<PAGE>   1
                                                                    Exhibit 4.19

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                               GUARANTEE AGREEMENT


                                       OF


                              PWG Capital Trust II



                                ----------------



                           Dated as of March 14, 1997



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<PAGE>   2
                                TABLE OF CONTENTS


<TABLE>
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                                    ARTICLE I
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Definitions..................................................................     2


                                   ARTICLE II

                               Trust Indenture Act

SECTION 2.01.  Trust Indenture Act; Application..............................     5
SECTION 2.02.  Lists of Holders of Preferred
                   Securities................................................     6
SECTION 2.03.  Reports by the Guarantee Trustee..............................     6
SECTION 2.04.  Periodic Reports to Guarantee
                   Trustee       ............................................     6
SECTION 2.05.  Evidence of Compliance with
                   Conditions Precedent......................................     6
SECTION 2.06.  Events of Default; Waiver.....................................     7
SECTION 2.07.  Disclosure of Information.....................................     7
SECTION 2.08.  Conflicting Interest..........................................     7


                                   ARTICLE III

                 Powers, Duties and Rights of Guarantee Trustee

SECTION 3.01.  Powers and Duties of the Guarantee
                   Trustee...................................................     7
SECTION 3.02.  Certain Rights and Duties of the
                   Guarantee Trustee.........................................     9
SECTION 3.03.  Not Responsible for Recitals or
                   Issuance of Guarantee.....................................    12


                                   ARTICLE IV

                                Guarantee Trustee

SECTION 4.01.  Qualifications................................................    12
SECTION 4.02.  Appointment, Removal and Resignation
                   of Guarantee Trustee......................................    13

                                    ARTICLE V

                                    Guarantee
</TABLE>
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                                                                               2


<TABLE>
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SECTION 5.01.  Guarantee.....................................................    14
SECTION 5.02.  Waiver of Notice..............................................    14
SECTION 5.03.  Obligations Not Affected......................................    14
SECTION 5.04.  Enforcement of Guarantee .....................................    15
SECTION 5.05.  Guarantee of Payment..........................................    16
SECTION 5.06.  Subrogation...................................................    16
SECTION 5.07.  Independent Obligations.......................................    16


                                   ARTICLE VI

                    Limitation of Transactions; Subordination

SECTION 6.01.  Limitation of Transactions....................................    17
SECTION 6.02.  Subordination.................................................    17


                                   ARTICLE VII

Termination..................................................................    18


                                  ARTICLE VIII

                    Limitation of Liability; Indemnification

SECTION 8.01.  Exculpation...................................................    18
SECTION 8.02.  Indemnification...............................................    19


                                   ARTICLE IX

                                  Miscellaneous

SECTION 9.01.  Successors and Assigns........................................    20
SECTION 9.02.  Amendments....................................................    20
SECTION 9.03.  Notices.......................................................    20
SECTION 9.04.  Genders.......................................................    21
SECTION 9.05.  Benefit.......................................................    21
SECTION 9.06.  Governing Law.................................................    21
SECTION 9.07.  Counterparts..................................................    21
SECTION 9.08.  Exercise of Overallotment Option..............................    21
</TABLE>
<PAGE>   4
                                    GUARANTEE AGREEMENT dated as of March 14,
                           1997, between Paine Webber Group Inc., a Delaware
                           corporation (the "Guarantor"), and The Chase
                           Manhattan Bank, a New York banking corporation, as
                           the initial Guarantee Trustee (as defined herein) for
                           the benefit of the Holders (as defined herein) from
                           time to time of the Preferred Securities (as defined
                           herein) of PWG Capital Trust II, a Delaware business
                           trust (the "Issuer").


                  WHEREAS, pursuant to an Amended and Restated Declaration of
Trust (the "Declaration") dated as of March 14, 1997, among the trustees named
therein, Paine Webber Group Inc., as Sponsor, and the Holders from time to time
of undivided beneficial interests in the assets of the Issuer, the Issuer may
issue up to $198,750,000 aggregate liquidation amount of its 8.08% Preferred
Trust Securities (the "Preferred Securities") representing preferred undivided
beneficial interests in the assets of the Issuer and having the terms set forth
in Exhibit B to the Declaration, of which $198,750,000 aggregate liquidation
amount of Preferred Securities are being issued as of the date hereof by the
Issuer pursuant to the Underwriting Agreement (as defined in the Declaration);
and

                  WHEREAS, as incentive for the Holders to purchase Preferred
Securities, the Guarantor desires to irrevocably and unconditionally agree, to
the extent set forth herein, to pay to the Holders the Guarantee Payments (as
defined herein) and to make certain other payments on the terms and conditions
set forth herein;


                  NOW, THEREFORE, in consideration of the purchase by the
initial purchasers thereof of Preferred Securities, which purchase the Guarantor
hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers
this Guarantee Agreement for the benefit of the Holders from time to time.
<PAGE>   5
                                                                               2


                                    ARTICLE I

                                   Definitions

                  (a) Capitalized terms used in this Guarantee Agreement but not
defined in the preamble above have the respective meanings assigned to them in
this Article I.

                  (b) A term defined anywhere in this Guarantee Agreement has
the same meaning throughout.

                  (c) All references to "this Guarantee Agreement" are to this
Guarantee Agreement as modified, supplemented or amended from time to time.

