. American Stock Exchange. WARRANT TRADING SYMBOL.............. PWY.WS. WARRANT AGENT....................... Citibank, N.A. SPOT RATE REFERENCE AGENT........... PaineWebber Incorporated.
S-6 CERTAIN IMPORTANT INFORMATION CONCERNING THE WARRANTS The securities being offered are 5,000,000 U.S. Dollar Increase Warrants on the Japanese Yen Expiring March 6, 1996 (the 'Warrants')*. The beneficial owner of a Warrant (a 'Warrantholder') will receive a cash payment from Paine Webber Group Inc. (the 'Company'), upon exercise (including automatic exercise), only if such Warrant has a Cash Settlement Value greater than zero at such time. The 'Cash Settlement Value' of a Warrant will equal the greater of (i) zero and (ii) the amount (rounded down to the nearest cent) computed by subtracting from U.S. $50 an amount equal to the product of U.S. $50 times a fraction, the numerator of which is Yen 105.40 per U.S. dollar (the 'Strike Rate') and the denominator of which is the noon buying rate per U.S. $1.00 in The City of New York on the applicable valuation date for cable transfers in Japanese yen as certified for customs purposes by the Federal Reserve Bank of New York (the 'Noon Buying Rate'), as determined by the Spot Rate Reference Agent as described herein, or, if such Noon Buying Rate is not available, such other rate as described herein on such valuation date (the 'Spot Rate'). If the Strike Rate is equal to or exceeds the Spot Rate for such valuation date, the Cash Settlement Value will be zero; in which case, the Warrantholder will be permitted, subject to certain exceptions, to re-exercise such Warrant prior to the Expiration Date or the Delisting Date. The Strike Rate is equal to the spot exchange rate of the Japanese yen for the U.S. dollar quoted by the Spot Rate Reference Agent at approximately 4:00 P.M., New York City time, on March 8, 1994, and, accordingly, the Cash Settlement Value of the Warrants as of such time was zero. See 'Description of the Warrants -- Determination of Cash Settlement Value of Warrants' herein. Warrantholders will be subject to foreign exchange risk which may have important economic and tax consequences to them. See 'Exchange Rates' and 'Certain United States Federal Income Tax Considerations' herein. Except under the circumstances described in the next paragraph, the Valuation Date for an exercised Warrant will be the first New York Business Day (as hereinafter defined) after the related Exercise Date. The Exercise Date for an exercised Warrant, subject to certain exceptions described under 'Exercise and Settlement of Warrants', 'Limit Option' and 'Automatic Exercise' under 'Description of the Warrants' herein, will be the New York Business Day on which such Warrant and an Exercise Notice (as hereinafter defined) in proper form are received by the Warrant Agent (as hereinafter defined) if received at or prior to 3:00 P.M., New York City time, on such day; if such Warrant and Exercise Notice are received after such time, the Exercise Date will be the next succeeding New York Business Day. See 'Description of the Warrants -- Exercise and Settlement of Warrants' herein. The Valuation Date for an exercised Warrant will occur after the Exercise Date (see 'Description of the Warrants -- Exercise and Settlement of Warrants' herein). Therefore, a Warrantholder will not be able to determine, at the time of exercise of a Warrant, the Spot Rate that will be used in calculating the Cash Settlement Value of such Warrant (and will thus be unable to determine such Cash Settlement Value). In addition, the Valuation Date for exercised Warrants may be postponed as a result of the exercise of a number of Warrants exceeding the limits on exercise described below under 'Description of the Warrants -- Maximum Exercise Amount'. Any downward movement in the value of the U.S. dollar relative to the Japanese yen between the time a Warrantholder submits an Exercise Notice and the time the Spot Rate for such exercise is determined (which period will, at a minimum, represent an entire New York Business Day and, in the case of a Valuation Date postponed as a result of there being exercised a number of Warrants exceeding the maximum permissible amount, may be substantially longer) will, subject to the Limit Option described below and under 'Description of the Warrants -- Limit Option' herein, result in such Warrantholder receiving a Cash Settlement Value that is less than the Cash Settlement Value anticipated by such Warrantholder (including a zero Cash Settlement Value) based on the Spot Rate most recently reported prior to exercise. The Warrants will originally be issued as certificates in registered form. Warrantholders cannot, however, hold certificated positions through CEDEL or Euroclear (as such terms are hereinafter defined). Accordingly, a beneficial owner of Warrants holding such Warrants indirectly (for instance, through a broker that holds such - ------------------ * Refer to 'Index of Terms' attached hereto as Appendix A for a listing of defined terms and pages on which they are defined in this Prospectus Supplement. S-7 Warrants in 'street name') may exercise such Warrants only through such owner's registered holder. In the case of a beneficial owner holding Warrants through his broker in 'street name', such beneficial owner must direct his broker, who may in turn need to direct another intermediary, to deliver an Exercise Notice and the related Warrants to the Warrant Agent. To ensure that an Exercise Notice and the related Warrants will be delivered to the Warrant Agent before 3:00 P.M., New York City time, on a given New York Business Day, a beneficial holder of Warrants may have to give exercise instructions to his broker or other intermediary substantially earlier than 3:00 P.M., New York City time, on such day. Different brokerage firms may have different cut-off times for accepting and implementing exercise instructions from their customers. Therefore, Warrantholders should consult with their brokers or other intermediaries, if applicable, as to applicable cut-off times and other exercise mechanics. See 'Description of the Warrants -- Exercise and Settlement of Warrants' and '-- Limit Option' herein. Forty-five calendar days after the closing of the offering (which closing is expected to be March 16, 1994), each registered holder of a Warrant will have the option to convert the form in which such Warrantholder holds his Warrants from certificates to book-entry form (the 'Conversion Option') within a forty-five calendar day period. Such conversion will occur only through the facilities of The Depository Trust Company, New York, New York ('DTC', which term, as used herein and in the Prospectus, includes any successor depository selected by the Company). See 'Description of the Warrants -- Book-Entry Conversion' herein and 'Description of the Warrants -- Book-Entry Procedures and Settlement' in the Prospectus. To exercise Warrants, a registered holder of a Warrant who has utilized the Conversion Option must direct a broker, who may, in turn, need to direct a Participant (as defined in the Prospectus under 'Description of Warrants -- Book-Entry Procedures and Settlement'), to transfer Warrants held by DTC on behalf of such Warrantholder and to submit an Exercise Notice to the Warrant Agent. A Warrantholder may desire that the New York Business Day on which his Warrants and an Exercise Notice are delivered on his behalf to the Warrant Agent will constitute the Exercise Date for the Warrants being exercised (for example, to utilize the Limit Option most effectively). To achieve such objective, a Warrantholder holding Warrants in book-entry form must cause such Warrants to be transferred free on the records of DTC to, and such Exercise Notice to be received by, the Warrant Agent at or prior to 3:00 P.M., New York City time, on such New York Business Day, provided, however, that in the case of Warrants in book-entry form held through CEDEL or Euroclear, the Warrants must be transferred to the Warrant Agent prior to 3:00 P.M., New York City time, on the relevant Valuation Date. To ensure that such Warrants and Exercise Notice will be received by the Warrant Agent at or prior to such time, such Warrantholder must give the appropriate direction to his broker before such broker's (and, if such broker is not a Participant, the applicable Participant's) cut-off time for accepting exercise instructions from customers for that day. Different brokerage firms may have different cut-off times for accepting and implementing exercise instructions from their customers. Therefore, Warrantholders holding their Warrants in book-entry form should consult with their brokers or other intermediaries, if applicable, as to applicable cut-off times and other exercise mechanics. Under no circumstances may Warrants in certificated form be exercised through the facilities of CEDEL or Euroclear. The Company has been informed by CEDEL and Euroclear that such clearing agencies will only clear, and facilitate exercises of, Warrants in book-entry form. See 'Description of the Warrants -- Exercise and Settlement of Warrants', '-- CEDEL and Euroclear' and '-- Limit Option' herein. FORMS OF EXERCISE NOTICE FOR WARRANTS HELD IN BOOK-ENTRY FORM MAY BE OBTAINED AT THE WARRANT AGENT'S OFFICE (AS HEREINAFTER DEFINED), DURING THE WARRANT AGENT'S NORMAL BUSINESS HOURS. SEE 'DESCRIPTION OF THE WARRANTS -- GENERAL' HEREIN. The Spot Rate on any given day will determine whether the Warrants have a Cash Settlement Value greater than zero on such day. The Warrants will be 'at-the-money' (i.e., their Cash Settlement Value will be zero) when initially offered and will be 'in-the-money' (i.e., their Cash Settlement Value will be greater than zero) on any given day only if the Spot Rate exceeds the Strike Rate. An increase in the positive difference, if any, between the Spot Rate and the Strike Rate will result in a greater Cash Settlement Value, and a decrease in such difference will result in a lesser or zero Cash Settlement Value. Potential profit or loss upon exercise (including automatic exercise) of a Warrant will be a function of the Cash Settlement Value of such Warrant upon exercise, the purchase price of such Warrant and any related transaction costs. If a Warrant is not exercised prior to 3:00 P.M., New York City time, on (i) the New York Business Day preceding the Expiration Date or (ii) the Delisting Date and if the Strike Rate equals or exceeds the Spot Rate on S-8 the appropriate Valuation Date, such Warrant will expire worthless and the Warrantholder will have sustained a total loss of the purchase price of such Warrant. See 'Risk Factors' in the Prospectus. Investment decisions relating to exchange rate currency warrants require the investor to predict the direction of movements in the relevant currency exchange rate as well as the amount and timing of those movements. Exchange rate currency warrants may change substantially in value, or lose all of their value, with relatively small movements in the relevant currency exchange rate. Moreover, an exchange rate currency warrant is a 'wasting asset' in that, in the absence of countervailing factors, such as an offsetting movement in the relevant currency exchange rate, the market value of an exchange rate currency warrant will tend to decrease over time and the warrant will have no market value after the time for exercise has expired. Accordingly, exchange rate currency warrants involve a high degree of risk and are not appropriate for every investor. Investors who are considering purchasing the Warrants must be able to understand and bear the risk of a speculative investment in the Warrants and be experienced with respect to options and option transactions and understand the risks of foreign exchange transactions. Such investors should reach an investment decision only after careful consideration, with their advisers, of the suitability of the Warrants in light of their particular financial circumstances and the information set forth in this Prospectus Supplement and in the Prospectus. The AMEX recommends that the Warrants be sold only to investors whose accounts have been approved for options trading. In addition, the AMEX requires that its members and member organizations and registered employees thereof make certain suitability determinations before recommending transactions in Warrants. Before making any investment in the Warrants, it is important that a prospective investor become informed about and understand the nature of the Warrants in general, the specific terms of the Warrants and the nature of the relevant currency exchange rate. An investor should understand the consequences of liquidating his investment in an exchange rate currency warrant by exercising it as opposed to selling it. It is especially important for an investor to be familiar with the procedures governing the exercise of exchange rate currency warrants, since a failure to properly exercise a warrant prior to its expiration could result in the loss of his entire investment. This includes knowing when warrants are exercisable and how to exercise them. Except in the event of automatic exercise, a Warrantholder may be able to limit to some extent the risk associated with any downward movement in the value of the U.S. dollar relative to the Japanese yen between an Exercise Date and the applicable Valuation Date if such Warrantholder, in connection with an exercise of Warrants, elects the Limit Option. Pursuant to the Limit Option, Warrants tendered for exercise will not be exercised if the Spot Rate for the applicable Valuation Date has declined by five or more Japanese yen per U.S. dollar from the Spot Rate for the applicable Exercise Date. See 'Description of the Warrants - -- Limit Option' herein. A Warrantholder may exercise no fewer than 500 Warrants at any time, except in the event of automatic exercise. Accordingly, except in the event of automatic exercise of the Warrants, Warrantholders with fewer than 500 Warrants will need either to sell their Warrants or to purchase additional Warrants, thereby incurring transaction costs, in order to realize upon their investment. The initial offering price of the Warrants is expected to be in excess of the aggregate price that a commercial user of Japanese yen might pay in the interbank market for a comparable option involving significantly larger amounts of underlying currencies. References herein to 'U.S. dollar', 'dollar', 'U.S. $' or '$' are to the lawful currency of the United States of America. References to 'Japanese yen' or 'Yen' are to the lawful currency of Japan. As used herein, 'New York Business Day' means any day other than a Saturday or Sunday or a day on which either the AMEX or the New York Stock Exchange is not open for securities trading or commercial banks in New York City are required or authorized by law or executive order to remain closed. S-9 PAINE WEBBER GROUP INC. RECENT DEVELOPMENTS The Company's net income for the fourth quarter of the fiscal year ended December 31, 1993, totaled $56.9 million, an increase of 37% over net income of $41.4 million for the corresponding 1992 period. Fully diluted earnings per share, after giving retroactive effect to the three-for-two common stock split in the form of a 50% stock dividend, effective March 10, 1994 to stockholders of record on February 17, 1994, for the fourth quarter of 1993 rose 48% to $.72 up from $.49 for the corresponding 1992 period. The increase reflects higher net income and a reduction of 9.3 million in the number of fully diluted shares. Revenues, including net interest, increased 24% to $754.0 million for the fourth quarter of 1993, up from $607.9 million in 1992's fourth quarter. The Company's net income for the fiscal year ended December 31, 1993, rose 15% to $246.2 million compared to net income of $213.2 million for the fiscal year ended December 31, 1992. Fully diluted earnings per common share, after giving retroactive effect to the three-for-two common stock split discussed above, were $2.95 compared with $2.37 fully diluted in 1992. Revenues, including net interest, rose 16% to $2.87 billion for the fiscal year ended December 31, 1993 from $2.48 billion for the fiscal year ended December 31, 1992. USE OF PROCEEDS A substantial portion of the proceeds to be received by the Company from the sale of the Warrants will be used by the Company, or one or more of its subsidiaries, in connection with hedging the Company's obligations under the Warrants. Depending on future market conditions (including the prevailing Japanese yen/U.S. dollar exchange rate from time to time) and the actual amount of Warrants outstanding from time to time, among other things, the Company expects that it or its subsidiaries may (i) take positions in listed and over-the-counter Japanese yen or U.S. dollar currency option contracts, (ii) take positions in Japanese yen or U.S. dollar currency forward contracts, (iii) take positions in Japanese yen or U.S. dollar currency spot contracts and (iv) enter into currency swap arrangements, in each case, other than exchange traded options, in privately negotiated transactions with institutional counterparties. The remainder of the proceeds, if any, will be used for general corporate purposes. DESCRIPTION OF THE WARRANTS GENERAL The Warrants will be issued pursuant to a Warrant Agreement (the 'Warrant Agreement'), to be dated as of March 16, 1994, between the Company, Citibank, N.A., as Warrant Agent (the 'Warrant Agent'), and PaineWebber Incorporated, as Spot Rate Reference Agent. The following summaries of certain provisions of the Warrants and the Warrant Agreement do not purport to be complete and references are made to all the provisions of the Warrant Agreement (including the form of Warrant Certificate and global Warrant certificate attached as exhibits thereto). The Warrant Agreement will be available for inspection by any Warrantholder at the office of the Warrant Agent (the 'Warrant Agent's Office') which is currently located at 111 Wall Street, 5th Floor, New York, New York 10043, during the Warrant Agent's normal business hours. See 'Description of Warrants' in the Prospectus. The aggregate number of Warrants to be issued will be 5,000,000, subject to the right of the Company to 'reopen' the issue of Warrants and issue additional Warrants at a later time. A Warrant will not require or entitle a Warrantholder to purchase U.S. dollars from, or sell Japanese yen to, the Company. Upon exercise of a Warrant, the Company will make only a U.S. dollar cash payment in the amount of the Cash Settlement Value, if any, of such Warrant. The Company is under no obligation to, nor will it, sell U.S. dollars to, or purchase Japanese yen from, Warrantholders in connection with the exercise of any Warrants. Warrantholders will not receive any interest on any Cash Settlement Value. S-10 DETERMINATION OF CASH SETTLEMENT VALUE OF WARRANTS Each Warrant will entitle the Warrantholder to receive, upon exercise (including automatic exercise), the Cash Settlement Value of such Warrant. The 'Cash Settlement Value' of a Warrant will equal an amount in U.S. dollars (rounded down to the nearest cent) which is the greater of (i) zero and (ii) the amount computed by subtracting from U.S. $50 an amount equal to the product of U.S. $50 times a fraction, the numerator of which is Yen 105.40 per U.S. $1.00 (the 'Strike Rate') and the denominator of which is the Spot Rate. This amount is described by the following formula: Yen 105.40/U.S. $1.00 --------------------- CASH SETTLEMENT VALUE = THE GREATER OF (I) $0 AND (II) $50 - ( $50 X ( SPOT RATE ))
The 'Spot Rate' on any Valuation Date will be determined by the Spot Rate Reference Agent and will equal (i) the noon buying rate per U.S. $1.00 in The City of New York on such Valuation Date for cable transfers in Japanese yen as certified for customs purposes by the Federal Reserve Bank of New York (the 'Noon Buying Rate'), as reported on page 1FEE of The Reuter Monitor Money Rates Service (or such page as may replace that page), or (ii) if the Noon Buying Rate does not appear on such page by 1:00 P.M., New York City time, on such Valuation Date, the Noon Buying Rate on such Valuation Date as otherwise announced by the Federal Reserve Bank of New York, or (iii) if the Federal Reserve Bank of New York has not quoted such Noon Buying Rate by 1:30 P.M., New York City time, on such Valuation Date, the offered spot rate of Japanese yen per U.S. $1.00 on such Valuation Date, which offered spot rate shall be calculated by the Spot Rate Reference Agent by (a) obtaining at approximately 1:30 P.M., New York City time, a quote for a transaction amount approximately equivalent to U.S. $50 times the aggregate number of Warrants which were properly exercised on the related Exercise Date from each of five leading market makers (other than PaineWebber) in the foreign exchange markets for Japanese yen selected by the Spot Rate Reference Agent, (b) discarding the highest and lowest quotes obtained and (c) averaging the three remaining quotes to determine such offered spot rate. Because more favorable rates are generally obtained in large transactions, the offered spot rate that will be calculated, if necessary, pursuant to clause (iii) above in the event the Noon Buying Rate is not available in connection with the exercise of a small aggregate number of Warrants, may be less favorable than the rate that will be calculated if a greater number of Warrants were exercised. No assurance can be given as to the aggregate number of Warrants which may be exercised on any day. The Spot Rate used to determine the Cash Settlement Value on any Valuation Date will be rounded to the second decimal place (e.g., 112.26), rounding up if the next succeeding decimal place, without regard to rounding, is five or higher. Any such Cash Settlement Value will be rounded down, if necessary, to the nearest cent. HYPOTHETICAL WARRANT VALUES ON EXERCISE Set forth below is an illustrative example demonstrating the Cash Settlement Values of a Warrant based on various hypothetical Spot Rates. The illustrative Cash Settlement Values in the table do not reflect any 'time value' for a Warrant, which may be reflected in trading value, and are not necessarily indicative of potential profit or loss, which are also affected by purchase price and transaction costs.
