-----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, TQaerVWux4JFid4lFT1Oerx5JGb3XCdbXCKOqj4vF0F13/8dk3hp1Jfr1WIK0JTB sibQLR00aLe7XsWtArTPtA== 0000950123-94-000629.txt : 19940330 0000950123-94-000629.hdr.sgml : 19940330 ACCESSION NUMBER: 0000950123-94-000629 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940329 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: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-07367 FILM NUMBER: 94518692 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 10-K 1 FORM 10-K, PAINE WEBBER GROUP INC. 1 ============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------------- FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE TRANSITION PERIOD FROM _________TO________ COMMISSION FILE NUMBER 1-7367 PAINE WEBBER GROUP INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 13-2760086 (State or other jurisdiction I.R.S. Employer of incorporation or organization) Identification No.) 1285 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10019 (Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 713-2000 --------------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ------------------- ------------------------ Common Stock, $1 Par Value New York Stock Exchange, Inc. Pacific Stock Exchange, Inc. Hong Kong 30 Index Call Warrants, expiring October 27, 1995 American Stock Exchange, Inc. Hong Kong 30 Index Put Warrants, expiring October 27, 1995 American Stock Exchange, Inc. Hong Kong 30 Index Call Warrants, expiring January 17, 1996 American Stock Exchange, Inc. Hong Kong 30 Index Put Warrants, expiring January 17, 1996 American Stock Exchange, Inc. U.S. Dollar Increase Warrants on the Major Market Currency Index, expiring January 18, 1996 American Stock Exchange, Inc. U.S. Dollar Increase Warrants on the Japanese Yen, expiring March 6, 1996 American Stock Exchange, Inc. Stock Index Return Securities on the S&P MidCap 400 Index due June 2, 2000 American Stock Exchange, Inc. ---------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No_______ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.( ) --------------------------- The aggregate market value of voting stock held by non-affiliates of the Registrant was $1,260,558,211 as of March 17, 1994. (See Item 12.) On March 17, 1994, the Registrant had outstanding 77,105,605 shares of common stock of $1 par value, which is Registrant's only class of common stock. Parts I, II and IV incorporate information by reference from the Registrant's 1993 Annual Report to Stockholders. Part I and Part III incorporate information by reference from the Registrant's definitive proxy statement for the annual meeting to be held on May 5, 1994. ============================================================================= 2 PART I ITEM 1. BUSINESS In addition to the detailed information set forth below, incorporated herein by reference is the general business description information on Paine Webber Group Inc. ("PWG") and its operating subsidiaries (collectively the "Company"), under the caption "Management's Discussion and Analysis" on page 29 in the 1993 Annual Report to Stockholders. BROKERAGE TRANSACTIONS A portion of the Company's revenues are generated from commissions or fees earned as a broker for individual and institutional clients in the purchase and sale of corporate securities (listed and over-the-counter securities), mutual funds, insurance products, options, commodities and financial futures, and direct investments. The Company also earns commissions or fees for services provided in the areas of employee benefits, managed accounts and personal trusts. Securities transactions The Company holds memberships in all major securities exchanges in the United States in order to provide services to its brokerage clients in the purchase and sale of listed securities. A major portion of the Company's revenues is derived from commissions from individual and institutional clients on brokerage transactions in listed securities and in over-the-counter ("OTC") markets. The largest portion of the Company's commissions revenue (53%) is derived from brokerage transactions in listed securities. The Company also acts as broker for investors in the purchase and sale of U.S. government and municipal securities. The Company has established commission rates for brokerage transactions which vary with the size and complexity of the transaction and with the activity level of the client's account. Mutual funds The Company distributes shares of mutual funds for which it serves as investment advisor and sponsor as well as shares of funds sponsored by others. Income from the sale of mutual funds is derived from standard dealers' discounts, which are determined by terms of the selling agreement and the size of the transaction. In addition, the Company distributes shares of proprietary mutual funds for which it serves as investment advisor and administrator. Income from these proprietary mutual funds is also derived from management and distribution fees. Mutual funds include both taxable and tax-exempt funds and front-load, reverse- load, and level-load funds. Insurance Through subsidiaries, PaineWebber Incorporated ("PWI") acts as agent for several life insurance companies and sells deferred annuities and life insurance. Additionally, variable annuities are issued by PaineWebber Life Insurance Company. Managed accounts The Company acts in a consulting capacity to both individuals and institutions in the selection of professional money managers. Services provided in this consulting capacity may include client profiling, asset allocation, manager selection and performance measurement. Money managers recommended may be either affiliated with the Company or non affiliated managers. Compensation for services is in the form of commissions or established fees. Options The Company's options related services include the purchase and sale of options on behalf of clients, and the delivery and receipt of the underlying securities upon exercise of the options. In addition, the Company utilizes its securities research capabilities in the formulation of options strategies and recommendations for its clients. Commodities and financial futures The Company provides transaction services for clients in the purchase and sale of futures contracts, including metals, currencies, interest rates, stock indexes and agricultural products. Transactions in futures contracts are on margin and are subject to individual exchange regulations. The risk to the Company's clients in futures transactions, and the resulting credit risk to the Company, is greater than the risk in cash securities transactions, principally due to the low initial margin requirements relative to the nominal value of the actual futures contract. Additionally, commodities exchange regulations governing 3 daily price movements can have the effect of precluding clients from taking actions to mitigate adverse market conditions. These factors may increase the Company's risk of loss on collections of amounts due from clients. However, net worth requirements and other credit standards for customer accounts are utilized to limit this exposure. Employee benefit plans PW Trust Company, a wholly owned subsidiary of PWG, offers and administers 401(K) plans for corporations and acts as trustee, custodian or investment manager of retirement assets for approximately 1,300 corporate retirement plans. Personal trust services The Company offers its clients a full range of domestic and international personal trust services, including self trustee and corporate trustee options. Investment choices are broad and flexible. The Company serves its international clients through a trust company located in Guernsey and through third party trustees, and may serve as corporate trustee for domestic clients in 22 states. Direct investments The Company originates and markets a select number of private placements and publicly registered limited partnerships. While market conditions have significantly reduced activities in this area, the Company's offerings include a publicly registered equipment leasing partnership and a tax-credit real estate trust. DEALER TRANSACTIONS The Company regularly makes a market in OTC securities and as a block positioner, acts as market-maker in certain listed securities, U.S. government and agency securities, investment-grade and high-yield corporate debt, and a full range of mortgage-backed securities. Equity The Company effects transactions in large blocks of securities, usually with institutional investors, generally involving 5,000 or more shares of listed stocks. Such transactions are handled on an agency basis to the extent possible, but the Company may take a long or short position as principal to the extent that no buyer or seller is immediately available. By engaging in block positioning, the Company places a portion of its capital at risk to facilitate transactions for clients. Where possible, the Company seeks to reduce such risks by hedging with option positions. Despite the risks involved in block positioning, the aggregate brokerage commissions generated by the Company's willingness to commit a portion of its capital in repositioning, including commissions on other orders from the same clients, justify such activities. The Company makes markets, buying and selling as principal, in common stocks, convertible preferred stocks, warrants and other securities traded on the Automated Quotation System of the National Association of Securities Dealers ("NASD") or in other OTC markets. The unlisted equity securities in which the Company makes markets are principally those in which there is substantial continuing client interest and include securities which the Company has underwritten. Fixed Income The Company provides clients access to a multitude of fixed income products including: U.S. government and agency securities; mortgage related securities including those issued through Government National Mortgage Association ("GNMA"), Federal National Mortgage Association ("FNMA") and Federal Home Loan Mortgage Corp. ("FHLMC"); corporate investment-grade and high-yield bonds; and options and futures contracts on these products. The Company's capital can be at risk to the extent significant price fluctuations occur. This risk is lessened by hedging inventory positions. As a "primary dealer" in U.S. government securities, the Company actively participates in the distribution of United States treasury securities and reports its inventory positions and market transactions to the Federal Reserve Bank on a weekly basis. The Company takes positions in government and government agency securities to facilitate transactions for its clients on a principal basis. Profits or losses are recognized from fluctuations in the value of securities in which it maintains positions. Additionally, trading activities include the purchase of securities under agreements to resell at future dates (reverse repurchase agreements) and the sale of the same or similar securities under agreements to repurchase at future dates (repurchase agreements). 4 Profits and losses on the repurchase transactions are recognized from interest rate differentials. The Company actively participates in the mortgage-backed securities markets through the purchase or sale of GNMA, FNMA, FHLMC, mortgage pass-through securities, Collateralized Mortgage Obligations ("CMOs") and other mortgage related securities, in order to meet client needs on a principal basis. As a means of financing its trading, the Company enters into repurchase agreements. The Company also structures and underwrites CMOs. Additionally, the Company serves as principal and financier in the purchase, sale, securitization and resale of first mortgage notes and the related servicing rights. The Company is an active participant in the corporate bond markets. Through the fixed income debt syndicate desk and institutional sales force, the Company distributes and markets new issuances of corporate debt securities. The corporate bond trading desk supports this effort as a dealer in the secondary markets by effecting transactions on behalf of clients or for the Company's own account. Revenues generated from these activities include underwriting fees on syndicate transactions and trading gains or losses. The Company also underwrites, makes markets, and facilitates trades for clients in the high-yield securities markets. High-yield securities refer to companies whose debt is rated as non-investment grade. The Company continually monitors its risk positions associated with high-yield debt securities and establishes limits with respect to overall market exposure, industry group and individual issuer. Municipal securities Through its municipal bond department, the Company is a dealer in both the primary and secondary markets, buying and selling securities for its own account and for clients. Revenues derived from all these activities include underwriting and management fees, selling concessions and trading profits. Derivatives The Company is engaged in activities, primarily on behalf of clients, in equity derivative products, including listed and OTC options, warrants, futures and underlying equity securities. The Company has also engaged in creating structured products, which are sold to retail and institutional clients, that are based on baskets of securities and currencies, primary foreign and domestic market indexes and other equity and debt-based products. The Company generally hedges positions taken in these structured products based on option and other valuation models. Through the institutional options and futures group, the Company engages in interest rate, stock index, commodity options and futures contract transactions in connection with the Company's principal trading activities. The various commodity markets are highly regulated and impose strict margin and other financial requirements on the Company and its clients. Transactions in futures contracts are conducted through regulated exchanges which clear and guarantee performance of counterparties, however, in the event that members of clearinghouses default on material obligations to such clearinghouses, the Company may have financial exposure. The Company is also subject to credit risk on derivatives not traded on formal exchanges. The Company's risk of credit loss is mitigated by adherence to formal credit control procedures which include approved customer and counterparty credit limits, periodic monitoring of customer and counterparty credit worthiness, and continuous assessment of market exposure. As a principal trader, the Company is exposed to market risk in the event of unfavorable changes in interest rates, foreign currency exchange rates or the market values of the securities underlying the instruments. The Company monitors its exposure to market risk through a variety of control procedures including a review of trading positions and hedging strategies, and establishing limits by the Risk Management Committee. INVESTMENT BANKING The Company is a leading manager of public offerings of corporate securities. In addition, the Company participates as an underwriter in syndicates of public offerings managed by others. Management of an underwriting account is generally more profitable than participation as a syndicate member since the managing underwriters receive a management fee and have more control over the allocation of securities available for distribution. The Company is invited to participate in many syndicates of negotiated public offerings managed by others. 5 The Corporate Finance Group manages and underwrites public offerings of debt and equity securities, arranges private placements and provides financial advice in connection with mergers and acquisitions, divestitures and other corporate reorganizations and restructurings. Significant risks are involved in the underwriting of securities. Underwriting syndicates agree to purchase securities at a discount from the public offering price. If the securities are ultimately sold below the cost to the syndicate, an underwriter will experience losses on the securities which it has purchased. In addition, losses may be incurred on stabilization activities taken during such underwritings. The Company is an industry leader in the management of tax-exempt bond offerings. Through its Municipal Securities Group, the Company provides financial advice to, and raises capital for, issuers of municipal securities to finance the construction and maintenance of a broad range of public-related facilities, including healthcare, housing, education, public power, water and sewer, airports, highways and other public finance infrastructure needs. The group also provides a secondary market for these securities and develops and markets various derivative products. The Company, through certain subsidiaries, may participate as an equity investor or provide bridge financing in connection with specific transactions. The Company has substantially decreased these activities in response to a changed environment for this type of financing. ASSET MANAGEMENT Asset management activities are conducted principally by Mitchell Hutchins Asset Management Inc. ("MHAM") and Mitchell Hutchins Institutional Investors Inc., ("MHII"). MHAM and MHII provide investment advisory and portfolio management services to individuals and pension, endowment and mutual funds. Mutual funds, for which MHAM serves as an investment advisor, include both taxable and tax-exempt funds and front-load, reverse-load, and level-load funds. At December 31, 1993, total assets under management were $38.9 billion including approximately $25.6 billion of proprietary mutual funds sponsored by PWI. MARGIN LENDING Client securities transactions are executed on either a cash or margin basis. In a margin transaction, the Company extends credit to a client for the purchase of securities, using the securities purchased and/or other securities in the client's account as collateral for amounts loaned. The Company receives income from interest charged on such extensions of credit. Amounts loaned are limited by margin requirements which are subject to the Company's credit review and daily monitoring procedures and are generally more restrictive than the margin regulations of the Federal Reserve Board and other regulatory authorities. The Company may lend to other brokers or use as collateral a portion of the margin securities to the extent permitted by applicable margin regulations. The financing of margin purchases can be an important source of revenue to the Company since the interest rate paid by the client on funds loaned by the Company exceeds the Company's cost of short-term funds. The amount of the Company's gross interest revenues is affected not only by prevailing interest rates, but also by the volume of business conducted on a margin basis. To finance margin loans to clients, the Company utilizes both interest-bearing and non-interest-bearing funds generated from a variety of sources in the course of its operations, including bank loans, free credit balances in client accounts, sale of securities under agreements to repurchase, the lending of securities and sales of securities not yet purchased. No interest is paid on a substantial portion of clients' free credit balances. By permitting a client to purchase on margin, the Company takes the risk that market declines could reduce the value of the collateral below the principal amount loaned, plus accrued interest, before the collateral could be sold. 6 RESEARCH Research provides investment advice to institutional and individual clients. More than 750 companies in 78 industry sectors and sub-sectors are covered by the division's analysts. In addition to fundamental company and industry research, the Company offers research products and services in the following areas: asset allocation, economics, fixed income and high yield issues, convertible and closed-end bond funds, country funds and derivatives. OTHER ACTIVITIES Portions of the Company's core business activities are conducted through PaineWebber International Inc. and its subsidiaries, which also function as an introducing broker-dealer to PWI for U.S. market products and are members of various international exchanges. PaineWebber Specialists Inc. ("PWSI") maintains trading posts on the Pacific, Boston and Cincinnati stock exchanges and an affiliation on the Chicago stock exchange. Specialists are responsible for executing transactions and maintaining an orderly market in certain securities. In this function, the specialist firm acts as an agent in executing orders entrusted to it and/or acts as a dealer. PWSI acts as a specialist for approximately 430 equity issues. Correspondent Services Corporation, a registered broker-dealer and a wholly owned subsidiary of PWI, provides execution and clearing services of securities for approximately 100 broker-dealers on a fully disclosed and omnibus basis. Incorporated herein by reference is the information set forth under the caption "Revenues" in the "Five Year Financial Summary" on page 54 in the 1993 Annual Report to Stockholders, which summarizes the major sources of consolidated revenues. REGULATION The securities and commodities industry is one of the nation's most extensively regulated industries. The Securities and Exchange Commission ("SEC") is responsible for carrying out the federal securities laws and serves as a supervisory body over all national securities exchanges and associations. The regulation of broker-dealers has to a large extent been delegated, by the federal securities laws, to self-regulatory organizations ("SROs"). These SROs include all the national securities and commodities exchanges, the NASD and the Municipal Securities Rulemaking Board. Subject to approval by the SEC and Commodity Futures Trading Commission ("CFTC"), these SROs adopt rules that govern the industry and conduct periodic examinations of the operations of certain subsidiaries of the Company. The New York Stock Exchange ("NYSE") has been designated by the SEC as the primary regulator of certain of the Company's subsidiaries including PWI and other broker-dealer subsidiaries. In addition, certain of these subsidiaries are subject to regulation of the laws of the 50 states, the District of Columbia, Puerto Rico and certain foreign countries in which they are registered to conduct securities, banking, insurance or commodities business. Broker-dealers are subject to regulations which cover all aspects of the securities business, including sales methods, trade practices among broker-dealers, use and safekeeping of customers' funds and securities, capital structure of securities firms, record-keeping, and the conduct of directors, officers and employees. Violation of applicable regulations can result in the revocation of broker-dealer licenses, the imposition of censures or fines, and the suspension or expulsion of a firm, its officers or employees. As a registered broker-dealer and member firm of the NYSE, PWI is subject to the Net Capital Rule (Rule 15c3-1 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), which also has been adopted through incorporation by reference in NYSE Rule 325. The Net Capital Rule, which specifies minimum net capital requirements for registered broker-dealers, is designed to measure the financial soundness and liquidity of broker-dealers. 7 The Net Capital Rule, as defined, prohibits registered broker-dealers from making substantial distributions of capital by means of dividends or similar payments, or unsecured advances and loans to certain related persons, including stockholders, without giving at least two business days prior or post notification to the SEC. Pre-notification requirement applies to any proposed withdrawal of capital if the aggregate of such withdrawals, on a net basis, within any 30 calendar day period would exceed 30% of the broker-dealer's excess net capital, as defined. Post notification requirement applies if the aggregate of such withdrawals, on a net basis, would exceed 20% of the broker-dealer's excess net capital, as defined. The rule permits the SEC, by order to restrict, for up to 20 business days, withdrawing of equity capital or making unsecured advances or loans to related persons under certain limited circumstances. Finally, broker-dealers are prohibited from making any withdrawal of capital that would cause the broker-dealer's net capital to be less than 25% of the deductions from net worth required by the Net Capital Rule as to readily marketable securities ("haircuts"). Under the Market Reform Act of 1990, the SEC adopted regulations requiring registered broker-dealers to maintain, preserve and report certain information concerning the organizational structure, risk management policies and financial condition of any affiliate of the Company whose activities are reasonably likely to have a material impact on the financial and operational condition of the broker-dealer. Securities broker-dealers are also required to file with the SEC, specified information on a quarterly and annual basis. COMPETITION All aspects of the business of the Company are highly competitive. The Company competes directly with numerous other brokers and dealers, investment banking firms, insurance companies, investment companies, banks, commercial banks and other financial institutions. In recent years, competitive pressures from discount brokerage firms and commercial banks, increased investor sophistication and an increase in the variety of investment products have resulted, primarily through mergers and acquisitions, in the emergence of a few well capitalized national firms. The Company believes that the principal factors affecting competition in the securities industry are available capital, and the quality and prices of services and products offered. ITEM 2. PROPERTIES The principal executive offices of the Company are located at 1285 Avenue of the Americas, New York, New York under a lease expiring March 31, 2000. The Company is currently leasing approximately 507,000 square feet at 1285 Avenue of the Americas comprising the offices of its investment banking, asset management, institutional sales and trading, and corporate headquarters staff, as well as two branch offices for retail investment executives. The Company leases approximately 900,000 square feet of space at Lincoln Harbor in Weehawken, New Jersey under leases expiring December 31, 2013. The Lincoln Harbor facility houses retail sales and marketing headquarters, systems, operations, administrative services, and finance and training divisions. At December 31, 1993, the Company maintained 281 offices worldwide under leases expiring between 1994 and 2014. In addition, the Company leases various furniture and equipment. ITEM 3. LEGAL PROCEEDINGS The Company is involved in a number of proceedings concerning matters arising in connection with the conduct of its business. Certain actions, in which compensatory damages of $120 million or more appear to be sought, are described below. The Company is also involved in numerous proceedings in which compensatory damages of less than $120 million appear to be sought, or in which punitive or exemplary damages, together with the apparent compensatory damages alleged, appear to exceed $120 million. The Company had denied, or believes it has legitimate defenses and will deny, liability in all significant cases pending against it, including those described below, and intends to defend actively each such case. 8 NORTHVIEW CORPORATION LITIGATION In March 1992, PaineWebber Incorporated ("PaineWebber") as well as other individuals and entities including, inter alia, the former officers and directors of Northview Corporation ("Northview"), Calmark Holding Corporation and Calmark Financial Corporation and its respective officers and directors, were named as defendants in a purported class action filed by Northview in the Superior Court of the State of California for the County of Los Angeles. The Complaint sought to set aside as fraudulent and illegal, certain transfers of funds and distributions of cash, and to recover damages allegedly caused by the defendants for breach of contract, impairment of capital, unjust enrichment, breach of fiduciary duty, gross negligence and looting of corporate assets. As to PaineWebber, Plaintiff alleged that in November 1987, Northview retained PaineWebber to render a fairness opinion respecting the fair market value of the common stock of Calmark Financial Corporation which Northview was to receive in exchange for issuing its own stock to Calmark Holding Corporation, the parent corporation of Calmark Financial Corporation. The Complaint asserted that PaineWebber issued a fairness opinion which allegedly overstated the value of Calmark Financial Corporation's assets, which enabled the transaction at issue in the form of a self tender and merger to go forward. Plaintiff contends that, as a result of PaineWebber's allegedly overstating the value of the assets of Calmark Financial Corporation, Northview's assets were improperly transferred to Calmark, whose principals depleted the assets subsequent to the merger. On March 16, 1990, Northview filed for protection under Chapter XI of the Bankruptcy Law. The Complaint sought damages in an amount to be proven at trial, the imposition of a constructive trust of at least $100 million, punitive damages, interest, costs and attorneys fees from all the defendants. The Complaint was amended three times before January 12, 1994. On February 8, 1994, Plaintiff filed a motion for leave to file a Fourth Amended Complaint, which motion was granted on March 15, 1994. The Fourth Amended Complaint adds a new cause of action for negligent misrepresentation against PaineWebber and claims for professional negligence and breach of fiduciary duty against the law firm of Troy & Gould and certain of its principals who acted as outside counsel to both Northview and Calmark in connection with their merger. Defendants have until April 15, 1994 to respond to the Fourth Amended Complaint. In the meantime, discovery is on- going. GENERAL DEVELOPMENT CORPORATION SECURITIES LITIGATION On or about June 10, 1991, PaineWebber Incorporated ("PaineWebber") was served with a "First Amended Complaint" in an action captioned Rolo v. City Investing Liquidating Trust, et al., Civ. Action 90-4420 (D.N.J., filed on or about May 13, 1991) (the "Rolo action") naming it and other entities and individuals as defendants. The First Amended Complaint alleges violations of: (1) one or more provisions of the Racketeer Influenced and Corrupt Organizations Act ("RICO"); (2) one or more provisions of the Securities Exchange Act of 1934; (3) one or more provisions of the Interstate Land Sales Full Disclosure Act; and (4) the common law, on behalf of all persons (excluding defendants) who purchased lots and/or houses from General Development Corporation ("GDC") or one of its affiliates and who are members of an association known as the North Port Out-of-State Lot Owners Association. The allegations in the First Amended Complaint which relate to PaineWebber are premised on claims that PaineWebber is responsible for misrepresentations and/or omissions of material facts in the prospectuses and other public documents filed in connection with, and after, the following: (1) the April 8, 1988 offering by GDC of the Bonds; and (2) a 1989 offering of Adjustable Rate General Development Residential Mortgage Pass-Through Certificates, Series 1989-A, for which PaineWebber served as underwriter. Plaintiffs contend that due to such alleged misrepresentations and/or omissions of material facts, PaineWebber knowingly enabled GDC to acquire additional financial resources for perpetuation of (and/or aided and abetted) an alleged scheme to defraud purchasers of GDC lots and/or houses. The First Amended Complaint requests 9 certain declaratory relief, equitable relief, compensatory damages of not less than $500 million, punitive damages of not less than three times compensatory damages, treble damages with respect to the RICO count, pre-judgment and post-judgment interest on all sums awarded, and attorney's fees, costs, disbursement and expert witness fees. Served with the Rolo First Amended Complaint was a letter from Plaintiffs' counsel to all parties in the action stating that the Rolo court stayed the action on April 26, 1991. The letter further stated that "the time within which defendants must answer or otherwise respond is stayed pursuant to the Court's Order." The stay remained in effect until January 28, 1993, when Plaintiffs in Rolo filed a motion to dissolve the stay. On March 9, 1993, the Court granted Plaintiffs' motion and dissolved the stay of proceedings in the Rolo action. On or about March 31, 1993, PaineWebber filed a motion to dismiss Plaintiffs' First Amended Complaint for insufficient service of process. On May 11, 1993, the Court denied said motion. On May 28, 1993, PaineWebber, together with a majority of other defendants filed motions to dismiss Plaintiffs' First Amended Complaint on, inter alia, jurisdictional and statute of limitation grounds as well as challenging the adequacy of the pleadings. On December 27, 1993, the Court entered an order dismissing Plaintiffs' First Amended Complaint against PaineWebber and the majority of the other defendants. On January 10, 1994, Plaintiffs filed a notice of appeal to the United States Court of Appeals for the Third Circuit. ICN PHARMACEUTICALS LITIGATION Class actions were commenced against PaineWebber Incorporated ("PaineWebber") in 1986 in the United States District Court for the Southern District of New York, and in 1987 in the United States District Court for the Central District of California, alleging Rule 10b-5 and common law fraud claims based on purported misstatements in a market advisory concerning ICN Pharmaceuticals, Inc. and its antiviral drug, ribavirin. Virtually all those complaints also alleged various federal securities and common law claims against ICN, its subsidiaries and several of its officers and directors. The California actions were transferred to New York in 1987, and all the related actions were there consolidated under an amended consolidated complaint. In June 1991, the Court dismissed the complaint with leave to replead. After motion practice directed to the repleaded complaint and the conduct of pretrial discovery, PaineWebber and plaintiffs reached an agreement to settle the consolidated action for $6.5 million, conditioned on (a) the execution of stipulation of settlement, (b) certification of the class by the Court, and (c) entry of a final judgment (no longer subject to appeal), issued after notice to the class and the conduct of a fairness hearing (i) approving the settlement, (ii) dismissing the complaint with prejudice, and (iii) barring co-defendants from maintaining any claim against PaineWebber for contribution or indemnification. ARIZONA STATE CARPENTERS PENSION TRUST FUND, ET AL. V. MITCHELL HUTCHINS INSTITUTIONAL INVESTORS, ET AL. In April 1989, Mitchell Hutchins Institutional Investors Inc. ("MHII") was named as a defendant in a suit filed in the U.S. District Court, District of Arizona, Phoenix (No. CIV 89-0693) by four employee benefit plans. MHII has been a subsidiary of Mitchell Hutchins Asset Management Inc. ("MHAM") since February 1988, when it was acquired from Manufacturers Hanover Trust Company ("Manufacturers"). The current complaint alleges violation of the Employee Retirement Income Security Act ("ERISA") and other federal and state laws as to MHII and other defendants and seeks unspecified monetary damages and other relief. The allegations of the complaint which pertain to MHII involve certain real estate related investments made through a Phoenix branch office almost entirely while the firm was owned by Manufacturers. The Plaintiffs were investment advisory clients until December 31, 1988. Subsequent amendments added, among others, Manufacturers, MHAM, PaineWebber Incorporated and Paine Webber Group Inc. as defendants. The parties are engaged in discovery. Under the current scheduling order entered by the Court, discovery will continue into 1994 and a trial date has been set for the middle of 1995. 10 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. Executive Officers of the Registrant Incorporated herein by reference is the Company's definitive proxy statement for the annual meeting of stockholders to be held on May 5, 1994 ("Proxy Statement") to be filed with the Commission not later than 120 days after the end of the fiscal year. Set forth below, in addition to information contained in the Proxy Statement, is certain information concerning the executive officers of PWG who do not also serve as directors of PWG: Regina A. Dolan, 39, is Vice President and Chief Financial Officer of PWG, a position she has held since February 3, 1994. Prior thereto, she was the principal financial and accounting officer of PWG from October 1992 to February 3, 1994. Ms. Dolan is also Senior Vice President and has been Chief Financial Officer of PWI since February 3, 1994. From October 1992 to February 3, 1994, she was Director of Finance and Controls of PWI. Prior to joining the Company, Ms. Dolan was with Ernst & Young from September 1975 to September 1992, where she rose to the position of Partner and served as Director of the firm's Securities Industry Practice. Lee Fensterstock, 45, is an Executive Vice President and Director of Institutional Sales and Trading of PWI. Mr. Fensterstock was Senior Vice President, Finance and Controls of PWI from 1988 to January 1991. Before joining PWI he was with Citibank for fifteen years where he held various positions in planning, financial control and business management. Theodore A. Levine, 49, is General Counsel, Vice President and Secretary of PWG, and is an Executive Vice President of PWI, positions he has held since June 15, 1993. Prior to joining the Company, Mr. Levine was a partner at the Washington D.C. - based law firm of Wilmer, Cutler and Pickering from February 1984 to June 1993. He was with the Securities and Exchange Commission from 1969 to 1984 where he rose to the position of Associate Director in the Division of Enforcement. Pierce R. Smith, 50, has been Treasurer of PWG since February 16, 1988, Executive Vice President and Treasurer of PWI since February 2, 1988 and was appointed Controller of PWI as of February 15, 1993. He was Senior Vice President and Treasurer of Norwest Corporation from August 1982 to December 1987. Executive Officers are elected annually to serve until their successors are elected and qualify or until they sooner die, retire, resign or are removed. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information set forth under the captions "Market for Common Stock" and "Common Stock Dividend History" in the 1993 Annual Report to Stockholders is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information set forth under the caption "Financial Highlights" in the 1993 Annual Report to Stockholders is incorporated herein by reference. 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information set forth under the caption "Management's Discussion and Analysis" in the 1993 Annual Report to Stockholders is incorporated herein by reference beginning on page 30 under the caption "Results of Operations". ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements, schedules and supplementary financial information required by this item and included in this report or incorporated herein by reference are listed in the index appearing on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information concerning the age and principal occupation of each director is set forth under the caption "Information Concerning the Nominees and Directors" in the Proxy Statement and is incorporated herein by reference. Information concerning executive officers of the Registrant, who do not serve as directors, is given at the end of Part I of this report. ITEM 11. EXECUTIVE COMPENSATION Information concerning compensation of directors and executive officers of the Registrant is set forth under the captions "Compensation of Directors," "Executive Compensation," "Other Benefit Plans and Agreements" and "Certain Transactions and Arrangements" in the Proxy Statement and is incorporated herein by reference. ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Security ownership of executive officers, directors and certain beneficial owners is set forth under the caption "Security Ownership" in the Proxy Statement and is incorporated herein by reference. Solely for the purpose of calculating the aggregate market value of the voting stock held by non-affiliates of the Registrant as set forth on the cover of this report, it has been assumed that directors and executive officers of the Registrant are affiliates. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information related to certain transactions with directors of the Registrant is set forth under the captions "Certain Agreements with Directors" and "Certain Transactions and Arrangements" in the Proxy Statement and is incorporated herein by reference. 12 PART IV ITEM 14. FINANCIAL STATEMENTS, FINANCIAL SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this report: (1) & (2) The financial statements and schedules included in this report are incorporated herein by reference and are listed in the accompanying index to financial statements and financial statement schedules appearing on page F-1. (3) The exhibits included in this report or incorporated herein by reference are listed in the accompanying index to exhibits appearing on page F-9. The management contracts or compensatory plans and arrangements listed in the index to exhibits that are applicable to the executive officers named in the "Summary Compensation Table", appearing in Registrant's 1994 Proxy Statement, are set forth on pages F-18 and F-19. (b) Reports on Form 8-K: The Company filed a Current Report on Form 8-K dated January 14, 1994 with the SEC relating to the issuance by the Company of 2,200,000 AMEX Hong Kong 30 Index Call Warrants expiring January 17, 1996 and 4,100,000 AMEX Hong Kong 30 Index Put Warrants expiring January 17, 1996. The item reported on such Current Report was "Item 5 - Other Events". The Company filed a Current Report on Form 8-K dated February 10, 1994 with the SEC relating to the Certificate of the Powers, Designations, Preferences and Rights relating to the Company's 6% Convertible Preferred Stock. The item reported on such Current Report was "Item 7 - Exhibits". 13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on March 25, 1994. PAINE WEBBER GROUP INC. (Registrant) BY: Donald B. Marron /s/ ____________________________________ Donald B. Marron Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 25, 1994. Donald B. Marron /s/ ____________________________________ Donald B. Marron Chairman of the Board, Chief Executive Officer and Director (principal executive officer) Regina A. Dolan /s/ ____________________________________ Regina A. Dolan Vice President, Chief Financial Officer T. Stanton Armour /s/ ____________________________________ T. Stanton Armour Director E. Garrett Bewkes, Jr. /s/ ____________________________________ E. Garrett Bewkes, Jr. Director John A. Bult /s/ ____________________________________ John A. Bult Director 14 SIGNATURES ______________________________ Yozo Fujisawa Director Joseph J. Grano, Jr. /s/ ______________________________ Joseph J. Grano, Jr. Director Paul B. Guenther /s/ ____________________________________ Paul B. Guenther Director John E. Kilgore, Jr. /s/ ____________________________________ John E. Kilgore, Jr. Director Robert M. Loeffler /s/ ____________________________________ Robert M. Loeffler Director Edward Randall, III /s/ ____________________________________ Edward Randall, III Director Henry Rosovsky /s/ ____________________________________ Henry Rosovsky Director _______________________________ Kyosaku Sorimachi Director 15 PAINE WEBBER GROUP INC. ITEMS 8, 14(A)(1) AND (2) AND 14(D) INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES Financial Statements Incorporated herein by reference are the following financial statements included in the 1993 Annual Report to Stockholders. With the exception of the following financial statements and the information incorporated by reference on items 1, 5, 6 and 7, the 1993 Annual Report to Stockholders is not to be deemed filed as part of this report.
1993 Annual Report Description (Page) ----------- -------------- Report of independent auditors 53 Consolidated statements of financial condition at December 31, 1993 and 1992 37 For the years ended December 31, 1993, 1992 and 1991: Consolidated statements of income 36 Consolidated statements of changes in stockholders' equity 38-39 Consolidated statements of cash flows 40 Notes to consolidated financial statements 41-52 Quarterly financial information (unaudited) 56 Schedules - --------- Form 10-K Description (Page) ----------- ----------------- III - Condensed Financial Information F-2 - F-5 VIII - Valuation and Qualifying Accounts F-6 IX - Short-Term Borrowings F-7 X - Supplementary Income Statement Information F-8
All other schedules have been omitted since the required information is not present in amounts sufficient to require submission of the schedules, or because the information required is included in the respective financial statements or notes thereto. F-1 16 SCHEDULE III CONDENSED FINANCIAL INFORMATION OF REGISTRANT PAINE WEBBER GROUP INC. (PARENT COMPANY ONLY) CONDENSED STATEMENTS OF INCOME (IN THOUSANDS OF DOLLARS)
YEARS ENDED DECEMBER 31, -------------------------------------- 1993 1992 1991 -------- --------- -------- REVENUES Interest $104,600 $ 63,378 $102,342 Other 1,231 - 2,661 -------- -------- -------- Total revenues 105,831 63,378 105,003 Interest Expense 138,627 87,933 82,909 -------- -------- -------- Net revenues (32,796) (24,555) 22,094 -------- -------- --------- NON-INTEREST EXPENSES 17,004 14,848 30,143 -------- -------- -------- Loss before income taxes and equity in income of affiliates (49,800) (39,403) (8,049) Benefit for income taxes 20,143 15,333 6,040 -------- -------- -------- Loss before equity in net income of affiliates (29,657) (24,070) (2,009) Equity in income of affiliates 275,840 237,245 152,725 -------- -------- -------- NET INCOME $246,183 $213,175 $150,716 ======== ======== ========
See Notes to Condensed Financial Information of Registrant. F-2 17 SCHEDULE III CONDENSED FINANCIAL INFORMATION OF REGISTRANT PAINE WEBBER GROUP INC. (PARENT COMPANY ONLY) CONDENSED STATEMENTS OF FINANCIAL CONDITION (IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
December 31, December 31, 1993 1992 ---------- ---------- ASSETS Cash and cash equivalents $ 55 $ 8,993 Securities inventory, at market value 60,024 134,122 Loans to and receivables from affiliates 3,334,572 1,554,517 Investment in affiliates 1,355,283 1,200,971 Other assets 132,459 165,034 ---------- ---------- $4,882,393 $3,063,637 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Short-term borrowings $1,707,645 $ 712,843 Securities sold but not yet purchased, at market value 59,924 134,022 Payable to affiliates 514 314 Other liabilities and accrued expenses 53,522 38,164 ---------- ---------- 1,821,605 885,343 Long-term borrowings 1,865,741 1,097,627 ---------- ---------- 3,687,346 1,982,970 ---------- ---------- Commitments and Contingencies Stockholders' Equity Preferred stock - 188,760 Common stock, $1 par value, 100,000,000 shares authorized; issued 83,603,262 shares in 1993; 78,518,729 shares in 1992 * 83,603 78,519 Additional paid-in capital * 568,487 470,315 Retained earnings 721,115 529,049 ---------- ---------- 1,373,205 1,266,643 Common stock held in treasury, at cost: 6,568,433 shares in 1993; 12,476,834 shares in 1992 * (112,390) (149,462) Unamortized cost of restricted stock (60,980) (30,709) Foreign currency translation adjustment (4,788) (5,805) ---------- $1,195,047 1,080,667 ---------- ---------- $4,882,393 $3,063,637 ========== ==========
* Retroactively adjusted to reflect a 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. See Notes to Condensed Financial Information of Registrant. F-3 18 SCHEDULE III CONDENSED FINANCIAL INFORMATION OF REGISTRANT PAINE WEBBER GROUP INC. (PARENT COMPANY ONLY) CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF DOLLARS)
YEARS ENDED DECEMBER 31, ---------------------------------------------------- 1993 1992 1991 ----------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 246,183 $ 213,175 $ 150,716 Adjustments to reconcile net income to cash used for operating activities: Noncash items included in net income: Equity in income of affiliates (275,840) (237,245) (152,725) Depreciation and amortization 362 821 2,097 Deferred income taxes (20,255) (16,588) (21,872) Other 2,812 2,785 8,561 (Increase) decrease in assets: Securities inventory 74,098 (37,071) (33,426) Loans to and receivables from affiliates (1,740,163) (124,056) (85,164) Investment in affiliates (12,875) (104,486) 83,143 Other assets 50,595 (41,617) (28,311) Increase (decrease) in liabilities: Payable to affiliates 200 314 (142,182) Securities sold but not yet purchased (74,098) 36,971 33,426 Other liabilities and accrued expenses 14,638 7,165 (5,404) Proceeds from: Dividends received from subsidiaries 169,339 65,000 95,101 ----------- --------- --------- Cash used for operating activities (1,565,004) (234,832) (96,040) ----------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from (payments on) short-term borrowings 994,802 130,347 (46,184) Proceeds from: Issuance of long-term borrowings 1,035,507 384,149 351,750 Employee stock transactions 21,121 16,556 20,239 Payments for: Settlement of long-term borrowings (243,012) (49,600) (192,450) Repurchases of common stock (116,627) (32,016) - Preferred stock transactions (104,425) (167,220) - Repurchase of warrant - (1,687) - Dividends (30,973) (36,876) (37,573) ----------- --------- --------- Cash provided by financing activities 1,556,393 243,653 95,782 ----------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Net payments for office equipment and leasehold improvements (327) (171) (43) ----------- --------- --------- Cash used for investing activities (327) (171) (43) ----------- --------- --------- Increase (decrease) in cash and cash equivalents (8,938) 8,650 (301) Cash and cash equivalents, beginning of year 8,993 343 644 ----------- --------- --------- Cash and cash equivalents, end of year $ 55 $ 8,993 $ 343 =========== ========= =========
See Notes to Condensed Financial Information of Registrant. F-4 19 SCHEDULE III CONDENSED FINANCIAL INFORMATION OF REGISTRANT PAINE WEBBER GROUP INC. (PARENT COMPANY ONLY) NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT (IN THOUSANDS OF DOLLARS) GENERAL The condensed financial information of Paine Webber Group Inc. (Parent Company Only) should be read in conjunction with the consolidated financial statements of Paine Webber Group Inc. and the notes thereto incorporated by reference in this report. STATEMENT OF CASH FLOWS Interest payments for the years ended December 31, 1993, 1992 and 1991 approximated $122,073, $84,323 and $86,421, respectively. Income tax payments (consolidated) totalled $128,089, $96,941 and $26,983 for the years ended December 31, 1993, 1992 and 1991, respectively. COMMITMENTS AND CONTINGENCIES The Company has guaranteed certain of its subsidiaries' unsecured lines of credit and contractual obligations. F-5 20 SCHEDULE VIII PAINE WEBBER GROUP INC. VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS OF DOLLARS)
Balance at Balance at beginning of end of period Additions (1) Deductions (2) period ---------- --------- ---------- --------- Reserves deducted from related assets: Year ended December 31, 1993 $ 48,599 $ 15,860 $ (13,483) $ 50,976 Year ended December 31, 1992 88,339 21,572 (61,312) 48,599 Year ended December 31, 1991 173,852 27,201 (112,714) 88,339
(1) Amounts charged to expense. (2) Represents amounts written off against assets and recoveries. F-6 21 SCHEDULE IX PAINE WEBBER GROUP INC. SHORT-TERM BORROWINGS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (IN THOUSANDS OF DOLLARS)
Weighted Maximum Month-End Average Amount Category of Amount Average Amount Outstanding Weighted Average Aggregate Short- Outstanding at Interest Rate Outstanding During the Interest Rate Term Borrowings (1) End of Period End of Period During the Period Period (2) During the Period (3) - ------------------- ------------- ------------- ----------------- ------------- --------------------- Bank Loans - ---------- Year ended December 31, 1993 $1,670,730 3.6% $ 2,046,016 $1,097,643 3.8% Year ended December 31, 1992 832,944 3.3 1,581,319 1,009,573 3.8 Year ended December 31, 1991 748,353 5.9 1,216,823 800,750 6.2 Commercial Paper - ---------------- Year ended December 31, 1993 1,083,483 3.6 1,083,483 527,505 3.4 Year ended December 31, 1992 351,263 4.0 498,057 401,756 4.1 Year ended December 31, 1991 351,945 5.4 412,425 340,838 6.5 Medium-Term Notes (4) - --------------------- Year ended December 31, 1993 25,000 3.7 161,000 118,231 3.8 Year ended December 31, 1992 136,000 4.1 136,000 71,571 4.1 Repurchase Agreements - --------------------- Year ended December 31, 1993 16,903,736 3.1 23,711,416 19,090,185 4.2 Year ended December 31, 1992 12,807,410 3.4 19,650,531 15,295,043 4.2 Year ended December 31, 1991 11,617,985 4.6 15,574,625 11,768,407 6.3
(1) The general terms of each category of aggregate short-term borrowings are contained in the Notes to Consolidated Financial Statements appearing in the 1993 Annual Report to Stockholders on pages 41 and 43 under the captions "Summary of Significant Accounting Policies" and "Short-Term Borrowings", respectively. (2) Computation is based upon the total aggregate month-end borrowings divided by the number of months in the period during which the borrowings were outstanding. (3) Computation is based upon the total aggregate interest cost for the year divided by the average borrowings outstanding during the year. (4) There were no Medium-Term Notes with maturities of nine months to one year outstanding during 1991. F-7 22 SCHEDULE X PAINE WEBBER GROUP INC. SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (IN THOUSANDS OF DOLLARS) ITEM CHARGED TO COSTS AND EXPENSES - ---- ----------------------------- Advertising Costs: Year ended December 31, 1993 $40,419 Year ended December 31, 1992 $31,233 Year ended December 31, 1991 $28,274 F-8 23 PAINE WEBBER GROUP INC. INDEX TO EXHIBITS Item 14(c) A. The following Exhibits are filed herewith: 1 - Distribution Agreement dated November 30, 1993 between Registrant, PWI and The First Boston Corporation. 4.1 - Copy of form of certificate of common stock to reflect a new signatory. 4.2 - Third Supplemental Indenture dated as of November 30, 1993 between Registrant and Chemical Bank Delaware, as Trustee, relating to the Subordinated Debt Securities. 10.1 - Limited Partnership Agreement of PW Partners 1992 Dedicated L.P. dated as of September 2, 1992. 10.2 - Employment Agreement dated as of May 4, 1993 between Registrant, PWI and Theodore A. Levine. 10.3 - Restated and Amended Agreement of Lease, dated as of January 1, 1989, between The Equitable Life Assurance Society of the United States and Registrant relating to property located at 1285 Avenue of the Americas, New York, New York. 11 - Computation of Earnings per Common Share. 12.1 - Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. 12.2 - Computation of Ratio of Earnings to Fixed Charges. 13 - 1993 Annual Report to Stockholders of Registrant. 21 - Subsidiaries of the Registrant. 23 - Consent of Independent Auditors. F-9 24 B. Pursuant to the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, the following Exhibits previously filed with the Securities and Exchange Commission are incorporated by reference as Exhibits to this annual report: 3.1 - Restated Certificate of Incorporation of Registrant, as filed with the Office of the Secretary of State of the State of Delaware on May 4, 1987 (incorporated by reference to Registrant's Form 10-Q for the quarter ended March 31, 1987). 3.2 - Certificate of Amendment to the Restated Certificate of Incorporation of Registrant as filed with the Office of the Secretary of State of the State of Delaware on June 3, 1988 (incorporated by reference to Exhibit 3.2 of Registrant's Form 10-Q for the quarter ended June 30, 1988). 3.3 - Certificate of Powers, Designations, Preferences and Rights relating to Registrant's 7.5% Convertible Preferred Stock as filed with the Office of the Secretary of State of Delaware on January 16, 1992 (incorporated by reference to Exhibit 3.1 of Registrant's Form 10-K for the year ended December 31, 1991). 3.4 - Certificate of Powers, Designations, Preferences and Rights relating to Registrant's 7.5% Convertible Preferred Stock, Series B, as filed with the Office of the Secretary of State of Delaware on January 16, 1992 (incorporated by reference to Exhibit 3.2 to Registrant's Form 10-K for the year ended December 31, 1991). 3.5 - Certificate of Designation, Preference and Rights relating to Registrant's Cumulative Participating Convertible Voting Preferred Stock, Series A as filed with the Office of the Secretary of State of the State of Delaware on November 5, 1992 (incorporated by reference to Exhibit 3 of Registrant's Form 10-Q for the quarter ended September 30, 1992). 3.6 - By-laws of the Registrant as amended March 1, 1988 (incorporated by reference to Exhibit 3.1 of Registrant's Form 10-K for the year ended December 31, 1987). 3.7 - Certificate of Stock Designation (elimination) relating to Registrant's 7% Cumulative Convertible Exchangeable Voting Preferred Stock, Series A as filed with the office of the Secretary of State of the State of Delaware on November 5, 1992 (incorporated by reference to Exhibit 3.1 of Registrant's Form 10-K for the year ended December 31, 1992). 3.8 - Certificate of Powers, Designations, Preferences and Rights relating to the Company's 6% Convertible Preferred Stock as filed with the Office of the Secretary of State of the State of Delaware on February 8, 1994 (incorporated by reference to Exhibit 7.1 of Registrant's Form 8-K dated February 10, 1994). 4.3 - Indenture dated as of March 15, 1988 between Registrant and Chemical Bank (Delaware), as Trustee, relating to Registrant's Medium-Term Subordinated Notes, Series B and Series D (incorporated by reference to Exhibit 4.2b of Registrant's Registration Statement No. 33-29253 on Form S-3 filed with the SEC on June 14, 1989). F-10 25 4.4 - Supplemental Indenture dated as of September 22, 1989, to the Indenture dated as of March 15, 1988, between Registrant and Chemical Bank Delaware, as Trustee, Relating to Subordinated Debt Securities (incorporated by reference to Exhibit 4.2d of Registrant's Form 8-K dated September 30, 1989). 4.5 - Supplemental Indenture dated as of March 22, 1991 between Registrant and Chemical Bank Delaware, as Trustee, relating to Subordinated Debt Securities (incorporated by reference to Exhibit 4.2f of Registrant's Registration Statement No. 33-39818 on Form S-3 filed with the SEC on April 5, 1991). 4.6 - Form of Debt Securities (Medium-Term Subordinated Note, Series B, Floating Rate) -- Additional alternate form providing for the payment of additional amounts in certain circumstances to United States aliens (incorporated by reference to Exhibit 4.1 of Registrant's Form 8-K dated December 20, 1989). 4.7 - Indenture dated as of March 15, 1988 between Registrant and Chemical Bank, as Trustee, relating to Registrant's Medium-Term Senior Notes, Series A and Series C (incorporated by reference to Exhibit 4.2a of Registrant's Registration Statement No. 33-39818 on Form S-3 filed with the SEC on April 5, 1991). 4.8 - Supplemental Indenture dated as of September 22, 1989, to the Indenture dated as of March 15, 1988 between Registrant and Chemical Bank, as Trustee, relating to Senior Debt Securities (incorporated by reference to Exhibit 4.2c of Registrant's Form 8-K dated September 30, 1989). 4.9 - Supplemental Indenture dated as of March 22, 1991 between Registrant and Chemical Bank, as Trustee, relating to Senior Debt Securities (incorporated by reference to Exhibit 4.2c of Registrant's Registration Statement No. 33- 39818 on Form S-3 filed with the SEC on April 5, 1991). 4.10 - Form of Debt Securities (9-1/4% Notes Due 2001) (incorporated by reference to Exhibit 4.1 of Registrant's Form 8-K dated December 17, 1991 filed with the SEC). 4.11 - Form of Debt Securities (9-5/8% Senior Note Due 1995) (incorporated by reference to Exhibit 4.1 of Registrant's Form 8-K dated April 25, 1991 filed with the SEC). 4.12 - Form of 8% Convertible Debenture Due 1998 issued in connection with Registrant's Key Executive Equity Program (incorporated by reference to Exhibit 4.1 of Registrant's Form 10-K for the year ended December 31, 1988). 4.13 - Form of 8% Convertible Debentures Due 2000 issued in connection with Registrant's Key Executive Equity Program (incorporated by reference to Exhibit 4.1 of Registrant's Form 10-K for the year ended December 31, 1991). 4.14 - Form of 6.5% Convertible Debenture Due 2002 issued in connection with Registrant's Key Executive Equity Program (incorporated by reference to Exhibit 4.1 of Registrant's Form 10-K for the year ended December 31, 1992). 4.15 - Form of Debt Securities (7% Notes Due 2000) (incorporated by Reference to Exhibit 4.2 of Registrant's Form 10-K for the year ended December 31, 1992). F-11 26 4.16 - Form of Debt Securities (7-7/8% Notes Due 2003) (incorporated by reference to Exhibit 4.1f of Registrant's Form 8-K dated February 11, 1993). 4.17 - Form of Book-Entry Global Security relating to Stock Index Return Securities on the S&P MidCap 400 Index due June 2, 2000 (incorporated by reference to Exhibit 4.1g of Registrant's Form 8-K dated May 25, 1993). 4.18 - Warrant Agreement dated as of January 27, 1993 between Registrant, Citibank, N.A., as Warrant Agent and PaineWebber Incorporated as Determination Agent relating to the Registrant's U.S. Dollar Increase Warrants on the Major Market Currency Index (incorporated by Reference to Exhibit 4.3 of Registrant's Form 10-K for the year ended December 31, 1992). 4.19 - Warrant Agreement, dated as of November 2, 1993, among Registrant, Citibank, N.A. as Warrant Agent and PaineWebber Incorporated as Determination Agent, relating to the Registrant's 2,400,000 AMEX Hong Kong 30 Index Put Warrants Expiring October 27, 1995 (incorporated by reference to Exhibit 4.1 of Registrant's Form 8-K dated October 26, 1993). 4.20 - Warrant Agreement, dated as of November 2, 1993, among Registrant, Citibank, N.A. as Warrant Agent and PaineWebber Incorporated as Determination Agent, relating to Registrant's 2,600,000 AMEX Hong Kong 30 Index Call Warrants Expiring October 27, 1995 (incorporated by reference to Exhibit 4.2 of Registrant's Form 8-K dated October 26, 1993). 4.21 - Warrant Agreement, dated as of January 24, 1994, among Registrant, Citibank, N.A. as Warrant Agent and PaineWebber Incorporated as Determination Agent, relating to Registrant's 4,100,000 AMEX Hong Kong 30 Index Put Warrants Expiring January 17, 1996 (incorporated by reference to Exhibit 4.1 of Registrant's Form 8-K dated January 14, 1994). 4.22 - Warrant Agreement, dated as of January 24, 1994, among Registrant, Citibank, N.A. as Warrant Agent and PaineWebber Incorporated as Determination Agent, relating to Registrant's 2,200,000 AMEX Hong Kong 30 Index Call Warrants Expiring January 17, 1996 (incorporated by reference to Exhibit 4.2 of Registrant's Form 8-K dated January 14, 1994). 4.23 - Warrant Agreement dated as of March 16, 1994 among Registrant, Citibank, N.A., as Warrant Agent and PaineWebber Incorporated as Determination Agent relating to the Registrant's U.S. Dollar Increase Warrants on the Japanese Yen Expiring March 6, 1996 (incorporated by reference to Registrant's Amendment No.1 of Registration Statement No.33-53776 filed on Form 8-A/A dated March 17, 1994). F-12 27 4.24 - Form of Registrant's Medium-Term Senior Note, Series A, Floating Rate Due March 15, 1994 (incorporated by reference to Exhibit 4.4 of Registrant's Form 10-K for the year ended December 31, 1990). 4.25 - Form of Registrant's Medium-Term Subordinated Note, Series B, Floating Rate Due December 20, 1994 (incorporated by reference to Exhibit 4.5 of Registrant's Form 10-K for the year ended December 31, 1990). The credit agreements listed below have not been registered under the Securities Act of 1933 or the Securities Exchange Act of 1934, nor does the long-term indebtedness that they represent exceed, in the aggregate, 10% of the total assets of Registrant and its subsidiaries on a consolidated basis. Consequently, these instruments have not been filed as an exhibit with this report, but copies will be furnished to the Securities and Exchange Commission upon request. Credit Agreement dated as of June 3, 1993 among Registrant, the Lenders named therein and Citibank, N.A. as Administrative Agent, relating to the $275 million credit facility. Credit Agreement dated as of March 25, 1992 among Registrant, the managers named therein and the First National Bank of Chicago, Administrative Agent, relating to the $225 million credit facility. 10.4 - Amended and Restricted Investment Agreement dated as of November 5, 1992 by and between Registrant and The Yasuda Mutual Life Insurance Company ("Yasuda") relating to the repurchase by Registrant of 1,685,394 shares of Registrant's 7% Cumulative Convertible Exchangeable Voting Preferred Stock, Series A ("7% Preferred Shares") and the replacement of the remaining 3,370,786 7% Preferred Shares for 7,758,632 shares of Registrant's Cumulative Participating Convertible Voting Preferred Stock, Series A (incorporated by reference to Exhibit 10 of Registrant's Form 10-Q for the quarter ended September 30, 1992). 10.5 - Employment Agreement dated as of January 2, 1987 between Registrant, PaineWebber Incorporated and Donald B. Marron (incorporated by reference to Exhibit 10.2 of Registrant's Form 10-K for the three months ended December 31, 1986). 10.6 - Employment Agreement dated as of January 2, 1987 between Registrant, PWI and Paul B. Guenther (incorporated by reference to Exhibit 10.10 of Registrant's Form 10-K for the three months ended December 31, 1986). 10.7 - Employment Agreement dated as of January 2, 1987 between Registrant, PWI and John A. Bult (incorporated by reference to Exhibit 10.2 of Registrant's Form 10-K for the fiscal year ended December 31, 1988). 10.8 - Registrant's Supplemental Employee's Retirement Plan For Certain Senior Officers dated August 4, 1988 (incorporated by reference to Exhibit 10.4 of Registrant's Form 10-K for the year ended December 31, 1988). 10.9 - Deferred Compensation Agreement dated as of August 29, 1988 between Registrant and Donald B. Marron relating to the Supplemental Employees Retirement Plan (incorporated by reference to Exhibit 10.6 of Registrant's Form 10-K for the year ended December 31, 1988). 10.10 - Deferred Compensation Agreement dated as of August 29, 1988 between Registrant and Paul B. Guenther relating to the Supplemental Employees Retirement Plan (incorporated by reference to Exhibit 10.8 of Registrant's Form 10-K for the year ended December 31, 1988). 10.11 - Deferred Compensation Agreement dated as of August 29, 1988 between Registrant and John A. Bult relating to the Supplemental Employees Retirement Plan (incorporated by reference to Exhibit 10.9 of Registrant's Form 10-K for the year ended December 31, 1988). F-13 28 10.12 - Agreement and Declaration of Trust for Supplemental Employees Retirement Plan dated as of January 1, 1990 between Registrant and Chase Manhattan Bank, N.A. as Trustee (incorporated by reference to Exhibit 10.3 of Registrant's Form 10-K for the year ended December 31, 1990). 10.13 - Form of Consulting Agreement dated as of February 21, 1989 between PWI and E. Garrett Bewkes, Jr. (incorporated by reference to Exhibit 10.10 of Registrant's Form 10-K for the year ended December 31, 1988). 10.14 - Registrant's 1980 Employee Stock Option Plan (incorporated by reference to Registrant's Registration Statement No. 2-78627 on Form S-8 filed with the SEC on June 30, 1982). 10.15 - Registrant's 1983 Stock Option Plan (incorporated by reference to Exhibit 4 of Registrant's Registration Statement No. 2-81554 on Form S-8 filed with the SEC on January 28, 1983). 10.16 - Registrant's 1984 Stock Award Plan (incorporated by reference to Exhibit 4(a) of Registrant's Registration Statement No. 2-92770 on Form S-8 filed with the SEC on August 15, 1984). 10.17 - Registrant's 1984 Stock Appreciation Rights Plan (incorporated by reference to Exhibit 4(a) of Registrant's Registration Statement No. 2-92770 on Form S-8 filed with the SEC on August 15, 1984). 10.18 - Registrant's Stock Award Plan (incorporated by reference to Exhibit 4 of Registrant's Registration Statement No. 33-22265 on Form S-8 Filed with the SEC on June 1, 1988). 10.19 - Registrant's 1986 Stock Award Plan (incorporated by reference to Registrant's Registration Statement No. 33-2959 on Form S-8 filed with the SEC on February 4, 1986). 10.20 - Registrant's 1990 Stock Award and Option Plan (incorporated by reference to Exhibit 10.1 of Registrant's Form 10- K for the year ended December 31, 1990). 10.21 - Registrant's Savings Investment Plan (incorporated by reference to Exhibit 4.1 to Registrant's Post-Effective Amendment No. 1 on Form S-8, No. 33-20240, filed with the SEC on October 31, 1990). 10.22 - Lease dated March 22, 1985 between Jacom Computer Services, Inc. and PWI (IBM 3084) (incorporated by reference to Exhibit 10.1 of Registrant's report on Form 10-K for fiscal year ended September 30, 1985). 10.23 - Lease dated June 21, 1983 between Paine, Webber, Jackson and Curtis Incorporated and Jacom Computer Services Inc. (IBM 3081) (incorporated by reference to Exhibit 10.5 of Registrant's Report on Form 10-K for fiscal year ending September 30, 1983). 10.24 - Lease dated April 9, 1986 between Unilease Computer Corporation and PWI (IBM 3090-200) (incorporated by reference to Exhibit 10.2 of Registrant's Form 10-K for the year ended December 31, 1987). F-14 29 10.25 - Master Agreement between PWI and Quotron Systems Inc. dated February 11, 1991 (incorporated by reference to Exhibit 10.4 of Registrant's Form 10-K for the year ended December 31, 1990). 10.26 - Third-Party Master Lease Agreement between PWI and AT&T Systems Leasing Corporation dated as of October 21, 1991 (incorporated by reference to Exhibit 10.3 of Registrant's Form 10-K for the year ended December 31, 1991). 10.27 - Lease dated December 14, 1983 between Oliver Wendell Realty Trust and PaineWebber, Jackson & Curtis Incorporated relating to property located at 265 Franklin Street, Boston, Massachusetts (incorporated by reference to Exhibit 10.3 of Registrant's Report on Form 10-K for the fiscal year ended September 30, 1985). 10.28 - Lease dated May 17, 1985 between Rosehaugh Greycoat Estates Limited and PaineWebber International Inc. relating to property located at 1 Finsbury Avenue, London EC2M 2PA, England (incorporated by reference to Exhibit 10.4 of Registrant's Report on Form 10-K for the fiscal year ended September 30, 1985). 10.29 - Lease Agreement dated as of April 14, 1986, between PWI (as Tenant) and Hartz-PW Limited Partnership (as Landlord) relating to the Lincoln Harbor Project (Operations Center) located in Weehawken, New Jersey (incorporated by reference to Exhibit 10.1 of Registrant's Form 10-K for the fiscal year ended September 30, 1986). 10.30 - Lease Agreement dated as of April 14, 1986, between PWI (as Tenant) and Hartz-PW Limited Partnership (as Landlord) relating to the Lincoln Harbor Project (Data Processing Center) located in Weehawken, New Jersey (incorporated by reference to Exhibit 10.2 of Registrant's Form 10-K for the fiscal year ended September 30, 1986). 10.31 - Lease Agreement dated as of April 14, 1986, between PWI (as Tenant) and Hartz-PW Tower B Limited Partnership, as successor in interest to Hartz-PW Hotel Limited Partnership relating to the Lincoln Harbor Project (Hotel/Office Building) located in Weehawken, New Jersey (incorporated by reference to Exhibit 10.3 of Registrant's Form 10-K for the fiscal year ended September 30, 1986). 10.32 - Agreement of Limited Partnership of Hartz-PW Limited Partnership dated April 14, 1986 relating to the Lincoln Harbor Project located in Weehawken, New Jersey (incorporated by reference to Exhibit 10.3 of Registrant's 10-K for the year ended December 31, 1987). 10.33 - Ground lease between Hartz Mountain Industries and Hartz-PW Limited Partnership dated April 14, 1986 relating to the Operations Center at the Lincoln Harbor Project in Weehawken, New Jersey (incorporated by reference to Exhibit 10.4 of Registrant's 10-K for the year ended December 31, 1987). F-15 30 10.34 - Ground lease between Hartz Mountain Industries and Hartz-PW Limited Partnership dated April 14, 1986 relating to the Data Processing Center at Lincoln Harbor Project in Weehawken, New Jersey (incorporated by reference to Exhibit 10.5 of Registrant's 10-K for the year ended December 31, 1987). 10.35 - Lease Acquisition Agreement between Hartz-PW Limited Partnership and PWI dated April 14, 1986 relating to the Lincoln Harbor Project in Weehawken, New Jersey (incorporated by reference to Exhibit 10.6 of Registrant's 10-K for the year ended December 31, 1987). 10.36 - Transportation and Completion Agreement between Hartz-PW Limited Partnership and PWI dated April 14, 1986 relating to the Lincoln Harbor Project in Weehawken, New Jersey (incorporated by reference to Exhibit 10.7 of Registrant's 10-K for the year ended December 31, 1987). 10.37 - Guarantee between Hartz Mountain Industries, as Guarantor, and PWI, as Beneficiary, dated April 14, 1986 relating to the Lincoln Harbor Project in Weehawken, New Jersey (incorporated by reference to Exhibit 10.8 of Registrant's 10-K for the year ended December 31, 1987). 10.38 - General Partner Guarantee, between Hartz Mountain Industries, as Guarantor, and PWI, as Beneficiary, dated April 14, 1986 relating to the Lincoln Harbor Project in Weehawken, New Jersey (incorporated by reference to Exhibit 10.9 of Registrant's 10-K for the year ended December 31, 1987). 10.39 - Agreement of Limited Partnership of River-PW Hotel Limited Partnership relating to the Ramada Suites Hotel, Weehawken, New Jersey (incorporated by reference to Exhibit 10.4 of Registrant's Form 10-K for the year ended December 31, 1991). 10.40 - Hotel Rental Guarantee between PWI as Guarantor and River-PW Hotel Limited Partnership relating to the Ramada Suite Hotel, Weehawken, New Jersey (incorporated by reference to Exhibit 10.5 of Registrant's Form 10-K for the year ended December 31, 1991). 10.41 - First Amendment to Lease Agreement between 700 Louisiana Limited, successor to RBC Limited, and Rotan Mosle Inc., as of December 24, 1991 (incorporated by reference to Exhibit 10.6 of Registrant's Form 10-K for the year ended December 31, 1991). 10.42 - Joint Venture Agreement dated as of November 30, 1987 between Registrant and The Yasuda Mutual Life Insurance Company (incorporated by reference to Exhibit 10.1 of Registrant's Form 10-K for the year ended December 31, 1988). 10.43 - Lease dated as of September 27, 1988 between PWI and American National Bank & Trust Company of Chicago relating to property located at 181 West Madison Street, Chicago, Illinois (incorporated by reference to Exhibit 10.12 of Registrant's Form 10-K for the year ended December 31, 1988). 