                  (d) All references in this Guarantee Agreement to Articles and
Sections are to Articles and Sections of this Guarantee Agreement unless
otherwise specified.

                  (e) A term defined in the Trust Indenture Act has the same
meaning when used in this Guarantee Agreement unless otherwise defined in this
Guarantee Agreement or unless the context otherwise requires.

                  (f)  A reference to the singular includes the
plural and vice versa.

                  "Affiliate" has the same meaning as given to that term in Rule
405 under the Securities Act of 1933, as amended, or any successor rule
thereunder.

                  "Commission" means the Securities and Exchange Commission.

                  "Common Securities" means the securities representing common
undivided beneficial interests in the assets of the Issuer, having the terms set
forth in Exhibit C to the Declaration.

                  "Covered Person" means any Holder.

                  "Debentures" means the series of Junior Subordinated
Debentures issued by the Guarantor under the Indenture to the Property Trustee
and entitled the "8.08% Junior Subordinated Debentures due 2037".
<PAGE>   6
                                                                               3


                  "Distributions" has the meaning set forth in Exhibit B to the
Declaration.

                  "Event of Default" means a default by the Guarantor on any of
its payment or other obligations under this Guarantee Agreement; provided,
however, that except with respect to such a default resulting from a failure to
pay any Guarantee Payment, such default shall have continued for more than 30
days.

                  "Guarantee Payments" shall mean the following Distributions
and other payments, without duplication, with respect to the Preferred
Securities, to the extent not made or paid by the Issuer: (i) any accrued and
unpaid Distributions that are required to be paid on the Preferred Securities,
but only if and to the extent that in each case the Guarantor has made a payment
to the Property Trustee of interest on the Debentures, (ii) the redemption
price, including all accrued and unpaid Distributions to the date of redemption
(the "Redemption Price"), with respect to any Preferred Securities called for
redemption by the Issuer, but only if and to the extent that in each case the
Guarantor has made a payment to the Property Trustee of interest or principal on
the Debentures, and (iii) upon a voluntary or involuntary dissolution,
winding-up or termination of the Issuer (other than in connection with the
distribution of Debentures to Holders or the redemption of all the Preferred
Securities upon the maturity or redemption of the Debentures as provided in the
Declaration), the lesser of (a) the aggregate of the liquidation amount and all
accrued and unpaid Distributions on the Preferred Securities to the date of
payment, to the extent the Issuer has funds available therefor, and (b) the
amount of assets of the Issuer remaining available for distribution to Holders
upon liquidation of the Issuer (in either case, the "Liquidation Distribution").

                  "Guarantee Trustee" means The Chase Manhattan Bank until a
Successor Guarantee Trustee has been appointed and accepted such appointment
pursuant to the terms of this Guarantee Agreement and thereafter means each such
Successor Guarantee Trustee.

                  "Holder" shall mean any holder, as registered on the books and
records of the Issuer, of any Preferred Securities; provided, however, that in
determining whether
<PAGE>   7
                                                                               4


the holders of the requisite percentage of Preferred Securities have given any
request, notice, consent or waiver hereunder, "Holder" shall not include the
Guarantor or any entity directly or indirectly controlling or controlled by or
under direct or indirect common control with the Guarantor.

                  "Indemnified Person" means the Guarantee Trustee, any
Affiliate of the Guarantee Trustee, and any officers, directors, shareholders,
members, partners, employees, representatives or agents of the Guarantee
Trustee.

                  "Indenture" means the Indenture dated as of December 9, 1996,
between the Guarantor and The Chase Manhattan Bank, as trustee, as supplemented
by the Second Supplemental Indenture thereto dated as of March 14, 1997,
pursuant to which the Debentures are to be issued.

                  "Investment Company" means an investment company as defined in
the Investment Company Act.

                  "Investment Company Act" means the Investment Company Act of
1940, as amended from time to time, or any successor legislation.

                  "Liquidation Distribution" has the meaning set forth in the
definition of Guarantee Payments.

                  "Majority in liquidation amount of the Preferred Securities"
means, except as otherwise required by the Trust Indenture Act, Holder(s) of
outstanding Preferred Securities voting together as a single class who are the
record owners of Preferred Securities whose aggregate liquidation amount
(including the stated amount that would be paid on redemption, liquidation or
otherwise, plus accrued and unpaid Distributions to the date upon which the
voting percentages are determined) represents more than 50% of the aggregate
liquidation amount of all outstanding Preferred Securities.

                  "Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
<PAGE>   8
                                                                               5


                  "Preferred Securities" has the meaning set forth in the first
WHEREAS clause above.

                  "Property Trustee" means the Person acting as Property Trustee
under the Declaration.

                  "Redemption Price" has the meaning set forth in the definition
of Guarantee Payments.

                  "Responsible Officer" means, with respect to the Guarantee
Trustee, any officer of the Guarantee Trustee with responsibility for the
administration of this Guarantee Agreement and also means, with respect to a
particular corporate trust matter, any other officer to whom such matter is
referred because of that officer's knowledge of, and familiarity with, the
particular subject.

                  "66-2/3% in liquidation amount of the Preferred Securities"
means, except as otherwise required by the Trust Indenture Act, Holder(s) of
outstanding Preferred Securities voting together as a single class who are the
record owners of Preferred Securities whose aggregate liquidation amount
(including the stated amount that would be paid on redemption, liquidation or
otherwise, plus accrued and unpaid Distributions to the date upon which the
voting percentages are determined) represents 66-2/3% or more of the aggregate
liquidation amount of all outstanding Preferred Securities.