CASH SETTLEMENT VALUE HYPOTHETICAL (ALSO KNOWN AS SPOT RATE 'INTRINSIC (YEN/U.S. $1.00) VALUE') OF A WARRANT - ---------------------------------------------------- ------------------------ 135.00 ............................................. U.S. $ 10.96 130.00 ............................................. 9.46 125.00 ............................................. 7.84 120.00 ............................................. 6.08 115.00 ............................................. 4.17 110.00 ............................................. 2.09 105.40 (Strike Rate) or below ...................... 0.00
WARRANT CERTIFICATES The Warrants will be issued as certificates in registered form (each, a 'Warrant Certificate'). The Warrant Agent will from time to time register the transfer of any outstanding Warrant Certificate upon surrender thereof at the Warrant Agent's Office duly endorsed by, or accompanied by a written instrument or instruments of transfer in form satisfactory to the Warrant Agent duly executed by, the registered holder thereof, a duly appointed legal S-11 representative or a duly authorized attorney. Such signature must be guaranteed by a bank or trust company having a correspondent office in New York City or by a member of a national securities exchange. A new Warrant Certificate will be issued to the transferee upon any such registration of transfer. At the option of a registered holder of a Warrant, Warrant Certificates may be exchanged for other Warrant Certificates representing a like number of Warrants, upon surrender to the Warrant Agent at the Warrant Agent's Office of the Warrant Certificates to be exchanged. The Company will thereupon execute, and the Warrant Agent will countersign and deliver, one or more new Warrant Certificates representing such like number of Warrants. In the event that, after any exercise of Warrants evidenced by a Warrant Certificate, the number of Warrants exercised is fewer than the total number of Warrants evidenced by such Certificate, a new Warrant Certificate evidencing the number of Warrants not exercised will be issued to the registered holder or his assignee. See 'Minimum Exercise Amount' below. If any Warrant Certificate is mutilated, lost, stolen or destroyed, the Company may in its discretion execute, and the Warrant Agent may countersign and deliver, in exchange and substitution for such mutilated Warrant Certificate or in replacement for such lost, stolen or destroyed Warrant Certificate, a new Warrant Certificate representing a like number of Warrants, but only (in the case of loss, theft or destruction) upon receipt of evidence satisfactory to the Company and the Warrant Agent of loss, theft or destruction of such Warrant Certificate and security or indemnity, if requested, satisfactory to them. Warrantholders requesting replacement Warrant Certificates must also comply with such other reasonable regulations and pay such reasonable charges as the Company or the Warrant Agent may prescribe. In the event that all the Warrants represented by any such mutilated, lost, stolen or destroyed Warrant Certificate have been or are about to be exercised (including upon automatic exercise), the Company in its discretion may, instead of issuing a new Warrant Certificate, direct the Warrant Agent to treat such Warrant Certificate as if the Warrant Agent had received an Exercise Notice in proper form in respect thereof or as being subject to automatic exercise, as the case may be. No service charge will be made for any registration of transfer or exchange of Warrant Certificates, but the Company may require the payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection therewith, other than exchanges not involving any transfer. In the case of the replacement of mutilated, lost, stolen or destroyed Warrant Certificates, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Warrant Agent) connected therewith. Warrantholders may not hold certificated positions through CEDEL or Euroclear, but may hold Warrants in book-entry form through the facilities of CEDEL or Euroclear after they have been converted from certificated form to book-entry form. See '-- Book-Entry Conversion' and '-- CEDEL and Euroclear' herein. BOOK-ENTRY CONVERSION Forty-five calendar days after the closing of the offering (which closing date is expected to be March 16, 1994), each registered holder of a Warrant will have the option to convert the form in which such holder holds his Warrants from certificated to book-entry form by utilizing the Conversion Option. The Conversion Option will be available for forty-five calendar days (the 'Conversion Option Period') and is expected to run from April 30, 1994, through June 13, 1994. In order to be exchanged for a Warrant in book-entry form, a Warrant Certificate must be delivered to DTC, in proper form for deposit, by a Participant. Accordingly, a registered holder of a Warrant who is not a Participant must deliver his Warrant Certificate, in proper form for deposit, to a Participant, either directly or through an indirect participant in DTC (such as a bank, brokerage firm, dealer or trust company that clears through, or maintains a custodial relationship with, a Participant) or brokerage firm which maintains an account with a Participant, in order to have its Warrant Certificate exchanged for a Warrant in book-entry form. Such Warrantholders who desire to exchange their Warrant Certificates for Warrants in book-entry form should contact their brokers or other Participants or indirect participants to obtain information on procedures for submitting their Warrant Certificates to DTC, including the proper form for submission and (during the Conversion Option Period) the cut-off times for same day and next day exchange. Warrant Certificates which are held by the Warrantholder in nominee or 'street name' may be automatically exchanged into book-entry form by the broker or other entity in whose name such Warrant Certificates are registered, without action of, or consent by, the beneficial owner of the related Warrant. Under no circumstances may Warrant Certificates be converted into Warrants in book-entry form through the facilities of CEDEL or Euroclear. S-12 Warrant Certificates received by DTC for exchange during the Conversion Option Period will be exchanged for Warrants in book-entry form by the close of business on the New York Business Day such Certificates are received by DTC (if received by DTC at its then applicable cut-off time for same day credit) or on the following New York Business Day (if received by DTC at its then applicable cut-off time for next day credit). After the last day of the Conversion Option Period, DTC will not be required to accept delivery of Warrant Certificates for exchange for book-entry Warrants, but may permit Warrant Certificates to be so exchanged on a case-by-case basis. However, there can be no assurance that such Warrant Certificates would be accepted for exchange. Warrants surrendered at any time for exchange for book-entry Warrants may not be exercised or delivered for settlement of transfer until such exchange has been effected. Accordingly, if an increase in the Spot Rate were to occur after a Warrant Certificate had been surrendered for exchange into book-entry form, a Warrantholder would not be able to take advantage of the increase by exercising his Warrant until such exchange had been effected. Because Warrant Certificates are not required to be exchanged for Warrants in book-entry form, it is likely that not all Warrant Certificates will be so exchanged. Accordingly, a Warrantholder purchasing Warrants in secondary market trading after commencement of the Conversion Option Period may wish to consult with his broker or another Participant or indirect participant if he wishes to purchase Warrants only in book-entry form and not Warrant Certificates. The Company has been informed by CEDEL and Euroclear that such clearing agencies will only clear Warrants in book-entry form. Once a registered holder of a Warrant has elected the Conversion Option, such holder may hold his Warrants only in book-entry form and will not be able to change his election or withdraw from the book-entry system during the Conversion Option Period or thereafter. Accordingly, except in certain limited circumstances described in the Prospectus under 'Description of Warrants -- Book-Entry Procedures and Settlement', ownership of the Warrants in certificated form will no longer be available to investors who have elected the Conversion Option. CEDEL AND EUROCLEAR Warrantholders may hold their Warrants only in book-entry form through CEDEL or Euroclear if they are participants of such systems, or indirectly through organizations which are participants in such systems. The common security registration number used by CEDEL and Euroclear for the Warrants is 4937031. Certificated ownership of Warrants will not be available through such systems. CEDEL and Euroclear will hold omnibus book-entry positions on behalf of their participants through customers' securities accounts in CEDEL's and Euroclear's names on the books of their respective depositaries which in turn will hold such positions in customers' securities accounts in the names of the nominees of the depositaries on the books of DTC. Citibank, N.A., New York Office ('Citibank'), will act as depositary for CEDEL and Morgan Guaranty Trust Company of New York, New York Office ('Morgan'), will act as depositary for Euroclear (in such capacities, the 'Depositaries'). All securities in CEDEL or Euroclear are held on a fungible basis without attribution of specific certificates to specific securities clearance accounts. Exercises of book-entry Warrants by persons holding through CEDEL or Euroclear participants will be effected through DTC, in accordance with DTC rules, on behalf of the relevant European international clearing system by its Depositary; however, such transactions will require delivery of exercise instructions to the relevant European international clearing system by the participant in such system in accordance with its rules and procedures and within its established deadlines (European time). The relevant European international clearing system will, if the exercise meets its requirements, deliver instructions to its Depositary to take action to effect its exercise of the Warrants on its behalf by delivering Warrants through DTC and receiving payment in accordance with its normal procedures for next-day funds settlement. Payments with respect to the Warrants held through CEDEL or Euroclear will be credited to the cash accounts of CEDEL participants or Euroclear participants in accordance with the relevant system's rules and procedures, to the extent received by its Depositary. See '-- Exercise and Settlement of the Warrants' herein. Centrale de Livraison de Valeurs Mobilieres S.A. ('CEDEL') is incorporated under the laws of Luxembourg as a professional depository. CEDEL holds securities for its participating organizations and facilitates the clearance and settlement of securities transactions between CEDEL participants through electronic book-entry changes in accounts of CEDEL participants, thereby eliminating the need for physical movement of certificates. Transactions may be settled in CEDEL in any of 28 currencies, including U.S. dollars. CEDEL S-13 provides to its participants, among other things, services for safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. CEDEL interfaces with domestic markets in several countries. As a professional depository, CEDEL is subject to regulation by the Luxembourg Monetary Institute. CEDEL participants are recognized financial institutions around the world, including underwriters, securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations and may include the Underwriters. Indirect access to CEDEL is also available to others, such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a CEDEL participant, either directly or indirectly. The Euroclear System was created in 1968 to hold securities for participants in the Euroclear System and to clear and settle transactions between Euroclear participants through simultaneous electronic book-entry delivery against payment, thereby eliminating the need for physical movement of certificates and any risk from lack of simultaneous transfers of securities and cash. Transactions may now be settled in any of 30 currencies, including U.S. dollars. The Euroclear System includes various other services, including securities lending and borrowing and interfaces with domestic markets in several countries generally similar to the arrangements for cross-market transfers with DTC described above. The Euroclear System is operated by Morgan's Brussels, Belgium office (the 'Euroclear Operator' or 'Euroclear'), under contract with Euroclear Clearance System S.C., a Belgian cooperative corporation (the 'Cooperative'). Morgan is a member bank of the United States Federal Reserve System. All operations are conducted by the Euroclear Operator, and all Euroclear securities clearance accounts and Euroclear cash accounts are accounts with the Euroclear Operator, not the Cooperative. The Cooperative establishes policy for the Euroclear System on behalf of Euroclear participants. Euroclear participants include banks (including central banks), securities brokers and dealers and other professional financial intermediaries and may include the Underwriters. Indirect access to the Euroclear System is also available to other firms that clear through or maintain a custodial relationship with a Euroclear participant, either directly or indirectly. Securities clearance accounts and cash accounts with the Euroclear Operator are governed by the Terms and Conditions Governing Use of Euroclear and the related Operating Procedures of the Euroclear System, and applicable Belgian law (collectively, the 'Terms and Conditions'). The Terms and Conditions govern transfers of securities and cash within the Euroclear System, withdrawal of securities and cash from the Euroclear System, and receipt of payments with respect to securities in the Euroclear System. All securities in the Euroclear System are held on a fungible basis without attribution of specific certificates to specific securities clearance accounts. The Euroclear Operator acts under the Terms and Conditions only on behalf of Euroclear participants, and has no record of or relationship with persons holding through Euroclear participants. All information herein on CEDEL and Euroclear is derived from CEDEL or Euroclear, as the case may be, and reflects the policies of such organizations; such policies are subject to change without notice. EXERCISE AND SETTLEMENT OF WARRANTS The Warrants will be immediately exercisable upon issuance and will expire on March 6, 1996 (the 'Expiration Date'). Warrants not exercised (including by reason of any postponed exercise) at or before 3:00 P.M., New York City time, on the earlier of (i) the New York Business Day immediately preceding the Expiration Date and (ii) the Delisting Date will be automatically exercised as described under 'Automatic Exercise' below. A Warrantholder may exercise certificated Warrants on any New York Business Day during the period from the date of issuance of such Warrants until 3:00 P.M., New York City time, on the earlier of (i) the New York Business Day immediately preceding the Expiration Date and (ii) the Delisting Date, by delivering or causing to be delivered to the Warrant Agent in New York City the Warrant Certificate representing such Warrants with the irrevocable notice of exercise on the reverse thereof (or a notice of exercise in substantially identical form delivered therewith) (such notice, an 'Exercise Notice') duly completed and executed. The Warrant Agent's telephone number and facsimile transmission number for this purpose are (212) 657-7269 and (212) 825-3483, respectively. In the case of book-entry Warrants held through the facilities of DTC, a Warrantholder may exercise such Warrants on any New York Business Day during the period from the date of issuance of such Warrants until 3:00 P.M., New York City time, on the earlier of (i) the New York Business Day immediately preceding the Expiration Date and (ii) the Delisting Date, by causing (a) such Warrants to be transferred free to the Warrant Agent on the records of DTC and (b) a duly completed and executed Exercise Notice to be delivered on behalf of S-14 the Warrantholder by a Participant to the Warrant Agent. Forms of Exercise Notice for Warrants held through the facilities of DTC may be obtained from the Warrant Agent at the Warrant Agent's Office. The Warrant Agent's telephone number and facsimile transmission number for this purpose are (201) 262-5444 and (201) 262-7521, respectively. In the case of book-entry Warrants held through the facilities of CEDEL or Euroclear, a Warrantholder may exercise such Warrants on any New York Business Day during the period from the date of issuance of such Warrants until 3:00 P.M., New York City time, on the earlier of (i) the New York Business Day immediately preceding the Expiration Date and (ii) the Delisting Date by causing (a) such Warrants to be transferred to the Warrant Agent, by giving appropriate instructions to the participant holding such Warrants in either the CEDEL or Euroclear system, as the case may be, and (b) a duly completed and executed Exercise Notice to be delivered on behalf of the Warrantholder by CEDEL or Euroclear, as the case may be, to the Warrant Agent. Forms of Exercise Notice for Warrants held through the facilities of either CEDEL or Euroclear may be obtained from the Warrant Agent at the Warrant