10.44 - Directors and Officers Liability and Corporation Reimbursement insurance policy with Fiduciary Liability Rider with National Union Fire Insurance Company (incorporated by reference to Exhibit 10.2 of Registrant's Form 10-K for the year ended December 31, 1990). F-16 31 10.45 - Limited Partnership Agreement of PW Partners 1989 Dedicated L.P. dated as of December 1, 1989 (incorporated by reference to Exhibit 10.1 of Registrant's Form 10-K for the year ended December 31, 1992). 10.46 - Limited Partnership Agreement of PW Partners 1991 Dedicated L.P. dated as of October 7, 1991 (incorporated by reference to Exhibit 10.2 of Registrant's Form 10-K for the year ended December 31, 1992). 10.47 - Letter Agreement dated as of March 9, 1993 between Registrant and The Yasuda Mutual Life Insurance Company (incorporated by reference to Exhibit 10.3 of Registrant's Form 10-K for the year ended December 31, 1992). 10.48 - Form of License Agreement between Standard and Poor's Corporation and Registrant (incorporated by reference to Exhibit 10.1 of Registrant's Form 8-K dated June 1, 1993). F-17 32 C. Executive Compensation Plans and Arrangements o Employment Agreement dated as of January 2, 1987 between Registrant, PaineWebber Incorporated and Donald B. Marron (incorporated by reference to Exhibit 10.2 of Registrant's Form 10-K for the three months ended December 31, 1986). o Employment Agreement dated as of January 2, 1987 between Registrant, PWI and Paul B. Guenther (incorporated by reference to Exhibit 10.10 of Registrant's Form 10-K for the three months ended December 31, 1986). o Employment Agreement dated as of January 2, 1987 between Registrant, PWI and John A. Bult (incorporated by reference to Exhibit 10.2 of Registrant's Form 10-K for the fiscal year ended December 31, 1988). o Employment Agreement dated as of May 4, 1993 between Registrant, PWI and Theodore A. Levine (filed as Exhibit 10.2 to this Form 10-K for the year ended December 31, 1993). o Registrant's Supplemental Employee's Retirement Plan for Certain Senior Officers dated August 4, 1988 (incorporated by reference to Exhibit 10.4 of Registrant's Form 10-K for the year ended December 31, 1988). o Deferred Compensation Agreement dated as of August 29, 1988 between Registrant and Donald B. Marron relating to the Supplemental Employees Retirement Plan (incorporated by reference to Exhibit 10.6 of Registrant's Form 10-K for the year ended December 31, 1988). o Deferred Compensation Agreement dated as of August 29, 1988 between Registrant and Paul B. Guenther relating to the Supplemental Employees Retirement Plan (incorporated by reference Exhibit 10.8 of Registrant's Form 10-K for the year ended December 31, 1988). o Deferred Compensation Agreement dated as of August 29, 1988 between Registrant and John A. Bult relating to the Supplemental Employees Retirement Plan (incorporated by Exhibit 10.9 of Registrant's Form 10-K for the year ended December 31, 1988). o Agreement and Declaration of Trust for Supplemental Employees Retirement Plan dated as of January 1, 1990 between Registrant and Chase Manhattan Bank, N.A. as Trustee (incorporated by reference to Exhibit 10.3 of Registrant's Form 10-K for the year ended December 31, 1990). o Registrant's 1980 Employee Stock Option Plan (incorporated by reference to Registrant's Registration Statement No. 2-78627 on Form S-8 filed with the SEC on June 30, 1982). o Registrant's 1983 Stock Option Plan (incorporated by reference to Exhibit 4 of Registrant's Registration Statement No. 2-81554 on Form S-8 filed with the SEC on January 28, 1983). o Registrant's 1984 Stock Award Plan (incorporated by reference to Exhibit 4(a) of Registrant's Registration Statement No. 2-92770 on Form S-8 filed with the SEC on August 15, 1984). o Registrant's 1984 Stock Appreciation Rights Plan (incorporated by reference to Exhibit 4(a) of Registrant's Registration Statement No. 2-92770 on Form S-8 filed with the SEC on August 15, 1984). o Registrant's Stock Award Plan (incorporated by reference to Exhibit 4 of Registrant's Registration Statement No. 33-22265 on Form S-8 filed with the SEC on June 1, 1988). F-18 33 o Registrant's 1986 Stock Award Plan (incorporated by reference to Registrant's Registration Statement No. 33-2959 on Form S-8 filed with the SEC on February 4, 1986). o Registrant's 1990 Stock Award and Option Plan (incorporated by reference to Exhibit 10.1 of Registrant's Form 10-K for the year ended December 31, 1990). o Form of 8% Convertible Debenture Due 1998 issued in connection with Registrant's Key Executive Equity Program (incorporated by reference to Exhibit 4.1 of Registrant's Form 10-K for the year ended December 31,1988). o Form of 8% Convertible Debentures Due 2000 issued in connection with Registrant's Key Executive Equity Program (incorporated by reference to Exhibit 4.1 of Registrant's Form 10-K for the year ended December 31, 1991). o Form of 6.5% Convertible Debenture Due 2002 issued in connection with Registrant's Key Executive Equity Program (incorporated by reference to Exhibit 4.1 of Registrant's Form 10-K for the year ended December 31, 1992). o Limited Partnership Agreement of PW Partners 1989 Dedicated L.P. dated as of December 1, 1989 (incorporated by reference to Exhibit 10.1 of Registrant's Form 10-K for the year ended December 31, 1992). o Limited Partnership Agreement of PW Partners 1991 Dedicated L.P. dated as of October 7, 1991 (incorporated by reference to Exhibit 10.2 of Registrant's Form 10-K for the year ended December 31, 1992). o Limited Partnership Agreement of PW Partners 1992 Dedicated L.P. dated as of September 2, 1992 (filed as Exhibit 10.1 to this Form 10-K for the year ended December 31, 1993). F-19 34 PAINE WEBBER GROUP INC. INDEX TO EXHIBITS 1 - Distribution Agreement dated November 30, 1993 between Registrant, PWI and The First Boston Corporation. 4.1 - Copy of form of certificate of common stock to reflect a new signatory. 4.2 - Third Supplemental Indenture dated as of November 30, 1993 between Registrant and Chemical Bank Delaware, as Trustee, relating to the Subordinated Debt Securities. 10.1 - Limited Partnership Agreement of PW Partners 1992 Dedicated L.P. dated as of September 2, 1992. 10.2 - Employment Agreement dated as of May 4, 1993 between Registrant, PWI and Theodore A. Levine. 10.3 - Restated and Amended Agreement of Lease, dated as of January 1, 1989, between The Equitable Life Assurance Society of the United States and Registrant relating to property located at 1285 Avenue of the Americas, New York, New York. 11 - Computation of Earnings per Common Share. 12.1 - Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. 12.2 - Computation of Ratio of Earnings to Fixed Charges. 13 - 1993 Annual Report to Stockholders of Registrant. 21 - Subsidiaries of the Registrant. 23 - Consent of Independent Auditors. EX-1 2 DISTRIBUTION AGREEMENT 1 [EXECUTION COPY] $1,587,775,000 1/ Medium-Term Senior Notes, Series C, and Medium-Term Subordinated Notes, Series D, Due from Nine Months to 30 Years from Date of Issue Paine Webber Group Inc. Distribution Agreement November 30, 1993 New York, New York PAINEWEBBER INCORPORATED 1285 Avenue of the Americas New York, New York 10019 CS FIRST BOSTON CORPORATION Park Avenue Plaza New York, New York 10055 Dear Sirs: Paine Webber Group Inc., a Delaware corporation (the "Company"), confirms its agreement with each of you with respect to the issue and sale by the Company of up to $1,587,775,000 1/ aggregate principal amount of its Medium-Term Senior Notes, Series C, and Medium-Term Subordinated Notes, Series D, Due from Nine Months to 30 Years from Date of Issue (the "Notes"). The Notes will be issued either as subordinated to ("Subordinated Notes") or on a parity with ("Senior Notes") other unsecured and unsubordinated indebtedness of the Company and will have the annual interest rates, maturities, redemption provisions, optional repayment rights and other terms as set forth in a supplement to the Prospectus referred to below. The Senior Notes will be issued under an Indenture dated as of March 15, 1988, between the Company and Chemical Bank, as trustee (the "Senior Note Trustee"), as amended by the First Supplemental Indenture dated as of September 22, 1989, and by the Second Supplemental Indenture dated as of March 22, 1991 (such - ------------------- ____________________ 1/ Or the U.S. dollar equivalent. 2 2 Indenture, as so supplemented, being hereinafter referred to as the "Senior Note Indenture"), each between the Company and the Senior Note Trustee. The Subordinated Notes will be issued under an Indenture dated as of March 15, 1988, between the Company and Chemical Bank Delaware, as trustee (the "Subordinated Note Trustee"), as amended by the First Supplemental Indenture dated as of September 22, 1989, by the Second Supplemental Indenture dated as of March 22, 1991, and by the Third Supplemental Indenture dated as of November 30, 1993 (such Indenture, as so supplemented, being hereinafter referred to as the "Subordinated Note Indenture"), each between the Company and the Subordinated Note Trustee. The Senior Note Indenture and the Subordinated Note Indenture are hereinafter sometimes referred to as the "Indentures"; and the Senior Note Trustee and the Subordinated Note Trustee are hereinafter sometimes referred to as the "Trustees". The Notes will be issued, and the terms thereof established, in accordance with the Indentures and, in the case of Notes sold pursuant to Section 1(a), the Medium-Term Notes Administrative Procedures attached hereto as Annex A (the "Procedures"). For the purposes of this Agreement, the term the "Agent" shall refer to each of you acting solely in the capacity as agent for the Company pursuant to Section 1(a) and not as principal, the term the "Purchaser" shall in each instance refer to the applicable Agent acting solely as principal pursuant to Section 1(g) and not as agent, and the term "you" shall refer to each of you acting in both such capacities or in either such capacity. 1. Appointment of Agents; Solicitation by the Agents of Offers to Purchase; Sales of Notes to a Purchaser. (a) Subject to the terms and conditions set forth herein, the Company hereby appoints each of the Agents to act as its agent for the purpose of soliciting offers to purchase all or part of the Notes from the Company upon the terms set forth in the Prospectus, as amended or supplemented from time to time, and in the Procedures. The appointment of the Agents hereunder is not exclusive and the Company may from time to time offer Notes for sale otherwise than to or through an Agent; provided, however, that so long as this Agreement is in effect the Company will not solicit offers to purchase Notes through any agent without amending this Agreement to appoint such agent an additional Agent hereunder on the same terms and conditions as provided herein for the Agents and without giving the Agents prior notice of such appointment. It is understood, however, that if from time to time the Company is approached by a 3 3 prospective agent offering to solicit a specific purchase of Notes, the Company may engage such agent with respect to such specific purchase, provided that (i) such agent is engaged on terms substantially similar to the applicable terms of this Agreement and (ii) the Agents are given notice of such engagement promptly after it is agreed to. (b) On the basis of the representations and warranties set forth herein, but subject to the terms and conditions set forth herein, each of the Agents agrees to use reasonable efforts, as agent of the Company, to solicit offers to purchase Notes from the Company upon the terms set forth in the Prospectus, as amended or supplemented from time to time, and in the Procedures. Each Agent shall make reasonable efforts to assist the Company in obtaining performance by each purchaser whose offer to purchase Notes has been solicited by such Agent and accepted by the Company, but such Agent shall not, except as otherwise provided in this Agreement, be obligated to disclose the identity of any purchaser or have any liability to the Company in the event any such purchase is not consummated for any reason. Subject to the provisions of this Section and to the Procedures, offers for the purchase of Notes may be solicited by an Agent at such times and in such amounts as such Agent may from time to time deem advisable. (c) The Company reserves the right, in its sole discretion, to suspend solicitation of offers to purchase Senior Notes or Subordinated Notes from the Company at any time for any period of time or permanently. Upon receipt of instructions from the Company, each Agent forthwith will suspend its solicitation of offers to purchase Senior Notes or Subordinated Notes, as the case may be, from the Company until such time as the Company has advised such Agent that such solicitation may be resumed. (d) Each Agent will communicate to the Company, orally or in writing, each offer to purchase Notes from the Company that is received by such Agent as agent of the Company and that is not rejected by such Agent as provided below. The Company will have the sole right to accept offers to purchase Notes from the Company and may reject any such offer, in whole or in part, for any reason. Each of the Agents may, in its discretion reasonably exercised, reject any offer to purchase Notes from the Company that is received by such Agent, in whole or in part, and any such rejection shall not be deemed a breach of such Agent's agreements contained herein. 4 4 (e) The Company agrees to pay an Agent a commission, on the date of delivery by the Company of any Note sold hereunder (a "Closing Date"), with respect to each sale of Notes by the Company as a result of a solicitation made by such Agent, in an amount equal to that percentage specified in Schedule I hereto of the aggregate principal amount of each Senior Note and each Subordinated Note sold by the Company. Such commission shall be payable as specified in the Procedures. The commission rates may be amended from time to time by written agreement of the Company and the Agents. (f) Each of the Agents agrees, with respect to any Note denominated in a currency other than the U.S. dollar or the European Currency Unit, as agent, directly or indirectly, not to solicit offers to purchase, and as principal under any Terms Agreement (as hereinafter defined) or otherwise, directly or indirectly, not to offer, sell or deliver, such Note in, or to residents of, the country issuing such currency, except as permitted by applicable law. (g) Subject to the terms and conditions stated herein, whenever the Company and an Agent determine that the Company shall sell Notes directly to such Agent as purchaser (the "Purchaser"), each such sale of Notes shall be made in accordance with the terms of this Agreement and any supplemental agreement relating thereto between the Company and the Purchaser. Each such supplemental agreement (which shall be substantially in the form of Annex B) is herein referred to as a "Terms Agreement". The Purchaser's commitment to purchase Notes pursuant to any Terms Agreement shall be deemed to have been made on the basis of the representations and warranties of the Company herein contained and shall be subject to the terms and conditions herein set forth. Each Terms Agreement shall describe the Notes to be purchased by the Purchaser pursuant thereto and shall specify the principal amount of such Notes, the price to be paid to the Company for such Notes, the rate at which interest will be paid on the Notes, the Closing Date for such Notes, the place of delivery of the Notes and payment therefor, the method of payment and any modification of the requirements for the delivery of the opinions of counsel, the certificates from the Company or its officers and the letter from the Company's independent public accountants pursuant to Section 7(c). Such Terms Agreement shall also specify any period of time referred to in Section 5(l). 5 5 Delivery of the certificates for Notes sold to the Purchaser pursuant to any Terms Agreement shall be made as agreed to between the Company and the Purchaser and set forth in the respective Terms Agreement, not later than the Closing Date set forth in such Terms Agreement, against payment of funds to the Company in the net amount due to the Company for such Notes by the method and in the form set forth in such Terms Agreement. 2. Offering Procedures. The Procedures may be amended only by written agreement of the Company and the Agents after notice to the Trustees, and, to the extent any such amendment affects a Trustee, with the approval of such Trustee. The Company and each of the Agents agree to perform the respective duties and obligations specifically provided to be performed by them in the Procedures. 3. Registration Statements and Prospectus. The Company has filed with the Securities and Exchange Commission (the "Commission"), pursuant to the Securities Act of 1933, as amended (the "Securities Act"), and the published rules and regulations adopted by the Commission thereunder (the "Rules"), a registration statement on Form S-3 (No. 33-58124), as amended by Amendment No. 1 thereto (as so amended, the "First Registration Statement"), and a registration statement on Form S-3 (No. 33-51149) (the "Second Registration Statement") (such Second Registration Statement also constituting Post-Effective Amendment No. 1 to the First Registration Statement), each including a basic prospectus, which have become effective under the Securities Act under which the sale of $1,587,775,000 aggregate principal amount of debt securities (the "Securities"), including the Notes, remains registered at this time (the First Registration Statement and the Second Registration Statement, each including all exhibits thereto and each as amended at the date of this Agreement, being hereinafter collectively called the "Registration Statements"). The Company has included in the Registration Statements, or has filed or will file with the Commission pursuant to the applicable paragraph of Rules 424(b) and 429 under the Securities Act, a supplement to the form of prospectus included in the Registration Statements relating to the Notes and the plan of distribution thereof (the "Prospectus Supplement"). In connection with the sale of the Notes the Company proposes to file with the Commission pursuant to the applicable paragraph of Rules 424(b) and 429 under the Securities Act further supplements to the Prospectus Supplement specifying the interest rates, maturity dates, redemption 6 6 provisions, if any, optional repayment rights, if any, and other terms of the Notes sold pursuant hereto or the offering thereof. The Indentures have been qualified under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The term "the Effective Date" shall mean, for each of the Registration Statements, each date that such Registration Statement and any post-effective amendment or amendments thereto became or become effective. "Basic Prospectus" shall mean the form of basic prospectus relating to the Securities contained in each Registration Statement at the Effective Date. The term "Prospectus" means the Basic Prospectus as supplemented by the Prospectus Supplement. Any reference herein to a Registration Statement, the Basic Prospectus, the Prospectus Supplement or the Prospectus includes the documents incorporated by reference therein pursuant to Item 12 of Form S-3 (the "Incorporated Documents") which were filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), on or before the Effective Date of such Registration Statement or the issue date of the Basic Prospectus, the Prospectus Supplement or the Prospectus, as the case may be, and any reference herein to "amend", "amendment" or "supplement" with respect to a Registration Statement, the Basic Prospectus, the Prospectus Supplement or the Prospectus includes the Incorporated Documents filed under the Exchange Act after the Effective Date of such Registration Statement or the issue date of the Basic Prospectus, the Prospectus Supplement or the Prospectus, as the case may be; and any reference herein to the Registration Statements includes each of the First Registration Statement and the Second Registration Statement only so long as Notes may be issued in the future thereunder and shall refer to either one or both of such Registration Statements, as appropriate. The Company confirms that you are authorized to distribute the Prospectus and any amendments or supplements thereto. 4. Representations and Warranties. The Company represents and warrants to you as follows: (a) The Company meets the requirements for the use of Form S-3 under the Securities Act. The Registration Statements meet the requirements set forth in Rule 415(a)(1)(ix) or (x) of the Rules and comply in all other material respects with Rule 415 of the Rules. 7 7 (b) As of the date hereof, on the Effective Date, when any amendment or supplement to the Prospectus is filed with the Commission pursuant to Rule 424 or Rule 429 of the Rules, as of the date of any Terms Agreement and on any Closing Date, (i) the Registration Statements, as amended as of any such time, the Prospectus, as amended or supplemented as of any such time, and the Incorporated Documents will comply in all material respects with the applicable requirements of the Securities Act and the Rules, and the Exchange Act and the Trust Indenture Act and the respective published rules and regulations adopted by the Commission thereunder, (ii) the Registration Statements, as amended as of any such time, did not or will not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading, and (iii) the Prospectus, as amended or supplemented as of any such time, will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; except that this representation and warranty does not apply to (x) statements or omissions made in reliance on and in conformity with information relating to you furnished in writing to the Company by you expressly for use in the Registration Statements, the Prospectus or any amendment or supplement thereto or (y) that part of the Registration Statements that shall constitute the Statements of Eligibility and Qualification on Form T-1 of the Trustees under the Trust Indenture Act, except statements or omissions in any such Statement made in reliance upon information furnished in writing to the applicable Trustee by or on behalf of the Company for use therein. (c) As of the time any Notes are issued and sold hereunder, the Indenture will constitute a legal, valid and binding instrument enforceable against the Company in accordance with its terms and such Notes will have been duly authorized, executed, authenticated and, when paid for by the purchasers thereof, will constitute legal, valid and binding obligations of the Company entitled to the benefits of the Indenture. Each acceptance by the Company of an offer to purchase Notes from the Company and each request by the Company to you that you solicit offers to purchase Notes from the Company will be deemed to be a representation and warranty by the Company to you that the representations and 8 8 warranties of the Company in this Agreement are true and correct as of the time of such acceptance and that such representations and warranties will be true and correct as of the Closing Date for such Notes, in each case as though made at and as of such time; it being understood that such representations and warranties will relate to the Registration Statements as amended as of any such time and the Prospectus as amended or supplemented as of any such time. 5. Agreements. (a) Prior to the termination of the offering of the Notes, the Company will not file any amendment or supplement to either of the Registration Statements or the Prospectus (except for (i) periodic or current reports filed under the Exchange Act, (ii) a supplement relating to any offering of Notes providing solely for the specification of or a change in the maturity dates, the interest rates, the issuance prices or other similar terms of any Notes or (iii) a supplement relating to an offering of Securities other than Notes) (including any document to be incorporated therein by reference) unless a copy thereof has been submitted to you a reasonable period of time before its filing and you have not reasonably objected thereto within a reasonable period of time after receiving such copy. Subject to the foregoing sentence, the Company will cause each amendment or supplement to the Prospectus to be filed with the Commission as required pursuant to the applicable paragraph of Rules 424(b) and/or 429 of the Rules or, in the case of any document to be incorporated therein by reference, to be filed with the Commission as required pursuant to the Exchange Act, within the time period prescribed and will provide evidence satisfactory to you of such filing. (b) The Company will advise you promptly (i) when each amendment or supplement to the Prospectus shall have been filed with the Commission pursuant to Rules 424(b) and/or 429 or, in the case of any document incorporated therein by reference, when such document shall have been filed with the Commission pursuant to the Exchange Act, (ii) when, prior to the termination of the offering of the Notes, any amendment to either of the Registration Statements shall have been filed or become effective, (iii) of the initiation or threatening of any proceedings for, or receipt by the Company of any notice with respect to, the suspension of the qualification of the Notes for sale in any jurisdiction or the issuance of any order by the Commission suspending the effectiveness of either of the Registration Statements and (iv) of the receipt by the 9 9 Company or any representative or attorney of the Company of any other communication from the Commission relating to either of the Registration Statements, the Prospectus or any amendment or supplement thereto or to the transactions contemplated by this Agreement. The Company will use its best efforts to prevent the issuance of an order suspending the effectiveness of either of the Registration Statements and, if any such order is issued, to obtain its lifting as soon as possible. (c) The Company will deliver to you, without charge, two conformed copies of the Second Registration Statement and each post-effective amendment to the Registration Statements filed after the date hereof (including all exhibits filed with any such document) and as many conformed copies of the Registration Statements and each such amendment (excluding exhibits) and each Indenture as you may reasonably request. (d) The Company, during the period when a prospectus relating to the Notes is required to be delivered under the Act, will deliver, without charge, to you, at such office or offices as you may designate, as many copies of the Prospectus or any amendment or supplement thereto as you may reasonably request, and, if any event occurs during such period as a result of which the Prospectus, as then amended or supplemented, would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if during such period it is necessary to amend either Registration Statement or to amend or supplement the Prospectus to comply with the Securities Act or the Rules or the Exchange Act or the published rules and regulations adopted by the Commission thereunder, the Company promptly will (i) notify you to suspend solicitation of offers to purchase Notes from the Company, (ii) prepare and file with the Commission, subject to Section 5(a), and deliver, without charge, to you, an amendment or supplement which will correct such statement or omission or effect such compliance and (iii) supply any amended or supplemented Prospectus to you in such quantities as you may reasonably request. (e) The Company, during the period when a prospectus relating to the Notes is required to be delivered under the Act, will file promptly all documents required to be filed with the Commission pursuant to Section 13(a), 10 10 13(c), 14 or 15(d) of the Exchange Act. The Company will make generally available to its security holders as soon as practicable, but in any event not later than fifteen months after (i) the Effective Dates of the Registration Statements, (ii) the Effective Date of each post-effective amendment to either of the Registration Statements and (iii) the date of each filing by the Company with the Commission of an Annual Report on Form 10-K that is incorporated by reference in the Registration Statements, an earnings statement satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 of the Rules. (f) The Company will take such actions as you designate in order to qualify the Notes for offer and sale under the securities or "blue sky" laws of such jurisdictions as you designate, will maintain such qualification in effect for so long as may be required for the distribution of the Notes and will arrange for the determination of the legality of the Notes for purchase by institutional investors. (g) The Company will supply to you copies of such financial statements and other periodic and special reports as the Company may from time to time distribute generally to the holders of any class of its capital stock and of each annual or other report it is required to file with the Commission. The Company shall furnish to you such information, documents, certificates of officers of the Company and opinions of counsel for the Company relating to the business, operations and affairs of the Company, the Registration Statements, the Prospectus, and any amendments thereof or supplements thereto, the Indenture, the Notes, this Agreement, the Procedures and the performance by the Company and you of its and your respective obligations hereunder and thereunder as you may from time to time and at any time prior to the termination of this Agreement reasonably request. (h) The Company will, whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, (i) pay, or reimburse if paid by you, all costs and expenses incident to the performance of the obligations of the Company under this Agreement, including costs and expenses relating to (A) the preparation, printing and filing of the Registration Statements and exhibits thereto, the Prospectus, all amendments and supplements to either of the Registration Statements and the Prospectus, and the printing or other reproduction of the 11 11 Indentures and this Agreement, (B) the authorization and issuance of the Notes and the preparation and delivery of certificates for the Notes, (C) the registration or qualification of the Notes for offer and sale under the securities or "blue sky" laws of the jurisdictions referred to in paragraph (f) of this Section 5 and the determination of the legality of the Notes for investment, including the fees and disbursements of Cravath, Swaine & Moore, your counsel, in that connection, and the preparation and printing of preliminary and supplemental "blue sky" memoranda and legal investment memoranda, (D) the furnishing (including costs of shipping and mailing) to you of copies of the Prospectus, and all amendments or supplements to the Prospectus, and of all other documents, reports and other information required by this Section to be so furnished, (E) all transfer taxes, if any, with respect to the sale and delivery of the Notes by the Company, (F) the fees and expenses of the Trustees, (G) all fees charged by the National Association of Securities Dealers, Inc., in connection with the Notes and (H) the fees charged by rating agencies in connection with any rating of the Notes, (ii) reimburse you on a quarterly basis for all out-of-pocket expenses (including advertising expenses) incurred by you with the advance approval of the Company and (iii) reimburse the reasonable fees and disbursements of Cravath, Swaine & Moore, your counsel, incurred in connection with this Agreement. (i) Each time that either of the Registration Statements or the Prospectus is amended or supplemented (other than by an amendment or supplement relating to any offering of Securities other than the Notes or providing solely for the specification of or a change in the maturity dates, the interest rates, the issuance prices or other similar terms of any Notes sold pursuant hereto), including by the filing of any document incorporated therein by reference, the Company will deliver or cause to be delivered forthwith to you a certificate of the chief executive, operating or financial officer or treasurer and the secretary or chief financial or accounting officer or treasurer of the Company, dated the date of the effectiveness of such amendment or the date of filing of such supplement, in form reasonably satisfactory to you, to the effect that the statements contained in the certificate that was last furnished to you pursuant to either Section 6(c) or this paragraph (i) are true and correct at the time of the effectiveness of such amendment or the filing of such supplement as though made at and as of such time (except that (i) the last day of the fiscal quarter for which 12 12 financial statements of the Company were last filed with the Commission shall be substituted for the corresponding date in such certificate and (ii) such statements shall be deemed to relate to the Registration Statements and the Prospectus as amended or supplemented to the time of the effectiveness of such amendment or the filing of such supplement) or, in lieu of such certificate, a certificate of the same tenor as the certificate referred to in Section 6(c) but modified to relate to the last day of the fiscal quarter for which financial statements of the Company were last filed with the Commission and to the Registration Statements and the Prospectus as amended or supplemented to the time of the effectiveness of such amendment or the filing of such supplement. (j) Each time that either of the Registration Statements or the Prospectus is amended or supplemented (other than by an amendment or supplement (i) relating to any offering of Securities other than the Notes, (ii) providing solely for the specification of or a change in the maturity dates, the interest rates, the issuance prices or other similar terms of any Notes sold pursuant hereto, or (iii) setting forth or incorporating by reference financial statements or other information as of and for a fiscal quarter, unless, in the case of clause (iii) above, in your reasonable judgment, such financial statements or other information are of such a nature that an opinion of counsel should be furnished), including by the filing of any document incorporated therein by reference, the Company will furnish or cause to be furnished forthwith to you a written opinion of counsel for the Company satisfactory to you, dated the date of the effectiveness of such amendment or date of filing of such supplement, in form satisfactory to you, of the same tenor as the opinion referred to in Section 6(d) but modified to relate to the Registration Statements and the Prospectus as amended or supplemented to the time of the effectiveness of such amendment or the filing of such supplement or, in lieu of such opinion, counsel last furnishing such an opinion to you may furnish you with a letter to the effect that you may rely on such counsel's last opinion to the same extent as though it were dated the date of such letter authorizing reliance (except that statements in such counsel's last opinion will be deemed to relate to the Registration Statements and the Prospectus as amended or supplemented to the time of the effectiveness of such amendment or the filing of such supplement). 13 13 (k) Each time that either of the Registration Statements or the Prospectus is amended or supplemented to set forth amended or supplemental financial information, including by the filing of any document incorporated therein by reference, the Company will cause its independent public accountants forthwith to furnish a letter, dated the date of the effectiveness of such amendment or the date of filing of such supplement, in form satisfactory to you, of the same tenor as the letter referred to in Section 6(f) with such changes as may be necessary to reflect the amended and supplemental financial information included or incorporated by reference in the Registration Statements and the Prospectus, as amended or supplemented to the date of such letter, provided that if either of the Registration Statements or the Prospectus is amended or supplemented solely to include or incorporate by reference financial information as of and for a fiscal quarter, the Company's independent public accountants may limit the scope of such letter, which shall be satisfactory in form to you, to the unaudited financial statements, the related "Management's Discussion and Analysis of Financial Condition and Results of Operations" and any other information of an accounting, financial or statistical nature included in such amendment or supplement, unless, in your reasonable judgment, such letter should cover other information or changes in specified financial statement line items. (l) During the period, if any, specified in any Terms Agreement, the Company shall not, without the prior consent of the Purchaser, issue or announce the proposed issuance of any of its debt securities, including Notes, with terms substantially similar to the Notes being purchased pursuant to such Terms Agreement. (m) Upon your reasonable request on any Closing Date, the Company will furnish or cause to be furnished forthwith to you a written opinion of counsel for the Company satisfactory to you, dated such Closing Date, of the same tenor as paragraphs 1 and 4 of the opinion referred to in Section 6(d), but modified, as necessary, to relate to the Prospectus as amended or supplemented at such Closing Date and except that such opinion shall state that the Notes being sold by the Company on such Closing Date, when delivered against payment therefor as provided in the applicable Indenture and this Agreement, will, assuming performance by the Authenticating Agent or the applicable Trustee under the applicable Indenture, have been duly executed, authenticated, issued and delivered and will constitute legal, valid 14 14 and binding obligations of the Company entitled to the benefits of the applicable Indenture and enforceable in accordance with their terms, subject only to the exceptions as to enforcement set forth in paragraph 4 of the opinion referred to in Section 6(d), and that such Notes conform to the description thereof contained in the Prospectus as amended or supplemented to such Closing Date. 6. Conditions to the Obligations of each Agent. The obligations of each Agent to solicit offers to purchase Notes from the Company are subject to the accuracy, on the date of this Agreement, on the Effective Date, when any amendment or supplement to the Prospectus is filed with the Commission pursuant to the applicable paragraph of Rule 424(b) and/or 429 of the Rules and on each Closing Date, of the representations and warranties of the Company in this Agreement, to the accuracy and completeness of all statements made by the Company or any of its officers in any certificate delivered to such Agent or such Agent's counsel pursuant to this Agreement, to performance by the Company of its obligations under this Agreement and to each of the following additional conditions: (a) If filing of the Prospectus, or any supplement thereto, is required pursuant to Rule 424(b), the Prospectus, and any such supplement, shall have been filed in the manner and within the time period required by Rule 424(b); and no order suspending the effectiveness of either of the Registration Statements, as amended from time to time, shall be in effect and no proceedings for such purpose shall be pending before or threatened by the Commission, and any requests for additional information on the part of the Commission (to be included in either of the Registration Statements or the Prospectus or otherwise) shall have been complied with to the reasonable satisfaction of such Agent. (b) Since the date of the most recent financial statements included or incorporated by reference in the Prospectus, (i) there must not have been any change or decrease (of the type indicated in paragraph (b)(3) of Annex D to this Agreement) specified in the most recent letter of the type referred to in Section 5(k), in paragraph (f) of this Section 6 or in Section 7(c)(iv), (ii) there must not have been any material adverse change in the general affairs, prospects, management, business, properties, financial condition or results of operations of the Company and its subsidiaries taken as a whole, whether 15 15 or not arising from transactions in the ordinary course of business, except as set forth in or contemplated by the Prospectus, as then amended or supplemented, (iii) the Company and its subsidiaries must not have sustained any material loss or interference with their business or properties from fire, explosion, earthquake, flood or other calamity, whether or not covered by insurance, or from any labor dispute or any court or legislative or other governmental action, order or decree not described in the Prospectus, as then amended or supplemented, and (iv) there must not have been any downgrading in the rating of any of the Company's debt securities by any nationally recognized statistical rating organization (as defined for purposes of Rule 436(g) of the Rules) or any public announcement by any such organization of any proposal by it to downgrade such rating or that it has under surveillance or review its rating of the Notes or any other debt securities of the Company (other than an announcement with positive implications of a possible upgrading, and no implication of a possible downgrading, of such rating) if, in the judgment of such Agent, any such development referred to in clause (i), (ii), (iii) or (iv) makes it impracticable or inadvisable to proceed with the soliciting of offers to purchase Notes from the Company as contemplated by the Prospectus, as then amended or supplemented. (c) The Company shall have furnished to such Agent on the date of this Agreement a certificate of the Treasurer and the General Counsel of the Company, dated such date, certifying that (i) the signers have carefully examined the Registration Statements, the Prospectus, the Indentures and this Agreement, (ii) the representations and warranties of the Company in this Agreement are accurate on and as of the date of such certificate and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied as a condition to the obligation of such Agent to solicit offers to purchase the Notes, (iii) since the date of the most recent financial statements included or incorporated by reference in the Prospectus, there has not been any material adverse change in the general affairs, prospects, management, business, properties, financial condition or results of operations of the Company and its subsidiaries taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus, as amended or supplemented as of the date of such certificate, and (iv) to the knowledge of such officers, no action to suspend the effectiveness 16 16 of either of the Registration Statements, as amended as of the date of such certificate, or to prohibit the sale of the Notes has been taken or threatened by the Commission. (d) Such Agent shall have received on the date of this Agreement from the General Counsel of the Company an opinion dated such date substantially in the form of Annex C to this Agreement. (e) Such Agent shall have received on the date of this Agreement from Cravath, Swaine & Moore, its counsel, an opinion dated such date with respect to the Company, the Notes, the Indentures, the Registration Statements, the Prospectus, this Agreement and the form and sufficiency of all proceedings taken in connection with the sale and delivery of the Notes. Such opinion and proceedings shall be satisfactory in all respects to such Agent. The Company must have furnished to such counsel such documents as they may reasonably request for the purpose of enabling them to render such opinion. (f) Such Agent shall have received, at the date of this Agreement, a signed letter from Ernst & Young, independent accountants for the Company, substantially in the form of Annex D to this Agreement. All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement will comply with this Agreement only if they are in form and scope satisfactory to such Agent and its counsel. If any of the conditions specified in this Section 6 shall not have been fulfilled in all material respects when and as provided in this Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement shall not be in all material respects reasonably satisfactory in form and substance to such Agent and its counsel, this Agreement and all obligations of such Agent hereunder may be cancelled at any time by such Agent. Notice of such cancellation shall be given to the Company in writing or by telephone or telegraph confirmed in writing. The documents required to be delivered by this Section 6 shall be delivered at the office of Cravath, Swaine & Moore, counsel for the Agents, at Worldwide Plaza, 17 17 825 Eighth Avenue, New York, New York, on the date of this Agreement. 7. Conditions to the Obligations of the Purchaser. The obligations of the Purchaser to purchase any Notes from the Company are subject to the accuracy, on the date of any related Terms Agreement and on the Closing Date for such Notes, of the representations and warranties of the Company in this Agreement, to the accuracy and completeness of all statements made by the Company or any of its officers in any certificate delivered to the Purchaser or its counsel pursuant to this Agreement, to performance by the Company of its obligations under this Agreement and to each of the following additional conditions: (a) No stop order suspending the effectiveness of either of the Registration Statements shall have been issued and no proceedings for that purpose shall have been instituted or threatened. (b) Since the date of the most recent financial statements included or incorporated by reference in the Prospectus, (i) there must not have been any change or decrease (of the type indicated in paragraph (b)(3) of Annex D to this Agreement) specified in the most recent letter of the type referred to in Section 5(k), in Section 6(f) or in paragraph (c)(iv) of this Section 7, (ii) there must not have been any material adverse change in the general affairs, prospects, management, business, properties, financial condition or results of operations of the Company and its subsidiaries taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated by the Prospectus, as then amended or supplemented, (iii) the Company and its subsidiaries must not have sustained any material loss or interference with their business or properties from fire, explosion, earthquake, flood or other calamity, whether or not covered by insurance, or from any labor dispute or any court or legislative or other governmental action, order or decree not described in the Prospectus, as then amended or supplemented, and (iv) there must not have been any downgrading in the rating of any of the Company's debt securities by any nationally recognized statistical rating organization (as defined for purposes of Rule 436(g) of the Rules) or, if so specified in the applicable Terms Agreement, any public announcement by any such organization of any proposal 18 18 by it to downgrade such rating or that it has under surveillance or review its rating of the Notes or any other debt securities of the Company (other than an announcement with positive implications of a possible upgrading, and no implication of a possible downgrading, of such rating), if, in the judgment of the Purchaser, any such development referred to in clause (i), (ii), (iii) or (iv) makes it impracticable or inadvisable to consummate the purchase of the Notes. (c) If specified by any related Terms Agreement and except to the extent modified by such Terms Agreement, the Purchaser shall have received, appropriately updated, (i) a certificate of the Company, dated as of the Closing Date, to the effect set forth in Section 6(c) (except that references to the Prospectus shall be to the Prospectus as supplemented at the time of execution of the Terms Agreement), (ii) the opinion of the General Counsel of the Company, dated as of the Closing Date, to the effect set forth in Section 6(d), (iii) the opinion of Cravath, Swaine & Moore, counsel for the Purchaser, dated as of the Closing Date, to the effect set forth in Section 6(e) and (iv) a letter of Ernst & Young, independent accountants for the Company, dated as of the Closing Date, to the effect set forth in Section 6(f). (d) Prior to the Closing Date, the Company shall have furnished to the Purchaser such further information, certificates and documents as the Purchaser may reasonably request. If any of the conditions specified in this Section 7 shall not have been fulfilled in all material respects when and as provided in this Agreement and any Terms Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement or such Terms Agreement shall not be in all material respects reasonably satisfactory in form and substance to the Purchaser and its counsel, such Terms Agreement and all obligations of the Purchaser thereunder and with respect to the Notes subject thereto may be cancelled at, or at any time prior to, the respective Closing Date by the Purchaser. Notice of such cancellation shall be given to the Company in writing or by telephone or telegraph confirmed in writing. 8. Right of Person Who Agreed to Purchase to Refuse to Purchase. The Company agrees that any person who 19 19 has agreed to purchase and pay for any Note, including the Purchaser and any person who purchases pursuant to a solicitation by an Agent, shall have the right to refuse to purchase such Note if, at the Closing Date therefor, any condition set forth in Section 6 or 7, as applicable, shall not be satisfied, it being understood that under no circumstances whatsoever shall an Agent have any duty or obligation to exercise the judgment permitted under Section 6(b) or Section 7(b) on behalf of any such person. 9. Indemnification. (a) The Company will indemnify and hold harmless you, your directors, officers, employees and agents and each person, if any, who controls you within the meaning of either the Securities Act or the Exchange Act against any and all losses, claims, damages and liabilities, joint or several (including any investigation, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted), to which they, or any of them, may become subject under the Securities Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, either Registration Statement or the Prospectus or any amendment or supplement to any of the foregoing, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that the Company will not be liable to the extent that such loss, claim, damage or liability arises from the sale of Notes by the Company to any person in the manner contemplated in the Prospectus, as amended or supplemented as of the time of the confirmation of such sale, as a result of a solicitation by you and is based upon an untrue statement or omission or alleged untrue statement or omission (i) made in reliance upon and in conformity with information relating to you furnished in writing to the Company by you expressly for use in the document or (ii) in a preliminary prospectus if the Prospectus, as amended or supplemented as of the time of the confirmation of the sale to such person, corrected the untrue statement or omission or alleged untrue statement or omission which is the basis of the loss, claim, damage or liability for which indemnification is sought and a copy of the Prospectus, as so amended (but excluding any documents incorporated therein by reference), was not sent or given to such person at or before the confirmation of the 20 20 sale to such person in any case where such delivery is required by the Securities Act, unless such failure to deliver the Prospectus, as so amended, was a result of noncompliance by the Company with Section 5(d). This indemnity agreement will be in addition to any liability that the Company might otherwise have. (b) You will indemnify and hold harmless the Company, each person, if any, who controls the Company within the meaning of either the Securities Act or the Exchange Act, each director of the Company and each officer of the Company who signs either of the Registration Statements to the same extent as the foregoing indemnity from the Company to you, but only insofar as losses, claims, damages or liabilities arise from the sale of Notes by the Company to any person in the manner contemplated in the Prospectus as a result of a solicitation by you and are based upon any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus, either Registration Statement or the Prospectus or any amendment or supplement to any of them in reliance upon and in conformity with information relating to you furnished in writing to the Company by you expressly for use in the document. This indemnity agreement will be in addition to any liability that you might otherwise have. (c) Any party that proposes to assert the right to be indemnified under this Section 9 will, promptly after receipt of notice of commencement of any action against such party in respect of which a claim is to be made against an indemnifying party or parties under this Section 9, notify each such indemnifying party of the commencement of such action, enclosing a copy of all papers served, but the omission so to notify such indemnifying party will not relieve it from liability under this Section 9 unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the indemnifying party of substantial rights and defenses and will not relieve it from any liability that it may have to any indemnified party otherwise than under this Section 9. If any such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in, and, to the extent that it elects by delivering written notice to the indemnified party promptly after receiving notice of the commencement of the action from the indemnified party, jointly with any other indemnifying party similarly notified, to assume the defense of the action, 21 21 with counsel satisfactory to the indemnified party, and, after notice from the indemnifying party to the indemnified party of its election to assume the defense, the indemnifying party will not be liable to the indemnified party for any legal or other expenses except as provided below and except for the reasonable costs of investigation subsequently incurred by the indemnified party in connection with the defense. The indemnified party will have the right to employ its own counsel in any such action, but the fees and expenses of such counsel will be at the expense of such indemnified party unless (1) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified party has reasonably concluded that there may be legal defenses available to it or other indemnified parties which are different from or in addition to those available to the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (3) the indemnifying party has not in fact employed counsel to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the fees and expenses of such counsel will be at the expense of the indemnifying party or parties and all such fees and expenses will be reimbursed promptly as they are incurred. An indemnifying party will not be liable for any settlement of any action or claim effected without its written consent or, in connection with any proceeding or related proceedings in the same jurisdiction, for the fees and expenses of more than one separate counsel for all indemnified parties. 10. Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in Section 9 is applicable in accordance with its terms but for any reason is held to be unavailable from the Company or you, the Company and each of you agree to contribute to the aggregate losses, claims, damages and liabilities (including any investigation, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted) (collectively "Losses") to which the Company and one or more of you may be subject in such proportion as is appropriate to reflect the relative benefits received by the Company and by each of you from the offering of the Notes from which such Losses arise; provided, however, that in no case shall any of you be responsible for any amount in excess of the commissions received by you yourself in connection with the sale of 22 22 Notes from which such Losses arise (or, in the case of Notes sold pursuant to a Terms Agreement, the aggregate commissions that would have been received by you yourself if such commissions had been payable). If the allocation provided by the immediately preceding sentence is unavailable for any reason, the Company and each of you shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company and each of you in connection with the statements or omissions which resulted in such Losses as well as any other relevant equitable considerations. Benefits received by the Company shall be deemed to be equal to the total net proceeds from the offering (before deducting expenses) of the Notes from which such Losses arise, and benefits received by each of you shall be deemed to be equal to the total commissions received by you yourself in connection with the sale of Notes from which such Losses arise (or, in the case of Notes sold pursuant to a Terms Agreement, the aggregate commissions that would have been received by you yourself if such commissions had been payable). Relative fault shall be determined by reference to whether any alleged untrue statement or omission relates to information provided by the Company or any of you. The Company and each of you agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this Section 10, no person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 10, any person who controls a party to this Agreement within the meaning of either the Securities Act or the Exchange Act will have the same rights to contribution as that party, and each officer of the Company who signed either of the Registration Statements and each director of the Company will have the same rights to contribution as the Company, subject in each case to the applicable terms and conditions of this Section 10. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action against such party in respect of which a claim for contribution may be made under this Section 10, notify such party or parties from whom contribution may be sought, but the omission so to notify (i) will not relieve such party or parties from liability under this Section 8 unless and to the extent it or they did not 23 23 otherwise learn of such action and such failure results in the forfeiture by such party or parties of substantial rights and defenses and (ii) will not relieve the party or parties from whom contribution may be sought from any other obligation it or they may have otherwise than under this Section 10. No party will be liable for contribution with respect to any action or claim settled without its written consent. 11. Termination. (a) This Agreement may, as between the Company and you, be terminated for any reason at any time by either the Company or you giving written notice of such termination to the other party. If any such notice is given, this Agreement will terminate, as between the Company and you, at the close of business on the third business day following the receipt of such notice by the party to whom such notice is given. In the event of any such termination, no party shall have any liability to the other party hereto, except as provided in Sections 1(e), 5(h), 9, 10 and 12, and this Agreement shall continue between the Company and any other party to this Agreement without regard to any such termination. (b) Each Terms Agreement shall be subject to termination in the absolute discretion of the Purchaser by notice given to the Company if, prior to delivery of any payment for Notes to be purchased thereunder, (1) trading in the equity securities of the Company is suspended by the Commission, by an exchange that lists such equity securities of the Company, or by the National Association of Securities Dealers Automated Quotation National Market System, (2) additional material governmental restrictions, not in force on the date of this Agreement, have been imposed upon trading in securities generally or minimum or maximum prices have been generally established on the New York Stock Exchange or on the American Stock Exchange, or trading in securities generally has been suspended on any such Exchange or a general banking moratorium has been established by Federal or New York authorities or (3) any outbreak or material escalation of hostilities or other calamity or crisis occurs the effect of which is such as to make it, in the judgment of the Purchaser, impracticable to market such Notes. 12. Miscellaneous. The respective representations, warranties and agreements of the Company and you in this Agreement will remain in full force and effect regardless of any investigation made by or on behalf of you, 24 24 the Company or any person controlling you or the Company and will survive delivery of and payment for the Notes. The reimbursement, indemnification and contribution agreements in Sections 1(e), 5(h), 9, 10 and 11 will remain in full force and effect regardless of any termination of this Agreement. This Agreement is for the benefit of you and the Company and the respective successors of each of you and the Company and, to the extent expressed in this Agreement, for the benefit of persons controlling you or the Company, and directors and officers of the Company, and their respective successors, and no other person, partnership, association or corporation shall acquire or have any right under or by virtue of this Agreement. Notwithstanding anything to the contrary contained in the Distribution Agreement dated March 2, 1993, between the Company and you (the "Prior Agreement"), the Prior Agreement shall terminate (except with respect to Sections 1(e), 5(h), 9, 10 and 11 thereof) immediately upon the execution and delivery of this Agreement. All notices and communications under this Agreement will be in writing, effective only on receipt and mailed or delivered by messenger, facsimile transmission or otherwise to PaineWebber Incorporated at 1285 Avenue of the Americas, New York, New York 10019, attention of General Counsel and Treasurer, to CS First Boston Corporation at Park Avenue Plaza, New York, New York 10055, attention of New Issue Processing Department, or to the Company at 1285 Avenue of the Americas, New York, New York 10019, attention of General Counsel and Treasurer. 25 25 This Agreement may be signed in multiple counterparts that taken as a whole constitute one agreement. This Agreement will be governed by and construed in accordance with the laws of the State of New York. Please confirm that the foregoing correctly sets forth the agreement between us. Very truly yours, PAINE WEBBER GROUP INC. by______________________ Title: Confirmed: PAINEWEBBER INCORPORATED by________________________ Title: CS FIRST BOSTON CORPORATION by ________________________ Title: 26 Schedule I SENIOR AND SUBORDINATED MEDIUM-TERM NOTE FEES
Maturity Senior Subordinated - ------------------------------- ------ ------------ 9 months to less than 12 months .080 .080 12 months to less than 18 months .125 .125 18 months to less than 2 years .150 .150 2 years to less than 3 years .250 .250 3 years to less than 4 years .350 .350 4 years to less than 5 years .450 .450 5 years to less than 7 years .500 .500 7 years to less than 10 years .550 .550 10 years to less than 20 years .600 .600 20 years to 30 years .750 .750
27 Annex A PAINE WEBBER GROUP INC. Medium-Term Notes Administrative Procedures November 30, 1993 Medium-Term Senior Notes, Series C, and Medium-Term Subordinated Notes, Series D, Due from Nine Months to 30 Years from Date of Issue (the "Notes") are to be offered on a continuing basis by Paine Webber Group Inc. (the "Company"). Each of PaineWebber Incorporated, as agent, and CS First Boston Corporation, as agent (collectively, the "Agents"), has agreed to use reasonable efforts to solicit offers to purchase Notes from the Company. Neither Agent will be obligated to purchase Notes for its own account. The Notes are being sold pursuant to a Distribution Agreement between the Company and each of the Agents dated November 30, 1993 (the "Distribution Agreement"). The Notes will be issued either as subordinated to ("Subordinated Notes") or on a parity with ("Senior Notes") other unsecured and unsubordinated indebtedness of the Company and have been registered with the Securities and Exchange Commission (the "Commission"). Chemical Bank (the "Senior Note Trustee") is the trustee under the Indenture dated as of March 15, 1988, covering the Senior Notes, as supplemented by the First Supplemental Indenture dated as of September 22, 1989, and by the Second Supplemental Indenture dated as of March 22, 1991 (such Indenture, as so supplemented, being hereinafter referred to as the "Senior Note Indenture"), each between the Company and the Senior Note Trustee. Chemical Bank Delaware (the "Subordinated Note Trustee") is the trustee under the Indenture dated as of March 15, 1988, covering the Subordinated Notes, as supplemented by the First Supplemental Indenture dated as of September 22, 1989, by the Second Supplemental Indenture dated as of March 22, 1991, and by the Third Supplemental Indenture dated as of November 30, 1993 (such Indenture, as so supplemented, being hereinafter referred to as the "Subordinated Note Indenture"), each between the Company and the Subordinated Note Trustee. The Senior Note Indenture and the Subordinated Note Indenture are hereinafter sometimes called the "Indentures"; and the Senior Note Trustee and the Subordinated Note Trustee are hereinafter sometimes called the "Trustees". Notes may be represented by a Global Note (as hereinafter defined) delivered to Chemical Bank (in such 28 2 capacity, the "Custodian") as agent for The Depository Trust Company ("DTC"), with ownership of beneficial interests in such Global Notes recorded in the book-entry system maintained by DTC (each such interest in a Global Note being referred to herein as a "Book- Entry Note"), or may be represented by a certificate delivered to the holder thereof or a person designated by such holder (each a "Certificated Note"). An owner of a Book-Entry Note will not be entitled to receive a certificate representing such Note. In connection with the qualification of the Book-Entry Notes for eligibility in the book-entry system maintained by DTC, Chemical Bank will perform the custodial, document control and administrative functions described in Part II below, in accordance with its respective obligations under a Letter of Representations from the Company and Chemical Bank to DTC relating to the Senior Notes and a Letter of Representations from the Company, Chemical Bank and the Subordinated Note Trustee to DTC relating to the Subordinated Notes (each a "Letter of Representations", and, collectively, the "Letters of Representations") and a Medium-Term Note Certificate Agreement (the "Certificate Agreement") between Chemical Bank and DTC, and its obligations as a participant in DTC, including DTC's Same-Day Funds Settlement system ("SDFS"). Administrative procedures and certain terms of the offering are explained below. Certain general terms of the offering, applicable to both Book-Entry Notes and Certificated Notes, are set forth in Part I hereof. Book-Entry Notes will be issued in accordance with the administrative procedures set forth in Part II hereof, as adjusted in accordance with changes in DTC's operating requirements, and Certificated Notes will be issued in accordance with the administrative procedures set forth in Part III hereof. Unless otherwise defined herein, terms defined in the Distribution Agreement, the Indentures and the Notes shall be used herein as therein defined. Notes for which interest is calculated on the basis of a fixed interest rate, which may be zero, are referred to herein as "Fixed Rate Notes". Notes for which interest is calculated on the basis of a floating interest rate are referred to herein as "Floating Rate Notes". To the extent the procedures set forth below conflict with the provisions of the Notes, the Indentures, DTC's operating requirements or the Distribution Agreement, the relevant provisions of the Notes, the Indentures, DTC's operating requirements and the Distribution Agreement shall control. The Company will advise each Agent from time to time in writing of those persons with whom such Agent is to communicate with respect to offers to purchase Notes from 29 3 the Company and the details of their delivery. References below to "the Agent" shall mean whichever of the Agents is involved in any proposed purchase and sale of any Note or Notes. Part I. Certain Terms of the Offering Price to Public: Each Note will be issued at the percentage of its principal amount specified in the Prospectus Supplement, as then amended or supplemented, relating to the Notes. Denominations: Notes denominated in U.S. dollars will be issued in minimum denominations of $100,000 and in denominations exceeding such amount by integral multiples of $1,000. Book-Entry Notes will not be denominated in any currency or composite currency other than the U.S. dollar. Certificated Notes denominated in other than U.S. dollars will be issued in the denominations specified pursuant to "Settlement Procedures" in Part III below. Registration: Notes will be issued only in fully registered form. Maturities: Each Note will mature on a date selected by the purchaser and agreed to by the Company, which will be not less than nine months and not more than 30 years after the date of issue thereof. Interest Payment: Each Note will bear interest (i) in the case of Fixed Rate Notes, at the annual rate stated on the face thereof, payable in arrears on such dates as are specified therein (each such date of payment other than the maturity date being an "Interest Payment Date" with
30 4 respect to such Fixed Rate Note) and at maturity and (ii) in the case of Floating Rate Notes, at a rate determined pursuant to the formula stated on the face thereof, payable in arrears on such dates as are specified therein (each such date of payment other than the maturity date an "Interest Payment Date" with respect to such Floating Rate Note) and at maturity. Unless otherwise specified, each Note will bear interest from and including the later of its date of issue and the most recent date to which interest has been paid or provided for, to but excluding the current Interest Payment Date or the maturity date of such Note. Interest payments for a Note will include interest accrued to but excluding the Interest Payment Date; provided, however, that a Floating Rate Note which has a rate of interest that is reset daily or weekly will bear interest from and including the later of its date of issue and the day following the most recent Regular Record Date (as defined below) to which interest on such Note has been paid or provided for, to and including the next preceding Regular Record Date or the maturity date of such Note, except as otherwise provided in such Note. Unless otherwise specified, the "Regular Record Date" with respect to any Interest Payment Date for any Note shall be the 15th day preceding such Interest Payment Date, whether or not such day shall be a Business Day. Unless otherwise specified, interest (including payments for partial periods) will be calculated and paid, in the case of Fixed Rate
31 5 Notes, on the basis of a 360-day year of twelve 30-day months and, in the case of Floating Rate Notes, on the basis of the actual number of days elapsed over a year of 360 days, except with respect to interest on Treasury Rate Notes (as defined in the Prospectus Supplement relating to the Notes) which will be calculated and paid on the basis of the actual number of days elapsed over a year of 365 or 366 days, as applicable. Interest will be payable to the person in whose name the Note is registered at the close of business on the Regular Record Date next preceding the Interest Payment Date except that, in the case of Notes issued between a Regular Record Date and an Interest Payment Date, interest payable on such Interest Payment Date will be paid to the person in whose name such Note was initially registered; provided, however, that interest payable at Maturity (as defined below) will be payable to the person to whom principal shall be payable. "Maturity" shall mean the date on which the principal of a Note or an installment of principal becomes due, whether on the Maturity Date specified for such Note, upon redemption or early repayment or otherwise. Procedure for Rate Setting and Posting: The Company and the Agents will discuss from time to time the interest rates per annum to be borne by, the issuance price of, the aggregate principal amount of and maturity of Notes that may be sold as a result of the solicitation of offers by the Agents. If the Company establishes a fixed set of interest rates and maturities for an offering period (a "post-
32 6 ing"), or if the Company decides to change already posted rates, it will promptly advise the Agents of the rates and maturities to be posted. If the Company decides to post interest rates and a decision has been reached to change the posted interest rates, the Company will promptly notify the Agents. Each Agent forthwith will suspend solicitation of offers to purchase Notes from the Company until such time as the Company has advised such Agent as to the new rates. Until such time only "indications of interest" may be recorded. Acceptance of Offers: The Agent will communicate to the Company, orally or in writing, each offer to purchase Notes from the Company that is received by the Agent as agent of the Company and that is not rejected by the Agent as provided below. The Company will have the sole right to accept offers to purchase Notes from the Company and may reject any such offer, in whole or in part, for any reason. The Agent may, in its discretion reasonably exercised, reject any offer to purchase Notes from the Company that is received by the Agent, in whole or in part. The Company will promptly notify the Agent of its acceptance or rejection of an offer to purchase Notes. If the Company accepts an offer to purchase Notes, it will confirm such acceptance in writing to the Agent.
33 7 Suspension of Solicitation; Amendment or Supplement: As provided in the Distribution Agreement, the Company may suspend solicitation of offers to purchase at any time and, upon receipt of instructions from the Company, an Agent will forthwith suspend solicitation until such time as the Company has advised it that solicitation of offers to purchase may be resumed. If an Agent receives the notice from the Company contemplated by Section 5(d) of the Distribution Agreement, it will promptly suspend solicitation and will only resume solicitation as provided in the Distribution Agreement. If the Company is required, pursuant to Section 5(d) of the Distribution Agreement, to prepare an amendment or supplement, it will promptly furnish such Agent with the proposed amendment or supplement; in all other cases, if the Company decides to amend or supplement either of the Registration Statements or the Prospectus relating to the Notes, it will promptly advise such Agent and will furnish such Agent with the proposed amendment or supplement in accordance with the terms of the Distribution Agreement. The Company will promptly file such amendment or supplement, provide such Agent (and Cravath, Swaine & Moore or such other law firm as may be counsel to such Agent at the time) with copies of any such amendment or supplement, confirm to such Agent that such amendment or supplement has been filed with the Commission and advise such Agent that solicitation may be resumed.