                  "Successor Guarantee Trustee" means a successor Guarantee
Trustee possessing the qualifications to act as a Guarantee Trustee under
Section 4.01.

                  "Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended.


                                   ARTICLE II

                               Trust Indenture Act

                  SECTION 2.01. Trust Indenture Act; Application. (a) This
Guarantee Agreement is subject to the provisions of the Trust Indenture Act that
are required to be part of this Guarantee Agreement and shall, to the extent
applicable, be governed by such provisions.
<PAGE>   9
                                                                               6


                  (b) If and to the extent that any provision of this Guarantee
Agreement limits, qualifies or conflicts with the duties imposed by Sections 310
to 317, inclusive, of the Trust Indenture Act, such imposed duties shall
control.

                  (c) The application of the Trust Indenture Act to this
Guarantee Agreement shall not affect the nature of the Preferred Securities as
equity securities representing preferred undivided beneficial interests in the
assets of the Issuer.

                  SECTION 2.02. Lists of Holders of Preferred Securities. (a)
The Guarantor shall provide the Guarantee Trustee with such information as is
required under Section 312(a) of the Trust Indenture Act at the times and in the
manner provided in Section 312(a).

                  (b) The Guarantee Trustee shall comply with its obligations
under Sections 310(b), 311 and 312(b) of the Trust Indenture Act.

                  SECTION 2.03. Reports by the Guarantee Trustee. Within 60 days
after May 15 of each year, the Guarantee Trustee shall provide to the Holders
such reports as are required by Section 313 of the Trust Indenture Act, if any,
in the form, in the manner and at the times provided by Section 313 of the Trust
Indenture Act. The Guarantee Trustee shall also comply with the requirements of
Section 313(d) of the Trust Indenture Act.

                  SECTION 2.04. Periodic Reports to the Guarantee Trustee. The
Guarantor shall provide to the Guarantee Trustee, the Commission and the
Holders, as applicable, such documents, reports and information as required by
Section 314(a)(1)-(3) (if any) of the Trust Indenture Act and the compliance
certificates required by Section 314(a)(4) and (c) of the Trust Indenture Act,
any such certificates to be provided in the form, in the manner and at the times
required by Section 314(a)(4) and (c) of the Trust Indenture Act (provided that
any certificate to be provided pursuant to Section 314(a)(4) of the Trust
Indenture Act shall be provided within 120 days of the end of each fiscal year
of the Issuer).

                  SECTION 2.05. Evidence of Compliance with Conditions
Precedent. The Guarantor shall provide the
<PAGE>   10
                                                                               7


Guarantee Trustee such evidence of compliance with any conditions precedent, if
any, provided for in this Guarantee Agreement which relate to any of the matters
set forth in Section 314(c) of the Trust Indenture Act. Any certificate or
opinion required to be given pursuant to Section 314(c) of the Trust Indenture
Act shall comply with Section 314(e) of the Trust Indenture Act.

                  SECTION 2.06. Events of Default; Waiver. (a) Subject to
Section 2.06(b), Holders may, by vote of at least a Majority in liquidation
amount of the Preferred Securities, (A) direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee, or
exercising any trust or power conferred upon the Guarantee Trustee, or (B) on
behalf of the Holders of all Preferred Securities, waive any past Event of
Default and its consequences. Upon such waiver, any such default shall cease to
exist, and any Event of Default arising therefrom shall be deemed to have been
cured for every purpose of this Guarantee Agreement, but no such waiver shall
extend to any subsequent or other default or Event of Default or impair any
right consequent thereon.

                  (b) The right of any Holder to receive payment of the
Guarantee Payments in accordance with this Guarantee Agreement, or to institute
suit for the enforcement of any such payment, shall not be impaired without the
consent of each such Holder.

                  SECTION 2.07. Disclosure of Information. The disclosure of
information as to the names and addresses of the Holders in accordance with
Section 312 of the Trust Indenture Act, regardless of the source from which such
information was derived, shall not be deemed to be a violation of any existing
law or any law hereafter enacted which does not specifically refer to Section
312 of the Trust Indenture Act, nor shall the Guarantee Trustee be held
accountable by reason of mailing any material pursuant to a request made under
Section 312(b) of the Trust Indenture Act.

                  SECTION 2.08. Conflicting Interest. The Declaration shall be
deemed to be specifically described in this Guarantee Agreement for the purposes
of clause (i) of the first proviso contained in Section 310(b) of the Trust
Indenture Act.
<PAGE>   11
                                                                               8


                                   ARTICLE III

                 Powers, Duties and Rights of Guarantee Trustee

                  SECTION 3.01. Powers and Duties of the Guarantee Trustee. (a)
This Guarantee Agreement shall be held by the Guarantee Trustee in trust for the
benefit of the Holders. The Guarantee Trustee shall not transfer its right,
title and interest in this Guarantee Agreement to any Person except a Successor
Guarantee Trustee on acceptance by such Successor Guarantee Trustee of its
appointment to act as Guarantee Trustee or to a Holder exercising his or her
rights pursuant to Section 5.04. The right, title and interest of the Guarantee
Trustee to this Guarantee Agreement shall vest automatically in each Person who
may hereafter be appointed as Guarantee Trustee in accordance with Article IV.
Such vesting and cessation of title shall be effective whether or not
conveyancing documents have been executed and delivered.