Agent's Office or from CEDEL or Euroclear. Except for Warrants subject to automatic exercise or held in book-entry form through the facilities of CEDEL or Euroclear, and subject to the Limit Option, the 'Exercise Date' for a Warrant will be (i) the New York Business Day on which the Warrant Agent receives the Warrant and Exercise Notice in proper form with respect to such Warrant, if received at or prior to 3:00 P.M., New York City time, on such day, or (ii) if the Warrant Agent receives such Warrant and Exercise Notice after 3:00 P.M., New York City time, on a New York Business Day, then the New York Business Day next succeeding such New York Business Day. In the case of Warrants held in book-entry form through the facilities of CEDEL or Euroclear, except for Warrants subject to automatic exercise, and subject to the Limit Option, the 'Exercise Date' for a Warrant will be (i) the New York Business Day on which the Warrant Agent receives the Exercise Notice in proper form with respect to such Warrant if such Exercise Notice is received at or prior to 3:00 P.M., New York City time, on such day, provided that the Warrant is received by the Warrant Agent by 3:00 P.M., New York City time, on the Valuation Date, or (ii) if the Warrant Agent receives such Exercise Notice after 3:00 P.M., New York City time, on a New York Business Day, then the New York Business Day succeeding such New York Business Day, provided that the Warrant is received by 3:00 P.M., New York City time, on the Valuation Date relating to exercises of Warrants on such succeeding New York Business Day. In the event that the Warrant is received after 3:00 P.M., New York City time, on the Valuation Date, then the Exercise Date for such Warrants will be the day on which such Warrants are received or, if such day is not a New York Business Day, the next succeeding New York Business Day. In the case of Warrants held in book-entry form through the facilities of CEDEL or Euroclear, in order to ensure proper exercise on a given New York Business Day, participants in CEDEL or Euroclear must submit exercise instructions to CEDEL or Euroclear, as the case may be, by 10:00 A.M., Luxembourg time, in the case of CEDEL and by 10:00 A.M., Brussels time (by telex), or 11:00 A.M., Brussels time (by EUCLID), in the case of Euroclear. In addition, in the case of book-entry exercises by means of the Euroclear System, (i) participants must also transmit, by facsimile (facsimile number 201-262-7521), to the Warrant Agent a copy of the Exercise Notice submitted to Euroclear by 3:00 P.M., New York City time, on the desired Exercise Date and (ii) Euroclear must confirm by telex to the Warrant Agent by 9:00 A.M., New York City time, on the Valuation Date that the Warrants will be received by the Warrant Agent on such date; provided, that if such telex communication is received after 9:00 A.M., New York City time, on the Valuation Date, the Company will be entitled to direct the Warrant Agent to reject the related Exercise Notice or waive the requirement for timely delivery of such telex communication. To ensure that an Exercise Notice and the related Warrants will be delivered to the Warrant Agent before 3:00 P.M., New York City time, on a given New York Business Day, a Warrantholder may have to give exercise instructions to his broker or other intermediary substantially earlier than 3:00 P.M., New York City time, on such day. Different brokerage firms may have different cut-off times for accepting and implementing exercise instructions from their customers. Therefore, Warrantholders should consult with their brokers or other intermediaries, if applicable, as to applicable cut-off times and other exercise mechanics. See 'Certain Important Information Concerning the Warrants' above. Except in the case of Warrants subject to automatic exercise, if on any Valuation Date the Cash Settlement Amount for any Warrants then exercised would be zero, then in such case, the exercise of such Warrants will be ignored and, in the case of certificated Warrants, the Warrant Certificate evidencing such Warrants will be returned to the registered holder by first class mail at the Company's expense or, in the case of Warrants held S-15 through the facilities of DTC, CEDEL or Euroclear, such Warrants will be transferred back to the Participant that submitted them free on the records of DTC, CEDEL or Euroclear, as the case may be, and, in any such case, such Warrantholder will be permitted to re-exercise such Warrants prior to the Expiration Date or the Delisting Date, as the case may be. The 'Valuation Date' for a Warrant will be the first New York Business Day following the Exercise Date, subject to postponement as a result of the exercise of a number of Warrants exceeding the limits on exercise described below under 'Maximum Exercise Amount'. The following is an illustration of the timing of an Exercise Date, the ensuing Valuation Date and the Limit Option Reference Rate (as hereinafter defined), assuming (i) all relevant dates are New York Business Days and (ii) the number of exercised Warrants does not exceed the maximum permissible amount. If the Warrant Agent receives a Warrantholder's Warrants and Exercise Notice in proper form at or prior to 3:00 P.M., New York City time, on Tuesday, October 31, 1995, the Exercise Date for such Warrants will be Tuesday, October 31, 1995, and the Valuation Date for such Warrants will be Wednesday, November 1, 1995 (except that in the case of Warrants held through the facilities of CEDEL or Euroclear, the Warrants must be received by 3:00 P.M., New York City time, on the Valuation Date; if such Warrants are received after such time, then the Exercise Date for such Warrants will be the day on which such Warrants are received or, if such day is not a New York Business Day, the next succeeding New York Business Day, and the Valuation Date for such Warrants will be the first New York Business Day following such Exercise Date and the Limit Option Reference Rate will be the Spot Rate on such Exercise Date). The Spot Rate used to determine the Cash Settlement Value of such Warrants will be the Spot Rate on Wednesday, November 1, 1995. If the Warrantholder elected the Limit Option in connection with the exercise of such Warrants, the Limit Option Reference Rate would be the Spot Rate on Tuesday, October 31, 1995. If the Warrant Agent were to receive such Warrantholder's Warrants and Exercise Notice after 3:00 P.M., New York City time, on Tuesday, October 31, 1995 (except that in the case of Warrants held through the facilities of CEDEL or Euroclear, if the Warrants are received after 3:00 P.M., New York City time, on Wednesday, November 1, 1995), then the Exercise Date for such Warrants would instead be Wednesday, November 1, 1995, the Valuation Date would be Thursday, November 2, 1995, and the applicable Limit Option Reference Rate would be the Spot Rate on Wednesday, November 1, 1995. Following receipt of Warrants and the related Exercise Notice in proper form, the Warrant Agent will, not later than 5:00 P.M., New York City time, on the applicable Valuation Date (i) obtain from the Spot Rate Reference Agent the Spot Rate, (ii) determine the Cash Settlement Value of such Warrants and (iii) advise the Company of the aggregate Cash Settlement Value of the exercised Warrants. Except in the case of Warrants held through the facilities of DTC, CEDEL or Euroclear, if the Company has made adequate funds available to the Warrant Agent in a timely manner as required by the Warrant Agreement, the Warrant Agent will thereafter be responsible for making payment available to each registered holder of a Warrant on the fifth New York Business Day following the Valuation Date in the form of a cashier's check or official bank check, or (in the case of payments of at least $100,000) by wire transfer to a U.S. dollar bank account maintained by such holder in the United States (at such holder's election as specified in the applicable Exercise Notice), in an amount equal to the aggregate Cash Settlement Value of such holder's exercised Warrants. In the case of Warrants held through the facilities of DTC, CEDEL or Euroclear, the Company will be required to make available to the Warrant Agent, no later than 3:00 P.M., New York City time, on the sixth New York Business Day following the Valuation Date, funds in an amount sufficient to pay such aggregate Cash Settlement Value. If the Company has made such funds available by such time, the Warrant Agent will thereafter be responsible for making funds available to each appropriate Participant (including Citibank and Morgan, who, in turn, will disburse payments to CEDEL and Euroclear, respectively, who will be responsible for disbursing such payments to each of their respective participants, who, in turn, will be responsible for disbursing payments to the Warrantholders it represents), and such Participant will be responsible for disbursing such payments to the Warrantholders it represents and to each brokerage firm for which it acts as agent. Each such brokerage firm will be responsible for disbursing funds to the Warrantholders that it represents. 'Spot Rate Reference Agent' means PaineWebber or, in lieu thereof, another firm selected by the Company to perform the functions of the Spot Rate Reference Agent in connection with the Warrants. S-16 MINIMUM EXERCISE AMOUNT No fewer than 500 Warrants may be exercised by a Warrantholder at any one time, except in the event of automatic exercise. Accordingly, except in the event of automatic exercise of the Warrants, Warrantholders with fewer than 500 Warrants will need either to sell their Warrants or to purchase additional Warrants, thereby incurring transaction costs, in order to realize upon their investment. Warrantholders must satisfy the minimum exercise amount requirement described above separately with respect to both certificated and book-entry Warrants even if both kinds of Warrants are to be exercised at the same time. Thus, a Warrantholder seeking to exercise both certificated and book-entry Warrants at the same time must still exercise a minimum of 500 of each kind of Warrant in order to satisfy such requirement. In addition, book-entry Warrants held through one Participant (including participants in CEDEL or Euroclear) may not be combined with book-entry Warrants held through another Participant in order to satisfy the minimum exercise requirement. MAXIMUM EXERCISE AMOUNT All exercises of Warrants (other than on the Expiration Date or the Delisting Date) are subject, at the Company's option, to the limitation that not more than 1,000,000 Warrants in total may be exercised on any Exercise Date and not more than 250,000 Warrants may be exercised by or on behalf of any person or entity, either individually or in concert with any other person or entity, on any Exercise Date. If any New York Business Day would otherwise, under the terms of the Warrant Agreement, be the Exercise Date in respect of more than 1,000,000 Warrants, then at the Company's election 1,000,000 of such Warrants shall be deemed exercised on such Exercise Date (selected by the Warrant Agent on a pro rata basis, but if, as a result of such pro rata selection, any registered holders of Warrants would be deemed to have exercised fewer than 500 Warrants, then the Warrant Agent shall first select additional of such holders' Warrants so that no such holder shall be deemed to have exercised fewer than 500 Warrants), and the remainder of such Warrants (the 'Remaining Warrants') shall be deemed exercised on the following New York Business Day (subject to successive applications of this provision); provided that any Remaining Warrant for which an Exercise Notice was delivered on a given Exercise Date shall be deemed exercised before any other Warrants for which an Exercise Notice was delivered on a later Exercise Date. If any individual Warrantholder attempts to exercise more than 250,000 Warrants on any New York Business Day, then at the Company's election 250,000 of such Warrants shall be deemed exercised on such New York Business Day and the remainder shall be deemed exercised on the following New York Business Day (subject to successive applications of this provision). As a result of any postponed exercise as described above, Warrantholders will receive a Cash Settlement Value determined as of a date later than the otherwise applicable Valuation Date. In any such case, as a result of any such postponement and subject to the Limit Option, the Cash Settlement Value actually received by Warrantholders may be lower than the otherwise applicable Cash Settlement Value if the Valuation Date of the Warrants had not been postponed. LIMIT OPTION Except for Warrants subject to automatic exercise, each Warrantholder, in connection with any exercise of Warrants, will have the option (the 'Limit Option') to specify that such Warrants are not to be exercised if the Spot Rate that would otherwise be used to determine the Cash Settlement Value of such Warrants has declined by five or more Japanese yen per U.S. dollar from the Spot Rate for the day specified below (such Rate, the 'Limit Option Reference Rate'). A Warrantholder's election of the Limit Option must be specified in the applicable Exercise Notice delivered to the Warrant Agent. If such Exercise Notice in proper form, together with the related Warrants, is received by the Warrant Agent by 3:00 P.M., New York City time, on a given day (which must be a New York Business Day), the Limit Option Reference Rate will be the Spot Rate for such day. If an Exercise Notice and the related Warrants are received after 3:00 P.M., New York City time, on a given day, the applicable Limit Option Reference Rate will be the Spot Rate for the next day that is also a New York Business Day. To ensure that the Limit Option will have its intended effect of limiting the risk of any downward movement in the value of the U.S. dollar relative to the Japanese yen between the date on which a Warrantholder submits an Exercise Notice and the related Valuation Date, such Exercise Notice and the related Warrants must be received by the Warrant Agent not later than 3:00 P.M., New York City time, on the New York Business Day on which they are submitted. See the illustration under 'Exercise and Settlement of Warrants' above and 'Certain Important Information Concerning the Warrants' herein. S-17 Following receipt of an Exercise Notice and the related Warrants subject to the Limit Option, the Warrant Agent will obtain the applicable Limit Option Reference Rate from the Spot Rate Reference Agent and will determine whether such Warrants will not be exercised because of the Limit Option. Warrants that are not exercised will be treated as not having been tendered for exercise, and either the Warrant Certificate evidencing such Warrants will be returned to the registered holder by first-class mail at the Company's expense or, in the case of Warrants held through the facilities of DTC, CEDEL or Euroclear, such Warrants will be transferred to the account at DTC, CEDEL or Euroclear, as the case may be, from which they were transferred to the Warrant Agent. To exercise such Warrants, a Warrantholder will be required to cause the Warrants and a related Exercise Notice to be submitted again to the Warrant Agent. Once elected by a Warrantholder in connection with an exercise of Warrants, the Limit Option will continue to apply, on the basis of the Limit Option Reference Rate as initially determined for such Warrants, even if the Valuation Date for such Warrants is postponed. Pursuant to the Limit Option, such Warrants will either (i) be exercised on a delayed basis if the applicable Spot Rate is not less than the Limit Option Reference Rate by five or more Japanese yen per U.S. dollar or (ii) be excluded from being exercised if, on any applicable postponed Valuation Date, the applicable Spot Rate is less than the Limit Option Reference Rate by five or more Japanese yen per U.S. dollar. In connection with any exercise of 500 or more Warrants, a Warrantholder may elect to subject the exercise of only a portion of such Warrants to the Limit Option, provided that the number of Warrants subject to the Limit Option and the number of Warrants not subject to the Limit Option shall in each case not be less than 500. A Warrantholder may not combine certificated and book-entry Warrants in order to meet the 500-Warrant minimum requirement. See 'Minimum Exercise Amount' above. AUTOMATIC EXERCISE All Warrants for which the Warrant Agent has not received a valid Exercise Notice at or prior to 3:00 P.M., New York City time, on (i) the New York Business Day immediately preceding the Expiration Date or (ii) the Delisting Date, as the case may be, or for which the Warrant Agent has received a valid Exercise Notice but with respect to which timely delivery of the Warrants has not been made, will be automatically exercised on such Date. The Exercise Date for such Warrants will be the Expiration Date or the Delisting Date, as the case may be, or, if such Date is not a New York Business Day, the next succeeding New York Business Day. The Warrant Agent will obtain from the Spot Rate Reference Agent the Spot Rate (determined as of the first New York Business Day following such Date, which will be the Valuation Date for such Warrants) and will determine the Cash Settlement Value, if any, of such Warrants. Except in the case of Warrants held through the facilities of DTC, CEDEL or Euroclear, if the Company has made adequate funds available to the Warrant Agent in a timely manner as required by the Warrant Agreement, the Warrant Agent will thereafter be responsible for