34 8 In the event that at any time the Company suspends solicitation of offers to purchase Notes from the Company there shall be any outstanding offers to purchase Notes from the Company that have been accepted by the Company but for which settlement has not yet occurred, the Company will promptly advise the Agent and the Trustees whether such sales may be settled and whether copies of the Prospectus as amended or supplemented to the time of the suspension may be delivered in connection with the settlement of such sales. The Company will have the sole responsibility for such decision and for any arrangements which may be made in the event that the Company determines that such sales may not be settled or that copies of the Prospectus as so amended or supplemented may not be so delivered. Delivery of Prospectus: A copy of the Prospectus, as most recently amended or supplemented on the date of delivery thereof (except as provided below), relating to any Note must be delivered to a purchaser prior to or together with the earliest of (i) any written offer of such Note, (ii) the delivery of the written confirmation provided for below and (iii) the delivery of any Note purchased by such purchaser. Subject to the foregoing and to the procedures described in Part II below, it is anticipated that delivery of the Prospectus, confirmation and Notes to the purchaser will be made simultaneously at settlement. The Company shall ensure that the Agent receives copies of the Prospectus and each amendment or supplement
35 9 thereto (including appropriate pricing stickers) in such quantities and within such time limits as will enable the Agent to deliver such confirmation or Note to a purchaser as contemplated by these procedures and in compliance with the preceding sentence. If, since the date of acceptance of a purchaser's offer, the Prospectus shall have been supplemented solely to reflect any sale of Notes on terms different from those agreed to between the Company and such purchaser or a change in posted rates not applicable to such purchaser, such purchaser shall not receive the Prospectus as supplemented by such new supplement, but shall receive the Prospectus as supplemented to reflect the terms of the Notes being purchased by such purchaser and otherwise as most recently amended or supplemented on the date of delivery of the Prospectus. Confirmation: For each offer to purchase a Note from the Company solicited by the Agent and accepted by the Company, the Agent will issue a confirmation to the purchaser, with a copy to the Company, setting forth the Settlement Details (as hereinafter defined) and delivery and payment instructions. Business Day: "Business Day" with respect to any Note means each day, other than a Saturday or Sunday, that is (i) not a day on which banking institutions in the Business Day Centers with respect to such Note are authorized or obligated by law or executive order to close, (ii) if such Note is a LIBOR Note (as defined in the Prospectus Supplement), a London Banking Day (as hereinafter
36 10 defined) and (iii) if such Notes is denominated in the European Currency Unit ("ECU"), any day that is not designated as an ECU settlement day by the ECU Banking Association in Paris or otherwise generally regarded in the ECU interbank market as a day on which payments in ECU shall not be made. "Business Day Centers", unless otherwise specified in the applicable Note, with respect to any Note shall mean The City of New York and, in the case of any Note payable in a Specified Currency other than U.S. dollars or ECU, the principal financial center of the country issuing the Specified Currency. As used herein, "London Banking Day" shall mean any day on which dealings in deposits in U.S. dollars are transacted in the London interbank market. Advertising Cost: The Company will determine with the Agents the amount of advertising that may be appropriate in offering the Notes. Advertising expenses approved in advance by the Company will be paid by the Company. Payment of Expenses: Each Agent will forward to the Company, following the end of each quarter, a statement of the out-of-pocket expenses incurred by such Agent during that quarter which are reimbursable to it pursuant to the terms of the Distribution Agreement. The Company will remit payment to such Agent promptly following the receipt of each such statement. Authenticity of Signatures: Neither Agent will have any obligation or liability to the Company or either Trustee or any Authenticat-
37 11 ing Agent in respect of the authenticity of the signature of any officer, employee or agent of the Company or either Trustee or such Authenticating Agent on any Note. Part II. Administrative Procedures for Book-Entry Notes Issuance: On any date of settlement (as defined under "Settlement" below) for one or more Book-Entry Notes, the Company will issue a single global note in fully registered form without coupons (a "Global Note") representing up to $150,000,000 principal amount of all of such Book-Entry Notes that have the same terms, except as to principal amount. Each Global Note will be dated and issued as of the date of its authentication by the relevant Trustee (or, in the case of the Subordinated Note Trustee, by Chemical Bank, as the Authenticating Agent). No Global Note will represent any Certificated Note. Identification Numbers: The Company will arrange with the CUSIP Service Bureau of Standard & Poor's Corporation (the "CUSIP Service Bureau") for the reservation of a series of CUSIP numbers (including tranche numbers) consisting of approximately 900 CUSIP numbers and relating to Global Notes representing Book-Entry Notes. The Company will obtain from the CUSIP Service Bureau a written list of such series of reserved CUSIP numbers and will deliver such list to Chemical Bank and DTC. The Company will assign CUSIP numbers to Global Notes as described below under
38 12 Settlement Procedure "B". DTC will notify the CUSIP Service Bureau periodically of the CUSIP numbers that the Company has assigned to Global Notes. Chemical Bank will notify the Company at any time when fewer than 100 of the reserved CUSIP numbers remain unassigned to Global Notes, and if it deems necessary, the Company will reserve additional CUSIP numbers for assignment to Global Notes representing Book-Entry Notes. Upon obtaining such additional CUSIP numbers, the Company shall deliver a list thereof to Chemical Bank and DTC. Registration: Each Global Note will be registered in the name of Cede & Co., as nominee for DTC, on the Security Register maintained under the Indenture governing such Global Note. The beneficial owner of a Book-Entry Note (or one or more indirect participants in DTC designated by such owner) will designate one or more participants in DTC (with respect to such Note, the "Participants") to act as agent or agents for such owner in connection with the book-entry system maintained by DTC, and DTC will record in book-entry form, in accordance with instructions provided by such Participants, a credit balance with respect to such Note in the account of such Participants. The ownership interest of such beneficial owner (or such participant) in such Note will be recorded through the records of such Participants or through the separate records of such Participants and one or more indirect participants in DTC. So long as Cede & Co. is the registered owner of a Global Note, DTC will be
39 13 considered the sole owner and holder of the Book-Entry Notes represented by such Global Note for all purposes under the Indenture. Transfers: Transfers of a Book-Entry Note will be accomplished by book entries made by DTC and, in turn, by Participants (and in certain cases, one or more indirect participants in DTC) acting on behalf of beneficial transferors and transferees of such Note. Consolidation and Exchange: Chemical Bank may deliver to DTC and the CUSIP Service Bureau at any time a written notice of consolidation specifying (i) the CUSIP numbers of two or more outstanding Global Notes that represent Book-Entry Notes having the same terms other than principal amount and (for all such Notes other than zero coupon Notes) for which interest has been paid to the same date, (ii) a date, occurring at least 30 days after such written notice is delivered and (for all such Notes other than zero coupon Notes) at least 30 days before the next Interest Payment Date for such Book-Entry Notes, on which such Global Notes shall be exchanged for a single replacement Global Note and (iii) a new CUSIP number, obtained from the Company, to be assigned to such replacement Global Note. Upon receipt of such a notice, DTC will send to its participants (including Chemical Bank) a written reorganization notice to the effect that such exchange will occur on such date. Prior to the specified exchange date, Chemical Bank will deliver to the CUSIP Service Bureau a written notice setting forth such exchange
40 14 date and the new CUSIP number and stating that, as of such exchange date, the CUSIP numbers of the Global Notes to be exchanged will no longer be valid. On the specified exchange date, Chemical Bank will exchange such Global Notes for a single Global Note bearing the new CUSIP number and a new Original Issue Date (determined in accordance with the Letters of Representations), and the CUSIP numbers of the exchanged Global Notes will, in accordance with CUSIP Service Bureau procedures, be cancelled and not immediately reassigned. Notwithstanding the foregoing, if the Global Notes to be exchanged exceed $150,000,000 in aggregate principal amount, one Global Note will be authenticated and issued to represent each $150,000,000 of principal amount of the exchanged Global Notes and an additional Global Note will be authenticated and issued to represent any remaining principal amount of such Global Notes (see "Denominations" below). Denominations: As noted in Part I above, Book-Entry Notes will be issued in minimum denominations of $100,000 and in denominations exceeding such amount by integral multiples of $1,000. Global Notes will be denominated in principal amounts not in excess of $150,000,000. If one or more Book-Entry Notes having an aggregate principal amount in excess of $150,000,000 would, but for the preceding sentence, be represented by a single Global Note, then one Global Note will be issued to represent each $150,000,000 principal amount of such Book-Entry Note or Notes and an additional Global Note will be issued to represent any remaining
41 15 principal amount of such Book-Entry Note or Notes. In such a case, each of the Global Notes representing such Book-Entry Note or Notes shall be assigned the same CUSIP number. Interest: General. Except as set forth below, each Book-Entry Note will bear interest as set forth in "Interest Payment" above, and such interest shall be payable as set forth therein. Standard & Poor's Corporation will use the information received in the pending deposit message described under Settlement Procedure "C" below in order to include the amount of any interest payable and certain other information regarding the related Global Note in the appropriate (daily or weekly) bond report published by Standard & Poor's Corporation. Payments of Principal and Interest: Payments of Interest Only. On the fifth Business Day immediately preceding each Interest Payment Date, Chemical Bank will deliver to the Company's Treasurer's Office and DTC a written notice specifying by CUSIP number the amount of interest to be paid on each Global Note on such Interest Payment Date and the total of such amounts. DTC will confirm the amount payable on each Global Note on such Interest Payment Date by reference to the appropriate (daily or weekly) bond reports published by Standard & Poor's Corporation. The Company will pay to Chemical Bank, as paying agent, the total amount of interest due on such Interest Payment Date and Chemical Bank will
42 16 pay such amount to DTC at the times and in the manner set forth below under "Manner of Payment". Payments at Maturity. On or about the first Business Day of each month, Chemical Bank will deliver to the Company and DTC a written list of principal and interest to be paid on each Global Note maturing in the following month. The Company, Chemical Bank and DTC will confirm the amounts of such principal and interest payments with respect to each such Global Note on or about the fifth Business Day preceding the Maturity of such Global Note. The Company will pay to Chemical Bank, as paying agent, the principal amount of such Global Note, together with interest due at such Maturity and Chemical Bank will pay such amount to DTC at the times and in the manner set forth below under "Manner of Payment". Promptly after payment to DTC of the principal and interest due at the Maturity of such Global Note, the Senior Note Trustee, in the case of Senior Notes, and the Authenticating Agent, in the case of Subordinated Notes, will cancel such Global Note and deliver it to the Company with an appropriate debit advice. On the first Business Date of each month, Chemical Bank will deliver to each Trustee a written statement indicating the total principal amount of outstanding Global Notes for which such Trustee serves as trustee as of the immediately preceding Business Day. Manner of Payment. The total amount of any principal and/or interest due on Global Notes on any Interest Payment Date or at Maturi-
43 17 ty shall be paid by the Company to Chemical Bank in funds available for use by Chemical Bank as of 9:30 a.m. (New York City time) on such date. The Company will make such payment on such Global Notes by instructing Chemical Bank to withdraw funds from an account maintained by the Company at Chemical Bank or by wire transfer to Chemical Bank. The Company will confirm such instruction in writing to Chemical Bank (with a copy to the Subordinated Note Trustee if such Global Notes represent Subordinated Notes). Prior to 10:00 a.m. (New York City time) on such date or as soon as possible thereafter, Chemical Bank will pay the foregoing amounts to DTC in same day funds in accordance with the payment provisions contained in the applicable Letter of Representations. DTC will allocate such payments to its Participants in accordance with its existing operating procedures. NEITHER THE COMPANY, AS ISSUER, CHEMICAL BANK, THE SENIOR NOTE TRUSTEE NOR THE SUBORDINATED NOTE TRUSTEE SHALL HAVE ANY RESPONSIBILITY OR LIABILITY FOR THE PAYMENT BY DTC TO SUCH PARTICIPANTS OF THE PRINCIPAL OF, PREMIUM, IF ANY, AND INTEREST ON THE BOOK- ENTRY NOTES. Withholding Taxes. The amount of any taxes required under applicable law to be withheld from any interest payment on a Book-Entry Note will be determined and withheld by the Participant, indirect participant in DTC or other person responsible for forwarding payments and materials directly to the beneficial owner of such Note.
44 18 Settlement: The receipt by the Company of immediately available funds in payment for a Book-Entry Note and the authentication and issuance of the Global Note representing such Note shall constitute "settlement" with respect to such Book-Entry Note. All orders accepted by the Company will be settled on the fifth Business Day following the date of acceptance unless otherwise agreed by the purchaser and the Company. Such date of acceptance shall be specified upon acceptance of such offer. Settlement Procedures: Settlement Procedures with regard to each Book-Entry Note sold by the Company through an Agent, as agent, shall be as follows: A. Such Agent will provide to the Company (unless provided by the purchaser directly to the Company) by telephone, facsimile transmission or other means agreed upon by the Company and such Agent the following information (the "Settlement Details"): 1. Principal amount and issue price. 2. If a Fixed Rate Note, the interest rate, Regular Record Dates and Interest Payment Dates, if any. 3. Settlement date (Original Issue Date). 4. Maturity Date. 5. Type of Note (i.e., Senior Note or Subordinated Note).
45 19 6. Agent's commission (to be paid in the form of a discount from the issue price remitted to the Company upon settlement). 7. Redemption provisions, if any. 8. Repayment provisions, if any. 9. If a Floating Rate Note, such of the following as are applicable: (i) Interest Rate Basis, (ii) Index Maturity, (iii) Spread or Spread Multiplier, (iv) Maximum Rate, (v) Minimum Rate, (vi) Initial Interest Rate, (vii) Interest Reset Dates, (viii) Calculation Date, (ix) Interest Determination Dates, (x) Interest Payment Dates, (xi) Regular Record Dates and (xii) Calculation Agent. 10. All other terms of the Book-Entry Note and all other items necessary to complete the applicable Global Note.
46 20 Before accepting any offer to purchase a Book-Entry Note that will have terms in addition to or different from the terms set forth on any form of Note previously delivered by the Company to, and approved by, the applicable Trustee, other than merely as a result of completing any blanks (other than the "Other Terms" or equivalent blank) on such form, the Company will provide a description of the proposed different or additional terms to the applicable Trustee and its counsel for the purpose of determining whether such terms are consistent with the applicable Indenture, are administratively acceptable to such Trustee and its agents and do not affect such Trustee's or its agents' own rights, duties or immunities under the Notes or the applicable Indenture or otherwise in a manner which is not reasonably acceptable to such Trustee or its agents (all such terms having been authorized, as of the date of these Administrative Procedures, by or pursuant to a Board Resolution and the applicable Trustee having received, as of the date of these Administrative Procedures, all opinions, certificates and orders required prior to the authentication and issuance of a Note containing such terms). Any offer to purchase such a Book-Entry Note shall only be accepted by the Company if such terms shall not be disapproved by the applicable Trustee or its counsel on one of the
47 21 above-mentioned grounds after the foregoing review. In addition, before accepting any offer to purchase any Note to be settled in less than three Business Days, the Company will verify that the Authenticating Agent will have adequate time to prepare and authenticate such Note. B. The Company will assign a CUSIP number to the Global Note representing such Book-Entry Note and then advise Chemical Bank in writing, including facsimile or electronic transmission, and in the case of Subordinated Notes, the Subordinated Note Trustee by telephone (confirmed in writing at any time on the same date) or facsimile transmission of the information set forth in Settlement Procedure "A" above, such CUSIP number and the name of the Agent. Each such communication by the Company shall constitute a representation and warranty by the Company to Chemical Bank, each Trustee and each Agent that (i) such Book-Entry Note is then, and at the time of issuance and sale thereof will be, duly authorized for issuance and sale by the Company, (ii) such Book-Entry Note, and the Global Note representing such Book-Entry Note, will conform with the terms of the Indenture pursuant to which such Book-Entry Note is issued and (iii) upon authentication and delivery of such Global Note and any other Securities to be issued on or prior to the
48 22 settlement date for the Book-Entry Note represented by such Global Note, the aggregate amount of Securities which have been issued and sold by the Company will not exceed the amount of Securities registered under the Registration Statements. C. Chemical Bank will enter a pending deposit message through DTC's Participant Terminal System, providing the following settlement information to DTC, such Agent, Standard & Poor's Corporation and, upon request, the Trustee under the Indenture pursuant to which each Book-Entry Note which is represented by the Global Note is to be issued: 1. The information set forth in Settlement Procedure "A". 2. Initial Interest Payment Date for each such Book-Entry Note, the number of days by which such date succeeds the related Regular Record Date and the amount of interest payable on such Interest Payment Date (to the extent known at such time). 3. CUSIP number of the Global Note representing such Book-Entry Note. 4. Whether such Global Note will represent any other Book-Entry Note (to the extent known at such time).
49 23 D. Upon receipt of appropriate documentation and instructions, the Company will instruct the Senior Note Trustee to prepare and authenticate each Senior Global Note and will instruct the Authenticating Agent to prepare and authenticate each Subordinated Global Note by facsimile transmission or other acceptable written means. E. Chemical Bank will complete and the Senior Note Trustee or the Authenticating Agent, as the case may be, will authenticate the Global Note, and Chemical Bank will register the Global Note in the name of Cede & Co., as nominee of DTC, and hold such Global Note for delivery on the Closing Date therefore to Chemical Bank, as Custodian. F. DTC will credit each Book-Entry Note represented by the Global Note to be issued to the applicable participant account at DTC. G. Chemical Bank will enter an SDFS deliver order through DTC's Participant Terminal System with respect to each Book-Entry Note represented by the Global Note to be issued instructing DTC to (i) debit such Book-Entry Note to Chemical Bank's participant account and credit such Book-Entry Note to the Agent's participant account and (ii) debit such Agent's settlement account and credit Chemical Bank's settlement account for an amount equal to the price of such Book-Entry Note less such Agent's commis-
50 24 sion. The entry of such a deliver order shall constitute a representation and warranty by Chemical Bank to DTC that (i) the Global Note representing such Book- Entry Note has been issued and authenticated and (ii) Chemical Bank is holding such Global Note pursuant to the Certificate Agreement. H. The Agent will enter an SDFS deliver order through DTC's Participant Terminal System with respect to each Book-Entry Note represented by the Global Note to be issued instructing DTC (i) to debit such Book-Entry Note to such Agent's participant account and credit such Book-Entry Note to the participant account of the Participant with respect to such Book-Entry Note and (ii) to debit the settlement account of such Participant and credit the settlement account of such Agent for an amount equal to the price of such Book-Entry Note. I. Transfers of funds in accordance with SDFS deliver orders described in Settlement Procedures "G" and "H" will be settled in accordance with SDFS operating procedures (as referenced in the Letters of Representations) in effect on the settlement date. J. Chemical Bank will credit to an account of the Company maintained at Chemical Bank funds available for immediate use in the amount transferred to
51 25 Chemical Bank in accordance with Settlement Procedure "G". K. Chemical Bank, as Custodian, will hold the Global Note pursuant to the Certificate Agreement. Periodically, Chemical Bank will send to the Company a statement setting forth the principal amount of Book-Entry Notes outstanding as of that date under each Indenture. L. The relevant Agent will deliver to the purchaser a copy of the most recent Prospectus applicable to the Notes with or prior to the earlier of any written offer of Notes and the confirmation and payment by the purchaser of the Note. Such Agent will confirm the purchase of each Book-Entry Note to the purchaser either by transmitting to the Participant with respect to such Book-Entry Note a confirmation order or orders through DTC's institutional delivery system or by mailing a written confirmation to such purchaser. Settlement Procedures Timetable: For orders of Book-Entry Notes solicited by an Agent, as agent, and accepted by the Company for settlement on the first Business Day after the sale date, Settlement Procedures "A" through "L" set forth above shall be completed as soon as possible but not later than the respective times (New York City time) set forth below:
52 26
Settlement Procedure Time ---- A-B 11:00 A.M. on the sale date C 2:00 P.M. on the sale date D 3:00 P.M. on Business Day before settlement date E 9:00 A.M. on settlement date F 10:00 A.M. on settlement date G-H 2:00 P.M. on settlement date I 4:45 P.M. on settlement date J-L 5:00 P.M. on settlement date If a sale is to be settled more than one Business Day after the sale date, Settlement Procedures "A", "B" and "C" shall be completed as soon as practicable but no later than 11:00 A.M. and 2:00 P.M., as the case may be, on the first Business Day after the sale date. Settlement Procedure "I" is subject to extension in accordance with any extension of Fedwire closing deadlines and in other events specified in the SDFS operating procedures in effect on the settlement date. If settlement of a Book Entry Note is rescheduled or canceled the Company will as soon as practicable give Chemical Bank notice to such effect. Chemical Bank will deliver to DTC, through DTC's Participant Terminal System, a cancellation message to such effect by no later than 2:00 P.M. on the Business Day immediately preceding the scheduled settlement date (provided Chemical Bank has received such notice from the Company by noon on the Business Day immediately preceding the settlement date).
53 27 Fails: If Chemical Bank fails to enter an SDFS deliver order with respect to a Book-Entry Note pursuant to Settlement Procedure "G", Chemical Bank may deliver to DTC, through DTC's Participant Terminal System, as soon as practicable a withdrawal message instructing DTC to debit such Book-Entry Note to Chemical Bank's participant account. DTC will process the withdrawal message, provided that Chemical Bank's participant account contains a principal amount of the Global Note representing such Book-Entry Note that is at least equal to the principal amount to be debited. If a withdrawal message is processed with respect to all the Book-Entry Notes represented by a Global Note, the Senior Note Trustee, in the case of Senior Notes, or the Authenticating Agent, in the case of Subordinated Notes, will mark such Global Note "Cancelled", make appropriate entries in its records and send such cancelled Global Note to the Company. The CUSIP number assigned to such Global Note shall, in accordance with CUSIP Service Bureau procedures, be cancelled and not immediately reassigned. If a withdrawal message is processed with respect to one or more, but not all, of the Book-Entry Notes represented by a Global Note, Chemical Bank and the Senior Note Trustee or the Authenticating Agent, as the case may be, will exchange such Global Note for two Global Notes, one of which shall represent such Book-Entry Note or Notes and shall be canceled immediately after issuance and the other of which shall represent the other Book-Entry Notes previously represented by the surrendered Global Note and shall bear the CUSIP number of the surrendered Global Note.
54 28 If the purchase price for any Book-Entry Note is not timely paid to the Participant with respect to such Note by the beneficial purchaser thereof (or a person, including an indirect participant in DTC, acting on behalf of such purchaser), such Participant and, in turn, the Agent for such Note may enter SDFS deliver orders through DTC's Participant Terminal System reversing the orders entered pursuant to Settlement Procedures "H" and "G", respectively. Thereafter, Chemical Bank will deliver the withdrawal message and take the related actions described in the preceding paragraph. Notwithstanding the foregoing, upon any failure to settle with respect to a Book-Entry Note, DTC may take any actions in accordance with its SDFS operating procedures then in effect. In the event of a failure to settle with respect to one or more, but not all, of the Book-Entry Notes to have been represented by a Global Note, Chemical Bank and the Senior Note Trustee or the Authenticating Agent, as the case may be, will provide, in accordance with Settlement Procedures "D" and "E", for the authentication and issuance of a Global Note representing the other Book-Entry Notes to have been represented by such Global Note and will make appropriate entries in its records.
PART III Administrative Procedures for Certificated Notes Issuance: Each Certificated Note will be dated and issued as of the date of its authentication by the relevant Trustee (or, in the case of the Subordinated Note Trustee, by the Authenticating Agent).
55 29 Transfers and Exchanges: A Certificated Note (whether a Senior Note or a Subordinated Note) may be presented for transfer or exchange at the principal corporate trust office in New York City of the Senior Trustee. Certificated Notes will be exchangeable for other Certificated Notes having identical terms but different authorized denominations. Certificated Notes will not be exchangeable for Book-Entry Notes. Payments of Principal and Interest: On the fifth Business Day immediately preceding each Interest Payment Date, Chemical Bank, as paying agent, will furnish the Company with the total amount of the interest payments to be made on such Interest Payment Date to the extent known. In addition, on or about the first Business Day of each month, Chemical Bank will provide to the Company's Treasurer's Office a list of the principal and interest to be paid on the respective Notes maturing in the following month. The Company will provide to Chemical Bank not later than any payment date sufficient moneys to pay in full all principal and interest payments due on such payment date. Chemical Bank shall make all such payments in accordance with the terms of the Notes. Notes presented to Chemical Bank at Maturity will be cancelled by Chemical Bank. Chemical Bank will be responsible for withholding taxes on interest paid on Certificated Notes as required by applicable law.
56 30 Settlement: The receipt by the Company of immediately available funds in exchange for an authenticated Certificated Note delivered to the Agent and the Agent's delivery of such Certificated Note against receipt of immediately available funds shall, with respect to such Certificated Note, constitute "settlement". All orders accepted by the Company will be settled on the fifth Business Day following the date of acceptance unless otherwise agreed by the purchaser and the Company. Such date of settlement shall be specified upon acceptance of such offer. Settlement Procedures: Settlement Procedures with regard to each Certificated Note sold by the Company through an Agent, as agent, shall be as follows: A. The Agent will provide to the Company (unless provided by the purchaser directly to the Company), by telephone, facsimile transmission or other means agreed upon by the Company and the Agent, the following information (the "Settlement Details"): 1. Exact name in which the Note or Notes are to be registered. 2. Exact address of registered owner and, if different, address for payment of principal and interest. 3. Taxpayer identification number of registered owner. 4. Principal amount and issue price.
57 31 5. If a Fixed Rate Note, the interest rate, Regular Record Dates and Interest Payment Dates, if any. 6. Settlement date (Original Issue Date). 7. Maturity Date. 8. Type of Note (i.e., Senior Note or Subordinated Note). ---- 9. Agent's commission (to be paid in the form of a discount from the issue price remitted to the Company upon settlement). 10. Redemption provisions, if any. 11. Repayment provisions, if any. 12. If a Floating Rate Note, such of the following as are applicable: (i) Interest Rate Basis, (ii) Index Maturity, (iii) Spread or Spread Multiplier, (iv) Maximum Rate, (v) Minimum Rate, (vi) Initial Interest Rate, (vii) Interest Reset Dates, (viii) Calculation Date,
58 32 (ix) Interest Determination Dates, (x) Interest Payment Dates, (xi) Regular Record Dates, and (xii) Calculation Agent. 13. Authorized denominations of Notes denominated in other than U.S. dollars. 14. All other terms of the Note and all other items necessary to complete the Note. Before accepting any offer to purchase a Certificated Note that will have terms in addition to or different from the terms set forth on any form of Note previously delivered by the Company to, and approved by, the applicable Trustee, other than merely as a result of completing any blanks (other than the "Other Terms" or equivalent blank) on such form, the Company will provide a description of the proposed different or additional terms to the applicable Trustee and its counsel for the purpose of determining whether such terms are consistent with the applicable Indenture, are administratively acceptable to such Trustee and its agents and do not affect such Trustee's or its agents' own rights, duties or immunities under the Notes or the applicable Indenture or otherwise in a manner which is not reasonably acceptable to such Trustee or its agents (all
59 33 such terms having been authorized, as of the date of these Administrative Procedures, by or pursuant to a Board Resolution and the applicable Trustee having received, as of the date of these Administrative Procedures, all opinions, certificates and orders required prior to the authentication and issuance of a Note containing such terms). Any offer to purchase such a Certificated Note shall only be accepted by the Company if such terms shall not be disapproved by the applicable Trustee or its counsel on one of the above-mentioned grounds after the foregoing review. In addition, before accepting any offer to purchase any Certificated Note to be settled in fewer than three Business Days, the Company will verify that the Senior Trustee or the Authenticating Agent, as the case may be, will have adequate time to prepare and authenticate such Certificated Note. B. The Company will advise the relevant Trustee (and, in the case of the Subordinated Note Trustee, the Authenticating Agent) by telephone (confirmed in writing at any time on the next Business Day) or electronic transmission of the information set forth in Settlement Procedure "A" above and the name of the Agent and shall instruct the relevant Trustee or the Authenticating Agent, as applicable, to authenticate the Note. Each such communication by the
60 34 Company shall constitute a representation and warranty by the Company to each Trustee and each Agent that (i) such Certificated Note is then, and at the time of issuance and sale thereof will be, duly authorized for issuance and sale by the Company, (ii) such Certificated Note will conform with the terms of the Indenture pursuant to which such Certificated Note is issued and (iii) upon authentication and delivery of such Certificated Note and any other Securities to be issued on or prior to the settlement date for such Certificated Note, the aggregate amount of Securities which have been issued and sold by the Company will not exceed the amount of Securities registered under the Registration Statements. C. The Company will deliver to Chemical Bank a pre-printed five-ply packet for such Certificated Note, which packet will contain the following documents in forms that have been approved by the Company, the Agents and the Trustees: 1. Certificated Note with customer confirmation. 2. Stub One - For Trustee. 3. Stub Two - For Agent. 4. Stub Three - For the Company. 5. Stub Four - For the Authenticating Agent.
61 35 D. The Senior Trustee (or, in the case of a Subordinated Note, the Authenticating Agent) will complete and authenticate such Certificated Note and deliver it (with the confirmation) and Stubs One, Two and Four to the Agent, and the Agent will acknowledge receipt of the Note by stamping or otherwise marking Stubs One and Four and returning Stub One to the relevant Trustee and Stub Four to the Authenticating Agent in the case of Subordinated Notes. Such delivery will be made only against such acknowledgment of receipt. Upon verification by the Agent that a Note has been properly prepared and authenticated by the Senior Note Trustee or the Authenticating Agent, payment therefor will be made to the Company by the Agent on the settlement date in immediately available funds in an amount equal to the issue price of such Note less the Agent's commission. Such payment shall be made only upon prior receipt by the Agent of immediately available funds from or on behalf of the purchaser unless the Agent decides, at its option, to advance its own funds for such payment against subsequent receipt of funds from the purchaser. In the event that any Certificated Note is incorrectly prepared, the applicable Trustee (and, if a Subordinated Note, the Authenticating Agent) will promptly issue a replacement Senior Note or Subordinated Note, as the case
62 36 may be, in exchange for the incorrectly prepared Certificated Note. E. The Agent will deliver such Certificated Note (with the confirmation) to the customer against payment in immediately payable funds. The Agent will obtain the acknowledgement of receipt of such Certificated Note by retaining Stub Two. F. The applicable Trustee will send Stub Three to the Company by first-class mail. Notwithstanding the foregoing, the Company, the Agent and the applicable Trustee and its agents may decide to issue Certificated Notes which are printed as separate documents and not as part of five-ply plackets, and may decide to dispense with the delivery of Stubs and instead to use different forms of receipt. Any such different arrangements must be agreed to prior to the acceptance by the Company of an offer to purchase Notes. Settlement Procedures Timetable: For orders of Certificated Notes solicited by any Agent, as agent, and accepted by the Company, Settlement Procedures "A" through "F" set forth above shall be completed on or before the
63 37 respective times (New York City time) set forth below: Settlement Procedure Time --------- ---- A 2:00 P.M on the Business Day before settlement B-C 3:00 P.M. on the Business Day before settlement D 2:15 P.M. on settlement date E 3:00 P.M. on settlement date F 5:00 P.M. on settlement date Notwithstanding the foregoing, if the settlement date is the date of acceptance of the offer to purchase the Note, Settlement Procedures "A" through "C" shall be completed on or before 11:00 A.M. (New York City time) on the settlement date. Fails: In the event that a purchaser shall fail to accept delivery of and make payment for a Note by 3:00 p.m., New York City time, on the settlement date therefor, the Agent will notify the relevant Trustee and, if applicable, the Authenticating Agent, and the Company by telephone, confirmed in writing (which may be given by telex or telecopy), and, if the Note has been delivered to the Agent, return the Note to the Senior Note Trustee or the Authenticating Agent. The Company will promptly provide such Trustee or the Authenticating Agent with appropriate documentation and instructions to complete the transactions hereinafter outlined and will remit to the Agent funds in
64 38 the amount, if any, it received with respect to such Note. Such payment will be made on the settlement date for such Note, if possible, and in any event not later than the Business Day following such settlement date. If such fail shall have occurred for any reason other than the failure of the Agent to provide the Settlement Details to the Company or to provide a confirmation to the purchaser within a reasonable period of time as described above, the Company will reimburse the Agent on an equitable basis for its loss of the use of funds during the period when they were credited to the account of the Company. Immediately upon receipt of a Note in respect of which a fail occurred, the Senior Note Trustee or Authenticating Agent will make appropriate entries in its records and cancel such Note.
65 Annex C Paine Webber Group Inc. Terms Agreement , 1994 PaineWebber International (U.K.) Ltd. 1 Finsbury Avenue London EC2M 2PA, England Dear Sirs: Paine Webber Group Inc. (the "Company") proposes, subject to the terms and conditions stated herein and in the Placement Agency Agreement dated February , 1994 (the "Placement Agency Agreement"), among the Company and PaineWebber International (U.K.) Ltd. (the "Purchaser"), to issue and sell to the Purchaser the securities specified in the Schedule hereto (the "Purchased Securities"). Each of the provisions of the Placement Agency Agreement not specifically related to the solicitation outside the United States by the Agent, as the agent of the Company, of offers to purchase Securities is incorporated herein by reference in its entirety, and shall be deemed to be part of this Terms Agreement to the same extent as if such provisions had been set forth in full herein. Nothing contained herein or in the Placement Agency Agreement shall make any party hereto an agent of the Company or make such party subject to the provisions therein relating to the solicitation of offers to purchase securities from the Company solely by virtue of such party's execution of this Terms Agreement. Each of the representations and warranties set forth in the Placement Agency Agreement shall be deemed to have been made at and as of the date of this Terms Agreement, except that each representation and warranty in Section 6 of the Placement Agency Agreement which makes reference to the Prospectus shall be deemed to be a representation and warranty as of the date of the Placement Agency Agreement in relation to the Prospectus (as therein defined), and also a representation and warranty as of the date of this Terms Agreement in relation to the Prospectus as amended and supplemented to relate to the Purchased Securities. 66 2 An amendment to one or both of the Registration Statements (as defined in the Placement Agency Agreement), or a supplement to the Prospectus, as the case may be, relating to the Purchased Securities, in the form heretofore delivered to you is now proposed to be filed with the Commission. Subject to the terms and conditions set forth herein and in the Placement Agency Agreement incorporated herein by reference, the Company agrees to issue and sell to the Purchaser and the Purchaser agrees to purchase from the Company the Purchased Securities, at the time and place, in the principal amount and at the purchase price set forth in the Schedule hereto. If the foregoing is in accordance with your understanding, please sign and return to us the counterparts hereof, and upon acceptance hereof by you this letter and such acceptance hereof, including those provisions of the Placement Agency Agreement incorporated herein by reference, shall constitute a binding agreement between you and the Company. PAINE WEBBER GROUP INC. By ________________________ Title: Accepted: PAINEWEBBER INTERNATIONAL (U.K.) LTD. By _______________________ Title: 67 Annex D (1) Each of the Company 1/ and PaineWebber Incorporated, a Delaware corporation (the "Subsidiary"), has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with full corporate power and authority to own its properties and conduct its business as described in the Prospectus, and is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction in which the failure to qualify and be in good standing would materially and adversely affect the business or condition of the Company and its consolidated subsidiaries considered as a whole. (2) All of the outstanding shares of capital stock of the Subsidiary have been duly and validly authorized and issued and are fully paid and nonassessable, and are owned by the Company directly, free and clear of any perfected security interest and, to my knowledge, after due inquiry of appropriate officers of the Company, any other security interests, claims, liens or encumbrances, except for restrictions on sales of capital stock contained in debt instruments. (3) The authorized equity capitalization of the Company is as described in the documents incorporated by reference in the Prospectus, and the Indentures and the Notes conform to the description thereof contained in the Prospectus (subject to the insertion in the Notes of the maturity dates, the interest rates and other similar terms thereof which will be described in supplements to the Prospectus as contemplated by the Placement Agency Agreement). (4) Each of the Indentures has been duly authorized, executed and delivered by the Company, has been duly qualified under the Trust Indenture Act of 1939, as amended, and constitutes a legal, valid and binding instrument enforceable against the Company in accordance with its terms (subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other laws affecting creditors' rights from time to time in effect); the enforcement of the Company's obligation is ___________________________ 1/ All capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to them in the Placement Agency Agreement of which this Annex D is a part. 68 2 also subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); and the Notes have been duly authorized and, when the remaining terms of any Note of either series have been established in accordance with the applicable Indenture and such Note has been duly executed, authenticated, issued and delivered against payment therefore in accordance with the provisions of the applicable Indenture and the Placement Agency Agreement, will constitute a legal, valid and binding obligation of the Company entitled to the benefits of the applicable Indenture, enforceable in accordance with its terms (subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other laws affecting creditors' rights from time to time in effect); the enforcement of the Company's obligation is also subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (5) The Registration Statements have become effective under the Securities Act of 1933, as amended (the "Securities Act"), and, to the best of my knowledge, no stop order suspending the effectiveness of either of the Registration Statements or suspending or preventing the use of the Prospectus has been issued and no proceedings for that purpose have been instituted or threatened. (6) The Registration Statements and the Prospectus and each amendment thereof or supplement to any of them, and the documents incorporated by reference in the Prospectus, as of their respective effective, issue or filing dates, as the case may be (except the financial statements and schedules and other financial and statistical information contained therein, as to which I express no opinion), complied as to form in all material respects with the applicable requirements of the Securities Act and the Securities Exchange Act of 1934, as amended, and the respective rules and regulations adopted thereunder. (7) The Placement Agency Agreement has been duly authorized, executed and delivered by the Company. (8) To the best of my knowledge, there are no franchises, contracts or other documents or any pending or threatened proceedings, legal or otherwise, before any court, governmental body or arbitrator, that are of a character required to be described in either of the 69 3 Registration Statements or the Prospectus or to be filed as exhibits to the Registration Statements and that are not described or filed as required. (9) The information required to be set forth in each of the Registration Statements in answer to Item 10 (insofar as it relates to me) of Form S-3, to the best of my knowledge, is accurately set forth in such Registration Statement in all material respects or no response is required with respect to such Item. (10) Neither the execution and delivery of the Indentures, the issue and sale of the Notes nor the consummation by the Company of the other transactions contemplated by the Placement Agency Agreement conflicts with, or results in a breach of, the Restated Certificate of Incorporation, as amended, or By-laws of the Company, any agreement or instrument known to me by which the Company or any subsidiary is bound, any law or regulation or, so far as is known to me, any order or regulation of any court, governmental instrumentality or arbitrator. (11) To the best of my knowledge, no holder of securities of the Company has rights to the registration of any securities of the Company because of the filing of either of the Registration Statements. (12) No consent, approval, authorization or order of any court or governmental agency or body is required for the consummation of the transactions contemplated in the Placement Agency Agreement, except such as have been obtained under the Securities Act and the Trust Indenture Act and such as may be required under state securities or blue sky laws in connection with the sale of Notes. In the course of the preparation by the Company of the Registration Statements and Prospectus, I participated in conferences with certain representatives of and independent accountants for the Company, and my examination of the Registration Statements and the Prospectus and my participation in those conferences did not bring to my attention any information which causes me to believe that either of the Registration Statements (other than the financial statements and schedules and other financial and statistical information included therein, as to which I make no statement or comment), at the time it became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or 70 4 necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or that the Prospectus (other than the financial statements and schedules and other financial and statistical information included therein, as to which I make no statement or comment), contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. 71 Annex E Accountants' Comfort Letter At each Closing Date and at such times as provided in the Placement Agency Agreement, 1/ Ernst & Young shall furnish to the Agents or the Purchaser, as the case may be, a letter or letters (which may refer to letters previously delivered to the Agents or the Purchaser, as the case may be), dated as of the Closing Date or such other date, in form and substance satisfactory to the Agents or the Purchaser, as the case may be, confirming that they are independent accountants within the meaning of the Securities Act and the Exchange Act and the respective applicable published rules and regulations thereunder, that the response to Item 10 of each of the Registration Statements is correct insofar as it relates to them and stating in effect that: (a) in their opinion the consolidated financial statements and schedules audited by them and incorporated by reference in the Registration Statements and the Prospectus comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the Exchange Act and the related published rules and regulations thereunder; (b) on the basis of a reading of the "Selected Financial Data", if any, included or incorporated in the Registration Statements and the Prospectus and of the latest unaudited consolidated condensed financial statements made available by the Company and its consolidated subsidiaries; carrying out certain specified procedures (but not an examination in accordance with generally accepted auditing standards) which would not necessarily reveal matters of significance with respect to the comments set forth in such letter; a reading of the minutes of the meetings of the stockholders, directors and audit and executive committees of the Company; and inquiries of certain officials of the Company who have responsibility for financial and accounting matters of the Company and its subsidiaries as to transactions and events subsequent to the date of the most recent financial statements included or __________________________ 1/ All capitalized terms used herein shall have the meanings ascribed to them in the Placement Agency Agreement of which this Annex E is a part. 72 2 incorporated in the Registration Statements and the Prospectus, nothing came to their attention which caused them to believe that: (1) the amounts in the unaudited "Summary Financial Information", if any, included in the Prospectus, and the amounts in the "Selected Financial Data", if any, included or incorporated by reference in the Registration Statements and the Prospectus, do not agree with the corresponding amounts in the audited financial statements from which such amounts were derived; (2) any unaudited financial statements included or incorporated in the Registration Statements and the Prospectus do not comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the Commission with respect to financial statements included or incorporated in quarterly reports on Form 10-Q under the Exchange Act; or any material modifications should be made to the unaudited financial statements for them to be presented in conformity with generally accepted accounting principles; (3) with respect to the period subsequent to the date of the most recent financial statements included or incorporated in the Registration Statements and the Prospectus, there were any changes, at a specified date not more than five business days prior to the date of the letter, in the consolidated long-term debt of the Company and its subsidiaries or capital stock of the Company (excluding retained earnings, amortization of restricted stock, foreign currency, translation adjustment and tax credits) as compared with the amounts shown on the most recent consolidated balance sheet included or incorporated in the Registration Statements and the Prospectus, except in all instances for changes or decreases disclosed in the Registration Statements and the Prospectus; or (4) if any unaudited pro forma consolidated condensed financial statements are included or incorporated by reference in the Prospectus, on 73 3 the basis of a reading of the unaudited pro forma financial statements, carrying out certain specified procedures, inquiries of certain officials of the Company and the acquired company who have responsibility for financial and accounting matters, and proving the arithmetic accuracy of the application of the pro forma adjustments to the historical amounts in the pro forma financial statements, nothing came to their attention which caused them to believe that the pro forma financial statements do not comply in form in all material respects with the applicable accounting requirements of Rule 11-02 of Regulation S-X or the pro forma adjustments have not been properly applied to the historical amounts in the compilation of those statements; (c) they have performed certain other specified procedures as a result of which they determined that certain information of an accounting, financial or statistical nature (which is limited to accounting, financial or statistical information derived from the general accounting records of the Company) set forth in the Registration Statements, as amended, and the Prospectus, as amended or supplemented, and in Exhibit 12 to the Registration Statements, including specified information, if any, included or incorporated from the Company's Annual Report on Form 10-K incorporated therein or specified information, if any, included or incorporated from any of the Company's Quarterly Reports on Form 10-Q incorporated therein, agrees with the accounting records of the Company and its subsidiaries, excluding any questions of legal interpretation. EX-4.1 3 FORM OF CERTIFICATE OF COMMON STOCK 1 not more Paine Webber (PICTURE) COMMON not more than 100,000 Group Inc. STOCK than 100,000 shares shares (Number) THIS CERTIFICATE INCORPORATED UNDER (Shares) IS TRANSFERABLE THE LAWS OF IN NEW YORK CITY THE STATE OF DELAWARE CUSIP 695629 10 5 THIS CERTIFIES IS THE OWNER OF THAT SEE REVERSE FOR CERTAIN DEFINITIONS FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF Paine Webber Group Inc. CERTIFICATE OF STOCK DATED: /s/ THEODORE A. LEVINE /s/ DARWIN BUCHANAN Secretary Chairman of the Board COUNTERSIGNED AND REGISTERED: MELLON SECURITIES TRUST COMPANY (NEW YORK, NEW YORK) (SEAL) TRANSFER AGENT AND REGISTRAR BY AMERICAN BANK NOTE COMPANY AUTHORIZED SIGNATURE
2 PAINE WEBBER GROUP INC. The Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof of the Corporation and the qualifications, limitations or restrictions of such preferences and/or rights. Such request may be made to the Corproation or to the Trasfer Agent or Registrar. - -------------------------------------------------------------------------------- Explanation of Abbreviations The following abbreviations when used in the form of ownership on the face of this certificate shall be construed as though they were written out in full according to applicable laws or regulations. Abbreviations in addition to those appearing below, may be used.
Phrase Abbreviation Equivalent Phrase Abbreviation Equivalent JT TEN As joint tenants, with right of TEN BY ENT As tenants by the entireties survivorship and not as tenants in common TEN IN COM As tenants in common UNIF GIFT MIN ACT Uniform Gifts to Minors Act
Word Word Word Abbreviation Equivalent Abbreviation Equivalent Abbreviation Equivalent ADM Administrator(s) EST Estate, Of estate of PAR Paragraph Administratrix EX Executor(s), Executrix PL Public Law AGMT Agreement FBO For the benefit of TR (As) trustee(s), for, of ART Article FDN Foundation U Under CH Chapter GDN Guardian(s) UA Under Agreement CUST Custodian for GDNSHP Guardianship UW Under will of, Of will of, DEC Declaration MIN Minor(s) Under last will & testament
================================================================================ Assignment Form For value received...........hereby sell, assign and transfer.............shares (I or we) (Amount) of the capital stock represented by this certificate to......................... PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ______________________________________.......................................... (Print full name and address of Assignee) ................................................................................ .......................................................______________, Assignee, Zip Code and do irrevocably constitute and appoint....................................... (Leave blank of fill in as explained in Notice below) as Attorney to transfer the said Stock on the books of the Corporation with full power of substitution in the promises. X......................................... Dated........................ X......................................... (Sign here exactly as name(s) is (are) shown on the face of this certificate without any change or alteration whatever.) IMPORTANT NOTICE: When you sign your name to this Assignment Form without filling in the name of your "Assignee" or "Attorney", this stock certificate becomes fully negotiable, similar to a check endorsed in blank. Therefore, to safeguard a signed certificate, it is recommended that you either, (i) fill in the name of the new owner in the "Assignee" blank, or (ii) if you are sending the signed certificate to your bank or broker, fill in the name of the bank or broker in the "Attorney" blank. Alternatively, instead of using this Assignment Form, you may sign a separate "stock power" form and then mail the unsigned stock certificate and the signed "stock power" in separate envelopes. For added protection, use certified or registered mail for a stock certificate. Printed in U.S.A. EX-4.2 4 THIRD SUPPLEMENTAL INDENTURE 1 THIRD SUPPLEMENTAL INDENTURE dated as of November 30, 1993, between PAINE WEBBER GROUP INC., a corporation duly organized and existing under the laws of Delaware (herein called the "Company"), having its principal office at 1285 Avenue of the Americas, New York, New York 10019, and CHEMICAL BANK DELAWARE, a corporation duly organized and existing under the laws of the State of Delaware, as Trustee (herein called the "Trustee"). RECITALS The Company and the Trustee are parties to an Indenture dated as of March 15, 1988, as supplemented by a First Supplemental Indenture dated as of September 22, 1989, and by a Second Supplemental Indenture dated as of March 22, 1991 (the "Indenture"), relating to the issuance from time to time by the Company of its Securities. Capitalized terms used herein and not otherwise defined shall have the meanings given them in the Indenture. The Company has requested the Trustee to join with it in the execution and delivery of this third supplemental indenture (the "Third Supplemental Indenture") in order to supplement and amend the Indenture by amending and restating certain provisions thereof for the purpose of redesignating the officers authorized and required to execute the Securities on behalf of the Company. Section 901 of the Indenture provides that supplemental indenture may be entered into by the Company and the Trustee, without the consent of any Holders of the Securities, to cure any ambiguity, to correct or supplement any provision therein which may be defective or inconsistent with any other provision therein, or to make any other provisions with respect to matters or questions arising under the Indenture, provided such action shall not adversely affect the interests of the Holders or Securities of any series in any material respect. The Company has determined that this Third Supplemental Indenture complies with said Section 901 and does not require the consent of any Holders of Securities. 2 At the request of the Trustee, the Company has furnished the Trustee with an Opinion of Counsel complying with the requirements of Section 903 of the Indenture, stating, among other things, that the execution of this Third Supplemental Indenture is authorized or permitted by the Indenture, and an Officers' Certificate and Opinion of Counsel complying with the requirements of Section 102 of the Indenture, and has delivered to the Trustee a Board Resolution as required by Section 901 of the Indenture authorizing the execution by the Company of this Third Supplemental Indenture and its delivery by the Company to the Trustee. All things necessary to make this Third Supplemental Indenture a valid agreement of the Company and the Trustee, in accordance with the terms of the Indenture, and a valid amendment of and supplement to the Indenture have been done. NOW, THEREFORE, THIS THIRD SUPPLEMENTAL INDENTURE WITNESSETH: For and in consideration of the premises, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: I. AMENDMENT TO THE INDENTURE The first sentence of Section 303 of the Indenture is amended to read in its entirety as follows: "The Securities shall be executed on behalf of the Company by manual or facsimile signatures of its Chairman, its President or any of its Vice Presidents or its Treasurer, under its corporate seal reproduced thereon attested by the manual or facsimile signature of its Secretary or one of its Assistant Secretaries." II. GENERAL PROVISIONS A. The recitals contained herein shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representation as to the validity of this Third Supplemental Indenture. The Indenture, as supplemented and 3 amended by this Third Supplemental Indenture, is in all respects hereby adopted, ratified and confirmed. B. This instrument may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. C. This Third Supplemental Indenture shall be deemed to be a contract under the laws of the State of New York and for all purposes shall be governed by and construed in accordance with the laws of said State. IN WITNESS WHEREOF, the parties hereto have caused this Third Supplemental Indenture to be duly executed, and their corporate seals to be hereunto affixed and attested, all as of the day and year first above written. PAINE WEBBER GROUP INC., by _________________________________ Name: Title: (Seal) Attest: _______________________________ CHEMICAL BANK DELAWARE, as Trustee, by _________________________________ Name: Title: (Seal) Attest: _______________________________ EX-10.1 5 LIMITED PARTNERSHIP AGREEMENT OF PW PARTNERS 1 LIMITED PARTNERSHIP AGREEMENT of PW PARTNERS 1992 DEDICATED L.P. Among THE PARTIES NAMED HERETO Dated as of September 2, 1992 - -------------------------------------------------------------------------------- THE LIMITED PARTNERSHIP INTERESTS EVIDENCED BY THIS PARTNERSHIP AGREEMENT AND THE SECURITIES TO BE HELD BY THE PARTNERSHIP HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES LAW AND MUST BE HELD INDEFINITELY UNLESS SOLD IN COMPLIANCE WITH ALL APPLICABLE SECURITIES LAWS. 2 LIMITED PARTNERSHIP AGREEMENT of PW PARTNERS 1992 DEDICATED L.P. Table of Contents -----------------
Page ---- ARTICLE I. DEFINITIONS AND TERMS . . . . . . . . . . . . . . . . . . . . . 1 Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.02. Terms Generally . . . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE II. THE PARTNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 2.01. Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 2.02. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 2.03. Principal Place of Business . . . . . . . . . . . . . . . . . . 7 Section 2.04. Registered Office in Delaware . . . . . . . . . . . . . . . . . 7 Section 2.05. Names and Addresses of the Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 ARTICLE III. PURPOSE AND POWERS . . . . . . . . . . . . . . . . . . . . . . . 8 Section 3.01. Purpose and Powers . . . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE IV. MANAGEMENT AND CONTROL . . . . . . . . . . . . . . . . . . . . . 9 Section 4.01. Authority of General Partner . . . . . . . . . . . . . . . . . . 9 Section 4.02. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 4.03. No Compensation to General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE V. CAPITAL CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . 10 Section 5.01. Capital Contributions . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE VI. ALLOCATIONS AND DISTRIBUTIONS . . . . . . . . . . . . . . . . . 11 Section 6.01. Allocation of Income and Loss . . . . . . . . . . . . . . . . . 11 Section 6.02. Liability of General and Limited Partners . . . . . . . . . . . . . . . . . . . . . . . 11 Section 6.03. Allocations for Tax Purposes . . . . . . . . . . . . . . . . . . 12 Section 6.04. Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 6.05. Distributions . . . . . . . . . . . . . . . . . . . . . . . . . 13
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Page ---- ARTICLE VII. PARTNERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 7.01. Designation of Limited Partners . . . . . . . . . . . . . . . . 15 Section 7.02. Acceleration of Applicable Date; Purchase of a Limited Partners's Interest . . . . . . . . . . . . . . . . . . . . . 16 Section 7.03. Transfer of a Limited Partner's Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 7.04. Admission or Substitution of New Limited Partners . . . . . . . . . . . . . . . . . . . . . 18 Section 7.05. Admission of Substitute or Additional General Partners . . . . . . . . . . . . . . . . . 19 Section 7.06. Withdrawal of a Limited or General Partner . . . . . . . . . . . . . . . . . . . . . . . 20 Section 7.07. Final Events With Respect to a Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 7.08. Continuation of Partnership . . . . . . . . . . . . . . . . . . 21 Section 7.09. Removal of General Partner . . . . . . . . . . . . . . . . . . . 21 Section 7.10. Compliance with Law . . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE VIII. WINDING-UP AND DISSOLUTION OF THE PARTNERSHIP . . . . . . . . . . . . . . . . . . . . . . . 22 Section 8.01. Winding-Up and Dissolution . . . . . . . . . . . . . . . . . . . 22 Section 8.02. Amounts Reserved . . . . . . . . . . . . . . . . . . . . . . . . 23 ARTICLE IX. REPORTS TO PARTNERS . . . . . . . . . . . . . . . . . . . . . . 23 Section 9.01. Books of Account . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 9.02. Audit and Report . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 9.03. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . 24 ARTICLE X. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 10.01. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 10.02. Understanding of Limited Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 10.03. Indemnification and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 10.04. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 10.05. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 10.06. Completeness and Amendments . . . . . . . . . . . . . . . . . . 26 Section 10.07. Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . 26 Section 10.08. Transfer of PWG Common and Option . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4 PW PARTNERS 1992 DEDICATED L.P. LIMITED PARTNERSHIP AGREEMENT dated as of September 2, 1992 among PAINEWEBBER PARTNERS INC., a Delaware corporation, as General Partner, and the persons signing this Agreement as Limited Partners. The Partners, in consideration of their mutual covenants herein contained, hereby agree to become partners and to form a limited partnership (the "Partnership") under the Delaware Revised Uniform Limited Partnership Act (the "Delaware Act") upon the filing for record of the Certificate of Limited Partnership in the office of the Secretary of State as required by Section 17-201 of the Delaware Act, for the purpose and duration, and upon the terms and conditions, hereinafter set forth, and further hereby mutually covenant and agree as follows: ARTICLE I Definitions and Terms 1.01. Definitions. For the purposes of this Agreement, the following terms have the corresponding meanings, except as otherwise specifically provided herein: "Acquiring Person" means any "person," as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act, other than PWG, PWI or any employee benefit plan sponsored by PWG or PWI, who becomes a "beneficial owner," as such term is used in Rule 13d-3 promulgated under the Exchange Act, of 20% or more of the Voting Stock of PWG or PWI; provided, however, that in the case of any "person" who on the date of this Agreement owned 5% or more of the Voting Stock of PWG, only acquisitions by such "person" occurring after such date shall be taken into account in determining whether or not such "person" is an Acquiring Person. "Affiliate" means, with respect to a Person, any other Person who, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the first Person. "Applicable Date" means January 1, 1996, unless accelerated pursuant to Section 7.02. 5 2 "Bankruptcy" means, with respect to a Person, the occurrence of any of the following events: (i) the filing of an application by such Person for, or a consent to, the appointment of a trustee or custodian of his assets; (ii) the filing by such Person of a voluntary petition in bankruptcy or the seeking of relief under Title 11 of the United States Code, as now constituted or hereafter amended, or the filing of a pleading in any court of record admitting in writing his inability to pay his debts as they become due; (iii) the inability of such Person to pay his debts as such debts become due; (iv) the making by such Person of a general assignment for the benefit of creditors; (v) the filing by such Person of an answer admitting the material allegations of, or his consenting to, or defaulting in answering, a bankruptcy petition filed against him in any bankruptcy proceeding or petition seeking relief under Title 11 of the United States Code, as now constituted or as hereafter amended; or (vi) the entry of an order, judgment or decree by any court of competent jurisdiction adjudicating such Person a bankrupt or insolvent or appointing a trustee or custodian of his assets and the continuance of such order, judgment or decree unstayed and in effect for a period of 60 consecutive days. "Bonus Compensation Payment" means a payment equal to the cash dividend per share paid on PWG Common multiplied by the number of shares of PWG Common subject to the Option on the record date for such cash dividend. "Capital Account" means, with respect to a Partner, an account maintained for such Partner to which is credited such Partner's contributions to the Partnership and any net income allocated to such Partner pursuant to Section 6.01 and from which is debited any distributions to such Partner and any net losses allocated to such Partner pursuant to Section 6.01. In the case of any distribution in kind, Capital Accounts will be adjusted as if the asset distributed had been sold and the proceeds distributed in cash, and any resulting gain or loss on such sale will be allocated pursuant to Section 6.01. "Capital Contribution" means, with respect to a Partner, the contribution of capital to the Partnership made by such Partner in accordance with Section 5.01. "Capital Gain (Loss)" means, with respect to the sale or other disposition of PWG Common, the option or any other Investment or asset, the amount, if any, by which: 6 3 (i) the proceeds of such sale or other disposition, plus any interest, dividends or other income received with respect to such Investment or other asset (unless such amounts previously have been distributed to the Partners entitled thereto), exceed (are less than) (ii) the cost or other basis of such Investment or other asset to the Partnership, plus any expenses incurred with respect thereto. "Capital Percentage" means, with respect to a Partner, the percentage that the Capital Account of such Partner bears to the sum of all Capital Accounts. "Capital Schedule" means a capital schedule distributed pursuant to Section 5.01(a). "Certificate of Limited Partnership" means the Certificate of Limited Partnership filed or to be filed with respect to the Partnership for record in the Office of the Secretary of State of Delaware pursuant to Section 17-201 of the Delaware Act. A "Change in Control" shall be deemed to have occurred if: (i) any Person becomes an Acquiring Person; (ii) a majority of the Board of Directors of PWG ("PWG Board") at any time consists of individuals elected to membership at a PWG Board meeting or a PWG shareholders' meeting other than individuals nominated or approved by a majority of the Disinterested Directors; (iii) PWG adopts any plan of liquidation providing for the distribution of all or substantially all of its assets; (iv) all or substantially all the business of PWI is disposed of pursuant to a merger, consolidation or other transaction (other than a merger, consolidation or other transaction with a company of which 50% or more of the Voting Stock is owned, directly or indirectly, by PWG both before and immediately after the merger, consolidation or other transaction) in which PWI is not the surviving corporation or PWG is materially or completely liquidated; or (v) PWG or PWI combines with another company and is the surviving corporation but, 7 4 immediately after the combination, the Persons who were shareholders of PWG immediately prior to the combination hold, directly or indirectly, 50% or less of the Voting Stock of the combined company (there being excluded from the number of shares held by such shareholders, but not from the Voting Stock of the combined company, any shares received by Affiliates of such other company in exchange for stock of such other company). "Code" means the Internal Revenue Code of 1986, as from time to time amended and in effect. "Compensation Committee" means the Compensation Committee of the PWG Board. "Contribution Date" means the date, fixed by the General Partner in its discretion, on which Capital Contributions are to be made by the Limited Partners. "Disinterested Director" means any member of the PWG Board who (i) is not an officer or employee of PWG, PWI or any of their subsidiaries, (ii) is not an Acquiring Person or an affiliate or associate of an Acquiring Person or a nominee or representative of an Acquiring Person or of any such affiliate or associate, and (iii) was a member of the PWG Board prior to the date of this Agreement or was recommended for election or elected by a majority of the Disinterested Directors then on the PWG Board. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Final Event" means the death, adjudication of incompetency, Bankruptcy, liquidation, dissolution or withdrawal from the Partnership of any Partner. "General Partner" means the Person named herein as General Partner or any Person admitted as an additional or substitute General Partner, so long as such Person shall remain a General Partner. "Initial Limited Partner" means the Person executing a counterpart of this Agreement as the Initial Limited Partner. "Investments" means PWG Common, the Option, any securities other than PWG Common delivered upon exercise of the Option, any securities or other property distributed in respect of PWG Common or that may be 8 5 acquired pursuant to rights distributed in respect of PWG Common, short-term investments commonly regarded as money-market investments, bank deposits and cash. "Limited Partner" means any of the Persons named herein as Limited Partners or any other Person admitted as an additional or substitute Limited Partner, as long as such Person remains a Limited Partner. "Limited Partnership Percentage" means, with respect to any Limited Partner, the Capital Account of such Limited Partner divided by the Capital Accounts of all the Limited Partners. "Net Capital Gain" means the sum of all Capital Gains realized by the Partnership on or prior to a given date, less the sum of the following: (i) all Capital Losses or, without duplication, other losses realized by the Partnership on or prior to such date; plus (ii) a reserve established by the General Partner in its discretion for unrealized losses; plus (iii) the aggregate amount of all cash distributions previously made to the Limited Partners in accordance with Section 6.05(a). "Net Value" means, with respect to any Investment as of any date: (i) the value of the Investment on such date, as determined in accordance with Section 6.04, minus (ii) the sum of the indebtedness incurred by the Partnership with respect to such Investment, whether or not secured by the Investment and with or without recourse to the Partnership. "Operative Date" means the date, if any, following a Change in Control that has been designated in a resolution adopted by a majority of the Disinterested Directors, in their sole discretion, as the Operative Date. "Option" means the contractual right to be granted by Dedicated Partners Inc., a wholly-owned subsidiary of PWG, to the Partnership to acquire up to 1,000,000 shares of PWG Common at $22.125 per share, to be exercisable in whole or in part at any time on or after the Applicable Date through December 31, 2002. "PaineWebber" means PWG or any Affiliate of PWG. 9 6 "Partner" means any Person who is a partner in the Partnership, whether a General Partner or a Limited Partner. "Person" means any individual, corporation, partnership, association, trust, joint stock company or unincorporated organization. "PWG" means Paine Webber Group Inc., a Delaware corporation. "PWG Common" means the common stock, par value $1.00, of PWG. "PWI" means PaineWebber Incorporated, a Delaware corporation. "Senior Limited Partners" means the three individual Limited Partners who have the largest Limited Partnership Percentages on the Operative Date. If more than three individuals have such Limited Partnership Percentages (e.g., two or more individual Limited Partners hold the third highest interest), then all such individuals shall be Senior Limited Partners. If three or fewer individuals are Limited Partners on the Operative Date, then such remaining individual Limited Partners shall be Senior Limited Partners. "Successor in Interest" means, with respect to a Partner (whether such position is acquired or held by operation of law or otherwise), any (i) trustee, custodian, receiver or other Person acting in any bankruptcy or reorganization proceeding with respect to such Partner; (ii) assignee for the benefit of the creditors of such Partner; (iii) trustee, receiver or other fiduciary acting for or with respect to the dissolution, liquidation or termination of such Partner; (iv) executor, administrator, committee or other legal representative of such Partner; or (v) other successor or assign of such Partner. "Voting Stock" means the capital stock of any class or classes of a corporation having general voting power under ordinary circumstances, in the absence of contingencies, to elect the directors of such corporation. 