                  (b) If an Event of Default occurs and is continuing, the
Guarantee Trustee shall enforce this Guarantee Agreement for the benefit of the
Holders.

                  (c) This Guarantee Agreement and all moneys received by the
Property Trustee hereunder in respect of the Guarantee Payments will not be
subject to any right, charge, security interest, lien or claim of any kind in
favor of or for the benefit of the Guarantee Trustee or its agents or their
creditors.

                  (d) The Guarantee Trustee shall, within 90 days after the
occurrence of an Event of Default, transmit by mail, first class postage
prepaid, to the Holders, as their names and addresses appear upon the register,
notice of all Events of Default known to the Guarantee Trustee, unless such
Events of Default shall have been cured before the giving of such notice;
provided that, the Guarantee Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee or a
trust committee of directors and/or Responsible Officers of the Guarantee
Trustee in good faith determines that the withholding of such notice is in the
interests of the Holders. The Guarantee Trustee shall not be deemed to have
knowledge of any Event of Default except any Event of
<PAGE>   12
                                                                               9


Default as to which the Guarantee Trustee shall have received written notice or
a Responsible Officer charged with the administration of this Guarantee
Agreement shall have obtained written notice.

                  (e) The Guarantee Trustee shall not resign as a Trustee unless
a Successor Guarantee Trustee has been appointed and accepted that appointment
in accordance with Article IV.

                  SECTION 3.02. Certain Rights and Duties of the Guarantee
Trustee. (a) The Guarantee Trustee, before the occurrence of an Event of Default
and after the curing or waiving of all Events of Default that may have occurred,
shall undertake to perform only such duties as are specifically set forth in
this Guarantee Agreement, and no implied covenants shall be read into this
Guarantee Agreement against the Guarantee Trustee. In case an Event of Default
has occurred (that has not been cured or waived pursuant to Section 2.06(a)),
the Guarantee Trustee shall exercise such of the rights and powers vested in it
by this Guarantee Agreement, and use the same degree of care and skill in their
exercise, as a prudent person would exercise or use under the circumstances in
the conduct of his or her own affairs.

                  (b) No provision of this Guarantee Agreement shall be
construed to relieve the Guarantee Trustee from liability for its own negligent
action, its own negligent failure to act or its own wilful misconduct, except
that:

                  (i) prior to the occurrence of an Event of Default
    and after the curing or waiving of all Events of Default
    that may have occurred;

                           (A) the duties and obligations of the Guarantee
                  Trustee shall be determined solely by the express provisions
                  of this Guarantee Agreement, and the Guarantee Trustee shall
                  not be liable except for the performance of such duties and
                  obligations as are specifically set forth in this Guarantee
                  Agreement, and no implied covenants or obligations shall be
                  read into this Guarantee Agreement against the Guarantee
                  Trustee; and
<PAGE>   13
                                                                              10


                           (B) in the absence of bad faith on the part of the
                  Guarantee Trustee, the Guarantee Trustee may conclusively
                  rely, as to the truth of the statements and the correctness of
                  the opinions expressed therein, upon any certificates or
                  opinions furnished to the Guarantee Trustee and conforming to
                  the requirements of this Guarantee Agreement; but in the case
                  of any such certificates or opinions that by any provision
                  hereof are specifically required to be furnished to the
                  Guarantee Trustee, the Guarantee Trustee shall be under a duty
                  to examine the same to determine whether or not they conform
                  to the requirements of this Guarantee Agreement;

                  (ii) the Guarantee Trustee shall not be liable for any error
    of judgment made in good faith by a Responsible Officer of the Guarantee
    Trustee, unless it shall be proved that the Guarantee Trustee was negligent
    in ascertaining the pertinent facts;

                  (iii) the Guarantee Trustee shall not be liable with respect
    to any action taken or omitted to be taken by it in good faith in accordance
    with the direction of the Holders as provided herein relating to the time,
    method and place of conducting any proceeding for any remedy available to
    the Guarantee Trustee, or exercising any trust or power conferred upon the
    Guarantee Trustee under this Guarantee Agreement; and

                  (iv) no provision of this Guarantee Agreement shall require
    the Guarantee Trustee to expend or risk its own funds or otherwise incur
    personal financial liability in the performance of any of its duties or in
    the exercise of any of its rights or powers, if it shall have reasonable
    ground for believing that the repayment of such funds or liability is not
    reasonably assured to it under the terms of this Guarantee Agreement or
    adequate indemnity against such risk or liability is not reasonably assured
    to it.
<PAGE>   14
                                                                              11


                  (c) Subject to the provisions of Section 3.02(a) and (b):

                  (i) whenever in the administration of this Guarantee
    Agreement, the Guarantee Trustee shall deem it desirable that a matter be
    proved or established prior to taking, suffering or omitting any action
    hereunder, the Guarantee Trustee (unless other evidence is herein
    specifically prescribed) may, in the absence of bad faith on its part and,
    if the Trust is excluded from the definition of Investment Company solely by
    reason of Rule 3a-7 under the Investment Company Act ("Rule 3a-7"), subject
    to the requirements of Rule 3a-7, request and rely upon a certificate, which
    shall comply with the provisions of Section 314(e) of the Trust Indenture
    Act, signed by any authorized officer of the Guarantor;