making a payment available to each registered holder of a Warrant in the form of a cashier's check or official bank check, or (in the case of payments of at least $100,000) by wire transfer to a U.S. dollar account maintained by such holder in the United States (at such holder's election) after 3:00 P.M., New York City time, on the fourth New York Business Day after such Valuation Date against receipt by the Warrant Agent at the Warrant Agent's Office of such holder's Warrant Certificates. Such payment will be in an amount equal to the aggregate Cash Settlement Value of the Warrants evidenced by such Warrant Certificates. In the case of Warrants held through the facilities of DTC, CEDEL or Euroclear, the Company will be required to make available to the Warrant Agent, no later than 3:00 P.M., New York City time, on the fourth New York Business Day after such Valuation Date, funds in an amount sufficient to pay such aggregate Cash Settlement Value. If the Company has made such funds available by such time, the Warrant Agent will thereafter be responsible for making funds available to DTC in an amount sufficient to pay the aggregate Cash Settlement Value of the Warrants. DTC will be responsible for disbursing such funds to each appropriate Participant (including Citibank and Morgan, who, in turn, will disburse payments to CEDEL and Euroclear, as the case may be, who will be responsible for disbursing such payments to each of their respective participants, who, in turn, will be responsible for disbursing payments to the Warrantholders it represents) and such Participant will be responsible for disbursing such payments to the Warrantholders it represents and to each brokerage firm for which it acts as agent. Each such brokerage firm will be responsible for disbursing funds to the Warrantholders it represents. S-18 LISTING The Warrants have been approved for listing on the AMEX, subject to official notice of issuance. The AMEX symbol for the Warrants is PWY.WS. The AMEX expects to cease trading the Warrants on such Exchange as of the close of business on the Expiration Date. DELISTING OF WARRANTS In the event the Warrants are delisted from, or permanently suspended from trading (within the meaning of the Securities Exchange Act of 1934 and the rules and regulations thereunder) on, the AMEX and not accepted at the same time for listing on another United States national securities exchange, Warrants not previously exercised will be deemed automatically exercised on the last New York Business Day prior to the effective date of such delisting or trading suspension (the 'Delisting Date'), and the Cash Settlement Value, if any, shall be calculated and settled as provided above under 'Automatic Exercise'. The Company will notify Warrantholders as soon as practicable of such delisting or trading suspension. However, if the Company first receives notice of the delisting or suspension on the same day on which the Warrants are delisted or suspended, such day will be deemed the Delisting Date. The Company will covenant in the Warrant Agreement that it will not seek delisting of the Warrants from, or suspension of their trading on, the AMEX unless the Company has, at the same time, arranged for listing of the Warrants on another United States national securities exchange. S-19 EXCHANGE RATES EXCHANGE RATES The following table sets forth the average for the months (or partial month) indicated, as calculated by the Spot Rate Reference Agent, of the daily Noon Buying Rates per U.S. $1.00 for Japanese yen in New York City based on data obtained from the Federal Reserve Bank of New York.
Yen/U.S.$1 --------------- 1989: January.................................................................... 127.36 February................................................................... 127.74 March...................................................................... 130.55 April...................................................................... 132.04 May........................................................................ 137.86 June....................................................................... 143.98 July....................................................................... 140.42 August..................................................................... 141.31 September.................................................................. 145.07 October.................................................................... 142.21 November................................................................... 143.53 December................................................................... 143.69 1990: January.................................................................... 144.98 February................................................................... 145.70 March...................................................................... 153.31 April...................................................................... 158.46 May........................................................................ 154.04 June....................................................................... 153.74 July....................................................................... 149.04 August..................................................................... 147.68 September.................................................................. 138.45 October.................................................................... 129.59 November................................................................... 129.22 December................................................................... 133.89 1991: January.................................................................... 133.70 February................................................................... 130.54 March...................................................................... 137.39 April...................................................................... 137.12 May........................................................................ 138.22 June....................................................................... 139.75 July....................................................................... 137.83 August..................................................................... 136.82 September.................................................................. 134.30 October.................................................................... 130.77 November................................................................... 129.63 December................................................................... 128.04
S-20
Yen/U.S.$1 --------------- 1992: January.................................................................... 125.46 February................................................................... 127.70 March...................................................................... 132.86 April...................................................................... 133.49 May........................................................................ 130.77 June....................................................................... 126.84 July....................................................................... 125.88 August..................................................................... 126.23 September.................................................................. 122.60 October.................................................................... 121.17 November................................................................... 123.88 December................................................................... 124.04 1993: January.................................................................... 124.99 February................................................................... 120.76 March...................................................................... 117.02 April...................................................................... 112.41 May........................................................................ 110.34 June....................................................................... 107.41 July....................................................................... 107.69 August..................................................................... 103.77 September.................................................................. 105.57 October.................................................................... 107.02 November................................................................... 107.88 December................................................................... 109.87 1994: January.................................................................... 111.44 February................................................................... 106.30 March (through March 8).................................................... 104.81
The following graph sets forth the movement in such monthly average Noon Buying Rates for the months presented above: JAPANESE YEN PER U.S. DOLLAR MONTHLY AVERAGE NOON BUYING RATES (ADD GRAPH) The actual exchange rates for Japanese yen per U.S. $1.00 could materially differ from those set forth above. The information presented in this Prospectus Supplement relating to the exchange rate of the Japanese yen as compared to the U.S. dollar is furnished as a matter of information only. The fluctuations in the Japanese S-21 yen/U.S. dollar exchange rate that have occured in the past are not necessarily indicative of fluctuations in that rate that may occur over the term of the Warrants. The spot exchange rates between the Japanese yen and U.S. dollar are at any moment a result of the supply of and demand for the currencies being compared, and changes in the rates result over time from the interaction of many factors directly or indirectly affecting economic and political conditions in Japan and the United States, including economic and political developments in other countries. Of particular importance are rates of inflation, interest rate levels, the balance of payments and the extent of governmental surpluses or deficits in Japan and the United States, all of which are in turn sensitive to the monetary, fiscal and trade policies pursued by the governments of Japan, the United States and other countries important to international trade and finance. See 'Risk Factors' in the Prospectus. As discussed under 'Description of the Warrants', the spot exchange rate of the Japanese yen as compared to the U.S. dollar will determine the Cash Settlement Value of a Warrant upon exercise. Appreciation of the U.S. dollar against the Japanese yen (i.e., depreciation of the Japanese yen against the U.S. dollar) will result in a greater Cash Settlement Value. Conversely, depreciation of the U.S. dollar against the Japanese yen (i.e., appreciation of the Japanese yen against the U.S. dollar) will result in a lesser or zero Cash Settlement Value. Warrantholders will thus bear the foreign exchange risks of the U.S. dollar as compared to the Japanese yen. In addition, in the absence of countervailing factors, such as an appreciation of the U.S. dollar against the Japanese yen, the trading value of the Warrants is expected to decrease as the time remaining to the Expiration Date decreases. See 'Risk Factors--Certain Factors Affecting Value and Trading Price of Warrants' in the Prospectus. EXCHANGE CONTROLS The amended Foreign Exchange and Foreign Trade Control Law of Japan, which came into effect in 1980, has deregulated external transactions in principle. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS The following summary describes material United States Federal income tax consequences of the ownership and disposition of a Warrant as of the date hereof and represents the opinion of Latham & Watkins, special tax counsel to the Company. Such summary deals only with Warrants held as capital assets by United States Holders (as defined below) and does not deal with those with special situations, such as dealers in options or persons who hold a Warrant in the ordinary course of business, financial institutions, life insurance companies or purchasers holding Warrants as a part of a hedging transaction or a straddle. Furthermore, the discussion below is based upon the provisions of the Internal Revenue Code of 1986, as amended (the 'Code'), and regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be repealed, revoked or modified so as to result in Federal income tax consequences different from those discussed below. PERSONS CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF WARRANTS SHOULD CONSULT WITH THEIR OWN TAX ADVISERS CONCERNING THE FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION. As used herein, a 'United States Holder' of a Warrant means a holder that is a citizen or resident of the United States, a corporation, partnership or other entity created or organized in or under the laws of the United States or any political subdivision thereof, or an estate or trust the income of which is subject to United States Federal income taxation regardless of its source or any other person whose income or gain with respect to a Warrant is effectively connected with the conduct of a trade or business in the United States. TAXATION OF WARRANTS HELD AT THE CLOSE OF TAXABLE YEAR Each Warrant will be treated as a 'section 1256 contract' which must be 'marked-to-market' (i.e., treated as sold at fair market value) on the last business day of each taxable year. Under these mark-to-market rules, a United States Holder of a Warrant will recognize gain or loss equal to the difference between the fair market value of the Warrant on the last business day of each taxable year (as determined by the Warrant's trading price) and the United States Holder's tax basis for the Warrant. A United States Holder's tax basis in a Warrant S-22 will equal the amount paid for the Warrant, plus or minus the net gain or loss recognized under the marked-to-market rules by the United States Holder in respect of the Warrant in prior taxable years. As a result of these mark-to- market rules, a United States Holder might incur Federal income tax liability on an annual basis in respect of an increase in the value of the Warrant without the receipt of cash attributable thereto. SALE, EXCHANGE AND EXERCISE OF WARRANTS Upon sale, exchange or exercise (including automatic exercise) of a Warrant, a United States Holder will recognize gain or loss equal to the difference between the amount realized, if any, and the United States Holder's tax basis in the Warrant. In case of a foreign corporate holder whose income or gain with respect to a Warrant is effectively connected with the conduct of a trade or business in the United States, such holder may also be subject to an additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty with respect to such income or gain. CHARACTER OF GAIN OR LOSS In the absence of a section 988 election as described below, any gain or loss (described above) will be capital gain or loss and will be 60% long-term capital gain or loss and 40% short-term capital gain or loss. With respect to a corporate United States Holder, capital losses for a taxable year are allowed only to the extent of the holder's capital gains for such year, but may be carried back for three taxable years and carried foward for five taxable years. With respect to individual United States Holders, in general, capital losses for the taxable year are allowed only to the extent of the holder's capital gains for the taxable year plus a maximum of $3,000, but may be carried forward indefinitely against net capital gains. An individual may elect, however, to carry net capital losses from section 1256 contracts for the taxable year back against net capital gains from section 1256 contracts for the three preceding taxable years. Net capital gains of individuals are generally taxed at lower rates than items of ordinary income. A United States Holder may elect under section 988 of the Code (a 'section 988 election') to treat any gain or loss described above as ordinary income or loss. If made, this election will apply to certain other section 1256 contracts, such as regulated futures contracts and other nonequity options, held by such United States Holder during the taxable year for which the election is made or any succeeding taxable year and may not be revoked without the consent of the Internal Revenue Service. Such election for any taxable year should be made on or before the first day of such year or, if later, on or before the first day during such year on which the United States Holder holds a section 1256 contract. United States Holders should consult with their own tax advisers concerning the procedures for, and consequences of, making this election. BACKUP WITHHOLDING The proceeds received from a sale, exchange or exercise (including automatic exercise) of a Warrant will be subject to a 31 percent backup withholding tax if the United States Holder thereof (other than certain exempt recipients such as corporations which, when required, demonstrate this fact) fails to supply an accurate taxpayer identification number or otherwise comply with applicable information reporting or certification requirements. Any amount of backup withholding tax will be creditable against the Holder's United States Federal income tax liability. S-23 UNDERWRITING Subject to the terms and conditions set forth in the Underwriting Agreement, the Company has agreed to sell to each of the Underwriters named below, and each of the Underwriters has severally agreed to purchase, the number of Warrants set forth opposite its name.