1.02. Terms Generally. Any definition in Section 1.01 applies equally to both the singular and plural forms of the terms defined. If the context requires, any pronoun includes its masculine, feminine and neuter forms. Each of the words "include," "includes" and 10 7 "including" is deemed to be followed by the phrase "without limitation." All terms herein that relate to accounting matters are to be interpreted in accordance with generally accepted accounting principles as in effect from time to time. All references to "Sections" and "Articles" refer to Sections and Articles of this Agreement, unless otherwise specified. The words "hereof," "herein" and similar terms relate to this Agreement. ARTICLE II The Partnership 2.01. Name. The Partnership will conduct its activities under the name "PW Partners 1992 Dedicated L.P." The General Partner will have the power at any time to change the name of the Partnership. The General Partner will give prompt notice of any such change to each Limited Partner. 2.02. Term. The Partnership will commence upon the filing of the Certificate of Limited Partnership in the Office of the Secretary of State of Delaware and will continue in existence through the close of business on December 31, 2005, unless sooner terminated pursuant to the provisions Section 7.08 or Section 8.01(a). At any time on or prior to December 31, 2005, the General Partner may extend the term of the Partnership for up to five years if the General Partner deems such extension desirable to permit the orderly liquidation of the Partnership or otherwise to further the purposes of the Partnership. 2.03. Principal Place of Business. The principal place of business of the Partnership will be 1285 Avenue of the Americas, New York, New York 10019, or such other place, within or without the State of Delaware, as may be designated by the General Partner from time to time. The General Partner will give prompt notice of any change to each Limited Partner. 2.04. Registered Office in Delaware. The address of the Partnership's registered office in Delaware is 1209 Orange Street in the City of Wilmington, County of New Castle. The name of the Partnership's registered agent at such address is The Corporation Trust Company. 2.05. Names and Address of the Partners. The name and residence address of each Partner is as set forth opposite his signature. 11 8 ARTICLE III Purpose and Powers 3.01. Purpose and Powers. The purpose of the Partnership is (a) to acquire and hold shares of PWG Common, the Option and, upon exercise of the Option, the securities to be delivered upon such exercise, (b) to realize Capital Gains upon an increase in the market price of PWG Common, and (c) to distribute to the Limited Partners the Option, fractional interests in the Option and any and all shares of PWG Common remaining after the whole or partial exercise of the Option and payment of the exercise price of the Option. In furtherance of this purpose, the Partnership will have all powers necessary, suitable or convenient to accomplish this purpose, alone or with others, as principal or agent, including the following: (i) to buy or otherwise acquire, hold and sell the Option, PWG Common, any other securities to be delivered upon exercise of the Option and any other Investments, or any combination thereof, whether any of the foregoing are readily marketable or not; (ii) to exercise the Option, in whole or in part, at any time during the term thereof and to pay or cause the payment of the exercise price of the Option in whole or in part; (iii) to distribute to the Limited Partners PWG Common, or any dividends or other distributions received by the Partnership in respect thereof, fractional interests in the Option, any other securities received upon exercise of the Option and any other Investments or assets of the Partnership, or any combination thereof; (iv) to invest and reinvest any cash assets of the Partnership in Investments; (v) to borrow money from time to time, issue promissory notes or other evidences of indebtedness and secure payment of the principal of any such indebtedness and the interest thereon by mortgage, pledge or the granting of a security interest in any of the property of the Partnership; 12 9 (vi) to lend any of its property or funds, either with or without security, at any legal rate of interest or without interest; (vii) to have and maintain one or more offices within or without the State of Delaware, and in connection therewith, to rent or acquire office space, engage personnel and compensate them and do such other acts and things as may be advisable or necessary in connection with the maintenance of such office or offices; (viii) to open, maintain, effect transactions in, and close securities, commodities and futures accounts, including both cash and margin accounts, with brokers, dealers, merchants and any other person authorized to conduct any such business; (ix) to open, maintain and close bank accounts and draw checks and other orders for the payment of monies; (x) to engage and compensate accountants, custodians, investment advisors, attorneys and any and all other advisors, agents and assistants, both professional and nonprofessional, as may be necessary or advisable; (xi) to enter into, make and perform all contracts, agreements and other undertakings as may be necessary or advisable or incident to carrying out its purpose; and (xii) to sue and be sued, to prosecute, settle or compromise all claims against third parties, to compromise, settle or accept judgment with respect to claims against the Partnership, and to execute all documents and make all representations, admissions and waivers in connection therewith. ARTICLE IV Management and Control 4.01. Authority of General Partner. (a) The management and operation of the Partnership and the formulation and execution of investment policy will be vested exclusively in the General Partner. In its sole 13 10 discretion, the General Partner will exercise all powers necessary or convenient for the purposes of the Partnership, including those enumerated in or implied by Section 3.01, on behalf and in the name of the Partnership. If at any time the Partnership has two or more General Partners, each such General Partner will have the full authority of the General Partner under this Agreement; provided, however, that any controversy among the General Partners will be resolved in favor or the General Partner or Partners having the greater interest in the Partnership (based upon Capital Contributions). (b) A Limited Partner will have no right to, and will not, take part in the management or control of the Partnership's business or act or bind the Partnership, and will have only the rights and powers granted to Limited Partners herein. (c) No provision of this Agreement precludes any Partner or any Affiliate of any Partner from engaging in any activity whatsoever, including receiving compensation from issuers of securities for investment banking services, managing or advising with respect to investments, participating in investments, brokerage, consulting or advisory arrangements, or acting as an advisor to or a participant in any corporation, partnership, trust or other business entity or from receiving compensation or profit therefore. 4.02. Expenses. The General Partner will bear and pay all the expenses of the Partnership, excluding (i) costs and expenses directly related to the purchase or sale of the Option, PWG Common, or other Investments by the Partnership (including brokerage fees and commissions, transfer taxes and costs relating to the registration or qualification for sale of the Option, PWG Common or any other Investments); and (ii) any Federal, state, local or other taxes of the Partnership. 4.03. No Compensation to General Partner. The General Partner will not receive any fees or other compensation for serving as such pursuant to this Agreement. ARTICLE V Capital Contributions 5.01. Capital Contributions. (a) Prior to the Contribution Date, the General Partner will prepare and 14 11 distribute to each prospective Limited Partner designated pursuant to Section 7.01, other than the Initial Limited Partner, a Capital Schedule stating the Capital Contribution and Capital Percentage of such prospective Limited Partner. The General Partner will promptly notify each such prospective Limited Partner of any change in such Capital Schedule. (b) On or before the Contribution Date, the General Partner and each such Limited Partner will make a Capital Contribution to the Partnership in the amount and in the manner provided on their respective Capital Schedules. ARTICLE VI Allocations and Distributions 6.01. Allocation of Income and Loss. The net income (or net loss) of the Partnership will be determined in each fiscal year in accordance with the accounting methods followed by the Partnership for Federal income tax purposes and will be allocated among the Partners and credited to (or debited from) their respective Capital Accounts in accordance with their respective Capital Percentages. Notwithstanding the foregoing, the Capital Accounts of the Limited Partners will not be reduced below zero. If the Capital Accounts of the Limited Partners are reduced to zero, any net loss that would otherwise be allocated to the Limited Partners will be allocated to the General Partner and debited from its Capital Account. Any net income received following such allocation of net loss to the General Partner that would otherwise be allocated to the Limited Partners will first be allocated to the General Partner and credited to its Capital Account until the amount so credited equals the amount debited from the General Partner's Capital Account pursuant to the preceding sentence. Thereafter, net income will be allocated and credited according to the provisions of the first sentence of this Section 6.01. 6.02. Liability of General and Limited Partners. (a) The General Partner will have unlimited liability for the satisfaction and discharge of all losses, liabilities and expenses of the Partnership. (b) Each Limited Partner and former Limited Partner will be liable for the satisfaction and discharge of all losses, liabilities and expenses of the Partnership allocable to him pursuant to Section 6.03, but only to the 15 12 extent of his Capital Contribution. In no event will any Limited Partner or former Limited Partner be obligated to make any additional capital contribution to the Partnership in excess of his initial Capital Contribution, or have any liability in excess of his Capital Contribution for the satisfaction and discharge of the losses, liabilities and expenses of the Partnership. However, if any Limited Partner or former Limited Partner receives a distribution from the Partnership in violation of Section 17-607 of the Delaware Act, knowing at the time of the distribution that it violated Section 17-607 of the Delaware Act, he will be liable to the Partnership for the amount of the distribution. (c) Except as set forth in Section 6.01, a Partner will not have any obligation to the Partnership or to any other Partner to restore any negative balance in the Capital Account of such Partner. Until distribution of any such Partner's interest in the Partnership upon the dissolution of the Partnership, neither his Capital Account nor any part thereof will be subject to withdrawal or redemption except with the consent of the General Partner. 6.03. Allocations for Tax Purposes. (a) All items of income, deduction and credit realized by or allowable to the Partnership will be determined and allocated among the Partners for Federal, state and local income tax purposes in the same manner as set forth in Section 6.01. (b) The General Partner will be the "tax matters partner" for all purposes of the Code and will have the power and authority to effect the allocations provided for in this Section 6.03 and to take such actions as the tax matters partner is required or permitted to take under the Code and to take all other actions that, in the good faith opinion of the General Partner, are necessary or convenient for the Partnership to take to ensure compliance with the Code or any other applicable law or regulation. Notwithstanding any other provision of this Agreement to the contrary, if in the good faith opinion of the General Partner any of the allocations provided for in this Section 6.03 are prohibited by the Code or other applicable law or regulation or may subject the Partnership or any Partner to legal penalty or onerous condition, the General Partner will have the power and authority to modify any such allocation to the extent necessary to comply with the Code or other applicable law or regulation or to avoid such legal penalty or onerous condition. 16 13 6.04. Valuation. For the purpose of determining Net Value, the value of the Option, any fractional interest in the Option, PWG Common, any other Investment or any other asset of the Partnership as of any date (or in the event such date is not a business day, as of the next preceding business day) will be determined as follows: (a) except as provided in clause (d) below, marketable Investments listed on a national securities exchange or as a "National Market Issue" in the National Association of Securities Dealers' Automated Quotation System will be valued at the last sales price on the date of valuation, or in the absence of a sale on such date, at the last bid price on the date of valuation; (b) except as provided in clause (d) below, marketable Investments traded in the over-the-counter market, but which are not "National Market Issues," will be valued at the last bid price as reported for the date of valuation; (c) the option will be valued (i) prior to the Applicable Date, at zero, and (ii) on and after the Applicable Date, at the aggregate value on the valuation date of the securities to be delivered upon exercise of the Option (determined as provided in this Section 6.04), less the aggregate exercise price of the Option; (d) notwithstanding anything in this Section 6.04 to the contrary, any asset required to be sold by the Partnership at a specified price upon the occurrence of a contingent event will be valued at such price upon and after the occurrence of such event; and (e) all other assets will be valued at fair market value. All valuation decisions made pursuant to this Section 6.04 will be made by the General Partner. 6.05. Distributions. (a) All cash receipts of the Partnership with respect to any Capital Gain will be distributed as soon as practicable after the receipt thereof to the Partners in proportion to their respective Capital Accounts; provided, however, that the amount to be so distributed may not exceed the Net Capital Gain of the 17 14 Partnership at the time of such distribution and provided further that cash receipts needed for the payment of the exercise price of the Option will be used for that purpose and not distributed. Notwithstanding the previous sentence, prior to the Applicable Date, the General Partner will have authority to withhold any distribution provided for in this Section 6.05(a). (b) The General Partner will make distributions of cash, to the extent of the amount of cash then held by the Partnership, to the Partners for payment of applicable Federal, state and local taxes on any substantial amount of net realized taxable income not otherwise distributed to the Partners for any fiscal year of the Partnership. Such distributions will be disbursed as soon as possible after preparation and mailing of the report provided for in Section 9.02. The aggregate amount of any such distribution will be determined by the General Partner, except that, subject to the limitation in the first sentence of this Section 6.05(b), the minimum aggregate amount of such distribution will be the taxes that would be payable if the taxable income of the Partnership were all allocated to an individual subject to the then-prevailing maximum Federal, New York State and New York City tax rates (taking into account the extent to which the taxable income allocated by the Partnership was composed of long-term capital gains and the deductibility of state and local income taxes for Federal income tax purposes). Each such distribution will be allocated among the Partners in accordance with their respective Capital Percentages. (c) upon the exercise of the Option in whole or in part and payment of the exercise price thereof, the General Partner will either (i) distribute to the Partners the shares of PWG Common then held by the Partnership or (ii) sell some or all such shares and distribute to the Partners the net cash received on account of such sale and any remaining shares of PWG Common then held by the Partnership. (d) Any cash dividends on PWG Common or Bonus Compensation Payments received by the Partnership will be distributed to the Partners in proportion to their respective Capital Accounts promptly after the receipt thereof by the Partnership. (e) In addition to distributions required by Sections 6.05(a) through 6.05(d), inclusive, the General Partner at any other time may make distributions to the Partners of cash, PWG Common, the Option, 18 15 fractional interests in the Option or other Investments or assets or any combination thereof. Each such distribution will be allocated to the Partners in accordance with their respective Capital Accounts. (f) If a Limited Partner receives a distribution of PWG Common, the Option or a fractional interest in the Option prior to the Applicable Date, he will, as a condition to receiving such distribution, agree in writing that (i) he will not pledge, sell or otherwise dispose of such securities prior to the Applicable Date, except for transfers by will or pursuant to the laws of descent and distribution and (ii) if his employment by PaineWebber terminates prior to the Applicable Date for any reason whatsoever (other than death, permanent disability as determined by the Board of Directors of PWI, retirement pursuant to any then existing pension or retirement plan of PaineWebber or otherwise with the prior approval of the Compensation Committee), he will sell all such securities to the Partnership within 90 calendar days following such termination. The purchase price for such securities will be determined as follows: (x) for shares of PWG Common, the value of such shares determined as provided in Section 6.04(d), and (y) for the Option or a fractional interest in the Option, $1.00. All such securities will bear appropriate legends reflecting the foregoing provisions. Dissolution of the Partnership prior to the Applicable Date will not affect such Limited Partner's obligations under this Section 6.05(f). (g) In no event will any distribution be made to any Limited Partner in an amount greater than the amount in such Limited Partner's Capital Account. ARTICLE VII Partners 7.01. Designation of Limited Partners. (a) The Initial Limited Partner shall be deemed to be a Limited Partner as of the date of this Agreement. At any time prior to the Contribution Date, the General Partner may invite any other Person to become a Limited Partner by delivery of a Capital Schedule prepared in accordance with Section 5.01. Any Person so invited who agrees in writing prior to the Contribution Date to make the Capital Contribution set forth on such Capital Schedule will have the opportunity to do so, but no Person other than the Initial Limited Partner will be deemed to be a Limited Partner until he has made a Capital Contribution and been 19 16 admitted to the Partnership pursuant to Section 7.04. The Initial Limited Partner will have no obligation to make a Capital Contribution. (b) At the request of any employee of PaineWebber who has been invited by the General Partner to become a Limited Partner, the General Partner, in its sole discretion, may permit a trust designated by such employee to make the Capital Contribution for such person and to become a Limited Partner of the Partnership. If such a trust is admitted as a Limited Partner, all references herein to the termination of employment of a Limited Partner or to any Final Event with respect to a Limited Partner will be deemed to refer both to such trust and to the employee of PaineWebber who designated such trust. All references herein to an employee of PaineWebber will include consultants to PaineWebber and all references herein to employment by PaineWebber will include employment by PaineWebber as a consultant. (c) The General Partner's right to designate all the Limited Partners other than the Initial Limited Partner will be exercised in its sole discretion and will not be subject to challenge by any Limited Partner. The fact that a Limited Partner was a limited partner with respect to a previous partnership sponsored or established by PaineWebber does not confer upon him any right to be a Limited Partner of this Partnership. 7.02. Acceleration of Applicable Date: Purchase of a Limited Partner's Interest. (a) The General Partner (acting unanimously, in the case of multiple General Partners), with the consent of the Compensation Committee, may at any time or from time to time accelerate the Applicable Date with respect to the Capital Accounts (in whole or in part) of all (but not less than all) of the Limited Partners. (b) Notwithstanding anything in Section 7.02(a) to the contrary, the Applicable Date will be automatically accelerated with respect to all of the Capital Accounts upon the occurrence of either of the following events: (i) a Change in Control and the declaration of an Operative Date; or (ii) the commencement of a tender offer to acquire 20% or more of the outstanding shares of PWG Common if such tender offer has not been approved by a majority of the Disinterested Directors. 20 17 (c) If the employment of a Limited Partner by PaineWebber terminates for any reason whatsoever (other than death, permanent disability as determined by the Board of Directors of PWI, retirement pursuant to any then existing pension or retirement plan of PaineWebber or otherwise with the prior approval of the Compensation Committee) on or after the Applicable Date, the General Partner will have the right, exercisable in its sole discretion and on written notice given within 90 calendar days of such termination, to purchase for cash such Limited Partner's interest in the Partnership (or if such Person has ceased to be a Limited Partner, his rights or the rights of his Successor in Interest, if any, to receive allocations and distributions with respect thereto) and any fractional interest in the Option distributed to such Limited Partner or his Successor in Interest, to the extent not exercised prior to the date such notice is given, for an amount equal to the sum of (A) such Limited Partner's share (based on his Capital Percentage) of the Net Value of all assets then held by the Partnership, plus (B) the value of any fractional interest in the Option held by such Limited Partner determined as provided in Section 6.04(c), calculated in each case as of the last business day of the Partnership's fiscal quarter in which such termination occurred. (d) If the employment of a Limited Partner by PaineWebber terminates for any reason whatsoever (other than death, permanent disability as determined by the Board of Directors of PWI, retirement pursuant to any then existing pension or retirement plan of PaineWebber or otherwise with the prior approval of the Compensation Committee) prior to the Applicable Date, the Partnership will purchase for cash such Limited Partner's interest in the Partnership (or if such-Person has ceased to be a Limited Partner, his rights or the rights of his Successor in Interest, if any, to receive distributions and allocations with respect thereto) within 90 calendar days following such termination for an amount equal to such Limited Partner's share (based on his Capital Percentage) of the assets then held by the Partnership, such share of assets to be valued at its Net Value. (e) Notwithstanding anything in this Agreement to the contrary, upon the purchase by the General Partner or the Partnership of a Limited Partner's interest in the Partnership (or his rights or the rights of his Successor in Interest, if any, to receive allocations and distributions with respect thereto) pursuant to Section 7.02(c) or (d), the General Partner shall have no interest in the Option in respect of such 21 18 interest and the Option shall be allocated among the Partners without regard to such interest. 7.03. Transfer of a Limited Partner's Interest. A Limited Partner may not sell, assign, mortgage, pledge or otherwise dispose of or transfer all or any part of his interest in the Partnership to any Person without the prior written consent of the General Partner; provided, however, that such consent will not be required in the case of a Successor in Interest described in clauses (i) through (iv) of the definition of "Successor in Interest" set forth in Section 1.01. No Person acquiring any Limited Partner's interest in the Partnership will become a Partner of the Partnership, or acquire such Limited Partner's right to participate in the affairs of the Partnership to the extent permitted herein, unless and until such person is admitted as a Limited Partner pursuant to Section 7.04. Such Person will, however, to the extent of the interest transferred to him, be entitled to such Limited Partner's share of allocations and distributions pursuant to Article VI and VIII (subject to the rights of the General Partner or the Partnership to purchase such interest pursuant to Section 7.02(c) or 7.02(d) and to purchase certain securities distributed to such Limited Partner or such Person pursuant to Section 6.05(f)). 7.04. Admission or Substitution of New Limited Partners. (a) The General Partner will admit as an additional Limited Partner any Person not already a Limited Partner who makes a Capital Contribution in accordance with Section 5.01. The General Partner also has the right, in its sole discretion, to admit as a substitute or additional Limited Partner any Person who acquires in accordance with this Agreement the interest in the Partnership, or any part thereof, of a Limited Partner. The admission of any Person as a substitute or additional Limited Partner must be in writing signed by the General Partner and will not be effective until such Person's written acceptance and adoption of all the terms and provisions of this Agreement is received by the General Partner. The General Partner's failure or refusal to admit a transferee (as to whom the General Partner has given his written consent pursuant to Section 7.03) as a substitute or additional Limited Partner will not affect the right of such transferee to receive allocations and distributions pursuant to Articles VI and VIII to which his predecessor in interest was entitled. (b) If the General Partner permits a Limited Partner to transfer all or part of such Limited 22 19 Partner's interest to a trust designated by such Limited Partner, and the General Partner admits such trust into the Partnership as a Limited Partner, all references herein to the termination of employment of a Limited Partner or to any Final Event with respect to a Limited Partner will be deemed to refer both to such trust and to the employee of PaineWebber who transferred such interest to such trust. (c) A transferee who is admitted as a substitute or additional Limited Partner pursuant to this Section 7.04 will reimburse the General Partner for any out-of-pocket expenses incurred by it directly as a result of such transferee's admission to the Partnership. 7.05. Admission of Substitute or Additional General Partners. (a) Except as otherwise provided in this Article VII, a Person other than PaineWebber will be admitted to the Partnership as a General Partner only if (i) such admission will not cause the termination of the Partnership or result in the Partnership being classified as other than a partnership for Federal income tax purposes, and (ii) such Person is designated in writing by Limited Partners having a 66-2/3% interest in the Partnership (based upon Limited Partnership Percentages). (b) Subject to Section 7.05(a), the admission of a Person to the Partnership as a General Partner will become effective when such Person has agreed in writing to adopt and accept this Agreement and to be bound by all its terms and provisions as a General Partner. (c) Notwithstanding any other provision of this Agreement, on the Operative Date the then General Partner(s) automatically will be deemed to have been removed as such without any further action of any nature whatsoever by the Limited Partners or such General Partner(s), and each such former General Partner will thereupon cease to be a Partner, and the then Senior Limited Partners, upon compliance with Section 7.05(b), will automatically be deemed to have become General Partners immediately prior to such automatic removal without any further action of any nature whatsoever by the Limited Partners or the former General Partner(s). All rights and interests of such Senior Limited Partners as Limited Partners of the Partnership will continue in effect without change even though such Senior Limited Partners will also be General Partners. (d) Within 30 days after the admission of a General Partner pursuant to this Section 7.05, the General 23 20 Partner will cause the Certificate of Limited Partnership of the Partnership to be amended in accordance with Section 17-202 of the Delaware Act. 7.06. Withdrawal of a Limited or General Partner. (a) A Limited Partner other than the Initial Limited Partner may not withdraw from the Partnership without the consent of the General Partner, which may be withheld for any reason whatsoever or for no reason. The Initial Limited Partner may withdraw at any time by delivery to the General Partner of written notice of such withdrawal, which shall be effective upon such delivery. (b) A General Partner may withdraw from the Partnership as of the end of any fiscal year by delivery to each of the Limited Partners of written notice of such withdrawal not less than 50 days before the effective date thereof. (c) The withdrawal of any Partner will be a Final Event with respect to such Partner, within the meaning of Section 7.07. 7.07. Final Events with Respect to a Partner. Upon the occurrence of a Final Event with respect to any Partner, such Partner thereupon will cease to be a Partner and no Successor in Interest to any such Partner will, for any purpose hereof, become or be deemed to become a Partner. The sole right, as against the Partnership and the remaining Partners, acquired hereunder by, or resulting hereunder to, a Successor in Interest to any Partner will be to receive any distributions and allocations pursuant to Articles VI and VIII (subject to any purchase by the General Partner or the Partnership of the interest of such former Partner pursuant to Section 7.02(c) or 7.02(d) or certain securities distributed to such former Partner or his Successor in Interest pursuant to Section 6.05(f)) to the extent, at the time, in the manner and in the amount otherwise payable to such Partner had such Final Event not occurred, and no other right will be acquired hereunder by, or will result hereunder to, a Successor in Interest to such Partner, whether by operation of law or otherwise. Until distribution of any such Partner's interest in the Partnership upon the dissolution of the Partnership as provided in Article VIII, neither his Capital Account nor any part thereof will be subject to withdrawal or redemption without the consent of the General Partner. The Partnership will be entitled to treat any Successor in Interest to such Partner as the only Person entitled to receive distributions and allocations hereunder with respect to such Partner's interest in the Partnership. 24 21 7.08. Continuation of Partnership. if a Final Event occurs with respect to one or more Limited Partners, no dissolution or termination of the Partnership will be effected thereby, and the remaining Partners will continue the Partnership and its business until the dissolution or termination thereof as provided herein. If a Final Event occurs with respect to a General Partner and there is no other General Partner in the Partnership, the Partnership will terminate and will be dissolved by the Limited Partners in accordance with Article VIII, unless, within 30 days after the occurrence of any such Final Event, (i) all the Limited Partners elect to continue the business of the Partnership, and (ii) all the obligations of the General Partner hereunder are assumed by a successor General Partner approved in writing by such Limited Partners, in which case the Partnership will not be dissolved but will continue. 7.09. Removal of General Partner. At any time, the Partners may, by the action of Limited Partners having a 66-2/3% interest in the Partnership (based upon Limited Partnership Percentages), remove the General Partner, which thereupon will cease to be a Partner, provided that, prior to such removal, Limited Partners having a 66-2/3% interest in the Partnership (based upon Limited Partnership Percentages) shall have designated a new General Partner. The sole right, as against the Partnership and the remaining Partners, of a General Partner removed pursuant to this Section 7.09 or pursuant to Section 7.05(c) will be to receive any distributions and allocations pursuant to Articles VI and VIII, to the extent, in the manner and in the amount otherwise payable to it had it not been so removed, and no other rights will be acquired hereunder by, or will result hereunder to, such removed General Partner, whether by operation of law or otherwise. The Partnership will be entitled to treat such removed Partner as the only person entitled to receive distributions and allocations hereunder with respect to such General Partner's interest in the Partnership. Until distribution of such removed General Partner's interest in the Partnership upon the dissolution of the Partnership as provided in Article VIII, neither its Capital Account nor any part thereof will be subject to withdrawal or redemption. 7.10. Compliance with Law. Notwithstanding any provision hereof to the contrary, no sale or other disposition of an interest in the Partnership may be made except in compliance with all Federal, state and other applicable laws, including Federal and state securities laws. 25 22 ARTICLE VIII Winding-Up and Dissolution of the Partnership 8.01. Winding-Up and Dissolution. (a) The General Partner will dissolve the Partnership as soon as practicable following the exercise of the Option in full. (b) The General Partner may in its sole discretion dissolve the Partnership effective as of the end of any fiscal year by written notice delivered to the Limited Partners not less than 30 days before the end of such fiscal year. (c) When the Partnership is dissolved, whether by expiration of its full term (subject to any extension as provided in Section 2.02) or otherwise, the business and property of the Partnership will, be wound up and liquidated by the General Partner or, in the event of the unavailability of the General Partner, such Limited Partners or other Persons as may be named by Limited Partners having a majority interest in the Partnership (based upon Limited Partnership Percentages). (d) Within 60 days after the effective date of dissolution of the Partnership, the Partnership's assets (except, in the case of clause (iii) below, for amounts reserved pursuant to Section 8.02) will be distributed in the following manner and order: (i) first, all debts and liabilities to creditors of the Partnership who are not Partners will be paid and discharged or provision therefore will be made (through reserve accounts or otherwise); (ii) second, the claims of all creditors of the Partnership who are Partners will be paid and discharged or provision therefore will be made (through reserve accounts or otherwise); and (iii) third, the remaining assets of the Partnership will be paid to the Partners in cash or Investments pro rata in accordance with the Partners' Capital Accounts. Investments divisible only into shares or other units will be distributed pro rata to the extent practicable; leftover shares will be sold and the cash distributed unless reserved in accordance with Section 8.02. 26 23 8.02. Amounts Reserved. (a) If, in the judgment of the General Partner (or of any other appropriate party selected pursuant to Section 8.01(c)), any Investment cannot be sold, or properly distributed in kind in the case of dissolution, without sacrificing a significant portion of the value thereof, the value of a Partner's interest in each such investment may be excluded from the amount distributed to such Partner pursuant to Section 8.01(d)(iii). Any Partner's interest, including his pro rata interest in any gains, losses or distributions, in any Investment so excluded will not be paid or distributed until such time as the General Partner (or any other appropriate party selected pursuant to section 8.01(c)) determines. (b) If there is any pending transaction or claim by or against the Partnership as to which the interest or obligation of any Partner therein cannot, in the judgment of the General Partner (or any, other appropriate party selected pursuant to Section 8.01(c)), be then ascertained, the value thereof or probable loss therefrom may be deducted from the amount distributable to such Partner pursuant to Section 8.01(d)(iii). No amount will be paid or charged to any such Partner on account of any such transaction or claim until its final settlement or such earlier time as the General Partner (or any other appropriate party selected pursuant to Section 8.01(c)) shall determine. The Partnership may retain from other sums due such Partner an amount which the General Partner (or any other appropriate party selected pursuant to Section 8.01(c)) estimates to be sufficient to cover the share of such Partner in any probable loss or liability on account of such transaction or claim. (c) Upon determination by the General Partner (or any other appropriate party selected pursuant to Section 8.01(c)) that circumstances no longer require the retention of sums as provided in Section 8.02(a), the General Partner (or any other appropriate party selected pursuant to Section 8.01(c)) will, at the earliest practicable time, pay such sums to each Partner from whom such sums have been withheld. ARTICLE IX Reports to Partners 9.01. Books of Account. Appropriate books of account will be kept, on a cash basis, at the principal place of business of the Partnership, and each Partner 27 24 will have access to all books, records and accounts and the right to make copies thereof under such conditions and restrictions as the General Partner may reasonably prescribe. 9.02. Audit and Report. (a) The books and records of the Partnership will be audited and reported on as of the end of each fiscal year by independent certified public accountants selected by the General Partner. Within 60 days after the end of each fiscal year, the Partnership will cause to be mailed to each Partner a written report, which shall include: (i) a statement prepared by the Partnership setting forth such Partner's Capital Account and the amount of such Partner's allocable share of the Partnership's items of income and deduction, capital gain and loss or credit for such year, in sufficient detail to enable him to prepare his Federal, state and other tax returns; and (ii) a balance sheet and a statement of income and expense of the Partnership for such fiscal year, including the report thereon of the Partnership's independent certified public accountants. (b) Promptly after becoming available, the Partnership will cause to be mailed to each Limited Partner a copy of the Partnership's Federal, state and local income tax returns for each year. (c) The General Partner also will cause to be delivered to each Limited Partner such other information an such Limited Partner may reasonably request for the purpose of enabling him to comply with any reporting or filing requirements imposed by any governmental agency or authority pursuant to any statute, rule, regulation or otherwise. 9.03. Fiscal Year. The fiscal year of the Partnership will end on December 31 of each calendar year unless otherwise determined by the General Partner. ARTICLE X Miscellaneous 10.01. Governing Law. The terms of this Agreement and all rights and obligations or the Partners 28 25 hereunder will be governed by the laws of the State of Delaware. 10.02. Understanding of Limited Partners. Each Limited Partner hereby acknowledges and agrees that he has read, understands, and is bound by each and every provision of this Agreement, and that the General Partner's right to exercise discretionary power granted under this Agreement will not be subject to challenge by any Limited Partner or any other Person. Without limiting the foregoing, the General Partner will have the sole discretion to determine (a) whether or not to exercise the option in whole or in part at any time after it becomes exercisable and (b) whether or not to dissolve the Partnership pursuant to Section 8.01(b). In making such determinations, the General Partner need not consider the needs or desires of the Limited Partners. 10.03. Indemnification and Related Matters. The General Partner will not be liable to any Partner for any action taken or not taken by it or for any action taken or not taken by any other Partner or other person with respect to the Partnership. Without limiting the foregoing, if the General Partner has obtained the consent of Limited Partners having a majority interest in the Partnership (based on Limited Partnership Percentages) to any action taken or not taken by the General Partner, the General Partner will be conclusively presumed to have taken such action or not taken such action in good faith and in conformity with its fiduciary obligations to the Partnership and the Limited Partners. No negative inference may be drawn from the failure of the General Partner to obtain such consent in any instance. The Partnership will indemnify the General Partner against any losses, claims, damages or liabilities, or threats thereof (including legal or other expenses reasonably incurred in investigating or defending against any such loss, claim, damages or liability, or threats thereof), joint or several, to which it may become subject by reason of its being the General Partner. Limited Partners will not be personally obligated with respect to indemnification pursuant to this Section 10.03. 10.04. Notice. All notices hereunder must be in writing and will be deemed to have been duly given when personally delivered or mailed by registered or certified mail, return receipt requested, to the Partnership, at 1285 Avenue of the Americas, New York, New York 10019, Attention of Ronald M. Schwartz, or such other address or addresses as to which the Partners will have been given notice, and to the Partners at the addresses as to which the Partnership has been given notice. 29 26 10.05. Counterparts. This Agreement may be executed in any number of counterparts, all of which together will constitute a single instrument. It will not be necessary for any counterpart to be signed by all the parties as long an all counterparts signed by each Limited Partner also are signed by the General Partner. 10.06. Completeness and Amendments. This Agreement sets forth the entire understanding of all the parties. The provisions of this Agreement cannot be amended except by an instrument in writing executed by the General Partner and Limited Partners having a majority in interest of the Partnership (based Upon Limited Partnership Percentages), except that any provision of this Agreement requiring action by more than a majority in interest of Limited Partners may not be amended except by an instrument in writing executed by Limited Partners having the percentage in interest of the Partnership required by such provision. 10.07. Power of Attorney. The Limited Partners hereby appoint the Person who from time to time shall be a General Partner, including without limitation a successor General Partner pursuant to Section 7.05(c), as their true and lawful representative and attorney-in-fact, in their name, place and stead to make, execute, sign and file all instruments, documents and certificates which, from time to time, may be required by this Agreement (including without limitation Section 7.05(d)) or by the laws of the United States of America, the State of Delaware or any other state in which the Partnership shall determine to do business, or any other political subdivision or agency thereof, to execute, implement and continue the valid and subsisting existence of the Partnership. The General Partner, as representative and attorney-in-fact, however, will not have any rights, powers or authority to amend or modify this Agreement when acting in such capacity except as expressly provided herein. Such power of attorney is coupled with an interest and will continue in full force and effect notwithstanding the subsequent occurrence of a Final Event with respect to any Limited Partner. 10.08. Transfer of PWG Common and Option. By signing this Agreement each Limited Partner acknowledges his instructions to Dedicated Partners Inc. that the shares of PWG Common acquired with such Limited Partner's Capital Contribution and the Option be transferred directly to the Partnership in lieu of being issued to such Limited Partner and subsequently transferred by such Limited Partner to the Partnership. 30 27 IN WITNESS WHEREOF, the parties hereto have hereunto executed this Agreement as of the date first above written. Address of General Partner: GENERAL PARTNER: 1285 Avenue of the Americas PAINEWEBBER PARTNERS INC. New York, New York 10019 By:____________________________ Authorized Officer Name and Residence Address: LIMITED PARTNER: ____________________________ EX-10.2 6 EMPLOYMENT AGREEMENT 1 May 4, 1993 Theodore A. Levine, Esq. 32650 Sutton Place, N.W. Washington, DC 20016 Dear Mr. Levine: This letter sets forth the terms of your employment with Paine Webber Group Inc. ("PWG") and PaineWebber Incorporated ("PWI") in the positions of General Counsel of PWG and Executive Vice President of PWI. 1. Term of Employment. Unless sooner terminated pursuant to the provisions of this Agreement, the term of employment under this Agreement shall commence on June 15, 1993 and end on June 14, 1996 (the "Term of Employment"). 2. Positions, Duties and Responsibilities. During the Term of Employment you shall be employed as General Counsel of PWG and Executive Vice President of PaineWebber Incorporated ("PWI"). In such capacity, you shall be responsible for providing legal advice to PWG, PWI and their senior officers and for the management and administration of the PWI Legal Department, including, without limitation, the areas of litigation, compliance, counselling and supervision of outside law firms. In carrying out such duties, you shall report to the Chairman and Chief Executive Officer of PWG, who may, in his sole discretion, provide for you to report to a senior level officer of PWG or PWI designated by him with respect to matters relating to the administration and management of the PWI Legal Department. During the Term of Employment, you shall devote all of your business time and attention to the business and affairs of PWG and PWI. During the Term of Employment, it shall not be a violation of this Agreement for you to (A) with prior written approval of the Chairman of PWG, serve on corporate, civic or charitable boards or committees, (B) deliver lectures fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not materially interfere with the performance of your responsibilities as an employee of PWG and PWI in accordance with this Agreement. 2 2 3. Salary. You shall be paid an annualized base salary, payable in accordance with the regular payroll practices of PWI, of no less than $200,000. 4. Special Bonus. Upon the commencement of the Term of Employment, you shall receive a special cash bonus of $400,000. If within 60 days of the commencement of the Term of Employment you terminate your Employment voluntarily, other than due to Constructive Termination (as defined below), or PWG terminates your employment for Cause (as defined below), you shall repay to PWG the amount of such special bonus. 5. Annual Bonus. You shall be paid a minimum annual bonus at an annualized rate of $650,000. The minimum annual bonus for 1993 and 1996 shall be $650,000 multiplied by a fraction, the numerator of which shall be the number of days in such year during which you were an employee of PWG or PWI, pursuant to this Agreement or otherwise, and the denominator of which shall be 365. Except as provided In Section 8, such minimum annual bonuses shall be payable at the same time as bonuses are paid to senior executives of PWI. 6. Restricted Stock. You shall receive annual bonus awards of shares of restricted stock under the PWG 1990 Stock Award and Option Plan, or successor plan, on the date of the commencement of the Term of Employment and on the first and second anniversaries of each date. One-third of the shares subject to an award shall vest on each of the first, second and third anniversaries of the date of grant of such award. Notwithstanding the foregoing, all awards of restricted stock shall vest immediately upon the occurrence of a Change in Control. For the purpose of this Agreement "Change in Control" shall mean the occurrence of one or more of the following events: (i) a person or entity becomes an Acquiring Person and for this purpose "Acquiring Person" shall mean any "person," as such term is used in Sections 3(a)(9) and 13(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), other than PWG, a subsidiary of PWG or any employee benefit plan sponsored by PWG or any such subsidiary, who becomes a "beneficial owner," as such term is used in Rule 13d-3 promulgated under the Exchange Act, of 20% or more of the voting stock of PWG or PWI; provided however, that in the case of any "person" who on the data of this Agreement owned five percent or more of the voting stock of PWG, only acquisitions by such "person" occurring after such issuance date shall be taken into account in determining whether or not such "person" is an Acquiring Person; (ii) a majority of the Board at any time consists of individuals elected to membership at a Board meeting or a shareholders' meeting other than individuals nominated or approved by a majority of the Disinterested Directors and for this purpose "Disinterested Director" shall mean any member of the Board who (x) is not an officer of PWG or an officer or director of any subsidiary of PWG, (y) is not an Acquiring Person or an affiliate or associate of an Acquiring Person or a nominee or representative of an Acquiring Person or of any such affiliate or associate and (z) was a member of the Board on the date of this Agreement or was nominated for election or elected by a majority of the Disinterested Directors; 3 3 (iii) PWG adopts any plan of liquidation providing for the distribution of all of or substantially all of its assets; (iv) all or substantially all the business of PWG is disposed of pursuant to a merger, consolidation or other transaction (other than a merger, consolidation or other transaction with a company of which 50% or more of the voting stock is owned, directly or indirectly, by PWG both before and immediately after the merger, consolidation or other transaction) in which PWI is not the surviving corporation or PWG is materially or completely liquidated; or (v) PWG or PWI combines with another company and is the surviving corporation but immediately after the combination, the persons who were shareholders of PWG immediately prior to the combination hold, directly or indirectly, 50% or less of the voting stock of the combined company (there being excluded from the number of shares held by such shareholders, but not from the voting stock of the combined company, any shares received by "affiliates", as such term is defined in the rules of the Securities and Exchange Commission, of such other company in exchange for stock of such other company). Anything to the contrary herein notwithstanding, a Change in Control shall not be deemed to have occurred if, as a result of the transaction that would otherwise constitute a Change in Control (x) neither the PWG Common Stock nor the common stock or other equity interests of any successor to PWG are publicly traded and (y) either (1) the Chairman of PWG and the President of PWI immediately prior to such transaction continue to control PWG or such successor or (2) PWG becomes a subsidiary of another corporation or other entity and the Chairman of PWG and the President of PWI immediately prior to such transaction continue to hold such offices. 7. Benefits and Incentive Opportunities. You shall be eligible to participate in (a) all employee welfare benefit plans, programs and arrangements made available to senior level executives of PWG and PWI, including, without limitation, retirement, medical, hospitalization, disability, life Insurance, savings, fringe benefits, vacation and other plans, programs and arrangements and (b) all incentive opportunities provided to such senior level executives. Without limiting the foregoing, you shall participate in the PWG Supplemental Employees' Retirement Plan for Certain Senior Officers in accordance with the terms of such plan an a participant who is not an initial participant described in Section 5.1 of such plan. 8. Termination of Employment. (a) Death or Disability. If you die or your employment is terminated for disability, you or your estate shall be entitled to receive your base salary through the date of your death or such termination and a pro rata portion of your minimum annual bonus for the year in which your death or such termination occurs, together with all death or disability benefits, as the case may be, to which senior level executives of PWG or PWI are then 4 4 entitled. (The pro rata bonus shall be determined by multiplying $650,000 by a fraction, the numerator of which shall be the number of days you were employed during such year and the denominator of which shall be 365.) (b) Termination for Cause: Voluntary Termination. In the event your employment in terminated for Cause (as defined below) or you voluntarily terminate your employment other than as a result of a Constructive Termination (as defined below), you shall be entitled to receive your base salary through the date of such termination. For the purpose of this Agreement, "Cause" shall mean (i) you commit a serious crime or (ii) in carrying out your duties, you are guilty of (A) willful gross neglect, or (B) willful gross misconduct, resulting in the case of clause (ii)(A) or (B), in material harm to PWI or PWG unless such act, or failure to act, was believed by you in good faith to be in the best interests of PWI or PWG. Your employment may not be terminated for Causes until there shall have been delivered to you a copy of a resolution of the Board adopted at a meeting of the Board called and held for such purpose (after reasonable notice is provided to you) and at which you have been given an opportunity to be heard before the Board, finding that, in the good faith opinion of the Board, you have been guilty of conduct described in clause (ii)(A) or (B) above and specifying the particulars thereof in detail. (c) Termination Without Cause or Constructive Termination. In the event that your employment is terminated without Cause, other than due to disability, or there is a Constructive Termination (as defined below), you shall be entitled to: (i) base salary through the date of such termination; (ii) an amount equal to the greater of (x) $3,300,00 less the total amount of base salary and annual bonus awards received by you under this agreement, including annual bonus awards made in stock, pursuant to Section 6 or otherwise, to the extent, vested upon such termination (in which came such awards shall be valued for this purpose as of the date made) or (y) $850,000, such amount to be paid in a lump sum; (iii) continuation in all employee benefit plans or programs in which you were participating on the date of such termination in accordance with the terms of such plans or programs until the originally scheduled end of the Term of Employment, provided that if you receive equivalent coverage and benefits under the plans and programs of a subsequent employer the coverage hereunder shall be secondary thereto. For the purpose of this Agreement, "Constructive Termination" shall mean that, without your prior written consent, one or more the following events occurs and, within six months thereafter you terminate your employment: (i) the loss of any of your titles or positions or reporting responsibilities as described in Section 2; 5 5 (ii) a material diminution in your authority and responsibilities or the assignment to you of duties and responsibilities which are materially inconsistent with your positions as described in Section 2; (iii) your office location as assigned to you by PWG is other than the office at which the Chairman and Chief Executive Officer of PWG and the President of PWI are located; or (iv) any material breach of this Agreement by PWG or PWI. 9. Non-Competition Non-Solicitation. (a) During the Term of Employment and for a period of one year after termination of your employment, you shall not become engaged in any business, whether as an employee, consultant, director, partner or shareholder, that is in competition with the business of PWG, PWI or any subsidiary of PWG or PWI ("PaineWebber Group"). For this purpose, a business located in the United States, the United Kingdom, Japan or in any other country in which PaineWebber Group is actively engaged in business shall be deemed to be in competition with PaineWebber Group if such business involves (i) the sales or trading of securities on behalf of others (whether the customers are individuals or institutions), (ii) Proprietary trading, including risk arbitrage, (iii) asset management, or (iv) investment or merchant banking. Anything in this Section 9(a) to the contrary notwithstanding, (x) ownership of less than one percent of the outstanding common stock of a publicly traded corporation shall not constitute engaging in a business in competition with the business of PaineWebber Group and (y) practicing law as a partner or employee of a law firm that represents a business in competition with the business of Pains Webber Group shall not constitute your engaging in a business in competition with the business of PaineWebber Group. (b) In the event of a violation of the provisions of Section 9(a), you acknowledge that PaineWebber Group will be subject to irreparable harm entitling it to immediate injunctive or other equitable relief. (c) During the Term of Employment and for a period of one year following any termination of your employment, you shall not, directly or indirectly, (i) solicit any customer of PaineWebber Group or (ii) solicit any person who is or was employed by Painewebber Group within 180 days of such solicitation to (A) terminate his or her employment with PaineWebber Group, or (B) accept employment with anyone other than PaineWebber Group. In the event of any such solicitation, you acknowledge that PaineWebber Group will be subject to irreparable harm entitling it to immediate injunctive relief. 6 6 10. Confidential Information. During the Term of Employment and thereafter, you shall not disclose to any person any Confidential Information relating to PaineWebber Group except for the benefit of PaineWebber Group or as required by an order of a court or governmental agency with jurisdiction. For purposes of this Section 10, "Confidential Information" shall mean non-public information concerning PaineWebber Group's financial data, strategic business plans, product development, customer lists, marketing plans and any other proprietary information, except for specific items which have become publicly available information other than through a breach by you of your fiduciary duty or any confidentiality agreement. You shall give immediate written notice to PWI of any such requirement, or threatened requirement, by a court or government agency in order to allow PaineWebber Group the opportunity to resist such a request. 11. Indemnification. (a) PWG and PWI shall indemnify you, and advance expense to you, to the fullest extent permitted by the General Corporation Law of the State of Delaware, as the same exists or may be amended, consistent with the Certificate of Incorporation and by-laws of PWG in effect as of the date hereof as the same exists or may be amended (but only to the extent that any such amendment would provide broader indemnification than provided hereunder) with respect to any acts or nonacts you may have committed while you were an officer, director or employee of PWG, PWI or any subsidiary thereof, or of any other entity which you served as an officer, director or employee at the request of PWG or PWI. (b) You shall be covered by directors' and officers' liability insurance to the same extent as other senior officers of PWG and PWI. 12. Miscellaneous. PWG's and PWI's obligation to make the payments provided for in this Agreement and otherwise to perform their obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which PWG or PWI may have against you or others. In no event shall you be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to you under any of the provisions of this Agreement and, subject to PWG and PWI's rights under Section 9 and 10, such amounts shall not be reduced whether or not you obtain other employment. PWG and PWI agree to pay as incurred, to the full extent permitted by law, all legal fees and expenses which you may reasonable incur as a result of any contest (regardless of the outcome thereof) by PWG, PWI, you or others with respect to the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by you about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 1274(d) of the Internal Revenue Code of 1986, as amended, provided, however, that PWG and PWI shall have no obligation to pay such legal fees and expenses if it shall be determined by the court hearing such contest that your claims or defenses, taken as a whole, were without any reasonable basis. 7 7 13. Representation. You represent that neither the execution and delivery of this Agreement nor the performance of your obligations under this Agreement will violate any agreement between you and any other person, firm, corporation or other organization. 14. Governing Law. This Agreement shall be governed by the laws of the State of New York without reference to the principles of conflict of laws. If the above sets forth our understanding, please sign the enclosed copy of this letter in the space provided and return it to me, whereupon it will constitute a valid and binding employment agreement. Sincerely, Paine Webber Group Inc. By: ____________________ PaineWebber Incorporated By: ____________________ Understood and accepted: /s/ THEODORE A. LEVINE - ---------------------- Theodore A. Levine EX-10.3 7 RESTATED AND AMENDED AGREEMENT OF LEASE 1 RESTATED and AMENDED AGREEMENT OF LEASE between THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, Landlord and PAINEWEBBER INCORPORATED, Tenant. Premises: THE PAINEWEBBER BUILDING 1285 Avenue of the Americas New York, New York 10019 SHEA & GOULD 1251 Avenue of the Americas New York, New York 10020 2 TABLE OF CONTENTS Page Definitions . . . . . . . . . . . . . . . . . . Article 1 - Demise, Premises, Term, Rent . . . . . . . . . . Article 2 - Use and Occupancy . . . . . . . . . . . . . . . Article 3 - Alterations . . . . . . . . . . . . . . . . . . Article 4 - Repairs-Floor Load . . . . . . . . . . . . . . . Article 5 - Window Cleaning . . . . . . . . . . . . . . . . Article 6 - Requirements of Law . . . . . . . . . . . . . . Article 7 - Subordination . . . . . . . . . . . . . . . . . Article 8 - Rules and Regulations . . . . . . . . . . . . . Article 9 - Property Loss or Damage; Reimbursement . . . . . Article 10 - Destruction-Fire or Other Cause . . . . . . . . Article 11 - Eminent Domain . . . . . . . . . . . . . . . . . Article 12 - Assignment and Subletting . . . . . . . . . . . Article 13 - Electricity . . . . . . . . . . . . . . . . . . Article 14 - Access to Premises . . . . . . . . . . . . . . . Article 15 - Certificate of Occupancy . . . . . . . . . . . . Article 16 - Default . . . . . . . . . . . . . . . . . . . . Article 17 - Remedies and Damages . . . . . . . . . . . . . . Article 18 - Fees and Expenses . . . . . . . . . . . . . . . Article 19 - No Representations by Landlord . . . . . . . . . Article 20 - End of Term . . . . . . . . . . . . . . . . . . Article 21 - Quiet Enjoyment . . . . . . . . . . . . . . . . Article 22 - Directory . . . . . . . . . . . . . . . . . . . Article 23 - No Waiver . . . . . . . . . . . . . . . . . . . Article 24 - Waiver of Trial by Jury . . . . . . . . . . . . Article 25 - Inability to Perform . . . . . . . . . . . . . . Article 26 - Bills and Notices . . . . . . . . . . . . . . . Article 27 - Escalation . . . . . . . . . . . . . . . . . . . Article 28 - Services . . . . . . . . . . . . . . . . . . . . Article 29 - Partnership Tenant . . . . . . . . . . . . . . . Article 30 - Vault Space . . . . . . . . . . . . . . . . . . Article 31 - Security . . . . . . . . . . . . . . . . . . . . Article 32 - Captions . . . . . . . . . . . . . . . . . . . . Article 33 - Building Name . . . . . . . . . . . . . . . . . Article 34 - Parties Bound . . . . . . . . . . . . . . . . . Article 35 - Broker . . . . . . . . . . . . . . . . . . . . . Article 36 - Indemnity . . . . . . . . . . . . . . . . . . . Article 37 - Adjacent Excavation-Shoring . . . . . . . . . . Article 38 - Miscellaneous . . . . . . . . . . . . . . . . . Article 39 - Rent Control . . . . . . . . . . . . . . . . . . Article 40 - Right of First Offer . . . . . . . . . . . . . . Article 41 - Renewal Term . . . . . . . . . . . . . . . . . . 3 Schedule A - Rules and Regulations Schedule B - HVAC Specifications Schedule B-1 - HVAC Specification for Concourse, Subconcourse, Bank Vault Space and 39th Floor Schedule C - Cleaning Specifications Exhibit "A" - Property Description Exhibit "B" - Concourse Space Exhibit "C" - Shaftway Exhibit "D" - 39th Floor Space Exhibit "E" - Bank Vault Space and Subconcourse Space Exhibit "F" - 39th Floor Storage Space 4 THIS RESTATED and AMENDED AGREEMENT OF LEASE, made as of the 1st day of January, 1989, between THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, a New York corporation, having an office at 787 Seventh Avenue, New York, New York 10019 ("Landlord") and PAINEWEBBER INCORPORATED, a Delaware corporation, having an office at 1285 Avenue of the Americas, New York, New York 10019 ("Tenant"). WHEREAS, Landlord and Tenant entered into a lease, dated as of November 22, 1983, pursuant to which Landlord leased to Tenant the 10th through 17th floors in the Building (hereinafter defined) as well as other space more particularly described therein (the "Original Lease"); and WHEREAS, by seven (7) letter agreements (collectively, the "Letter Agreements"), each dated as of November 22, 1983, Landlord and Tenant modified and amended the Original Lease and agreed on certain other matters; and WHEREAS, Landlord and Tenant mutually desire to amend the Original Lease pursuant to the terms of the Letter Agreements, with certain modifications thereto, to restate the Original Lease in its entirety and to supercede the Letter Agreements in their entirety. NOW, THEREFORE, the parties hereto, in consideration of the mutual agreements herein contained, hereby restate and amend the Original Lease in its entirety upon the agreements, terms, covenants and conditions hereinafter set forth. W I T N E S S E T H : The parties hereto, for themselves, their legal representatives, successors and assigns, hereby covenant as follows. DEFINITIONS For the purposes of this Lease and all agreements supplemental hereto, the following terms shall have the meanings specified herein. "Additional Sublet Space" shall mean a portion of the Premises (exclusive of the Subconcourse Space, the 39th Floor Storage Space, the Concourse Space and the Bank Vault Space) in excess of the Free Sublet Space. 5 "Alterations" shall mean alterations, installations, improvements, additions or other physical changes, other than decorative items, made in or about the Premises from and after the execution of the Original Lease, or hereafter made. "Alterations Fee" shall have the meaning set forth in Section 3B hereof. "Applicable Rate" shall mean the lesser of (x) two percent (2%) per annum above the then current prime rate charged by Citibank (N.A.) or its successor and (y) the maximum rate permitted by applicable law. "Assessed Valuation" shall have the meaning set fort in Section 27A hereof. "Bankruptcy Code" shall mean 11 U.S.C. # 101 et seq. "Bank Vault Space" shall mean the portion of the vault space of the Building indicated by shading on the floor plan annexed hereto as Exhibit "E". "Base Operating Expenses" shall have the meaning set forth in Section 27A hereof. "Building" shall mean the building known, and subject to Article 33 hereof, to be known as The PaineWebber Building, and by the street address 1285 Avenue of the Americas, New York, New York. "Building Consumption" shall have the meaning set forth in Article 13 hereof. "Building Systems" shall mean the heating, air conditions, ventilating, elevator, plumbing, mechanical, electrical, sanitary, life-safety and other service systems of the Building. "Business Days" or "business days" shall mean all days excluding Saturdays, Sundays and all days observed by either the State of New York or the Federal Government and by the labor unions servicing the Building as legal holidays. "Concourse Space" shall mean that portion of the concourse floor of the Building indicated by shading on the floor plan annexed hereto as Exhibit "B". -2- 6 "Consumer Price Index" shall mean the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics of the United States Department of Labor, New York, N.Y.-Northeastern N.J. Area, All Items (1967=100), or any successor index thereto, appropriately adjusted. In the event that the Consumer Price Index is converted to a different standard reference base or otherwise revised, the determination of any adjustments based on the Consumer Price Index as provided herein (including without limitation adjustments of the Fair Market Rent) shall be made with the use of such conversion factor, formula or table for converting the Consumer Price Index as may be published by the Bureau of Labor Statistics or, if said Bureau shall not publish the same, then with the use of such conversion factor, formula or table as may be published by Prentice-Hall, Inc. or any other nationally recognized publisher of similar statistical information. If the Consumer Price Index ceases to be published, and there is no success thereto, such other index as Landlord and Tenant shall agree upon in writing shall be substituted for the Consumer Price Index. If Landlord and Tenant are unable to agree as to such substituted index, such matter shall be submitted to the American Arbitration Association or any successor organization for the determination in accordance with the regulations and procedures thereof then obtaining for commercial arbitration. "Current Year" shall have the meaning set forth in Section 27C hereof. "Deficiency" shall have the meaning set forth in Section 17B hereof. "Electrical Capacities" shall have the meaning set forth in Section 13A hereof. "Electricity Additional Rent" shall have the meaning set forth in Section 13B hereof. "Event of Default" shall have the meaning set forth in Section 16A hereof. "Expiration Date" shall mean March 31, 2000 or the date of actual expiration of the Term if the same shall sooner occur (or later occur as provided in Article 41 hereof). "Fair Market Rent" shall have the meaning set forth in Section 41C hereof. -3- 7 "First Exercise Date" shall have the meaning set forth in Section 41A hereof. "First Renewal Term" shall have the meaning set forth in Section 41A hereof. "Free Sublet Space" shall mean up to 148,000 (in the aggregate) Rentable Square Feet of the Premises, provided however, in no event shall any portion of the Concourse Space, the Subconcourse Space, the 39th Floor Storage Space or the Bank Vault Space be included in Free Sublet Space. "Governmental Authorities" shall mean any agency, department, commission, board, bureau, instrumentality or political subdivision of the United States of America, the State of New York or The City of New York, now existing or hereafter created, having jurisdiction over the Real Property or any portion thereof. "HVAC" shall mean heat, ventilation and air conditioning. "HVAC Systems" shall mean the Building Systems provided HVAC. "Indemnitees" shall mean Landlord, its partners, shareholders, officers, employees, agents and contractors. "Landlord" on the date as of which this Lease is made, shall mean THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES ("Equitable"), a New York corporation, having an office at 787 Seventh Avenue, New York, New 10019, but thereafter, "Landlord" shall mean only the fee owner of the Real Property of if there shall exist a Superior Lease, the tenant thereunder. "Landlord's Appraiser" shall have the meaning set forth in Section 41C hereof. "Landlord's Determination" shall have the meaning set forth in Section 41C hereof. "Landlord's Notice" shall have the meaning stet forth in Section 41C hereof. "Landlord's Offer" shall have the meaning set forth in Article 40 hereof. -4- 8 "Landlord's Statement" shall have the meaning set forth in Section 27A hereof. "Lessor" shall mean the lessor under any Superior Lease. "Letter of Intent" shall have the meaning set forth in Article 40 hereof. "Mortgage(s)" shall mean every trust indenture and mortgage which may hereafter affect the Real Property, the Building or any Superior Lease and the leasehold interest created thereby, and all renewals, extensions, supplements, amendments, modifications, consolidations, and replacements thereof or thereto and substitutions therefor. "Mortgagee" shall mean the holder of any Mortgage. "Mutual Determination" shall have the meaning set forth in Section 41C hereof. "Non-Disturbance Agreement" shall have the meaning set forth in Section 7A hereof. "Office(s)" shall mean any premises other than premises used as a store or stores for the sale or display, at any time, of goods, wares or merchandise, of any kind, or as a restaurant, shop, booth, bootblack or other stand, barber shop, or for other similar purposes or for manufacturing. "Operating Expenses" shall have the meaning set forth in Section 27A hereof. "Operating Year" shall have the meaning set forth in Section 27A hereof. "Operation of the Property" shall mean maintenance, repair and management of the Real Property or the Building and the curbs, sidewalks and areas adjacent thereto. "Original Lease" shall have the meaning set forth in the first Whereas clause hereof. "Overtime Periods" shall have the meaning set forth in Section 28C hereof. "Parties" shall have the meaning set forth in Section 38B hereof. -5- 9 "Partnership Tenant" shall have the meaning set forth in Article 29 hereof. "Premises" shall mean the Subconcourse Space, the 39th Floor Storage Space, the Concourse Space, the Bank Vault Space, the entire ninth (9th) through eighteenth (18th) floors of the Building, the 38th Floor Space and the 39th Floor Space, together with the vertical shaftway indicated by shading of the typical floor plans attached hereto as Exhibits "C-1", "C-2" and "C-3" and located between floors nine (9) through eighteen (18), provided Tenant seals the slab opening of such shaftway on the ninth (9th) and eighteenth (18th) floors. "Prevailing Rental Rate" shall have the meaning set forth in Section 12B hereof. "Real Property" shall mean the Building together with the plot of land, described in Exhibit "A" annexed hereto, upon which it stands. "Renewal Notice" shall have the meaning set forth in Section 41A hereof. "Renewal Option" shall have the meaning set forth in Section 41A hereof. "Renewal Term" shall have the meaning set forth in Section 41A hereof. "Rent" shall have the meaning set forth in Article 1 hereof; "rent" shall mean and be deemed to include Rent, any increases in Rent (pursuant to Article 27 hereof), all additional rent and any other sums payable by Tenant hereunder. "Rentable Square Feet" shall mean rentable square feet determined in accordance with the Real Estate Board of New York, Inc.'s Standard Method of Floor Measurement for Office Buildings, then in effect. "Rental Value" shall have the meaning set forth in Section 41 hereof. "Rent Notice" shall have the meaning set forth in Section 41C hereof. "Rent Per Square Foot" shall have the meaning set forth in Section 12C hereof. -6- 10 "Requirements" shall mean all laws, orders and regulations (including, but not limited to, the New York State Energy Conservation Construction Code), of all Governmental Authorities and all rules, order, regulations or requirements of the New York Board of Fire Underwriters, or any other similar body which shall impose any violation, order or duty upon Landlord or Tenant with respect to the Premises as a result of the use or occupation thereof by Tenant for any purpose not authorized by the provisions of this Lease or the conduct by Tenant of its business in the Premises in a manner different from the ordinary and proper conduct of such business. "Rules and Regulations" shall mean the rules and regulation annexed hereto as Schedule A, and such other and further reasonable rules and regulations as Landlord or Landlord's agents may from time to time adopt on such notice to be given as landlord may elect, subject to Tenant's right to dispute the reasonableness thereof as provided in Article 8 hereof. "Second Exercise Date" shall have the meaning set forth in Section 41A hereof. "Second Renewal Term" shall have the meaning set forth in Section 41A hereof. "Space Factor" shall mean (a) 484,000 with respect to floors nine (9) through eighteen (18) of the Premises, (b) 27,000 with respect to the 38th Floor Space, (c) 3,399 with respect to the 39th Floor Space, (d) 11,745 with respect to the Subconcourse Space and the 39th Floor Storage Space, (e) 4,344 with respect to the Bank Vault Space, and (f) 553 with respect to the Concourse Space. "Subconcourse Space" shall mean that portion of the subcellar in the Building indicated by shading on the floor plan annexed hereto as Exhibit "E". "Sublease Profit" shall have the meaning set forth in Section 12C hereof. "Sublease Rent" shall have the meaning set forth in Section 12C hereof. "Sublease Rent Per Square Foot" shall have the meaning set forth in Section 12C hereof. "Sublease Statement" shall have the meaning set forth in Section 12C hereof. -7- 11 "Superior Leases" shall mean all ground or underlying leases of the Real Property or the Building now or hereafter made by Landlord. "Tax Credit" shall have the meaning set forth in Section 27B hereof. "Taxes" shall have the meaning set forth in Section 27A hereof. "Tax Year" shall mean the period July 1 through June 30 ( or such other period as hereafter may be duly adopted by the City of New York as its fiscal year for real estate tax purposes), to the extent such period occurs during the Term. "Tenant" on the date as of which this Lease is made, shall mean PAINEWEBBER INCORPORATED, a Delaware corporation, having an office at 1285 Avenue of the Americas, New York, New York 10019, but thereafter, subject to the provisions of Section 12A hereof, "Tenant" shall mean only the tenant under this Lease at the time in question. "Tenant's Appraiser" shall have the meaning set forth in Section 41C hereof. "Tenant's Consumption" shall have the meaning set forth in Section 13B. "Tenant's Determination" shall have the meaning set forth in Section 41C hereof. "Tenant's Property" shall mean Alterations and fixtures, leasehold improvements, equipment, furniture, furnishings or other personal property owned by Tenant. "Tenant's Pro Rata Share of the Building Electricity" shall have the meaning set forth in Section 13B. "Tenant's Share" shall mean thirty-four and six-tenth (34.6%), as the same shall be increased or decreased as provided herein. "Tentative Monthly Escalation Charge" shall have the meaning set forth in Section 27C hereof. "10th Floor Space" shall mean the entire tenth (10th) Floor of the Building. -8- 12 "Term" shall mean a term which has commenced and shall expire on the Expiration Date. "Third Appraiser" shall have the meaning set forth in Section 41C hereof. "38th Floor Space" shall mean the entire thirty-eighth (38th) Floor of the Building. "39th Floor Space" shall mean the portion of the thirty-ninth (39th) floor of the Building indicated by shading on the floor plan annexed hereto as Exhibit "D". "39th Floor Storage Space" shall mean the portion of the thirty-ninth (39th) floor of the Building indicated by shading on the floor plan annexed hereto as Exhibit "D". 1. DEMISE, PREMISES, TERM, RENT. Landlord has leased to Tenant and Tenant has hired from Landlord the Premises, for the Term which shall end on the Expiration Date unless the Term shall sooner end pursuant to any of the terms, covenants or conditions of this Lease or pursuant to law, at an annual Rent of 1. for the period commencing on January 1, 1989 and ending on February 28, 1990, (i) with respect to the Subconcourse Space, One Hundred Ninety-Six Thousand Dollars ($196,000) ($16,333.33 per month), (ii) with respect to the 39th Floor Space One Hundred Thirty-Five Thousand Four Hundred Sixteen and 16/100 Dollars ($135,416.16) ($11,284,68 per month), (iii) with respect to the 39th Floor Storage Space, Thirty Eight Thousand Nine Hundred Dollars ($38,900) ($3,241.67 per month), (iv) with respect to the Concourse Space, Sixteen Thousand Five Hundred Ninety Dollars ($16,590) ($1,382.50 per month), (v) with respect to the Bank Vault Space, Eighty-Six Thousand Eight Hundred -9- 13 Eighty Dollars ($86,880) ($7,240 per month), (vi) with respect to the 38th Floor Space, One Million Two Hundred Fifteen Thousand Dollars ($1,215,000) ($101,250 per month); and (vii) with respect to the balance of the Premises other than the 10th Floor Space, Sixteen Million Sixty Thousand Two Hundred Seventy-Five Dollars ($16,060,275) ($1,338,356.25 per month); 2. for the period commencing on January 1, 1989 and ending on April 30, 1990 with respect to the 10th Floor Space, Two Million Five Hundred Seventy-Three Thousand Seven Hundred Twenty-Five Dollars ($2,573,725) ($214,477.08 per month), 3. for the period commencing on March 1, 1990 and ending on February 28, 1995, (i) with respect to the Subconcourse Space, Two Hundred Twenty Thousand Five Hundred Dollars ($220,500) ($18,375 per month), (ii) with respect to the 39th Floor Space One Hundred Fifty Two Thousand Four Hundred Eleven and 16/100 Dollars ($152,411.16) ($12,700.98 per month), (iii) with respect to the 39th Floor Storage Space, Forty Three Thousand Seven Hundred Sixty-Two and 50/100 Dollars ($43,762.50) ($3,646.88 per month), (iv) with respect to the Concourse Space, Nineteen Thousand Three Hundred Fifty Five Dollars ($19,355) ($1,612.92 per month), (v) with respect to the Bank Vault Space, Ninety-Seven Thousand Seven Hundred Forty Dollars ($97,740) ($8,145 per month), -10- 14 (vi) with respect to the 38th Floor Space, One Million Three Hundred Fifty Thousand Dollars ($1,350,000) ($112,500 per month), and (vii) with respect to the balance of the Premises other than the 10th Floor Space, Eighteen Million Three Hundred Fifty-Four Thousand Six Hundred Dollars ($18,354,600) ($1,529,550 per month); 4. for the period commencing on May 1, 1990 and ending on April 30, 1995 with respect to the 10th Floor Space Two Million Nine Hundred Forty-One Thousand Four Hundred Dollars ($2,941,400) ($245,116.67 per month), 5. for the period commencing on March 1, 1995 and ending on the Expiration Date, (i) with respect to the Subconcourse Space, Two Hundred Forty- Five Thousand Dollars ($245,000) ($20,416.67 per month), (ii) with respect to the 39th Floor Space, One Hundred Sixty-Nine Thousand Four Hundred Six and 16/100 Dollars ($169,406.16) ($14,117.18 per month), (iii) with respect to the 39th Floor Storage Space, Forty-Eight Thousand Six Hundred Twenty-Five Dollars ($48,625) ($4,052.08 per month), (iv) with respect to the Concourse Space, Twenty-Two Thousand One Hundred Twenty Dollars ($22,120) ($1,843.33 per month), (v) with respect to the Bank Vault Space, One Hundred Eight Thousand Six Hundred Dollars ($108,600) ($9,050 per month), (vi) with respect to the 38th Floor Space, One Million Four Hundred Eighty-Five Thousand Dollars ($1,485,000) ($123,750 per month), and -11- 15 (vii) with respect to the balance of the Premises other than the Tenth Floor Space, Twenty Million Four Hundred Forty Thousand Three Hundred Fifty Dollars ($20,440,350) ($1,703,362.50 per month). 6. for the period commencing on May 1, 1995 and ending on the Expiration Date with respect to the Tenth Floor Space Three Million Two Hundred Seventy-Five Thousand Six Hundred Fifty Dollars ($3,275,650) ($272,970.83 per month), which Tenant agrees to pay in lawful money of the United States which shall be legal tender in payment of all debts and dues, public and private, at the time of the payment in equal monthly installments in advance, on the first (1st) day of each calendar month during the Term (except as hereinafter otherwise provided) at the office of Landlord or such other place as Landlord may designate, without any set-off, offset, abatement or deduction whatsoever. At the request of Landlord, Rent shall be payable when due by wire transfer of funds to an account designated from time to time by Landlord. 2. USE AND OCCUPANCE. A. Tenant shall use and occupy the Premises only as general and executive offices, and uses incidental thereto, provided, however, Tenant may, subject to compliance with Article 15 hereof and all applicable Requirements, use and occupy (i) the Subconcourse Space for office use and uses incidental thereto, (ii) the 39th Floor Space for the purposes of storage and preparation of food necessary to service the dining room located on the 38th Floor Space, (iii) the Concourse Space as messenger and mail room facility for Tenant's own business requirements, and (iv) The Bank Vault Space as a reproduction and copying facility for Tenant's own business requirements. In addition, Tenant may, subject to compliance with all applicable Requirements, use portions of the Premises (a) for the operation of a trading floor or floors and trading support systems and (b) as a securities trading and sales facility, other than for off-the-street retail sales to the general public. Notwithstanding the foregoing, PaineWebber Incorporated (and no other Tenant or occupant of the Premises) may use up to 25,000 Rentable Square Feet of the Premises (other than the Subconcourse Space, the 39th Floor Storage Space, the Concourse Space, the Bank Vault Space, the 38th Floor Space and the 39th Floor Space) as a retail securities trading and sales facility as long as the principal method of the conduct of business of such facility shall -12- 16 be by telephone, mail, telex or other method of communication not requiring face-to-face contact with the public, and provided that the off-the-street services furnished to the general public on a face-to-face basis shall be incidental to the conduct of such business and shall not be conducted in a manner or in a volume so as to materially increase the burden on the elevators or the security systems of the Building. In addition, Tenant, at its sole costs and expense and upon compliance with Article 15 hereof and all applicable requirements, may use other portions of the Premises as: (a) a word processing center; (b) a computer and communication system center; (c) employee lounges; and (d) an executive dining room; provided that Tenant, at its sole cost and expense, obtains and maintains any and all permits required in connection with such uses. B. Tenant shall not use the Premises or any part thereof, or permit the Premises or any part thereof to be used, (i) for the business of photographic, multilith or multigraph reproductions or offset printing, except in connection with Tenant's own business, (2) for a banking, trust company, depository, guarantee or safe deposit business, if (in each case) open to the general public for off-the-street transactions, (3) as a savings bank, savings and loan association, or loan company, if (in each case) open to the general public for off-the-street transactions, (4) for the sale of travelers checks, money orders, drafts, foreign exchange or letters of credit to the general public for off-the-street transactions, (5) for the preparation, dispensing or consumption of food or beverages in any manner whatsoever, except for consumption by Tenant's officers, employees and business guests, (6) as an employment agency or similar enterprise (other than an executive search firm, labor union, school, or vocational training center (except for the training of employees of Tenant intended to be employed at the Premises), (7) as a barber shop or beauty salon, or (8) by any agency or department of the United States Government or the City or State of New York or any foreign government or agency thereof. 3. ALTERATIONS. A. (1) Except as otherwise expressly provided herein, Tenant shall not make any Alterations, without Landlord's prior consent. Landlord agrees not to unreasonably withhold or delay its consent to any nonstructural Alteration, proposed to be made by Tenant to adapt the Premises for those purposes permitted by Section A of Article 2, provided that such Alterations are performed only by contractors reasonably approved by Landlord, do not adversely affect the Building Systems, or affect any other part of the Building (other than the Premises), do not -13- 17 adversely affect any service required to be furnished by Landlord to Tenant or to any other tenant or occupant of the Building (including Landlord) and do not reduce the value of the Building. (2) All Alterations shall be performed at Tenant's expense, in accordance with the Rules and Regulations, and at such times and in such manner as Landlord may from time to time reasonably designate. Tenant shall be permitted to preform such Alterations during the hours of 8:00 A.M. to 6:00 P.M. on business days, and at any other time upon payment to Landlord of Landlord's expenses therefor, provided that such work shall not unreasonably interfere with or cause interruption of the operation and maintenance of the Building or with the use and occupancy of the Building by other tenants for space or occupants in the Building. All furniture, furnishings and movable fixtures and partitions installed by Tenant and all Alterations in and to the Premises which have been or may be made by Tenant at its own cost and expense prior to and during the Term, shall remain the property of Tenant and upon the Expiration Date or earlier end of the Term, may be removed from the Premises by Tenant at Tenant's option, provided, however, that Tenant shall repair in a good and workmanlike manner to the then Building standard condition any damage to the Premises or the Building caused by such removal. Notwithstanding the foregoing, however, Landlord upon notice given at least thirty (30) days prior to the Expiration Date or earlier end of the Term, may require Tenant to remove any such furniture, furnishings, and movable fixtures, partitions and specialty Alterations, including kitchens, executive bathrooms, raised computer floors, trading floors, computer installations, vaults, air conditioning equipment, or other Alterations of similar character, and to repair in a good and workmanlike manner to the then Building standard condition any damage to the Premises or the Building caused by such removal. Any of such items or installations not so removed by Tenant shall become the property of Landlord, and shall remain upon and be surrendered with the Premises as part thereof at the end of the Term. (3) Prior to making any Alterations, Tenant (a) shall submit to Landlord detailed plans and specifications (including layout, architectural, mechanical and structural drawings to the extent applicable) for each proposed Alteration and shall not commence any such Alteration without first obtaining Landlord's approval of such plans and specifications (except with respect to any nonstructural Alteration referred to in Section A(6) hereof for which Landlord's approval is not required), which in the case of nonstructural -14- 18 Alterations shall be unreasonably withheld or delayed (b) shall, at its expense, obtain all permits, approvals and certificates required by all Governmental Authorities and (c) shall furnish to Landlord duplicate original policies (or certificates thereof) of worker's compensation (covering all persons to be employed by Tenant, and Tenant's contractors and subcontractors in connection with such Alteration) and comprehensive public liability (including property damage coverage) insurance in such form, with such companies, for such periods and in such amounts as Landlord may reasonably require, naming Landlord and its agents, any Lessor and any Mortgagee as additional insureds. In addition, no Alteration at a cost for labor and materials (as reasonably estimated by Landlord's architect, engineer or contractor) in excess of Five Hundred Seventy-Five Thousand Dollars ($575,000) (which amount will be increased on each September 1 hereafter, by the annual percentage increase, if any, in the Consumer Price Index from that in effect on the immediately preceding September 1) either individually or in the aggregate with any other Alteration constructed in any twelve (12) month period shall be undertake prior to Tenant delivering to Landlord either (i) a performance bond and labor and materials payment bond (issued by a surety company, and in form reasonably satisfactory to Landlord each in an amount equal to 120% of such estimated cost, or (ii) such other security as shall be reasonably satisfactory to Landlord, and such Alteration shall be performed under the supervision of a licensed architect or licensed professional engineer reasonably satisfactory to Landlord. All Alterations shall be made and performed in accordance with the plans and specifications therefor as approved by Landlord, all Requirements and the Rules and Regulations. All materials and equipments to be incorporation in the Premises as an Alteration or a part thereof shall be first quality, and no such materials or equipment (other than furniture, furnishings, office equipment and other personal property not affixed to the Premises) shall be subject to any lien, encumbrance, chattel mortgage or title retention or security agreement. Upon competition of any Alteration, Tenant, at Tenant's expense, shall obtain certificates of final approval of such Alteration as may be required by any Governmental Authority and shall furnish Landlord with copies thereof together with the "as-built" plans and specifications for such Alterations. If Landlord shall fail to disapprove Tenant's final plans and specifications within twenty (20) days or within fifteen (15) days with respect to any resubmission of disapproved plans, after Landlord's receipt thereof, Landlord shall be deemed to have approved such plans and specifications. Any disapproval given by Landlord shall be ineffective unless accompanied by a statement of the reasons for such disapproval. -15- 19 (4) Any mechanic's lien filed against the Premises, or the Real Property, for work claimed to have been done for, or materials claimed to have been furnished to, Tenant shall be discharged by Tenant within thirty (30) days after notice thereof, at Tenant's expense, by payment or filing the bond required by law. Tenant shall not, at any time prior to or during the Term, directly or indirectly employ or permit the employment of, any contractor, mechanic or laborer in the Premises, whether in connection with any Alteration or otherwise, if such employment would interfere or cause any conflict with other contractors, mechanics or laborers engaged in the construction, maintenance or operation of the Building by the Landlord, Tenant or any adjacent property owned by Landlord. In the event of any such interference or conflict, Tenant, upon demand of Landlord, shall cause all contractors, mechanics or laborers causing such interference or conflict to leave the Building immediately; provided, however, to the extent that such interference or conflict is the result of labor affiliation or non-affiliation, and if Landlord shall have theretofore approved Tenant's mechanics or contractors, as the case may be, and such approval was given prior to the approval of any other contractors or mechanics which are the cause of the interference or conflict, Tenant's contractors or mechanics as the case may be, may remain at the Building. (5) Prior to making an Alteration, at Tenant's request, Landlord shall furnish Tenant with a list of contractors who may perform Alterations to the Premises on behalf of Tenant. If Tenant engages any contractor set forth on the list, Tenant shall not be required to obtain Landlord's consent for such contractor unless, prior to entering into a contract with such contractor, Landlord shall notify Tenant that such contractor has been removed from the list. (6) Anything contained herein to the contrary notwith- standing, Tenant may make nonstructural Alterations which do not affect the Building Systems, or any other part of the Building (other than the Premises) the cost of the labor and materials for which shall not exceed Four Hundred Thousand Dollars ($400,000) (which amount will be increased on each September 1 hereafter, by the annual percentage increase, if any, in the Consumer Price Index from that in effect on the immediately preceding September 1) either individually or in the aggregate with any other nonstructural Alteration made in any twelve (12) month period, without first obtaining Landlord's consent, provided that at least five (5) Business Days prior to making such Alterations, Tenant shall deliver the plans and specifications therefore to Landlord and in making -16- 20 such Alterations Tenant shall otherwise comply with the provisions of this Article 3. B. (1) Tenant shall pay to Landlord, as additional rent, in connection with all Alterations, a fee (the "Alterations Fee") equal to ten percent (10%) of the total cost of such Alterations. There shall be excluded from the computation of the total cost of such Alterations the cost of furniture, furnishings, draperies, office equipment not affixed to the Premises, art work, cabinetry, painting and carpeting. (2) Prior to making any Alteration, Tenant shall submit to Landlord a statement of Tenant's independent architect, if employed, or contractor estimating the total costs of such Alteration and the estimated time required to complete such Alteration. The Alterations Fee shall be calculated on the basis of such estimate and paid in equal monthly installments during the course of the performance of the Alteration, on the first day of each month. Within three (3) Business Days after completion of the Alteration, Tenant shall pay to Landlord the entire balance of the Alterations Fee, if not theretofore paid in full. (3) Upon competition of any Alteration, Tenant shall submit to Landlord a statement of Tenant's independent architect, if employed, or contractor certifying the total cost of such Alteration together with documentation reasonably satisfactory to Landlord, evidencing such cost. The Alterations Fee shall be adjusted, if necessary, based on the certification. If the Alterations Fee, as adjusted shall be greater than the amount theretofore paid to Landlord by Tenant on account of such Fee, Tenant shall pay such deficiency simultaneously with the delivery to Landlord of the certification. If such Alterations Fee, as adjusted, is less than the amount theretofore paid to Landlord by Tenant on account of such Fee, Landlord, within ten (10) Business Days after Landlord's receipt of the certification shall pay to Tenant the amount of such overpayment. If Landlord shall dispute the statement certifying the total costs of such Alteration, Landlord shall have the right, within thirty (30) days after receipt of the certification, to elect to employ an independent certified public accountant to review Tenant's books and records relating to such Alteration. The determination of such accountant shall be conclusively binding upon the parties, and, if necessary, the Alterations Fee, shall be adjusted accordingly based upon such determination. If such determination shall reveal that the Alterations Fee paid on account of such Alteration shall have been understated by more than fifteen (15%), then Tenant shall pay the -17- 21 fees of the accountant in connection with such review and the payment to be made to Landlord as a result of such understatement shall bear interest at the Applicable Rate. Any adjustment in the Alterations Fee, together with interest thereon at the Applicable Rate, as well as any payment of the fees of such accountant shall be paid by Tenant to Landlord, as additional rent, within three (3) Business Days after such accountant's determination. 4. REPAIRS-FLOOR LOAD. A. Landlord shall maintain and repair the Building Systems and the public portions of the Building, both exterior and interior in a manner consistent with the maintenance and operation of a non-institutional first class office building in New York City. Tenant, at Tenant's sole cost and expense, shall take good care of the Premises and the fixtures, equipment and appurtenances therein and make all nonstructural repairs thereto as and when needed to preserve them in good working order and condition, except for reasonable wear and tear, obsolescence and damage for which Tenant is not responsible pursuant to the provisions of Article 10 hereof. The design and decoration of the elevator areas of each floor of the Premises, and the public corridors of any floor of the Premises occupied by more than one (1) occupant, shall be subject to Landlord's approval, which approval shall not be unreasonably withheld or delayed. All such areas and corridors shall be maintained and cleaned to Landlord's reasonable satisfaction. Tenant shall pay Landlord at competitive rates for all replacements to the lamps, tubes, ballasts and starters in the lighting fixtures installed in the Premises. Notwithstanding the foregoing, all damage or injury to the Premises or to any other part of the Building, or to its fixtures, equipment and appurtenances, whether requiring structural or nonstructural negligence of, or Alterations made by, Tenant, Tenant's servants, employees, invitees or licensees, shall be repaired promptly by Tenant, at its sole cost and expense, to the reasonable satisfaction of Landlord. Tenant also shall repair all damage to the Building and the Premises caused by the moving of Tenant's fixtures, furniture or equipment. All the aforesaid repairs shall be of quality or class equal to the original work or construction and shall be made in accordance with the provisions of Article 3 hereof. If Tenant fails after ten (10) days' notice (or such shorter period as may be required due to an emergency), to proceed with due diligence to make repairs required to be made by Tenant, the same may be made by Landlord at the expense of Tenant, and the expenses thereof incurred by Landlord, with interest thereon at the Applicable Rate, shall be paid to Landlord as additional rent after rendition of a bill or statement therefor. Tenant 18 22 shall give Landlord prompt notice of any defective condition in any Building System, or electrical lines, located in, servicing or passing through the Premises. B. Tenant shall not place a load upon any floor of the Premises exceeding 100 pounds per square foot "live load." Landlord reserves the right to reasonably prescribe the weight and position of all safes, business machines and heavy equipment and installations to the extent the same might affect the Building Systems, the structure of the Building, or the use and occupancy of the Building by other tenants for space or occupants in the Building. Business machines and mechanical equipment shall be placed and maintained by Tenant at Tenant's expense in settings sufficient in Landlord's reasonable judgment to absorb and prevent vibration, noise and annoyance. C. Subject to the provisions of Articles 10 and 11 and Section C of Article 14 hereof, there shall be no allowance to Tenant for a diminution of rental value and no liability on the part of Landlord by reason of inconvenience, annoyance or injury to business arising from Landlord, Tenant or others making, or failing to make, any repairs, alterations, additions or improvements in or to any portion of the Building or the Premises, or in or to fixtures, appurtenances or equipment thereof. 5. WINDOW CLEANING. Tenant shall not clean, nor require, permit, suffer or allow any window in the Premises to be cleaned from the outside. 6. REQUIREMENTS OF LAW. A. Tenant at its sole expense shall comply with all Requirements. Tenant shall not do or permit to be done any act or thing upon the Premises, which is not permitted by the provisions of Article 2 hereof or which is conducted in a manner different from the ordinary and proper conduct of a securities and investment banking business comparable to Tenant's business, or which will invalidate or be in conflict with any insurance policies covering the Building and fixtures and property therein; and shall not do, or permit anything to be done in or upon the Premises, or bring or keep anything therein, except as now or hereafter permitted by all Governmental Authorities, the New York Fire Insurance Rating Organization or other similar authority having jurisdiction and then only in such quantity and manner of storage as not to increase the rate for fire insurance applicable to the Building, or use the Premises in a manner different from the ordinary and proper conduct of a securities and investment banking business comparable to Tenant's business which shall increase the rate of fire 19 23 insurance on the Building or on property located therein, over that in effect on the date immediately preceding any such increase. If by reason of Tenant's failure to comply with the provisions of this Article, the fire insurance rate shall be higher than it otherwise would be, then Tenant shall desist from doing or permitting to be done any such act or thing and shall reimburse Landlord, as additional rent hereunder, for that part of all fire insurance premiums thereafter paid by Landlord which shall have been charged because of such failure by Tenant, and upon presentation of a bill or another document evidencing such increase and the reason therefor, shall make such reimbursement five (5) Business Days after demand by Landlord. In any action or proceeding wherein Landlord and Tenant are parties, a schedule or "make up" of rates for the Building or the Premises issued by the new York Fire Insurance Rating Organization, or other body fixing such fire insurance rates, shall be conclusive evidence of the facts therein stated and of the several items and charges in the fire insurance rates then applicable to the Building. B. Tenant, at its sole cost and expense, after notice to Landlord, may contest by appropriate proceedings, prosecuted diligently and in good faith, the legality or applicability of any Requirement affecting the Premises provided that (a) Landlord (or any Indemnities) shall not be subject to imprisonment or to prosecution for a crime which might result in imprisonment, nor shall the Real Property or any part thereof be subject to being condemned or vacated, nor shall the certificate of occupancy for the Premises or the Building be suspended or threatened to be suspended by reason of non-compliance or by reason of such contest; (b) before the commencement of such contest, if Landlord or any Indemnitees may be subject to any civil fines or penalties or other criminal penalties or if Landlord may be liable to any independent third party for an amount greater than Two Hundred Fifty Thousand Dollars ($250,000) as a result of such non-compliance, then Tenant shall furnish to Landlord either (i) a bond of a security company satisfactory to Landlord, in form and substance reasonably satifactory to Landlord and in an amount at least equal to one hundred twenty percent (120%) of (A) the cost of such compliance, (B) the criminal or civil penalties or fines that may accrue by reason of such non-compliance (as reasonably estimated by Landlord) and (C) the amount of such liability to independent third parties, and shall indemnify Landlord (and any Indemnitees) against the cost of such compliance and liability resulting from or incurred in connection with such contest or non-compliance, (except that Tenant shall not be required to furnish such bond to Landlord if it has otherwise furnished any similar 20 24 bond required by law to the appropriate Governmental Authority and has named Landlord as a beneficiary thereunder) or (ii) other security reasonably satisfactory in all respects to Landlord; (c) such non-compliance or contest shall not constitute or result in a violation (either with the giving of notice or the passage of time or both) of the terms of any Mortgage or Superior Lease, or if such Superior Lease or Mortgage shall condition such non-compliance or contest upon the taking of action or furnishing of security by Landlord, such action shall be taken or such security shall be furnished at the expense of Tenant; and (d) Tenant shall keep Landlord regularly advised as to the status of such proceedings. Without limiting the application of the foregoing, Landlord shall be deemed subject to prosecution of a crime if Landlord, a Lessor, a Mortgagee or any of their officers, directors, partners, shareholders, agents or employees is charged with a crime of any kind whatsoever unless such charges are withdrawn ten (10) days before Landlord, such Lessor or such Mortgagee or such officer, director, partner, shareholder, agent or employee, as the case may be, is required to plead or answer thereto. 7. SUBORDINATION. A. (1) Provided that (i) any Mortgagee shall execute and deliver to Tenant an agreement to the effect that, if there shall be a foreclosure of such Mortgage, such Mortgagee will not make Tenant a party defendant to such foreclosure, evict Tenant, disturb Tenant's possession under this Lease, or terminate or disturb Tenant's leasehold estate or rights hereunder provided no Event of Default has occurred hereunder, and (ii) the Lessor under any Superior Lease shall execute and deliver to Tenant an agreement to the effect that if such Superior Lease shall terminate or be terminated for any reason, Lessor will recognize Tenant as the direct Tenant of Lessor on the same terms and conditions as are contained in this Lease provided no Event of Default exists hereunder (any such agreement, or any agreement of similar import, from a Mortgagee or from a Lessor under a Superior Lease, as the case may be, being hereinafter called a "Non-Disturbance Agreement"), this Lease shall be subject and subordinate to each such Superior Lease and to each such Mortgage which may hereafter affect the Real Property, the Building or any such Superior Lease and the leasehold interest created thereby, and to all renewals, extensions, supplements, amendments, modifications, consolidations, and replacements of or to such Superior Lease or Mortgage or substitutions therefor, and to all advances made thereunder. Tenant shall execute and deliver promptly any certificate that Landlord reasonably may request in confirmation of such subordination. 21 25 (2) Tenant hereby irrevocably waives any and all right(s) it may have in connection with any zoning lot merger or transfer of development rights with respect to the Real Property including, without limitation, any rights it may have to be a party to, to contest, or to execute, any Declaration of Restrictions (as such term is defined in Section 12-10 of the Zoning Resolution of the City of New York effective December 15, 1961, as amended) with respect to the Real Property, which would cause the Premises to be merged with or unmerged from any other zoning lot pursuant to such Zoning Resolution or any document of a similar nature and purpose, and this Lease shall be subject and subordinate to any Declaration of Restrictions or any other document of similar nature and purpose now or hereafter affecting the Real Property. This clause shall be self-operative and no further instrument of subordination or waiver shall be required. In confirmation, however, of such subordination and waiver, Tenant shall execute and deliver promptly any certificate or instrument that Landlord reasonably may request and if Tenant shall fail to execute and deliver any certificate or instrument within five (5) Business Days after Landlord's request, then Tenant hereby irrevocably constitutes and appoints Landlord as Tenant's attorney-in-fact to execute any such certificate or instrument for an on behalf of Tenant, such power of attorney being coupled with an interest. B. If at any time prior to the expiration of the Term, any Superior Lease shall terminate or be terminated for any reason or any Mortgagee comes into possession of the Real Property or the Building or the estate created by any such Superior Lease by receiver or otherwise, Tenant shall attorn to any such Lessor or Mortgagee or any person acquiring the interest of Landlord as a result of any such termination, or as a result of a foreclosure of the Mortgage or a granting of a deed in lieu of foreclosure, upon the then executory terms and conditions of this Lease, for the remainder of the Term, provided that such owner, Lessor or Mortgagee, as the case may be, or receiver caused to be appointed by any of the foregoing, shall then be entitled to possession of the Premises and shall have either agreed to assume the obligations of Landlord hereunder (subject to the terms hereof) or shall have entered into a Non-Disturbance Agreement with Tenant. Tenant, upon demand of any such owner, Lessor or Mortgagee, shall execute from time to time, instruments in confirmation of the foregoing provisions of this Section B, satisfactory to any such owner, Lessor or Mortgagee, acknowledging such attornment and setting forth the terms and conditions of its tenancy. 22 26 C. (1) Any Non-Disturbance Agreement may be made on the condition that, as long as such Mortgagee or Lessor shall not be owned by the then defaulting landlord or the then defaulting landlord shall not have a majority interest in such Mortgagee or Lessor, neither the Mortgagee under such Mortgage nor the Lessor under such Superior Lease, as the case may be, nor anyone claiming by, through or under such Mortgagee or Lessor, as the case may be, including a purchaser at a foreclosure sale, shall be: (a) liable for any act or omission of any prior landlord (including, without limitation, the then defaulting landlord), or (b) subject to any defenses or offsets which Tenant may have against any prior landlord arising prior to the time such Mortgagee or Lessor succeeded to any prior landlord's interest (including, without limitation, the then defaulting landlord), or (c) bound by any payment of Rent which Tenant might have paid for more than one (1) month to any prior landlord (including, without limitation, the then defaulting landlord), or (d) bound by any obligation to make any payment to Tenant, which was required to be made prior to the time such Mortgagee or Lessor succeeded to any prior landlord's interest, or (e) bound by any obligation to perform any work or to make improvements to the Premises except for (i) repairs and maintenance pursuant to the provisions of Article 4 hereof, (ii) repairs to the Premises or any part thereof as a result of damage by fire or other casualty pursuant to Article 10 hereof, but only to the extent that such repairs can be reasonably made from the net proceeds of any insurance actually made available to such Lessor or Mortgagee (unless Landlord is Equitable and acts as a self-insurer pursuant to Article 9) and (iii) repairs to the Premises as a result of a partial condemnation pursuant to Article 11 hereof, but only to the extent that such repairs can be reasonably made from the net proceeds of any award made available to such Lessor or Mortgagee. D. If required by the Mortgagee or the Lessor, Tenant promptly shall join in any Non-Disturbance Agreement to indicate its concurrence with the provisions thereof and its agreement, in the event of a foreclosure of such Mortgage or the termination of such Superior Lease, as the case may 23 27 be, to attorn to such Mortgagee or Lessor, as the case may be, as Tenant's landlord hereunder. Tenant shall promptly so accept, execute and deliver any Non-Disturbance Agreement proposed by any such Mortgagee or Lessor which conforms with the provisions of this Article 7. Any such Non-Disturbance Agreement may also contain other terms and conditions as may otherwise be reasonably required by such Mortgagee or Lessor, as the case may be, as a condition to the making of such Mortgage or Superior Lease and which do not materially increase the obligations of Tenant under this Lease, increase Tenant's monetary obligations or materially and adversely affect the rights or obligations of Tenant under this Lease or the leasehold estate hereby created or Tenant's use and enjoyment of the Premises. E. From time to time, within seven (7) days next following request by Landlord given pursuant to Article 26 hereof, any Mortgagee or any Lessor, Tenant shall deliver to Landlord, such Mortgagee or such Lessor a written statement executed and acknowledged by Tenant, in form reasonably satisfactory to Landlord, such Mortgagee or such Lessor, (i) stating that this Lease is then in full force and effect and has not been modified (or if modified, setting forth all modifications), (ii) setting forth the date to which the Rent, additional rent and other charges hereunder have been paid and the amounts thereof, (iii) stating whether or not, to the best of Tenant's knowledge, Landlord is in default under this Lease, and, if Landlord is in default, setting forth the specific nature of all such defaults, and (iv) as to any other matters reasonably requested by Landlord, such Mortgagee or such Lessor. Tenant acknowledges that any statement delivered pursuant to this Section E may be relied upon by any purchaser or owner of the Real Property or the Building, or Landlord's interest in the Real Property or the Building, or any Superior Lease, or by any Mortgagee, or by an assignee of any Mortgagee, or by any Lessor. F. As long as any Superior Lease or Mortgage shall exist, Tenant shall not seek to terminate this Lease by reason of any act or omission of Landlord until Tenant shall have given written notice of such act or omission to all Lessors and Mortgagees at such addresses as shall have been furnished to Tenant by such Lessors and Mortgagees and, if any such Lessor or Mortgagee, as the case may be, shall have notified Tenant within ten (10) Business Days following the receipt of such notice, that such Lessor or Mortgagee intends to remedy such act or omission, until a reasonable period of time shall have elapsed following receipt of such notice by such Lessor or Mortgagee, during which period such Lessor and 24 28 Mortgagee shall have the right, but not the obligation, to remedy such act or omission. G. From time to time, within seven (7) days next following Tenant's request, Landlord shall deliver to Tenant a written statement executed by Landlord (i) stating that this Lease is then in full force and effect and has not been modified (or if modified, setting forth all modifications), (ii) setting forth the date to which the Rent, additional rent and other charges hereunder have been paid and the amounts thereof, (iii) stating whether or not, to the best of Landlord's knowledge, Tenant is in default under this Lease, and, if Tenant is in default, setting forth the specific nature of all such defaults, and (iv) as to any other matters reasonably requested by Tenant and related to this Lease. Landlord acknowledges that any statement delivered pursuant to this Section G may be relied upon by any subtenant of Tenant. 8. RULES AND REGULATIONS. Tenant and Tenant's servants, contractors, employees, agents, visitors and licensees shall comply with the Rules and Regulations. If Tenant disputes the reasonableness of any additional Rule or Regulation hereafter adopted by Landlord, the dispute shall be submitted for decision to the American Arbitration Association or any successor organization in accordance with the regulations and procedures thereof then obtaining for commercial arbitration, whose determination shall be final and conclusive upon the parties hereto. The right to dispute the reasonableness of any additional Rule or Regulation upon Tenant's part shall be deemed waived unless the same shall be asserted by service of a notice upon Landlord within thirty (30) days after receipt by Tenant of notice of the adoption of any such additional Rule or Regulation. Nothing in this Lease contained shall be construed to impose upon Landlord any duty or obligation to enforce the Rules and Regulations or terms, covenants or conditions in any other lease, against any other tenant and Landlord shall not be liable to Tenant for violation of the same by any other tenant, its servants, employees, agents, visitors or licensees except that Landlord shall not discriminate in the enforcement of any Rule or Regulation and shall not enforce any Rule or Regulation against Tenant which Landlord shall not then be enforcing against the other office tenants of the Building. 9. PROPERTY LOSS OR DAMAGE; REIMBURSEMENT. A. (1) Any Building employee to whom any property shall be entrusted by or on behalf of Tenant shall be deemed to be acting as Tenant's agent with respect to such property and neither Landlord nor its agents shall be liable for any 25 29 damage to property of Tenant or of others entrusted to employees of the Building, nor for the loss of or damage to any property of Tenant by theft or otherwise. Neither Landlord nor its agents shall be liable for any injury or damage to persons or property or interruption of Tenant's business resulting from fire or other casualty; nor shall Landlord or its agents be liable for any such damage caused by other tenants or persons in the Building or caused by construction of any private, public or quasi-public work; nor shall Landlord be liable for any latent defect in the Premises or in the Building. Anything in this Article 9 to the contrary notwithstanding, except as set forth in Articles 4, 10, 13, 28 and 36 of this Lease and otherwise as expressly provided herein, Landlord shall not be relieved from responsibility directly to Tenant for any loss or damage caused directly to Tenant wholly or in part by the negligent acts or omissions of Landlord. It is expressly acknowledged and understood that the foregoing shall not in any manner whatsoever modify or negate the provisions of Section E of Article 10 hereof. Nothing in the foregoing shall affect any right of Landlord to the indemnity from Tenant to which Landlord may be entitled under Article 36 hereof in order to recoup for payments made to compensate for losses of third parties. (2) If at any time any windows of the Premises are permanently or temporarily closed, darkened or bricked-up for any reason if required by law, Landlord shall not be liable for any damage Tenant may sustain thereby and Tenant shall not be entitled to any compensation therefor nor abatement of Rent nor shall the same release Tenant from its obligations hereunder nor constitute an eviction, in whole or in part. (3) Tenant shall give immediate notice to Landlord in case of fire or accident in the Premises or in the Building (with respect to any fire or accident in the Building to the extent that Tenant has actual or constructive knowledge thereof). Tenant shall not move any safe, heavy machinery, heavy equipment, heavy freight, bulky matter or heavy fixtures into or out of the Building without Landlord's prior consent, which consent shall not be unreasonably withheld or delayed, and payment to Landlord of Landlord's reasonable costs in connection therewith. If such safe, machinery, equipment, freight, bulky matter or fixtures requires special handling, Tenant shall employ only persons holding a Master Rigger's License to do said work. All work in connection therewith shall comply with the Requirements, and shall be done during such hours as Landlord may reasonably designate. B. Tenant shall obtain and keep in full force and effect a policy of comprehensive general public liability and 26 30 property damage insurance with a broad form contractual liability endorsement under which Tenant is named as the insured, and Landlord and any Lessors and any Mortgagees (whose names shall have been furnished to Tenant) are named as additional insureds, and under which the insurer agrees to indemnify and hold landlord and such Lessors and Mortgagees harmless from and against all costs, expense and/or liability arising out of or based upon any and all claims, accidents, injuries and damages mentioned in Article 36. Such policy shall contain a provision that no act or omission of Tenant shall affect or limit the obligation of the insurance company to pay the amount of any loss sustained and shall be non-cancellable with respect to Landlord and such Lessors and Mortgagees unless at least ten (10) Business Day's written notice shall have been given to Landlord by certified mail, return receipt requested, which notice shall contain the policy number and the names of the insured and additional insureds. A certificate of such insurance shall be delivered to Landlord and shall have printed thereon Article 36 hereof in its entirety. The minimum limits of liability shall be a combined single limit with respect to each occurrence in an amount of not less than $10,000,000 for injury (or death) and damage to property. Tenant shall also purchase on behalf of, and in the name of, Landlord and keep in full force and effect a policy of rent insurance on an "All Risk of Physical Loss" basis in an amount equal to one (1) year's current estimated Rent, Based upon the previous year's Rent plus ten percent (10%), and shall name Landlord as loss payee thereon. All insurance required to be carried or purchased by Tenant pursuant to the terms of this Lease shall be effected under valid and enforceable policies issued by reputable and independent insurers permitted to do business in the State of New York, and rated in Best's Insurance Guide, or any successor thereto (or if there be none, an organization having a national reputation) as having a general policyholder rating of "A" and a financial rating of at least "13". Landlord shall obtain and keep in full force and effect a policy of comprehensive general public liability and property damage insurance for the Building in at least a minimum amount required to prevent Landlord from being a co-insurer; provided, however, if Equitable is Landlord hereunder, Landlord may elect to act as a self-insurer and not maintain any or all of the insurance required hereunder. A copy of the certificate of such insurance has been delivered to Tenant and, a copy of the certificate of any renewal policy for such insurance shall be delivered to Tenant, at least fifteen (15) days prior to the expiration of the then current certificate. 10. DESTRUCTION-FIRE OR OTHER CAUSE. A. If the Premises shall be damaged by fire or other casualty, and if 27 31 Tenant shall give prompt notice thereof to Landlord, the damages shall be repaired by and at the expense of Landlord to Building standard condition, exclusive of Tenant's Alterations, and the Rent until such repairs shall be made shall be reduced (to the extent that Landlord receives the proceeds of rent insurance required to be purchased by Tenant on behalf of, and in the name of, Landlord pursuant to Article 9 of this Lease) in the proportion which the area of the part of the Premises which is not usable by Tenant bears to the total area of the Premises (taking into account, and making an adjustment on account of any damage to, and the Rent payable with respect to, the 38th Floor Space, the Subconcourse Space, the 39th Floor Storage Space, the Concourse Space, the Bank Vault Space and 39th Floor Space). Landlord shall have no obligation to repair any damage to, or to replace, any Alterations, fixtures, furniture, furnishings, equipment or other property or effects of Tenant. B. Anything is Section A of this Article 10 to the contrary notwithstanding, (a) if the Premises are totally damaged or are rendered wholly untenantable, and if the Building shall be so damaged by fire or other casualty that, in Landlord's reasonable opinion, substantial alteration, demolition, or reconstruction of the Building shall be required, or (b) if, whether or not the Premises shall have been damaged or rendered untenantable, the Building shall be so damaged by fire or other casualty that, in Landlord's reasonable opinion, substantial alteration, demolition or reconstruction shall be required and Landlord shall have elected to terminate all of the other leases then in effect for the space in the Building affected by such damage, then in any of such events, Landlord, at Landlord's option, may, not later than ninety (90) days following the damage, give Tenant a notice in writing terminating this Lease. If Landlord elects to terminate this Lease, the Term shall expire upon the tenth (10th) day after such notice is given, and Tenant shall vacate the Premises and surrender the same to Landlord. If Tenant shall not be in default under this Lease, then upon the termination of this Lease under the conditions provided for in this Section B, Tenant's liability for Rent shall cease as of the day following such damage and any prepaid portion of Rent for any period after such date shall be refunded by Landlord to Tenant. C. No penalty shall accrue for delays which may arise by reason of "labor troubles" or any other cause beyond Landlord's or Tenant's control. D. This Article 10 constitutes an express agreement governing any case of damage or destruction of the 28 32 Premises or the Building by fire or other casualty, and that Section 227 of the Real Property Law of the State of New York, which provides for such contingency in the absence of an express agreement, and any other law of like import now or hereafter in force shall have no application in any such case. E. The parties hereto shall procure an appropriate clause in, or endorsement on, any fire or extended coverage insurance covering the Premises, the Building and personal property, fixtures and equipment located thereon or therein, pursuant to which the insurance companies waive subrogation or consent to a waiver of right of recovery, and having obtained such clauses or endorsements of waiver of subrogation or consent to a waiver of right of recovery, each party will not make any claim against or seek to recover from the other for any loss or damage to its property or the property of others resulting from fire or other hazards covered by such fire and extended coverage insurance, provided, however, that the release, discharge, exoneration and covenant not to sue herein contained shall be limited by and coextensive with the terms and provisions of the waiver of subrogation clause or endorsements or clauses or endorsements consenting to a waiver of right of recovery. If Landlord is Equitable and acts as a self-insurer pursuant to the provisions of Article 9 hereof, Landlord shall execute and deliver to Tenant a written statement waiving subrogation, as set forth above. If the payment of an additional premium is required for the inclusion of such waiver of subrogation provision, each party shall advise the other of the amount of any such additional premiums and the other party at its own election may, but shall not be obligated to, pay the same. If such other party shall not elect to pay such additional premium, the first party shall not be required to obtain such waiver of subrogation provision. Tenant acknowledges Landlord shall not carry insurance on, and shall not be responsible for damage to, Tenant's Alterations, fixtures, furnishings, equipment or other property or effects, and that Landlord shall not carry insurance against or be responsible for any loss suffered by Tenant due to interruption of Tenant's business. F. Anything contained in this Article 10 to the contrary notwithstanding, within forty-five (45) days after notice to Landlord of any damage described in Section A hereof, Landlord shall deliver to Tenant a statement prepared by a reputable independent contractor setting forth such contractor's estimate as to the reasonable time required to repair the damage. If the estimated time period exceeds twelve (12) months from the date of such statement, Tenant may elect 29 33 to terminate this Lease by notice to Landlord not later than thirty (30) days following receipt of such statement. If Tenant makes such election, the Term shall expire upon the thirtieth (30th) day after notice of such election is given by Tenant, and Tenant shall vacate the Premises and surrender the same to Landlord as if such date were the Expiration Date. If Tenant shall not have elected to terminate this Lease pursuant to this Article (or is not entitled to terminate this Lease pursuant to this Article), and such repairs are not made by Landlord within six (6) months after the expiration of the period estimated for effecting such repair, Tenant may elect to terminate this Lease by notice to Landlord not later than thirty (30) days following the expiration of such six (6) month period; provided however that in the event Landlord shall be unable to complete such repairs by reason of any circumstances set forth in Article 25 hereof (other than inability caused by delays in adjustment of insurance), Tenant may not elect to terminate this Lease unless such repairs are not made within twelve (12) months after the expiration of the period estimated for effecting such repairs. If Tenant makes such election, the Term of this Lease shall expire upon the thirtieth (30th) day after notice of such election is given by Tenant and Tenant shall vacate the Premises and surrender the same as if such date were the Expiration Date. Notwithstanding the foregoing, if the Premises shall be substantially damaged during the last two (2) years of the Term (as renewed or extended pursuant to Article 41 hereof), either party may elect by notice to the other party within twenty (20) days after the occurrence of such damage, to terminate this Lease. If either party makes such an election, the Term shall expire upon the thirtieth (30th) day after notice of such election is given by such party and Tenant shall vacate the Premises and surrender the same to Landlord as if such date were the Expiration Date. Tenant shall have no other options to cancel this Lease under this Article 10. 11. EMINENT DOMAIN. A. If the whole of the Real Property, the Building or the Premises shall be acquired or condemned for any public or quasi-public use or purpose, this Lease and the Term shall end as of the date of the vesting of title with the same effect as if said date were the Expiration Date. If only a part of the Real Property shall be so acquired or condemned then, (1) except as hereinafter provided in this Section A, this Lease and the Term shall continue in force and effect but, if a part of the Premises is included in the part of the Real Property so acquired or condemned, from and after the date of the vesting of title, the Rent shall be equitably reduced based upon the area and location of the part of the Premises so acquired or condemned and 30 34 Tenant's Share shall be reduced in the proportion which the area of the part of the Premises so acquired or condemned bears to the total area of the Premises immediately prior to such acquisition or condemnation (taking into account and making an adjustment for the fact that the Rent payable with respect to the 38th Floor Space, the Subconcourse Space, the 39th Floor Storage Space, the Concourse Space, the Bank Vault Space and the 39th Floor Space is less than or greater than, as the case may be, the Rent per square foot payable with respect to the remainder of the Premises); (2) whether or not the Premises shall be affected thereby, if a part of the Real Property so acquired or condemned shall render the remaining portion thereof economically unfeasible to operate as an office Building, Landlord, at Landlord's option, may give to Tenant, within sixty (60) days next following the date upon which Landlord shall have received notice of vesting of title, a five (5) days' notice of termination of this Lease; and (3) if the part of the Real Property so acquired or condemned shall contain more than fifteen percent (15%) of the total area of the Premises immediately prior to such acquisition or condemnation, or if, by reason of such acquisition or condemnation, Tenant no longer has reasonable means of access to the Premises, Tenant, at Tenant's option, may give to Landlord, within sixty (60) days next following the date upon which Tenant shall have received notice of vesting of title, a five (5) days' notice of termination of this Lease. If any such five (5) days' notice of termination is given, by landlord or Tenant, this Lease and the Term shall come to an end and expire upon the expiration of said five (5) days with the same effect as if the date of expiration of said five (5) days were the Expiration Date. If a part of the Premises shall be so acquired or condemned and this Lease and the Term shall not be terminated pursuant to the foregoing provisions of this Section A, Landlord, at Landlord's expense, shall restore that part of the Premises not so acquired or condemned to a self-contained rental unit to the then Building standard condition exclusive of Tenant's Alternations. In the event of any termination of this Lease and the Term pursuant to the provisions of this Section A, the Rent shall be apportioned as of the date of sooner termination and any prepaid portion of Rent for any period after such date shall be refunded by Landlord to Tenant. B. In the event of any such acquisition or condemnation of all or any part of the Real Property, Landlord shall be entitled to receive the entire award for any such acquisition or condemnation, Tenant shall have no claim against Landlord or the condemning authority of the value of any unexpired portion of the Term and Tenant hereby expressly assigns to Landlord all of its right in and to any such 31 35 award. Nothing contained in this Section B shall be deemed to prevent Tenant from making a separate claim in any condemnation proceedings for the then value of any furniture, furnishings and fixtures installed by and at the sole expense of Tenant and included in such taking, and for any moving expenses. C. If the whole or any part of the Premises shall be acquired or condemned temporarily during the Term for any public or quasi-public use or purpose, Tenant shall give prompt notice thereof to Landlord and the Term shall not be reduced or affected in any way and Tenant shall continue to pay in full the Rent payable by Tenant hereunder without reduction or abatement, and Tenant shall be entitled to receive for itself any award or payments for such use, provided, however, that: (i) if the acquisition or condemnation is for a period not extending beyond the Term, and if by reason of such acquisition or condemnation changes or alterations are required to be made to the Premises which would necessitate an expenditure to restore the Premises to its former condition, such changes or alterations shall be performed by Tenant, at Tenant's sole cost and expense and in accordance with the provisions of Article 3 hereof, to Landlord's satisfaction; or (ii) if the acquisition or condemnation is for a period extending beyond the Term (as the same may have then been extended pursuant to Article 41 thereof), after deducting the cost for any changes or alterations required for the restoration of the Premises from the amount of any award or payment which shall be retained by Landlord, the balance of such award or payment shall be apportioned between Landlord and Tenant as of the Expiration Date. 12. ASSIGNMENT AND SUBLETTING. A. (1) Except as expressly provided in this Article 12, Tenant, without the prior consent of Landlord in each instance, shall not (a) assign its rights or delegate its duties under this Lease (whether by operation of law, transfers of interests in Tenant or otherwise), mortgage or encumber its interest in this Lease, in whole or in part, or (b) permit the Premises or any part thereof to be occupied, or used for desk space, mailing privileges or otherwise, by any person other than Tenant. No assignment of this Lease shall relieve Tenant of its obligations hereunder; and, with respect to any assignment permitted pursuant to Section G hereof, Tenant's liability hereunder shall continue notwithstanding any subsequent modifica- 32 36 tion or amendment hereof or the release of any subsequent tenant hereunder from any liability, to all of which Tenant hereby consents in advance. (2) If this Lease is assigned to any person or entity pursuant to the provisions of the Bankruptcy Code, any and all monies or other consideration payable or otherwise to be delivered in connection with such assignment shall be paid or delivered to Landlord, shall be and remain the exclusive property of Landlord and shall not constitute property of Tenant or of the estate of Tenant within the meaning of the Bankruptcy Code. Any and all monies or other considerations constituting Landlord's property under the preceding sentence not paid or delivered to Landlord shall be held in trust for the benefit of Landlord and shall be promptly paid to or turned over to Landlord. B. Tenant shall not sublet or permit the subletting (which shall, for the purposes hereof, include any proposed transaction pursuant to which any corporation or entity referred to in clause (iii) of Section G of this Article, to whom any portion of the Premises shall have been previously subleased pursuant thereto, would no longer be (i) controlled (ii) be under the control of, or (iii) be under common control with, Tenant) of the Premises or any part thereof without the prior consent of Landlord. Landlord shall not unreasonably withhold or delay its consent to a subletting of the Premises, including, without limitation, the Free Sublet Space (exclusive of the Subconcourse Space, the 39th Floor Storage Space, the Concourse Space and the Bank Vault Space) provided that: (1) the Premises shall not, without Landlord's prior consent, have been listed or advertised for subletting at a rental rate less than the annual rental rate then being asked by Landlord in connection with the offering of space in the Building comparable to the space proposed to be sublet and for a comparable term, or, if such comparable space at a comparable term is not then being offered by Landlord, then the annual rental rate at which Landlord would offer such comparable space for a comparable term (the "Prevailing Rental Rate"), nor shall Tenant advise any broker, agent, finder or prospective subtenant that Tenant is willing to sublet the Premises at a rate less than the Prevailing Rental Rate; (2) the Premises shall not be sublet at a rental rate less than ninety percent (90%) of the Prevailing Rental Rate; 33 37 (3) no Event of Default shall have occurred and be continuing; (4) the proposed subtenant shall have a financial standing, be of a character, be engaged in a business, and propose to use the Premises in a manner in keeping with the standards in such respect of the other tenancies in the Building; (5) if Landlord has or within six (6) months thereafter reasonably expects suitable space to be available in the Building, the proposed subtenant shall not be a person or entity with whom Landlord is then negotiating to lease space in the Building; if Tenant shall propose to sublease space and is about to commence negotiations with a prospective subtenant, Tenant shall advise Landlord of the identity of such prospective subtenant and Landlord shall promptly advise Tenant if the execution of a sublease with such prospective subtenant would violate the provisions of this clause (5); (6) (a) the character of the business to be conducted or the proposed use of the Premises by the proposed subtenant shall not (A) materially increase the burden on existing cleaning services or increase the burden on elevator usage over the burden prior to such proposed subletting; or (B) violate any provisions or restrictions herein relating to the use or occupancy of the Premises; and (b) if Landlord shall have consented to a sublease and, as a result of the use and occupancy of the subleased portion of the Premises by the subtenant, operating expenses or cleaning services are increased, then Tenant shall pay to Landlord, within five (5) Business Days after demand, as additional rent, all resulting increases in operating expenses and in the costs of providing cleaning services; (7) the subletting shall be expressly subject to all of the terms, covenants, conditions and obligations on Tenant's part to be observed and performed under this Lease and the further condition and restriction that the sublease shall not be assigned, encumbered or otherwise transferred or the subleased premises further sublet by the subtenant in whole or in part, or any part thereof suffered or permitted by the subtenant to be used or occupied by others, without the prior written consent of Landlord in each instance; (8) the subletting shall end no later than one (1) day before the Expiration Date of this Lease and 34 38 shall not be for a term of less than two (2) years unless it commences less than two (2) years before the Expiration Date; (9) the subletting shall be for not less than 10,000 contiguous square feet on any floor of the Premises, (other than for subtenants providing brokerage services for whom Tenant provides clearance and administrative services), and at not time shall there be (a) as to floors of the Premises of less than 50,000 square feet, more than three (3) occupants, including Tenant, on any one (1) floor of the Premises and (b) as to all other floors of the Premises, more than five (5) occupants, including Tenant, in any one (1) floor of the Premises; (10) Tenant shall reimburse Landlord on demand for any reasonable costs that may be actually incurred by Landlord in connection with said sublease, including, without limitation, the costs of making investigations as to the acceptability of the proposed subtenant; and (11) Tenant shall not sublet the 39th Floor Space expect together with the entire 38th floor of the Building. C. (1) At least twenty (20) Business Days prior to any proposed subletting Tenant shall submit a statement to Landlord (a "Sublease Statement") containing the following information: (a) the name and address of the proposed subtenant, (b) a description of the portion of the Premises to be sublet, (c) the terms and conditions of the proposed subletting including the rent payable, (d) the nature and character of the business of the proposed subtenant and (e) any other information that Landlord may reasonably request. Landlord shall have the right, exercisable within twenty (20) Business Days after Landlord's receipt of the Sublease Statement, to sublet such portion of the Premises from Tenant on the terms and conditions set forth in the Sublease Statement. If Landlord shall fail to notify Tenant, within said twenty (20) Day period of Landlord's intention to exercise its rights pursuant to this Section C(1) or if Landlord shall have consented to such subletting as provided in Section B hereof, Tenant shall be free to sublease that portion of the Premises to such proposed subtenant on the terms and conditions set forth in the Sublease Statement, subject to the terms and conditions of this Lease, including subsection (2) of this Section C. If Tenant shall not enter into such sublease within one hundred twenty (120) days after the delivery of the Sublease Statement to Landlord, then the provisions of Section B and C of this Article 12 shall again be applicable to any other proposed subletting. 35 39 (2) (a) Except with respect to the Free Sublet Space, Tenant shall pay to Landlord, in respect of any period of time during which Tenant shall sublet Additional Sublet Space or the Subconcourse Space, the 39th Floor Storage Space, the Concourse Space or the Bank Vault Space, a sum equal to fifty percent (50%) of any Sublease Profit derived therefrom. All sums payable hereunder by Tenant shall be calculated on an annualized basis, but shall be paid to Landlord as additional rent within five (5) Business Days after the receipt thereof by Tenant. If Tenant shall sublet portions of the Premises in excess of the Free Sublet Space or the Subconcourse Space, the 39th Floor Storage Space, the Concourse Space or the Bank Vault Space, the Sublet Profit to be paid to Landlord hereunder shall be calculated based upon the Sublease Rent payable under those subleases (x) which result in the subletting of space in excess of the Free Sublet Space or (y) which are of the Subconcourse Space, the 39th Floor Storage Space, the Concourse Space or the Bank Vault Space, as the case may be. (b) For purposes of this Section C of Article 12: (i) "Rent Per Square Foot" shall mean (x) with respect to floors nine (9) through eighteen (18) of the Premises the then Rent payable by Tenant for said Premises, as the same may be increased pursuant to Articles 40 and 41 hereof, divided by the Space Factor and (y) with respect to the 38th Floor Space, the Subconcourse Space, the 39th Floor Storage Space, the Concourse Space, the Bank Vault Space and the 39th Floor Space the then Rent payable by Tenant for such Space, as the same may be increased pursuant to Article 41 hereof, divided by the Space Factor with respect to such space. (ii) "Sublease Profit" shall mean the product of (x) the Sublease Rent Per Square Foot less the Rent Per Square Foot, multiplied by (y) the number of Rentable Square Feet constituting the Additional Sublet Space or the Subconcourse Space, the 39th Floor Storage Space, the Concourse Space or the Bank Vault Space, as the case may be. (iii) "Sublease Rent" shall mean any rent or other consideration paid to Tenant, directly or indirectly, by any subtenant or any other amount received by Tenant from or in connection with any subletting (including but not limited to sums paid for the sale or rental (or consideration received on account of any contribution) of Tenant's Property) after deducting therefrom (a) in the event of a sale (or contribution) of Tenant's Property, the then unamortized or undepreciated cost thereof determined on the basis of 36 40 Tenant's Federal income tax returns, (b) the actual out-of-pocket cost and expenses of Tenant in making such sublease such as brokers' fees, attorneys' fees, and advertising fees paid to unrelated third parties and the reasonable out-of-pocket cost of administering such sublease, (c) any sums paid by Tenant to Landlord pursuant to Section B(10) of this Article 12 and (d) nondecorative improvement or alteration costs to prepare such portion of the Premises for such subtenancy and the unamortized unreimbursed cost of any Tenant's Property leased to and used by such subtenant (to the extent that such costs are required to be capitalized for federal income tax purposes, such costs shall be amortized during the term of such sublease over the useful life Tenant actually establishes for income tax purposes for such alteration or improvement pursuant to the Internal Revenue Code of 1954, as amended, together with interest thereon at the then prime rate being charged by Citibank, N.A. or its successor). (iv) "Sublease Rent Per Square Foot" shall mean the Sublease Rent divided by the Rentable Square Feet of the Additional Sublet Space or the Subconcourse Space, the 39th Floor Storage Space, the Concourse Space, the Bank Vault Space or 39th Floor Space, as the case may be. D. Every subletting hereunder is subject to the express condition, and by accepting a sublease hereunder each subtenant shall be conclusively deemed to have agreed, that if this Lease should be terminated prior to the Expiration Date or if Landlord should succeed to Tenant's estate in the Premises, then at Landlord's election the subtenant shall either surrender the Premises to Landlord within 60 days of Landlord's request therefor, or attorn to and recognize Landlord as the subtenant's Landlord under the sublease and the subtenant shall promptly execute and deliver any instrument Landlord may reasonably request to evidence such attornment. E. If Tenant's interest in this Lease is assigned in violation of the provisions of this Article 12, such assignment shall be void and of no force and effect against Landlord; provided, however, that Landlord may collect an amount equal to the then Rent from the assignee as a fee for its use and occupancy. If the Premises or any part thereof are sublet to, or occupied by, or used by, any person other than Tenant, whether or not in violation of this Article 12, Landlord, after default by Tenant under this Lease, may collect any rent or other sums paid by the subtenant, user or occupant as a fee for its use and occupancy, and Landlord shall apply the net amount collected to the Rent and Sublease Profit reserved in this Lease. No such assignment, subletting, occupancy or use, whether with or without Landlord's 37 41 prior consent, nor any such collection or application of Rent or fee for use and occupancy, shall be deemed a waiver by Landlord of any term, covenant or condition of this Lease or the acceptance by Landlord of such assignee, subtenant, occupant or user as tenant hereunder. The consent by Landlord to any assignment, subletting, occupancy or use shall not relieve Tenant from its obligation to obtain the express prior consent of Landlord to any further assignment, subletting, if applicable, occupancy or use. Tenant agrees to pay to Landlord the reasonable attorneys' fees and disbursements incurred by Landlord in connection with any proposed assignment of Tenant's interest in this Lease or any proposed subletting of the Premises or any part thereof. Neither any assignment of Tenant's interest in this Lease nor any subletting, occupancy or use of the Premises or any part thereof by any person other than Tenant, nor any collection of Rent or Sublease Profit by Landlord from any person other than Tenant as provided in this Section E, nor any application of any such Rent or Sublease Profit as provided in this Section E shall, in any circumstances, relieve Tenant of it obligations under this Lease on Tenant's part to be observed and performed. Any person or entity to which this Lease is assigned pursuant to the provisions of the Bankruptcy Code shall be deemed without further act or deed to have assumed all of the obligations arising under this Lease on and after the date of such assignment. Any such assignee shall execute and deliver to Landlord upon demand an instrument confirming such assumption. F. (1) If Tenant assumes this Lease and proposes to assign the same pursuant to the provisions of the Bankruptcy Code to any person or entity who shall have made a bona fide offer to accept an assignment of this Lease on terms acceptable to the Tenant, then notice of such proposed assignment shall be given to Landlord by Tenant no later than twenty (20) days after receipt by Tenant, but in any event no later than ten (10) days prior to the date that Tenant shall make application to a court of competent jurisdiction for authority and approval to enter into such assignment and assumption. Such notice shall set forth (a) the name and address of such person, (b) all of the terms and conditions of such offer, and (c) adequate assurance of future performance by such person under the Lease, including, without limitation, the assurance referred to in #365(b)(3) of the Bankruptcy Code. Landlord shall have the prior right and option, to be exercised by notice to Tenant given at any time prior to the effective date of such proposed assignment, to accept an assignment of this Lease upon the same terms and conditions and for the same consideration, if any, as the bona fide offer made by such person, less any brokerage commis- 38 42 sions which would otherwise be payable by Tenant out of the consideration to be paid by such person in connection with the assignment of this Lease. (2) The term "adequate assurance of future performance" as used in this Lease shall mean that any proposed assignee shall, among other things, (a) deposit with Landlord on the assumption of this Lease an amount equal to the then annual Rent as security for the faithful performance and observance by such assignee of the terms and obligations of this Lease, which sum shall be held in accordance with the provisions of Article 31 hereof, (b) furnish Landlord with financial statements of such assignee for the prior three (3) fiscal years, as finally determined after an audit and certified as correct by a certified public accountant, which financial statements shall show a net worth (calculated in accordance with generally accepted accounting principles consistently applied) of at least Twenty-Five Million Dollars ($25,000,000) for each of such three (3) years, (c) grant to Landlord a security interest in such property of the proposed assignee as Landlord shall deem necessary to secure such assignee's future performance under this Lease, and (d) provide such other information or take such action as Landlord, in its reasonable judgment shall determine is necessary to provide adequate assurance of the performance by such assignee of its obligations under the Lease. G. As long as PaineWebber Incorporated is Tenant hereunder, Tenant shall have the privilege, without the consent of Landlord, to assign its interest in this Lease (i) to any corporation which is a successor to Tenant either by merger or consolidation, (ii) to a purchaser of all or substantially all of Tenant's assets (provided such purchaser shall have also assumed substantially all of Tenant's liabilities), or (iii) to a corporation or other entity which shall (1) control, (2) be under the control of, or (3) be under common control with, Tenant (the term "control" as used herein shall be deemed to mean ownership of more than 50% of the voting stock of a corporation on a fully diluted basis, or other majority equity and control interest, if not a corporation); Tenant may also sublease all or any portion of the Premises to an entity described in this clause (iii) without the consent of Landlord; provided, however, that (a) any such assignee shall continue to use the Premises for the conduct of the same business as Tenant was conducting previous to such assignment, (b) the principal purpose of such assignment (or sublease) is not the acquisition of Tenant's interest in this Lease (except if such assignment (or sublease) is made pursuant to clause (iii) and is made for a valid intracorporate business purpose and is not made to circumvent the pro- -39- 43 visions of Section A of this Article), and (c) any such assignee shall have a net worth and annual income and cash flow, determined in accordance with generally accepted accounting principles, consistently applied, after giving effect to such assignment, equal to or greater than Tenant's net worth and annual income and cash flow, as so determined, on the date of such assignment. Tenant shall, within ten (10) business days after execution thereof, deliver to Landlord (a) a duplicate original instrument of assignment in form and substance reasonably satisfactory to Landlord, duly executed by Tenant, and (b) an instrument in form and substance reasonably satisfactory to Landlord, duly executed by the assignee, in which such assignee shall assume observance and performance of, and agree to be personally bound by, all of the terms, covenants and conditions of this Lease on Tenant's part to be observed and performed. Except as set forth above, either a transfer of a controlling interest in the shares of Tenant (if Tenant is a corporation or trust) or a transfer of a majority of the total interest in Tenant (if Tenant is a partnership) at any one time or over a period of time through a series of transfers, shall be deemed an assignment of this Lease and shall be subject to all of the provisions of this Article 12, including, without limitation, the requirement that Tenant obtain Landlord's prior consent thereto. The transfer of shares of Tenant (if Tenant is a corporation or trust) for purposes of this Section G, shall not include the sale of shares by persons other than those deemed "insiders" within the meaning of the Securities Exchange Act of 1934, as amended, which sale is effected through the "over-the-counter market" or through any recognized stock exchange. H. If, at any time after Tenant may have assigned Tenant's interest in this Lease, this Lease shall be disaffirmed or rejected in any proceeding of the types described in clauses (6) and (8) of Section A of Article 16 hereof, or in any similar proceeding, or in the event of termination of this Lease by reason of any such proceeding or by reason of lapse of time following notice of termination given pursuant to said Article 16 based upon any of the Events of Default set forth in such clauses, Tenant, upon request of Landlord given within thirty (30) days next following any such disaffirmance, rejection or termination (and actual notice thereof to Landlord in the event of a disaffirmance or rejection or in the event of termination other than by act of Landlord), shall (1) pay to Landlord all Rent, additional rent and other charges due and owing by the assignee to Landlord under this Lease to and including by the date of such disaffirmance, rejection or termination, and (2) as "tenant", enter into a new lease with Landlord of the Premises for a -40- 44 term commencing on the effective date of such disaffirmance, rejection or termination and ending on the Expiration Date, unless sooner terminated as in such lease provided, at the same Rent and upon the then executory terms, covenants and conditions as are contained in this Lease, except that (a) Tenant's rights under the new lease shall be subject to the possessory rights of the assignee under this Lease and the possessory rights of any person claiming through or under such assignee or by virtue of any statute or of any order of any court, and (b) such new lease shall require all defaults existing under this Lease to be cured by Tenant with due diligence, and (c) such new lease shall require Tenant to pay all increases in the Rent reserved in this Lease which, had this Lease not been so disaffirmed, rejected or terminated, would have accrued under the provisions of Articles 27 and 28 hereof after the date of such disaffirmance, rejection or termination with respect to any period prior thereto. If Tenant shall default in its obligation to enter into said new lease for a period of ten (10) Business Days next following Landlord's request therefor, then, in addition to all other rights and remedies by reason of such default, either at law or in equity, Landlord shall have the same rights and remedies against Tenant as if Tenant had entered into such new lease and such new lease had thereafter been terminated as at the commencement date thereof by reason of Tenant's default thereunder. 13. ELECTRICITY. A. Tenant shall make no electrical installations, alterations or additions without the prior written consent of Landlord in each instance. Landlord shall not unreasonably withhold or delay its consent with respect to any electrical installation which does not affect any Building System. Tenant shall at all times comply with the rules, regulations, terms and conditions applicable to service, equipment, wiring and requirements of the public utility supplying electricity to the Building. Landlord represents that (i) the electrical capacity available to each floor of the Premises (other than the 10th Floor Space, the Subconcourse Space, the Concourse Space, the Bank Vault Space and the 39th Floor Space is 5.1 watts per square foot, (ii) two (2) separate risers and four (4) submetered ducts together furnish 1,031 Kilowatts to the 10th Floor Space, (iii) the electrical capacity available to the Concourse Space is 5 watts per square foot, (iv) the electrical capacity available to the Bank Vault Space is 200 Kilowatts, and (v) the electrical capacity available to the 39th Floor Space is 80 Kilowatts (individually the "Electrical Capacity" and collectively, the "Electrical Capacities"). Tenant's use of electric current shall not exceed the Electrical Capacities nor shall Tenant overload the existing risers or -41- 45 wiring installations serving the Premises or interfere with the use thereof by other tenants of the Building. If Tenant desires to use electricity in excess of the Electrical Capacity on any floor of the Premises, then Landlord, upon Tenant's request, provided that Landlord, in its sole judgment (taking into consideration the potential needs of present and future tenants of the Building and of the Building itself) determines that such installation is practicable, shall install additional risers or other proper or necessary equipment to meet Tenant's electrical requirements. Any such installations shall be made at Tenant's sole cost and expense and shall be chargeable and paid to Landlord as additional rent and paid within five (5) Business Days after the rendition of a bill to Tenant therefor. Landlord shall not be liable in any way to Tenant for any failure or defect in the supply or character of electric service furnished to the Premises by reason by any requirement, act or omission of the utility company serving the Building or for any other reason not attributable to the gross negligence of Landlord, whether electric service is provided by public or private utility or by any electricity generation system owned and operated by Landlord. B. (1) Unless Landlord elects to have Tenant obtain electric current from the public utility company furnishing electric service to the Building pursuant to the provisions of Section C hereof, electric current shall be supplied by Landlord to the Premises to service Tenant's electrical requirements, including Tenant's office equipment and the air conditioning units therein contained installed by Tenant, if any, and Tenant shall pay to Landlord, as additional rent for such service, an amount (the "Electricity Additional Rent") equal to Tenant's Pro Rata Share of the Building Electricity. "Tenant's Pro Rata Share of the Building Electricity" shall mean the product of (a) the total dollar amount billed to Landlord by the public utility supplying electricity to the Building (including energy charges, demand charges, time of day charges, fuel adjustments, rate adjustment charges, sales tax any other factors used by the public utility in computing its charges to Landlord) multiplied by (b) a fraction the numerator of which is Tenant's Consumption and the denominator of which is the Building Consumption. "Tenant's Consumption" shall mean the total kilowatt hours consumed at the Premises measured during any particular billing period on a meter or submeter installed by Landlord, at Tenant's cost, for the purpose of measuring such consumption; "Building Consumption" shall mean the total kilowatt hours of electrical consumption in the Building for which Landlord is billed by the public utility company. -42- 46 (2) If electric current shall hereafter be supplied to the Building on a "primary service" basis from the public utility corporation, Tenant shall also pay to Landlord each month thereafter, as additional rent, an amount equal to Tenant's Share of the costs incurred by Landlord in converting the Building to such "primary service," which costs shall be amortized over the shortest useful life permitted pursuant to the Internal Revenue Code of 1954, as amended, of the improvements made in connection therewith. (3) Where more than one meter measures the electric service to Tenant, the electric service rendered through each meter may be computed and billed separately in accordance with the provisions hereinabove set forth. Bills for the Electricity Additional Rent shall be rendered to Tenant at such time as Landlord may elect, and Tenant shall pay the amount shown thereon to Landlord within ten (10) Business Days thereafter. Tenant shall also pay to Landlord, as additional rent, an amount equal to $7,500 per annum payable in equal monthly installments of $625 on the first day of each month during the Term (but only as long as Electricity Additional Rent shall be payable hereunder), which amounts shall be increased on each January 1 hereafter by an amount equal to 4% of the amount payable during the immediately preceding year, as a fee for Landlord's administration of the provisions of this Section B. C. Landlord reserves the right to discontinue furnishing electricity to Tenant in the Premises on not less than ninety (90) days' notice to Tenant, except that if Tenant shall be unable to obtain electric services from the public utility within said ninety (90) day period, Landlord shall continue to furnish electricity to Tenant until such time as Tenant shall obtain electric service directly from the public utility, provided that Tenant shall have used, and shall continue to use, its best efforts to obtain such electric service. If Tenant shall have failed to use best efforts or shall not continue to use best efforts to obtain such electric service, Landlord shall have no obligation to furnish electricity to Tenant after the expiration of the aforesaid ninety (90) day period. If Landlord exercises such right to discontinue furnishing electricity to Tenant, this Lease shall continue in full force and effect and shall be unaffected thereby, except only that from and after the effective date of such discontinuance, Landlord shall not be obligated to furnish electricity to Tenant and Tenant shall not be obligated to pay the Electricity Additional Rent. If Landlord so discontinues furnishing electricity to Tenant, Tenant shall obtain electric energy directly from the public utility company furnishing electric service to the Building. -43- 47 The costs of such service shall be paid by Tenant directly to such public utility. Such electricity may be furnished to Tenant by means of the existing electrical facilities serving the Premises to the extent the same are available, suitable and safe for such purposes as determined by Landlord. All meters and all additional panel boards, feeders, risers, wiring and other conductors and equipment which may be required to obtain electricity, shall be installed by Landlord at Tenant's expense. 14. ACCESS TO PREMISES. A. Subject to the provisions of Section C hereof, Tenant shall permit Landlord, Landlord's agents and public utilities servicing the Building to erect, use and maintain, concealed ducts, pipes and conduits in and through the Premises. Landlord or Landlord's agents shall have the right to enter the Premises at all reasonable times upon prior notice (except in an emergency) to examine the same, to show them to prospective purchasers, Lessors, Mortgagees or lessees of the Building or space therein, and to make such repairs, alterations, improvements or additions as Landlord may deem necessary to the Premises or to any other portion of the Building or which Landlord may elect to perform ten (10) days after notice Tenant following Tenant's failure to make repairs or perform any work which Tenant is obligated to make or perform under this Lease, or for the purpose of complying with all Requirements and Landlord shall be allowed to take all material into and upon the Premises that may be required therefor without the same constituting an eviction or constructive eviction of Tenant in whole or in part and the Rent shall in no wise abate while said repairs, alterations, improvements or additions are being made, by reason of loss or interruption of business of Tenant, or otherwise. B. During the one (1) year prior to the Expiration Date or the expiration of any renewal or extended term, Landlord may at reasonable times upon reasonable notice exhibit the Premises to prospective tenants thereof. If Tenant shall not be present when for any reason entry in the Premises shall be necessary (in the event of an emergency) or permissible in accordance with the terms hereof, Landlord or Landlord's agents may enter the same by a master key, or may forcibly enter the same, without rendering Landlord or such agents liable therefor (if during such entry Landlord or Landlord's agents shall accord reasonable care to Tenant's property), and without in any manner affecting this Lease. Nothing herein contained, however, shall be deemed or construed to impose upon Landlord any obligation, responsibility or liability whatsoever, for the care, supervision or repair -44- 48 of the Building or any part thereof, other than as herein provided. C. (1) Any work performed or installations made pursuant to this Article shall be made with reasonable diligence in a manner designed to minimize interference with or disruption of Tenant's normal business operations; provided however that Landlord shall not be obligated to employ contractors or labor at so called overtime or other premium pay rates or to incur any other overtime costs or expenses whatsoever. Landlord shall promptly repair in a good and workerlike manner, any damage to the Premises or Tenant's property caused by such work or installations. (2) Any pipes, ducts or conduits installed in or through the Premises pursuant to this Article, shall either be concealed behind, beneath, or within partitioning, columns, ceilings or floors or, if necessary, completely furred at points immediately adjacent to partitioning, columns or ceilings. (3) If due to any work or installation performed by Landlord hereunder, (i) Tenant shall be unable for at least fifteen (15) consecutive business days to operate its business in the Premises in substantially the same manner as such business was operated prior to the performance of such work or installation, (ii) such interruption shall occur during business hours and (iii) Tenant shall have been unable, after using reasonable efforts, and at reasonable costs, to relocate its employees and property located in that portion of the Premises which is the subject of such work or installation so as to have been able to have continued so to operate its business, the Rent shall be reduced on a per diem basis in the proportion in which the area of the part of the Premises which is unusable bears to the total area of the Premises (taking into account and making an adjustment for the fact that the Rent payable with respect to the 38th Floor Space, the Subconcourse Space, the 39th Floor Space, the Concourse Space, the Bank Vault Space and the 39th Floor Space is less than or greater than, as the case may be, the Rent per square foot payable with respect to the remainder of the Premises) for each day subsequent to the aforesaid fifteen (15) day period that such portion of the Premises remains unusable. D. Landlord also shall have the right at any time, without the same constituting an actual or constructive eviction and without incurring any liability of Tenant therefor, to change the arrangement or location of entrances or passageways, doors and doorways, and corridors, elevators, -45- 49 stairs, toilets, or other public parts of the Building provided any such change does not (a) unreasonably interfere with or deprive Tenant of access to the Building or Premises or (b) reduce the rentable area (except by a de minimis amount) of the Premises. Landlord shall not, without the prior consent of Tenant, which consent shall not be unreasonably withheld or delayed, change the location of the entrance to the Building fronting on the Avenue of the Americas so that it shall no longer front on the Avenue of the Americas. All parts (except surfaces facing the interior of the Premises) of all walls, windows and doors bounding the Premises (including exterior Building walls, exterior core corridor walls, exterior doors and entrances), all balconies, terraces and roofs adjacent to the Premises, all space in or adjacent to the Premises used for shafts, stacks, stairways, chutes, pipes, conduits, ducts, fan rooms, heating, air cooling, plumbing and other mechanical facilities, service closets and other Building Systems and facilities are not part of the Premises, and Landlord shall have the use thereof, as well as access thereto through the Premises for the purposes of operation, maintenance, alteration and repair. Notwithstanding the fact that the corridor designated "P" on Exhibit "E" annexed hereto is included in the 39th Floor Space, Tenant acknowledges that in accordance with applicable Requirements, such corridor is required as a secondary means of egress that (a) Tenant shall not construct any walls or partitions which block access of Landlord, its agents, employees and invitees and any other tenant of the thirty ninth (39th) floor of the Building or of the Building, its agents, employees and invitees to such corridor and (b) Tenant shall allow Landlord and the public access across such corridor to the secondary fire stairs located adjacent to such corridor. E. Tenant shall not construct partitions or other obstructions which may unreasonably interfere with Landlord's free access to any Building Systems or facilities serving the Building Systems, or unreasonably interfere with the moving of Landlord's equipment to and from the enclosures containing the Building Systems or such facilities. Neither Tenant, nor its agents, employees or contractors shall at any time enter the said enclosures or tamper with, adjust or touch or otherwise in any manner affect the Building Systems or such facilities. 15. CERTIFICATE OF OCCUPANCY. A. Tenant shall not at any time use or occupy the Premises in violation of the certificate of occupancy at such time issued for the Premises or for the Building and in the event that any Governmental Authority shall hereafter contend or declare by -46- 50 notice, violation, order or in any other manner whatsoever that the Premises are used for a purpose which is a violation of such certificate of occupancy, Tenant shall, upon five (5) days' written notice from Landlord or from any Governmental Authority, immediately discontinue such use of the Premises. Landlord has delivered to Tenant a copy of the certificate of occupancy issued for the Building, dated June 26, 1989, and shall not seek an amendment thereto which may affect Tenant's use of the Premises without Tenant's consent, which shall not be unreasonably withheld or delayed. Neither the delivery of such certificate of occupancy nor any provision of this Lease, nor any act or omission of Landlord, shall be deemed to constitute a representation or warranty that the Premises, or any part thereof, lawfully may be used or occupied for any particular purpose or in any particular manner in contradistinction to mere "office" use. B. Landlord shall not unreasonably withhold its consent to any action taken by Tenant to effectuate an amendment to the certificate of occupancy to permit any portion of the Premises to be used for the purposes permitted herein, provided (i) such action shall be necessary and appropriate to accomplish the foregoing; (ii) Landlord shall incur no cost or expense by reason thereof, and (iii) notwithstanding the provisions of Section A(1) of Article 3 hereof, Landlord shall have the right, in its sole discretion, to approve any Alteration required to be performed to obtain such amendment and any such Alteration shall be performed in accordance with Article 3 hereof. Landlord, upon Tenant's request, shall join in any application required in connection with the foregoing (provided Landlord shall be required to join in such application) and shall otherwise cooperate with Tenant in connection therewith, provided Landlord shall not be obligated to incur any cost, expense or liability by reason thereof. 16. DEFAULT. A. Each of the following events shall be an "Event of Default" hereunder: (1) if Tenant shall default in the payment when due of any installment of Rent or in the payment when due of any additional rent and such default shall continue for five (5) days after notice to Tenant, except that if Landlord shall have give three (3) such notices in any twelve (12) month period, Tenant shall not be entitled to any further notice of its delinquency in the payment of any installment of Rent or any additional rent; or (2) if Tenant shall default in the observance or performance of any term, covenant or condition on -47- 51 Tenant's part to be observed or performed under any other lease with Landlord of space in the Building and such default shall continue beyond any grace period set forth in such other lease for the remedying of such default; or, (3) if the Premises shall become abandoned; or (4) if Tenant's interest in this Lease shall devolve upon or pass to any person, whether by operation by law or otherwise, except as expressly permitted under Article 12 hereof; or (5) to the extent permitted by law, if Tenant shall generally not pay its debts as they become due, or shall admit in writing its inability to pay its debts, or shall file a voluntary petition in bankruptcy or insolvency, or shall be adjudicated a bankrupt or insolvent, or shall file any petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the present or any future federal bankruptcy act or any other present or future applicable federal, state or other statute or law, or shall make an assignment for the benefit of creditors or shall seek or consent to or acquiesce in the appointment of any trustee, receiver, liquidator, custodian or other similar official of Tenant or of all or any part of Tenant's property; or (6) if Tenant shall take any corporate action to authorize any of the actions set forth above in clause (5); or (7) if, within ninety (90) days after the commencement of any proceeding against Tenant, whether by the filing of a petition or otherwise, seeking to have an order for relief entered against it as debtor or seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the Bankruptcy Code or any future federal bankruptcy act or any other present or future applicable federal, state or other statute or law, such proceeding shall result in the entry of an order for relief against Tenant which is not fully stayed within seven (7) days after entry thereof or shall not have been dismissed, or if, within thirty (30) days after the appointment of any trustee, receiver, liquidator, custodian or other similar official of Tenant, or of all or any part of Tenant's property, without the consent or acquiescence of Tenant, such appointment shall not have been vacated or otherwise discharged, or if any execution or attachment shall be issued against Tenant or any of Tenant's property pursuant to which -48- 52 the Premises shall be taken or occupied or attempted to be taken or occupied; or (8) if Landlord shall present the Letter of Credit to the bank which issued the same in accordance with the provisions of Article 31 hereof, and the bank shall fail to honor the Letter of Credit and pay the proceeds thereof to Landlord for any reason whatsoever and Tenant shall fail to deliver to Landlord immediately available funds within twenty-four (24) hours after notice of such event; (9) if this Lease is assigned (or all or substantially all of the Premises are subleased) pursuant to clause (iii) of Section G of Article 12 hereof, and Tenant shall no longer (i) control, (ii) be under common control with, or (iii) be under the control of, PaineWebber Incorporated (or any permitted successor hereunder by merger, consolidation or purchase), as provided therein; or (10) if Tenant shall default in the observance or performance of any other term, covenant or condition of this Lease on Tenant's part to be observed or performed and Tenant shall fail to remedy such default within thirty (30) days after notice by Landlord to Tenant of such default, or if such default is of such a nature that it cannot be completely remedied within said period of thirty (30) days, if Tenant shall not commence within said period of thirty (30) days and shall not thereafter diligently prosecute to completion, all steps necessary to remedy such default. B. (1) If an Event of Default (i) described in Sections A(5), (6) or (7) hereof shall occur, or (ii) described in Sections A(2), (3), (4), (8), (9) or (10) shall occur and Landlord, at any time thereafter, at its option gives written notice to Tenant stating that this Lease and the Term shall expire and terminate on the date specified in such notice, which date shall not be less than ten (10) days after the giving of such notice, and if, on the date specified in such notice, Tenant shall have failed to cure the default which was the basis for the Event of Default, then this Lease and the Term and all rights of Tenant under this Lease shall expire and terminate as if the date on which the Event of Default described in clause (i) above occurred or the date specified in the notice given pursuant to clause (ii) above, as the case may be, were the date herein definitely fixed for the expiration of the Term and Tenant immediately shall quit and surrender the Premises. Anything contained herein to the contrary notwithstanding, if such termination shall be stayed by order of any court having juris- -49- 53 diction over any proceeding described in Sections A(5) or (7) hereof, or by federal or state statute, then, following the expiration of any such stay, or if the trustee appointed in any such proceeding, Tenant or Tenant as debtor-in-possession shall fail to assume Tenant's obligations under this Lease within the period prescribed therefor by law or within one hundred twenty (120) days after entry of the order for relief or as may be allowed by the court, or if said trustee, Tenant or Tenant as debtor-in-possession shall fail to provide adequate protection of Landlord's right, title and interest in and to the Premises or adequate assurance of the complete and continuous future performance of Tenant's obligations under this Lease as provided in Section F(2) of Article 12, Landlord, to the extent permitted by law or by leave of the court having jurisdiction over such proceeding, shall have the right, at its election, to terminate this Lease on five (5) days' notice to Tenant, Tenant as debtor-in-possession or said trustee and upon the expiration of said five (5) day period this Lease shall cease and expire as aforesaid and Tenant, Tenant as debtor-in-possession or said trustee shall immediately quit and surrender the Premises as aforesaid. (2) If an Event of Default described in Section A(1) hereof shall occur, or this Lease shall be terminated as provided in Section B(1) hereof, Landlord, without notice, may re-enter and repossess the Premises using such force for that purpose as may be necessary without being liable to indictment, prosecution or damages therefor and may dispossess Tenant by summary proceedings or otherwise. C. If, at any time, (i) Tenant shall comprise two (2) or more persons, or (ii) Tenant's obligations under this Lease shall have been guaranteed by any person other than Tenant, or (iii) Tenant's interest in this Lease shall have been assigned, the word "Tenant", as used in clauses (5) and (7) of Section A of this Article 16, shall be deemed to mean any one or more of the persons primarily or secondarily liable for Tenant's obligations under this Lease. Any monies received by Landlord from or on behalf of Tenant during the pendency of any proceeding of the types referred to in said clauses (5) and (7) shall be deemed paid as compensation for the use and occupation of the Premises and the acceptance of any such compensation by Landlord shall not be deemed an acceptance of rent or a waiver on the part of Landlord of any rights under Section B. Upon the occurrence of an Event of Default referred to in Sections B(5), (6) and (7) hereof, Landlord shall have the further right to remove any signs on the Building bearing Tenant's name. -50- 54 17. REMEDIES AND DAMAGES. A. (1) If there shall occur any Event of Default, and this Lease and the Term shall expire and come to an end as provided in Article 16 hereof: (a) Tenant shall quit and peacefully surrender the Premises to Landlord, and Landlord and its agents may immediately, or at any time after such default or after the date upon which this Lease and the Term shall expire and come to an end, re-enter the Premises or any part thereof, without notice, either by summary proceedings, or by any other applicable action or proceeding, or by force or otherwise (without being liable to indictment, prosecution or damages therefor), and may repossess the Premises and dispossess Tenant and any other persons from the Premises and remove any and all of their property and effects from the Premises; and (b) Landlord, at Landlord's option, may relet the whole or any part or parts of the Premises from time to time, either in the name of Landlord or otherwise, to such tenant or tenants, for such term or terms ending before, on or after the Expiration Date, at such rental or rentals and upon such other conditions, which may include concessions and free rent periods, as Landlord, in its sole discretion, may determine; Landlord shall have no obligation to relet the Premises or any part thereof and shall in no event be liable for refusal or failure to relet the Premises or any part thereof, or, in the event of any such reletting, for refusal or failure to collect any rent due upon any such reletting, and no such refusal or failure shall operate to relieve Tenant of any liability under this Lease or otherwise affect any such liability; Landlord, at Landlord's option, may make such repairs, replacements, alterations, additions, improvements, decorations and other physical changes in and to the Premises as Landlord, in its sole discretion, considers advisable or necessary in connection with any such reletting or proposed reletting, without relieving Tenant of any liability under this Lease or otherwise affecting any such liability. (2) Tenant hereby waives the service of any notice of intention to re-enter or to institute legal proceedings to that end which may otherwise be required to be given under any present or future law. Tenant, on its own behalf and on behalf of all persons claiming through or under Tenant, including all creditors, does further hereby waive any and all rights which Tenant and all such persons might otherwise have under any present or future law to redeem the Premises, or to re-enter or repossess the Premises, or to restore the operation of this Lease, after (a) Tenant shall -51- 55 have been dispossessed by a judgment or by warrant of any court or judge, or (b) any re-entry by Landlord, or (c) any expiration or termination of this Lease and the Term, whether such dispossess, re-entry, expiration or termination shall be by operation of law or pursuant to the provisions of this Lease. The words "re-enter", "re-entry" and "re-entered" as used in this Lease shall not be deemed to be restricted to their technical legal meanings. In the event or a breach of threatened breach by Tenant, or any persons claiming through or under Tenant, of any term, covenant or condition of this Lease, Landlord shall have the right to enjoin such breach and the right to invoke any other remedy allowed by law or in equity as if re-entry, summary proceedings and other special remedies were not provided in this Lease for such breach. The right to invoke the remedies hereinbefore set forth are cumulative and shall not preclude Landlord from invoking any other remedy allowed at law or in equity. B. (1) If this Lease and Term shall expire and come to an end as provided in Article 16 hereof, or by or under any summary proceeding or any other action or proceeding, or if Landlord shall re-enter the Premises as provided in Section A of this Article 17, or by or under any summary proceeding or any other action or proceeding, then, in any of said events: (a) Tenant shall pay to Landlord all Rent, additional rent and other charges payable under this Lease by Tenant to Landlord to the date upon which this Lease and Term shall have expired and come to an end or to the date of re-entry upon the Premises by Landlord, as the case may be; (b) Tenant also shall be liable for and shall pay to Landlord, as damages, any deficiency (referred to as "Deficiency") between the Rent for the period which otherwise would have constituted the unexpired portion of the Term and the net amount, if any, of rents collected under any reletting effected pursuant to the provisions of clause (1) of Section A of this Article 17 for any part of such period (first deducting from the rents collected under any such reletting all of Landlord's expenses in connection with the termination of this Lease, Landlord's re-entry upon the Premises and with such reletting including, but not limited to, all repossession costs, brokerage commissions, legal expenses, attorneys' fees and disbursements, alteration costs and other expenses of preparing the Premises for such reletting); any such Deficiency shall be paid in monthly installments by Tenant on the days specified in this Lease for payment of installments of Rent, Landlord shall be entitled to -52- 56 recover from Tenant each monthly Deficiency as the same shall arise, and no suit to collect the amount of the Deficiency for any month shall prejudice Landlord's right to collect the Deficiency for any subsequent month by a similar proceeding; and (c) whether or not Landlord shall have collected any monthly Deficiency as aforesaid, Landlord shall be entitled to recover from Tenant, and Tenant shall pay to Landlord, on demand, in lieu of any further Deficiency as and for liquidated and agreed final damages, a sum equal to the amount by which the Rent for the period which otherwise would have constituted the unexpired portion of the Term exceeds the then fair and reasonable rental value of the Premises for the same period, both discounted to present worth at the rate of six percent (6%) per annum less the aggregate amount of Deficiencies theretofore collected by Landlord pursuant to the provisions of clause (1) (b) of Section B of this Article 17 for the same period; if, before presentation of proof of such liquidated damages to any court, commission or tribunal, the Premises, or any part thereof, shall have been relet by Landlord for the period which otherwise would have constituted the unexpired portion of the Term, or any part thereof, the amount of rent reserved upon such reletting shall be deemed, prima facie, to be the fair and reasonable rental value for the part or the whole of the Premises so relet during the term of the reletting. (2) If the Premises, or any part thereof, shall be relet together with other space in the Building, the rents collected or reserved under any such reletting and the expenses of any such reletting shall be equitably apportioned for the purposes of this Section B. Tenant shall in no event be entitled to any rents collected or payable under any reletting, whether or not such rents shall exceed the Rent reserved in this Lease. Solely for the purposes of this Article 17, the term "Rent" as used in clause (1) of Section B of this Article 17 shall mean the Rent in effect immediately prior to the date upon which this Lease and the Term shall have expired and come to an end, or the date of re-entry upon the Premises by Landlord, as the case may be, adjusted to reflect any increase pursuant to the provisions of Article 27 hereof for the Comparison Year (as defined in said Article 27) immediately preceding such event. Nothing contained in Article 16 hereof or this Article 17 shall be deemed to limit or preclude the recovery by Landlord from Tenant of the maximum amount allowed to be obtained as damages by any statute or rule of law, or of any sums or damages to which Landlord may be entitled in addition to the damages set forth in clause (1) of Section B of this Article 17. -53- 57 18. FEES AND EXPENSES. A. If Tenant shall default under this Lease beyond any applicable grace period hereunder or if Tenant shall do or permit to be done any act or thing upon the Premises which would cause Landlord to be in default under any Superior Lease or Mortgage (provided Landlord shall have given Tenant notice thereof and a reasonable period to cure such default) or if Tenant shall fail to comply with its obligations under this Lease and the preservation of property or the safety of any tenant, occupant or other person is threatened, Landlord may (1) perform the obligation for the account of Tenant if the same arises out of any obligation owed for the payment of money in connection with any obligation by Tenant to a third party, or (2) make any expenditure or incur any obligation for the payment of money in connection any obligation owed to Landlord, including, but not limited to reasonable attorneys' fees and disbursements in instituting, prosecuting or defending any action of proceeding, with interest thereon at the Applicable Rate, shall be deemed to be additional rent hereunder and shall be paid by Tenant to Landlord within five (5) Business Days of rendition of any bill or statement to Tenant therefor. B. If Tenant shall fail to pay any installment of Rent within three (3) days after the date when such payment is due or any additional rent within ten (10) days after the date when such payment is due, Tenant shall pay to Landlord, in addition to such installment of Rent or such additional rent, as the case may be, as a late charge and as additional rent, a sum equal to the Applicable Rate, of the amount unpaid computed from the date such payment was due to and including the date of payment. 19. NO REPRESENTATIONS BY LANDLORD. Landlord and Landlord's agents have made no representations or promises with respect to the Building, the Real Property or the Premises except as herein expressly set forth, and no rights, easements or licenses are acquired by Tenant by implication or otherwise except as expressly set forth herein. Tenant has accepted possession of each portion of the Premises in the condition which it existed on the date such portion of the Premises was delivered pursuant to the Original Lease. All references in this Lease to the consent or approval of Landlord shall be deemed to mean the written consent or approval of Landlord and no consent or approval of Landlord shall be effective for any purpose unless such consent or approval is set forth in a written instrument executed by Landlord. The taking possession of the Premises by Tenant is conclusive evidence as against Tenant, that, at the time such possession was so taken, the Premises and the Building were in good and satisfactory condition. -54- 58 20. END OF TERM. Upon the expiration or other termination of this Lease, Tenant shall quit and surrender to Landlord the Premises, vacant, in good order and condition, ordinary wear and tear and damage for which Tenant is not responsible under the terms of this Lease excepted, and Tenant shall remove all of its property as may be required pursuant to Article 3 hereof; this obligation shall survive the expiration or sooner termination of the Term. If the last day of the Term or any renewal thereof falls on Saturday or Sunday, this Lease shall expire on the business day immediately succeeding. Tenant expressly waives, for itself and for any person claiming through or under Tenant, any rights which Tenant or any such person may have under the provisions of Section 2201 of the New York Civil Practice Law and Rules and of any successor law of like import then in force in connection with any holdover summary proceedings which Landlord may institute to enforce the foregoing provisions of this Article 20. 21. QUIET ENJOYMENT. Upon Tenant paying the Rent and additional rent and observing and performing all of the terms, covenants and conditions on Tenant's part to be observed and performed, Landlord covenants that Tenant may peaceably and quietly enjoy the Premises subject, nevertheless, to the terms and conditions of this Lease. 22. DIRECTORY. The lobby contains a computerized directory wherein the Building's tenants are listed, which is and shall remain prominently located, with a capacity for up to one thousand fifty (1,050) listings for Tenant. From time to time, but not more frequently than once every three (3) months, Landlord shall reprogram the computerized directory to reflect such changes in the listings therein as Tenant shall request, and Tenant promptly after request shall pay to Landlord a reasonable reprogramming charge for each reprogramming Tenant requests. If such computerized directory shall at any time be replaced by a standard directory, Tenant shall be entitled to Tenant's Share of the total listings available on such standard directory. 23. NO WAIVER. A. No act or thing done by Landlord or Landlord's agents during the Term shall be deemed an acceptance of a surrender of the Premises, and no agreement to accept such surrender shall be valid unless in writing signed by Landlord. No employee of Landlord or of Landlord's agents shall have any power to accept the keys of the Premises prior to the termination of this Lease. The delivery of keys to any employee of Landlord or of Landlord's agents shall not operate as a termination of this Lease or a surrender of the Premises. In the event Tenant at any time -55- 59 desires to have Landlord sublet the Premises for Tenant's account, Landlord or Landlord's agents are authorized to receive said keys for such purpose without releasing Tenant from any of the obligations under this Lease, and Tenant hereby relieves Landlord of any liability for loss of or damage to any of Tenant's effects in connection with such subletting. B. The failure of Landlord or Tenant to seek redress for violation of, or to insist upon the strict performance of, any covenant or condition of this Lease, or any of the Rules and Regulations set forth or hereafter adopted by Landlord, shall not prevent a subsequent act, which would have originally constituted a violation, from having all of the force and effect of an original violation. The receipt by Landlord of Rent or additional rent with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of such breach. The failure of Landlord to enforce any of the Rules and Regulations set forth, or hereafter adopted, against Tenant or any other tenant in the Building shall not be deemed a waiver of any such Rules and Regulations. No provision of this Lease shall be deemed to have been waived by Landlord or Tenant, unless such waiver be in writing signed by Landlord or Tenant, as the case may be. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly Rent and additional rent herein stipulated shall be deemed to be other than on account of the earliest stipulated Rent and additional rent, or as Landlord may elect to apply same, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as Rent or additional rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such Rent or additional rent or pursue any other remedy in this Lease provided. This Lease contains the entire agreement between the parties and all prior negotiations and agreements are merged in this Lease. Any executory agreement hereafter made shall be ineffective to change, modify, discharge or effect an abandonment of this Lease in whole or in part unless such executory agreement is in writing and signed by the party against whom enforcement of the change, modification, discharge or abandonment is sought. 24. WAIVER OF TRIAL BY JURY. The respective parties hereto shall and they hereby do waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other (except for personal injury) on any matters whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises, or for -56- 60 the enforcement of any remedy under any statute, emergency or otherwise. If Landlord commences any summary proceeding against Tenant, Tenant will not interpose any counterclaim of whatever nature or description in any such proceeding, and will not seek to consolidate such proceeding with any other action which may have been or will be brought in any other court by Tenant. 25. INABILITY TO PERFORM. This Lease and the obligation of Tenant to pay rent hereunder and the obligation of Landlord and Tenant to perform all of the other covenants and agreements hereunder on the part of Landlord or Tenant to be performed shall in no wise be affected, impaired or excused because Landlord or Tenant is unable to fulfill any of its obligations under this Lease expressly or impliedly to be performed by Landlord or Tenant or because Landlord or Tenant is unable to make, or is delayed in making any repairs, additions, alterations, improvements or decorations, if Landlord or Tenant is prevented or delayed from so doing by reason of strikes or labor troubles or by accident, adjustment of insurance or by any cause whatsoever reasonably beyond Landlord's or Tenant's control, including but not limited to, laws, governmental preemption in connection with a national emergency or by reason of any Requirements of any Governmental Authority or by reason of any Requirements of any Governmental Authority or by reason of the conditions of supply and demand which have been or are affected by war or other emergency. 26. BILLS AND NOTICES. Except as otherwise expressly provided in this Lease, any bills, statements, consents, notices, demands, requests or other communications given or required to be given under this Lease shall be in writing and shall be deemed sufficiently given or rendered if sent by registered or certified mail (return receipt requested) addressed (1) to Tenant (a) at Tenant's address set forth in this Lease, Attn: Facilities Department, Vice President, (b) at 1200 Harbor Boulevard, Weehawken, New Jersey 07087, Attn: Rodger Parker, Senior Vice President, or (c) at any place where Tenant or any agent or employee of Tenant may be found if mailed subsequent to Tenant's vacating, deserting, abandoning or surrendering the Premises, and (d) with a copy to Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New York 10022, Attn: Benjamin Needell, Esq., or (2) to Landlord (a) at Landlord's address set forth in this Lease, Attn: Realty Operations, with a copy to (b) Shea & Gould, 1251 Avenue of the Americas, New York, New York 10020, Attn: Administrative Partner, Real Estate Department, (c) Equitable Real Estate Investment Management, Inc., 3414 Peachtree Road, N.E., Atlanta, Georgia 30326, Attn: Property Management Center, and (d) any -57- 61 Mortgagee which shall have requested same, by notice given in accordance with the provisions of this Article 26 at the address designated by such Mortgagee, or (3) to such other address(es) as either Landlord or Tenant may designate as its new address(es) for such purpose by notice given to the other in accordance with the provisions of this Article 26. Any such bill, statement, consent, notice, demand, request or other communication shall be deemed to have been rendered or given on the earlier of three (3) days after the date it shall have been mailed as provided in this Article 26 or actual receipt thereof. 27. ESCALATION. A. In a determination of any increase or decrease in the Rent under the provisions of this Article 27: (1) "Assessed Valuation" shall mean the amount for which the Real Property is assessed pursuant to applicable provisions of the New York City Charter and of the Administrative Code of The City of New York for the purpose of imposition of Taxes. (2) "Base Operating Expenses" shall mean $16,225,000. (3) "Landlord's Statement" shall mean an instrument or instruments containing a comparison of any increase or decrease in the Rent for the preceding Operating Year pursuant to the provisions of this Article 27. (4) (a) "Operating Expenses" shall mean the aggregate of those costs and expenses (and taxes, if any, thereon) paid or incurred by or on behalf of Landlord (whether directly or through independent contractors) in respect of the Operation of the Property which, in accordance with the accounting practice used by Landlord (and which is in accordance with sound management principles respecting the operation of non-institutional first class office buildings in New York City) are properly chargeable to the Operation of the Property, together with and including (without limitation): the costs of fuel, gas, oil, steam, water, sewer rental, electricity (for the Building Systems and common areas of public portions of the Real Property and the Building and the areas thereof not available for occupancy), HVAC and other utilities furnished to the Building and utility taxes, Taxes and the financial expenses incurred in connection with the Operation of the Property such as insurance premiums, attorneys' fees and disbursements (exclusive of any such fees and disbursements incurred in applying for any abatement of Taxes) and auditing and other professional fees and expenses, -58- 62 but specifically excluding, (i) franchise or income taxes imposed upon Landlord (except as the same may be included in Taxes), (ii) mortgage interest and amortization, (iii) leasing commissions, (iv) the cost of electrical energy furnished directly to tenants of the Building to the space occupied by such tenants, (v) the cost of tenant installations and decorations incurred in connection with preparing space for a new tenant, (vi) ground rent, if any, (vii) financing costs, (viii) salaries of personnel above the grade of building manager and such building manager's supervisor, (ix) capital improvements (except as hereinafter provided), (x) any expense for which Landlord is otherwise compensated through the proceeds of insurance or is otherwise compensated or has the right to be compensated by any tenant (including Tenant) of the Building, and (xi) legal fees incurred in connection with the negotiation of, or disputes arising out of, any space lease in the Building; except, however, that if any capital improvement (except for any capital improvement made by Landlord to convert the Building to "primary service" as more particularly set forth in Article 13 of this Lease) is made and Landlord reasonably expects such improvement to reduce Operating Expenses (as, for example, a labor-saving improvement), then, with respect to the Operating Year in which the improvement is made, the cost of such improvement shall be included in Operating Expenses; provided however, to the extent the cost of such improvement is required to be capitalized for Federal income tax purposes, such costs shall be amortized over the same useful life as Landlord actually establishes for income tax purposes for such improvement pursuant to the Internal Revenue Code of 1954, as amended, and the annual amortization, together with interest thereon at the then prime rate being charged by Citibank, N.A. or its successor, of such improvement shall be deemed an Operating Expense in each of the Operating Years during which such cost of the improvement is amortized and Landlord's Statement with respect to the Operating Year in which the improvement is made shall include the analysis utilized by Landlord in connection with the decision to make such improvement. If Landlord is not furnishing any particular work or service (the cost of which if performed by Landlord would constitute an Operating Expense) to a tenant who has undertaken to perform such work or service in lieu of the performance thereof by Landlord, Operating Expenses shall be determined to be increased by an amount equal to the lesser of (i) the additional Operating Expenses which reasonably would have been incurred during such period by Landlord if it had at its own expense furnished such work or services to such tenant and (ii) the amount of any rent credit, abatement or offset granted to such tenant on account of the nonperformance of such work or services by Landlord. -59- 63 (b) In determining the amount of Operating Expenses for any Operating Year, if less than ninety-five percent (95%) of the Building rentable area shall have been occupied by tenant(s) (including Landlord) at any time during any such Operating Year, Operating Expenses shall be determined for such Operating Year to be an amount equal to the like expenses which would normally be expected to be incurred had such occupancy been ninety-five percent (95%) throughout such Operating Year. (c) If any capital improvement is made during any Operating Year in compliance with any Requirements whether or not such Requirement is valid or mandatory, then the cost of such improvement shall be amortized over the same useful life as Landlord actually establishes for income tax purposes for such improvement pursuant to the Internal Revenue Code of 1954, as amended, with interest at the then prime rate being charged by Citibank (N.A.) or its successor, shall be deemed an Operating Expense in each of the Operating Years during which the cost of the improvement is amortized. (5) "Operating Year" shall mean the calendar year 1984 and each subsequent calendar year for any part or all of which there is an increase or decrease in the Rent pursuant to Section B of this Article 27. (6) "Taxes" shall mean the aggregate amount of real estate taxes and any general or special assessments (exclusive of penalties and interest thereon) imposed upon or with respect to the Real Property (including, without limitation, (i) assessments made upon or with respect to any "air and development rights" appurtenant to or affecting the Real Property, (ii) any fee, tax or charge imposed by any Governmental Authority for any vaults, vault space or other space within or outside the boundaries of the Real Property, and (iii) any assessments levied after the date of the original Lease for public benefits to the Real Property or the Building (excluding an amount equal to the assessments payable in whole or in part during or for the first Tax Year, which assessments, if payable in installments, shall be deemed payable in the maximum number of permissible installments) in the manner in which such taxes and assessments are imposed); provided, that if because of any change in the taxation of real estate, any other tax or assessment however denominated (including, without limitation, any franchise, income, profit, sales, use, occupancy, gross receipts or rental tax) is imposed upon Landlord or the owner of the Real Property or the Building, or the occupancy, rents or income therefrom, in substitution for or in addition to, any of the foregoing Taxes, such other tax or assessment -60- 64 shall be deemed part of Taxes computed as if Landlord's sole asset were the Real Property. With respect to any Tax Year, all expenses, including attorneys' fees and disbursements, experts' and other witnesses' fees, incurred in contesting the validity or amount of any Taxes or in obtaining a refund of Taxes shall be considered as part of the Taxes for such Tax Year. Anything contained herein to the contrary notwithstanding, Taxes shall not be deemed to include (i) any taxes on Landlord's income, (ii) franchise taxes, (iii) estate or inheritance taxes or (iv) any similar taxes imposed on Landlord, unless such taxes are levied, assessed or imposed in lieu of or as a substitute for the whole or any part of the taxes, assessments, levies, impositions which now constitute Taxes. In determining the amount of Taxes for any Operating Year (or for the partial calendar years in which the Term shall commence or expire), Taxes payable in such Operating Year shall be apportioned for that portion of the Tax Year occurring within the Operating Year. B. (a) If the Operating Expenses for any Operating Year (any part or all of which falls within the Term) shall be greater than the Base Operating Expenses, then the Rent for such Operating Year and continuing thereafter until a new Landlord's Statement is rendered to Tenant, shall be increased (or decreased, as the case may be, if the Operating Expenses for such Year shall be less than those for the preceding Operating Year) by Tenant's Share of such increase (or decrease). Tenant's Share of operating Expenses shall be adjusted to account for any modification(s) to Tenant's Share during any Operating Year. (b) (i) Anything contained in this Article 27 to the contrary notwithstanding, Tenant, until September 1, 1989, shall be entitled to a credit against Tenant's Share of increases in Operating Expenses due to an increase in Taxes directly attributable to any sale of the Real Property prior to September 1, 1989 in an aggregate amount (the "Tax Credit") equal to (x) $1,000,000 less (y) $200,000 (or a pro rata portion thereof) for each year (or a pro rata portion thereof) which shall have elapsed from September 1, 1984 to the commencement of the first full Tax Year subsequent to the date of such sale. To the extent that Tenant's Share of increases in Operating Expenses due to any aggregate increase in Taxes directly attributable to any sale of the Real Property prior to September 1, 1989 shall be less than the Tax Credit, Tenant shall not be entitled to any credit for an amount in excess of Tenant's Share of such increase; to the extent Tenant's Share of any such aggregate increase shall be more than the Tax Credit, Tenant shall not be entitled to any additional credit; and in no event shall -61- 65 Tenant be entitled to any credit against Tenant's Share of Operating Expenses subsequent to September 1, 1989. (ii) The amount of any increase in Taxes directly attributable to any sale of the Real Property prior to September 1, 1989 shall be calculated taking into account whether or not a "transitional" Assessed Valuation shall have been used in calculating Taxes in the Tax Year prior to such sale, taking into account whether or not the, Real Property shall have been reassessed subsequent to the sale using a "transitional" Assessed Valuation, taking into account any reassessment of the Real Property subsequent to any Tax Year subsequent to the date of such sale and giving due consideration to the amount by which Taxes would have increased even if the sale had not taken place based upon the historic rate of increase of the Assessed Valuation during the five (5) Tax Years prior to the sale and any stated policy of any Governmental Authority with respect to the reassessment of real-property in general. C. (1) At any time during or after the Term Landlord may render to Tenant, either in accordance with the provisions of Article 26 hereof or by personal delivery at the Premises, Attn: Facilities Department, Vice President, a Landlord's Statement or Statements, together with a copy of the applicable tax bill, showing a comparison of the actual Operating Expenses for an Operating Year with the Base Operating Expenses, and the amount of the increase or decrease in the Rent resulting from such comparison. Landlord's failure to render a Landlord's Statement during or with respect to any Operating Year shall not prejudice Landlord's right to render a Landlord's Statement during or with respect to any subsequent operating Year, and shall not eliminate or reduce Tenant's obligation to pay increases in the Rent pursuant to this Article 27 for such Operating Year. If Landlord shall fail to furnish Tenant a Landlord's Statement for any operating Year and such failure shall continue for six (6) months after the last day of such Operating Year, Tenant may suspend payment of the monthly payments required under Section C(2)(a) or Section C(3) of this Article 27, until such time as a Landlord's Statement shall be delivered for the Operating Year in question, but Tenant shall nevertheless remain liable for the payments of Rent based upon increases in Operating Expenses during such Operating Year which payments shall be paid to Landlord in accordance with the provisions of Section C(2)(b) hereof upon delivery of such Statement. Notwithstanding the foregoing, Landlord shall be deemed to have waived its right to collect the increases in Rent pursuant to this Article 27 for an Operating Year, if Landlord shall have failed to deliver any Landlord's Statement by the -62- 66 third (3rd) anniversary of the expiration of the operating Year in question. (2) (a) On the first day of the month following the furnishing to Tenant of a Landlord's Statement, Tenant, in case of an increase, shall pay to Landlord, as additional rent, a sum equal to 1/12th of such increase in the Rent multiplied by the number of months (and any fraction thereof) of the Term then elapsed since the commencement of such Operating Year for which the increase is applicable; and in case of a decrease, shall be entitled to a credit against the next monthly installment or installments of the Rent of a sum equal to 1/12th of such decrease multiplied by the number of months (and any fraction thereof) of the Term then elapsed since the commencement of the Operating Year for which the decrease is applicable; and thereafter, commencing with the then current monthly installment of Rent and continuing monthly thereafter until rendition of the next succeeding Landlord's Statement, the monthly installments of Rent shall be increased or decreased, as the case may be, by an amount equal to 1/12th of such increase or decrease. Any increase in the Rent shall be collectible by Landlord in the same manner as Rent. Landlord shall deliver a landlord's Statement at least fifteen (15) days prior to the date on which any payment hereunder shall be required to be made. (b) Following each Landlord's Statement, a reconciliation shall be made as follows: Tenant shall be debited with any increase in the Rent shown on such Landlord's Statement and credited with (i) the aggregate, if any, paid by Tenant on account in accordance with the provisions of subsection C(2)(a) for the Operating Year in question, and (ii) any decrease in the Rent shown on such Landlord's Statement; Tenant shall pay any debit balance to Landlord within fifteen (15) days next following rendition by Landlord, either in accordance with the provisions of Article 26 hereof or by personal delivery to the Premises, of an invoice for such debit balance; any credit balance shall be applied against the next accruing monthly installment of Rent. Any amount owing to Tenant subsequent to the Term shall be paid to Tenant within ten (10) Business Days after a final determination has been made of the amount due to Tenant. (3) (a) As used in this subsection C(3), (i) "Tentative Monthly Escalation Charge" shall mean a sum equal to 1/12th of Tenant's Share multiplied by the difference between (x) the Base Operating Expenses and (y) Landlord's is reasonable estimate of Operating Expenses for such Current Year, and (ii) "Current Year" shall mean the Operating Year -63- 67 in which a demand is made upon Tenant for payment of a Tentative Monthly Escalation Charge. (b) At any one time in any Operating Year (any part or all of which falls within the Term), Landlord, at its option, in lieu of the payments required under subsection C(2)(a) of this Article 27, may demand and collect from Tenant, as additional rent, a sum equal to the Tentative Monthly Escalation Charge multiplied by the number of months in said Operating Year preceding the demand and Tenant shall pay said amount to Landlord within ten (10) Business Days after said demand, and thereafter, commencing with the month in which the demand is made and continuing thereafter for each month remaining in said Operating Year, the monthly installments of Rent shall be deemed increased by the Tentative Monthly Escalation Charge. Any amount due to Landlord under this subsection C(3) may be included by Landlord in any Landlord's Statement rendered to Tenant as provided in subsection C(1) of this Article 27. (c) After the end of the Current Year and at any time that Landlord renders a Landlord's Statement or Statements to Tenant as provided in subsection C(1) of this Article 27 with respect to the comparisons of the Operating Expenses for said Current Year (i.e., an Operating Year), with the Base Operating Expenses, the amounts, if any, collected by Landlord from Tenant under this subsection C(3) on account of the Tentative Monthly Escalation Charge shall be adjusted, and, if the amount so collected is less than or exceeds the amount actually due under said Landlord's Statement for the Operating Year, a reconciliation shall be made in the same manner as provided in subsection C(2)(b) of this Article 27, except that if the aggregate Tentative Monthly Escalation Charges for any Operating Year shall have exceeded the actual increase in Operating Expenses for such Operating Year by more than fifteen percent (15%), the amount of the overpayment together with interest at the then prime rate charged by Citibank, N.A. or its successor shall be applied against the next accruing monthly installments of Rent. D. (1) In the event that, after a Landlord's Statement has been sent to Tenant, an Assessed Valuation which had been utilized in computing the Taxes for an Operating Year is reduced (as a result of settlement, final determination of legal proceedings or otherwise), and as a result thereof a refund of Taxes is actually received by or on behalf of Landlord, then, promptly after receipt of such refund, Landlord shall send Tenant a statement adjusting the Taxes for such Operating Year (taking into account the expenses mentioned in the third to last sentence of Section -64- 68 A(6) of this Article 27) and setting forth Tenant's Share of such refund and Tenant shall be entitled to receive such Tenant's Share by way of a credit against the Rent next becoming due after the sending of such Statement; provided, however, that Tenant's Share of such refund shall be limited to the amount, if any, which Tenant had theretofore paid to Landlord as increased Rent as a result of an increase in Operating Expenses for such Operating Year on the basis of the Assessed Valuation before it had been reduced, taking into account any Tax Credit received by Tenant. Any payment owing to Tenant subsequent to the Term shall be paid to Tenant within ten (10) Business Days after a final determination has been made of the amount due to Tenant. (2) Any Landlord's Statement sent to Tenant shall be conclusively binding upon Tenant unless, within ninety (90) days after such statement is sent, Tenant shall send a written notice to Landlord objecting to such statement and specifying the respects in which such statement is claimed to be incorrect (provided that such Landlord's Statement is prepared in detail enough to permit Tenant to specify the respects in which such Statement is incorrect). If such notice is sent, Tenant may examine Landlord's books and records to determine the accuracy of Landlord's Statement. Tenant recognizes the confidential nature of such books and records and agrees to maintain the information obtained from such examination in strict confidence. If after such examination, Tenant still disputes such Landlord's Statement, either party may refer the decision of the issues raised to a reputable independent firm of certified public accountants not engaged on a regular basis by either Landlord or Tenant, selected by Landlord and approved by Tenant, which approval shall not be unreasonably withheld or delayed as long as such certified public accounting firm is one of the so-called "big-eight" public accounting firms, and the decision of such accountants shall be conclusively binding upon the parties. The fees and expenses involved in such decision shall be borne by the unsuccessful party (and if both parties are partially unsuccessful, the accountants shall apportion the fees and expenses between the parties based on the degree of success of each party). Notwithstanding the giving of such notice by Tenant, and pending the resolution of any such dispute, Tenant shall pay to Landlord when due the amount shown on any such Landlord's Statement, as provided in section C hereof. (3) Anything in this Article 27 to the contrary notwithstanding, under no circumstances shall the rent payable under this Lease be less than the Rent set forth in Article 1 hereof (as adjusted pursuant to Articles 40 and 41 -65- 69 hereof) nor shall any decreases in the Rent pursuant to this Article 27 result in a decrease in Base Operating Expenses. (4) The expiration or termination of this Lease during any Operating Year or any calendar year for any part or all of which there is an increase or decrease in the Rent under this Article shall not affect the rights or obligations of the parties hereto respecting such increase or decrease and any Landlord's Statement or comparative statement relating to such increase or decrease may, on a pro rata basis, be sent to Tenant subsequent to, and all such rights and obligations shall survive, any such expiration or termination. Any payments due under such Landlord's Statement shall be payable within fifteen (15) days after such Statement is sent to Tenant. 28. SERVICES. A. Landlord shall provide elevator facilities on Business Days from 8:00 a.m. to 6:00 p.m. and have an elevator subject to call at all other times. Tenant shall have the exclusive use of the elevator which operates only between the 38th and 39th floors of the Building. Landlord shall maintain and repair such elevator, and Tenant shall pay to Landlord as additional rent, any charge for such maintenance and repair within fifteen (15) days of rendition of a bill therefor, to the extent such charge would be includable in Operating Expenses pursuant to Article 27 hereof if such maintenance or repair had not been performed exclusively for the benefit of Tenant. In addition, Tenant, at Tenant's sole cost and expense, shall comply with all requirements of law, the New York Board of Fire Underwriters or any similar body applicable to such elevator to the extent such requirements would be includable as Requirements if they were applicable to the Premises. B. (i) Landlord, at Landlord's expense (but subject to recoupment pursuant to Article 27 hereof), shall furnish and distribute to the Premises (other than the Subconcourse Space, the 39th Floor Storage Space, the Concourse Space, the Bank Vault Space and the 39th Floor Space) through the HVAC System, when required for the comfortable occupancy of the Premises, HVAC meeting the specifications set forth on Schedule B annexed hereto and for the Subconcourse Space, the 39th Floor Storage Space, the Concourse Space, the Bank Vault Space and the 39th Floor Space, HVAC meeting the specifications set forth on Schedule B-1 annexed hereto, on a year round basis from 8:00 a.m. to 6:00 p.m. on Business Days and shall maintain such HVAC System in good working order and keep the same in good repair. In addition, Landlord is currently providing building chilled water to the fan-coil units installed by -66- 70 Tenant in the trading areas of the Premises located on the ninth (9th) through thirteenth (13th) floors of the Building, through the HVAC System from 8:00 a.m. to 6:00 p.m. on Business Days. Additional chilled water shall be supplied to Tenant, at Tenant's request, in such amounts as Landlord (taking into consideration the potential needs of present and future tenants of the Building and of the Building itself) determines is practicable. Tenant shall pay Landlord, as additional rent, for the supply of chilled water within ten (10) business days after rendition to Tenant of a bill therefor, an annual charge of $1,400 per ton of chilled water provided to Tenant in accordance herewith. Such annual charge shall be increased on March 1, 1990 and every 5th anniversary of such date to an amount equal to $1,400 per ton multiplied by the percentage difference between the Operating Expenses for the Operating Year in which such anniversary falls and the Base Operating Expenses. (ii) Should Tenant, upon compliance with all of the provisions of this Lease applicable thereto (including without limitation Articles 3 and 13 hereof), install supplementary HVAC Systems to service the Premises (other than the Subconcourse Space, the 39th Floor Storage Space, the Concourse Space, the Bank Vault Space and the 39th Floor Space), Landlord shall furnish to the floor(s) of the Premises serviced by any such Systems, by means of the existing condenser water conduits and risers, condenser water to service such Systems. Condenser water shall be supplied in such amounts as Landlord (taking into consideration the potential needs of present and future tenants of the Building and of the Building itself) determines is practicable. Any installations required to connect Tenant's supplementary HVAC Systems to the condenser water conduits and risers shall be made by Landlord at Tenant's expense and shall be chargeable and paid to Landlord as additional rent together with a one time "tap-in" fee equal to $1,000 per ton of cooling requirements of the supplemental HVAC Systems so connected within ten (10) Business Days after the rendition to Tenant of a bill therefor. Landlord shall not be liable to Tenant for any failure or defect in the supply or character of condenser water supplied to Tenant. Tenant shall pay Landlord, as additional rent, for the supply of condenser water within ten (10) Business Days after rendition to Tenant of a bill therefor, an annual charge of $400 per ton of cooling requirements of the supplemental HVAC Systems so connected. Such annual charge shall be increased on (i) March 1, 1990, and (ii) on every fifth (5th) anniversary thereof to an amount equal to $400 per ton multiplied by the percentage difference between the Operating Expenses for the -67- 71 Operating Year in which such anniversary falls and the Base Operating Expenses. C. The Rent does not reflect or include any charge to Tenant for the furnishing or distributing of any necessary elevator facilities, HVAC or chilled water to the Premises during periods ("Overtime Periods") other than the hours and days set forth above. Accordingly, if Landlord shall furnish any such elevator facilities (other than the elevator subject to call), HVAC or chilled water to the Premises at the request of Tenant during Overtime Periods, Tenant shall pay Landlord additional rent for such services at Landlord's cost thereof plus an amount equal to ten percent (10%) of such cost as Landlord's administrative charge for supervision and overhead. Landlord shall not be required to furnish any such services during any Overtime Periods unless Landlord has received advance notice (which notice may be oral and shall otherwise be exempt from the notice provisions set forth in Article 26 hereof) from Tenant requesting such services prior to 2:00 p.m. of the day upon which such services are requested, or by 2:00 p.m. of the last preceding Business Day if such Overtime Periods are to occur on a day other than a Business Day. In no event shall Landlord be required to furnish any such services to the Subconcourse Space, the 39th Floor Storage Space, the Concourse Space, the Bank Vault Space or the 39th Floor Space during any Overtime Period. If Tenant fails to give Landlord such advance notice, then, failure by Landlord to furnish or distribute any such services during such Periods shall not constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of rent, or relieve Tenant from any of its obligations under this Lease, or impose any liability upon Landlord or its agents by reason of inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's business or otherwise. If more than one tenant utilizing the same system as Tenant requests the same Overtime Periods for the same services as Tenant, the charge to Tenant shall be adjusted pro rata. D. Provided Tenant shall keep the Premises in order, Landlord, at Landlord's expense, shall cause the Premises, excluding the Subconcourse Space, the 39th Floor Storage Space, the Concourse Space, the Bank Vault Space and any portions of the Premises used for the storage, preparation, service or consumption of food or beverages, to be cleaned substantially in accordance with the standards set forth in Schedule C annexed hereto. If any additional cleaning of the Premises is required or desired to be done by Tenant, it shall be done at Tenant's sole expense, in a manner satisfactory to Landlord and no one other than persons -68- 72 approved by Landlord shall be permitted to enter the Premises or the Building for such purpose. Tenant shall pay to Landlord the cost of removal of any of Tenant's refuse and rubbish from the Premises and the Building to the extent that the same exceeds the refuse and rubbish usually attendant upon the use of such Premises as offices. Bills for the same shall be rendered by Landlord to Tenant at such time as Landlord may elect and shall be due and payable when rendered and the amount of such bills shall be deemed to be, and shall be paid as, additional rent. Tenant shall, however, have the option of independently contracting for the removal of such refuse and rubbish in the event that Tenant does not wish to have same done by employees or contractors of Landlord. Under such circumstances, however, the removal of such refuse and rubbish by others shall be subject to such Rules and Regulations as, in the judgment of Landlord, are necessary for the proper operation of the Building and shall be performed by contractors approved by Landlord. Tenant, at Tenant's expense, shall cause the Subconcourse Space, the Concourse Space, the Bank Vault Space and the 39th Floor Space and any other portions of the Premises used for the storage, preparation, service or consumption of food or beverages to be cleaned daily in a manner satisfactory to Landlord, and to be exterminated against infestation by vermin, rodents or roaches regularly and, in addition, whenever there shall be evidence of any infestation. Tenant shall not permit any person to enter the Premises or the Building for the purpose of providing such extermination services, other than persons first approved by Landlord, such approval not to be withheld unreasonably. E. If there shall be installed in the Building a "sprinkler system," and if such system or any of its appliances shall be damaged or injured or not in proper working order by reason of any act or omission of Tenant, Tenant's agents, servants, employees, licensees or visitors, Tenant shall forthwith restore the same to good working condition at its own expense; and if the New York Board of Fire Underwriters or the New York Fire Insurance Rating Organization or any Governmental Authority shall require or recommend that any changes, modifications, alterations or additional sprinkler heads or other equipment be made or supplied by reason of Tenant's business, or the location of the partitions, trade fixtures, or other contents of the Premises, Landlord shall, at Tenant's reasonable expense, promptly make and supply such changes, modifications, alterations, additional sprinkler heads or other equipment. F. Landlord may install a water meter, at Tenant's sole cost and expense, to measure Tenant's water -69- 73 consumption in the 39th Floor Space. In addition, if Tenant requires, uses or consumes water in any other portion of the Premises for any purpose in addition to ordinary drinking, cleaning or lavatory purposes, Landlord may install a water meter and thereby measure Tenant's water consumption for all such additional purposes. Tenant shall pay to Landlord as additional rent the cost of any meters and the installation thereof within fifteen (15) days of rendition of a bill therefor. Tenant shall (1) keep any meters and equipment, installed by Landlord hereunder in good working order and repair at Tenant's own cost and expense; (2) pay for water consumed, as shown on said meters as and when bills are rendered, and on default in making such payment Landlord may pay such charges and collect the same from Tenant; (3) pay the sewer rent, charge or any other tax, rent, levy or charge which now or hereafter is assessed, imposed or shall become a lien upon the Premises or the realty of which they are a part pursuant to any Requirement made or issued in connection with any such metered use, consumption, maintenance or supply of water, water system, or sewage or sewage connection or system; and (4) Tenant shall pay to Landlord as additional rent for such service an amount equal to five percent (5%) of the cost of water consumed as Landlord's administrative charge for overhead and supervision. The bill rendered by Landlord for the above shall be based upon Tenant's consumption and shall be payable by Tenant as additional rent within fifteen (15) days of rendition. G. Landlord reserves the right to stop the service of the HVAC System or the other Building Systems or facilities in the Building when necessary, by reason of accident or emergency, or for repairs, additions, alterations, replacements or improvements in the judgment of Landlord desirable or necessary to be made, until said repairs, alterations, replacements or improvements shall have been completed. Landlord shall have no responsibility or liability for interruption, curtailment or failure to supply HVAC or the services provided by other Building Systems or facilities when prevented by exercising its right to stop service or by strikes, labor troubles or accidents, inability to obtain labor or materials, acts of God, enemy action, civil commotion, fire, unavoidable casualty or other similar causes beyond Landlord's control, or by failure of independent contractors to perform or by any Requirement or by failure of suitable fuel supply, or inability after exercise of reasonable diligence to obtain suitable fuel or by reason of governmental preemption in connection with a national emergency or by reason of the conditions of supply and demand which have been or are affected by war or other emergency or for any other cause reasonably beyond Landlord's control. The -70- 74 exercise of such right or such failure by Landlord shall not constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any compensation or to any abatement or diminution of rent, or relieve Tenant from any of its obligations under this Lease, or impose any liability upon Landlord or its agents by reason of inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's business, or otherwise. Upon cessation of the condition which prevented Landlord from supplying HVAC or the services provided by the other Building Systems or facilities, Landlord shall promptly commence and diligently pursue the restoration of such services. 29. PARTNERSHIP TENANT. If Tenant is a partnership (or is comprised of two (2) or more persons, individually or as co-partners of a partnership) or if Tenant's interest in this Lease shall be assigned to a partnership (or to two (2) or more persons, individually or as co-partners of a partnership) pursuant to Article 12 (any such partnership and such persons are referred to in this Article 29 as "Partnership Tenant"), the following provisions shall apply to such Partnership Tenant: (a) the liability of each of the parties comprising Partnership Tenant shall be joint and several, and (b) each of the parties comprising Partnership Tenant hereby consents in advance to, and agrees to be bound by (x) any written instrument which may hereafter be executed by Partnership Tenant or any successor partnership, changing, modifying, extending or discharging this Lease, in whole or in part, or surrendering all or any part of the Premises to Landlord, and (y) any notices, demands, requests or other communications which may hereafter be given by Partnership Tenant or by any of the parties comprising Partnership Tenant, and (c) any bills, statements, notices, demands, requests or other communications given or rendered to Partnership Tenant or to any of such parties shall be binding upon Partnership Tenant and all such parties, and (d) if Partnership Tenant shall admit new partners, all of such new partners shall, by their admission to Partnership Tenant, be deemed to have assumed joint and several liability for the performance of all of the terms, covenants and conditions of this Lease on Tenant's part to be observed and performed, and (e) Partnership Tenant shall give prompt notice to Landlord of the admission of any such new partners, and upon demand of Landlord, shall cause each such new partner to execute and deliver to Landlord an agreement in form satisfactory to Landlord, wherein each such new partner shall assume joint and several liability for the performance of all the terms, covenants and conditions of this Lease on Tenant's part to be observed and performed (but neither Landlord's failure to request any such agreement nor the failure of any such new -71- 75 partner to execute or deliver any such agreement to Landlord shall vitiate the provisions of clause (d) of this Article 29). 30. VAULT SPACE. Notwithstanding anything contained in this Lease or indicated on any sketch, blueprint or plan, any vaults, vault space or other space outside the boundaries of the Real Property are not included in the Premises. Landlord makes no representation as to the location of the boundaries of the Real Property. All vaults and vault space and all other space outside the boundaries of the Real Property which Tenant may be permitted to use or occupy are to be used or occupied under a revocable license, and if any such license shall be revoked, or if the amount of such space shall be diminished or required by any Governmental Authority or by any public utility company, such revocation, diminution or requisition shall not constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of rent, or relieve Tenant from any of its obligations under this Lease, or impose any liability upon Landlord. Any fee, tax or charge imposed by any governmental authority for any such vaults, vault space or other space occupied by Tenant shall be paid by Tenant. 31. SECURITY. If at any time during the Term, Tenant's net worth shall be less than Twenty-five Million Dollars ($25,000,000), as determined in accordance with generally accepted accounting principles consistently applied (provided that all subordinated debt shall be treated as a credit and not a debit in any such calculation), Tenant shall deposit with Landlord an amount equal to such deficiency (rounded to the nearest $50,000), or at Tenant's option, a "clean," unconditional, irrevocable letter of credit (the "Letter of Credit") in a like amount, issued by and drawn on a bank which is a member of the New York Clearing House for the account of Landlord, for a term of not less than one (1) year, as security for the faithful performance and observance by Tenant of the terms, conditions and provisions of this Lease, including without limitation the surrender of possession of the Premises to Landlord as herein provided. If Tenant defaults in respect of any of the terms, provisions and conditions of this Lease, including, but not limited to, the payment of Rent and additional rent, Landlord may apply or retain the whole or any part of the security so deposited, or present the Letter of Credit for payment and apply or retain the whole or any part of the proceeds thereof, as the case may be, to the extent required for the payment of any Rent and additional rent or any other sum as to which Tenant is in default or for any sum which Landlord may expend or may be required to expend by reason of Tenant's default in respect -72- 76 of any of the terms, covenants and conditions of this Lease, including but not limited to, any damages or deficiency in the reletting of the Premises, whether such damages or deficiency accrue or accrues before or after summary proceedings or other re- entry by Landlord. If Landlord applies or retains any part of the proceeds of the Letter of Credit or the security so deposited, as the case may be, Tenant, upon demand, shall deposit with Landlord the amount so applied or retained so that Landlord shall have the full deposit on hand at all times during the Term. If Tenant shall fully and faithfully comply with all of the terms, provisions, covenants and conditions of this Lease, the Letter of Credit or the security, as the case may be, shall be returned to Tenant after the Expiration Date within five (5) Business Days after demand and after delivery of possession of the entire Premises to Landlord. In the event of a sale of the Real Property or the Building or leasing of the Building, Landlord shall have the right to transfer the Letter of Credit or security to the vendee or lessee and upon the acceptance thereof by such vendee or lessee, Landlord shall be released by Tenant from all liability for the return of such Letter of Credit or security, as the case may be, and Tenant shall cause the bank which issued the Letter of Credit to issue an amendment to the Letter of Credit or issue a new Letter of Credit naming the vendee or lessee as the beneficiary thereunder and Tenant agrees to look solely to the new Landlord for the return of the Letter of Credit or security, as the case may be; the provisions hereof shall apply to every transfer or assignment made of the security to a new Landlord. Tenant will not assign or encumber or attempt to assign or encumber the monies deposited herein as security and neither Landlord nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. Tenant shall renew any Letter of Credit from time to time, at least thirty (30) days prior to the expiration thereof, and deliver to Landlord a new Letter of Credit, or an endorsement to the Letter of Credit, and any other evidence required by Landlord that such renewal has been made. If Tenant shall fail to renew the Letter of Credit as aforesaid, Landlord may present the Letter of Credit for payment and retain the proceeds thereof as security in lieu of the Letter of Credit. During the Term, Tenant shall furnish to Landlord an audited annual financial statement of Tenant within one hundred-twenty (120) days after the end of its fiscal Year and its semi-annual financial statement, certified as correct by its chief financial officer, within sixty (60) days after the end of the second quarter of Tenant's fiscal year. The amount of the security required to be deposited with Landlord pursuant to this Article 31 shall be -73- 77 adjusted based on the net worth of Tenant shown on such statements and calculated in accordance herewith. 32. CAPTIONS. The captions are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope of this Lease nor the intent of any provision thereof. 33. BUILDING NAME. On the date hereof, Landlord and Tenant acknowledge that the Building has been named "The PaineWebber Building"; provided, however, that in order to continue to have the Building named "The PaineWebber Building," during the balance of the Term, PaineWebber Incorporated must be the tenant hereunder and must occupy for the operation of its business at least eighty percent (80%) of the Premises (which for the purposes of this sentence shall not include any additional space demised pursuant to any amendment hereto). In connection therewith, Tenant has been permitted, subject to compliance with applicable Requirements and agreements to which Equitable is a party as of the date of this Lease and subject to the approval of all Government Authorities, including without limitation, the local community board, to erect signs on the exterior of the Building, at the locations at which such signs are presently located. As long as Tenant shall be entitled to have the Building named "The PaineWebber Building" the name of no entity other than Equitable shall appear on the Building. 34. PARTIES BOUND. The covenants, conditions and agreements contained in this Lease shall bind and inure to the benefit of Landlord and Tenant and their respective heirs, distributees, executors, administrators, successors, and, except as otherwise provided in this Lease, their assigns. 35. BROKER. Each party represents and warrants to the other party that it has not dealt directly with any broker in connection with this Lease or the Original Lease, and that insofar as such party knows no broker negotiated this Lease or the Original Lease or is entitled to any commission in connection therewith and the execution and delivery of this Lease by such party shall be conclusive evidence that such party has relied upon the foregoing representation and warranty. Each party shall indemnify and hold the other party harmless from and against any and all claims for commission, fee or other compensation by any person who shall claim to have dealt with the other party in connection with this Lease or the Original Lease and for any and all costs incurred by such party in connection with such claims, including, without limitation, reasonable attorneys' -74- 78 fees and disbursements. The parties acknowledge that Tishman Speyer Properties has acted as a consultant in connection with this Lease and the Original Lease and Landlord shall pay Tishman Speyer Properties any fee or other compensation to which Tishman Speyer Properties may be entitled for such services. This provision shall survive the cancellation or expiration of this Lease. 36. INDEMNITY. A. Tenant shall not do or permit any act or thing to be done upon the Premises which may subject Landlord to any liability or responsibility for injury, damages to persons or property or to any liability by reason of any violation of law or of any Requirement, but shall exercise such control over the Premises as to fully protect Landlord against any such liability. Tenant shall indemnify and save the Indemnitees harmless from and against (a) all claims of whatever nature against the Indemnitees arising from any act, omission or negligence of Tenant, its contractors, licensees, agents, servants, employees, invitees or visitors, (b) all claims against the Indemnitees arising from any accident, injury or damage whatsoever caused to any person or to the property of any person and occurring during the Term in or about the Premises or occurring during the Term in connection with any art exhibited by Tenant in the lobby of the Building pursuant to a letter agreement of even date herewith, (c) all claims against the Indemnitees arising from any accident, injury or damage occurring outside of the Premises but anywhere within or about the Real Property where such accident, injury or damage results or is claimed to have resulted from an act, omission or negligence of Tenant or Tenant's agents, employees, invitees or visitors, and (d) any breach, violation or non-performance of any covenant, condition or agreement in this Lease set forth and contained on the part of Tenant to be fulfilled, kept, observed and performed. This indemnity and hold harmless agreement shall include indemnity from and against any and all liability, fines, suits, demands, costs and expenses of any kind or nature (including, without limitation, attorneys' fees and disbursements) incurred in or in connection with any such claim or proceeding brought thereon, and the defense thereof, but shall be limited to the extent any insurance proceeds collectible by Landlord under policies owned by Landlord or such injured party with respect to such damage or injury are insufficient to satisfy same. Tenant shall have no liability for any consequential damages suffered either by Landlord or by any party claiming through Landlord. B. Except as provided in Articles 4, 9, 10, 13, 28 and 37 hereof and otherwise as expressly provided herein, Landlord shall indemnify and save Tenant, its shareholders, -75- 79 directors, officers, partners, employees and agents harmless from and against all claims against Tenant arising from any direct damage to the Premises and any bodily injury to the Tenant's employees, agents or invitees resulting from the acts, omissions or negligence of Landlord, its licensees, servants, employees or agents. This indemnity and hold harmless agreement shall include indemnity from and against any and all liability, fines, suits, demands, costs and expenses of any kind or nature (including, without limitation reasonable attorneys' fees and disbursements) incurred in or in connection with any such claim or proceeding brought thereon, but shall be limited to the extent any insurance proceeds collectible by Tenant under policies owned by Tenant or such injured party with respect to such damage or injury are insufficient to satisfy same. Landlord shall have no liability for any consequential damages suffered either by Tenant or by any party claiming through Tenant. 37. ADJACENT EXCAVATION-SHORING. If an excavation shall be made upon land adjacent to the Premises, or shall be authorized to be made, Tenant shall, upon reasonable advance notice, afford to the person causing or authorized to cause such excavation, license to enter upon the Premises for the purpose of doing such work as said person shall deem necessary to preserve the wall or the Building from injury or damage and to support the same by proper foundations without any claim for damages or indemnity against Landlord, or diminution or abatement of Rent, provided that Tenant shall continue to have access to the Premises and the Building. If Landlord is causing or authorized to cause such excavation, the provisions of Article 14 of this Lease shall be operative with respect to such access and work or installations done in connection therewith. 38. MISCELLANEOUS. A. This Lease is offered for signature by Tenant and it is understood that this Lease shall not be binding upon Landlord or Tenant unless and until Landlord and Tenant shall have executed and delivered a fully executed copy of this Lease to each other. B. The obligations of Landlord under this Lease shall not be binding upon Landlord named herein (or upon any member thereof) after the bona fide sale, conveyance, assignment or transfer by such Landlord (or upon any subsequent landlord after the sale, conveyance, assignment or transfer by such subsequent landlord) of its interest in the Building or the Real Property (or such member's interest in Landlord), as the case may be, and in the event of any such sale, conveyance, assignment or transfer, Landlord (or such member) shall be and hereby is entirely freed and relieved of -76- 80 all covenants and obligations of Landlord hereunder, provided that such transferee assumes the obligations of Landlord under this Lease (subject to the terms hereof); and provided further that Landlord shall not be relieved of its obligation with respect to the application of insurance or condemnation proceeds, any refund of Taxes or the return of the security deposited hereunder to the extent that such obligations have not been assigned to and assumed by such transferee. Neither the partners comprising Landlord, nor the shareholders directors or officers of Landlord (collectively, the "Parties") shall be liable for the performance of Landlord's obligations under this Lease. Tenant shall look solely to Landlord to enforce Landlord's obligations hereunder and shall not seek any damages against any of the Parties. The liability of Landlord for any judgment obtained by Tenant against Landlord shall not exceed and shall be limited to Landlord's interest in the Real Property and Tenant shall not look to any other property or assets of Landlord or to any of the property or assets of any of the Parties in seeking either to enforce Landlord's obligations under this Lease or to satisfy a judgment for Landlord's failure to perform such obligations. C. Notwithstanding anything contained in this Lease to the contrary, all amounts payable by Tenant to or on behalf of Landlord under this Lease, whether or not expressly denominated Rent or additional rent, shall constitute rent for the purposes of Section 502(b)(7) of the Bankruptcy Code. D. Tenant shall reimburse Landlord as additional rent, within five (5) Business Days after rendition of a statement, for all expenditures made by, or damages or fines sustained or incurred by, Landlord, due to any default by Tenant under this Lease, with interest thereon at the Applicable Rate. E. This Lease shall not be recorded, however, at the request of either party, Landlord and Tenant shall promptly execute, acknowledge and deliver a memorandum with respect to the Lease sufficient for recording. F. The words "re-enter" and "re-entry" as used in this Lease are not restricted to their technical legal meaning. G. This Lease shall amend, restate and supersede in their entirety the Original Lease and the Letter Agreements. Notwithstanding the foregoing, all of the obligations of the parties hereto which have accrued prior to the date hereof under the foregoing documents (including without limitation the obligation of Tenant to pay Rent for -77- 81 any period prior to the date of this Lease), and which have not been performed, shall survive the amendment, restatement and supersession of such documents, and the execution and delivery of this Lease shall not release either party or constitute any waiver by either party with respect to the obligations of the other party under the foregoing documents. Failure by Tenant to perform any of such obligations within the time periods required by, and after any notice and grace periods provided in, the Original Lease or the Letter Agreements shall constitute, without any further notice or grace period, an Event of Default hereunder. Landlord and Tenant expressly acknowledge that Landlord has fully disbursed the Tenant Fund, the First Additional Tenant Fund, and the Second Additional Tenant Fund (as such terms are defined in the Original Lease) and Tenant has received the benefit of the credits against Fixed Rent pursuant to Article 40 of the Original Lease. 39. RENT CONTROL. If at the commencement of, or at any time or times during the Term of this Lease, the rents reserved in this Lease shall not be fully collectible by reason of any Requirement, Tenant shall enter into such agreement and take such other steps (without additional expense to Tenant) as Landlord may request and as may be legally permissible to permit Landlord to collect the maximum rents which may from time to time during the continuance of such legal rent restriction be legally permissible (and not in excess of the amounts reserved therefor under this Lease). Upon the termination of such legal rent restriction prior to the expiration of the Term, (a) the rents shall become and thereafter be payable hereunder in accordance with the amounts reserved in this Lease for the periods following such termination and (b) Tenant shall pay to Landlord, if legally permissible, an amount equal to (i) the rents which would have been paid pursuant to this Lease but for such legal rent restriction less (ii) the rents paid by Tenant to Landlord during the period or periods such legal rent restriction was in effect. 40. RIGHT OF FIRST OFFER A. If at any time during the Term, Landlord shall desire to sell the Real Property, then, provided that PaineWebber Incorporated shall be the Tenant hereunder and provided no Event of Default exists hereunder, Landlord shall offer ("Landlord's Offer") to sell the Real Property to Tenant prior to offering the same to any other individual or entity other than a subsidiary or affiliate of Landlord (provided that the purpose of such transfer to such affiliate or subsidiary shall not be the circumvention of the obligations of Landlord hereunder, and provided further that such transferee shall -78- 82 assume the obligations of Landlord hereunder subject to the limitations contained herein). Landlord's Offer shall be in writing and shall set forth the terms and conditions upon which the Real Property is to be sold. Landlord shall deliver to Tenant, together with Landlord's offer, a schedule which shall show therein the annual base rentals payable to Landlord for space in the Building, lease expiration dates, the escalation charges payable and any renewal options, together with the most recent income and expense statement with respect to the Real Property. In no event shall Landlord be required to disclose the names of tenants of the Building and the number of square feet leased by each tenant individually or the specific space to which the foregoing information relates until the Letter of Intent shall have been delivered to Landlord as provided below. B. Landlord and Tenant shall endeavor in good faith to execute and deliver to each other, within thirty (30) days after delivery by Landlord to Tenant of Landlord's Offer, a mutually satisfactory, non-binding letter setting forth Tenant's intention (the "Letter of Intent") to purchase the Real Property. C. If (a) the Letter of Intent is not executed and delivered, as aforesaid, or (b) the Letter of Intent is executed and delivered, as aforesaid, but a contract of sale for the Real Property, mutually satisfactory to both Landlord and Tenant, is not executed and delivered (together with any payment required to be made thereunder by Tenant to Landlord) to each other within thirty (30) days after execution and delivery of the Letter of Intent, or (c) Tenant advises Landlord that it does not desire to purchase the Real Property, then Landlord shall be free to sell the Real Property to any other individual or entity, except as provided herein. Until the Letter of Intent has been executed, Tenant, recognizing the confidential nature of Landlord's decision to offer the Real Property for sale and any information furnished to Tenant in connection therewith, shall not disclose to any third party the fact of Landlord's Offer or any of the information or materials furnished to it in connection with Landlord's Offer nor shall Tenant offer or reoffer the Real Property for sale or seek debt or equity financing in connection with Tenant's acquisition of the Real Property. D. If, after the occurrence of any of the events set forth in clauses (a), (b), or (c) of Section C hereof, Landlord proposes to sell the Real Property the consideration for which is less than ninety-five percent (95%) of the purchase price set forth in Landlord's Offer, then, subject to the provisions of Section E hereof, Landlord shall deliver to -79- 83 Tenant a letter of intent or contract, if any, proposed to be entered into by Landlord with respect to such sale or a statement of the terms and conditions of such proposed sale (together with a statement of any material changes with respect to the information supplied by Landlord to Tenant pursuant to the provisions of Section A above) and Tenant shall thereupon have ten (10) Business Days in which to execute and deliver to Landlord any such letter of intent or contract (together with any payment required to be made thereunder), or if there shall be no such letter of intent or contract, Tenant shall thereupon have ten (10) Business Days in which to execute and deliver to Landlord a letter of intent acceptable to Landlord for the sale of the Real Property at the consideration then proposed by Landlord. If Tenant shall fail to execute and deliver any such letter of intent or contract, as aforesaid (or, having executed any such letter of intent shall fail to execute a contract as required thereby, or having executed such contract shall fail to consummate the acquisition of the Real Property in accordance therewith), then Landlord shall be free to sell the Real Property for ninety-five percent (95%) of the consideration then proposed by Landlord, or such lower amount if Landlord complies with provisions of this Section D. E. If Landlord fails to transfer title to the Real Property within eighteen (18) month after having delivered Landlord's Offer to Tenant or within eighteen (18) months of complying with the provisions of Section D hereof, whichever is later, then, prior to any sale thereof, Landlord shall once again offer the Real Property to Tenant and the aforesaid procedures shall be repeated. F. Upon any sale of the Real Property as provided herein, the rights of Tenant under this Article shall terminate so that no Landlord other than Equitable shall be bound hereby. 41. RENEWAL TERM. A. Tenant shall have the option (the "Renewal Option") to extend the term of this Lease for two (2) additional periods of five (5) years each (the "Renewal Terms"), which Renewal Terms shall (i) commence on April 1, 2000 and end on March 31, 2005 (the "First Renewal Term"), and (ii) commence on April 1, 2005 and end on March 31, 2010 (the "Second Renewal Term"), provided that this Lease shall not have been previously terminated, no Event of Default shall exist, and Tenant shall occupy at least fifty percent (50%) of the Premises (exclusive of the Concourse Space, the Subconcourse Space, the 39th Floor Storage Space and the Bank Vault Space) for the operation of its business, (x) on the date Tenant gives Landlord written -80- 84 notice (the "Renewal Notice") of Tenant's election to exercise each Renewal Option, and (y) on the Expiration Date, or the last day of the First Renewal Term, as the case may be. Each such Renewal Option may be exercised with respect to the entire Premises only and shall be exercisable by Tenant delivering the Renewal Notice to Landlord (i) with respect to the First Renewal Term at least two (2) years prior to the Expiration Date (the "First Exercise Date"); and (ii) with respect to the Second Renewal Term at least two (2) years prior to the fifth (5th) anniversary of the Expiration Date (the "Second Exercise Date"). Time is of the essence with respect to the giving of the applicable Renewal Notice. Tenant may not renew the term of this Lease for the Second Renewal Term unless it shall have exercised its option to renew the Term for the First Renewal Term. Upon the giving of the Renewal Notice with respect to the Second Renewal Term, Tenant shall have no further right or option to extend or renew the Term. B. If Tenant exercises the Renewal Option, each Renewal Term shall be upon the same terms, covenants and conditions as those contained in this Lease, except that (i) the Rent shall be deemed to mean the Rent as determined pursuant to Section C of this Article, (ii) Tenant shall not be entitled to any further Tax Credit as provided in Section B(1) of Article 27 and (iii) the provisions of Section A of this Article relative to Tenant's right to renew the term of the Lease shall not be applicable during the,Second Renewal Term. It is expressly understood that during the First Renewal Term, Tenant shall have the right as set forth in Section A only with respect to the Second Renewal Term, and that during the Second Renewal Term, Tenant shall have no further right to renew this Lease. C. For each Renewal Term the Rent shall be as follows: (1) The Rent for the Premises for the First Renewal Term, or Second Renewal Term, as the case may be, shall be the greater of the (a) (i) annual fair market rental value of the Premises (the "Fair Market Rent") on the First Exercise Date or the Second Exercise Date, as the case may be, plus (ii) an amount equal to the Fair Market Rent determined as of the First Exercise Date or Second Exercise Date, as the case may be, multiplied by the percentage increase in the Consumer Price Index, if any, from the First Exercise Date or the Second Exercise Date, as the case may be, to the commencement of the First Renewal Term or Second Renewal Term, as the case may be and (b) the Rent payable by Tenant on the Expiration Date, or the last day of the First -81- 85 Renewal Term, as the case may be, (the greater of (a) and (b) being hereinafter referred to as the "Rental Value"). The Fair Market Rent shall be determined as if the Premises were available in the then rental market for comparable buildings in midtown Manhattan and assuming that Landlord has had a reasonable time to locate a tenant who rents with the knowledge of the uses to which the Premises can be adapted, and that neither Landlord nor the prospective tenant is under any compulsion to rent, taking into account: (i) the fact that the Base Operating Expenses provided herein shall not change for the purpose of calculating the escalation payments payable pursuant to Article 27 hereof which payments shall continue to be made during each Renewal Term; (ii) the fact that as of the commencement of the Renewal Term, Tenant shall not be required to pay, in addition to the escalation payments presently provided for under this Lease, Tenant's Share of such other escalation payments which Landlord is then charging tenants under other leases signed within the last twelve (12) months in the Building or if no such leases were signed within the last twelve (12) months, such other escalation payments which Landlord is then charging tenants under leases signed within the last twelve (12) months in other office buildings which are comparable to the Building; (iii) as to the First Renewal Term, the fact that the First Renewal Term is for a five (5) year term and Tenant has the further right to renew this Lease for the Second Renewal Term of five (5) years, and as to the Second Renewal Term, the fact that the Second Renewal Term is for five (5) years and that Tenant has no further right to renew; (iv) the fact that the Building shall remain named for Tenant subject to the provisions of Article 33 hereof; (v) the fact that Landlord shall not be obligated to perform any work in the Premises to prepare the same for Tenant's occupancy; and (vi) the fact that Tenant shall not be entitled to any credit against the Rent. During the Renewal Term the Rent shall continue to be subject to escalation as provided in Article 27 hereof. -82- 86 (2) For purposes of determining the Fair Market Rent, the following procedure shall apply: (a) the Fair Market Rent shall be determined by Landlord on the basis of the highest and best use of the Premises assuming that the Premises are free and clear of all leases and tenancies (including this Lease), and, at the election of Landlord, that the Premises are occupied by one (1) tenant or are subdivided and occupied by more than one (1) tenant, whether improved or unimproved. (b) Landlord shall give Tenant written notice (the "Rent Notice") (i) with respect to the First Renewal Period, within sixty (60) days after the First Exercise Date and (ii) with respect to the Second Renewal Period, within sixty (60) days after the Second Exercise Date, which Rent Notice shall set forth Landlord's determination of the Fair Market Rent ("Landlord's Determination"). If Landlord shall fail or refuse to give such notice as aforesaid, the Fair Market Rent shall be deemed to be the Rent then payable by Tenant on the First Exercise Date, or the Second Exercise Date, as the case may be. (c) If Landlord's Determination exceeds the Rent expected to be payable by Tenant on the Expiration Date, or the last day of the First Renewal Term, as the case may be, Tenant shall give Landlord written notice ("Tenant's Notice"), within sixty (60) days after Tenant's receipt of the Rent Notice of whether Tenant accepts or disputes Landlord's Determination. If Tenant in Tenant's Notice accepts Landlord's Determination or if Tenant fails or refuses to give Tenant's Notice as aforesaid, Tenant shall be deemed to have accepted Landlord's Determination for the applicable Renewal Term in accordance with the terms of this Article. If Tenant in Tenant's Notice disputes Landlord's Determination, Tenant shall deliver to Landlord, within thirty (30) days after Tenant's receipt of the Rent Notice (or the expiration of said sixty (60) days if Landlord fails or refuses to give such Notice), Tenant's determination of the Fair Market Rent ("Tenant's Determination") as determined by an independent real estate appraiser ("Tenant's Appraiser") together with a copy of the appraisal prepared by Tenant's Appraiser. (d) Landlord shall give Tenant written notice ("Landlord's Notice"), within sixty (60) days after Landlord's receipt of Tenant's Determination, of whether Landlord accepts or disputes Tenant's Determination. If Landlord in Landlord's Notice accepts Tenant's Determination or if Landlord fails or refuses to give Landlord's Notice as -83- 87 aforesaid, Landlord shall be deemed to have accepted Tenant's Determination. If Landlord in Landlord's Notice disputes Tenant's Determination, Landlord shall appoint an independent real estate appraiser ("Landlord's Appraiser"). If within thirty (30) days after Tenant's receipt of Landlord's Notice in dispute, Landlord's Appraiser and Tenant's Appraiser shall mutually agree upon the determination (the "Mutual Determination") of the Fair Market Rent, their determination shall be final and binding upon the parties. If Landlord's Appraiser and Tenant's Appraiser shall be unable to reach a Mutual Determination within said thirty (30) day period, both of the Appraisers shall jointly select a third independent real estate appraiser ("Third Appraiser") whose fee shall be borne equally by Landlord and Tenant. In the event that Landlord's Appraiser and Tenant's Appraiser shall be unable to jointly agree on the designation of the Third Appraiser within five (5) Business Days after they are requested to do so by either party, then the parties agree to allow the American Arbitration Association or any successor organization to designate the Third Appraiser in accordance with the rules, regulations and/or procedures then obtaining of the American Arbitration Association or such successor organization to make such determination. (e) The Third Appraiser shall conduct such hearings and investigations as he may deem appropriate and shall, within thirty (30) days after the date of designation of the Third Appraiser choose either Landlord's or Tenant's Determination, and that choice by the Third Appraiser shall be conclusive and binding upon Landlord and Tenant. Each party shall pay its own counsel fees and expenses, if any, in connection with any arbitration under this Section, including the expenses and fees of any Appraiser selected by it in accordance with the provisions of this Article. Any Appraiser appointed pursuant to this Article shall be an independent real estate appraiser with at least ten (10) years' experience in leasing and valuation of properties which are similar in character to the Building and a member of the American Institute of Appraisers of the National Association of Real Estate Boards and a member of the Society of Real Estate Appraisers. The Appraisers shall not have the power to add to, modify or change any of the provisions of this Lease. (f) It is expressly understood that any determination of the Fair Market Rent pursuant to this Article shall be based on the criteria stated in Section C of this Article including the assumptions set forth in clause (2)(a) thereof. -84- 88 (3) After a final determination has been made of the Rental Value for a Renewal Term, Tenant may, within ten (10) Business Days after said determination, rescind the Renewal Option by giving notice to Landlord, in which event this Lease shall terminate on the Expiration Date or the Fifth Anniversary of the Expiration Date, as the case may be. If Tenant fails to rescind the Renewal Option as aforesaid, Tenant shall be deemed to have waived its right to rescind the Renewal Option and the Renewal Option shall be deemed to have been exercised in accordance with the provisions of this Article. (4) If Tenant shall rescind the Renewal Option pursuant to the provisions of Section C(3) hereof, Tenant shall pay to Landlord, within fifteen (15) days after demand, an amount equal to all reasonable out-of-pocket costs and expenses incurred by Landlord in connection with the determination of the Fair Market Rent, including without limitation reasonable attorneys' and appraisers' fees. (5) After a determination has been made of the Rental Value for the Renewal Term, the parties shall execute and deliver to each other an instrument setting forth the Rental Value as hereinbefore determined. (6) On the first day of the First Renewal Term and the Second Renewal Term, as the case may be, the parties shall execute and deliver to each other an instrument setting forth the Rent for such Renewal Term as hereinbefore determined. IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this Lease as of the day and year first above written. THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, Landlord By: /s/ ----------------------------- Investment Officer PAINEWEBBER INCORPORATED, Tenant By: /s/ ----------------------------- Senior (Vice) President -85- 89 STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On the _____ day of __________, 1989, before me personally came _______________, to me known who, being by me duly sworn did depose and say that he resides at ___________________________________________________; that he is a ______________________ of The Equitable Life Assurance Society of the United States, the corporation described in and which executed the foregoing instrument; that he had authority to sign the same and he acknowledged to me that he executed the same as the act and deed of said corporation for the uses and purposes therein mentioned. ___________________ Notary Public STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On the ______ day of ________________, 1989, before me personally came ________________, to me known who, being duly sworn did depose and say that he resides at _____________________________________, New York, New York; that he is a ________________ of PaineWebber Incorporated, the corporation described in and which executed the foregoing instrument; that he had authority to sign the same and he acknowledged to me that he executed the same as the act and deed of said corporation for the uses and purposes therein mentioned. ___________________ Notary Public 90 Schedule A RULES AND REGULATIONS 1. The sidewalks, entrances, passages, courts, elevators, vestibules, stairways, corridors, or halls shall not be obstructed or encumbered by Tenant or used for any purpose other than ingress and egress to and from the Premises and for delivery of merchandise and equipment in prompt and efficient manner, using elevators and passageways designated for such delivery by Landlord. 2. No awnings, air-conditioning units, fans or other projections shall be attached to the outside walls of the Building. No curtains, blinds, shades, or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises, without the prior written consent of Landlord. Such awnings, projections, curtains, blinds, shades, screens or other fixtures must be of a quality, type, design and color, and attached in the manner approved by Landlord. All electrical fixtures hung in offices or spaces along the perimeter of the Premises must be fluorescent, of a quality, type, design and bulb color approved by Landlord, which consent shall not be withheld or delayed unreasonably unless the prior consent of Landlord has been obtained for other lamping. 3. No sign, advertisement, notice or other lettering shall be exhibited, inscribed, painted or affixed by Tenant on any part of the outside of the Premises or Building or on the inside of the Premises if the same can be seen from the outside of the Premises without the prior written consent of Landlord except that the name of Tenant may appear on the entrance door of the Premises. In the event of the violation of the foregoing by Tenant, if Tenant has refused to remove same after reasonable notice from Landlord, Landlord may remove same without any liability, and may charge the expense incurred by such removal to Tenant. Interior signs on doors and any directory tablet shall be of a size, color and style reasonably acceptable to Landlord. 4. The exterior windows and doors that reflect or admit light and air into the Premises or the halls, passageways or other public places in the Building, shall not be covered or obstructed by Tenant, nor shall any articles be placed on the windowsills. 5. No showcases or other articles shall be put in front of or affixed to any part of the exterior of the Build- A-1 91 ing, nor placed in the halls, corridors or vestibules, nor shall any article obstruct any air-conditioning supply or exhaust without the prior written consent of Landlord. 6. The water and wash closets and other plumbing fixtures shall not be used for any purposes other than those for which they were constructed, and no sweepings, rubbish, rags, acids or other substances shall be deposited therein. All damages resulting from any misuse of the fixtures shall be borne by Tenant. 7. Subject to the provisions of Article 3 of this Lease, Tenant shall not mark, paint, drill into, or in any way deface any part of the Premises or the Building. No boring, cutting or stringing of wires shall be permitted, except with the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed, and as Landlord may direct. Tenant shall not lay floor tile, or other similar floor covering, so that the same shall come in direct contact with the floor of the Premises, and, if such floor covering is desired to be used an interlining of builder's deadening felt shall be first affixed to the floor, by a paste or other material, soluble in water, the use of cement or other similar adhesive material being expressly prohibited. 8. No space in the Building shall be used for manufacturing, for the storage of merchandise, or for the sale of merchandise, goods or property of any kind at auction or otherwise. 9. Tenant shall not make, or permit to be made, any unseemly or disturbing noises or disturb or interfere with occupants of this or neighboring buildings or premises or those having business with them whether by the use of any musical instrument, radio, television set, talking machine, [unmusical noise], whistling, singing, or in any other way. 10. Tenant, or any of Tenant's servants, employees, agents, visitors or licensees, shall not at any time bring or keep upon the Premises any inflammable, combustible or explosive fluid, chemical or substance except such as are incidental to usual office occupancy. 11. No additional locks or bolts of any kind shall be placed upon any of the doors or windows by Tenant, nor shall any changes be made in existing locks or the mechanism thereof, unless Tenant promptly provides Landlord with the key or combination thereto (except with respect to Security Areas). Tenant must, upon the termination of its tenancy, A-2 92 return to Landlord all keys of stores, offices and toilet rooms, and in the event of the loss of any keys furnished at Landlord's expense, Tenant shall pay to Landlord the cost thereof. 12. No bicycles, vehicles or animals of any kind except for seeing eye dogs shall be brought into or kept by Tenant in or about the Premises or the Building. 13. All removals, or the carrying in or out of any safes, freight, furniture or bulky matter of any description must take place in the manner and during the hours which Landlord or its agent reasonably may determine from time to time. Landlord reserves the right to inspect all safes, freight or other bulky articles to be brought into the Building and to exclude from the Building all safes, freight or other bulky articles which violate any of these Rules and Regulations or the Lease of which these Rules and Regulations are a part. 14. Tenant shall not occupy or permit any portion of the Premises demised to it to be occupied as an office for a public stenographer or typist, or for the possession, storage, manufacture, or sale of liquor, narcotics, dope, or as a barber or manicure shop, or as an employment bureau. Tenant shall not engage or pay any employees on the Premises, except those actually working for Tenant at the Premises, nor advertise for labor giving an address at the Premises. 15. Tenant shall not purchase spring water, ice, towels or other like service, or accept barbering or bootblacking services in the Premises, from any company or persons not approved by Landlord, which approval shall not be withheld or delayed unreasonably and at hours and under regulations other than as reasonably fixed by Landlord. 16. Landlord shall have the right to prohibit any advertising by Tenant which, in Landlord's reasonable opinion, tends to impair the reputation of the Building or its desirability as a building for offices, and upon written notice from Landlord, Tenant shall refrain from or discontinue such advertising. 17. Landlord reserves the right to exclude from the Building between the hours of 6 P.M. and 8 A.M. and at all hours on Saturdays, Sundays and legal holidays all persons who do not present a pass to the Building signed or approved by Landlord. Tenant shall be responsible for all persons for whom a pass shall be issued at the request of A-3 93 Tenant and shall be liable to Landlord for all acts of such persons. 18. Tenant shall, at its expense, provide artificial light for the employees of Landlord while doing janitor servies or other cleaning, and in making repairs of alterations in the Premises. 19. the requirements of Tenant will be attended to only upon written application at the office of the Building. Employees shall not perform any work or do anything outside of the regular duities, unless under special instructions from the office of Landlord. 20. Canvassing, soliciting and peddling in the Building is prohibited and Tenant shall co-operate to prevent the same. 21. There shall not be used in any space, or in the public halls of the Building, either by Tenant or by jobbers or others, in the delivery or receipt of merchandise, any hand trucks, except those equipped with rubber tires and side guards. 22. Execpt as specifically provided in Section B of Article 2 of this Lease, Tenant shall not do any cooking, conduct any restaurant, luncheonette or cafeteria for the others, or cause or permit any odors of cooking or other processes or any unusual or objectionable odors to emanate from the Premises. Tenant may, at its sole cost and expense and subject to compliance with all applicable Requirements and the provisions of Articles 3 and 4 of this lease, install and maintain vending machines for the exclusive use by Tenant, its officers, employees and business guests, provided that each vending machine, where necessary, shall have a waterproof mat thereunder and be connected to a drain; Tenant shall not permit the delivery of any food or beverage to the Premises, except by such persons delivering the same as shall be approved by Landlord, which approval shall not be unreasonably withhheld or delayed. 23. Tenant shall keep the entrance door to the Premises closed at all times. A-4 94 Schedule B HVAC SPECIFICATIONS The HVAC System shall be capable of maintaining 78 degrees when outdoor conditions are 95 degrees dry bulb and 75 degrees wet bulb. The HVAC System shall be capable of maintaining 72 degrees at outdoor temperature 0 degrees F. The HVAC System is designed upon (i) consumption of 4 watts per square foot lighting and 1/2 watt per square foot for miscellaneous power load (ii) occupancy rate of one (1) person per 100 square feet, and (iii) mecho shades drawn. 95 Schedule B-1 HVAC SPECIFICATIONS FOR CONCOURSE, SUBCONCOURSE, BANK VAULT SPACE AND 39TH FLOOR SPACE HVAC SPECIFICATION FOR THE CONCOURSE SPACE This space is served by Air Handling Unit No. BL-SC-13. It is a constant volume unit capable of cooling and electrical load of 8 watts/sq. ft. It provides 980 cfm to this space in addition to serving the adjacent areas. Smoke exhaust for this area can be provided by Exhaust Fan EXH-SC-10. HVAC SPECIFICATION FOR THE SUBCONCOURSE SPACE This area is served by Air Handling Unit Number BL-SC-12. It is a constant volume unit capable of cooling an electrical load of 3 watts/sq. ft. It provides 4,350 cfm to this space and the adjacent areas. HVAC SPECIFICATION FOR THE BANK VAULT SPACE The Bank Vault Space is served by Air Handling Unit Number BL-SC-14. This is a constant volume unit capable of handling an electrical load in the vault of 5 watts/sq. ft. It provides the area with 1800 cfm of supply air, which is distributed through 12 ceiling diffusers. Air is exhausted from the vault itself and into the work area through the main vault door. This door should be open when the system is operating. Once in the work area, the air is exhausted by Fan EXH-SC-11. HVAC SPECIFICATION FOR THE 39TH FLOOR SPACE The HVAC system shall be capable of providing 60 air changes per hour to the kitchen area, providing 12,500 cfm of conditioned air and removing 19,360 cfm. There is no air conditioning or heating provided to the storage areas. 96 Schedule C CLEANING SPECIFICATIONS GENERAL CLEANING NIGHTLY General Offices: 1. All hardsurfaced flooring to be swept using approved dustdown preparation. 2. Carpet sweep all carpets, moving only light furniture (desks, file cabinets, etc. not to be moved). 3. Hand dust and wipe clean all furniture, fixtures and window sills. 4. Empty and damp wipe and clean all ash trays and screen all sand urns. 5. Empty all waste receptacles and remove wastepaper. 6. Dust interiors of all waste disposal cans and baskets. 7. Wash clean all water fountains and coolers. 8. Sweep all private stairways. Lavatories: 1. Sweep and wash all floors, using proper disinfectants. 2. Wash and polish all mirrors, shelves, bright work and enameled surfaces. 3. Wash and disinfect all basins, bowls and urinals. 4. Wash all toilet seats (both sides). 5. Hand dust and clean all partitions, tile walls, dispensers and receptacles in lavatories and restrooms. 97 6. Empty paper receptacles and remove wastepaper. 7. Fill toilet tissue, soap dispenser and paper towel holders using materials supplied by Tenant. 8. Empty and clean sanitary disposal receptacles. WEEKLY 1. Vacuum clean all carpeting and rugs. 2. Dust all door louvres and other ventilating louvres within a person's reach. 3. Wipe clean all brass and other bright work. MONTHLY High dust premises complete including the following: 1. Dust all pictures, frames, charts, graphs and similar wall hangings not reached in nightly cleaning. 2. Dust clean all vertical surfaces, such as walls, partitions, doors, bucks and other surfaces not reached in nightly cleaning. 3. Dust all pipes, ventilating and air-conditioning louvres, ducts, high mouldings and other high areas not reached in nightly cleaning. 4. Dust all venetian blinds. PERIODICALLY Wash all windows at least four (4) times per year. 98 Exhibit "A" PROPERTY DESCRIPTION ALL that certain lot, piece or parcel of land, situate, lying and being in the Borough of Manhattan, City, County and State of New York bounded and described as follows: BEGINNING at the southwest corner of West 52nd Street and Avenue of the Americas; RUNNING THENCE southerly along the westerly side of Avenue of the Americas, 200 feet 10 inches to the northwesterly corner of West 51st Street and Avenue of the Americas; THENCE westerly along the northerly side of West 51st Street, 400 feet to a point; THENCE northerly parallel with the easterly side of Seventh Avenue, 200 feet 10 inches to the southerly side of West 52nd Street. THENCE easterly along the southerly side of West 52nd Street, 400 feet to the corner as aforesaid, the point or place of BEGINNING. 99 Exhibit "B" Concourse Space Blueprint of Floorplan (sender) [GRAPHIC] 100 Exhibit -1" Blueprint of floor plan (sender) [GRAPHIC] 101 Exhibit "C-2" Blueprint of floor plan (sender) [GRAPHIC] 102 Exhibit "C-3" TYPICAL FLOOR PLAN 16-24 [GRAPHIC] 103 EXHIBIT "D" 39th Floor Space [GRAPHIC] 104 Exhibit "E" Bank Vault Space & Subconcourse Space [GRAPHIC] 105 EXHIBIT "F" 39th Floor Storage Space [GRAPHIC] EX-11 8 COMPUTATION OF EARNINGS PER COMMON SHARE 1 EXHIBIT 11 PAINE WEBBER GROUP INC. COMPUTATION OF EARNINGS PER COMMON SHARE (1) (IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
Years Ended December 31, ---------------------------------------------------- 1993 1992 1991 ---------- ---------- ----------- PRIMARY: Weighted average common shares outstanding 68,535,178 61,956,106 56,542,322 Weighted average effect of stock options and awards 5,824,821 5,611,289 4,203,352 Weighted average effect of Participating Preferred Stock 4,329,959 1,812,468 - ---------- ---------- ----------- Weighted average common and common equivalent shares 78,689,958 69,379,863 60,745,674 ========== ========== =========== Net income $ 246,183 $ 213,175 $ 150,716 Preferred dividend requirements (1,834) (17,065) (23,132) ---------- ---------- ----------- Earnings available for common shares $ 244,349 $ 196,110 $ 127,584 ========== ========== =========== Earnings per common share $ 3.11 $ 2.83 $ 2.10 ========== ========== =========== FULLY DILUTED: Weighted average common shares outstanding 68,535,178 61,956,106 56,542,322 Weighted average effect of stock options and awards 6,785,963 6,710,424 8,229,031 Weighted average effect of Participating Preferred Stock 4,329,959 1,812,468 - Weighted average common shares issuable assuming conversion of 8% Convertible Debentures and equity securities 4,676,191 21,886,440 30,406,822 ---------- ---------- ----------- Weighted average common and common equivalent shares 84,327,291 92,365,438 95,178,175 ========== ========== =========== Net income $ 246,183 $ 213,175 $ 150,716 Interest savings on convertible debentures 3,004 6,300 7,666 ---------- ---------- ----------- Earnings available for common shares $ 249,187 $ 219,475 $ 158,382 ========== ========== =========== Earnings per common share $ 2.95 $ 2.37 $ 1.67 ========== ========== ===========
(1) Common share and per share amounts have been retroactively adjusted to reflect 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. EX-12.1 9 COMPUTATION OF RATIO OF EARNINGS 1 EXHIBIT 12.1 PAINE WEBBER GROUP INC. COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (IN THOUSANDS OF DOLLARS)
Years Ended December 31, --------------------------------------------------------------------- 1993 1992 1991 1990 1989 ---------- ---------- ---------- ---------- ---------- Income (loss) before taxes $ 407,576 $ 339,115 $ 226,247 $ (102,633) $ 82,568 ---------- ---------- ---------- ---------- ---------- Preferred stock dividends 5,828 27,789 34,732 23,174 37,564 ---------- ---------- ---------- ---------- ---------- Fixed charges: Interest 1,130,712 879,242 1,056,124 1,242,151 1,198,640 Interest factor in rents 50,133 45,962 43,804 42,223 40,360 ---------- ---------- ---------- ---------- ---------- Total fixed charges 1,180,845 925,204 1,099,928 1,284,374 1,239,000 ---------- ---------- ---------- ---------- ---------- Total fixed charges and preferred stock dividends 1,186,673 952,993 1,134,660 1,307,548 1,276,564 ---------- ---------- ---------- ---------- ---------- Income before taxes and fixed charges $1,588,421 $1,264,319 $1,326,175 $1,181,741 $1,321,568 ========== ========== ========== ========== ========== Ratio of earnings to fixed charges and preferred stock dividends 1.3 1.3 1.2 - ** 1.0 ========== ========== ========== ========== ==========
For purposes of computing the ratio of earnings to combined fixed charges and preferred stock dividends (tax effected), "earnings" consist of income (loss) before taxes and fixed charges. "Fixed charges" consist of interest expense incurred on securities sold under agreements to repurchase, short-term borrowings, long-term borrowings and that portion of rental expense estimated to be representative of the interest factor. ** Earnings were inadequate to cover fixed charges and would have had to increase approximately $125,807 in order to cover the deficiency. EX-12.2 10 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12.2 PAINE WEBBER GROUP INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (IN THOUSANDS OF DOLLARS)
Years Ended December 31, ---------------------------------------------------------------------- 1993 1992 1991 1990 1989 ---------- ---------- ---------- ---------- ---------- Income (loss) before taxes $ 407,576 $ 339,115 $ 226,247 $ (102,633) $ 82,568 ---------- ---------- ---------- ---------- ---------- Fixed charges: Interest 1,130,712 879,242 1,056,124 1,242,151 1,198,640 Interest factor in rents 50,133 45,962 43,804 42,223 40,360 ---------- ---------- ---------- ---------- ---------- Total fixed charges 1,180,845 925,204 1,099,928 1,284,374 1,239,000 ---------- ---------- ---------- ---------- ---------- Income before taxes and fixed charges $1,588,421 $1,264,319 $1,326,175 $1,181,741 $1,321,568 ========== ========== ========== ========== ========== Ratio of earnings to fixed charges 1.3 1.4 1.2 - ** 1.1 ========== ========== ========== ========== ==========
For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of income (loss) before taxes and fixed charges. "Fixed charges" consist of interest expense incurred on securities sold under agreements to repurchase, short-term borrowings, long-term borrowings and that portion of rental expense estimated to be representative of the interest factor. ** Earnings were inadequate to cover fixed charges and would have had to increase approximately $102,633 in order to cover the deficiency. EX-13 11 1993 ANNUAL REPORT TO STOCKHOLDERS OF REGISTRANT 1 FINANCIAL HIGHLIGHTS
Years Ended December 31, - ------------------------------------------------------------------------------------------------------------------------ (In thousands of dollars except per share amounts) 1993 1992 1991 1990(2) 1989 - ------------------------------------------------------------------------------------------------------------------------ OPERATING RESULTS Total revenues $ 4,004,717 $ 3,363,731 $ 3,165,895 $ 2,978,505 $ 2,925,809 Net revenues (including net interest) $ 2,874,005 $ 2,484,489 $ 2,109,771 $ 1,736,354 $ 1,727,169 Income (loss) before taxes $ 407,576 $ 339,115 $ 226,247 $ (102,633) $ 82,568 Net income (loss) $ 246,183 $ 213,175 $ 150,716 $ (57,351) $ 51,960 ----------- ----------- ----------- ----------- ----------- PER COMMON SHARE(1) Primary earnings (loss) $ 3.11 $ 2.83 $ 2.10 $ (1.44) $ 0.47 Fully diluted earnings (loss) $ 2.95 $ 2.37 $ 1.67 $ (1.44) $ 0.47 Dividends declared $ 0.38 $ 0.31 $ 0.24 $ 0.23 $ 0.23 Book value $ 16.29 $ 14.24 $ 12.23 $ 10.03 $ 11.58 ----------- ----------- ----------- ----------- ----------- FINANCIAL CONDITION Total assets $37,026,909 $26,508,982 $22,621,763 $18,150,539 $22,075,292 Long-term borrowings $ 1,936,082 $ 1,150,553 $ 815,728 $ 656,993 $ 521,929 Stockholders' equity $ 1,195,047 $ 1,080,667 $ 1,050,478 $ 895,916 $ 1,001,202 Total capitalization $ 3,131,129 $ 2,231,220 $ 1,866,206 $ 1,552,909 $ 1,523,131 ----------- ---------- ----------- ----------- -----------
(1) Per common share data has been retroactively adjusted to reflect 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, in addition to the three-for-two common stock split in December 1991. (2) The 1990 results reflect an after-tax charge of $95,452 ($149,128 before income taxes) for restructuring and merchant banking reserves. [CHARTS -- SEE EDGAR APPENDIX] THREE 2 MANAGEMENT'S DISCUSSION AND ANALYSIS GENERAL Paine Webber Group Inc. ("PWG") is a holding company which, together with its operating subsidiaries (collectively, the "Company"), forms one of the largest full-service securities and commodities firms in the industry. Founded in 1879, the Company employs approximately 14,400 people in 281 offices worldwide. The Company's principal line of business is to serve the investment and capital needs of individual, corporate, institutional and public agency clients through its broker-dealer subsidiary, PaineWebber Incorporated ("PWI"), and other specialized subsidiaries. The Company holds memberships in all major securities and commodities exchanges in the United States, and makes a market in many securities traded on the Automated Quotation System of the National Association of Securities Dealers ("NASDAQ") or in other over-the-counter markets. Additionally, PWI is a primary dealer in U.S. government securities. The Company is comprised of four interrelated core business groups -- Retail Sales and Marketing, Institutional Sales and Trading, Investment Banking and Asset Management -- which utilize common operational and administrative personnel and facilities. Retail Sales and Marketing consists primarily of a domestic branch office system and consumer product groups through which PWI and certain other subsidiaries provide clients with financial services and products, including the purchase and sale of securities, option contracts, commodity and financial futures contracts, direct investments, selected insurance products, fixed income instruments and mutual funds. The Company may act as principal or agent in providing these services. Fees charged vary according to the size and complexity of a transaction, and the activity level of a client's account. Institutional Sales and Trading is comprised of five businesses: 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 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. Corporate Finance 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 Asset Management group is comprised of Mitchell Hutchins Asset Management Inc. ("MHAM"), Mitchell Hutchins Institutional Investors Inc. ("MHII") and Mitchell Hutchins Investment Advisory division ("MHIA"). MHAM and MHII provide investment advisory and portfolio management services to pension and endowment funds. MHAM also provides investment advisory and portfolio management services to individuals and mutual funds. MHIA provides portfolio management services to individuals, trusts and institutions. The 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 business is regulated by various agencies, including the Securities and Exchange Commission ("SEC"), the New York Stock Exchange ("NYSE"), the Commodity Futures Trading Commission ("CFTC") and the National Association of Securities Dealers. TWENTY-NINE 3 The Company's principal business activities are, by their nature, affected by many factors, including general economic and financial conditions, the level and volatility of interest rates, currency and security valuations, competitive conditions, counterparty risk, transactional volume, and market liquidity. As a result, revenues and profitability are subject to fluctuations reflecting the impact of these factors. RESULTS OF OPERATIONS Market conditions continued to be favorable during 1993. Generally lower interest rates, along with a strong equity market, led to higher trading volume. The Dow Jones Industrial Average closed on December 31, 1993 at 3,754, an increase of 14% during the year. The NYSE daily volume averaged 265 million shares, an increase of 31% over 1992. Trading volume on the American Stock Exchange and the NASDAQ also increased significantly during 1993. The decline in interest rates during the year contributed to increased underwriting activity in mortgage backed securities, as well as corporate debt and equity issuances. Individual investors continued to transfer assets to mutual funds, which experienced record net sales. 1993 COMPARED WITH 1992 Net income for the year ended December 31, 1993 was a record $246.2 million, a 15% increase over the $213.2 million earned during the year ended December 31, 1992. Total revenues of $4.0 billion rose 19% from those reported in 1992, while revenues, net of interest expense, rose $389.5 million to $2.9 billion. Net earnings per common share, after giving retroactive effect to the three-for-two common stock split, effective March 10, 1994 to stockholders of record as of February 17, 1994, were $3.11 primary ($2.95 fully diluted) compared with earnings per common share of $2.83 primary ($2.37 fully diluted) in 1992. This increase was attributable to improved performance by all major business groups, continued growth in recurring fees and client-centered revenues, and favorable debt and equity market conditions. Fully diluted earnings per common share were also favorably impacted by changes in the Company's capital structure. Commission revenues improved 21% to $996.1 million during 1993 as a result of higher market volume and an increase of over 250 investment executives, or 5%, from the previous year. Commissions from listed securities rose $90.6 million, or 21%, mutual fund commissions rose $34.2 million, or 27%, and commissions from over-the-counter securities rose $23.6 million, or 44%. In addition, insurance commissions increased $44.7 million, or 85%, as a result of increased sales of deferred annuity contracts. These gains were partially offset by decreases in commissions earned from commodities and direct investments. Principal transactions revenues increased $59.7 million, or 8%, during 1993, reflecting improved results in corporate securities and municipal obligations offset by a decline in U.S. government and agency obligations. In early 1993, the Company exited the risk arbitrage business. Investment banking revenues for the year ended December 31, 1993 increased 8% to $413.6 million as compared to the $384.3 million earned during 1992. This increase reflects increased common and preferred equity, and high-yield debt securities issues. These gains were partially offset by declines in merger and acquisition and private placement fees. Asset management fees, which are generally recurring in nature, increased $58.6 million, or 22%, during 1993 primarily due to a 42% increase in client assets in managed or wrap fee accounts and a 51% increase in client assets in long-term mutual funds. Total assets under management grew 11% to $38.9 billion as of December 31, 1993. This increase was led by the introduction of additional Premier priced funds and the PaineWebber Short-Term U.S. Government Income Fund. THIRTY 4 Net interest increased $30.5 million, or 14%, due to increased margin lending to clients, a reflection of favorable equity market conditions, and higher fixed income inventory levels. Other income rose $37.1 million, or 49%, primarily due to increased dividend income on higher equity inventory. Also reflected in other income is an increase in revenues from Resource Management Accounts as the number of accounts grew by 17% to 271,000. Compensation and benefit expenses rose $196.0 million, or 14%, during 1993 primarily due to higher revenue driven compensation paid to retail investment executives and institutional sales personnel, as well as increased incentive compensation associated with improved firm-wide performance. The increase also reflects salary increases related to strategic hiring and normal increases. Compensation and benefits as a percentage of net revenues decreased to 56.7% during 1993 as compared to 57.7% during 1992. All other operating expenses increased $125.1 million, or 18%, over 1992. This increase reflects the costs of technology initiatives, including the rollout of the new broker workstations to the retail branches, higher business development and litigation-related expenses, and general increases related to retail branch expansion. 1992 COMPARED WITH 1991 Net income for the year ended December 31, 1992 was $213.2 million, increasing 41% from $150.7 million for the year ended December 31, 1991. Total revenues of $3.4 billion rose 6% from those reported in 1991. Revenues, net of interest expense, increased 18% compared to 1991 while total expenses, excluding interest expense, increased only 14% for the same period. Net earnings per common share, after giving retroactive effect to the three-for-two common stock split, effective March 10, 1994 to stockholders of record as of February 17, 1994, were $2.83 primary ($2.37 fully diluted) in 1992 compared with earnings per common share of $2.10 primary ($1.67 fully diluted) in 1991. The improvement in 1992 was attributable to strong performances by all major business groups and reflects continued growth in recurring fees and client-centered revenues, as well as continued control over costs. Commission revenues rose 14% to $821.9 million due to a combination of higher market volumes, increased individual investor activity, market share gains and a growing sales force. During 1992, the Company added over 400 retail brokers. Commissions from listed securities increased $44.5 million, or 11%, mutual fund commissions rose $23.3 million, or 22%, option commissions increased $18.5 million, or 39%, and over-the-counter commissions improved $11.6 million, or 28%. These gains were partially offset by a decline in direct investment commissions of $9.6 million, or 39%. The Institutional Sales and Trading business contributed significantly to the improvement in commissions, comprising 51% of the firm-wide increase. Principal transaction revenues increased 11% to $719.8 million, reflecting increased revenues from U.S. government and agency obligations, and municipal securities. These increases reflect both favorable market conditions and market share gains in several of the Company's Institutional Sales and Trading businesses. Partially offsetting the increases were declines in corporate equity securities, corporate debt securities and risk arbitrage. Investment banking revenues for the period rose 29% to $384.3 million. The increase was due to the significant increase in new issue volume of common equity, municipal and investment grade corporate debt securities, coupled with increased private placement fees. The gains were partially offset by reduced merger and acquisition fees. THIRTY-ONE 5 Asset management fees, which are largely recurring in nature, increased $49.7 million, or 23%, due to a substantial increase in client assets in managed or wrap fee accounts in addition to increased mutual fund distribution and advisory fees. Assets under management grew 5% to $35.2 billion, up from $33.6 billion in 1991. Contributing to the increase was the PaineWebber Dividend Growth Fund and the introduction of two debt funds, the Strategic Global Income Fund and PaineWebber Premier Tax-Free Income Fund. Other revenues increased by $11.8 million, or 18%, from the prior year principally due to increased transaction fee revenue on higher trading volume. Net interest grew $57.2 million, or 36%, reflecting significantly higher fixed income inventory levels and better spreads. Declining interest rates resulted in the overall reduction in gross interest revenue and interest expense. Compensation and benefit expenses increased by $204.9 million, or 17%. The increase resulted from higher revenue driven compensation paid to retail investment executives and institutional sales personnel, and increased incentive compensation associated with improved firm-wide performance. Compensation and benefits as a percentage of net revenues declined slightly from 58.2% in 1991 to 57.7% in 1992. All other operating expenses increased $57.0 million, or 9%. The increase is primarily due to higher brokerage, clearing and exchange fees resulting from the increase in trading volume, as well as higher business development and litigation expenses. INCOME TAXES The effective tax rate for the year ended December 31, 1993 was 39.6% as compared to 37.1% for 1992. The increase in the effective rate is due in part to a change in the federal statutory rate from 34% to 35%, which was retroactive to January 1, 1993. The effective tax rate in 1992 was higher compared to the 1991 rate of 33.4% due to higher state and local income taxes and lower nontaxable dividends and interest for the year. LIQUIDITY AND CAPITAL RESOURCES The primary objectives of the Company's funding policies are to ensure ample liquidity at all times and a strong capital base. These objectives are met by maximization of self-funded assets, diversification of funding sources, maintenance of prudent liquidity and capital ratios, and contingency planning. LIQUIDITY The Company maintains a highly liquid balance sheet with the majority of its assets consisting of inventories, securities borrowed or purchased under agreements to resell, and receivables from clients, and brokers and dealers, which are readily converted into cash. The nature of the Company's business as a securities dealer results in its carrying significant levels of securities inventories in order to meet its client and proprietary trading needs. The Company's total assets may fluctuate from period to period as a result of changes in the level of trading positions held to facilitate client transactions, the volume of resale and repurchase transactions, and proprietary trading strategies. These fluctuations depend significantly upon economic and market conditions, and transactional volume. The Company's total assets at December 31, 1993 increased to $37.0 billion from $26.5 billion at December 31, 1992. This increase reflects the growth in securities purchased under agreements to resell and inventory levels, primarily first mortgage notes held for resale and U.S. government and agency obligations. The majority of the Company's assets are financed by daily operations THIRTY-TWO 6 such as securities sold under agreements to repurchase, free credit balances in client accounts and securities lending activity. Additional financing sources are available through bank loans and commercial paper, committed and uncommitted lines of credit, and the issuance of long-term senior and subordinated debt. The Company's ability to obtain short-term secured and unsecured funding as well as long-term capital enables the Company to support the increased level of total assets. Cash flows provided by financing activities were approximately $4.0 billion for the year ended December 31, 1993. The increased levels of borrowings were used primarily to finance higher inventory levels. The Company maintains committed and uncommitted credit facilities from a diverse group of banks. At December 31, 1993, the Company had two revolving credit agreements to provide up to $500.0 million, of which $275.0 million expires in May 1994 with provisions for renewal through November 1996, and $225.0 million expires in March 1995. There were no outstanding borrowings under these facilities at December 31, 1993. Additionally, the Company had more than $5.0 billion in uncommitted lines of credit at December 31, 1993. The Company maintains with the SEC public shelf registration statements for the issuance of debt securities. During 1993, the Company filed two shelf registration statements with the SEC providing for the issuance of an additional $2,367.9 million of debt securities. The Company issued $700.0 million in fixed rate debt and $325.9 million in medium-term senior and subordinated debt during 1993 under these registration statements. At December 31, 1993, the Company had $1,552.6 million in debt securities available for issuance. On February 8, 1994, the Company issued an additional $200.0 million of 7 5/8% Notes Due 2014. CAPITAL RESOURCES AND CAPITAL ADEQUACY At December 31, 1993, the Company's total capital base, which includes stockholders' equity and long-term borrowings, was $3.1 billion, an increase of 40%, or $899.9 million, from the prior year. Total common equity of the Company increased 34% from $891.9 million at December 31, 1992 to $1.2 billion at December 31, 1993. During 1993, the Company completed several capital-related transactions which eliminated all its outstanding preferred stock, increased its long-term borrowing base and took advantage of the historically low interest rates. Long-term borrowings of the Company increased $785.5 million reflecting both the availability of long-term financing opportunities at lower interest rates and growth in the Company's balance sheet and liquidity needs. The Company expanded its long-term borrowing base through the issuance, in four separate offerings, of fixed rate notes in an aggregate principal amount of $700.0 million and the issuance of over $300 million of medium-term senior and subordinated notes. The four issues of fixed rate notes were comprised of $100.0 million 7 7/8% Notes Due 2003, $200.0 million 7% Notes Due 2000, $200.0 million 6 1/2% Notes Due 2005, and $200.0 million 6 1/4% Notes Due 1998. Offsetting these increases in long-term borrowings were the redemption of the entire $75.0 million of the Company's 9 3/8% Subordinated Notes Due 1996 and the maturity of the Company's $125.0 million Subordinated Floating Rate Notes Due 1993. The Company completed three significant transactions during 1993 that eliminated both outstanding series of preferred stocks. On April 1, 1993, The Yasuda Mutual Life Insurance Company ("Yasuda") converted $96.7 million, or 5.0 million shares, of the Company's Cumulative Participating Convertible Voting Preferred Stock, Series A ("Participating Preferred Stock") into 7.5 million shares (5.0 million shares pre-split) of the Company's common stock. During the third quarter, the Company repurchased the remaining $53.3 million, or 2.8 million shares, of Participating Preferred Stock from Yasuda for $75.9 million. During the fourth quarter, the THIRTY-THREE 7 Company called for redemption of the entire outstanding issue of its $1.375 Convertible Exchangeable Preferred Stock ("$1.375 Preferred Stock"). Holders of the $1.375 Preferred Stock were entitled to convert the Preferred Stock into common stock prior to the redemption date. The majority of the shares of $1.375 Preferred Stock were remitted for redemption at a redemption price of $25.76, which included accrued dividends. The preferred stock repurchase transactions will result in an annual dividend savings of over $3 million. During 1993, the Company issued 9.0 million shares of common stock related to employee compensation programs, which included 3.6 million shares of restricted stock granted to key employees. In addition to the restricted stock granted, the Company issued 2.4 million shares related to the exercise of stock options and 2.8 million shares of common stock upon conversion of the Company's 8% Convertible Debentures which were issued to certain key employees. The issuance of common shares related to these programs increased equity capital by over $70 million. In accordance with the Company's repurchase program, 6.0 million shares of common stock were repurchased during the year for $116.6 million. At December 31, 1993, the remaining shares of common stock authorized by the Company's Board of Directors to be repurchased were 11.5 million. Earnings per share on a fully diluted basis were favorably impacted in 1993 by the Company's repurchases of common and preferred shares. The full year impact of the repurchases will be realized in 1994 as weighted average common equivalent shares on a fully diluted basis will decline by over 5 million shares. The Board of Directors declared quarterly cash dividends on the Company's common stock during 1993 in addition to dividends on the $1.375 Preferred Stock and the Participating Preferred Stock for the respective periods outstanding. On February 3, 1994, the Company's Board of Directors approved a 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. Also on February 3, 1994, the Board approved a 20% increase in the dividend payout from $.10 per share to $.12 per share, payable on April 18, 1994 to stockholders of record on March 28, 1994. PWI is subject to the net capital requirements of the SEC, the NYSE and the CFTC which are designed to measure the financial soundness and liquidity of broker-dealers. PWI has consistently maintained net capital in excess of the minimum requirements as imposed by these agencies. In addition, the Company has other banking and securities subsidiaries, both domestic and foreign, which have also consistently maintained net regulatory capital in excess of requirements. MERCHANT BANKING AND HIGHLY LEVERAGED TRANSACTIONS In connection with its merchant banking activities, the Company has provided financing and made investments in companies, some of which are involved in highly leveraged transactions. Positions taken or commitments made by the Company may involve credit or market risk from any one issuer or industry. At December 31, 1993, the Company had investments in merchant banking transactions which were affected by liquidity, reorganization or restructuring issues of $52.1 million, net of reserves, compared to $61.7 million, net of reserves, at December 31, 1992. Included in the portfolio at December 31, 1993 was an investment of $45.7 million in a limited partnership which specializes in investments in corporate restructurings and special situations. THIRTY-FOUR 8 The Company's trading activities include market-making transactions in high-yield debt securities. At December 31, 1993, the Company held in inventory approximately $155 million of high-yield debt securities with no one issuer accounting for more than 13% of the total amount. These securities generally involve greater risks than investment-grade corporate debt securities, because these issuers usually have high levels of indebtedness and lower credit ratings and are, therefore, more vulnerable to general economic conditions. Historically, the Company's high-yield portfolio has not been material to the Company's financial condition. The Company continually monitors its risk positions associated with high-yield debt securities and establishes limits with respect to overall market exposure, industry group and individual issuer. The Company accounts for these positions at market value, with unrealized gains and losses reflected in revenues. RISK MANAGEMENT The Company monitors its exposure to market and counterparty risk on a daily basis through a variety of financial, security position and credit exposure reporting and control procedures. Each department's trading positions, exposures, profits and losses, and trading strategies are reviewed by the Company's Risk Management Committee. The Risk Management Committee is comprised of senior trading and business managers who meet daily to review the Company's risk profile. Trading position and exposure limits, as well as credit policy, are established by the Asset/Liability Management Committee which generally meets between two and four times a month and is comprised of senior corporate and business unit managers. Credit risk is substantially reduced by the industry practice of obtaining and maintaining adequate collateral until the commitments are settled. In addition, the Company monitors its exposure to counterparty risk on a daily basis through the use of credit exposure information and monitoring of collateral values. The Credit department establishes and reviews credit limits for clients and other counterparties seeking margin, resale and repurchase agreement facilities, securities borrowed and securities loaned arrangements, and various other products. Although the Company closely monitors the creditworthiness of its clients, the debtors' ability to discharge amounts owed is dependent upon, among other things, general market conditions. However, the Company is not materially dependent upon any single client. In addition to the above procedures, the Company has in place committees and management controls to review inventory positions and other asset accounts and agings on a regular basis. INFLATION Because the Company's assets are, to a large extent, liquid in nature, they are not significantly affected by inflation. However, inflation may result in increases in the Company's expenses, such as employee compensation and office space leasing costs, which may not be readily recoverable in the price of services offered. To the extent inflation results in rising interest rates and has other negative effects upon the securities markets, it may adversely affect the Company's financial condition and results of operations. SEGMENT INFORMATION The Company's business activities encompass several classes of highly integrated services, primarily those of a full-line securities broker-dealer, and are considered a single business segment for purposes of Statement of Financial Accounting Standards No. 14. THIRTY-FIVE 9 CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, - ------------------------------------------------------------------------------------------------ (In thousands of dollars except per share amounts) 1993 1992 1991 - ------------------------------------------------------------------------------------------------ REVENUES Commissions $ 996,127 $ 821,878 $ 723,048 Principal transactions 779,444 719,789 649,292 Investment banking 413,643 384,321 297,603 Asset management 325,690 267,088 217,433 Other 113,253 76,114 64,271 Interest 1,376,560 1,094,541 1,214,248 ---------- ---------- ---------- Total revenues 4,004,717 3,363,731 3,165,895 INTEREST EXPENSE 1,130,712 879,242 1,056,124 ---------- ---------- ---------- Net revenues 2,874,005 2,484,489 2,109,771 ---------- ---------- ---------- NON-INTEREST EXPENSES Compensation and benefits 1,628,889 1,432,930 1,228,070 Office and equipment 211,880 192,948 187,985 Communications 123,601 112,255 113,780 Business development 93,962 75,061 67,420 Professional services 66,825 59,820 52,479 Brokerage, clearing and exchange fees 79,752 75,689 63,219 Other expenses 261,520 196,671 170,571 ---------- ---------- ---------- Total non-interest expenses 2,466,429 2,145,374 1,883,524 ---------- ---------- ---------- INCOME BEFORE TAXES 407,576 339,115 226,247 Income taxes 161,393 125,940 75,531 ---------- ---------- ---------- NET INCOME $ 246,183 $ 213,175 $ 150,716 ========== ========== ========== EARNINGS APPLICABLE TO COMMON SHARES $ 244,349 $ 196,110 $ 127,584 ========== ========== ========== EARNINGS PER COMMON SHARE: Primary * $ 3.11 $ 2.83 $ 2.10 Fully Diluted * $ 2.95 $ 2.37 $ 1.67 ---------- ---------- ----------
* Retroactively adjusted to reflect a 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. (See "Subsequent Event" note on page 52.) See Notes to Consolidated Financial Statements. THIRTY-SIX 10 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, - ------------------------------------------------------------------------------------------------ (In thousands of dollars except share and per share amounts) 1993 1992 - ------------------------------------------------------------------------------------------------ ASSETS Cash and cash equivalents $ 241,038 $ 282,990 Cash and securities segregated and on deposit for Federal and other regulations 327,172 476,932 Securities inventory, at market value 14,847,229 8,923,384 Securities borrowed or purchased under agreements to resell 16,190,818 12,647,726 Receivables: Clients 3,417,093 2,789,312 Brokers and dealers 908,468 556,484 Dividends and interest 205,296 159,102 Fees and other 155,289 201,685 Office equipment and leasehold improvements, net of accumulated depreciation and amortization of $209,738 in 1993 and $202,583 in 1992 228,441 161,709 Other assets 506,065 309,658 ----------- ----------- $37,026,909 $26,508,982 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Short-term borrowings $ 2,779,213 $ 1,320,207 Securities sold but not yet purchased, at market value 7,365,877 4,724,043 Securities loaned or sold under agreements to repurchase 19,029,553 14,245,482 Payables: Clients 2,745,209 2,282,717 Brokers and dealers 664,260 623,714 Dividends and interest 265,975 199,208 Other liabilities and accrued expenses 693,947 503,716 Income taxes 62,174 59,235 Accrued compensation and benefits 289,572 319,440 ----------- ----------- 33,895,780 24,277,762 Long-term borrowings 1,936,082 1,150,553 ----------- ----------- 35,831,862 25,428,315 ----------- ----------- Commitments and contingencies Stockholders' Equity Preferred stock, 20,000,000 shares authorized: Cumulative Participating Convertible Voting Preferred Stock, Series A, $19.3333 liquidation value; 7,758,632 shares authorized, issued and outstanding in 1992 -- 150,000 $1.375 Convertible Exchangeable Preferred Stock, $25 liquidation value; 4,000,000 shares authorized; 1,550,395 shares issued and outstanding in 1992 -- 38,760 Common stock, $1 par value, 100,000,000 shares authorized; issued 83,603,262 shares in 1993; 78,518,729 shares in 1992* 83,603 78,519 Additional paid-in capital* 568,487 470,315 Retained earnings 721,115 529,049 ----------- ----------- 1,373,205 1,266,643 Common stock held in treasury, at cost: 6,568,433 shares in 1993; 12,476,834 shares in 1992 * (112,390) (149,462) Unamortized cost of restricted stock (60,980) (30,709) Foreign currency translation adjustment (4,788) (5,805) ----------- ----------- 1,195,047 1,080,667 ----------- ----------- $37,026,909 $26,508,982 =========== ===========
* Retroactively adjusted to reflect a 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. (See "Subsequent Event" note on page 52.) See Notes to Consolidated Financial Statements. THIRTY-SEVEN 11 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
7% Preferred Stock - ------------------------------------------------------------------------------------------------- (In thousands of dollars except share and per share amounts) - ------------------------------------------------------------------------------------------------- Balance at December 31, 1990 $ 300,000 - ------------------------------------------------------------------------------------------------- Three-for-two stock split Stock options exercised, 2,525,609 shares Restricted stock awards, 5,244,741 shares Restricted stock amortization Tax benefit related to employee compensation programs Foreign currency translation Other changes, including the issuance of 168,863 common shares Net income Dividends declared: Common stock, $.24 per share 7% Preferred Stock, $3.115 per share $1.375 Preferred Stock, $1.375 per share - ------------------------------------------------------------------------------------------------- Balance at December 31, 1991 300,000 - ------------------------------------------------------------------------------------------------- Redemption of 1,685,394 shares and conversion of 1,685,394 shares of 7% Preferred Stock into 5,818,977 common shares, which were simultaneously repurchased (150,000) Replacement of 3,370,786 shares of 7% Preferred Stock with 7,758,632 shares of Participating Preferred Stock (150,000) Stock options exercised, 2,155,972 shares Restricted stock awards, 1,925,978 shares Restricted stock amortization Conversion of debentures into 867,546 common shares Tax benefit related to employee compensation programs Adjustment to record minimum pension liability Other changes Common stock repurchases, 2,298,041 shares Foreign currency translation Net income Dividends declared: Common stock, $.31 per share 7% Preferred Stock, $2.336 per share $1.375 Preferred Stock, $1.375 per share Participating Preferred Stock, $.053 per share - ------------------------------------------------------------------------------------------------- Balance at December 31, 1992 0 - ------------------------------------------------------------------------------------------------- Redemption of 2,758,632 shares and conversion of 5,000,000 shares of Participating Preferred Stock into 7,500,000 common shares Redemption or conversion of 1,550,395 shares of $1.375 Preferred Stock, 551,154 common shares issued Stock options exercised, 2,425,546 shares Restricted stock awards, 3,628,205 shares Restricted stock amortization Conversion of debentures into 2,771,672 common shares Tax benefit related to employee compensation programs Adjustment to reverse minimum pension liability Other changes, including the issuance of 152,357 common shares Common stock repurchases, 6,036,000 shares Foreign currency translation Net income Dividends declared: Common stock, $.38 per share $1.375 Preferred Stock, $1.241 per share Participating Preferred Stock, $.33 per share - ------------------------------------------------------------------------------------------------- Balance at December 31, 1993 $ 0 - -------------------------------------------------------------------------------------------------
Common share and per share amounts and the balances for Common Stock and Additional Paid-in Capital have been retroactively adjusted to reflect the three-for-two common stock split in the form of a 50% stock dividend effective March 10, 1994 to stockholders of record on February 17, 1994. (See "Subsequent Event" note on page 52.) THIRTY-EIGHT 12
Unamortized Foreign Participating $1.375 Additional Cost of Currency Preferred Preferred Common Paid-in Retained Treasury Restricted Translation Stock Stock Stock Capital Earnings Stock Stock Adjustment - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- $ 0 $ 38,760 $ 44,790 $ 367,614 $ 239,607 $ (96,238) $ (381) $ 1,764 - -------------------------------------------------------------------------------------------------------------- 22,395 (22,395) 2,526 15,827 5,244 36,325 (41,569) 19,727 2,589 (1,136) 497 1,389 150,716 (14,441) (21,000) (2,132) - -------------------------------------------------------------------------------------------------------------- 0 38,760 74,955 400,457 352,750 (94,849) (22,223) 628 - -------------------------------------------------------------------------------------------------------------- 20,402 (37,622) 150,000 1,638 8,848 6,070 1,926 30,781 (32,707) 24,221 (1,055) 8,955 17,996 (4,635) (2,479) (32,016) (6,433) 213,175 (19,397) (14,933) (2,132) (414) - -------------------------------------------------------------------------------------------------------------- 150,000 38,760 78,519 470,315 529,049 (149,462) (30,709) (5,805) - -------------------------------------------------------------------------------------------------------------- (150,000) 3,247 (22,529) 93,420 (38,760) 551 10,261 (615) 888 (1,195) 19,428 3,628 64,156 (67,784) 37,513 (13,912) 39,162 29,651 4,635 17 1,329 1,689 (116,627) 1,017 246,183 (27,454) (1,833) (1,686) - -------------------------------------------------------------------------------------------------------------- $ 0 $ 0 $ 83,603 $ 568,487 $ 721,115 $(112,390) $ (60,980) $ (4,788) - --------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. THIRTY-NINE 13 CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, - ------------------------------------------------------------------------------------------------ (In thousands of dollars) 1993 1992 1991 - ------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 246,183 $ 213,175 $ 150,716 Adjustments to reconcile net income to cash used for operating activities: Noncash items included in net income: Depreciation and amortization 31,034 29,156 31,848 Deferred income taxes 3,609 (8,129) 15,007 Amortization of deferred charges 90,923 94,241 96,572 Other 83,126 89,398 84,475 (Increase) decrease in operating receivables: Clients (628,297) (722,646) (208,532) Brokers and dealers (351,984) 338,214 (601,312) Dividends and interest (45,449) (20,941) 61 Fees and other 75,898 (54,208) 2,345 Increase (decrease) in operating payables: Clients 462,492 559,723 (328,630) Brokers and dealers 40,546 (254,254) 615,123 Dividends and interest 66,767 34,586 (17,540) Other 102,259 50,612 140,032 (Increase) decrease in: Securities inventory (5,919,229) (1,197,608) (2,179,972) Securities borrowed or purchased under agreements to resell (821,417) (280,973) (2,031,927) Cash and securities on deposit 149,760 (44,964) 170,041 Other assets (274,529) (54,823) (78,122) Increase (decrease) in: Securities sold but not yet purchased 2,641,834 1,186,233 (178,869) Securities loaned or sold under agreements to repurchase 81,063 (354,672) 2,998,653 ----------- ----------- ---------- Cash used for operating activities (3,965,411) (397,880) (1,320,031) ----------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from (payments on): Short-term borrowings 1,459,006 219,908 (332,517) Securities sold under agreements to repurchase, net of securities purchased under agreements to resell 1,981,333 17,987 1,390,532 Proceeds from: Issuance of long-term borrowings 1,126,907 414,149 373,620 Employee stock transactions 21,121 16,556 20,239 Payments for: Settlement of long-term borrowings (316,997) (76,186) (218,802) Repurchases of common stock (116,627) (32,016) -- Preferred stock transactions (104,425) (167,220) -- Repurchase of warrant -- (1,687) -- Dividends (30,973) (36,876) (37,573) ----------- ---------- ---------- Cash provided by financing activities 4,019,345 354,615 1,195,499 ----------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Net payments for: Office equipment and leasehold improvements (95,886) (29,388) (15,419) ----------- ---------- ---------- Cash used for investing activities (95,886) (29,388) (15,419) ----------- ---------- ---------- Decrease in cash and cash equivalents (41,952) (72,653) (139,951) Cash and cash equivalents, beginning of year 282,990 355,643 495,594 ----------- ---------- ---------- Cash and cash equivalents, end of year $ 241,038 $ 282,990 $ 355,643 =========== ========== ==========
See Notes to Consolidated Financial Statements. FORTY 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands of dollars except share and per share amounts) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The consolidated financial statements include the accounts of Paine Webber Group Inc. and its wholly owned subsidiaries, including its principal subsidiary PaineWebber Incorporated ("PWI") (collectively, the "Company"). All material intercompany balances and transactions have been eliminated. Certain reclassifications have been made in prior year amounts to conform to current year presentations. The Company is engaged in one principal line of business, that of serving the investment and capital needs of individual, corporate, institutional and public agency clients. SECURITIES TRANSACTIONS Securities transactions are recorded in the Consolidated Statement of Financial Condition on settlement date. Recording such transactions on a trade date basis would not result in a material difference. Related revenues and expenses are generally recorded in the accounts on trade date. Securities inventory and securities sold but not yet purchased, contracts for financial futures, forwards, options, caps and floors, and interest rate swaps are principally recorded at market values, and unrealized gains and losses are reflected in revenues. Market value is generally based upon quoted market prices. If quoted market prices are not available, or if liquidating the Company's position is reasonably expected to impact market prices, market value is determined based upon other relevant factors, including dealer price quotations, price activity of similar instruments and pricing models. Pricing models consider the time value and volatility factors underlying the financial instruments and other economic measurements. COLLATERALIZED SECURITIES TRANSACTIONS Securities purchased under agreements to resell and securities sold under agreements to repurchase (principally U.S. government and agency securities) are recorded at the amount at which the securities will be resold or reacquired as specified in the respective agreements plus accrued interest. It is Company policy to obtain possession or control of securities purchased under agreements to resell, which have a market value in excess of the original principal amount loaned. The Company monitors the market value of the securities daily. Should the market value of the securities decline below the principal amount loaned, plus accrued interest, additional collateral is requested when deemed appropriate. Securities purchased under agreements to resell and securities sold under agreements to repurchase for which the resale/repurchase date corresponds to the maturity date of the underlying securities, are accounted for as purchases and sales, respectively. Securities borrowed and securities loaned are recorded at the amount of cash collateral advanced or received in connection with the transaction. Securities borrowed transactions require the Company to deposit cash or other collateral with the lender. With respect to securities loaned, the Company receives collateral. The initial collateral advanced or received has a market value equal to or greater than the market value of the securities borrowed or loaned. The Company monitors the market value of the securities borrowed and loaned on a daily basis and requests additional collateral or returns excess collateral, as appropriate. OFFICE EQUIPMENT AND LEASEHOLD IMPROVEMENTS The Company depreciates office equipment on the straight-line method over estimated useful lives of three to ten years. Leasehold improvements are amortized over the lesser of the estimated useful life of the asset or the remaining term of the lease. INCOME TAXES The Company files a consolidated Federal income tax return. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company revised its annual effective tax rate to reflect a change in the federal statutory rate from 34% to 35%, which was retroactive to January 1, 1993. The effect of this change was not material to the Company's financial condition and operating results. TRANSLATION OF FOREIGN CURRENCIES Assets and liabilities denominated in foreign currencies are translated at year-end rates of exchange, and revenues and expenses are translated at average rates of exchange for the year. Gains and losses resulting from translation adjustments are accumulated in a separate component of stockholders' equity. Gains or losses resulting from foreign currency transactions are included in net income. FORTY-ONE 15 CASH FLOWS Cash and cash equivalents are defined for purposes of the Consolidated Statements of Cash Flows as highly liquid investments not held for resale, with a maturity of three months or less when purchased. Total interest payments for the years ended December 31, 1993, 1992 and 1991 were $1,063,945, $844,656 and $1,073,663, respectively. COMMON SHARE DATA Common share, per share and stock option data for all periods presented have been retroactively adjusted throughout the financial statements to reflect a three-for-two stock split in the form of a 50% stock dividend effective March 10, 1994 to stockholders of record on February 17, 1994. (See "Subsequent Event" note on page 52.) FAIR VALUE OF FINANCIAL INSTRUMENTS Substantially all of the Company's financial instruments are carried at fair value or amounts approximating fair value. Assets, including cash and cash equivalents, cash and securities segregated for regulatory purposes, securities inventory, securities borrowed or purchased under agreements to resell, and certain receivables are carried at fair value or contracted amounts which approximate fair value. Similarly, liabilities including short-term borrowings, securities sold but not yet purchased, securities loaned or sold under agreements to repurchase, and payables are carried at amounts approximating fair value. The estimated fair value of the Company's long-term borrowings at December 31, 1993, based upon quoted market prices and pricing models, exceeded the carrying value by approximately $81,552. However, for substantially all its fixed rate debt, the Company enters into interest rate swap agreements to convert its fixed rate payments into floating rate payments. The unrecognized gains on the swap agreements hedging the Company's long-term borrowings partially offsets the effect of changes in interest rates on the fair value of the Company's long-term borrowings. SECURITIES INVENTORY Securities inventory and securities sold but not yet purchased, which consist of the Company's trading accounts, are recorded at market value and are comprised of:
December 31, - ------------------------------------------------------------------------------------------------ 1993 1992 - ------------------------------------------------------------------------------------------------ SECURITIES INVENTORY U.S. government and agency obligations $ 8,453,431 $6,162,692 First mortgage notes held for resale 3,125,445 636,544 State and municipal obligations 719,008 505,283 Commercial paper and other short-term debt 652,636 717,428 Corporate debt securities 864,293 478,809 Corporate equity securities 1,032,416 422,628 ----------- ---------- $14,847,229 $8,923,384 =========== ========== SECURITIES SOLD BUT NOT YET PURCHASED U.S. government and agency obligations $6,395,861 $4,192,183 State and municipal obligations 25,653 14,672 Corporate debt securities 177,611 163,237 Corporate equity securities 766,752 353,951 ---------- ---------- $7,365,877 $4,724,043 ========== ==========
Securities sold but not yet purchased commit the Company to deliver specified securities at predetermined prices. To satisfy the obligation, the Company must acquire the securities at market prices, which may differ from the values reflected on the Consolidated Statement of Financial Condition. FORTY-TWO 16 SHORT-TERM BORROWINGS The Company meets its short-term financing needs by obtaining bank loans on either a secured or unsecured basis; by issuing commercial paper and medium-term notes; by entering into repurchase agreements, whereby securities are sold with a commitment to repurchase at a future date; and through securities lending activity. Included in short-term borrowings at December 31, 1993 and 1992 were:
- ------------------------------------------------------------------------------------------------ 1993 1992 - ------------------------------------------------------------------------------------------------ Bank loans $1,670,730 $ 832,944 Commercial paper 1,083,483 351,263 Medium-Term Notes 25,000 136,000 ---------- ---------- $2,779,213 $1,320,207 ========== ==========
Bank loans generally bear interest at rates based on either the Federal Funds rate or LIBOR. The weighted average interest rates on bank loans outstanding at December 31, 1993 and 1992 were 3.60% and 3.26%, respectively, and the weighted average interest rates during 1993 and 1992 were 3.80% and 3.85%, respectively. The interest rate on commercial paper fluctuates throughout the year. The weighted average interest rates on commercial paper borrowings outstanding at December 31, 1993 and 1992 were 3.57% and 4.02%, respectively, and during the years ended 1993 and 1992 were 3.36% and 4.09%, respectively. The Company has a Multiple Currency Medium-Term Note Program (the "Program") under the terms of which the Company may offer for sale medium-term senior and subordinated notes (collectively, the "Medium-Term Notes") due from nine months to thirty years from date of issuance. The Medium-Term Notes may be either fixed or variable with respect to interest rates. As of December 31, 1993, the Company had $25,000 of Medium-Term Notes outstanding with maturities of nine months to one year from the date of issuance. At December 31, 1993, the Company had committed and available revolving credit facilities with two groups of banks aggregating $500,000, of which $275,000 expires in May 1994 with provisions for renewal through November 1996, and $225,000 expires in March 1995. Interest on borrowings under the terms of the agreements is computed, at the option of the Company, at a rate based on LIBOR or an alternate rate, based on the higher of a base rate or the Federal Funds rate. The Company pays a fee on the commitments. LONG-TERM BORROWINGS Long-term borrowings at December 31, 1993 and 1992 consisted of the following:
- ------------------------------------------------------------------------------------------------ 1993 1992 - ------------------------------------------------------------------------------------------------ Fixed Rate Notes Due 1995 - 2005 $ 998,156 $ 296,000 Fixed Rate Subordinated Notes Due 1996 and 2002 174,236 233,747 Medium-Term Senior Notes 331,975 122,550 Medium-Term Subordinated Notes 298,650 248,000 Subordinated Floating Rate Notes Due 1993 -- 125,000 Bank Term Loans 70,000 70,000 Convertible Debentures 15,435 39,100 Other 47,630 16,156 ---------- ---------- $1,936,082 $1,150,553 ========== ==========
FORTY-THREE 17 During 1993, the Company issued, in four separate offerings, fixed rate notes in an aggregate principal amount of $700,000 due 1998 through 2005 with interest rates ranging from 6 1/4% to 7 7/8%. Interest rates on the remaining fixed rate notes outstanding at December 31, 1993 range from 9 1/4% to 9 5/8%. Interest on the Notes is payable semi-annually. During 1993, the Company redeemed $75,000 of its 9 3/8% Subordinated Notes Due 1996 which constituted the entire outstanding issue. The Fixed Rate Subordinated Notes Due 2002 have an interest rate of 7 3/4%. Interest on the Subordinated Notes is payable semi-annually. As of December 31, 1993, the Company had $630,625 of Medium-Term Senior and Subordinated Notes outstanding. The Medium-Term Notes mature one year to thirty years from the date of issuance with an average maturity of 3.5 years. As of December 31, 1993, the weighted average interest rate on the Medium-Term Notes was 6.10%. The Company has entered into interest rate swap agreements which effectively convert substantially all its fixed rate notes and various Medium-Term Notes into floating rate obligations. The floating interest rates are based on LIBOR and adjust semi-annually. The Company has entered into three term loan agreements with two banks in an amount totaling $70,000. The loans mature in 1994 and bear interest at rates based upon LIBOR. Pursuant to an employee benefit plan, the Company has issued 8% Convertible Debentures (the "8% Debentures") due December 1998 and 2000, and 6.5% Convertible Debentures (the "6.5% Debentures") due December 2002 (collectively referred to as "the Debentures"). The Debentures are shown net of receivables, representing loans by the Company to employees to finance a portion of the Debentures. A portion of the principal amount of the employee loans may be forgiven at the end of a calendar year in which certain specified pre-tax earnings are achieved by the Company. The 8% Debentures are fully convertible, at the option of the holders, into 514,000 shares of 7.5% Convertible Preferred Stock, which are then convertible into 1,405,552 shares of common stock. The 6.5% Debentures are convertible, at the option of the holders, into 2,068,000 shares of 6.0% Convertible Preferred Stock, which are then convertible into 3,505,084 shares of common stock. The 6.5% Debentures are convertible, on a cumulative basis, one-third annually beginning on December 31, 1993. The Debentures are redeemable at the employees' option, subject to certain conditions through 1998. The aggregate amount of principal repayment requirements on long-term borrowings for each of the five years subsequent to December 31, 1993, and the total amounts due thereafter are:
- ------------------------------------------------------------------------------------------------ 1994 $ 238,845 1995 250,000 1996 57,200 1997 116,750 1998 246,508 Thereafter 1,026,779 ---------- $1,936,082 ==========
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF CREDIT RISK MARKET RISK In the normal course of business, the Company enters into transactions in a variety of financial instruments as part of the Company's market risk management, trading and financing activities, and to facilitate client transactions. These financial instruments include forward and futures contracts, option contracts, interest rate swaps and other contracts committing the Company to purchase or deliver other instruments at specified future dates and prices, or to make or receive payments based on notional amounts and specified rates or indices. FORTY-FOUR 18 These financial instruments involve varying degrees of off-balance-sheet market risk. Market risk is the potential change in value of the financial instrument caused by unfavorable changes in interest rates, foreign currency exchange rates or the market values of the securities underlying the instruments. The Company monitors its exposure to market risk through a variety of control procedures, including review of trading positions and hedging strategies, and establishing limits by the Risk Management Committee. These contracts are valued at market, and unrealized gains and losses are reflected in the financial statements. The gross contract or notional amounts of the financial instruments which are not reflected in the Consolidated Statement of Financial Condition, are set forth in the table below and provide only a measure of the Company's involvement in these contracts at December 31, 1993 and 1992. They do not represent amounts subject to market risks and, in many cases, serve to reduce the Company's overall exposure to market and other risks.
December 31, - ------------------------------------------------------------------------------------------------ 1993 1992 - ------------------------------------------------------------------------------------------------ Mortgage-backed securities, forward contracts and options written $54,803,708 $33,484,372 Foreign exchange forward contracts, futures contracts and options written 2,819,063 1,180,818 Securities contracts including futures, forwards and options written 7,832,106 5,612,747 Interest rate swaps, caps and floors 408,583 500,475
In addition to forwards, futures, options and swap contracts, the Company enters into agreements to sell securities, at predetermined prices, which have not yet been purchased. To satisfy the obligation, the Company must acquire the securities at market prices, which may exceed the values reflected on the Consolidated Statement of Financial Condition. CREDIT RISK IN PROPRIETARY AND CLIENT TRANSACTIONS Counterparties to the Company's proprietary trading, hedging, financing and arbitrage activities are primarily financial institutions including brokers and dealers, banks and institutional clients. Credit losses could arise should counterparties fail to perform and the value of any collateral obtained proves inadequate. The Company manages credit risk by monitoring net exposure to individual counterparties on a daily basis, monitoring credit limits and requiring additional collateral where appropriate. The Company's risk of loss in the event of counterparty default is typically limited to the cost of replacing all contracts on which the Company has recorded an unrealized gain or for purchased options, the net realizable value. With respect to forward contracts and interest rate swaps, caps and floors, the unrealized gain amounted to $131,962 at December 31, 1993. The net realizable value of options purchased amounted to $128,918 at December 31, 1993. Transactions in futures contracts are conducted through regulated exchanges which guarantee performance of counterparties and are settled in cash on a daily basis, thereby, minimizing credit risk. Receivables and payables with brokers and dealers, and agreements to resell and repurchase securities are generally collateralized by cash, government and government-agency securities, and letters of credit. The market value of the initial collateral received is, at a minimum, equal to the contract value. Additional collateral is requested when considered necessary. Client transactions are entered on either a cash or margin basis. In a margin transaction, the Company extends credit to a client for the purchase of securities, using the securities purchased and/or other securities in the client's account as collateral for amounts loaned. Amounts loaned are limited by margin regulations of the Federal Reserve Board and other regulatory authorities and are subject to the Company's credit review and daily monitoring procedures. Market declines could, however, reduce the value of any collateral below the principal amount loaned, plus accrued interest, before the collateral can be sold. Client transactions include positions in commodities and financial futures, securities sold but not yet purchased and written options. The risk to the Company's clients in these transactions can be substantial, principally due to price volatility which can reduce the clients' ability to meet their obligations. Margin deposit requirements pertaining to commodity futures and options transactions are generally lower than FORTY-FIVE 19 those for exchange traded securities. To the extent clients are unable to meet their commitments to the Company and margin deposits are insufficient to cover outstanding liabilities, the Company may take market action and credit losses could be realized. Trades are recorded on a settlement date basis. Should either the client or broker fail to perform, the Company may be required to complete the transaction at prevailing market prices. Trades pending at December 31, 1993 were settled without adverse effect on the Company's financial statements, taken as a whole. The Company may pledge clients' securities as collateral in support of securities loaned, bank loans or to satisfy margin requirements at clearing organizations. The amounts loaned or pledged are limited to the extent permitted by applicable margin regulations. Should the counterparty fail to return the clients' securities, the Company may be required to replace them at prevailing market prices. At December 31, 1993, the market value of client securities loaned to other brokers approximated the amounts due or collateral obtained. CONCENTRATIONS OF CREDIT RISK As a major securities firm, the Company's activities are executed primarily with and on behalf of other financial institutions, including brokers and dealers, banks and other institutional clients. Concentrations of credit risk can be affected by changes in economic, industry or geographic factors. The Company seeks to control its credit risk and the potential for risk concentration through a variety of reporting and control procedures described in the preceding discussion of credit risk. COMMITMENTS AND CONTINGENCIES LEASES The Company leases office space, equipment and leasehold improvements under noncancelable lease agreements which expire at various dates through 2014. As of December 31, 1993, the aggregate minimum rental payments required by operating leases with initial or remaining lease terms exceeding one year are as follows:
- -------------------------------------------------------------------- 1994 $125,256 1995 118,540 1996 101,931 1997 90,362 1998 80,836 Thereafter 427,724 -------- $944,649 ========
Rentals are subject to periodic escalation charges and do not include amounts payable for insurance, taxes and maintenance. In addition, minimum payments have not been reduced by future sublease rental income of $33,600. For the years ended December 31, 1993, 1992 and 1991, the Company had rent expense under operating leases of $143,120, $130,516 and $123,508, respectively. OTHER COMMITMENTS AND CONTINGENCIES The Company is contingently liable as a guarantor of certain partnerships' obligations for $25,378. In addition, certain of the Company's subsidiaries are contingently liable as issuer of $89,410 of notes payable to managing general partners of various limited partnerships pursuant to Internal Revenue Service guidelines. In the opinion of management, these contingencies will have no material adverse effect on the Company's financial statements, taken as a whole. The Company has conditional commitments of $28,823 to contribute capital to investment partnerships. The Company has been named as defendant in numerous legal actions in the ordinary course of business. While the outcome of such matters cannot be predicted with certainty, in the opinion of management of the Company, after consultation with various counsel handling such matters, these actions will be resolved with no material adverse effect on the Company's financial statements, taken as a whole. FORTY-SIX 20 As of December 31, 1993, securities with a market value of $448,280 had been loaned or pledged as collateral for securities borrowed of approximately equal market value. As of December 31, 1993, the Company was contingently liable under unsecured letter of credit agreements of $344,662. STOCKHOLDERS' EQUITY PREFERRED STOCK The Company completed three transactions during 1993 that eliminated both the Cumulative Participating Convertible Voting Preferred Stock, Series A ("Participating Preferred Stock") and the $1.375 Convertible Exchangeable Preferred Stock ("$1.375 Preferred Stock"). On April 1, 1993, The Yasuda Mutual Life Insurance Company ("Yasuda") converted $96,667, or 5,000,000 shares, of the Company's Participating Preferred Stock into 7,500,000 shares (5,000,000 shares pre-split) of the Company's common stock at a conversion price of $12.89 per share ($19.3333 pre-split). On August 5, 1993, the Company repurchased $53,333, or 2,758,632 shares, of Participating Preferred Stock from Yasuda for $75,862, or $27.50 per share. As a result of these transactions, all outstanding shares of the Participating Preferred Stock were repurchased and retired. On October 13, 1993, the Company called for the redemption on November 8, 1993 of the entire outstanding issue of its $1.375 Preferred Stock. Holders of the $1.375 Preferred Stock were entitled to convert the Preferred Stock into common stock prior to the redemption date. The majority of the shares of $1.375 Preferred Stock were remitted for redemption at a redemption price of $25.76, which included accrued dividends. As a result of this transaction, all outstanding shares of this issue of Preferred Stock were retired. COMMON STOCK In accordance with the repurchase programs, as authorized by the Board of Directors, the Company had available to repurchase, at December 31, 1993, a maximum of 11,474,703 shares of common stock. As of December 31, 1993, the Company had 14,610,847 authorized shares of common stock reserved for issuance in connection with stock option and stock award plans. CAPITAL REQUIREMENTS PWI is subject to the Securities and Exchange Commission ("SEC") Uniform Net Capital Rule and New York Stock Exchange ("NYSE") Growth and Business Reduction capital requirements. Under the method of computing capital requirements adopted by PWI, minimum net capital shall not be less than 2% of combined aggregate debit items arising from client transactions, plus excess margin collected on securities purchased under agreements to resell, as defined. A reduction of business is required if net capital is less than 4% of such aggregate debit items. Business may not be expanded if net capital is less than 5% of such aggregate debit items. As of December 31, 1993, PWI's net capital of $545,477 was 16% of aggregate debit balances and its net capital in excess of the minimum required was $474,812. Advances, dividend payments and other equity withdrawals by PWI and other regulated subsidiaries are restricted by the regulations of the SEC, NYSE, and international securities and banking agencies, as well as by covenants in various loan agreements. At December 31, 1993, the equity of the Company's subsidiaries totalled approximately $1,355,000. Of this amount, approximately $409,088 was not available for payment of cash dividends and advances. Under the terms of certain borrowing agreements, the Company is subject to dividend payment restrictions and minimum net worth and net capital requirements. At December 31, 1993, these restrictions did not effect the Company's ability to pay dividends. STOCK OPTIONS AND STOCK AWARDS Under the Company's various Stock Option and Award Plans ("the Plans"), officers and other key employees are granted options (both non-qualified stock options and incentive stock options) to purchase shares of common stock at a price not less than the fair market value of the stock on the date the option is granted. Options for the Company's common stock have also been granted to key employees through limited partnership participations. The rights generally expire within ten years after the date of grant. FORTY-SEVEN 21 Options granted in 1991, 1992 or 1993 are exercisable as follows: at the date of grant; 50% or 33% annually, on a cumulative basis; or fully exercisable on the third or fourth anniversary from the date of grant. Activity during the years ended December 31, 1991, 1992 and 1993 follows:
Number Option price of shares per share - ------------------------------------------------------------------------------------------------ Options outstanding at December 31, 1990 (7,314,292 exercisable) 11,032,404 $ 6.55 - 16.27 Granted 3,584,967 9.11 - 11.11 Exercised (2,525,609) 6.55 - 12.20 Terminated (604,443) 6.55 - 16.27 ---------- ------------- Options outstanding at December 31, 1991 (6,036,513 exercisable) 11,487,319 6.55 - 16.27 Granted 982,974 14.13 - 16.00 Exercised (2,155,972) 6.55 - 11.25 Terminated (318,017) 6.64 - 16.00 ---------- ------------- Options outstanding at December 31, 1992 (4,501,062 exercisable) 9,996,304 6.55 - 16.27 Granted 5,244,957 14.75 - 20.42 Exercised (2,425,546) 6.55 - 19.47 Terminated (534,760) 7.22 - 19.47 ---------- ------------- Options outstanding at December 31, 1993 (2,776,678 exercisable) 12,280,955 $ 6.55 - 20.42 ========== =============
The Plans provide for the granting of cash and restricted stock awards, stock appreciation rights, restricted stock units, stock purchase rights and performance units. The Company had no stock appreciation rights or stock purchase rights outstanding at December 31, 1993. Restricted stock awards are granted to key employees whereby shares of the Company's common stock are awarded in the name of the employee, who has all rights of a stockholder, subject to certain restrictions. The awards generally contain restrictions ranging from one to three years. The restricted stock awards are subject to forfeiture if the employee terminates prior to the prescribed restriction period. During the calendar years ended December 31, 1993, 1992 and 1991, the Company awarded 3,628,205, 1,925,978 and 5,244,741 shares, respectively, of restricted stock. The market value of the restricted shares awarded has been recorded as unamortized cost of restricted stock awards and is shown as a separate component of stockholders' equity. The unamortized cost of restricted stock is being amortized over the restriction period. The charge to compensation expense amounted to $37,513, $24,221 and $19,727 in the years ended December 31, 1993, 1992 and 1991, respectively. At December 31, 1993 and 1992, there were 2,329,992 and 228,912 shares, respectively, available for future stock option and restricted stock awards under these Plans. EMPLOYEE BENEFIT PLANS PENSION PLAN The Company has a non-contributory defined benefit pension plan (the "Plan"), which provides benefits to eligible employees. Pension expense for 1993, 1992 and 1991 for the Plan included the following components:
- ------------------------------------------------------------------------------------------------ 1993 1992 1991 - ------------------------------------------------------------------------------------------------ Service cost-benefits earned during the period $ 9,906 $ 8,792 $ 7,676 Interest cost on projected benefit obligation 14,017 12,495 11,088 Actual return on Plan assets (20,203) (9,389) (13,593) Net amortization and deferral 9,247 (739) 6,982 -------- -------- --------- Net periodic pension cost $ 12,967 $ 11,159 $ 12,153 ======== ======== ========
FORTY-EIGHT 22 The following table summarizes the funded status and the (prepaid pension cost) pension liability included in the Company's Consolidated Statements of Financial Condition at December 31, 1993 and 1992:
- ------------------------------------------------------------------------------------------------ 1993 1992 - ------------------------------------------------------------------------------------------------ Actuarial present value of benefit obligations: Vested $192,910 $140,109 Non-vested 5,045 7,633 -------- -------- Accumulated benefit obligation 197,955 147,742 Effect of projected future compensation levels 11,087 7,140 -------- -------- Projected benefit obligation 209,042 154,882 Estimated market value of Plan assets 219,258 129,783 -------- -------- Projected benefit obligation (less than) in excess of Plan assets (10,216) 25,099 Unrecognized net assets existing at January 1, 1987 being recognized over fifteen years 7,045 7,885 Unrecognized prior service cost (9,892) (15,176) Unrecognized net loss and actuarial experience (59,878) (22,383) Adjustment required to recognize minimum liability -- 22,534 -------- -------- (Prepaid pension cost) pension liability at year-end $(72,941) $ 17,959 ======== ========
The projected benefit obligation for the Plan was determined, for 1993 and 1992, using an assumed discount rate of 7 3/4% and 9 1/4%, respectively, and an assumed rate of compensation increase of 5%. The weighted average assumed rate of return on Plan assets was 9 1/2% for 1993 and 11% for 1992 and 1991. The Company's funding policy is to contribute to the Plan amounts that can be deducted for Federal income tax purposes. The Company's contributions paid for the Plan years 1993, 1992 and 1991 were $60,899, $33,322 and $21,082, respectively. Plan assets consist primarily of equity securities and U.S. government and agency obligations. SAVINGS INVESTMENT PLAN The PaineWebber Savings Investment Plan ("SIP") is a defined contribution plan for eligible employees of the Company. Under SIP, employee contributions are matched by the Company on a graduated scale, which is based, in part, on the Company's pre-tax return on equity and the compensation of eligible employees. The provision for Company contributions for amounts contributed or to be contributed in cash or stock to SIP amounted to approximately $3,400, $3,000 and $900 for the years ended December 31, 1993, 1992 and 1991, respectively. OTHER BENEFIT PLANS The Company also provides certain life insurance and health care benefits to employees. The costs of such benefits for the years ended December 31, 1993, 1992 and 1991 were $45,800, $41,000 and $36,400, respectively. FORTY-NINE 23 INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. For financial reporting purposes, deferred tax assets are reflected without reduction for a valuation allowance. Significant components of the Company's deferred tax assets and liabilities as of December 31, 1993 and 1992 are as follows:
- ---------------------------------------------------------------------------------- 1993 1992 - ---------------------------------------------------------------------------------- DEFERRED TAX ASSETS: Employee benefits $ 57,489 $ 66,691 Accrued liabilities 30,735 28,167 Valuation of securities inventory 6,857 -- -------- -------- Total deferred tax assets 95,081 94,858 -------- -------- DEFERRED TAX LIABILITIES: Tax over book depreciation 13,087 14,689 Accelerated deductions 24,608 13,944 Safe harbor leases 6,625 7,047 Other 12,674 16,395 Valuation of securities inventory -- 1,087 -------- -------- Total deferred tax liabilities 56,994 53,162 -------- -------- Net deferred tax assets $ 38,087 $ 41,696 ======== ========
For financial reporting purposes, income before taxes includes the following components:
- ------------------------------------------------------------------------------------------------ 1993 1992 1991 - ------------------------------------------------------------------------------------------------ Pre-tax income: United States $359,042 $297,844 $203,328 Foreign 48,534 41,271 22,919 -------- -------- -------- $407,576 $339,115 $226,247 ======== ======== ========
Significant components of the provision for income taxes are as follows:
Deferred Liability Method Method - ------------------------------------------------------------------------------------------------ 1993 1992 1991 - ------------------------------------------------------------------------------------------------ Current: Federal $103,890 $ 89,510 $ 38,481 State 35,403 30,386 15,420 Foreign 18,491 14,173 6,623 -------- -------- -------- Total current $157,784 $134,069 $ 60,524 ======== ======== ======== Deferred: Federal $ 7,935 $ (6,605) $ 15,007 State (737) (1,524) -- Foreign (3,589) -- -- -------- -------- -------- Total deferred $ 3,609 $ (8,129) $ 15,007 ======== ======== ========
FIFTY 24 The components of the provision for deferred income taxes for the year ended December 31, 1991 are as follows:
- --------------------------------------------------------------------------------- 1991 - --------------------------------------------------------------------------------- Valuation of securities inventory $ 25,566 Certain receivables and payables (8,549) Employee benefits (2,251) Depreciation (1,411) Safe harbor leases 112 Other, net 1,540 --------- $ 15,007 =========
The reconciliations of income tax, computed at the U.S. federal statutory tax rates to income tax expense, are as follows:
Liability Method Deferred Method - -------------------------------------------------------------------------------------------------- 1993 1992 1991 - -------------------------------------------------------------------------------------------------- Amount % Amount % Amount % ------------------ ------------------ ----------------- Tax at U.S. statutory rates $ 142,652 35.0% $ 115,299 34.0% $ 76,924 34.0% State, local and foreign income taxes, net of federal tax benefit 22,533 5.5 18,922 5.6 10,304 4.6 Foreign rate differential (4,636) (1.1) (2,220) (0.7) (1,372) (0.6) Nontaxable dividends and interest (2,383) (0.6) (2,599) (0.8) (7,506) (3.3) Other, net 3,227 0.8 (3,462) (1.0) (2,819) (1.3) --------- ---- --------- ---- -------- ---- $ 161,393 39.6% $ 125,940 37.1% $ 75,531 33.4% ========= ==== ========= ==== ======== ====
Income taxes paid for the years ended December 31, 1993, 1992 and 1991 were $128,089, $96,941 and $26,983, respectively. The Company revised its annual effective tax rate to reflect a change in the federal statutory rate from 34% to 35%, which was retroactive to January 1, 1993. EARNINGS PER COMMON SHARE Primary earnings per common share are computed based on the weighted average number of common and common equivalent shares outstanding. Common equivalent shares include the dilutive effect of shares issuable under the Company's stock option and award plans and the assumed conversion of the Company's Participating Preferred Stock which was issued during 1992. The 6.5% Debentures issued during 1992 did not have a dilutive effect on primary or fully diluted earnings per common share and therefore were excluded from the computations. For the years ended December 31, 1993, 1992 and 1991, net income was reduced by the preferred stock dividend on the $1.375 Preferred Stock. For the years ended December 31, 1992 and 1991, net income was further reduced by the preferred stock dividend requirements on the 7% Cumulative Convertible Exchangeable Voting Preferred Stock, Series A ("7% Preferred Stock") in computing primary earnings per common share. Fully diluted earnings per common share for the years ended December 31, 1993, 1992 and 1991, in addition to the above, assumes the conversion of the $1.375 Preferred Stock and the 8% Debentures. Fully diluted earnings per common share for 1992 and 1991 also include the dilutive effect of the 7% Preferred Stock. Net income used in computing fully diluted earnings per common share for the years ended December 31, 1993, 1992 and 1991 was adjusted for the interest savings, net of taxes, on the 8% Debentures. FIFTY-ONE 25 The Company had the following weighted average number of common and dilutive common equivalent shares outstanding:
Years Ended December 31, - ------------------------------------------------------------------------------------------------ 1993 1992 1991 - ------------------------------------------------------------------------------------------------ Primary: Weighted average common shares outstanding 68,535,178 61,956,106 56,542,322 Weighted average effect of stock options and awards 5,824,821 5,611,289 4,203,352 Weighted average effect of Participating Preferred Stock 4,329,959 1,812,468 -- ---------- ---------- ---------- Weighted average common and common equivalent shares 78,689,958 69,379,863 60,745,674 ========== ========== ========== Fully Diluted: Weighted average common shares outstanding 68,535,178 61,956,106 56,542,322 Weighted average effect of stock options and awards 6,785,963 6,710,424 8,229,031 Weighted average effect of Participating Preferred Stock 4,329,959 1,812,468 -- Weighted average common shares issuable assuming conversion of 8% Debentures and equity securities 4,676,191 21,886,440 30,406,822 ---------- ---------- ---------- Weighted average common and common equivalent shares 84,327,291 92,365,438 95,178,175 ========== ========== ==========
The preferred stock transactions during 1993, which have been described in the Stockholders' Equity note on page 47, have resulted in a change in the weighted average common and common equivalent shares used for the computation of earnings per share. Pro forma earnings per common share, giving effect to these preferred stock transactions at the beginning of 1993, were $3.31 primary and $3.18 fully diluted for the year ended December 31, 1993. SUBSEQUENT EVENT On February 3, 1994, the Board of Directors of the Company declared a three-for-two common stock split in the form of a 50% stock dividend, effective on March 10, 1994 to stockholders of record on February 17, 1994. All per common share and share amounts have been retroactively adjusted throughout the consolidated financial statements and the notes thereto, for all periods presented. On February 3, 1994, the Board of Directors also declared a 20% increase in the common stock dividend to $.12 per share from $.10 per share, payable on April 18, 1994 to stockholders of record on March 28, 1994. FIFTY-TWO 26 REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS The Board of Directors and Stockholders Paine Webber Group Inc. We have audited the accompanying consolidated statements of financial condition of Paine Webber Group Inc. as of December 31, 1993 and 1992 and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Paine Webber Group Inc. at December 31, 1993 and 1992 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG --------------------- ERNST & YOUNG New York, New York January 24, 1994 Except for the note as to the subsequent event, for which the date is February 3, 1994 FIFTY-THREE 27 FIVE YEAR FINANCIAL SUMMARY (In thousands of dollars except share and per share amounts)
Years Ended December 31, - ---------------------------------------------------------------------------------------------------------------------- 1993 1992 1991 1990 1989 - ---------------------------------------------------------------------------------------------------------------------- Amount % Amount % Amount % Amount % Amount % ---------------- --------------- ---------------- ---------------- ----------------- REVENUES COMMISSIONS Listed securities $ 525,541 18.3 $ 434,957 17.5 $ 390,434 18.5 $ 344,579 19.8 $ 374,993 21.7 Mutual funds 161,661 5.6 127,425 5.1 104,087 4.9 67,157 3.9 66,260 3.8 Options 74,058 2.6 65,615 2.6 47,092 2.2 46,372 2.7 49,694 2.9 Direct investments 4,553 0.2 15,288 0.6 24,937 1.2 39,326 2.3 52,273 3.0 Commodities 55,374 1.9 71,900 2.9 67,463 3.2 71,006 4.1 52,855 3.1 Over-the-counter securities 77,471 2.7 53,874 2.2 42,250 2.0 28,626 1.6 36,699 2.1 Insurance 97,469 3.4 52,819 2.2 46,785 2.2 55,172 3.2 44,662 2.6 ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- 996,127 34.7 821,878 33.1 723,048 34.2 652,238 37.6 677,436 39.2 ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- PRINCIPAL TRANSACTIONS Corporate securities 345,360 12.0 293,422 11.8 365,815 17.4 240,122 13.8 239,266 13.9 U.S. government and agency obligations 321,514 11.2 331,071 13.3 205,565 9.7 158,077 9.1 86,009 5.0 Municipal obligations 112,570 3.9 95,296 3.8 77,912 3.7 69,759 4.0 61,003 3.5 ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- 779,444 27.1 719,789 28.9 649,292 30.8 467,958 26.9 386,278 22.4 ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- INVESTMENT BANKING Selling concessions and underwriting fees: Corporate securities 223,745 7.8 217,180 8.8 160,950 7.6 101,540 5.9 83,994 4.9 Municipal obligations 55,573 1.9 40,705 1.6 30,288 1.4 28,849 1.7 24,619 1.4 Underwriting management fees: Corporate securities 70,510 2.4 51,394 2.1 37,485 1.8 25,091 1.4 20,872 1.2 Municipal obligations 13,303 0.5 9,385 0.4 6,033 0.3 6,965 0.4 7,275 0.4 Private placement and other fees 50,512 1.8 65,657 2.6 62,847 3.0 72,995 4.2 122,860 7.1 ---------- ----- --------- ------ ---------- ----- --------- ----- ---------- ----- 413,643 14.4 384,321 15.5 297,603 14.1 235,440 13.6 259,620 15.0 ---------- ----- --------- ------ ---------- ----- --------- ----- ---------- ----- ASSET MANAGEMENT 325,690 11.3 267,088 10.8 217,433 10.3 181,324 10.4 158,953 9.2 ---------- ----- --------- ------ ---------- ----- --------- ----- ---------- ----- OTHER 113,253 3.9 76,114 3.1 64,271 3.1 47,038 2.7 32,574 1.9 ---------- ----- --------- ----- ---------- ----- --------- ----- ---------- ----- INTEREST Resale agreements 419,520 14.6 382,766 15.4 457,507 21.7 673,742 38.8 652,065 37.8 Securities inventory 621,828 21.6 463,956 18.7 443,114 21.0 369,265 21.3 345,639 20.0 Client margin accounts 158,440 5.5 132,388 5.3 133,711 6.4 160,151 9.2 181,529 10.5 Other 176,772 6.2 115,431 4.6 179,916 8.5 191,349 11.0 231,715 13.4 ---------- ----- ---------- ----- ---------- ----- --------- ----- ---------- ----- 1,376,560 47.9 1,094,541 44.0 1,214,248 57.6 1,394,507 80.3 1,410,948 81.7 ---------- ----- ---------- ----- ---------- ----- --------- ----- ---------- ----- TOTAL REVENUES 4,004,717 139.3 3,363,731 135.4 3,165,895 150.1 2,978,505 171.5 2,925,809 169.4 INTEREST EXPENSE 1,130,712 (39.3) 879,242 (35.4) 1,056,124 (50.1) 1,242,151 (71.5) 1,198,640 (69.4) ---------- ----- ---------- ----- ---------- ----- --------- ----- ---------- ----- NET REVENUES $2,874,005 100.0 $2,484,489 100.0 $2,109,771 100.0 $1,736,354 100.0 $1,727,169 100.0 ========== ===== ========== ===== ========== ===== ========== ===== ========== =====
FIFTY-FOUR 28 FIVE YEAR FINANCIAL SUMMARY (In thousands of dollars except share and per share amounts)
Years Ended December 31, - --------------------------------------------------------------------------------------------------------------------------- 1993 1992 1991 1990 1989 - --------------------------------------------------------------------------------------------------------------------------- Amount % Amount % Amount % Amount % Amount % ---------------- ---------------- ---------------- ----------------- ------------------ NON-INTEREST EXPENSES Compensation and benefits $1,628,889 56.7 $1,432,930 57.7 $1,228,070 58.2 $1,032,475 59.5 $1,033,358 59.8 Office and equipment 211,880 7.4 192,948 7.8 187,985 8.9 185,309 10.7 176,305 10.2 Communications 123,601 4.3 112,255 4.5 113,780 5.4 121,484 7.0 114,418 6.6 Business development 93,962 3.3 75,061 3.0 67,420 3.2 66,567 3.8 58,271 3.4 Professional services 66,825 2.2 59,820 2.4 52,479 2.5 62,784 3.6 66,568 3.8 Brokerage, clearing and exchange fees 79,752 2.8 75,689 3.1 63,219 3.0 63,316 3.6 52,869 3.1 Other expenses 261,520 9.1 196,671 7.9 170,571 8.1 157,924 9.1 142,812 8.3 Restructuring and merchant banking reserves -- -- -- -- -- -- 149,128 8.6 -- -- ---------- ---- --------- ---- --------- ---- --------- ----- ---------- ---- TOTAL NON-INTEREST EXPENSES 2,466,429 85.8 2,145,374 86.4 1,883,524 89.3 1,838,987 105.9 1,644,601 95.2 ---------- ---- ---------- ---- ---------- ---- --------- ----- ---------- ---- INCOME (LOSS) BEFORE TAXES 407,576 14.2 339,115 13.6 226,247 10.7 (102,633) (5.9) 82,568 4.8 Income taxes 161,393 5.6 125,940 5.0 75,531 3.6 (45,282) (2.6) 30,608 1.8 ---------- ---- ---------- ---- ---------- --- --------- ----- ---------- ---- NET INCOME (LOSS) $ 246,183 8.6 $ 213,175 8.6 $ 150,716 7.1 $ (57,351) (3.3) $ 51,960 3.0 ========== ==== ========== ==== ========== === ========= ===== ========== ==== EARNINGS (LOSS) PER COMMON SHARE: * Primary $3.11 $2.83 $2.10 $(1.44) $0.47 Fully diluted $2.95 $2.37 $1.67 $(1.44) $0.47 ========== =========== ========== ========= ========== WEIGHTED AVERAGE COMMON SHARES: * Primary 78,689,958 69,379,863 60,745,674 56,043,744 60,507,702 Fully diluted 84,327,291 92,365,438 95,178,175 56,043,744 60,507,702 ========== =========== ========== ========== ========== DIVIDENDS DECLARED PER SHARE: Common stock * $ .38 $ .31 $ .24 $ .23 $ .23 Preferred stock: 7% Preferred Stock $ -- $2.336 $3.115 $3.115 $3.115 $1.375 Preferred Stock $1.241 $1.375 $1.375 $1.375 $1.375 Participating Preferred Stock $ .33 $ .053 -- -- -- ========== =========== ========== ========== ==========
* Retroactively adjusted to reflect a 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, in addition to the three-for-two common stock split in December 1991. FIFTY-FIVE 29 COMMON STOCK AND QUARTERLY INFORMATION Per share data for all periods presented have been retroactively adjusted to reflect a 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. COMMON STOCK DIVIDEND HISTORY During 1993, Paine Webber Group Inc. continued its policy of paying quarterly common stock dividends. Dividends declared during the last twelve quarters follow:
Calendar Quarter - ------------------------------------------------------------------------------------------------ 1st 2nd 3rd 4th - ------------------------------------------------------------------------------------------------ 1993 $ .08 $ .10 $ .10 $ .10 1992 .067 .08 .08 .08 1991 .058 .058 .058 .067
On February 3, 1994, Paine Webber Group Inc. declared its 1994 first quarter dividend of $.12 per share, an increase of 20% over the fourth quarter of 1993. However, there is no assurance that dividends will continue to be paid in the future since they are dependent upon income, financial condition and other factors, including the restrictions described under "Stockholders' Equity" in the Notes to Consolidated Financial Statements. MARKET FOR COMMON STOCK The common stock of Paine Webber Group Inc. is listed on the New York Stock Exchange ("NYSE") and the Pacific Stock Exchange. The following table summarizes the high and low sales prices per share of the common stock as reported on the Composite Tape for the periods indicated:
- ------------------------------------------------------------------------------------------------ High Low - ------------------------------------------------------------------------------------------------ CALENDAR 1993 4th Quarter $ 23.09 $ 17.00 3rd Quarter 22.83 18.58 2nd Quarter 19.75 15.83 1st Quarter 18.17 14.08 ======= ======= CALENDAR 1992 4th Quarter $ 16.67 $ 10.50 3rd Quarter 15.42 11.33 2nd Quarter 15.83 11.67 1st Quarter 17.83 14.67 ======= =======
On February 11, 1994, the last reported sale price per share of common stock on the NYSE was $17.58. The approximate number of holders of record of Paine Webber Group Inc. common stock as of the close of business on February 17, 1994 was 6,325. Included as one holder of record is PaineWebber Incorporated which holds securities beneficially owned by approximately 4,612 clients. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (In thousands of dollars except per share amounts)
Earnings per Income common share Total Net before Net Primary/Fully Revenues Revenues taxes Income diluted - ------------------------------------------------------------------------------------------------ CALENDAR 1993 4th Quarter $1,075,830 $754,037 $ 94,791 $56,875 $ .74/.72 3rd Quarter 1,043,250 736,755 99,367 59,123 .75/.72 2nd Quarter 954,936 686,463 97,215 59,301 .74/.69 1st Quarter 930,701 696,750 116,203 70,884 .89/.84 ========== ======== ========= ======= ========= CALENDAR 1992 4th Quarter $ 836,037 $607,870 $ 66,809 $41,422 $ .52/.49 3rd Quarter 836,537 625,818 83,342 51,672 .71/.58 2nd Quarter 816,836 592,072 73,800 45,756 .62/.53 1st Quarter 874,321 658,729 115,164 74,325 1.02/.80 ========== ======== ========= ======= ========
The sum of the quarterly earnings per share amounts does not equal the annual amounts reported, as per share amounts are computed independently for each quarter and full year based on the respective weighted average common and common equivalent shares outstanding during each period. FIFTY-SIX EX-21 12 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 PAINE WEBBER GROUP INC. SUBSIDIARIES OF THE REGISTRANT A list of significant subsidiaries, all of which are consolidated, of Paine Webber Group Inc. as of December 31, 1993 and the state or jurisdiction in which organized follows. In each case, 100% of the voting securities are owned by the subsidiary's immediate parent as indicated by indentation. Certain subsidiaries have been omitted because, in the aggregate, they do not constitute a significant subsidiary.
State or jurisdiction of Name organization --- --------------- Paine Webber Group Inc. Delaware PaineWebber Incorporated Delaware Mitchell Hutchins Asset Management Inc. Delaware PaineWebber Real Estate Securities Inc. Delaware
EX-23 13 CONSENT OF INDEPENDENT AUDITORS 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report on Form 10-K of Paine Webber Group Inc. of our report dated January 24, 1994 except for the note as to the subsequent event for which the date is February 3, 1994, included in the 1993 Annual Report to Stockholders of Paine Webber Group Inc. Our audits also included the consolidated financial statement schedules of Paine Webber Group Inc. listed in item 14(a). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the consolidated financial statement schedules referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the registration statements on Form S-8 (Registration Nos. 2-56284, 2-64984, 2-74819, 2-78627, 2-81554, 2-87418, 2-92770, 33-2959, 33-20240, 33-22265, 33-39539 and 33-45583) and on Form S-3(Registration Nos. 2-99979, 2-80528, 33-1985, 33-7738, 33-29253, 33-33613, 33-38960, 33-39818, 33-45041, 33-45148, 33-47267, 33-56156, 33-58124, 33- 53776 and 33-51149) of Paine Webber Group Inc. and in the related prospectuses, of the Report with respect to the consolidated financial statements and consolidated financial statement schedules of Paine Webber Group Inc. included or incorporated by reference in this 1993 Annual Report on Form 10-K for the year ended December 31, 1993. ERNST & YOUNG NEW YORK, NEW YORK MARCH 25, 1994 -----END PRIVACY-ENHANCED MESSAGE-----