                  (ii) the Guarantee Trustee (A) may consult with counsel (which
    may be counsel to the Guarantor or any of its Affiliates and may include any
    of its employees) selected by it in good faith and with due care and the
    written advice or opinion of such counsel with respect to legal matters
    shall be full and complete authorization and protection in respect of any
    action taken, suffered or omitted by it hereunder in good faith and in
    reliance thereon and in accordance with such advice and opinion and (B)
    shall have the right at any time to seek instructions concerning the
    administration of this Guarantee Agreement from any court of competent
    jurisdiction;

                  (iii) the Guarantee Trustee may execute any of the trusts or
    powers hereunder or perform any duties hereunder either directly or by or
    through agents or attorneys and the Guarantee Trustee shall not be
    responsible for any misconduct or negligence on the part of any agent or
    attorney appointed by it in good faith and with due care;

                  (iv) the Guarantee Trustee shall be under no obligation to
    exercise any of the rights or powers vested in it by this Guarantee
    Agreement at the request or direction of any Holders, unless such Holders
    shall have offered to the Guarantee Trustee reasonable security and
    indemnity against the costs, expenses (including attorneys' fees and
    expenses) and liabilities that might
<PAGE>   15
                                                                              12


    be incurred by it in complying with such request or direction; provided that
    nothing contained in this clause (iv) shall relieve the Guarantee Trustee of
    the obligation, upon the occurrence of an Event of Default (which has not
    been cured or waived) to exercise such of the rights and powers vested in it
    by this Guarantee Agreement, and to use the same degree of care and skill in
    such exercise, as a prudent person would exercise or use under the
    circumstances in the conduct of his or her own affairs; and

                  (v) any action taken by the Guarantee Trustee or its agents
    hereunder shall bind the Holders and the signature of the Guarantee Trustee
    or its agents alone shall be sufficient and effective to perform any such
    action; and no third party shall be required to inquire as to the authority
    of the Guarantee Trustee to so act, or as to its compliance with any of the
    terms and provisions of this Guarantee Agreement, both of which shall be
    conclusively evidenced by the Guarantee Trustee's or its agent's taking such
    action.

                  SECTION 3.03. Not Responsible for Recitals or Issuance of
Guarantee. The recitals contained in this Guarantee Agreement shall be taken as
the statements of the Guarantor and the Guarantee Trustee does not assume any
responsibility for their correctness. The Guarantee Trustee makes no
representations as to the validity or sufficiency of this Guarantee Agreement.


                                   ARTICLE IV

                                Guarantee Trustee

                  SECTION 4.01. Qualifications. (a) There shall at all times be
a Guarantee Trustee which shall:

                  (i) not be an Affiliate of the Guarantor;

                  (ii) be a corporation organized and doing business under the
    laws of the United States of America or any State or Territory thereof or of
    the District of Columbia, or a corporation or Person permitted by the
    Commission to act as an institutional trustee under the Trust Indenture Act,
    authorized under such laws to
<PAGE>   16
                                                                              13


    exercise corporate trust powers, having a combined capital and surplus of at
    least $50,000,000, and subject to supervision or examination by Federal,
    State, Territorial or District of Columbia authority. If such corporation
    publishes reports of condition at least annually, pursuant to law or to the
    requirements of the supervising or examining authority referred to above,
    then for the purposes of this Section 4.01(a)(ii), the combined capital and
    surplus of such corporation shall be deemed to be its combined capital and
    surplus as set forth in its most recent report of condition so published;
    and

                  (iii) if the Trust is excluded from the definition of an
    Investment Company solely by reason of Rule 3a-7 and to the extent Rule 3a-7
    requires a trustee having certain qualifications to hold title to the
    "eligible assets" (as defined in Rule 3a-7) of the Trust, possess those
    qualifications.

                  If at any time the Guarantee Trustee shall cease to satisfy
the requirements of clauses (i),(ii) and (iii) above, the Guarantee Trustee
shall immediately resign in the manner and with the effect set out in Section
4.02. If the Guarantee Trustee has or shall acquire any "conflicting interest"
within the meaning of Section 310(b) of the Trust Indenture Act, the Guarantee
Trustee and the Guarantor shall in all respects comply with the provisions of
Section 310(b) of the Trust Indenture Act.

                  SECTION 4.02. Appointment, Removal and Resignation of
Guarantee Trustee. (a) Subject to Section 4.02(b), the Guarantee Trustee may be
appointed or removed without cause at any time by the Guarantor.

                  (b) The Guarantee Trustee shall not be removed in accordance
with Section 4.02(a) until a Successor Guarantee Trustee possessing the
qualifications to act as Guarantee Trustee under Section 4.01(a) has been
appointed and has accepted such appointment by written instrument executed by
such Successor Guarantee Trustee and delivered to the Guarantor and the
Guarantee Trustee being removed.