NUMBER OF UNDERWRITERS WARRANTS - ----------------------------------------------------------------------------- ---------- PaineWebber Incorporated..................................................... 2,500,000 Kemper Securities, Inc....................................................... 2,500,000 ---------- Total.............................................................. 5,000,000 ---------- ----------
The Underwriters have advised the Company that they propose to offer the Warrants to the public initially at the offering price set forth on the cover page of this Prospectus Supplement, and to certain dealers at such price less a concession not in excess of $.10 per Warrant. The Underwriters may allow and such dealers may reallow a concession not in excess of $.05 per Warrant to certain other dealers. After the initial public offering, the public offering price and such concessions may be changed. The Underwriters have taken certain actions to discourage short-term trading of the Warrants during a period of time following the initial offering date. Included in these actions is the withholding of the concession to dealers in connection with the Warrants which were sold by such dealers and which are repurchased for the account of the Underwriters during such period. In addition, physical delivery of certificates representing the Warrants is required to transfer ownership of such Warrants. The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters will purchase all the Warrants if any are purchased. The Company has agreed to indemnify the Underwriters against, and to contribute to losses arising out of, certain liabilities, including liabilities under the Securities Act of 1933, as amended. PaineWebber Incorporated is a wholly owned subsidiary of the Company. The participation of PaineWebber Incorporated in the offer and sale of the Warrants complies with the requirements of Schedule E of the By-Laws of the National Association of Securities Dealers, Inc. (the 'NASD') regarding underwriting securities of an affiliate. Under the provisions of Schedule E, when a NASD member such as PaineWebber Incorporated distributes securities of an affiliate, the price of the securities can be no higher than that recommended by a 'qualified independent underwriter', as such term is defined in Schedule E, meeting certain standards. In accordance with such requirements, Kemper Securities, Inc. has agreed to serve as 'qualified independent underwriter' and has conducted due diligence and has recommended a price for the Warrants in compliance with the requirements of Schedule E. LEGAL OPINIONS The validity of the Warrants will be passed upon for the Company by Cravath, Swaine & Moore, New York, New York, and certain other matters will be passed upon for the Underwriters by Latham & Watkins, New York, New York. S-24 APPENDIX A INDEX OF TERMS
PAGE ON WHICH TERM TERM IS DEFINED - ------------------------------------------------------------------------------------- --------------- AMEX................................................................................. S-4 Cash Settlement Value................................................................ S-11 CEDEL................................................................................ S-13 Citibank............................................................................. S-13 Code................................................................................. S-22 Company.............................................................................. S-7 Conversion Option.................................................................... S-8 Conversion Option Period............................................................. S-12 Cooperative.......................................................................... S-14 Delisting Date....................................................................... S-19 Depositaries......................................................................... S-13 DTC.................................................................................. S-8 Euroclear............................................................................ S-14 Euroclear Operator................................................................... S-14 Exercise Date........................................................................ S-15 Exercise Notice...................................................................... S-14 Expiration Date...................................................................... S-14 Limit Option......................................................................... S-17 Limit Option Reference Rate.......................................................... S-17 Morgan............................................................................... S-13 NASD................................................................................. S-24 New York Business Day................................................................ S-9 Noon Buying Rate..................................................................... S-11 PaineWebber.......................................................................... S-3 Participant.......................................................................... S-8 Remaining Warrants................................................................... S-17 Spot Rate............................................................................ S-11 Spot Rate Reference Agent............................................................ S-16 Strike Rate.......................................................................... S-11 Valuation Date....................................................................... S-16 Warrant Agent........................................................................ S-10 Warrant Agent's Office............................................................... S-10 Warrant Agreement.................................................................... S-10 Warrant Certificate.................................................................. S-11 Warrantholder........................................................................ S-7 Warrants............................................................................. S-7
A-1 PROSPECTUS PAINE WEBBER GROUP INC. EXCHANGE RATE CURRENCY WARRANTS ------------------------ Paine Webber Group Inc. (the 'Company') intends to issue from time to time up to $100,000,000 of its exchange rate currency warrants entitling the holders thereof to receive from the Company, upon exercise, the cash settlement value, if any, in U.S. dollars of the right to purchase ('Currency Call Warrants') or to sell ('Currency Put Warrants') an amount of non-U.S. currency or currencies for a specified amount of U.S. dollars, as determined by the Company at the time of the offering. Such amount will be based on either (i) the rate of exchange of the U.S. dollar as compared to a specified non-U.S. currency or units of two or more specified non-U.S. currencies (the 'Reference Currency') or (ii) the rate of exchange of the U.S. dollar determined by reference to an index of two or more specified non-U.S. currencies or currency units (the 'Index Currencies') (such an index of Index Currencies being referred to hereinafter as a 'Currency Index'). In the case of a particular Currency Index, additions, deletions or substitutions of Index Currencies included therein may occur if, in the view of the publisher of such Currency Index, a particular Index Currency is no longer appropriate for inclusion therein. See 'Risk Factors -- Potential Modifications of Currency Indices' herein. The Currency Call Warrants and the Currency Put Warrants are hereinafter collectively referred to as the 'Warrants'. The Warrants will be offered on specific terms to be determined at the time of sale. With regard to the Warrants in respect of which this Prospectus is being delivered, the Prospectus Supplement sets forth (i) the aggregate amount and offering price of such Warrants, (ii) the particular Reference Currency or Currency Index (including each Index Currency included therein), as applicable, to which the cash settlement value of such Warrants is related, (iii) whether such Warrants are Currency Put Warrants or Currency Call Warrants, (iv) the date on which the right to exercise such Warrants commences and the expiration date of such Warrants, (v) the manner in which such Warrants may be exercised and any restrictions on, or other special provisions relating to, the exercise of such Warrants, (vi) whether and under what circumstances such Warrants may be cancelled by the Company prior to their expiration date, (vii) the method of determining the amount payable in connection with the exercise or cancellation of such Warrants, including, if the Warrants relate to a particular Currency Index, the predetermined amount to which the level of the Currency Index upon exercise of such Warrants is compared and the method of translating movements in the level of the Currency Index into a cash amount in U.S. dollars, (viii) the amount payable on cancellation of such Warrants, if applicable (the 'Cancellation Amount'), and the predetermined sum or range of sums (the 'Minimum Expiration Value'), if any, payable in certain circumstances upon expiration or exercise of such Warrants, (ix) any national securities exchange on which such Warrants will be listed, (x) certain U.S. Federal income tax consequences relating to such Warrants and (xi) any other specific terms of, or information regarding, such Warrants. The Warrants are unsecured contractual obligations of the Company and will rank on a parity with all other unsecured and unsubordinated indebtedness of the Company. The Warrants involve a high degree of risk, including foreign exchange risks. Purchasers should recognize that their Warrants, other than Warrants having a Minimum Expiration Value, may expire worthless. Purchasers should be prepared to sustain a total loss of the purchase price of their Warrants, and are advised to consider carefully the information under 'Risk Factors' herein and the information regarding the warrants and, in the case of Warrants relating to a particular Currency Index, the Currency Index set forth in the Prospectus supplement. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ The Warrants may be sold by the Company directly to purchasers, through agents designated from time to time, through underwriting syndicates led by one or more managing underwriters or through one or more underwriters. Any such managing underwriters, underwriters or agents may include PaineWebber Incorporated ('PaineWebber'). If underwriters or agents are involved in the offering of any Warrants, the names of such underwriters or agents will be set forth in the Prospectus Supplement. If an underwriter, agent or dealer is involved in the offering of any Warrants, the underwriter's discount, agent's commission or dealer's purchase price will be set forth in, or may be calculated from the information set forth in, the Prospectus Supplement, and the net proceeds to the Company from such offering will be the public offering price of the Warrants less such discount in the case of an offering through an agent, and less, in each case, the other expenses of the Company associated with the issuance and distribution of the Warrants. PaineWebber expects to offer and sell issued Warrants from time to time in the course of its business as a broker-dealer. PaineWebber may act as principal or agent in such transactions. This Prospectus and the related Prospectus Supplement may be used by PaineWebber in connection with such transactions. See 'Plan of Distribution' herein. ------------------------ PAINEWEBBER INCORPORATED ------------------------ The date of this Prospectus is January 19, 1993. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the 'Exchange Act'), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the 'Commission'). Reports, proxy statements and other information concerning the Company can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at 75 Park Place, Room 1400, New York, New York 10007, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be obtained upon written request addressed to the Commission, Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, reports, proxy statements and other information concerning the Company may be inspected at the offices of The New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005, and The Pacific Stock Exchange, 115 Sansome Street, Suite 1004, San Francisco, California 94104. The Company has filed with the Commission a registration statement on Form S-3 (herein, together with all amendments and exhibits, referred to as the 'Registration Statement') under the Securities Act of 1933, as amended (the 'Securities Act'), relating to the Warrants. This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information, reference is hereby made to the Registration Statement. DOCUMENTS INCORPORATED BY REFERENCE The following documents filed by the Company with the Commission pursuant to Section 13 of the Exchange Act are incorporated herein by reference: (i) the Annual Report on Form 10-K (including the portions of the Company's annual report to stockholders incorporated by reference therein) for the year ended December 31, 1991 (the '1991 Form 10-K'); (ii) the Quarterly Reports on Form 10-Q for the quarters ended March 31, 1992, June 30, 1992, and September 30, 1992; and (iii) the Current Report on Form 8-K dated September 15, 1992. All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering of the Warrants shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person, including any beneficial owner, to whom a copy of this Prospectus is delivered, on the written or oral request of any such person, a copy of any or all of the documents incorporated herein by reference, except the exhibits to such documents (unless such exhibits are specifically incorporated by reference in such documents). Requests for such copies should be directed to Assistant Secretary, Paine Webber Group Inc., 1285 Avenue of the Americas, New York, New York 10019; telephone (212) 731-2722. ------------------------ References herein to 'U.S. dollar', 'dollar', 'U.S.$' or '$' are to the lawful currency of the United States of America. 2 RISK FACTORS The Warrants involve a high degree of risk, including foreign exchange risks. Prospective purchasers of the Warrants should recognize that their Warrants, other than any Warrants having a Minimum Expiration Value, may expire worthless. Purchasers should be prepared to sustain a total loss of the purchase price of their Warrants. Prospective purchasers of the Warrants should be experienced with respect to options and options transactions, should understand the risks of foreign currency transactions and should reach an investment decision only after careful consideration, with their advisers, of the suitability of the Warrants in light of their particular financial circumstances, the information set forth below and under 'Description of Warrants' herein and the information regarding the Warrants and, in the case of Warrants relating to a particular Currency Index, the Currency Index set forth in the Prospectus Supplement. POSSIBLE ILLIQUIDITY OF SECONDARY MARKET It is not possible to predict the price at which the Warrants will trade in the secondary market or whether such market will be liquid or illiquid. If additional warrants or options relating to particular non-U.S. currencies or particular currency indices are subsequently offered to the public, the supply of warrants and options relating to such non-U.S. currencies or currency indices, as applicable, in the market will increase, which could cause the price at which the Warrants and such other warrants and options trade in the secondary market to decline significantly. The Company intends to list the Warrants of each issue on a national securities exchange. In the event of a delisting or suspension of trading on such exchange, the Company will use its best efforts to list the Warrants on another national securities exchange. If the Warrants are not listed or traded on any securities exchange, pricing information for the Warrants may be more difficult to obtain and the liquidity of the Warrants may be adversely affected. To the extent Warrants are exercised, the number of Warrants outstanding will decrease, resulting in a lessening of the liquidity of the Warrants. A lessening of the liquidity of the Warrants may cause, in turn, an increase in volatility associated with the price of the Warrants. RELATIONSHIP BETWEEN CASH SETTLEMENT VALUE AND FOREIGN EXCHANGE RATE OR CURRENCY INDEX LEVEL Each Warrant will entitle the beneficial owner thereof (the 'Warrantholder') to receive from the Company upon exercise thereof a cash value (the 'Cash Settlement Value') that (i) in the case of a Currency Put Warrant, will be determined by reference to the amount, if any, by which a predetermined exchange rate of a Reference Currency as compared to the U.S. dollar or a predetermined level or range of levels of a Currency Index, as applicable (the 'Strike Rate'), exceeds the then-current spot exchange rate of such Reference Currency as compared to the U.S. dollar or the then-current level or range of levels of such Currency Index, as applicable (the 'Spot Rate'), and (ii) in the case of a Currency Call Warrant, will be determined by reference to the amount, if any, by which the Spot Rate at the time of exercise of such Warrant exceeds the Strike Rate. However, a Warrantholder will receive a cash payment upon exercise only if the Warrants are 'in-the-money' -- that is, having a Cash Settlement Value greater than zero at the time -- except that, in the case of any Warrants having a Minimum Expiration Value, in certain circumstances the Warrantholder will receive upon expiration or exercise a cash payment in an amount equal to the greater of the applicable Cash Settlement Value and such Minimum Expiration Value. The Cash Settlement Value of a Currency Put Warrant will be greater than zero only if the Spot Rate on the applicable valuation date following exercise is less than the Strike Rate for such Warrant (that is, if the Reference Currency or the Index Currencies (on average), as applicable, appreciates against the U.S. dollar). The Cash Settlement Value of a Currency Call Warrant will be greater than zero only if the Spot Rate for such Warrant is greater than the Strike Rate on the applicable valuation date following exercise (that is, if the Reference Currency or the Index Currencies (on average), as applicable, depreciates against the U.S. dollar). EXTRAORDINARY EVENTS; EXERCISE LIMITATION EVENTS; CANCELLATION OF WARRANTS; DELAYED EXERCISE If so specified in the Prospectus Supplement, the Warrants of an issue may be cancelled by the Company upon the occurrence of one or more events ('Extraordinary Events') described in the Prospectus Supplement. In such event, Warrantholders will have the right to receive only the Cancellation Amount, which may be a 3 predetermined amount, or an amount to be determined in accordance with a predetermined formula, specified in such Prospectus Supplement. Certain events that may constitute Extraordinary Events and therefore lead to cancellation of the Warrants of an issue may be events that would tend to increase the Cash Settlement Value otherwise applicable to the Warrants of such issue. In addition, if so specified in the Prospectus Supplement, any exercise of the Warrants may be suspended by the Company, and the valuation of and payment for such Warrants may be postponed and/or the determination of the Cash Settlement Amount thereof may be made on a different basis, upon the occurrence of an Extraordinary Event or certain other events ('Exercise Limitation Events') specified in the Prospectus Supplement. CERTAIN FACTORS AFFECTING VALUE AND TRADING PRICE OF WARRANTS Unless otherwise