                  (c) The Guarantee Trustee appointed to office shall hold
office until its successor shall have been appointed and until its removal or
resignation.
<PAGE>   17
                                                                              14


                  (d) The Guarantee Trustee may resign from office (without need
for prior or subsequent accounting) by an instrument (a "Resignation Request")
in writing signed by the Guarantee Trustee and delivered to the Guarantor, which
resignation shall take effect upon such delivery or upon such later date as is
specified therein; provided, however, that no such resignation of the Guarantee
Trustee shall be effective until: (i) a Successor Guarantee Trustee possessing
the qualifications to act as Guarantee Trustee under Section 4.01(a) has been
appointed and has accepted such appointment by instrument executed by such
Successor Guarantee Trustee and delivered to the Guarantor and the resigning
Guarantee Trustee; or (ii) until the assets of the Trust have been completely
liquidated and the proceeds thereof distributed to the Holders, if the Trust is
excluded from the definition of an Investment Company solely by reason of Rule
3a-7.

                  (e) If no Successor Guarantee Trustee shall have been
appointed and accepted appointment as provided in this Section 4.02 within 60
days after delivery to the Guarantor of a Resignation Request, the resigning
Guarantee Trustee may petition any court of competent jurisdiction for
appointment of a Successor Guarantee Trustee. Such court may thereupon, after
such notice, if any, as it may deem proper and prescribe, appoint a Successor
Guarantee Trustee.


                                    ARTICLE V

                                    Guarantee

                  SECTION 5.01. Guarantee. The Guarantor irrevocably and
unconditionally agrees to pay in full to the Holders the Guarantee Payments
(without duplication of amounts theretofore paid by the Issuer), regardless of
any defense, right of set-off or counterclaim that the Issuer may have or
assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied
by direct payment of the required amounts by the Guarantor to the Holders or by
causing the Issuer to pay such amounts to the Holders.

                  SECTION 5.02. Waiver of Notice. The Guarantor hereby waives
notice of acceptance of this Guarantee Agreement and of any liability to which
it applies or may apply, presentment, demand for payment, any right to require
<PAGE>   18
                                                                              15


a proceeding first against the Issuer or any other Person before proceeding
against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice
of redemption and, to the extent permitted by law, all other notices and
demands.

                  SECTION 5.03. Obligations Not Affected. The obligations,
covenants, agreements and duties of the Guarantor under this Guarantee Agreement
shall in no way be affected or impaired by reason of the happening from time to
time of any of the following:

                  (a) the release or waiver, by operation of law or otherwise,
    of the performance or observance by the Issuer of any express or implied
    agreement, covenant, term or condition relating to the Preferred Securities
    to be performed or observed by the Issuer;

                  (b) the extension of time for the payment by the Issuer of all
    or any portion of the Distributions (other than an extension of time for
    payment of Distributions that results from the extension of any interest
    payment period on the Debentures), Redemption Price, Liquidation
    Distribution or any other sums payable under the terms of the Preferred
    Securities or the extension of time for the performance of any other
    obligation under, arising out of, or in connection with, the Preferred
    Securities;

                  (c) any failure, omission, delay or lack of diligence on the
    part of the Holders to enforce, assert or exercise any right, privilege,
    power or remedy conferred on the Holders pursuant to the terms of the
    Preferred Securities, or any action on the part of the Issuer granting
    indulgence or extension of any kind;

                  (d) the voluntary or involuntary liquidation, dissolution,
    sale of any collateral, receivership, insolvency, bankruptcy, assignment for
    the benefit of creditors, reorganization, arrangement, composition or
    readjustment of debt of, or other similar proceedings affecting, the Issuer
    or any of the assets of the Issuer;

                  (e) any invalidity of, or defect or deficiency in,
    the Preferred Securities;

                  (f) the settlement or compromise of any obligation
    guaranteed hereby or hereby incurred; or
<PAGE>   19
                                                                              16


                  (g) any other circumstances whatsoever that might otherwise
    constitute a legal or equitable discharge or defense of a guarantor, it
    being the intent of this Section 5.03 that the obligations of the Guarantor
    hereunder shall be absolute and unconditional under any and all
    circumstances.

                  There shall be no obligation of the Holders to give notice to,
or obtain consent of, the Guarantor with respect to the happening of any of the
foregoing.

                  SECTION 5.04. Enforcement of Guarantee. The Guarantor and the
Guarantee Trustee expressly acknowledge that (i) this Guarantee Agreement will
be deposited with the Guarantee Trustee to be held for the benefit of the
Holders; (ii) the Guarantee Trustee has the right to enforce this Guarantee
Agreement on behalf of the Holders; (iii) Holders representing not less than a
Majority in liquidation amount of the Preferred Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available in respect of this Guarantee Agreement, including the giving of
directions to the Guarantee Trustee, or exercising any trust or other power
conferred upon the Guarantee Trustee under this Guarantee Agreement, and (iv) if
the Guarantee Trustee fails to enforce this Guarantee Agreement, any Holder may
institute a legal proceeding directly against the Guarantor to enforce its
rights under this Guarantee Agreement, without first instituting a legal
proceeding against the Issuer, the Guarantee Trustee or any other Person.
Notwithstanding the foregoing, if the Guarantor has failed to make a Guarantee
Payment, a Holder of Preferred Securities may directly institute a proceeding
against the Guarantor for enforcement of such Holder's right to receive payment
under the Guarantee. The Guarantor waives any right or remedy to require that
any action be brought first against the Issuer or any other person or entity
before proceeding directly against the Guarantor.

                  SECTION 5.05. Guarantee of Payment. This Guarantee Agreement
creates a guarantee of payment and not merely of collection. This Guarantee
Agreement will not be discharged except by payment of the Guarantee Payments in
full (without duplication of amounts theretofore paid by the Issuer).
<PAGE>   20
                                                                              17


                  SECTION 5.06. Subrogation. The Guarantor shall be subrogated
to all rights, if any, of the Holders against the Issuer in respect of any
amounts paid to the Holders by the Guarantor under this Guarantee Agreement;
provided, however, that the Guarantor shall not (except to the extent required
by mandatory provisions of law) be entitled to enforce or exercise any rights
which it may acquire by way of subrogation or any indemnity, reimbursement or
other agreement, in all cases as a result of payment under this Guarantee
Agreement, if, at the time of any such payment, any amounts are due and unpaid
under this Guarantee Agreement. If any amount shall be paid to the Guarantor in
violation of the preceding sentence, the Guarantor agrees to hold such amount in
trust for the Holders and to pay over such amount to the Holders.

                  SECTION 5.07. Independent Obligations. The Guarantor
acknowledges that its obligations hereunder are independent of the obligations
of the Issuer with respect to the Preferred Securities and that the Guarantor
shall be liable as principal and as debtor hereunder to make Guarantee Payments
pursuant to the terms of this Guarantee Agreement notwithstanding the occurrence
of any event referred to in subsections (a) through (g), inclusive, of Section
5.03.

                                   ARTICLE VI

                    Limitation of Transactions; Subordination

                  SECTION 6.01. Limitation of Transactions. So long as any
Preferred Securities remain outstanding, the Guarantor will not declare or pay
any dividends on, or redeem, purchase, acquire or make a distribution or
liquidation payment with respect to, any of its common stock or preferred stock
or make any guarantee payment with respect thereto if at such time (i) the
Guarantor shall be in default with respect to its Guarantee Payments or other
payment obligations hereunder, (ii) there shall have occurred any Event of
Default (as defined in the Declaration) or (iii) the Guarantor shall have given
notice of its selection of an Extension Period (as defined in the Indenture) and
such period, or any extension thereof, is continuing; provided, however, that
the foregoing restrictions will not apply to (i) dividends, redemptions,
<PAGE>   21
                                                                              18


purchases, acquisitions, distributions or payments made by the Guarantor by way
of issuance of shares of its capital stock, (ii) payments of accrued dividends
by the Guarantor upon the redemption, exchange or conversion of any preferred
stock of the Guarantor as may be outstanding from time to time in accordance
with the terms of such preferred stock or (iii) cash payments made by the
Guarantor in lieu of delivering fractional shares upon the redemption, exchange
or conversion of any preferred stock of the Guarantor as may be outstanding from
time to time in accordance with the terms of such preferred stock. In addition,
so long as any Preferred Securities remain outstanding, the Guarantor (i) will
remain the sole direct or indirect owner of all the outstanding Common
Securities and shall not cause or permit the Common Securities to be transferred
except to the extent such transfer is permitted under Section 9.01(c) of the
Declaration, provided that any permitted successor of the Guarantor under the
Indenture may succeed to the Guarantor's ownership of the Common Securities; and
(ii) will use reasonable efforts to cause the Issuer to continue to be treated
as a grantor trust for United States Federal income tax purposes, except in
connection with a distribution of Debentures as provided in the Declaration.

                  SECTION 6.02. Subordination. This Guarantee Agreement will
constitute an unsecured obligation of the Guarantor and will rank (i)
subordinate and junior in right of payment to all other indebtedness,
liabilities and obligations of the Guarantor and any guarantees, endorsements or
other contingent obligations of the Guarantor in respect of such indebtedness,
liabilities or obligations, including the Debentures, except those made pari
passu or subordinate by their terms, and (ii) senior to all capital stock now or
hereafter issued by the Guarantor and to any guarantee now or hereafter entered
into by the Guarantor in respect of any of its capital stock. The Guarantor's
obligations under this Guarantee Agreement will rank pari passu with respect to
obligations under other guarantee agreements which it may enter into from time
to time to the extent that such agreements shall be entered into in
substantially the form hereof and provide for comparable guarantees by the
Guarantor of payment on preferred securities issued by other business trusts of
which the Guarantor holds the common securities.
<PAGE>   22
                                                                              19


                                   ARTICLE VII

                                   Termination

                  This Guarantee Agreement shall terminate and be of no further
force and effect upon full payment of the Redemption Price of all Preferred
Securities, or upon the distribution of Debentures to Holders in exchange for
all the Preferred Securities, or upon full payment of the amounts payable in
accordance with the Declaration upon liquidation of the Issuer. Notwithstanding
the foregoing, this Guarantee Agreement will continue to be effective or will be
reinstated, as the case may be, if at any time any Holder must restore payment
of any sums paid with respect to the Preferred Securities or this Guarantee
Agreement.

                                  ARTICLE VIII

                    Limitation of Liability; Indemnification

                  SECTION 8.01. Exculpation. (a) No Indemnified Person shall be
liable, responsible or accountable in damages or otherwise to the Guarantor or
any Covered Person for any loss, damage or claim incurred by reason of any act
or omission performed or omitted by such Indemnified Person in good faith and in
a manner such Indemnified Person reasonably believed to be within the scope of
the authority conferred on such Indemnified Person by this Guarantee Agreement
or by law, except that an Indemnified Person shall be liable for any such loss,
damage or claim incurred by reason of such Indemnified Person's negligence or
wilful misconduct with respect to such acts or omissions.