specified in the Prospectus Supplement, the Warrants of each issue will have a Cash Settlement Value of zero at the time of the initial public offering of such Warrants. The Cash Settlement Value of the Warrants at any time prior to expiration is expected typically to be less than the trading price of the Warrants at that time. The difference between the trading price and the Cash Settlement Value will reflect, among other things, a 'time value' for the Warrants. The 'time value' of the Warrants will depend partly upon the length of the period remaining to expiration and expectations concerning the value of the Reference Currency or Index Currencies, as applicable, as compared to the U.S. dollar during such period. Unless otherwise specified in the applicable Prospectus Supplement, the expiration date of the Warrants of a particular issue will be accelerated should such Warrants be delisted from, or should there be a permanent suspension of their trading on, any national securities exchange on which such Warrants are traded, unless such Warrants simultaneously are accepted for listing on another national securities exchange. Any such acceleration would result in the total loss of any otherwise remaining 'time value', and could occur when such Warrants are out-of-the-money, thus resulting in the total loss of the purchase price of such Warrants. Warrantholders should be aware that PaineWebber and its affiliates take positions in various non-U.S. currencies, including, from time to time, a Reference Currency or one or more Index Currencies, as applicable, to facilitate client transactions and as principal positions for PaineWebber's or such affiliates' own accounts. Through such activities, PaineWebber and its affiliates may take positions in a Reference Currency or one or more Index Currencies, as applicable, that are inconsistent with an investment in the Warrants. Before exercising or selling Warrants, Warrantholders should carefully consider, among other things, (i) the trading price of the Warrants, (ii) the exchange rate or rates of the Reference Currency or Index Currencies, as applicable, as compared to the U.S. dollar at such time, (iii) the time remaining to expiration, (iv) the probable range of Cash Settlement Values, (v) any Minimum Expiration Value and (vi) any related transaction costs. The trading price of a Warrant at any time is expected to be dependent on (i) the relationship between the Strike Rate and the Spot Rate at such time, (ii) any Minimum Expiration Value and (iii) a number of other interrelated factors, including those listed below. The relationship among these factors is complex. However, the expected effect on the trading price of a Warrant of each of the factors listed below, assuming in each case that all other factors are held constant, is as follows: (1) The prevailing Spot Rate of the Reference Currency or any Index Currency. If the value of the Reference Currency or any Index Currency, as applicable, falls in relation to the U.S. dollar, the trading price of a Currency Call Warrant is expected to increase and the trading price of a Currency Put Warrant is expected to decrease; if the value of the Reference Currency or any Index Currency, as applicable, rises in relation to the U.S. dollar, the trading price of a Currency Call Warrant is expected to decrease and the trading price of a Currency Put Warrant is expected to increase. (2) The volatility of the exchange rate of the Reference Currency or any Index Currency. If the volatility of the exchange rate of the Reference Currency or any Index Currency, as applicable, as compared to the U.S. dollar, increases, the trading price of both Currency Put and Call Warrants is expected to increase; if such volatility decreases, the trading price of both Currency Put and Call Warrants is expected to decrease. 4 (3) The time remaining to the expiration date of the Warrants. As the time remaining to the expiration date of the Warrants decreases, the trading price of the Warrants is expected to decrease. (4) The interest rate differential between U.S. dollar and Reference Currency or Index Currency fixed income instruments. If interest rates applicable to fixed income instruments denominated in a Reference Currency or any Index Currency, as applicable, increase relative to interest rates applicable to fixed income instruments denominated in U.S. dollars, the value of the Reference Currency or Index Currency, as applicable, in relation to the U.S. dollar is expected to increase and, as a result, the trading price of Currency Put Warrants is expected to increase and the trading price of Currency Call Warrants is expected to decrease. If interest rates applicable to fixed income instruments denominated in U.S. dollars increase relative to interest rates applicable to fixed income instruments denominated in a Reference Currency or any Index Currency, as applicable, the trading price of Currency Put Warrants is expected to decrease and the trading price of Currency Call Warrants is expected to increase. As noted above, these hypothetical scenarios are based on the assumption that all other factors are held constant. In reality, it is unlikely that only one factor would change in isolation, because changes in one factor usually cause, or result from, changes in others. Some of the factors referred to above are in turn influenced by various political, economic and other factors referred to herein and in the Prospectus Supplement. TIME LAG AFTER EXERCISE AND POTENTIAL INTERIM CHANGES IN SPOT RATE Unless otherwise specified in the Prospectus Supplement, in the case of any exercise of Warrants, there will be a time lag between the time a Warrantholder gives instructions to exercise and the time the Spot Rate relating to such exercise, and thus the Cash Settlement Value, is determined. Unless otherwise specified in the Prospectus Supplement, the delay will, at a minimum, amount to an entire day and could be significantly longer, particularly in the case of a delay in exercise of Warrants arising from any daily maximum exercise limitation, as described in the immediately following paragraph, or following the occurrence of an Extraordinary Event or an Exercise Limitation Event, as described under 'Extraordinary Events; Exercise Limitation Events; Cancellation of Warrants; Delayed Exercise' above. The Spot Rate may change significantly during any such period, and such movement or movements could decrease the Cash Settlement Value of the Warrants being exercised and may result in such Cash Settlement Value being zero. LIMITATIONS ON EXERCISE If so indicated in the Prospectus Supplement, the Company will have the option to limit the number of Warrants exercisable on any date to the maximum number specified in the Prospectus Supplement and, in conjunction with such limitation, to limit the number of Warrants exercisable by any person or entity on such date. In the event that the total number of Warrants being exercised on any date exceeds such maximum number and the Company elects to limit the number of Warrants exercisable on such date, a Warrantholder may not be able to exercise on such date all Warrants that such holder desires to exercise. Warrants to be exercised on such date will be selected on a pro rata basis or in any other manner specified in the Prospectus Supplement. Unless otherwise specified in the Prospectus Supplement, the Warrants tendered for exercise but not exercised on such date will be automatically exercised on the next date on which Warrants may be exercised, subject to the same daily maximum limitation and delayed exercise provisions described in this paragraph. Unless otherwise specified in the Prospectus Supplement, any such limitation will not apply in the event of automatic exercise, including at expiration. MINIMUM EXERCISE AMOUNT If so indicated in the Prospectus Supplement, a Warrantholder must tender a specified minimum number of Warrants at any one time in order to exercise (except in the event of automatic exercise, including at expiration). Thus, except in such an event, Warrantholders with fewer than the specified minimum number of Warrants will either have to sell their Warrants or purchase additional Warrants, incurring transaction costs in each case, in 5 order to realize upon their investment. Furthermore, such Warrantholders incur the risk that there may be differences between the trading price of the Warrants and the Cash Settlement Value of such Warrants. OFFERING PRICE OF WARRANTS The initial offering price of Warrants may be in excess of the price that a commercial user of a Reference Currency or Index Currencies, as applicable, might pay in the interbank market for a comparable option involving significantly larger amounts of underlying non-U.S. currencies. CERTAIN RISK CONDITIONS The purchaser of a Warrant may lose his entire investment except, if so indicated in the Prospectus Supplement, to the extent of any Minimum Expiration Value attributable to such Warrant. This risk reflects the nature of a Warrant as an asset which, other factors held constant, tends to decline in value over time and which may, depending on the prevailing Spot Rate as compared to the Strike Rate, become worthless when it expires (except to the extent of any Minimum Expiration Value). Assuming all other factors are held constant, the more a Warrant is 'out-of-the-money' and the shorter its remaining term to expiration, the greater the risk that a purchaser of the Warrant will lose all or part of his investment. This means that if (a) in the case of a Currency Put Warrant, the Spot Rate at expiration is greater than or equal to the Strike Rate or (b) in the case of a Currency Call Warrant, the Spot Rate at expiration is less than or equal to the Strike Rate, then a Warrantholder who has not sold his Warrant in the secondary market prior to expiration will necessarily lose his entire investment in the Warrant upon expiration (except to the extent of any Minimum Expiration Value). The risk of the loss of some or all of the purchase price of a Warrant upon expiration means that, in order to recover and realize a return upon his investment, a purchaser of a Warrant must generally be correct about both the direction, timing and magnitude of an anticipated change in the value of the relevant Reference Currency or Index Currencies, as applicable, in relation to the U.S. dollar. If the Spot Rate as compared to the Strike Rate does not decline, in the case of a Currency Put Warrant, or does not rise, in the case of a Currency Call Warrant, before the Warrant expires to an extent sufficient to cover a purchaser's cost of the Warrant (i.e., the purchase price plus transaction costs, if any), the purchaser will lose all or part of his investment in such Warrant upon expiration. Warrantholders will thus bear the foreign exchange risks of the U.S. dollar in relation to the relevant Reference Currency or Index Currencies, as applicable. CERTAIN FACTORS AFFECTING CURRENCY INDICES With regard to a Warrant relating to a particular Currency Index, the Cash Settlement Value of such Warrant at any time will depend primarily on the level of such Currency Index at such time in relation to the Strike Rate, which level in turn will be based primarily on the rates of exchange of the relevant Index Currencies as compared to the U.S. dollar. Prospective purchasers of Warrants should familiarize themselves with the basic features of the relevant Currency Index, including the Index Currencies included therein and the general method of calculation of such Currency Index. The general method of calculation of a Currency Index can influence significantly the relationship between movements in the rates of exchange of the Index Currencies included in such Currency Index as compared to the U.S. dollar and changes in the level of such Currency Index. For example, the weight accorded to a particular Index Currency within a Currency Index can alter such relationship. To illustrate this point, assuming that a particular Currency Index included within it the Australian dollar and the Swiss franc as its Index Currencies, if the Australian dollar was more heavily weighted than the Swiss franc within such Currency Index, movements in the rate of exchange of the Australian dollar as compared to the U.S. dollar would have a greater influence on the level of such Currency Index than would corresponding movements in the rate of exchange of the Swiss franc as compared to the U.S. dollar. Alternatively, in the foregoing illustration, if the Australian dollar and the Swiss franc were equally weighted in such Currency Index, movements in the rates of exchange of the Australian dollar and the Swiss franc as compared to the U.S. dollar would influence the level of such Currency Index equally. Consequently, prospective purchasers are advised to consider carefully the 6 information set forth in the Prospectus Supplement regarding the Currency Index, the Index Currencies and the method of calculation of the Currency Index. The rates of exchange of the Index Currencies as compared to the U.S. dollar primarily will determine the level of the related Currency Index. Prospective purchasers of Warrants relating to a particular Currency Index should recognize that it is impossible to predict whether the level of such Index will rise or fall. As noted below under 'Certain Foreign Currency Exchange Risks', the rates of exchange of the Index Currencies as compared to the U.S. dollar will be influenced by the complex and interrelated political, economic, financial and other factors that can affect the interbank market in currencies generally. EFFECT OF CREDIT RATING REDUCTION The value of the Warrants is expected to be affected, in part, by investors' general appraisal of the Company's creditworthiness. Such perceptions are generally influenced by the ratings accorded to the Company's outstanding securities by the standard statistical rating services, such as Moody's Investors Service, Inc. and Standard & Poor's Corporation. A reduction in the rating, if any, accorded to outstanding debt securities of the Company by one of these rating agencies could result in a reduction in the trading value of the Warrants. WARRANTS ARE UNSECURED OBLIGATIONS The Warrants are unsecured contractual obligations of the Company and will rank on a parity with the Company's other unsecured contractual obligations and with the Company's unsecured and unsubordinated debt. The Company may issue several issues of Warrants relating to various Reference Currencies or Currency Indices. However, no assurance can be given that the Company will issue any Warrants other than the Warrants to which a particular Prospectus Supplement relates. At any given time the number of Warrants outstanding may be substantial. Options and warrants provide opportunities for investment and pose risks to investors as a result of fluctuations in the value of the underlying investment. In general, certain of the risks associated with the Warrants are similar to those generally applicable to other options or warrants of private corporate issuers. However, unlike options or warrants on equities or debt securities, which are priced primarily on the basis of the value of a single underlying security, the trading value of a Warrant is likely to reflect primarily present and expected rates of exchange of the Reference Currency or Index Currencies, as applicable, as compared to the U.S. dollar. The Warrants are not standardized foreign currency options of the type issued by the Options Clearing Corporation (the 'OCC'), a clearing agency regulated by the Commission. For example, unlike purchasers of OCC standardized options who have the credit benefits of guarantees and margin and collateral deposits by OCC clearing members to protect the OCC from a clearing member's failure, purchasers of Warrants must look solely to the Company for performance of its obligations to pay the Cash Settlement Value or, if applicable, the Minimum Expiration Value upon the exercise or expiration of the Warrants. In addition, OCC standardized options provide for physical delivery of the underlying foreign currency (rather than cash settlement in U.S. dollars), and permit immediate determination of value upon exercise. Further, the market for the Warrants is not expected to be generally as liquid as the market for some OCC standardized options. POTENTIAL MODIFICATIONS OF CURRENCY INDICES With regard to Warrants relating to a particular Currency Index, such Index may be compiled and published by either a third party or the Company or an affiliate of the Company. If such Index is compiled and published by the Company or any such affiliate, such Index will be based on a group of Index Currencies selected by the Company or such affiliate solely in connection with the issuance of such Warrants. The policies of the publisher of the Currency Index concerning additions, deletions and substitutions of Index Currencies and the manner in which Currency Index calculations take account of certain changes affecting the Index Currencies can significantly affect the performance of such Currency Index. Additions, deletions or substitutions of Index Currencies may be occasioned by the publisher's view that a particular Index Currency is no longer appropriate 7 for inclusion in the applicable Currency Index due to, for example, the absorption of such Index Currency into a currency or monetary unit comprising one or more other non-U.S. currencies. Although in the Company's view the absorption of any Index Currency is unlikely to occur, the European Economic Community has been seeking the approval of each of its member nations to issue a new currency -- the European Currency Unit or ECU -- that would absorb and replace the individual currencies issued by such member nations. To the extent a particular Currency Index includes an Index Currency issued by any such member nation at the time, if at all, such Index Currency is absorbed into and replaced by the ECU, the publisher of such Currency Index could choose to replace such absorbed Index Currency with another Index Currency and assign either the weight previously accorded to the replaced Index Currency to the replacement Index Currency or a greater or lesser weight, or it could choose not to replace such absorbed Index Currency and re-weight the remaining Index Currencies within such Currency Index equally or otherwise, depending on its policies. Although a Currency Index is normally calculated in a manner intended to ensure that such additions, deletions, substitutions and changes do not, by themselves, instantaneously change the level of the Currency Index, the level of the Currency Index over time may be influenced by changes in the composition and characteristics of the Index Currencies. Whether to add, delete or substitute Index Currencies, and the method of adjusting the Currency Index in respect of changes affecting the Index Currencies, are typically solely within the discretion of the publisher of the Currency Index. In contrast to standardized stock index options of the type issued by the OCC, the terms of which may be adjusted if the publisher of the related stock index changes the composition or method of calculation of such stock index in a manner that causes a significant discontinuity in the index level, the terms of the Warrants will not be adjusted as a result of changes in the related Currency Index. The publisher of a Currency Index may replace such Currency Index with a successor index or may cease publishing such Index entirely. The Prospectus Supplement specifies how the Cash Settlement Value of the related Warrants will be determined in such circumstances. Although the method used will generally be intended to enable Cash Settlement Values to be determined on as consistent a basis as practicable, discontinuities may arise in such circumstances. Moreover, information regarding the current level of certain substitute indices may not be readily available to Warrantholders, which may adversely affect the trading market for their Warrants. CERTAIN CONSIDERATIONS REGARDING HEDGING Prospective purchasers intending to purchase Warrants to hedge against the market risk associated with investing in a Reference Currency or Index Currencies, as applicable, should recognize the complexities of utilizing Warrants in this manner. For example, the value of the Warrants may not exactly correlate with the value of the Reference Currency or Index Currencies, as applicable. Due to fluctuating supply and demand for the Warrants, there is no assurance that their value will correlate with movements of the Reference Currency or Index Currencies, as applicable, until their expiration. CERTAIN FOREIGN CURRENCY EXCHANGE RISKS The value of any currency, including the U.S. dollar and any Reference Currency or Index Currency designated in the applicable Prospectus Supplement, may be affected by complex political and economic factors. The spot exchange rate of any Reference Currency or Index Currency as compared to the U.S. dollar is at any moment a result of the supply of and demand for such Currency, and changes in such rate result over time from the interaction of many factors directly or indirectly affecting economic and political conditions in the foreign country which has such Currency as its currency and in the United States, including economic and political developments in other countries. Of particular importance are the relative rates of inflation, interest rate levels, the balance of payments and the extent of governmental surpluses or deficits in the relevant foreign country and in the United States, all of which are in turn sensitive to the monetary, fiscal and trade policies pursued by the governments of the relevant foreign country, the United States and other countries important to international trade and finance. Such information relating to any relevant foreign country may not be as well known or as rapidly or thoroughly reported in the United States as comparable United States developments. Prospective purchasers of 8 Warrants should be aware of the possible lack of availability of important information that can affect the value of any Reference Currency or Index Currency in relation to the U.S. dollar and must be prepared to make special efforts to obtain such information on a timely basis. Foreign exchange rates can either be fixed by sovereign governments or float. Exchange rates of most economically developed nations, including each foreign country which has a Reference Currency or an Index Currency as its currency, are permitted to fluctuate in value relative to the U.S. dollar. Governments, however, sometimes do not allow their currencies to float freely in response to economic forces. Sovereign governments in fact use a variety of techniques, such as intervention by a country's central bank or imposition of regulatory controls or taxes, to affect the exchange rates of their currencies. Governments may also issue a new currency to replace an existing currency or alter the exchange rate or relative exchange characteristics by devaluation or revaluation of a currency. Thus, a special risk in purchasing Warrants is that their liquidity, trading value and Cash Settlement Value could be affected by governmental actions which could change or interfere with theretofore freely determined currency valuation, fluctuations in response to other market forces and the movement of currencies across borders. There will be no adjustment or change in the terms of the Warrants in the event that exchange rates should become fixed, or in the event of any devaluation or revaluation or imposition of exchange or other regulatory controls or taxes, or in the event of other developments affecting any Reference Currency or Index Currency, the U.S. dollar or any other currency. In contrast, the OCC has reserved the authority to adjust the terms of its standardized options for certain governmental actions and to impose special exercise settlement procedures. The interbank market in foreign currencies is a global, around-the-clock market. Therefore, the hours of trading for the Warrants will not conform to the hours during which any Reference Currency or Index Currency and the U.S. dollar are traded. To the extent that any national securities exchange on which the Warrants are traded is closed while the market for a particular Reference Currency or Index Currency remains open, significant price and rate movements may take place in the underlying foreign exchange markets that will not be reflected immediately in the price of a Warrant on such exchange. The possibility of such movements should be taken into account in relating closing prices for the Warrants on such exchange to prices and rates in the underlying foreign exchange markets. There is no systematic reporting of last-sale information for foreign currencies. Reasonably current bid and offer information is available on the floor of any exchange where foreign currency is traded, in certain brokers' offices, in bank foreign currency trading offices, and to others who wish to subscribe for this information, but such information will not necessarily reflect the particular quoted rate, which is designated in the applicable Prospectus Supplement, used to calculate the Spot Rate. There is no regulatory requirement that available bid and offer information be firm or revised on a timely basis. The absence of last-sale information and the limited availability of quotations to individual investors may make it difficult for many investors to obtain timely, accurate data about the state of the underlying foreign exchange market. In addition, the quotation information that is available is representative of very large round lot or 'wholesale' transactions in the interbank market and does not reflect exchange rates for smaller odd lot or 'retail' transactions. Because more favorable rates are generally obtained in large transactions, the rate that will be obtained at any given time in connection with the exercise of a small aggregate number of Warrants is likely to be less favorable than the rates reported in quotation information generally available to investors at such time. In general, a wholesale, round lot quote would be obtained in a transaction valued at approximately $5 million or more and a retail, odd lot quote would be obtained in a transaction valued at less than approximately $5 million. Furthermore, the difference between a wholesale, round lot quote and a retail, odd lot quote generally would not be expected to exceed approximately one percent. However, on any given day and in the context of any particular transaction, the distinction between, and the size of, a wholesale, round lot transaction and a retail, odd lot transaction and the variation of the difference between the related quotes can vary, in some cases materially, because of the many factors that influence the foreign exchange market, as more fully discussed above. Accordingly, no assurance can be given as to whether the aggregate number of Warrants exercised on any day will constitute a wholesale, round lot transaction or a retail, odd lot transaction or as to the quotes to be obtained in connection therewith. 9 PAINE WEBBER GROUP INC. Paine Webber Group Inc. is a holding company which, together with its operating subsidiaries, forms one of the largest full-service securities firms in the industry. Founded in 1879, the Company currently employs approximately 13,500 people in 274 offices worldwide. The Company's principal line of business is to serve the investment and capital needs of individual, corporate, institutional and public agency clients through its broker-dealer subsidiary, PaineWebber Incorporated, and other specialized subsidiaries. The Company is comprised of four interrelated core business groups -- Retail Sales and Marketing, Asset Management, Institutional Sales and Trading, and Investment Banking. These groups utilize common operational and administrative personnel and facilities, resulting in an efficient use of the Company's resources. RETAIL SALES AND MARKETING consists primarily of a domestic branch office system and consumer product groups through which PaineWebber and certain other subsidiaries provide clients with financial services and products, including the purchase and sale of securities, option contracts, commodity and financial futures contracts, direct investments, selected insurance products, fixed income instruments and mutual funds. PaineWebber 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 the client's account. THE ASSET MANAGEMENT group is comprised of Mitchell Hutchins Asset Management Inc. ('MHAM'), Mitchell Hutchins Institutional Investors Inc. ('MHII') and Mitchell Hutchins Investment Advisory division ('MHIA'). MHAM and MHII provide investment advisory and portfolio management services to pension and endowment funds. MHAM also provides investment advisory and portfolio management services to individuals and mutual funds. MHIA provides portfolio management services to individuals, trusts and institutions. INSTITUTIONAL SALES AND TRADING is comprised of five businesses which provide similar services for different products: Fixed Income, U.S. Equity, International, Derivatives and Research. The Company places securities with, and executes trades on behalf of, institutional clients both domestically and internationally. In addition, the Company takes positions in both listed and unlisted equity and fixed income securities and foreign currencies to facilitate client transactions or for the Company's own account. Through the INVESTMENT BANKING group, the Company provides financial advice to, and raises capital for, a broad range of domestic and international corporate clients. The investment banking division manages and underwrites public offerings, participates as an underwriter in syndicates of public offerings managed by others, and provides advice in connection with mergers and acquisitions, lease financings and debt restructurings. The municipal securities group originates, underwrites, sells and trades taxable and tax-exempt issues for municipal and public agency clients. The Company holds memberships in all major securities and commodities exchanges in the United States, and makes a market in many securities traded on the Automated Quotation System of the National Association of Securities Dealers, Inc. ('NASD') or in other over-the-counter markets. Additionally, PaineWebber is a primary dealer in U.S. government securities. The securities business is one of the nation's most highly regulated industries. Violations of applicable regulations can result in the revocation of broker-dealer licenses, the imposition of censures or fines, and the suspension or expulsion of a firm, its officers or employees. The Company's securities and commodities business is regulated by various agencies, including the Commission, the New York Stock Exchange, the Commodity Futures Trading Commission and the NASD. The Company's principal executive offices are located at 1285 Avenue of the Americas, New York, New York 10019 (Telephone (212) 713-2000). 10 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data with respect to the Company have been derived from the Company's audited consolidated financial statements for the periods indicated.
YEARS ENDED DECEMBER 31, --------------------------------------------------------------- 1991 1990(2) 1989 1988 1987(3) ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) Operations Revenues............................. $ 3,165,895 $ 2,978,505 $ 2,925,809 $ 2,512,261 $ 2,436,963 Net revenues (including net interest).......................... 2,109,771 1,736,354 1,727,169 1,754,814 1,761,425 Earnings (loss) before income taxes and extraordinary charge........... 226,247 (102,633) 82,568 63,223 110,324 Net earnings (loss).................. $ 150,716 $ (57,351) $ 51,960 $ 42,360 $ 72,020 Earnings (loss) per common share(1) Primary.............................. $ 3.15 $ (2.16) $ 0.70 $ 0.39 $ 1.45 Fully diluted........................ 2.50 (2.16) 0.70 0.39 1.45 Financial condition Total assets......................... $22,621,763 $18,150,539 $22,075,292 $17,933,905 $12,956,238 Term debt............................ $ 815,728 $ 656,993 $ 521,929 $ 412,683 $ 345,047 Stockholders' equity................. $ 1,050,478 $ 895,916 $ 1,001,202 $ 1,051,245 $ 1,092,608 Total capitalization................. $ 1,866,206 $ 1,552,909 $ 1,523,131 $ 1,463,928 $ 1,437,655 Book value per common share(1)....... $ 18.34 $ 15.05 $ 17.37 $ 16.55 $ 15.91
- ------------------ (1) Per share data have been retroactively adjusted to give effect to a three-for-two common stock split effective on December 10, 1991. (2) 1990 results reflect an after-tax charge of $95,452 ($149,128 before income taxes) relating to increases in reserves for merchant banking investments and restructuring. (3) 1987 results reflect an extraordinary charge of $2,557 (after income taxes) relating to the loss on extinguishment of debt. USE OF PROCEEDS As may be described in further detail in the Prospectus Supplement, a substantial portion of the proceeds to be received by the Company from the sale of each issue of Warrants may be used by the Company or one or more of its subsidiaries to hedge currency risks with respect to such Warrants. The remainder of such proceeds, if any, will be used by the Company or its subsidiaries for general corporate purposes. DESCRIPTION OF WARRANTS The following description of the terms of the Warrants sets forth certain general terms and provisions of the Warrants to which any Prospectus Supplement may relate. The particular terms of the Warrants offered by any Prospectus Supplement and the extent, if any, to which such general provisions do not apply to the Warrants so offered will be described in such Prospectus Supplement. Each issue of Warrants will be issued under a separate warrant agreement (each, a 'Warrant Agreement') to be entered into between the Company and a bank or trust company, as warrant agent (the 'Warrant Agent'), all as described in the Prospectus Supplement relating to such Warrants. A single bank or trust company may act as Warrant Agent for more than one issue of Warrants. The Warrant Agent will act solely as the agent of the Company under the applicable Warrant Agreement and will not assume any obligation or relationship of agency or trust for or with any holders of such Warrants. An example of a Warrant Agreement, including warrant certificates, is filed as an exhibit to the Registration Statement. The following summaries of certain provisions of the Warrants and the Warrant Agreements do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all the provisions of each issue of Warrants and the related Warrant Agreement. 11 The Company will have the right to 'reopen' a previous issue of Warrants and to issue additional Warrants of such issue. GENERAL Each Warrant will entitle the Warrantholder to receive from the Company upon exercise the Cash Settlement Value of such Warrant, which will be a cash amount in U.S. dollars (i) in the case of a Currency Put Warrant, determined by reference to the amount, if any, by which the Spot Rate is less than the Strike Rate on the applicable valuation date following exercise and (ii) in the case of a Currency Call Warrant, determined by reference to the amount, if any, by which the Spot Rate on the applicable valuation date following exercise exceeds the Strike Rate. The Prospectus Supplement for an issue of Warrants will set forth the formula pursuant to which the Cash Settlement Value of such Warrants will be determined. The Strike Rate may either be a fixed amount or an amount that varies during the term of such Warrants in accordance with a schedule or formula. Certain Warrants will, if specified in the Prospectus Supplement, entitle the Warrantholder to receive from the Company, upon automatic exercise at expiration and under any other circumstances specified in the Prospectus Supplement, an amount equal to the greater of the applicable Cash Settlement Value and the Minimum Expiration Value of such Warrants. In addition, if so specified in the Prospectus Supplement, following the occurrence of an Extraordinary Event or an Exercise Limitation Event, the Cash Settlement Value of a Warrant may, at the option of the Company, be determined on a different basis, including in connection with automatic exercise at expiration. A Warrant will be settled only in U.S. dollars and, accordingly, will not require or entitle a Warrantholder to sell, deliver, purchase or take delivery of any non-U.S. currency to or from the Company, and the Company will be under no obligation to, nor will it, purchase or take delivery of or sell or deliver any non-U.S. currency from or to Warrantholders pursuant to the Warrants. Unless otherwise specified in the Prospectus Supplement, the Warrants will be deemed to be automatically exercised upon expiration. Upon such automatic exercise, Warrantholders will be entitled to receive the Cash Settlement Value of the Warrants, if any, except that holders of any Warrants having a Minimum Expiration Value will be entitled to receive an amount equal to the greater of such Cash Settlement Value and the applicable Minimum Expiration Value. The Minimum Expiration Value may be either a fixed amount or an amount that varies during the term of the Warrants in accordance with a schedule or formula. Any Minimum Expiration Value applicable to an issue of Warrants, as well as any additional circumstances resulting in the automatic exercise of such Warrants, will be specified in the related Prospectus Supplement. If so specified in the Prospectus Supplement, the Warrants may be cancelled by the Company upon the occurrence of an Extraordinary Event. Any Extraordinary Events or Exercise Limitation Events relating to an issue of Warrants will be set forth in the related Prospectus Supplement. Upon such cancellation, the related Warrantholders will be entitled to receive only the applicable Cancellation Amount specified in such Prospectus Supplement. The Cancellation Amount may be either a fixed amount or an amount that varies during the term of the Warrants in accordance with a schedule or formula. Reference is hereby made to the Prospectus Supplement relating to the particular issue of Warrants offered thereby for the terms of such Warrants, including, where applicable: (i) the aggregate amount of such Warrants; (ii) the offering price of such Warrants; (iii) either (a) the Reference Currency, which may be a non-U.S. currency or units of two or more non-U.S. currencies, or (b) the Currency Index (including each Index Currency included therein), which may be compiled and published by a third party or by the Company or an affiliate of the Company, in either case relating to such Warrants; (iv) whether such Warrants are Currency Put Warrants or Currency Call Warrants; (v) the date on which the right to exercise such Warrants may be exercised; (vi) the manner in which such Warrants may be exercised; (vii) the minimum number, if any, of such Warrants that are exercisable by a Warrantholder at any one time; (viii) the maximum number, if any, of such Warrants that may, subject to the Company's election, be exercised by all Warrantholders (or by any person or entity) on any day; (ix) any provisions permitting a Warrantholder to condition an exercise notice on the absence of certain specified changes in the Spot Rate after the exercise date, any provisions permitting the Company to suspend exercise of such Warrants or to redeem such Warrants based on market conditions or other circumstances and any special provisions relating to the exercise of such Warrants; (x) any provisions for the automatic exercise of such 12 Warrants other than at expiration; (xi) any provisions permitting the Company to cancel such Warrants upon the occurrence of certain events; (xii) the method of determining the amount payable in connection with the exercise or cancellation of such Warrants, including (a) the Strike Rate, (b) the method of determining the Spot Rate, (c) the method of expressing movements in either (1) the exchange rate of the applicable Reference Currency in relation to U.S. dollars as a cash amount in U.S. dollars or (2) the level of the applicable Currency Index as a cash amount in U.S. dollars, and (d) any Cancellation Amount or Minimum Expiration Value applicable to such Warrants; (xiii) the time or times at which amounts will be payable in respect of such Warrants following exercise or automatic exercise; (xiv) any national securities exchange on which such Warrants will be listed; (xv) any provisions for issuing such Warrants in certificated form from the perspective of Warrantholders; (xvi) if such Warrants are not issued in book-entry form, the place or places at which payment of the Cash Settlement Value, Cancellation Amount, if any, and Minimum Expiration Value, if any, of such Warrants is to be made by the Company; and (xvii) any other material terms of such Warrants. Prospective purchasers of Warrants should be aware of special United States Federal income tax considerations applicable to instruments such as the Warrants. The Prospectus Supplement relating to each issue of Warrants will describe such tax considerations. The summary of United States Federal income tax considerations contained in the Prospectus Supplement will be presented for informational purposes only, however, and will not be intended as legal or tax advice to prospective purchasers. Prospective purchasers of Warrants are urged to consult their own tax advisors prior to any acquisition of Warrants. BOOK-ENTRY PROCEDURES AND SETTLEMENT Unless otherwise specified in the Prospectus Supplement, the Warrants offered thereby will be issued in book-entry form from the perspective of Warrantholders. Such Warrants will be issued in the form of a single global certificate representing all the Warrants (the 'global certificate') registered in the name of the nominee of the depository, The Depository Trust Company ('DTC', which term, as used herein, includes any successor depository selected by the Company). DTC is a limited-purpose trust company which was created to hold securities for its participating organizations (the 'Participants') and to facilitate the clearance and settlement of securities transactions between Participants in such securities through electronic book-entry changes in accounts of its Participants. Participants include securities brokers and dealers, banks and trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly ('indirect participants'). Persons who are not Participants may beneficially own securities held by DTC only through Participants or indirect participants. DTC's nominee for all purposes will be considered the sole owner or holder of the Warrants under the related Warrant Agreement. Owners of beneficial interests in the global certificate will not be entitled to have Warrants registered in their names, will not receive or be entitled to receive physical delivery of Warrants in definitive form and will not be considered the holders thereof under the related Warrant Agreement, except in certain limited circumstances discussed below. Neither the Company nor the Warrant Agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the global certificate, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. A Warrantholder's ownership of a Warrant will be recorded on or through the records of the brokerage firm or other entity that maintains such Warrantholder's account. In turn, the total number of Warrants held by an individual brokerage firm for its clients will be maintained on the records of DTC in the name of such brokerage firm (or in the name of a Participant or indirect participant that acts as agent for the Warrantholder's brokerage firm if such firm is not a Participant or indirect participant). Therefore, a Warrantholder must rely upon the foregoing procedures to evidence such Warrantholder's ownership of a Warrant. Transfer of ownership of any Warrant may be effected only through the selling Warrantholder's brokerage firm. The Cash Settlement Value and, if applicable, the Cancellation Amount or Minimum Expiration Value payable in respect of the Warrants will be paid by the Warrant Agent to DTC. DTC will be responsible for 13 crediting the amount of such payments to the accounts of the Participants or indirect participants in accordance with its standard procedures, which currently provide for payments in next-day funds settled through the New York Clearing House. Each Participant or indirect participant will be responsible for disbursing such payments to the beneficial owners of the Warrants that it represents and to each brokerage firm for which it acts as agent. Each such brokerage firm will be responsible for disbursing funds to the owners of the Warrants that it represents. It is suggested that any purchaser of Warrants with accounts at more than one brokerage firm only effect transactions in the Warrants, including exercises, through the brokerage firm or firms that hold such purchaser's Warrants. If DTC is at any time unwilling or unable to continue as depository and a successor depository is not appointed by the Company within 90 days, the Company will issue Warrants in definitive form in exchange for the global certificate. In addition, the Company may at any time determine not to have the Warrants represented by a global certificate and, in such event, will issue Warrants in definitive form in exchange for such global certificate. In either instance, an owner of a beneficial interest in the global certificate will be entitled to have Warrants equal in aggregate amount to such beneficial interest registered in its name and will be entitled to physical delivery of such Warrants in definitive form. LISTING Unless otherwise indicated in the Prospectus Supplement, the Warrants will be listed on a national securities exchange as specified in the Prospectus Supplement. It is expected that such exchange will cease trading an issue of Warrants as of the close of business on the related expiration date of such Warrants. MODIFICATION The Warrant Agreement and the terms of the related Warrants may be amended by the Company and the Warrant Agent, without the consent of the holders of any Warrants, for the purpose of curing any ambiguity or curing, correcting or supplementing any defective or inconsistent provision contained therein, maintaining the listing of such Warrants on any national securities exchange or registration of such Warrants under the Exchange Act, permitting the issuance of individual Warrant certificates to Warrantholders, reflecting the issuance by the Company of additional Warrants of the same issue or reflecting the appointment of a successor depository, or in any other manner which the Company may deem necessary or desirable and which, as determined by the Company in its sole discretion, will not materially and adversely affect the interests of the Warrantholders. The Company and the Warrant Agent also may modify or amend the Warrant Agreement and the terms of the related Warrants, with the consent of the holders of not less than a majority in number of the then outstanding Warrants affected by such modification or amendment, for any purpose, provided that no such modification or amendment that (i) in the case of Currency Put Warrants, decreases the Strike Rate or, in the case of Currency Call Warrants, increases the Strike Rate, (ii) otherwise changes the determination of the Cash Settlement Value or Cancellation Amount, if any, or Minimum Expiration Value, if any, of the Warrants (or any aspects of such determination) so as to reduce the amount receivable upon exercise, cancellation or expiration, (iii) shortens the period of time during which the Warrants may be exercised, (iv) decreases the Minimum Expiration Value, if any, or (v) otherwise materially and adversely affects the exercise rights of the Warrantholders or reduces the percentage of the number of outstanding Warrants the consent of whose holders is required for modification or amendment of the Warrant Agreement or the terms of the related Warrants, may be made without the consent of each Warrantholder affected thereby. MERGER, CONSOLIDATION, SALE OR OTHER DISPOSITIONS If at any time there is a merger or consolidation involving the Company or a sale, transfer, conveyance or other disposition of all or substantially all of the assets of the Company, then the successor or assuming corporation will succeed to and be substituted for the Company under the Warrant Agreement and the related Warrants, with the same effect as if it had been named in such Warrant Agreement and Warrants as the Company. The Company will thereupon be relieved of any further obligation under such Warrant Agreement and Warrants and, in the event of any such sale, transfer, conveyance (other than by way of lease) or other 14 disposition, the Company as the predecessor corporation may thereupon or at any time thereafter be dissolved, wound up or liquidated. ENFORCEABILITY OF RIGHTS BY WARRANTHOLDERS Any Warrantholder may, without the consent of the Warrant Agent or any other Warrantholder, enforce by appropriate legal action on his own behalf his right to exercise, and to receive payment for, his Warrants. PLAN OF DISTRIBUTION The Company may sell the Warrants in any of three ways: (i) through underwriters; (ii) directly to one or more purchasers; or (iii) through agents. The Prospectus Supplement with respect to the Warrants being offered thereby sets forth the terms of the offering of such Warrants, including the names of any underwriters, the purchase price of such Warrants and the proceeds to the Company from such sale, any underwriting discounts and other items constituting underwriters' compensation, any initial public offering price, any discounts or concessions allowed or reallowed or paid to dealers and any national securities exchange on which such Warrants will be listed. Only underwriters so named in the Prospectus Supplement are deemed to be underwriters in connection with the Warrants offered thereby. If underwriters are used in the sale, the Warrants will be acquired by the underwriters for their own account and may be resold from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale. The Warrants may be offered to the public either through underwriting syndicates represented by managing underwriters or by underwriters without a syndicate. Such managing underwriters or underwriters may include PaineWebber. Unless otherwise set forth in the Prospectus Supplement, the obligations of the underwriters to purchase such Warrants will be subject to certain conditions precedent, and the underwriters will be obligated to purchase all the Warrants offered by the Prospectus Supplement if any of such Warrants are purchased. Any initial public offering price and any discounts or concessions allowed or reallowed or paid to dealers may be changed from time to time. Warrants may also be sold directly by the Company or through agents designated by the Company from time to time. Any agents involved in the offer or sale of the Warrants will be named, and any commissions payable by the Company to such agents will be set forth, in the Prospectus Supplement. Such agents may include PaineWebber. Unless otherwise indicated in the Prospectus Supplement, any such agent is acting on a best-efforts basis for the period of its appointment. The Warrants, including additional Warrants of a previous issue, may be sold on any national securities exchange on which the Warrants are listed. Agents and underwriters may be entitled under agreements entered into with the Company to indemnification by the Company against certain civil liabilities, including liabilities under the Securities Act, or to contribution with respect to payments which the agents or underwriters may be required to make in respect thereof. Agents and underwriters may be customers of, engage in transactions with, or perform services for, the Company or its affiliates in the ordinary course of business. PaineWebber expects to offer and sell previously issued Warrants from time to time in the course of its business as a broker-dealer. PaineWebber may act as principal or agent in such transactions. The Warrants may be offered or sold in such transactions on any national securities exchange on which the Warrants are listed. Sales will be made at prices related to prevailing prices at the time of sale. PaineWebber is a wholly owned subsidiary of the Company. The participation of PaineWebber in the offer and sale of the Warrants will comply with the requirements of Schedule E of the By-Laws of the NASD regarding underwriting securities of an affiliate. Under the provisions of Schedule E, when a NASD member such as PaineWebber distributes securities of an affiliate, the price of the securities can be no higher than that recommended by a 'qualified independent underwriter', as such term is defined in Schedule E, meeting certain standards. In accordance with such requirement, PaineWebber will select a 'qualified independent underwriter' in connection with each issue of Warrants to conduct due diligence and recommend a price for such Warrants in compliance with the requirements of Schedule E. 15 ERISA CONSIDERATIONS The Employee Retirement Income Security Act of 1974, as amended ('ERISA'), imposes certain restrictions on employee benefit plans ('Plans') which are subject to ERISA, and on those persons who are fiduciaries with respect to such Plans. In accordance with ERISA's general fiduciary requirements, a fiduciary with respect to any such Plan who is considering the purchase of Warrants on behalf of such Plan should determine whether such purchase is permitted under the governing Plan documents, is prudent and is appropriate for the Plan in view of its overall investment policy and the composition and diversification of its portfolio. See 'Risk Factors' herein. Other provisions of ERISA and section 4975 of the Internal Revenue Code of 1986, as amended (the 'Code'), prohibit certain transactions involving the assets of a Plan and persons who have certain specified relationships to the Plan ('parties in interest' within the meaning of ERISA or 'disqualified persons' within the meaning of section 4975 of the Code). Thus, a Plan fiduciary considering the purchase of Warrants should consider whether such a purchase might constitute or result in a prohibited transaction under ERISA or section 4975 of the Code. The Company and PaineWebber may each be considered a 'party in interest' or a 'disqualified person' with respect to many Plans. The purchase of Warrants by a Plan that is subject to the fiduciary responsibility provisions of ERISA or the prohibited transaction provisions of section 4975 of the Code (including individual retirement arrangements and other plans described in section 4975(e)(1) of the Code) and with respect to which the Company or PaineWebber is a service provider (or otherwise is a 'party in interest' or 'disqualified person') may constitute or result in a nonexempt prohibited transaction under ERISA or section 4975 of the Code, unless such Warrants are acquired pursuant to and in accordance with an applicable exemption, such as Prohibited Transaction Class Exemption ('PTCE') 90-1 (an exemption for certain transactions involving insurance company pooled separate accounts), PTCE 84-14 (an exemption for certain transactions determined by an independent qualified professional asset manager) or PTCE 91-38 (an exemption for certain transactions involving bank collective investment funds). Any pension or other employee benefit plan proposing to acquire any Warrants should consult with its counsel. EXPERTS The consolidated financial statements of the Company for the year ended December 31, 1991, incorporated by reference in the Company's Annual Report (Form 10-K) have been audited by Ernst & Young, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. LEGAL OPINIONS The validity of the Warrants will be passed upon for the Company by Cravath, Swaine & Moore, New York, New York. 16 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- No person has been authorized to give any information or to make any representations in connection with this offering other than those contained in this Prospectus Supplement and the Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or the Underwriters. Neither the delivery of this Prospectus Supplement and the Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the dates as of which information is given in this Prospectus Supplement and the Prospectus or that the information contained in this Prospectus Supplement and the Prospectus is correct as of any time subsequent to the dates as of which information is given in this Prospectus Supplement and the Prospectus. This Prospectus Supplement and the Prospectus do not constitute an offer to sell or a solicitation of an offer to buy such securities in any circumstances in which such an offer or solicitation is unlawful. ------------------------ TABLE OF CONTENTS
PAGE ---- PROSPECTUS SUPPLEMENT Prospectus Summary................................... S-3 Certain Important Information Concerning the Warrants........................................... S-7 Paine Webber Group Inc. Recent Developments.......... S-10 Use of Proceeds...................................... S-10 Description of the Warrants.......................... S-10 Exchange Rates....................................... S-20 Certain United States Federal Income Tax Considerations..................................... S-22 Underwriting......................................... S-24 Legal Opinions....................................... S-24 Appendix A: Index of Terms........................... A-1 PROSPECTUS Available Information................................ 2 Documents Incorporated by Reference.................. 2 Risk Factors......................................... 3 Paine Webber Group Inc............................... 10 Selected Consolidated Financial Data................. 11 Use of Proceeds...................................... 11 Description of Warrants.............................. 11 Plan of Distribution................................. 15 ERISA Considerations................................. 16 Experts.............................................. 16 Legal Opinions....................................... 16
------------------------ PAINEWEBBER TM 5,000,000 WARRANTS PAINE WEBBER GROUP INC. U.S. DOLLAR INCREASE WARRANTS ON THE JAPANESE YEN EXPIRING MARCH 6, 1996 --------------------- PROSPECTUS SUPPLEMENT --------------------- PAINEWEBBER INCORPORATED KEMPER SECURITIES, INC. --------------------- March 9, 1994 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- APPENDIX FOR GRAPHIC AND IMAGE MATERIAL Pursuant to Rule 304 of Regulation S-T, the following table presents fair and accurate narrative descriptions of graphic and image material omitted from this EDGAR Submission File due to ASCII-incompatibility and cross- references this material to the location of each occurrence in the text. DESCRIPTION OF OMITTED LOCATION OF GRAPHIC GRAPHIC OR IMAGE OR IMAGE IN TEXT ---------------------- ------------------- In the paper format version of this Appears on page S-21 Prospectus Supplement there appears a graph depicting the average movement of the daily Noon Buying Rates per U.S. $1.00 for Japanese yen in New York City for each month from January 1989 through February 1994 and for the partial month beginning March 1, 1994 and ending March 8, 1994. The information conveyed by such graphic information is described in tabular form in the Prospectus Supplement on pages S-20 through S-21 under the heading "Exchange Rates". -----END PRIVACY-ENHANCED MESSAGE-----