                  (b) An Indemnified Person shall be fully protected in relying
in good faith upon the records of the Guarantor and upon such information,
opinions, reports or statements presented to the Guarantor by any Person as to
matters the Indemnified Person reasonably believes are within such other
Person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Guarantor, including information,
opinions, reports or statements as to the value and amount of assets,
liabilities, profits, losses or any other facts pertinent to the existence and
amounts of assets from which Distributions to Holders might properly be paid.
<PAGE>   23
                                                                              20


                  SECTION 8.02. Indemnification. (a) To the fullest extent
permitted by applicable law, the Guarantor shall indemnify and hold harmless
each Indemnified Person from and against any loss, damage or claim incurred by
such Indemnified Person by reason of any act or omission performed or omitted by
such Indemnified Person in good faith and in a manner such Indemnified Person
reasonably believed to be within the scope of authority conferred on such
Indemnified Person by this Guarantee Agreement, except that no Indemnified
Person shall be entitled to be indemnified in respect of any loss, damage or
claim incurred by such Indemnified Person by reason of negligence or wilful
misconduct with respect to such acts or omissions.

                  (b) To the fullest extent permitted by applicable law,
expenses (including legal fees) incurred by an Indemnified Person in defending
any claim, demand, action, suit or proceeding shall, from time to time, be
advanced by the Guarantor prior to the final disposition of such claim, demand,
action, suit or proceeding upon receipt by the Guarantor of an undertaking by or
on behalf of the Indemnified Person to repay such amount if it shall be
determined that the Indemnified Person is not entitled to be indemnified as
authorized in Section 8.02(a).

                                   ARTICLE IX

                                  Miscellaneous

                  SECTION 9.01. Successors and Assigns. All guarantees and
agreements contained in this Guarantee Agreement shall bind the successors,
assignees, receivers, trustees and representatives of the Guarantor and shall
inure to the benefit of the Holders of the Preferred Securities then
outstanding. Except in connection with a consolidation, merger or conveyance,
transfer or lease of assets involving the Guarantor that is permitted under
Article Ten of the Indenture, the Guarantor shall not assign its obligations
hereunder.

                  SECTION 9.02. Amendments. Except with respect to any changes
which do not adversely affect the rights of Holders (in which case no consent of
Holders will be required), this Guarantee Agreement may only be amended with the
prior approval of the Holders of not less than 66-2/3% in
<PAGE>   24
                                                                              21


liquidation amount of the Preferred Securities. The provisions of Section 12.02
of the Declaration concerning meetings of Holders shall apply to the giving of
such approval.

                  SECTION 9.03 Notices. Any notice, request or other
communication required or permitted to be given hereunder shall be in writing,
duly signed by the party giving such notice, and delivered, telecopied or mailed
by first class mail as follows:

                  (a) if given to the Guarantor, to the address set forth below
    or such other address as the Guarantor may give notice of to the Holders:

                           Paine Webber Group Inc.
                           1285 Avenue of the Americas
                           New York, New York 10019
                           Facsimile No.:  (212) 713-2116
                           Attention:  General Counsel

                  (b) if given to the Guarantee Trustee, to the address set
    forth below or such other address as the Guarantee Trustee may give notice
    of to the Holders:

                           The Chase Manhattan Bank
                           450 West 33rd Street
                           New York, New York 10001
                           Facsimile No.:  (212) 946-8158
                           Attention:  Corporate Trust Administration

                  (c) if given to any Holder of Preferred Securities, at the
    address set forth on the books and records of the Issuer.

                  All notices hereunder shall be deemed to have been given when
received in person, telecopied with receipt confirmed, or mailed by first class
mail, postage prepaid except that if a notice or other document is refused
delivery or cannot be delivered because of a changed address of which no notice
was given, such notice or other document shall be deemed to have been delivered
on the date of such refusal or inability to deliver.
<PAGE>   25
                                                                              22


                  SECTION 9.04. Genders. The masculine, feminine and neuter
genders used herein shall include the masculine, feminine and neuter genders.

                  SECTION 9.05. Benefit. This Guarantee Agreement is solely for
the benefit of the Holders and, subject to Section 3.01(a), is not separately
transferable from the Preferred Securities.

                  SECTION 9.06. Governing Law. THIS GUARANTEE AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS).

                  SECTION 9.07. Counterparts. This Guarantee Agreement may be
executed in counterparts, each of which shall be an original; but such
counterparts shall together constitute one and the same instrument.

                  SECTION 9.08. Exercise of Overallotment Option. If and to the
extent that Preferred Securities are issued by the Issuer upon exercise of the
overallotment option referred to in the first WHEREAS clause, the Guarantor
agrees to give prompt notice thereof to the Guarantee Trustee, but the failure
to give such notice shall not relieve the Guarantor of any of its obligations
hereunder.

                  This Guarantee Agreement is executed as of the day and year
first above written.

                                                PAINE WEBBER GROUP INC.,

                                                  by ________________________
                                                     Name:
                                                     Title:
<PAGE>   26
                                                                              23


                                                THE CHASE MANHATTAN BANK, as
                                                Guarantee Trustee,

                                                  by ________________________
                                                     Name:
                                                     Title: