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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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[x] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required) For the fiscal year ended June
30, 1994.
or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required) For the transition period from
___________ to ___________
Commission file number: 1-8989
THE BEAR STEARNS COMPANIES INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3286161
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(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) No.)
245 Park Avenue, New York, New York 10167
(212) 272-2000
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(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock, par value $1.00 per New York Stock Exchange
share
Adjustable Rate Cumulative New York Stock Exchange
Preferred Stock, Series A
Depositary Shares, each representing a New York Stock Exchange
one-eighth interest in a share of
7.88% Cumulative Preferred Stock,
Series B
Depositary Shares, each representing a New York Stock Exchange
one-eighth interest in a share of
7.60% Cumulative Preferred Stock,
Series C
Depositary Shares, each representing New York Stock Exchange
a one-eighth interest in a share of
8% Cumulative Preferred Stock,
Series D (not presently outstanding)
9-1/8% Senior Notes Due 1998 New York Stock Exchange
9-3/8% Senior Notes Due 2001 New York Stock Exchange
5-1/2% MRK Common-Linked Higher Income American Stock Exchange
Participation Securities Due 1997
Amex Hong Kong 30 Index Call Warrants American Stock Exchange
Expiring June 10, 1996
Amex Hong Kong 30 Index Put Warrants American Stock Exchange
Expiring June 10, 1996
Japan Index Call Warrants Expiring American Stock Exchange
July 29, 1997
Japan Index Put Warrants Expiring American Stock Exchange
July 29, 1997
Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of Class)
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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 registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
At September 1, 1994, the aggregate market value of the voting stock held
by non-affiliates of the registrant was approximately $1,976,701,000. For
purposes of this information, the outstanding shares of Common Stock owned
by directors and executive officers of the registrant were deemed to be
shares of Common Stock held by affiliates.
On September 1, 1994, the registrant had outstanding 112,153,225 shares of
Common Stock, par value $1.00 per share, which is the registrant's only
class of common stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Parts II and IV of this Form 10-K incorporate information by reference from
certain portions of the registrant's 1994 Annual Report to Stockholders.
The information required to be furnished pursuant to Part III of this Form
10-K will be set forth in, and incorporated by reference from, the
registrant's definitive proxy statement for the annual meeting of
stockholders to be held October 24, 1994, which definitive proxy statement
will be filed by the registrant with the Securities and Exchange Commission
not later than 120 days after the end of the fiscal year ended June 30,
1994.
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PART I
Item 1. Business.
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(a) General Development of the Business
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The Bear Stearns Companies Inc. (the "Company") was
incorporated under the laws of the State of Delaware on August 21,
1985. The Company is a holding company that, through its subsid-
iaries, principally Bear, Stearns & Co. Inc. ("Bear Stearns") and
Bear, Stearns Securities Corp. ("BSSC"), is a leading United States
investment banking, securities trading and brokerage firm serving
United States and foreign corporations, governments and institutional
and individual investors. BSSC, a wholly-owned subsidiary of Bear
Stearns, provides all professional and correspondent clearing services
as well as the clearance and settlement of the Company's proprietary
and customer transactions. The Company succeeded to the business of
Bear, Stearns & Co., a New York limited partnership (the "Partner-
ship"), on October 29, 1985. As used in this Report, the "Company"
refers, unless the context requires otherwise, to The Bear Stearns
Companies Inc. and its subsidiaries and also includes the prior busi-
ness activities of the Partnership.
(b) Financial Information About Industry Segments
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The Company's business activities are highly integrated and
constitute a single industry segment. Other businesses or classes of
similar products or services in which the Company was engaged during
each of the three years in the period ended June 30, 1994 represented
less than 10% of consolidated revenues, operating profit and assets.
Financial information regarding the Company's foreign operations for
those same periods is set forth under the Notes to the Consolidated
Financial Statements (Footnote 13 "Segment and Geographic Area Data")
in the registrant's 1994 Annual Report to Stockholders (the "Annual
Report"), which is incorporated herein by reference to Exhibit No.
(13) of this report.
(c) Narrative Description of Business
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The Company is a holding company that, through its
subsidiaries, principally Bear Stearns and BSSC, is a leading United
States investment banking, securities trading and brokerage firm
serving United States and foreign corporations, governments and
institutional and individual investors. The business of the Company
includes market-making and trading in corporate,
NYFS04...:\25\22625\0110\7120\10K91994.N1D
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United States government and agency, mortgage-related, asset-backed
and municipal securities and trading in options, futures, foreign
currencies, interest rate swaps and other derivative products;
securities and commodities arbitrage; securities, options and
commodities brokerage for domestic and international institutional and
individual clients; underwriting and distribution of securities,
arranging for the private placement of securities, assisting in
mergers and acquisitions and restructuring and providing other
financial advisory services, including advising on, and participating
in principal investments in, leveraged acquisitions; providing
securities clearance services; specialist activities in securities on
the floors of the New York Stock Exchange, Inc. ("NYSE"); customer
financing activities; securities lending activities; fiduciary
services; and providing other services, including real estate
brokerage, investment management and advisory activities, and
securities research.
The Company's operations are conducted from its principal
offices in New York City, from domestic regional offices in Atlanta,
Boston, Chicago, Dallas, Los Angeles and San Francisco from
representative offices in Beijing, Geneva, Hong Kong and Shanghai,
through international subsidiaries in Buenos Aires, Frankfurt, Hong
Kong, London, Paris, Sao Paulo and Tokyo, and through joint ventures
with other firms in Karachi, Madrid and Paris. The Company's foreign
offices provide services and engage in investment activities involving
foreign clients and international transactions. The Company's trust
company subsidiary, Custodial Trust Company, operates from offices in
Princeton, New Jersey.
Bear Stearns and BSSC are broker-dealers registered with the
Securities and Exchange Commission (the "SEC"), are members of the
NYSE and all other principal United States securities and commodities
exchanges and are members of the National Association of Securities
Dealers, Inc. ("NASD") and the National Futures Association ("NFA").
Bear Stearns is also a "primary dealer" in United States government
securities designated by the Federal Reserve Bank of New York.
As of June 30, 1994, the Company had 7,321 employees.
Securities Trading Activities
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General. The Company makes inter-dealer markets and trades
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as principal in corporate debt and equity securities, United States
and non-United States government and agency securities, mortgages and
mortgage-backed securities, other asset-
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backed securities, municipal and other tax-exempt securities, interest
rate swaps and other derivative products. Bear Stearns is one of the
largest dealers in the United States in fixed income securities,
including securities of the United States government and its agencies,
mortgage-backed securities and corporate and tax-exempt securities.
Inventories of such fixed income securities and over-the-counter
equities are carried to facilitate sales to customers and other
dealers.
United States Government and Agency Obligations. The
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Company is recognized by the Federal Reserve Bank of New York as a
primary dealer in United States government, government guaranteed and
agency obligations and similar instruments. The Company participates
in the auction of, and maintains proprietary positions in, United
States Treasury bills, notes and bonds. The Company also participates
as a selling group member as underwriter in the distribution of
various United States Government agency and sponsored corporation
securities and maintains proprietary positions in such securities. In
connection with these activities, the Company enters into transactions
in options, futures and forward contracts to hedge its proprietary
positions. As a primary dealer, Bear Stearns makes weekly reports of
its inventory positions and market transactions in United States
government securities to the Federal Reserve Bank of New York and buys
and sells government securities directly with the Federal Reserve Bank
of New York as part of the Bank's open market activities. The
Company's daily trading inventory in United States government,
government guaranteed and agency obligations is financed principally
through the use of repurchase agreements. In addition, the Company
serves as an intermediary between borrowers and lenders of short-term
funds through the use of repurchase and reverse repurchase agreements.
Corporate Fixed Income Securities. The Company acts as a
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dealer in corporate fixed income securities, including preferred
stocks, in the United States and in London. It buys and sells such
securities for its own account in principal transactions with institu-
tional and individual customers as well as other dealers. As part of
this business, the Company participates in the trading and sales of
high yield, non-investment-grade securities, the securities of
companies that are the subject of pending bankruptcy proceedings and
bank loans. In addition, the Company conducts trading activities in
Eurodollar securities (primarily debt securities) in London, and makes
markets in New York and London in foreign securities and non-dollar
issues. The Company offers hedging and arbitrage services utilizing
financial futures and other instruments to domestic and foreign
institutional and individual customers and quantitative,
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strategic and credit research services relating to fixed income
securities to its domestic and international clients.
Mortgage-Related Securities and Products. The Company makes
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markets in and trades Government National Mortgage Association
("GNMA") securities, Federal Home Loan Mortgage Corporation ("FHLMC")
Participation Certificates, Federal National Mortgage Association
("FNMA") mortgage-backed securities, Resolution Trust Corporation
("RTC") mortgage pass-through certificates, Small Business
Administration loans, loans guaranteed by the Farmers Home Loan
Administration, Federal Housing Authority insured multi-family loans,
real estate mortgage investment conduit ("REMIC") and non-REMIC
collateralized mortgage obligations, including residual interests, and
other derivative mortgage-backed securities and products, such as
mortgage servicing and interest rate swaps. The Company also trades
real estate mortgage loans originated by unaffiliated mortgage
lenders, both on a securitized and non-securitized basis. The Company
acts as underwriter and placement agent with respect to transactions
in all manner of rated and non-rated mortgage-related securities
issued by affiliated and unaffiliated parties and enters into
significant commitments, such as forward contracts, standby
arrangements and futures contracts, in respect of GNMA, FNMA, FHLMC
and RTC securities and other rated and non-rated mortgage-related
securities. Certain rated and non-rated mortgage-related securities
are considered to be liquid while others, as well as non-securitized
mortgage loans, are considered to be less readily marketable. The
market for mortgage-related securities continues to evolve rapidly,
presenting both opportunities and risks.
The Company trades GNMA, FNMA and FHLMC "to be announced"
securities, which are securities having a stated coupon and original
term to maturity although the issuer and/or the specific pool of
mortgage loans are not known at the time of the transactions. The
Company buys and sells such securities for its own account in
transactions with institutional and individual investors, as well as
with other dealers. Under the Company's trading agreements, the
Company generally has the right to request margin from its counter-
party.
Through a special purpose subsidiary, the Company acts as a
private secondary market mortgage conduit for non-conforming fixed and
adjustable rate residential mortgage loans. This subsidiary purchases
residential mortgage loans meeting approved criteria and resells these
loans to institutional investors in the form of non-securitized
mortgage loans or participation certificates or in securitized form.
In connection with such activities, the Company enters into commit-
ments to purchase and
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sell such loans and securities. A staff of mortgage underwriters ana-
lyzes and performs procedures to verify the authenticity and in-
vestment quality of non-securitized mortgage loans in connection with
their purchase for the account of the Company. From time to time,
loans secured by commercial properties may be purchased for resale.
The Company, through another subsidiary, has established a
full-purpose mortgage banking company for the purchase, sale and
servicing of conventional, as well as FHA/VA fixed rate and adjustable
rate mortgage loans which are primarily first liens secured by
residential properties. Generally, whole portfolios of loans of
various levels of quality are purchased from financial institutions
and other secondary mortgage market sellers. Prior to bidding on a
portfolio of loans an analysis of the portfolio is performed by
experienced mortgage loan underwriters. Upon acquisition of a loan
portfolio, the loans are classified as investment-grade and non-
investment-grade. Collection efforts are the primary focus of the
non-investment-grade segment of the loan portfolio. A collection
department employs a staff of work-out specialists and loan counselors
to assist borrowers with their payments. If collection efforts are
unsuccessful, a foreclosure department will commence and monitor the
foreclosure process until the property securing the loan has been
foreclosed, or otherwise acquired, or the borrower brings the loan
current. The portfolio may include real estate which had been
foreclosed or was in the process of foreclosure at the time of
acquisition. The REO department is responsible for real property
which has been foreclosed including maintaining the property and
marketing it through regional real-estate brokers. The investment-
grade loans are sold to other institutional investors either in secu-
ritized or non-securitized form.
In addition, special purpose subsidiaries issue REMIC and
non-REMIC collateralized mortgage obligations directly or through one
or more trusts they have established.
The Company maintains international mortgage-related
operations through a joint venture with Credit Lyonnaise in France.
The Company, through Bear Stearns Spanish Securitization Corp.,
entered into an agreement with a consortium of Spanish banks to
promote asset securitization in Spain.
Asset-Backed Securities. The Company acts as underwriter
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and placement agent with respect to investment-grade and lower rated
asset-backed securities issued by unaffiliated third parties. Such
asset-backed securities include securities backed by consumer
automobile receivables (originated by captive finance
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subsidiaries of automobile manufacturers as well as those originated
by commercial banks and finance companies), credit card receivables,
home equity lines of credit or second mortgages, timeshare receivables
and computer leases. The Company also makes markets in and trades
such asset-backed securities. The market for asset-backed securities
is relatively recent. While there are ready markets for the
investment-grade asset-backed securities described above, other types
may lack liquidity.
Municipal Securities and Related Products. The Company is a
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major dealer in tax-exempt and taxable municipal securities, including
general obligation and revenue bonds, leases, notes, and variable rate
obligations issued by states, counties, cities and state and local
governmental authorities. The Company is active as a managing under-
writer of negotiated and competitive new issues. It makes markets in
a broad range of long-term and short-term municipal securities, both
to facilitate trades with institutional clients and to realize trading
gains for the Company. For a fee, the Company provides liquidity to
the variable rate demand bond market as agent for issuers. The
Company periodically uses municipal futures to hedge its cash market
bond inventory. In addition, the Company maintains a municipal arbi-
trage portfolio for its own account, consisting of municipal futures
and cash bond positions. The Company's underwriting, trading and
sales activities are supported by a municipal credit research group.
Arbitrage. The Company engages for its own account in both
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"classic" and "risk" arbitrage of securities. In classic arbitrage
the Company seeks to profit from temporary discrepancies that occur
between the prices at which a security is traded in two or more
markets, or between the price of a convertible security and the
underlying security or between securities that are or will be
exchangeable at a later date or contracts that will be settled in cash
at a later date. The Company's risk arbitrage activities involve
purchasing securities at discounts from the value that will be
realized if certain proposed or anticipated transactions, such as
mergers, recapitalizations and tender or exchange offers, are
consummated.
Commodities Arbitrage. The Company trades for its own
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account in commodity futures, forward contracts and physical commodi-
ties, primarily crude oil, heating oil and refined products. These
trading activities primarily seek to take advantage of discrepancies
between the cash ("spot") and futures markets.
Block Trading. The Company effects transactions in large
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blocks of securities, usually with institutional investors
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and generally involving blocks of 50,000 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 a purchaser or seller is not immediately
available.
Options and Indexes. The Company maintains substantial
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proprietary trading and investment positions in a wide range of
derivative securities, including listed and over-the-counter equity
options, stock index futures and options and index swaps in domestic
and foreign markets. The Company also executes client transactions in
both listed and unlisted options and often is required to act as
principal to facilitate these transactions.
Foreign Exchange. The Company engages in various foreign
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exchange activities, including proprietary trading in major currencies
(spot and forward), minor currencies, listed and over-the-counter
foreign currency options, and foreign currency futures. A full range
of currency options strategies are structured to meet specific client
risk management objectives.
Derivatives. The Company specializes in individually
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negotiated over-the-counter derivative contracts involving interest
rates, currencies, equities, and mortgages. The products include
interest rate swaps, caps and floors, currency swaps, equity swaps,
equity options and mortgage swaps. The group also works on structured
derivative products which combine derivatives with both privately and
publicly placed debt or equity issuances. The Company's over-the-
counter derivatives business meets clients' needs in a number of
areas, including corporate finance and capital markets.
Over-the-Counter Equity Securities. The Company makes
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markets, buying and selling as a principal, in common stocks,
preferred stocks, warrants and other securities traded on the NASD's
Automated Quotation System or otherwise in the over-the-counter
market. Principal transactions with customers are effected at a net
price equal to the current inter-dealer price, plus or minus a mark-up
or mark-down.
Emerging Markets. The Company is recognized as one of the
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dominant emerging markets efforts in the worldwide financial
community. The Company provides a full range of brokerage services,
including equity and fixed income trading and sales, capital markets
and research and a wide range of investment banking services. As part
of these activities, the Company manages and participates in public
offerings and arranges the private placement of debt and equity
securities directly with
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institutional investors. The markets currently covered by the Company
include all of Latin America, East Asia (China, Hong Kong and Taiwan),
Thailand, Malaysia, Indonesia, the Philippines, Korea, India, Pakistan
and Southern Europe.
Specialist Activities. The Company is a participant in
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specialist units on the NYSE, performing specialist functions in 72
NYSE-listed stocks. These market-making operations are conducted
through joint ventures with other independent exchange members and
member organizations pursuant to joint account agreements. The
market-making function of the specialist involves risk during periods
of market fluctuation, since specialists generally are obligated to
take positions in their issues that are against the direction of the
market in order to minimize short-term imbalances in the auction
market.
Brokerage Activities
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A major portion of the Company's revenues is derived from
customer commissions on brokerage transactions in equity and debt
securities. The Company is one of the leading firms in the U.S. in
providing brokerage services to institutional investors. The
Company's brokerage clients include both U.S. and foreign
institutional investors, such as investment advisors, mutual funds,
commercial banks, pension and profit sharing funds and insurance
companies, and high net worth individuals. A significant portion of
the Company's commission business is for institutional clients, often
in block trades requiring special marketing and trading expertise, as
well as from transactions originated by the correspondent firms for
which the Company provides securities clearance services. The largest
portion of the Company's commission revenue is derived from brokerage
transactions in listed securities.
Institutional. A substantial portion of the Company's
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commission business involves the execution of transactions in
corporate securities for domestic and foreign institutional investors.
The primary source of revenue from equity activities is negotiated
commission revenue, earned for providing customers with liquidity,
trading expertise, trade processing capability and investment advice,
the last of which includes, for example, investment strategies and
economic forecasts, as well as industry and company analysis and
investment recommendations.
Individual Investors. The Company's individual investor
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sales force concentrates on servicing individuals with high
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net worth who engage in securities transactions of a size sufficient
to benefit from the Company's execution capabilities.
Option and Index Products. The Company provides a full
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range of equity and index option related execution services to
institutional and individual investor clients. The Company utilizes
sophisticated research and computer modeling to assist in the
formulation of option and index trading strategies and recommendations
to clients.
Commodities. The Company provides transaction services for
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customers in the purchase and sale of commodity futures contracts,
including stock index, interest rate, currency, agricultural and
precious metals futures and options on commodity futures contracts and
physical commodities. Commodity futures trading is subject to
extensive regulation by the Commodity Futures Trading Commission
("CFTC") pursuant to the Commodity Exchange Act and the Commodity
Futures Trading Commission Act of 1974 in the United States.
Additionally, commodity futures activities in the United Kingdom are
subject to regulation by the Securities and Futures Authority (the
"SFA").
Substantially all transactions in commodity futures
contracts are on margin, subject to individual exchange regulations.
Commodity transactions may expose the Company to risk in the event
margin requirements are not sufficient to fully cover losses to which
market participants may be exposed during a trading day. The Company
is a clearing member of the Chicago Board of Trade, the Chicago
Mercantile Exchange, the Commodity Exchange, Inc. and other principal
commodity exchanges in the United States and is a member of the
International Petroleum Exchange (the "IPE"), Futures and Option
Exchange (the "FOX") and London International Financial Futures
Exchange (the "LIFFE") in the United Kingdom and the Marche a Terme
International de France ("MATIF") in France.
International. Two of the Company's London subsidiaries,
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Bear, Stearns International Limited ("BSIL") and Bear Stearns U.K.
Limited ("BSUK") are securities broker-dealers and jointly provide
several classes of services, such as principal transactions, agency
transactions, underwriting and investment banking activities. BSIL
and BSUK are both members of the SFA and BSIL is a member of the IPE,
the LIFFE, the International Securities Market Association (the
"ISMA") and the London Commodities Exchange (the "LCE"). Another
London subsidiary, Bear Stearns International Trading ("BSIT") is a
market maker in various non-dollar denominated equity securities
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and engages in index and derivative arbitrage. BSIT is a member of
the London Stock Exchange and SEAQ International.
The Company's Paris subsidiaries are Bear Stearns S.A.
("BSSA") and Bear Stearns Finance S.A. ("BSFSA"). BSSA sells equity
securities to institutional customers. BSFSA is a regulated French
broker-dealer and a member of the MATIF.
Bear Stearns Bank GmbH ("BSB") is a licensed German bank,
dealing in institutional equity sales and trading. BSB is a member of
the Frankfurt Stock Exchange. Bear Stearns (Japan) Ltd. ("BSJL") is a
broker-dealer registered with the Ministry of Finance (the "MOF") in
Japan. BSJL sells equity and fixed income securities to Japanese
institutional customers. Bear Stearns Hong Kong Ltd. ("BSHK") is a
member of the Chicago Board of Trade ("CBOT") and the Securities and
Futures Commission ("SFC"). Bear Stearns Asia Ltd. ("BSAL") sells
equity and fixed income securities to Hong Kong institutional and
retail customers and also provides investment banking services to
institutional clients.
Investment Banking
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The Company is a major investment banking firm offering a
full range of capital formation and advisory services for a broad
range of corporate, government and other clients. The Company manages
and participates in public offerings and arranges the private
placement of debt and equity securities directly with institutional
investors. As part of these activities, the Company participates in
the public offering of high yield, non-investment-grade securities.
The Company provides advisory services to clients on a wide range of
financial matters and assists in the execution of mergers and
acquisitions, leveraged buyouts, divestitures, asset-based financings
and corporate reorganizations and recapitalizations. In addition, the
Company manages and participates in underwritings outside the United
States of Eurodollar obligations of corporate issuers. The Company
has expanded its capabilities for raising capital through Latin
American and Asian private and public sector issuers in the
international fixed income and equity markets.
The Company also is a major underwriter of corporate and
municipal securities, particularly as a manager or co-manager. The
Company is a leading underwriter of mortgage-backed securities, and
underwrites and offers on a principal basis a variety of mortgage-
related securities, including whole loans,
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pass-through certificates and collateralized mortgage obligations.
The Company arranges and participates in public offerings
and private placements of debt and equity securities of public and
private sector issuers of emerging market countries ("EMCs"). The
Company also trades such securities, both as principal and as agent,
for its customers, in Europe, Latin America, the Far East and the
United States.
As part of its investment banking activities, the Company
from time to time participates in principal investments in leveraged
acquisitions. As part of these activities, the Company originates,
structures and invests in merger, acquisition, restructuring and
leveraged capital transactions, including leveraged buyouts. The
Company's investments are generally in the form of equity securities
(either common stock or preferred stock). Equity securities purchased
in these transactions generally are held for appreciation and are not
readily marketable. While the Company believes that the current
carrying value of these investments is at least equal to their
eventual realizable value, it is not possible to determine whether or
when the Company will realize the value of these investments.
Real Estate. The Company is engaged in a variety of real
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estate activities on a nationwide basis. It acts as a financial
advisor to both debtors and creditors of financially troubled and/or
bankrupt real estate companies. A wholly-owned subsidiary of the
Company acts as a co-general partner in a limited partnership formed
to allow U.S. pension funds to purchase multifamily properties
nationwide. Another wholly-owned subsidiary of the Company is a
licensed real estate broker and engages in the sale of investment-
grade commercial real estate and arranges debt and equity placements
for both existing and proposed projects.
International. The Company sells and trades a wide variety
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of dollar and non-dollar denominated securities to institutional
investors throughout the world. In addition, the Company has assumed
a substantial role in the private placement of United States
securities in the United Kingdom. The Company also provides a range
of investment banking, corporate advisory and merger and acquisition
services outside the United States.
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Securities Clearance Activities
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The Company provides a full range of securities clearance
services to clients. Correspondent clearing clients are fully
disclosed correspondents who are members of the NYSE and the NASD
engaged in the retail or institutional brokerage business.
Additionally, the Company is extensively involved in the clearing of
transactions for professional/specialist clients consisting of market
makers, specialists, arbitrageurs, hedge funds, money managers and
other professional traders.
In addition to commissions and service charges derived from
the Company's securities clearance activities, the Company derives
substantial interest revenue from its securities clearance activities.
The Company extends credit directly to customers of the correspondent
broker to enable such customers to conduct securities transactions on
margin, with the securities firms guaranteeing the accounts of their
clients. The Company also extends margin credit directly to its
correspondent firms, to the extent that such firms hold securities
positions for their own account. Because the Company must rely on the
guaranties and general credit of its correspondent firms, the Company
may be exposed to significant risks of loss if any of its correspon-
dents is unable to meet its financial commitments in the event of a
significant change in the value of the securities held as collateral.
The correspondent clearing business for risk arbitrageurs, hedge
funds, specialists, market makers and other professional traders can
require substantial commitment of the Company's capital and involves
varying degrees of risk. The Company has developed computerized
control systems to monitor and analyze risk on a daily basis.
In addition to executing trades, the Company also provides
other services to its correspondents, including recordkeeping,
streamlined trading reports, accounting functions, back office
services, stock loan facilities, reorganization services and custody
of securities. The Company's prime broker system provides
consolidated reporting and securities processing for professional
clients who execute trades at more than one securities firm. The
responsibilities arising out of the Company's clearing relationships
are allocated pursuant to agreements with its correspondents. To the
extent that the correspondent broker has resources available, this
allocation of responsibilities protects the Company against claims by
customers of correspondent brokers where the responsibility for the
function giving rise to a claim has been allocated to the correspon-
dent broker. If the correspondent is unable to meet its obligation to
its customers,
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however, dissatisfied customers may attempt to seek recovery from the
Company.
The Company views its correspondent clearing accounts in the
context of developing broader relationships. In addition to
performing administrative, operational and settlement functions, the
Company also advises correspondents on communications systems, and
makes available a variety of nonbrokerage products and services at
favorable prices that reflect the Company's purchasing power as a
leading firm in the industry.
Interest
--------
The Company derives net interest income from customer margin
loans and securities lending activities.
Customer Financing. Customers' securities transactions are
------------------
effected on either a cash or margin basis. In margin transactions,
the Company extends credit, subject to various regulatory and internal
requirements, to the customer, collateralized by securities and cash
in the customer's account, for a portion of the purchase price, and
receives income from interest charged on these extensions of credit.
Interest rates charged to customers for such margin financing are
based upon the federal funds rate or brokers call rate. In permitting
customers to purchase on margin, the Company takes the risk of a mar-
ket decline that would reduce the value of its collateral below the
amount of a customer's indebtedness before the collateral could be
sold. The amount of the Company's interest revenue is affected by the
volume of customer borrowing and by prevailing interest rates.
Securities Lending Activities. In connection with both its
-----------------------------
trading and brokerage activities, the Company borrows securities to
cover short sales and to complete transactions in which customers have
failed to deliver securities by the required settlement date, and
lends securities to other brokers and dealers for similar purposes.
The borrower of securities is required to deposit cash or other col-
lateral, or to post a letter of credit, with the lender and generally
receives a rebate (based on the amount of cash deposited) or pays a
fee calculated to yield a negotiated rate of return to the lender.
Stock borrow and stock loan transactions are generally executed
pursuant to written agreements with counterparties which require that
the securities borrowed and loaned be marked to market on a daily
basis and that excess collateral be refunded or that additional
collateral be furnished in the event of changes in the market value of
the
<PAGE>
<PAGE>
securities. Margin adjustments are usually made on a daily basis
through the facilities of various clearing houses.
Other Activities
----------------
Asset Management. The Company's asset management division
----------------
manages investment portfolios on behalf of retirement plans, insurance
companies, corporations, foundations, endowments and high net worth
individuals. The Company's asset management division currently
manages over $6.0 billion of equity and fixed income investments for
its institutional and individual clientele.
Securities Research. To provide customers with current
-------------------
information and opinions on investments and securities markets, the
Company provides analysis of approximately 600 companies and evaluates
the trends and outlooks in 35 separate industries and the impact of
changes in legislation, regulation and accounting standards on
companies and their businesses. A fixed income research unit
contained within the Company's Financial Analytics and Structured
Transactions Group provides financial engineering and securitization
capabilities, investment research fixed income portfolio management
and analytical systems and trading technology on mortgage-related and
fixed income securities. This unit also performs original research on
valuation techniques and provides consulting services. A high grade
fixed income research unit, consisting of approximately 15 analysts
and researchers, provides similar services in respect of high grade
fixed income securities and a high yield fixed income research unit,
consisting of approximately 15 analysts and researchers, provides sim-
ilar services in respect of high yield fixed income securities. The
Company derives revenues for its research activities principally from
securities transactions in its agency or dealer capacity, from its
consulting services and from offering portions of its research for a
fee.
Insurance. The Company acts as agent for several life
---------
insurance companies and sells deferred annuities and life insurance.
Revenues derived from the sale of such insurance products have not
been significant.
Custodial Trust Company. The Company offers a range of
-----------------------
fiduciary services and securities clearance services through a wholly-
owned subsidiary of the Company, Custodial Trust Company ("CTC"). CTC
provides the Company with banking powers, such as access to the
securities and funds wire services of the Federal Reserve. CTC offers
fiduciary, custody and agency services for
<PAGE>
<PAGE>
institutional accounts; clearing government securities for insti-
tutions and dealers; processing mortgage and asset-related products,
including derivatives and CMO products; and commercial lending. At
June 30, 1994, CTC held over $25 billion of assets for institutional
clients including pension funds, mutual funds, endowment funds,
religious organizations and insurance companies.
Fiduciary Services. The Company assists pension and welfare
------------------
funds, other institutional investors and individual clients with high
net worth in overseeing their investment-related affairs.
Administration and Operations
-----------------------------
Administrative and operations personnel are responsible for
the processing of securities transactions; the receipt, identification
and delivery of funds and securities; internal financial control;
accounting functions; office services; custody of customers'
securities; and the handling of margin accounts of the Company and its
correspondents. The processing, settlement of and accounting for
orders from the Company's customers, correspondents and
correspondents' customers is handled by a staff of approximately 3,230
employees, located in separate operations offices in New York City and
in each of the Company's regional offices.
The Company executes its own and its correspondents'
transactions on all United States exchanges and in the over-the-
counter market. The Company clears all of its domestic and foreign
transactions (delivery of securities sold, receipt of securities
purchased and transfer of related funds) through its own facilities
and through memberships in various clearing corporations, except for
certain government, government agency and mortgage-related securities
transactions, which are cleared through unaffiliated commercial banks,
and certain other government and government agency securities
transactions, which are cleared through Custodial Trust Company.
There is considerable fluctuation during any year and from
year to year in the volume of transactions the Company must process,
clear and settle. Operations personnel monitor day-to-day operations
to determine compliance with applicable laws, rules and regulations.
The Company records transactions and posts its books on a daily basis.
Failure to keep current and accurate books and records can render the
Company liable to disciplinary action by governmental and self-
regulatory organizations.
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<PAGE>
The Company maintains its own data processing facilities,
which have been expanded significantly in recent years.
The Company believes that its internal controls and
safeguards are adequate, although fraud and misconduct by customers
and employees and the possibility of theft of securities are risks
inherent in the securities industry. As required by the NYSE and
certain other authorities, the Company carries a broker's blanket bond
covering loss or theft of securities as well as forgery of checks and
drafts and embezzlement and misplacement of securities. This bond
provides fidelity coverage and coverage for loss or theft of
securities, fraudulent trading and forgery of securities of
$200,000,000, subject to a deductible of $2,500,000 per occurrence.
Competition
-----------
The Company encounters intense competition in all aspects of
the securities business and competes directly with other securities
firms, both domestic and foreign, a significant number of which have
substantially greater capital and other resources and some of which
offer a wider range of financial services than the Company. In
addition to competition from firms currently in the securities
business, in recent years the Company has experienced increasing
competition from other sources, such as commercial banks and insurance
companies offering financial services, and from other investment
alternatives. The Company believes that the principal factors
affecting competition in the securities industry are the quality and
ability of professional personnel and relative prices of services and
products offered.
Regulation and Other Factors Affecting the Company and the Securities
---------------------------------------------------------------------
Industry
--------
The securities industry in the United States is subject to
extensive regulation under both federal and state laws. The SEC is
the federal agency responsible for the administration of the federal
securities laws. Bear Stearns is registered as a broker-dealer and
investment adviser with the SEC and is registered as a broker-dealer
in all 50 states and the District of Columbia. Much of the regulation
of broker-dealers has been delegated to self-regulatory organizations,
principally the NASD, the Municipal Securities Rulemaking Board and
national securities exchanges such as the NYSE, which has been
designated by the SEC as the primary regulator of certain of the
Company's subsidiaries, including Bear Stearns and BSSC. These self-
regulatory
<PAGE>
<PAGE>
organizations adopt rules (which are subject to approval by the SEC)
that govern the industry and conduct periodic examinations of the Com-
pany's operations. Securities firms are also subject to regulation by
state securities administrators in those states in which they conduct
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,
recordkeeping and the conduct of directors, officers and employees.
The regulations to which investment advisers are subject cover
recordkeeping, fee arrangements, disclosure to clients and the conduct
of directors, officers and employees. Additional legislation, changes
in rules promulgated by the SEC and self-regulatory organizations or
changes in the interpretation or enforcement of existing laws and
rules may directly affect the mode of operation and profitability of
broker-dealers or investment advisers. The SEC, self-regulatory
organizations and state securities commissions may conduct
administrative proceedings which can result in censure, fines, the
issuance of cease-and-desist orders or the suspension or expulsion of
a broker-dealer or an investment adviser, its officers or employees.
The principal purpose of regulation and discipline of broker-dealers
or investment advisers is the protection of customers and the
securities markets, rather than protection of creditors and stock-
holders of broker-dealers and investment advisers. Occasionally, the
Company's subsidiaries have been subject to routine investigations and
proceedings, and sanctions have been imposed for infractions of
various regulations relating to activities as a broker-dealer, none of
which, to date, has had a material adverse effect on the Company or
its business.
The Market Reform Act of 1990 was adopted to strengthen
regulatory oversight of the securities markets, improve financial
market participants, and improve the safety and efficiency of market
mechanisms by creating a system of information and oversight over the
parents and other affiliates of broker-dealers. The SEC has adopted
the Risk Assessment Reporting Requirements for Brokers and Dealers
(the "Risk Assessment Rules") to implement the provisions of the
Market Reform Act of 1990. The Risk Assessment Rules require that
broker-dealers develop an organizational chart, maintain risk
management procedures or standards for monitoring and controlling the
risks resulting from activities of material associated persons and
maintain and preserve records and other information and file quarterly
reports concerning the risk management procedures and financial and
securities activities of the broker-dealers' holding companies,
<PAGE>
<PAGE>
affiliates or subsidiaries that are reasonably likely to have a
material impact on the financial and operational condition of the
broker-dealer.
The Insider Trading and Securities Fraud Enforcement Act of
1988 augments enforcement of the securities laws through a variety of
measures designed to provide greater deterrence, detection and
punishment of insider trading violations. Among other things, the law
expands the scope of civil penalties to controlling persons who fail
to take adequate steps to prevent insider trading; initiates a bounty
program giving the SEC discretion to reward informants who provide
assistance to the agency; and requires broker-dealers and investment
advisors to establish and enforce written policies and procedures
reasonably designed to prevent the misuse of inside information.
The Government Securities Act of 1986 (the "Government
Securities Act") established a comprehensive and coordinated pattern
for the regulation of brokers, dealers and financial institutions
trading in government securities, including Bear Stearns. Under the
Government Securities Act, Bear Stearns is subject to Department of
Treasury regulations regarding, among other things, capital adequacy,
custody of securities, custody and use of government securities and
transfers and control of government securities subject to repurchase
transactions.
The commodities industry in the United States is subject to
regulation under the Commodity Exchange Act, as amended. The CFTC is
the federal agency charged with the administration of the Commodity
Exchange Act and the regulations thereunder. Bear Stearns and BSSC
are registered with the CFTC as futures commission merchants and are
subject to regulation as such by the CFTC and various domestic boards
of trade and other commodity exchanges. Bear Stearns' and BSSC's
commodity futures business is also regulated by the NFA, a not-for-
profit membership corporation which has been designated a registered
futures association by the CFTC.
As registered broker-dealers and member firms of the NYSE,
Bear Stearns and BSSC are 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 brokers and dealers, is designed
to measure the general financial integrity and liquidity of a broker-
dealer and requires that at least a minimum part of its assets be kept
in relatively liquid form.
<PAGE>
<PAGE>
On May 6, 1991 the SEC amended the provisions of the Net
Capital Rule by providing (i) that a broker-dealer notify the SEC and
certain other parties, in writing, two business days prior to making
withdrawals of equity capital directly or indirectly to benefit
certain related persons if those withdrawals would exceed, in any 30
day period, 30% of the broker-dealer's excess net capital, (ii) that a
broker-dealer notify the SEC within two business days after any
withdrawal, advance or loan directly or indirectly to benefit certain
related persons if such withdrawal, advance or loan would exceed, in
any 30 day period, 20% of the broker-dealer's excess net capital (iii)
that withdrawing equity capital from a broker-dealer be prohibited if
the effect of the withdrawal would cause the broker-dealer's net cap-
ital to be less than 25% of its deductions required by the net capital
rule as to its readily marketable securities, unless the broker-dealer
has the prior consent of the SEC, and (iv) that the SEC may, by order,
prohibit withdrawals of capital from a broker-dealer for a period of
up to 20 business days, if the withdrawals would be in an amount
greater than 30% of the broker-dealer's excess net capital and the SEC
believes such withdrawals would be detrimental to the financial
integrity of the firm or would unduly jeopardize the broker-dealer's
ability to pay its customer claims or other liabilities. The effect
of the foregoing amendments may be to limit the ability of Bear
Stearns and BSSC to pay dividends and make other distributions to the
Company.
Bear Stearns and BSSC are also subject to the net capital
requirements of the CFTC and various commodity exchanges, which
generally require that Bear Stearns and BSSC maintain a minimum net
capital equal to the greater of the alternative net capital
requirement provided for under the Exchange Act or 4% of the funds
required to be segregated under the Commodity Exchange Act and the
regulations promulgated thereunder.
Compliance with the Net Capital Rule could limit those
operations of Bear Stearns and/or BSSC that require the intensive use
of capital, such as underwriting and trading activities and financing
customer account balances, and also could restrict the Company's
ability to withdraw capital from Bear Stearns or BSSC, which in turn
could limit the Company's ability to pay dividends, pay interest or
repay debt and redeem or purchase shares of its outstanding capital
stock. Additional information regarding net capital requirements is
set forth in the Notes to Consolidated Financial Statements under the
caption "Regulatory Requirements" in the Annual Report, which is
incorporated herein by reference to Exhibit No. (13) of this report.
<PAGE>
<PAGE>
Bear Stearns and BSSC are members of the Securities Investor
Protection Corporation ("SIPC"), which provides, in the event of the
liquidation of a broker-dealer, protection for customers' accounts
held by the firm of up to $500,000 for each customer, subject to a
limitation of $100,000 for claims for cash balances. In addition, the
Company has purchased $9,500,000 of additional coverage from a private
insurer for securities positions for each of the Company's customers.
The activities of the Company's bank and trust company
subsidiary, Custodial Trust Company, are regulated by the New Jersey
Department of Banking and the Federal Deposit Insurance Corporation
("FDIC"). FDIC regulations applicable to Custodial Trust Company
limit the extent to which Custodial Trust Company and Bear Stearns may
have common officers and directors and may share physical facilities,
and require certain disclosures in connection with joint advertising
or promotional activities by Bear Stearns and Custodial Trust Company.
Such regulations also restrict certain activities of Custodial Trust
Company in connection with the securities business of Bear Stearns and
provide that employees of Bear Stearns who are also employees of
Custodial Trust Company, if any, may not conduct any securities ac-
tivities that involve customer contact on behalf of Bear Stearns on
the premises of Custodial Trust Company. Federal legislation limits
expansion of the scope of the activities of Custodial Trust Company,
the annual rate of increase of its assets, the cross-marketing of cer-
tain services with affiliates, and the use of overdrafts at Federal
Reserve banks on behalf of affiliates.
The subsidiaries and employees of the Company engaged in the
insurance business are subject to regulation and supervision by
insurance authorities in the states in which they conduct their
business.
The Company does a substantial volume of business in the
international fixed income and equity markets through BSIL and makes
markets in certain non-dollar denominated securities and engages in
index and derivative arbitrage through BSIT. BSIL and BSIT are
subject to the United Kingdom Financial Services Act 1986, which
governs all aspects of United Kingdom investment business, including
regulatory capital, sales and trading practices, use and safekeeping
of customer funds and securities, recordkeeping, margin practices and
procedures, registration standards for individuals, periodic reporting
and settlement procedures. BSIL, BSIT and BSUK are subject to
supervision by the SFA, which was formed on April 1, 1991 as the
result of a merger between The Securities Association Limited ("TSA"),
which previously regulated the equity, Eurobond, fixed income,
<PAGE>
<PAGE>
investment banking and asset management activities of BSIL, and The
Association of Futures Brokers and Dealers Limited (the "AFBD"), which
regulated its commodities business. BSIL, BSIT and BSUK currently are
regulated in accordance with the rules of the SFA, BSIL is a member of
the IPE and the LIFFE, the ISMA and the LCE and BSIT is a member of
the London Stock Exchange and SEAQ International.
The Company, like other securities firms, is directly
affected by national and international economic and political
conditions, broad trends in business and finance, legislation and
regulation affecting the national and international financial and
business communities, currency values, the level and volatility of
interest rates and substantial fluctuations in volume and price levels
in the securities and commodities markets. These and other factors
can affect the amount of new issue and merger, acquisition and
restructuring activities, the level of participation in, and the types
of financing and investment related to such activities, the volume and
price levels of securities and commodities transactions, the stability
and liquidity of securities and commodities markets and the ability of
issuers, other securities firms and counterparties to perform their
obligations generally. Decreases in the amount of new issue or
merger, acquisition and restructuring activities or the level of
participation in financing and investment related to such activities
generally result in lower revenues from investment banking and, to a
lesser extent, principal transactions. Reduced volume of securities
and commodities transactions and reduced market liquidity generally
result in lower revenues from principal transactions and commissions.
Lower price levels of securities may result in reduced volume of
transactions, and may also result in losses from declines in the
market value of securities held in trading and underwriting positions.
In periods of reduced sales and trading or investment banking
activity, profitability may be adversely affected because certain
expenses remain relatively fixed. Sudden sharp declines in market
values of securities and the failure of issuers and counterparties to
perform their obligations can result in illiquid markets. In such
markets, the Company may not be able to sell securities and may have
difficulty in hedging its securities positions. Such market condi-
tions, if prolonged, may also lower the Company's revenues from
investment banking and principal transactions.
The Company's securities trading, arbitrage, market-making,
specialist, leveraged buyout and underwriting activities are conducted
by the Company as principal and subject the Company's capital to
significant risks. Such risks include market, credit (including
counterparty) and liquidity risks. In
<PAGE>
<PAGE>
addition, the Company's securities trading, market-making, leveraged
buyout and underwriting activities may involve economic, political,
currency, interest rate and other risks, any of which could result in
an adverse change in the market price of relevant securities and
commodities. The Company's participation in specialist activities on
securities exchanges may require it to purchase securities in a
declining market or sell in a rising market in order to comply with
exchange requirements.
Item 2. Properties.
----------
The Company's executive offices and principal administrative
offices occupy approximately 689,000 square feet of space at 245 Park
Avenue, New York, New York under leases expiring through 2002.
The Company also leases approximately 268,000 square feet
office space at One MetroTech Center, Brooklyn, New York pursuant to a
lease expiring in 2004 for its securities processing and clearance
operations. Additionally, the Company leases approximately 13,000,
43,000 and 140,000 square feet of space at three locations in New York
City under leases expiring in 1997, 2001 and 2004, respectively. The
Company's regional offices in Atlanta, Boston, Chicago, Dallas, Los
Angeles, and San Francisco and its nine foreign offices occupy an
aggregate of approximately 280,000 and 70,000 additional square feet,
respectively, under leases that expire at various dates through the
year 2016.
The Company owns approximately 65 acres of land in Whippany,
New Jersey, including four buildings comprising an aggregate of
approximately 300,000 square feet of space. The Company is currently
using the existing facilities on the property to house its data
processing facility and other operational functions and, because the
property includes land in excess of that required, it has received
approval for two additional buildings which it may develop for itself
or consider selling the development rights and land to others.
Item 3. Legal Proceedings.
-----------------
The Company and Bear Stearns are parties to the legal
proceedings discussed below, which have arisen in the normal course of
business. In view of the inherent difficulty of predicting the
outcome of litigation and other legal proceedings, the Company cannot
state what the eventual outcome of these pending proceedings will be.
It is the opinion of management,
<PAGE>
<PAGE>
after consultation with independent counsel, that the legal
proceedings referred to below will not, individually or in the
aggregate, have a material adverse effect on the Company's financial
position.
Alpha Group Consultants, et al. v. Weintraub, et al./In re
------------------------------- ----------------- -----
Weintraub Entertainment Group Litigation. On January 31, 1991, Alpha
----------------------------------------
Group Consultants Ltd. and the Allan D. Simon & Stefani R. Simon
Living Trust commenced an action in the United States District Court
for the Southern District of California. On April 24, 1991, an
Amended Complaint was filed. On August 29, 1991 a Second Amended
Complaint was filed, and on December 23, 1991 a Third Amended
Complaint was filed. The action is brought individually and on behalf
of a purported class of purchasers of $81 million aggregate amount of
debentures and warrants of Weintraub Entertainment Group ("WEG")
during the period January 23, 1987 through October 1, 1990. Named as
defendants are WEG (WEG is a debtor in bankruptcy, and is thus named
as a defendant only to the extent permitted under federal bankruptcy
law), certain officers and directors of WEG, including Jerry
Weintraub, Kenneth Kleinberg and Dennis Pope (the "Individual
Defendants") and Bear Stearns, the placement agent in WEG's 1987
private placement of WEG debentures and warrants.
The Third Amended Complaint alleges that at the time of the
offering and thereafter, the defendants made false and misleading
statements concerning WEG's financial condition, the experience of
certain WEG officers, the intended use of proceeds from the sale of
the WEG securities, the prospects for a public market for WEG securi-
ties, WEG's business plans, and certain terms of WEG's contracts with
distributors. The Third Amended Complaint asserts violations of
Sections 12(2) and 15 of the Securities Act of 1933, as amended (the
"Securities Act"), Sections 10(b) and 20 of the Exchange Act and Rule
10b-5 promulgated thereunder, the Racketeer Influenced and Corrupt
Organizations Act ("RICO"), California state statutes, and the common
law fiduciary duties allegedly owed by the defendants to the
plaintiffs. The action seeks unspecified compensatory and punitive
damages, treble damages under RICO, attorneys fees and expenses.
On August 23, 1991, the court entered an order dismissing
with prejudice all of plaintiffs' claims under the Securities Act and
the Exchange Act. On April 2, 1992, the court entered an order
granting plaintiffs' motion to reinstate plaintiffs' claims under the
Securities Act and the Exchange Act, and denying defendants' motions
to dismiss plaintiffs' Third Amended Complaint. The court's April 2,
1992 order also allowed
<PAGE>
<PAGE>
ALCO Group Trust Fund to intervene as a plaintiff. On February 4,
1993, the court entered an order allowing the Pension Reserves
Investment Trust Fund of the Commonwealth of Massachusetts to
intervene as a plaintiff.
On May 10, 1993, the court entered a final judgment and
order (the "Settlement Order") approving a settlement among plaintiffs
and the Individual Defendants and barring Bear Stearns from seeking
contribution, indemnity, or reimbursement from the Individual
Defendants. The Settlement Order also provided that Bear Stearns'
liability, if plaintiffs succeed in establishing liability on the part
of Bear Stearns, would be limited to Bear Stearns' proportional share
of the total damages awarded. On September 15, 1993, the court
entered an order granting class certification.
On April 22, 1994, the court denied summary judgment motions
filed by plaintiffs, and granted summary judgment in favor of Bear
Stearns on all claims. A final judgment has been entered. Plaintiffs
have filed an appeal.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this litigation, intends to defend these claims
vigorously, and believes that it has substantial defenses to these
claims.
In re Daisy Systems Corporation, Debtor. On May 30, 1991,
----------------------------------------
the Chapter 11 Trustee for Daisy Systems Corporation ("Daisy"), a
debtor in bankruptcy, and Daisy/Cadnetix, Inc. ("DCI") filed a
complaint in the United States District Court, Northern District of
California, on behalf of Daisy and DCI against Bear Stearns and six
former directors of Cadnetix, Inc. ("Cadnetix") and/or a Cadnetix
subsidiary. A First Amended Complaint was filed on March 20, 1992,
and a Second Amended Complaint (the "Complaint") filed and served on
July 24, 1992.
Bear Stearns was retained by Daisy in May 1988 to provide
investment banking services to Daisy with respect to the potential
merger of Daisy with Cadnetix. The Complaint alleges that Bear
Stearns was negligent in performing its due diligence with respect to
the merger, and in advising Daisy that it was "highly confident" that
financing could be obtained to fund the merger. The Complaint asserts
that Bear Stearns, among other things, breached fiduciary duties to
Daisy, committed professional malpractice in its efforts on Daisy's
behalf, and made negligent representations upon which Daisy relied,
breached a covenant of good faith and fair dealing implied in its
contracts with Daisy, and should have its unsecured claim in the Daisy
<PAGE>
<PAGE>
bankruptcy proceeding equitably subrogated to the claims of all other
claimants in the bankruptcy. The plaintiff seeks monetary damages and
exemplary damages in an unspecified amount, as well as costs and
expenses.
On August 17, 1992, Bear Stearns moved to dismiss the
Complaint. The other defendants in the action also moved to dismiss
the Complaint.
On February 3, 1993, the court dismissed plaintiffs' breach
of fiduciary duty and equitable subrogation counts, but denied the
remainder of the Bear Stearns' motion to dismiss. On May 13, 1993,
Bear Stearns answered the Complaint, denying liability and asserting
affirmative defenses. On August 12, 1994, the court granted summary
judgment dismissing all remaining claims against Bear Stearns.
Plaintiff has filed a motion for rehearing.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this litigation, intends to defend these claims
vigorously, and believes that it has substantial defenses to these
claims.
In-Store Advertising Securities Litigation. Beginning on
------------------------------------------
September 3, 1990, a total of fifteen litigations involving a July 19,
1990 initial public offering by In-Store Advertising, Inc. ("ISA")
were commenced in the United States District Court for the Southern
District of New York. A Consolidated Class Action Complaint was filed
by all of the plaintiffs in these actions on January 14, 1991. The
Consolidated Class Action Complaint named as defendants ISA, several
individual officers and directors of ISA; four venture capital firms
(the "Venture Capital Defendants"); and Alex. Brown & Sons
Incorporated ("Alex. Brown") and the Company. Alex. Brown and the
Company were named individually and as representatives of a purported
class of underwriters.
On August 27, 1991, plaintiffs filed an Amended Consolidated
Class Action Complaint, naming the same defendants as plaintiffs'
Consolidated Class Action Complaint. On October 15, 1991, all
defendants filed answers denying liability and asserting affirmative
defenses.
On April 16, 1993, ISA announced that it had delayed filing
its annual report due on March 31, 1993 for its 1992 fiscal year, in
order to resolve questions related to financial documents for its 1990
fiscal year. ISA also announced at that time that John E. Capps had
resigned as ISA's Chief Financial
<PAGE>
<PAGE>
Officer. On June 11, 1993, ISA reported that during the third and
fourth quarters of 1989 and the first and second quarters of 1990 --
the four quarters immediately preceding ISA's initial public offering
-- ISA had recognized revenue before it was earned, resulting in
material overstatement of revenues and earnings for those quarters.
On July 8, 1993, ISA filed for protection under Chapter 11 of the
Bankruptcy Code.
Following these developments, on July 16, 1993, plaintiffs
filed a Second Amended Consolidated Class Action Complaint (the
"Second Amended Complaint"). The Second Amended Complaint names as
defendants Robert E. Polansky, ISA's former chairman, president and
chief executive officer, and John E. Capps, ISA's former chief finan-
cial officer, secretary and treasurer (Polansky and Capps are together
referred to as the "Management Defendants"); five other present or
past officers and directors of ISA (collectively, the "Director
Defendants"); the previously named Venture Capital Defendants; Alex.
Brown and the Company, individually and as representatives of a
purported class of underwriters (collectively, the "Underwriter
Defendants"); and ISA's outside auditor, KPMG Peat Marwick. ISA was
not named as a defendant in the Second Amended Complaint, and has been
discharged from any liability in this litigation under a plan of
reorganization approved by the Bankruptcy Court on August 8, 1993.
The Second Amended Complaint alleges claims on behalf of
plaintiffs individually and a purported class consisting of all
persons who purchased ISA common stock from July 19, 1990, the date of
ISA's initial public offering, through and including November 8, 1990.
The Second Amended Complaint also alleges claims on behalf of a
purported subclass consisting of all persons who purchased ISA common
stock in ISA's initial public offering (the "Subclass"). The Second
Amended Complaint alleges that defendants made false and misleading
statements concerning ISA's past operating results and prospects for
future revenues and profits.
Count I of the Second Amended Complaint asserts violations
of Section 11 of the Securities Act against all defendants other than
the Venture Capital Defendants, and asserts violations of Section 15
of the Securities Act against all defendants other than the
Underwriter Defendants and KPMG Peat Marwick. Count II, alleged by
the Subclass, asserts violations of Section 12(2) of the Securities
Act against the Management Defendants and the Underwriter Defendants,
and asserts violations of Section 15 of the Securities Act against the
Director Defendants and the Venture Capital Defendants. Count III
asserts violations of
<PAGE>
<PAGE>
Section 10(b) of the Securities Exchange Act and Rule 10b-5
promulgated thereunder against all defendants, and asserts violations
of Section 20 of the Exchange Act against the Director Defendants and
the Venture Capital Defendants. Count IV asserts common law fraud and
deceit claims against all defendants. Count V asserts negligent
misrepresentation claims against all defendants. Plaintiffs seek
compensatory damages, rescissory damages where applicable, punitive
damages, interest and costs, including attorneys' and experts' fees.
On September 29, 1993, the Underwriter Defendants, including
the Company, filed an answer to the Second Amended Consolidated
Complaint denying all substantive allegations, asserting affirmative
defenses and asserting a cross-claim against KPMG Peat Marwick. On
December 30, 1993, plaintiff's federal law claims against defendant
KPMG Peat Marwick were dismissed as time barred, but the court
retained jurisdiction over plaintiff's state law claims against KPMG
Peat Marwick. On June 15, 1994 KPMG Peat Marwick moved to dismiss or
sever plaintiffs' state law claims and the cross-claims asserted
against KPMG Peat Marwick by the Underwriter Defendants, including the
Company and the Venture Capital Defendants.
On September 5, 1990, David Ackerman, suing derivatively on
behalf of ISA, commenced an action in the United States District Court
for the Southern District of New York, naming as defendants the
Director Defendants, Alex. Brown, KPMG Peat Marwick, the Company and
"John Doe". That complaint alleges that defendants made false and
misleading statements concerning ISA's business prospects, and that
when ISA revealed that its second quarter earnings and revenues in its
fiscal year 1990 were below those publicly forecast and that its near
term prospects would also fail to meet prior forecasts, ISA's stock
price declined and class action lawsuits were filed, resulting in
damage to ISA's reputation and business, and requiring ISA to incur
substantial legal fees and expenses. Claims are asserted under
Section 10(b) of the Exchange Act and Rule 10b-5 and state common law.
On November 30, 1990, ISA moved to dismiss this complaint
due to plaintiff's failure to make a pre-litigation demand on ISA's
board of directors. All other defendants, including Bear Stearns,
joined this motion to dismiss by letter. The motion is currently
pending.
Discovery is proceeding in these actions.
Bear Stearns denies all allegations of wrongdoing asserted
against it in these litigations, intends to defend these
<PAGE>
<PAGE>
claims vigorously, and believes that it has substantial defenses to
these claims.
Jenny Craig, Inc. Litigation. On June 5, 1992, Charles S.
----------------------------
Steinberg commenced an action in the United States District Court for
the Southern District of California. The action is brought
individually and on behalf of a purported class consisting of persons
who purchased the common stock of Jenny Craig, Inc. ("JCI") between
October 29, 1991 through May 27, 1992, other than the defendants. The
action names as defendants Sidney H. Craig, Genevieve Craig, Jenny
Craig International, Inc., Ronald E. Gerevas, W. James Mallen, Marvin
Sears, Michael E. Tennenbaum, Jeffrey T. Chambers, Bear Stearns,
Morgan Stanley & Co. Inc., T.A. Associates, New York Life Insurance
Co., Bank of New York and Security Pacific National Bank. Each of the
individuals named as defendants are officers and/or directors of JCI,
and Mr. Tennenbaum is also a director of the Company, a Senior
Managing Director of Bear Stearns and a director of JCI. Three
similar purported class actions entitled Neal v. Craig, et al., Jacobs
---- ------------- ------
v. Craig, et al. and Petty v. Craig, et al. were also commenced in
------------- ----- -------------
the same court in June 1992 against the same defendants. The
Steinberg, Neal, Jacobs and Petty actions are collectively referred to
--------- ---- ------ -----
as the "Complaints."
The Complaints arise out of an initial public offering on
October 29, 1991 of 5,750,000 shares of common stock of JCI, in which
Bear Stearns and Morgan Stanley & Co. Inc. acted as co-lead
underwriters. Of the shares offered, 3,500,000 shares were sold by
JCI and, after giving effect to the exercise of an over-allotment
option, 2,250,000 shares were sold by certain selling stockholders,
including 66,150 shares sold by Bear Stearns, 33,300 shares sold by
Michael Tennenbaum and approximately 10,700 shares sold by other
employees of Bear Stearns. The Complaints allege that defendants made
false and misleading statements concerning JCI's business prospects.
The Complaints allege violations of Sections 11, 12(2) and 15 of the
Securities Act, Sections 10(b) and 20 of the Exchange Act and Rule
10b-5 promulgated thereunder. The Complaints seek damages in
unspecified amounts, as well as equitable and injunctive relief,
together with costs and expenses of the actions.
On or about October 5, 1992, the plaintiffs filed a First
Amended and Consolidated Class Action Complaint (the "Amended
Complaint") that named Jenny Craig, Inc. as a defendant instead of
Jenny Craig International, Inc., and that asserted no new claims
against Bear Stearns, Morgan Stanley and Mr. Tennenbaum. On or about
October 5, 1992 plaintiffs also filed a motion for class
certification. On or about November 4, 1992,
<PAGE>
<PAGE>
all defendants filed motions to dismiss the Amended Complaint and an
opposition to plaintiffs' motion for class certification. By Order
dated December 19, 1992 and filed on December 22, 1992, the Court
granted in part and denied in part the defendants' motions to dismiss.
With respect to motions filed on behalf of Bear Stearns and Morgan
Stanley and Mr. Tennenbaum, the Court dismissed without prejudice
plaintiffs' claims under Section 15 of the Securities Act and Section
20 of the Securities Exchange Act and all claims to the extent they
seek to hold the Underwriters liable for any of JCI's post-offering
statements. The Court also granted plaintiff's motion for class
certification.
On March 5, 1993, plaintiffs filed a Second Amended and
Consolidated Class Action Complaint (the "Second Amended Complaint"),
which realleges the same claims against Bear Stearns, Morgan Stanley
and Mr. Tennenbaum that were previously alleged, including the claims
that were previously dismissed without prejudice. On April 5, 1993,
all defendants moved to dismiss the Second Amended Complaint. By
Order dated August 2, 1993, the Court dismissed, with prejudice,
plaintiffs' claims under Section 12 of the Securities Act against all
defendants against whom those claims were asserted, plaintiffs' claims
against Bear Stearns, Morgan Stanley and Mr. Tennenbaum under Section
15 of the Securities Act and Section 20 of the Securities Exchange Act
and plaintiffs' claims against the underwriters for JCI's post-
offering statements (except that the allegations concerning a Bear
Stearns' analyst report were dismissed without prejudice).
On September 8, 1993, all defendants filed answers denying
liability and asserting affirmative defenses with respect to the
remaining claims in the case.
On June 24, 1994, New York Life Insurance Company. Security
Pacific National Bank, TA Associates and The Bank of New York moved to
dismiss the secondary liability claims asserted in the action under
Section 10(b) of the Securities Exchange Act. Bear Stearns and Morgan
Stanley have joined in that motion.
Discovery is proceeding.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this litigation, intends to defend these claims
vigorously, and believes that it has substantial defenses to these
claims.
Robbins et al. v. The Gitano Group, Inc. et al. On February
-----------------------------------------------
27, 1991, Steven Robbins and Howard C. Lapensohn commenced an action
in the United States District Court for the
<PAGE>
<PAGE>
Southern District of New York. The action was brought individually
and on behalf of a purported class consisting of all persons who
purchased common stock of The Gitano Group, Inc. ("Gitano") between
March 7, 1990 and February 25, 1991 other than the defendants and
persons related or affiliated with them. The action was also brought
on behalf of a purported subclass consisting of persons who purchased
Gitano common stock in a June 12, 1990 public offering. The action
arises out of a June 12, 1990 initial public offering of Gitano common
stock, for which Bear Stearns and Goldman, Sachs & Co. acted as co-
lead underwriters. The Complaint named as defendants Gitano, eight of
its directors and officers, Bear Stearns and Goldman, Sachs & Co.
A First Amended Complaint was filed on April 19, 1991, and a
Second Amended Complaint was filed on May 3, 1991. The Second Amended
Complaint alleged that the offering materials pursuant to which the
public offering referred to above as well as other public statements
made by Gitano was made contained false and misleading statements
concerning Gitano's operating results, financial condition and
business prospects. The Second Amended Complaint alleged violations
against all defendants, including Bear Stearns, of Sections 11 and
12(2) of the Securities Act and Section 10(b) of the Securities
Exchange Act and Rule 10b-5 promulgated thereunder. The Second
Amended Complaint also alleged violations by individual defendants of
Section 15 of the Securities Act and Section 20 of the Securities
Exchange Act. The Second Amended Complaint sought damages in
unspecified amounts, as well as equitable relief, together with the
costs and expenses of the action.
On June 19, 1991, all defendants filed motions to dismiss
the Second Amended Complaint. On April 1, 1992, plaintiffs, with
leave of the Court, filed a Third Amended and Supplemental Complaint,
which, although not substantially different from the Second Amended
Complaint, redefined the purported class upon whose behalf the action
was brought to include purchasers of Gitano common stock through March
16, 1992, and limited the factual and legal claims asserted against
Bear Stearns and Goldman, Sachs & Co., Inc. under Section 10(b) of the
Exchange Act and Rule 10b-5 to matters arising out of the June 12,
1990 public offering. On April 24, 1992, defendants moved to dismiss
the Third Amended and Supplemental Complaint. On September 23, 1992
the court denied all pending motions to dismiss but held that
plaintiffs' allegations of misleading predictions concerning Gitano's
prospects and failure to disclose facts alleged to be important to
purchasers of Gitano stock were insufficiently pleaded. The court
directed the parties to proceed with limited discovery as to the
remaining allegations, which concerned the
<PAGE>
<PAGE>
allegedly misleading use of the gross profit method of calculating
inventory and a consequential alleged inflation of gross profits and
earnings, following which defendants would be permitted to renew their
motions to dismiss.
During the course of the action, four of the individual
defendants, all members of the family that held a controlling interest
in Gitano, commenced personal bankruptcy proceedings, and therefore
became protected against further proceedings in the litigation by the
automatic stay provided in the Bankruptcy Code.
On October 4, 1993, the parties entered into a Memorandum of
Understanding that outlined the terms of a settlement of the action
and a similar class action against Gitano (but not Bear Stearns or
Goldman Sachs) that is pending in the United States District Court for
the Eastern District of New York. The settlement was subject to,
among other conditions, confirmatory discovery, the drafting and
execution of formal settlement documents and, ultimately, a formal
order and judgment of the Court approving the settlement after notice
to the Class and a hearing as to the fairness of the settlement. The
proposed settlement would not involve any material expenditure by Bear
Stearns.
Following the October 4, 1993 execution of the Memorandum of
Understanding, plaintiffs filed a Fourth Amended and Supplemental
Complaint, which, among other things, enlarged the Class to include
purchasers of Gitano's common stock through April 5, 1993, but
continued to limit the claims asserted against Bear Stearns and
Goldman, Sachs & Co. to matters arising out of the June 12, 1990
public offering. The Memorandum of Understanding provided that if the
settlement was not consummated, the Fourth Amended and Supplemental
Complaint was to be withdrawn, and that the operative pleadings would
be those filed prior to the Fourth Amended and Supplemental Complaint.
On January 24, 1994, Gitano announced that it would seek a
sale of its business and that it was unlikely that such a sale would
realize amounts in excess of the debt owed to Gitano's secured
lenders. Gitano's lenders also notified Gitano that they would not
consent to Gitano's issuance of notes and warrants which constituted a
portion of the settlement consideration that was to be received by the
Class. As a result of these developments, it was not possible for the
settlement to proceed as contemplated.
Plaintiffs' counsel then commenced additional actions in the
United States District Court for the Southern District of
<PAGE>
<PAGE>
New York against Gitano and various persons and entities associated
with it (but not Bear Stearns or Goldman Sachs). Among those who are
named as defendants in one or more of these additional actions are
various of Gitano's directors, its lenders, its outside auditors and
the large customer that had announced its intention to cease doing
business with Gitano. The actions allege that Gitano's statements of
its financial condition for the fiscal years 1990, 1991 and 1992 were
false and misleading and that Gitano's outside auditors wrongfully
certified these financial statements; and that Gitano, between April
5, 1993 and January 24, 1994, misrepresented its financial condition
and present and future business prospects and failed to disclose the
prosect of its large customer refusing to continue to do business with
it and the risk of bankruptcy.
Thereafter, the parties to the proposed settlement contained
in the October 1993 Memorandum of Understanding, together with some
but not all of the parties who had been named in the actions commenced
in 1994, agreed upon the terms of a revised settlement and executed a
formal stipulation of settlement. The settlement is subject to
various conditions, including court approval. Neither Gitano's
outside auditors nor the large customer is a party to this proposed
settlement. The settlement does not involve any material expenditure
by Bear Stearns.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this litigation, and believes that it has substantial
defenses to these claims.
Thanksgiving Tower Partners et al. v. Anros Thanksgiving
---------------------------------- ------------------
Partners. On February 8, 1989, Thanksgiving Tower Partners ("TTP")
--------
and two limited partnerships that are general partners of TTP
commenced an action against Anros Thanksgiving Partners ("Anros") in
the United States District Court for the Northern District of Texas.
Bear Stearns Real Estate Group Inc. ("Real Estate Group"), an
affiliate of the Company, was during the relevant time period the
managing general partner of one of the two limited partnerships
referred to above (the interest of Real Estate Group as managing
general partner of this limited partnership was transferred on
September 21, 1988 to another affiliate of the Company). The
complaint seeks a declaratory judgment declaring that plaintiffs acted
properly in drawing on a $5,000,000 letter of credit after Anros
breached contractual obligations in connection with the purchase of an
office building in Dallas, Texas. These contractual obligations arose
out of a June 18, 1988 agreement between the two partners in TTP
referred to above and Anros, providing that Anros would contribute
approxi
<PAGE>
<PAGE>
mately $50,000,000 in capital for the down payment on the office
building and various other closing costs, and would be admitted as a
third partner in TTP upon satisfaction of these and other conditions.
On March 8, 1989, Anros filed a third party complaint
against plaintiffs and Real Estate Group, alleging that plaintiffs and
Real Estate Group breached various agreements with Anros, interfered
with its business relations, engaged in intentional and negligent
misrepresentation, and breached fiduciary duties owed to Anros. Anros
seeks as yet undetermined damages alleged to exceed $200,000,000,
punitive damages of $50,000,000, specific enforcement of certain
contractual obligations, and declaratory relief.
On March 28, 1989, plaintiffs and Real Estate Group filed an
answer to the third party complaint denying liability and asserting
affirmative defenses. Anros' primary counsel subsequently withdrew
from representation of Anros, and, after Anros failed to comply with
court-ordered deadlines regarding retention of counsel and discovery,
the court dismissed all of Anros' claims. Anros appealed the
dismissal of its claims to the United States Court of Appeals for the
Fifth Circuit, which reversed the dismissal on February 5, 1993 and
remanded the action for a hearing to consider lesser sanctions and for
trial. The district court has not yet considered the sanctions issue
that was remanded by the Fifth Circuit.
On March 30, 1994, the court granted summary judgment in
favor of Real Estate Group, and on May 13, 1994, the court issued an
opinion explaining its decision. The court also awarded Real Estate
Group costs and attorneys' fees, in an amount not yet decided. On
August 18, 1994, the court denied a motion for reconsideration.
Plaintiffs have filed an appeal.
Real Estate Group denies all allegations of wrongdoing
asserted against it in this litigation, intends to defend these claims
vigorously, and believes that it has substantial defenses to these
claims.
U.S. Refining and Marketing Company, Inc. v. Hudson-Ram,
--------------------------------------------------- -----------
L.P., et al. On October 21, 1990, U.S. Refining and Marketing
------------
Company, Inc. ("U.S. Refining"), the general partner of U.S. Refining,
L.P. (the "Refining Partnership") commenced an action in the District
Court of Dallas County, Texas. The defendants in this action include
Hudson-Ram, L.P. ("Hudson-Ram"), a limited partner of the Refining
Partnership, the general partners of Hudson-Ram, and the limited
partners of Hudson-Ram, including
<PAGE>
<PAGE>
Bear Stearns and Michael Tennenbaum, a Director of the Company. The
action is brought against Bear Stearns and Mr. Tennenbaum directly
rather than in their capacities as limited partners. Other defendants
in the action include the general partner of Hudson-Ram, the general
partner of the general partner of Hudson-Ram, and various individuals
and companies allegedly liable for actions taken on their own behalf
or who are liable for the action of the general partner of Hudson-Ram.
The complaint in this action alleges common law claims and
state statutory violations against all defendants, including fraud,
breach of fiduciary duty and tortious interference in connection with
the acquisition and proposed renovation by the Refining Partnership of
an Oklahoma oil refinery. The complaint alleges, among other things,
that the defendants made fraudulent representations to gain an
increased ownership percentage in the Refining Partnership, failed to
use their best efforts to obtain outside financing for the renovation
as they had committed themselves to do, fraudulently represented that
they would provide the financing themselves if they could not secure
financing from other sources, and failed to pay required management
fees or provide reasonable working capital to the Refining
Partnership. The plaintiff seeks injunctive relief, damages of at
least $85 million, consisting of actual damages of $17 million, treble
damages of $51 million or in the alternative injunctive relief and
actual damages of $17 million and punitive damages of at least $17
million, and costs and attorneys' fees of at least $600,000.
On January 17, 1991, Hudson-Ram filed a counterclaim against
the plaintiff alleging, among other things, fraud, breach of fiduciary
duty and deceptive trade practices. The counterclaim seeks damages in
an unspecified amount.
On February 7, 1992, Bear Stearns answered the complaint,
denying all wrongdoing and asserting affirmative defenses. At the
same time, Bear Stearns also filed a counterclaim against U.S.
Refining and certain of its officers and directors. Mr. Tennenbaum, a
resident of California, moved to dismiss the action on the ground that
he is not subject to jurisdiction in Texas. On October 5, 1992, Mr.
Tennenbaum's motion was denied. On October 26, 1992, Mr. Tennenbaum
filed an answer denying all wrongdoing and asserting affirmative
defenses, subject to Mr. Tennenbaum's continuing objection to
jurisdiction. Court-ordered mediation took place on July 17, 1991 and
on two later occasions while the action was pending in Texas state
court, and was unsuccessful on each occasion. Discovery in the action
was proceeding until March 16, 1993 when the action was abated when
the Texas court learned that Hudson-Ram had filed for bankruptcy
<PAGE>
<PAGE>
protection in the Central District of California. Subsequent to the
abatement, both U.S. Refining and the Refining Partnership were placed
into bankruptcy in that same district. On March 19, 1993, the
litigation was removed to the United States Bankruptcy Court for the
Northern District of Texas, and on June 11, 1993 was transferred to
the Bankruptcy Court in the United States District Court for the
Central District of California.
On November 24, 1993 the Court dismissed the bankruptcy
petitions of Hudson-Ram and the Refining Partnership, but subsequently
reinstated the bankruptcy petition of the Refining Partnership. On
June 17, 1994, the Bankruptcy Court ordered mediation, which was
unsuccessful. The litigation is still pending as an adversary
proceeding in Bankruptcy Court.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this litigation, intends to defend these claims
vigorously, and believes that it has substantial defenses to these
claims.
Rufus Winsor v. Home Owners Federal Savings and Loan
------------ ------------------------------------
Association, et al. On November 2, 1989, Rufus Winsor commenced an
------------------
action in the United States District Court for the District of
Massachusetts naming as defendants Home Owners Federal Savings and
Loan Association ("Home Owners"), ten present or former officers
and/or directors of Home Owners, Peat, Marwick, Mitchell & Co. ("Peat
Marwick") and Bear Stearns. The action was brought individually and
on behalf of a purported class of all persons who purchased common or
preferred shares of Home Owners during the period November 5, 1986
through November 1, 1989. On or about April 19, 1990, a Consolidated
Amended Class Action Complaint (the "First Amended Complaint") was
filed that named three additional plaintiffs and dropped Peat Marwick
as a defendant. On or about June 7, 1991, a Second Consolidated
Amended Complaint (the "Second Amended Complaint") was filed that
named Rufus Winsor and five other individuals as plaintiffs, and named
thirteen present or former officers and/or directors of Home Owners,
as well as Bear Stearns, as defendants.
With respect to Bear Stearns, plaintiffs allege that
defendants made false and misleading statements in materials
disseminated by Home Owners, including the prospectus, pursuant to
which a November 5, 1986 public offering of 1,400,000 shares of Home
Owners' $6.125 Cumulative Preferred Stock, Series A, was made. With
respect to the individuals who are named defendants, plaintiffs allege
that Home Owners issued false and misleading statements regarding the
income, assets and financial condition of Home Owners throughout the
alleged class period. Bear Stearns
<PAGE>
<PAGE>
served as the managing underwriter of this public offering. The
Amended Complaint asserts claims against all defendants under Section
11 of the Securities Act and Section 10(b) of the Securities Exchange
Act and Rule 10b-5 promulgated thereunder, as well as common law
fraud, negligent misrepresentation and negligence. The Second Amended
Complaint also asserts claims against the individual defendants under
Section 15 of the Securities Act and Section 20 of the Exchange Act.
The Second Amended Complaint seeks rescission and/or damages in an
unspecified amount.
On October 3, 1990, all defendants moved to dismiss the
First Amended Complaint. On October 24, 1990, the parties stipulated
to the voluntary dismissal with prejudice of plaintiffs' claims under
Sections 11 and 15 of the Securities Act. On February 1, 1991, the
court denied the defendants' motions to dismiss plaintiffs' other
claims. On July 8, 1991, subsequent to the filing of the Second
Amended Complaint, the parties stipulated to the voluntary dismissal
with prejudice of plaintiffs' claims under Sections 11 and 15 of the
Securities Act. On July 8 and 10, 1991, Bear Stearns and the
individual defendants, respectively, moved to dismiss the Second
Amended Complaint. On November 21, 1991, the Court denied these
motions. On June 11, 1992, the court ruled in response to a motion
for class certification by plaintiffs that Bear Stearns will be deemed
a defendant only with respect to claims by purchasers of Home Owners'
preferred shares between November 5, 1986 and February 27, 1987.
On July 30, 1992, Bear Stearns filed a third party claim
against Peat Marwick seeking damages and contribution under Section
10(b) of the Securities Exchange Act and Rule 10b-5 and Massachusetts
law. On December 21, 1992 Bear Stearns amended its third party
complaint in response to a motion to dismiss the third party complaint
by Peat Marwick. On February 16, 1993 Peat Marwick moved to dismiss
Bear Stearns' amended third party complaint, and on May 3, 1993 the
court denied Peat Marwick's motion.
Discovery is proceeding.
Plaintiffs and present and former directors and officers of
Home Owners have been engaged in settlement negotiations, and a draft
settlement agreement is reportedly being prepared.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this litigation, intends to defend these claims
vigorously, and believes that it has substantial defenses to these
claims.
<PAGE>
<PAGE>
The Company or a subsidiary of the Company also has been
named as a defendant in numerous other civil actions arising out of
its activities as a broker and dealer in securities, as an
underwriter, as an investment banker, as an employer or arising out of
alleged employee misconduct. Several of these actions allege damages
in large or indeterminate amounts, and some of these actions are class
actions. With respect to claims involving the Partnership, Bear
Stearns has assumed from the Partnership, and has agreed to indemnify
the Partnership against, the Partnership's liability, if any, arising
out of all legal proceedings to which the Partnership is or was named
as a party. In view of the number and diversity of all of the claims
referred to in this paragraph and above, the number of jurisdictions
in which these claims are pending and the inherent difficulty of
predicting the outcome of these claims, the Company cannot state what
the eventual outcome of these claims will be. The Company is con-
testing the allegations in these lawsuits, and believes that there are
meritorious defenses in these lawsuits.
The Company is also involved from time to time in
investigations and proceedings by governmental and self-regulatory
agencies.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
None.
<PAGE>
<PAGE>
Executive Officers of the Company
---------------------------------
The following table sets forth certain information
concerning executive officers of the Company as of September 15, 1994.
AGE AS OF
SEPTEMBER 15, PRINCIPAL OCCUPATION
NAME 1994 AND DIRECTORSHIPS HELD
---- -------------- ----------------------
Alan C. Greenberg 67 Chairman of the Board of the
Company and Bear Stearns and
Chairman of the Executive
Committee of the Company's Board
of Directors (the "Executive
Committee")
James E. Cayne 60 President and Chief Executive
Officer of the Company and Bear
Stearns, member of the Executive
Committee and Chairman of the
Management and Compensation
Committee of the Company's Board
of Directors (the "Management and
Compensation Committee")
Vincent J. Mattone 49 Executive Vice President of the
Company and Bear Stearns and
member of the Executive Committee
Alan D. Schwartz 44 Executive Vice President of the
Company and Bear Stearns and
member of the Executive Committee
and the Management and
Compensation Committee
John C. Sites, Jr. 42 Executive Vice President of the
Company and Bear Stearns and
member of the Executive Committee
and the Management and
Compensation Committee
Warren J. Spector 36 Executive Vice President of the
Company and Bear Stearns and
member of the Executive Committee
and the Management and
Compensation Committee
Michael L. Tarnopol 58 Executive Vice President of the
Company and Bear Stearns and
member of the Executive Committee
Michael Minikes 51 Treasurer of the Company and Bear
Stearns
<PAGE>
<PAGE>
AGE AS OF
SEPTEMBER 15, PRINCIPAL OCCUPATION
NAME 1994 AND DIRECTORSHIPS HELD
---- -------------- ----------------------
William J. Montgoris 47 Chief Operating Officer and Chief
Financial Officer of the Company
and Bear Stearns and member of the
Management and Compensation
Committee
Robert M. Steinberg 49 Senior Managing Director of Bear
Stearns and member of the
Management and Compensation
Committee
Kenneth L. Edlow 53 Secretary of the Company and Bear
Stearns
Michael J. Abatemarco 47 Controller of the Company and Bear
Stearns
Samuel L. Molinaro, Jr. 36 Senior Vice President - Finance of
the Company and Bear Stearns
Frederick B. Casey 55 Assistant Treasurer of the Company
and Bear Stearns
Except as indicated below, each of the executive officers of
the Company has been a Senior Managing Director of Bear Stearns for
more than the past five years.
Mr. Greenberg has been Chairman of the Board of the Company
for more than the past five years. Mr. Greenberg was Chief Executive
Officer of the Company and Bear Stearns from the Company's inception
until July 1993.
Mr. Cayne has been President of the Company for more than
the past five years. In July 1993, Mr. Cayne was elected as Chief
Executive Officer of the Company and Bear Stearns.
Mr. Mattone has been an Executive Vice President of the
Company and a member of Bear Stearns' Government Bond Department,
Mortgage Department and Corporate Bond Department for more than the
past five years. Mr. Mattone is a member of the group that is
responsible for all fixed income activities of Bear Stearns.
Mr. Schwartz has been involved in the management of Bear
Stearns' Investment Banking Division for more than the past five years
and is Chairman of its Investment Banking Policy Committee. Mr.
Schwartz became an Executive Vice President of the Company in
September 1989.
<PAGE>
<PAGE>
Mr. Sites has been an Executive Vice President of the
Company and has directed the Mortgage Department of Bear Stearns for
more than the past five years. Mr. Sites is a member of the group
that is responsible for all fixed income activities of Bear Stearns.
Mr. Spector has been involved in the management of Bear
Stearns' Mortgage Department for more than the past five years.
Mr. Spector became an Executive Vice President of the Company in
November 1992. Mr. Spector is a member of the group that is
responsible for all fixed income activities of Bear Stearns. In
addition, Mr. Spector is responsible for the Derivatives Department of
Bear Stearns.
Mr. Tarnopol has been Executive Vice President of the
Company and has been involved in the management of Bear Stearns'
Investment Banking Division for more than the past five years. Mr.
Tarnopol is Chairman of the Investment Banking Division of Bear
Stearns and a member of its Investment Banking Policy Committee.
Mr. Minikes has been Treasurer of the Company and Bear
Stearns for more than the past five years.
Mr. Montgoris has been Chief Operating Officer of the
Company and Bear Stearns since August 1993. Mr. Montgoris has been
Chief Financial Officer of the Company and Bear Stearns for more than
the past five years.
Mr. Steinberg has directed Bear Stearns' Risk Arbitrage
Department for more than the past five years. Mr. Steinberg has been
Chairman of the Institutional Credit Committee of Bear Stearns since
October 1992.
Mr. Edlow has been Secretary of the Company and of Bear
Stearns and a member of the Company's Administration Department for
more than the past five years.
Mr. Abatemarco has been Controller of the Company and Bear
Stearns for more than the past five years.
Mr. Molinaro has been Senior Vice President-Finance of the
Company and Bear Stearns since September 8, 1993 and a Senior Managing
Director of Bear Stearns since September 14, 1993. Mr. Molinaro
served as Assistant Controller of Bear Stearns from July 10, 1989 to
September 7, 1993 and prior thereto was a member of Bear Stearns'
Accounting Department. Mr. Molinaro was a Managing Director of Bear
Stearns from September 4, 1990 to
<PAGE>
<PAGE>
September 13, 1993 and prior thereto was an Associate Director of Bear
Stearns.
Mr. Casey has been Assistant Treasurer of the Company and of
Bear Stearns for more than the past five years.
Officers serve at the discretion of the Board of Directors.
<PAGE>
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and
-----------------------------------------
Related Stockholder Matters.
---------------------------
The information required to be furnished pursuant to this
item is set forth under the caption "Price Range of Common Stock and
Dividends" in the Annual Report, which is incorporated herein by
reference to Exhibit No. (13) of this report.
Item 6. Selected Financial Data.
-----------------------
The information required to be furnished pursuant to this
item is set forth under the caption "Selected Financial Data" in the
Annual Report, which is incorporated herein by reference to Exhibit
No. (13) of this report.
Item 7. Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operation.
--------------------------------------------
The information required to be furnished pursuant to this
item is set forth under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the
Annual Report, which is incorporated herein by reference to Exhibit
No. (13) of this report.
Item 8. Financial Statements and Supplementary Data.
-------------------------------------------
The information required to be furnished pursuant to this
item is contained in the Consolidated Financial Statements and the
Notes to Consolidated Financial Statements in the Annual Report. Such
information and the Independent Auditors' Report in the Annual Report
are incorporated herein by reference to Exhibit No. (13) of this
report.
Item 9. Changes in and Disagreements with Accountants on
------------------------------------------------
Accounting and Financial Disclosure.
-----------------------------------
None.
<PAGE>
<PAGE>
PART III
Item 10. Directors and Executive Officers of the
---------------------------------------
Registrant.
----------
The information required to be furnished pursuant to this
item with respect to Directors of the Company will be set forth under
the caption "Election of Directors" in the registrant's proxy
statement (the "Proxy Statement") to be furnished to stockholders in
connection with the solicitation of proxies by the Company's Board of
Directors for use at the 1994 Annual Meeting of Stockholders to be
held on October 24, 1994, and is incorporated herein by reference, and
the information with respect to Executive Officers is set forth,
pursuant to General Instruction G of Form 10-K, under Part I of this
Report.
Item 11. Executive Compensation.
----------------------
The information required to be furnished pursuant to this
item will be set forth under the caption "Executive Compensation" of
the Proxy Statement, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners
-----------------------------------------------
and Management.
--------------
The information required to be furnished pursuant to this
item will be set forth under the captions "Voting Securities" and
"Security Ownership of Management" of the Proxy Statement, and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
----------------------------------------------
The information required to be furnished pursuant to this
item will be set forth under the caption "Certain Relationships and
Related Party Transactions" of the Proxy Statement, and is
incorporated herein by reference.
<PAGE>
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
--------------------------------------------
Reports on Form 8-K.
-------------------
(a) List of Financial Statements, Financial Statement
Schedules and Exhibits:
Financial Statements:
--------------------
The financial statements required to be filed hereunder are
listed on page F-1 hereof.
Financial Statement Schedules:
-----------------------------
The financial statement schedules required to be filed
hereunder are listed on page F-1 hereof.
Executive Compensation Plans and Arrangements:
---------------------------------------------
1985 Stock Option Plan, as amended (filed as Exhibit (10)(a)(1)
to the registrant's registration statement on Form S-1 (File
No. 33-15948)).
Employee Convertible Debenture Purchase Plan (filed as Exhibit A
to the registrant's proxy statement furnished to stockholders in
connection with the solicitation of proxies for the registrant's
Annual Meeting of Stockholders held on September 21, 1987).
1989 Deferred Compensation Plan for Executive Officers (filed as
Exhibit B to the registrant's proxy statement furnished to
stockholders in connection with the solicitation of proxies for
the registrant's Annual Meeting of Stockholders held on October
29, 1990).
Management Compensation Plan, as amended and restated as of July
1, 1994, certain provisions of which are subject to the approval
of the Stockholders at the 1994 Annual Meeting (filed herewith).
Capital Accumulation Plan for Senior Managing Directors, as
amended and restated as of July 1, 1993 (the "CAP Plan") (filed
as Exhibit B to the registrant's proxy statement
<PAGE>
<PAGE>
furnished to stockholders in connection with the solicitation of
proxies for the registrant's Annual Meeting of Stockholders held
on October 25, 1993).
Amendment to the CAP Plan, adopted April 14, 1994, certain
provisions of which are subject to the approval of Stockholders
at the 1994 Annual Meeting (filed herewith).
Amendment to the CAP Plan, adopted September 1, 1994, certain
provisions of which are subject to the approval of the
Stockholders at the 1994 Annual Meeting (filed herewith).
Performance Unit Plan for Senior Managing Directors (the "PUP
Plan") (filed as Exhibit C to the registrant's proxy statement
furnished to stockholders in connection with the solicitation of
proxies for the registrant's Annual Meeting of Stockholders held
on October 25, 1993).
Amendment to the PUP Plan, adopted September 1, 1994 (filed
herewith).
Exhibits:
--------
(3)(a)(1) Restated Certificate of Incorporation of the
registrant, filed September 11, 1985 (incor-
porated by reference to Exhibit No. (4)(a)(1) to
the registrant's registration statement on Form
S-8 (File No. 33-49979)).
(3)(a)(2) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed October 29, 1985 (incorporated by reference
to Exhibit No. (4)(a)(2) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(3) Certificate of Stock Designation to the Restated
Certificate of Incorporation of the registrant,
filed October 29, 1985 (incorporated by reference
to Exhibit No. (4)(a)(3) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
<PAGE>
<PAGE>
(3)(a)(4) Certificate of Change of Address of Registered
Agent to the Restated Certificate of Incor-
poration of the registrant, filed February 14,
1986 (incorporated by reference to Exhibit
No. (4)(a)(4) to the registrant's registration
statement on Form S-8 (File No. 33-49979)).
(3)(a)(5) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed September 18, 1986 (incorporated by refer-
ence to Exhibit No. (4)(a)(5) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(6) Certificate of Stock Designation to the Restated
Certificate of Incorporation of the registrant,
filed February 19, 1987 (incorporated by refer-
ence to Exhibit No. (4)(a)(6) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(7) Certificate of Correction to the Restated Cer-
tificate of Incorporation of the registrant,
filed February 25, 1987 (incorporated by refer-
ence to Exhibit No. (4)(a)(7) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(8) Certificate of Change of Address of Registered
Agent to the Restated Certificate of Incorpora-
tion of the registrant, filed October 27, 1988
(incorporated by reference to Exhibit No.
(4)(a)(8) to the registrant's registration
statement on Form S-8 (File No. 33-49979)).
(3)(a)(9) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed November 6, 1989 (incorporated by reference
to Exhibit No. (4)(a)(9) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(10) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed November 7, 1990 (incorporated by reference
to Exhibit No. (4)(a)(10) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
<PAGE>
<PAGE>
(3)(a)(11) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed November 10, 1992 (incorporated by refer-
ence to Exhibit No. (4)(a)(11) to the regis-
trant's registration statement on Form S-8 (File
No. 33-49979)).
(3)(a)(12) Certificate of Stock Designation to the Restated
Certificate of Incorporation of the registrant,
filed March 23, 1993 (incorporated by reference
to Exhibit No. (4)(a)(12) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(13) Certificate of Stock Designation to the Restated
Certificate of Incorporation of the registrant,
filed July 22, 1993 (incorporated by reference to
Exhibit No. (4)(a)(13) to the registrant's regis-
tration statement on Form S-8 (File No.
33-49979)).
(3)(a)(14) Form of Certificate of Stock Designations to the
Restated Certificate of Incorporation of the
registrant (incorporated by reference to Exhibit
No. 4.4 to the registrant's registration
statement on Form 8-A filed on February 23,
1994).
(3)(b) Amended and Restated By-laws of the registrant
(incorporated by reference to Exhibit No. (3)(b)
to registrant's Annual Report on Form 10-K for
its fiscal year ended June 30, 1991 and Exhibit
No. (3)(b) to the registrant's Quarterly Report
on Form 10-Q for the quarterly period ended
December 31, 1992).
(4)(a) Indenture, dated as of April 13, 1989, between
the registrant and Citibank, N.A., as trustee
(incorporated by reference to the identically
numbered exhibit to the registrant's registration
statement on Form S-3 (File No. 33-27713)).
(4)(b) Indenture, dated as of May 31, 1991, between the
registrant and Manufacturers Hanover Trust
Company, as trustee (incorporated by reference to
exhibit No. (4)(a) to registrant's registration
statement on Form S-3 (File No. 33-40933)).
<PAGE>
<PAGE>
(4)(c) Except as set forth in (4)(a) and 4(b) above, the
instruments defining the rights of holders of
long-term debt securities of the registrant and
its subsidiaries are omitted pursuant to Section
(b)(4)(iii) of Item 601 of Regulation S-K.
Registrant hereby agrees to furnish copies of
these instruments to the SEC upon request.
(4)(d) Form of Deposit Agreement (incorporated by
reference to Exhibit (4)(d) to the registrant's
registration statement on Form S-3 (File No.
33-59140)).
(10)(a)(1) 1985 Stock Option Plan, as amended (incorporated
by reference to the identically numbered exhibit
to the registrant's registration statement on
Form S-1 (File No. 33-15948)).
(10)(a)(2) Employee Convertible Debenture Purchase Plan
(incorporated by reference to Exhibit A to the
registrant's proxy statement furnished to stock-
holders in connection with the solicitation of
proxies for the registrant's Annual Meeting of
Stockholders held on September 21, 1987).
(10)(a)(3) 1989 Deferred Compensation Plan for Executive
Officers (incorporated by reference to Exhibit B
to the registrant's proxy statement furnished to
stockholders in connection with the solicitation
of proxies for the registrant's Annual Meeting of
Stockholders held on October 29, 1990).
(10)(a)(4) Management Compensation Plan, as amended and
restated as of July 1, 1994, certain provisions
of which are subject to the approval of the
Stockholders at the 1994 Annual Meeting.
(10)(a)(5) Capital Accumulation Plan for Senior Managing
Directors, as amended and restated as of July 1,
1993 (the "CAP Plan") (incorporated by reference
to Exhibit B to the registrant's proxy statement
furnished to stockholders in connection with the
solicitation of proxies for the registrant's
Annual Meeting of Stockholders held on October
25, 1993).
<PAGE>
<PAGE>
(10)(a)(6) Amendment to the CAP Plan, adopted April 14,
1994, certain provisions of which are subject to
the approval of the Stockholders at the 1994
Annual Meeting.
(10)(a)(7) Amendment to the CAP Plan, adopted September 1,
1994, certain provisions of which are subject to
the approval of the Stockholders at the 1994
Annual Meeting.
(10)(a)(8) Performance Unit Plan for Senior Managing
Directors (the "PUP Plan") (incorporated by
reference to Exhibit C to the registrant's proxy
statement furnished to stockholders in connection
with the solicitation of proxies for the
registrant's Annual Meeting of Stockholders held
on October 25, 1993).
(10)(a)(9) Amendment to the PUP Plan, adopted September 1,
1994.
(10)(b)(1) Lease, dated as of November 1, 1991, between
Forest City Jay Street Associates and The Bear
Stearns Companies Inc. with respect to the
premises located at One Metrotech Center,
Brooklyn, New York (incorporated by reference to
Exhibit (10)(b)(1) to the registrant's Annual
Report on Form 10-K for its fiscal year ended
June 30, 1992).
(10)(b)(2) Lease, dated as of March 6, 1987, among Olympia &
York 245 Lease Company, 245 Park Avenue Company
and The Bear Stearns Companies Inc. (incorporated
by reference to Exhibit (10)(c)(2) to the
registrant's registration statement on Form S-1
(File No. 33-15948)).
(10)(b)(3) Lease, dated as of August 26, 1994, between Tenth
City Associates and The Bear Stearns Companies
Inc.
(11) Statement re: computation of per share earnings.
(12) Statement re: computation of ratio of earnings to
fixed charges.
<PAGE>
<PAGE>
(13) 1994 Annual Report to Stockholders (only those
portions expressly incorporated by reference
herein shall be deemed filed with the
Commission).
(21) Subsidiaries of the registrant.
(23) Consent of Deloitte & Touche LLP.
(27) Financial Data Schedule.
(b) Reports on Form 8-K. The Company filed the
-------------------
following Current Report on Form 8-K during the
last quarter of the period covering this report:
(i) A Current Report on Form 8-K dated
April 12, 1994, pertaining to the
registrant's results of operations
for the three months and nine
months ended March 25, 1994.
(ii) A Current Report on Form 8-K dated
April 14, 1994, pertaining to the
declaration of dividends.
<PAGE>
<PAGE>
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 the 26th day of September, 1994.
THE BEAR STEARNS COMPANIES INC.
-------------------------------
(Registrant)
By: /s/ William J. Montgoris
------------------------
William J. Montgoris
Chief Operating 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 the
26th day of September, 1994.
NAME TITLE
---- -----
/s/ Alan C. Greenberg Chairman of the Board;
---------------------------------
Alan C. Greenberg Director
/s/ James E. Cayne President and Chief
---------------------------------
James E. Cayne Executive Officer;
Director
/s/ William J. Montgoris Chief Operating
---------------------------------
William J. Montgoris Officer and Chief Financial
Officer (Principal
Financial Officer);
Director
/s/ Michael L. Tarnopol Executive Vice
---------------------------------
Michael L. Tarnopol President; Director
<PAGE>
<PAGE>
NAME TITLE
---- -----
Executive Vice
---------------------------------
Vincent J. Mattone President; Director
/s/ John C. Sites, Jr. Executive Vice
---------------------------------
John C. Sites, Jr. President; Director
/s/ Alan D. Schwartz Executive Vice
---------------------------------
Alan D. Schwartz President; Director
/s/ Warren J. Spector Executive Vice
---------------------------------
Warren J. Spector President; Director
/s/ Michael Minikes Treasurer; Director
---------------------------------
Michael Minikes
/s/ E. Garrett Bewkes, III Director
---------------------------------
E. Garrett Bewkes, III
/s/ Denis A. Bovin Director
---------------------------------
Denis A. Bovin
/s/ Peter Cherasia Director
---------------------------------
Peter Cherasia
/s/ Michael R. Dabney Director
---------------------------------
Michael R. Dabney
/s/ Kevin J. Finnerty Director
---------------------------------
Kevin J. Finnerty
<PAGE>
<PAGE>
NAME TITLE
---- -----
Director
---------------------------------
Grace J. Fippinger
/s/ Carl D. Glickman Director
---------------------------------
Carl D. Glickman
/s/ Thomas R. Green Director
---------------------------------
Thomas R. Green
Director
---------------------------------
Rev. Donald J. Harrington, C.M.
/s/ Richard Harriton Director
---------------------------------
Richard Harriton
Director
---------------------------------
Nancy E. Havens-Hasty
/s/ Jonathan Ilany Director
---------------------------------
Jonathan Ilany
/s/ Daniel L. Keating Director
---------------------------------
Daniel L. Keating
Director
---------------------------------
John W. Kluge
/s/ David A. Liebowitz Director
---------------------------------
David A. Liebowitz
<PAGE>
<PAGE>
NAME TITLE
---- -----
/s/ Bruce M. Lisman Director
---------------------------------
Bruce M. Lisman
/s/ Matthew J. Mancuso Director
---------------------------------
Matthew J. Mancuso
/s/ Donald R. Mullen, Jr. Director
---------------------------------
Donald R. Mullen, Jr.
/s/ Frank T. Nickell Director
---------------------------------
Frank T. Nickell
/s/ R. Blaine Roberts Director
---------------------------------
R. Blaine Roberts
/s/ E. John Rosenwald, Jr. Director
---------------------------------
E. John Rosenwald, Jr.
Director
---------------------------------
Frederic V. Salerno
/s/ Robert M. Steinberg Director
---------------------------------
Robert M. Steinberg
/s/ Fred Wilpon Director
---------------------------------
Fred Wilpon
/s/ Uzi Zucker Director
---------------------------------
Uzi Zucker
<PAGE>
<PAGE>
NAME TITLE
---- -----
/s/ Michael J. Abatemarco Controller
---------------------------------
Michael J. Abatemarco
/s/ Samuel L. Molinaro, Jr. Senior Vice President
---------------------------------
Samuel L. Molinaro, Jr. Finance (Principal
Accounting Officer)
<PAGE>
<PAGE>
THE BEAR STEARNS COMPANIES INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
ITEMS 14 (a) (1) and 14 (a) (2)
Financial Statements Page Reference
--------------------
Annual
Form 10-K Report *
--------- --------
Independent Auditors' Report 54
The Bear Stearns Companies Inc.
-------------------------------
(i) Consolidated Statements of Income-
fiscal years ended
June 30, 1994, 1993 and 1992 35
(ii) Consolidated Statements of Financial
Condition at June 30, 1994 and 1993 36
(iii) Consolidated Statements of Cash Flows-
fiscal years ended
June 30, 1994, 1993 and 1992 37
(iv) Consolidated Statements of Changes in
Stockholders' Equity - fiscal years ended
June 30, 1992, 1993 and 1994 38-39
(v) Notes to Consolidated Financial Statements 40-53
Financial Statement Schedules
-----------------------------
Independent Auditors' Report F-2
III Condensed financial information of
registrant F-3-F-6
VIII Valuation and qualifying accounts F-7
IX Short-term borrowings F-8
* Incorporated by reference from the indicated
pages of the 1994 Annual Report to Stockholders.
All other schedules are omitted because they are
not applicable or the requested information is
included in the consolidated financial statements
or notes thereto.
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders of
The Bear Stearns Companies Inc.:
We have audited the consolidated financial statements of The Bear
Stearns Companies Inc. and Subsidiaries as of June 30, 1994 and 1993,
and for each of the three years in the period ended June 30, 1994, and
have issued our report thereon dated August 15, 1994; such
consolidated financial statements and report are included in your
Annual Report to Stockholders and are incorporated herein by
reference. Our audits also included the financial statement schedules
of The Bear Stearns Companies Inc. and Subsidiaries, listed in Item
14. These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion
based on our audits. In our opinion, such financial statement
schedules, 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.
DELOITTE & TOUCHE LLP
New York, New York
August 15, 1994
<PAGE>
<PAGE>
SCHEDULE III
<TABLE>
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE BEAR STEARNS COMPANIES INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF INCOME
(In thousands)
<CAPTION>
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
June 30, 1994 June 30, 1993 June 30, 1992
------------- ------------- -------------
<S> <C> <C> <C>
Revenues
Interest
Coupon $ 8,851 $ 15,176 $ 5,456
Intercompany 361,824 179,213 193,161
Other 49,056 34,528 39,850
-------- ------- -------
419,731 228,917 238,467
-------- ------- -------
Expenses
Interest 415,794 215,303 213,888
Other 48,108 40,149 37,042
-------- ------- -------
463,902 255,452 250,930
-------- ------- -------
Loss before benefit from
income taxes and equity
in earnings of subsidiaries (44,171) (26,535) (12,463)
Benefit from income taxes (15,320) (11,473) (5,388)
-------- ------- -------
Loss before equity in
earnings of subsidiaries (28,851) (15,062) (7,075)
Equity in earnings of
subsidiaries 415,816 377,509 301,653
-------- ------- -------
Net income $ 386,965 $ 362,447 $ 294,578
======== ======= =======
</TABLE>
See Notes to Condensed Financial Information.
<PAGE>
<PAGE>
SCHEDULE III
<TABLE>
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE BEAR STEARNS COMPANIES INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
<CAPTION>
June 30, June 30,
1994 1993
---------- ----------
<S> <C> <C>
ASSETS
Cash $ 861 $ 690
Receivables from subsidiaries 10,805,511 7,695,121
Investments in subsidiaries, at equity 2,238,258 1,850,540
Property, equipment and leasehold improvements,
net of accumulated depreciation and amortization
of $170,020 in 1994 and $170,591 in 1993 224,103 206,614
Other assets 240,961 154,674
---------- ---------
Total Assets $13,509,694 $9,907,639
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 7,576,097 $5,991,415
Payables to subsidiaries 222,084 104,128
Other liabilities 136,851 153,443
---------- ---------
7,935,032 6,248,986
---------- ---------
Long-term borrowings 3,408,096 1,882,123
---------- ---------
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value; 10,000,000 shares
authorized:
Adjustable Rate Cumulative Preferred Stock,
Series A; $50 liquidation preference; 3,000,000
shares issued 150,000 150,000
Cumulative Preferred Stock, Series B; $200
liquidation preference; 937,500 shares
issued and outstanding 187,500 187,500
Cumulative Preferred Stock, Series C; $200
liquidation preference; 500,000 shares
issued and outstanding 100,000
Common stock, $1.00 par value; 200,000,000 shares
authorized; 144,965,094 shares and 131,507,178
shares issued in 1994 and 1993, respectively 144,965 131,507
Paid-in capital 1,447,066 1,225,557
Retained earnings 388,685 328,414
Capital Accumulation Plan 275,415 138,331
Treasury stock, at cost -
Adjustable Rate Cumulative Preferred
Stock, Series A; 2,118,550 shares in 1994
and 1993 (85,507) (85,507)
Common stock; 31,525,939 shares in 1994 and
22,203,018 shares in 1993 (410,882) (263,755)
Note receivable from ESOP Trust (30,676) (35,517)
---------- ---------
Total Stockholders' Equity 2,166,566 1,776,530
---------- ---------
Total Liabilities and Stockholders' Equity $13,509,694 $9,907,639
========== =========
</TABLE>
See Notes to Condensed Financial Information.
<PAGE>
<PAGE>
SCHEDULE III
<TABLE>
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE BEAR STEARNS COMPANIES INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
June 30, 1994 June 30, 1993 June 30, 1992
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 386,965 $ 362,447 $ 294,578
Adjustments to reconcile net
income to cash used in
operating activities:
Equity in earnings of
subsidiaries, net of dividends
received (344,529) (302,317) (231,708)
Other 48,783 44,409 32,643
(Increases) decreases in assets:
Receivables from subsidiaries (3,110,390) (3,323,849) (1,275,597)
Investments in subsidiaries,
net (40,231) (10,240) (10,428)
Other assets (105,226) (95,698) 547
Increases (decreases) in liabilities:
Payables to subsidiaries 117,956 93,484 4,380
Other liabilities (13,896) 51,666 30,027
---------- ---------- ----------
Cash used in operating
activities (3,060,568) (3,180,098) (1,155,558)
---------- ---------- ----------
Cash flows from financing activities:
Net proceeds from issuance of
Cumulative Preferred Stock 96,689 181,307
Net proceeds from short-term
borrowings 1,584,682 2,175,100 973,522
Issuance of long-term borrowings 1,795,979 840,347 357,425
Capital Accumulation Plan 137,084 138,331 114,089
Other common stock transactions 3,733 2,577
Note repayment from ESOP Trust 4,841 4,483
Payments for:
Retirement of Senior Notes (273,000)
Treasury stock purchases (147,763) (140,504) (116,997)
Note receivable from ESOP Trust (40,000)
Cash dividends paid (90,769) (66,425) (68,305)
---------- ---------- ----------
Cash provided by financing
activities 3,111,476 3,135,216 1,219,734
---------- ---------- ----------
Cash flows from investing activities:
Purchases of property, equipment and
leasehold improvements (65,473) (50,429) (67,498)
Purchases of investment securities
and other assets (17,192) (11,030)
Proceeds from sale of investment
securities and other assets 31,928 105,989 687
---------- ---------- ----------
Cash provided by (used in)
investing activities (50,737) 44,530 (66,811)
---------- ---------- ----------
Net increase (decrease) in cash 171 (352) (2,635)
Cash, beginning of year 690 1,042 3,677
---------- --------- ----------
Cash, end of year $ 861 $ 690 $ 1,042
========== ========= ==========
</TABLE>
See Notes to Condensed Financial Information.
<PAGE>
<PAGE>
SCHEDULE III
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE BEAR STEARNS COMPANIES INC.
(PARENT COMPANY ONLY)
NOTES TO CONDENSED FINANCIAL INFORMATION
(In thousands)
1. GENERAL
The condensed financial information of the Company (Parent
Company Only) should be read in conjunction with the consolidated
financial statements of The Bear Stearns Companies Inc. and the
notes thereto incorporated by reference in this report.
2. DIVIDENDS RECEIVED FROM SUBSIDIARIES
The Company received from its consolidated subsidiaries cash
dividends of $71,270, $75,192, and $69,945 for the fiscal years
ended June 30, 1994, 1993 and 1992, respectively.
3. STATEMENT OF CASH FLOWS
Income taxes paid (consolidated) totaled $276,565, $223,550 and
$210,134 in the fiscal years ended June 30, 1994, 1993 and 1992,
respectively. Cash payments for interest approximated interest
expense for the fiscal years ended June 30, 1994, 1993 and 1992,
respectively. Non-cash financing activities totaled $1,947,
$2,846 and $7,599 for the fiscal years ended June 30, 1994, 1993
and 1992, respectively.
<PAGE>
<PAGE>
SCHEDULE VIII
<TABLE>
THE BEAR STEARNS COMPANIES INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
(In thousands)
<CAPTION>
Charged to
Balance at Costs and Balance at
Description Beginning of Period Expenses Deductions End of Period
----------- ------------------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Allowance for Doubtful
Accounts:
Year ended June 30,
1994 $35,479 $12,871 $ (6,297) $42,053
Year ended June 30,
1993 36,727 1,059 (2,307) 35,479
Year ended June 30,
1992 45,823 1,716 (10,812) 36,727
</TABLE>
<PAGE>
<PAGE>
SCHEDULE IX
<TABLE>
THE BEAR STEARNS COMPANIES INC.
SHORT-TERM BORROWINGS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
(Dollars in thousands)
<CAPTION>
Maximum Average
Weighted month-end month-end Weighted
Category average amount amount average
of aggregate interest outstanding outstanding interest
short-term Balance at rate at end during during rate during
borrowings (1) end of period of period the period the period the period (2)
-------------- ------------- ----------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Bank loans-
June 30, 1994 $ 294,214 6.20% $ 2,868,691 $ 1,372,245 3.61%
Bank loans-
June 30, 1993 127,479 4.69% 1,630,019 383,298 3.70%
Bank loans-
June 30, 1992 60,019 7.00% 1,005,043 190,072 4.80%
Medium-Term Notes-
June 30, 1994 3,892,191 4.43% 3,892,191 3,107,130 3.65%
Medium-Term Notes-
June 30, 1993 1,587,255 3.54% 1,587,255 1,062,730 3.77%
Medium-Term Notes-
June 30, 1992 585,500 4.36% 647,900 521,325 5.15%
Commercial paper-
June 30, 1994 3,689,000 4.39% 4,496,000 4,275,000 3.46%
Commercial paper-
June 30, 1993 4,404,160 3.27% 4,404,160 3,387,155 3.43%
Commercial paper-
June 30, 1992 3,170,815 3.87% 3,414,449 2,969,793 4.76%
Securities sold
under agreements
to repurchase-
June 30, 1994 26,863,122 3.22% 39,789,202 30,166,372 3.20%
Securities sold
under agreements
to repurchase-
June 30, 1993 22,058,354 2.98% 30,080,950 25,333,785 2.98%
Securities sold
under agreements
to repurchase-
June 30, 1992 19,317,964 3.75% 31,139,621 25,677,266 4.65%
<FN>
(1) The general terms of each category of aggregate short-term borrowings are contained in the Notes to
Consolidated Financial Statements appearing under the captions "Summary of Significant Accounting
Policies" and "Short-Term Financing" of the Annual Report incorporated elsewhere herein by reference.
(2) The weighted average interest rate during the period was computed based upon the average amounts
outstanding daily.
</TABLE>
<PAGE>
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Exhibit
----------- -------
(3)(a)(1) Restated Certificate of Incorporation of the
registrant, filed September 11, 1985 (incor-
porated by reference to Exhibit No. (4)(a)(1) to
the registrant's registration statement on Form
S-8 (File No. 33-49979)).
(3)(a)(2) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed October 29, 1985 (incorporated by reference
to Exhibit No. (4)(a)(2) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(3) Certificate of Stock Designation to the Restated
Certificate of Incorporation of the registrant,
filed October 29, 1985 (incorporated by reference
to Exhibit No. (4)(a)(3) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(4) Certificate of Change of Address of Registered
Agent to the Restated Certificate of Incor-
poration of the registrant, filed February 14,
1986 (incorporated by reference to Exhibit
No. (4)(a)(4) to the registrant's registration
statement on Form S-8 (File No. 33-49979)).
(3)(a)(5) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed September 18, 1986 (incorporated by refer-
ence to Exhibit No. (4)(a)(5) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(6) Certificate of Stock Designation to the Restated
Certificate of Incorporation of the registrant,
filed February 19, 1987 (incorporated by refer-
ence to Exhibit No. (4)(a)(6) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
<PAGE>
<PAGE>
Exhibit No. Exhibit
----------- -------
(3)(a)(7) Certificate of Correction to the Restated Cer-
tificate of Incorporation of the registrant,
filed February 25, 1987 (incorporated by refer-
ence to Exhibit No. (4)(a)(7) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(8) Certificate of Change of Address of Registered
Agent to the Restated Certificate of Incorpora-
tion of the registrant, filed October 27, 1988
(incorporated by reference to Exhibit No.
(4)(a)(8) to the registrant's registration
statement on Form S-8 (File No. 33-49979)).
(3)(a)(9) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed November 6, 1989 (incorporated by reference
to Exhibit No. (4)(a)(9) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(10) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed November 7, 1990 (incorporated by reference
to Exhibit No. (4)(a)(10) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(11) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed November 10, 1992 (incorporated by refer-
ence to Exhibit No. (4)(a)(11) to the regis-
trant's registration statement on Form S-8 (File
No. 33-49979)).
(3)(a)(12) Certificate of Stock Designation to the Restated
Certificate of Incorporation of the registrant,
filed March 23, 1993 (incorporated by reference
to Exhibit No. (4)(a)(12) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(13) Certificate of Stock Designation to the Restated
Certificate of Incorporation of the registrant,
filed July 22, 1993 (incorporated by reference to
Exhibit No. (4)(a)(13) to the registrant's regis-
tration statement on Form S-8 (File No.
33-49979)).
<PAGE>
<PAGE>
Exhibit No. Exhibit
----------- -------
(3)(a)(14) Form of Certificate of Stock Designations to the
Restated Certificate of Incorporation of the
registrant (incorporated by reference to Exhibit
No. 4.4 to the registrant's registration
statement on Form 8-A filed on February 23,
1994).
(3)(b) Amended and Restated By-laws of the registrant
(incorporated by reference to Exhibit No. (3)(b)
to registrant's Annual Report on Form 10-K for
its fiscal year ended June 30, 1991 and Exhibit
No. (3)(b) to the registrant's Quarterly Report
on Form 10-Q for the quarterly period ended
December 31, 1992).
(4)(a) Indenture, dated as of April 13, 1989, between
the registrant and Citibank, N.A., as trustee
(incorporated by reference to the identically
numbered exhibit to the registrant's registration
statement on Form S-3 (File No. 33-27713)).
(4)(b) Indenture, dated as of May 31, 1991, between the
registrant and Manufacturers Hanover Trust
Company, as trustee (incorporated by reference to
exhibit No. (4)(a) to registrant's registration
statement on Form S-3 (File No. 33-40933)).
(4)(c) Except as set forth in (4)(a) and 4(b) above, the
instruments defining the rights of holders of
long-term debt securities of the registrant and
its subsidiaries are omitted pursuant to Section
(b)(4)(iii) of Item 601 of Regulation S-K.
Registrant hereby agrees to furnish copies of
these instruments to the SEC upon request.
(4)(d) Form of Deposit Agreement (incorporated by
reference to Exhibit (4)(d) to the registrant's
registration statement on Form S-3 (File No.
33-59140)).
(10)(a)(1) 1985 Stock Option Plan, as amended (incorporated
by reference to the identically numbered exhibit
to the registrant's registration statement on
Form S-1 (File No. 33-15948)).
(10)(a)(2) Employee Convertible Debenture Purchase Plan
(incorporated by reference to Exhibit A to the
registrant's proxy statement furnished to stock-
holders in connection with the solicitation of
proxies for the registrant's Annual Meeting of
Stockholders held on September 21, 1987).
<PAGE>
<PAGE>
Exhibit No. Exhibit
----------- -------
(10)(a)(3) 1989 Deferred Compensation Plan for Executive
Officers (incorporated by reference to Exhibit B
to the registrant's proxy statement furnished to
stockholders in connection with the solicitation
of proxies for the registrant's Annual Meeting of
Stockholders held on October 29, 1990).
(10)(a)(4) Management Compensation Plan, as amended and
restated as of July 1, 1994, certain provisions
of which are subject to the approval of the
Stockholders at the 1994 Annual Meeting.
(10)(a)(5) Capital Accumulation Plan for Senior Managing
Directors, as amended and restated as of July 1,
1993 (the "CAP Plan") (incorporated by reference
to Exhibit B to the registrant's proxy statement
furnished to stockholders in connection with the
solicitation of proxies for the registrant's
Annual Meeting of Stockholders held on October
25, 1993).
(10)(a)(6) Amendment to the CAP Plan, adopted April 14,
1994, certain provisions of which are subject to
the approval of the Stockholders at the 1994
Annual Meeting.
(10)(a)(7) Amendment to the CAP Plan, adopted September 1,
1994, certain provisions of which are subject to
the approval of the Stockholders at the 1994
Annual Meeting.
(10)(a)(8) Performance Unit Plan for Senior Managing
Directors (the "PUP Plan") (incorporated by
reference to Exhibit C to the registrant's proxy
statement furnished to stockholders in connection
with the solicitation of proxies for the
registrant's Annual Meeting of Stockholders held
on October 25, 1993).
(10)(a)(9) Amendment to the PUP Plan, adopted September 1,
1994.
(10)(b)(1) Lease, dated as of November 1, 1991, between
Forest City Jay Street Associates and The Bear
Stearns Companies Inc. with respect to the
premises located at One Metrotech Center,
Brooklyn, New York (incorporated by reference to
Exhibit (10)(b)(1) to the registrant's Annual
Report on Form 10-K for its fiscal year ended
June 30, 1992).
<PAGE>
<PAGE>
Exhibit No. Exhibit
----------- -------
(10)(b)(2) Lease, dated as of March 6, 1987, among Olympia &
York 245 Lease Company, 245 Park Avenue Company
and The Bear Stearns Companies Inc. (incorporated
by reference to Exhibit (10)(c)(2) to the
registrant's registration statement on Form S-1
(File No. 33-15948)).
(10)(b)(3) Lease, dated August 26, 1994, between Tenth
Avenue Associates and The Bear Stearns Companies
Inc.
(11) Statement re: computation of per share earnings.
(12) Statement re: computation of ratio of earnings to
fixed charges.
(13) 1994 Annual Report to Stockholders (only those
portions expressly incorporated by reference
herein shall be deemed filed with the
Commission).
(21) Subsidiaries of the registrant.
(23) Consent of Deloitte & Touche LLP.
(27) Financial Data Schedule.
<PAGE>
Exhibit (10)(a)(4)
------------------
THE BEAR STEARNS COMPANIES INC.
Management Compensation Plan
(as amended and restated as of July 1, 1994)
Section 1. Purpose. The purposes of The Bear Stearns Companies
-------
Inc. Management Compensation Plan as amended and restated hereby (the
"Plan") are (i) to compensate voting members of the Executive
Committee of the Board of Directors (the "Executive Committee") of The
Bear Stearns Companies Inc. (the "Company") on an individual basis for
significant contributions to the Company and its subsidiaries and (ii)
to stimulate the efforts of such voting members of the Executive
Committee by giving them a direct interest in the performance of the
Company.
Section 2. Term. The Plan shall be effective as of July 1, 1994
----
(the "Effective Date"), and shall be applicable for all future fiscal
years of the Company unless amended or terminated by the Company
pursuant to Section 9.
Section 3. Coverage. For purposes of the Plan, the term
--------
"Participant" shall include for each fiscal year each voting member of
the Executive Committee serving as such on the date that proportionate
shares of the Annual Bonus Pool for such fiscal year are determined by
the Compensation Committee. As used herein, the term "Company"
includes both the Company and its subsidiaries, unless the context
otherwise requires.
Section 4. Base Salary.
-----------
4.1 Each Participant shall receive a salary of $200,000 per
annum ("Base Salary"). The Base Salary of the Participants may be
increased from time to time by the Compensation Committee of the Board
of Directors of the Company (the "Compensation Committee") by
amendment of the Plan pursuant to Section 9, provided that the Base
Salary of each Participant shall be the same as the Base Salary of
each other Participant.
4.2 Notwithstanding the provisions of Section 4.1 above, in the
event a Participant is not a voting member of the Executive Committee
for an entire fiscal year, his Base Salary for such fiscal year shall
be computed by multiplying such Base Salary as computed under Section
4.1 by a fraction, the numerator of which is the number of days in
such fiscal year during which such Participant was a voting member of
the Executive Committee and the denominator of which is the number of
days in the fiscal year. Any Base Salary shall be in addition to any
base salary
NYFS04...:\25\22625\0110\7120\EXH92094.W90
<PAGE>
<PAGE>
payable with respect to periods during the fiscal year in which a
Participant was not a voting member of the Executive Committee.
Section 5. Annual Bonus Pool.
-----------------
5.1 For each fiscal year of the Company, each Participant shall
be entitled to receive an award of a bonus (a "Bonus"), payable from
an annual bonus fund (the "Annual Bonus Pool") in the amount provided
for in Section 6. A Bonus under the Plan shall be the sole bonus
payable with respect to a fiscal year to each Participant ("Full Year
Participant") who was a voting member of the Executive Committee on
the date that proportionate shares of the Annual Bonus Pool for such
fiscal year was determined by the Compensation Committee and remains a
voting member of the Executive Committee at all times thereafter
during such fiscal year. For each fiscal year, each Participant who
was not a Full Year Participant shall be entitled to such a bonus, if
any, for the portion of such fiscal year not covered by the Plan,
determined in accordance with the procedures applicable to employees
who are not voting members of the Executive Committee in addition to
the Bonus, if any, payable pursuant to the Plan.
5.2 The Annual Bonus Pool for the fiscal year ending June 30,
1995 shall be determined as soon as practicable after the end of such
fiscal year of the Company and shall be an amount determined as
follows:
(a) if the Company's Adjusted Pre-Tax Return on Equity
(as defined in Section 6.7) is 2% or less, the
Annual Bonus Pool for such year shall be zero;
(b) if the Company's Adjusted Pre-Tax Return on Equity
is greater than 2% but does not exceed 5%, the
Annual Bonus Pool for such year shall be $5.4
million multiplied by a fraction (i) the numerator
which is the excess of (A) the Company's Adjusted
Pre-Tax Return on Equity over (B) 2% and (ii) the
denominator of which is 3%;
(c) if the Company's Adjusted Pre-Tax Return on Equity
is greater than 5% but does not exceed 10% the
Annual Bonus Pool for such year shall be the sum
of (a) $5.4 million and (b) $9.35 million
multiplied by a fraction (i) the numerator of
which is the excess of (A) the Company's Adjusted
Pre-Tax Return on Equity
<PAGE>
<PAGE>
over (B) 5% and (ii) the denominator of which is 5%;
(d) if the Company's Adjusted Pre-Tax Return on Equity
is greater than 10% but does not exceed 15% the
Annual Bonus Pool for such year shall be the sum
of (a) $14.75 million and (b) $9.65 million
multiplied by a fraction (i) the numerator of
which is the excess of (A) the Company's Adjusted
Pre-Tax Return on Equity over (B) 10% and (ii) the
denominator of which is 5%;
(e) if the Company's Adjusted Pre-Tax Return on Equity
is greater than 15% but does not exceed 20%, the
Annual Bonus Pool for such year shall be the sum
of (a) $24.4 million and (b) $9.825 million
multiplied by a fraction (i) the numerator of
which is the excess of (A) the Company's Adjusted
Pre-Tax Return on Equity over (B) 15% and (ii) the
denominator of which is 5%;
(f) if the Company's Adjusted Pre-Tax Return on Equity
is greater than 20% but does not exceed 30%, the
Annual Bonus Pool for such year shall be the sum
of (a) $34.225 million and (b) $19.9 million
multiplied by a fraction (i) the numerator of
which is the excess of (A) the Company's Adjusted
Pre-Tax Return on Equity over (B) 20% and (ii) the
denominator of which is 10%;
(g) if the Company's Adjusted Pre-Tax Return on Equity
is greater than 30% but does not exceed 40%, the
Annual Bonus Pool for such year shall be the sum
of (a) $54.125 million and (b) $20.4 million
multiplied by a fraction (i) the numerator of
which is the excess of (A) the Company's Adjusted
Pre-Tax Return on Equity over (B) 30% and (ii) the
denominator of which is 10%; and
(h) if the Company's Adjusted Pre-Tax Return on Equity
is greater than 40%, the Annual Bonus Pool for
such year shall be the sum of (a) $74.525 million
and (b) $2,050,000 multiplied by the product of
(i) the excess of (A) the
<PAGE>
<PAGE>
Company's Adjusted Pre-Tax Return on Equity over (B) 40% and
(ii) 100.
5.3 For each fiscal year commencing with the fiscal year
beginning July 1, 1995, the formula for calculating the Annual Bonus
Pool shall be determined by the Compensation Committee in writing, by
resolution of the Compensation Committee or other appropriate action,
not later than 90 days after the commencement of such fiscal year.
5.4 As a condition to the right of a Participant to receive any
Bonus under this Plan, the Compensation Committee shall first be
required to certify in writing, by resolution of the Compensation
Committee or other appropriate action, that the Bonus has been
accurately determined in accordance with the provisions of this Plan.
Section 6. Allocations.
-----------
6.1 Prior to the commencement of each fiscal year, or not later
than 90 days after the commencement of each fiscal year, the
Compensation Committee shall determine in writing, by resolution of
the Compensation Committee or other appropriate action, each
Participant's proportionate share of the Annual Bonus Pool for such
fiscal year, which shall not exceed in respect of any Participant 25%
of the Annual Bonus Pool and shall not exceed 100% of the Annual Bonus
Pool in the aggregate.
6.2 Notwithstanding anything in Section 6.1 to the contrary, any
Participant who ceases to be a voting member of the Executive
Committee for any reason prior to the end of such fiscal year shall be
entitled to a Bonus computed as follows: A Bonus shall be computed as
if such Participant was a voting member of the Executive Committee for
the full fiscal year except (a) Adjusted Pre-Tax Income shall not be
computed based on pre-tax income, as adjusted, for the full fiscal
year, but shall instead be computed based on pre-tax income, as
adjusted, for the period through the end of the month such Participant
ceased to be a voting member of the Executive Committee multiplied by
a fraction the numerator of which is 12 and the denominator of which
is the number of months in the fiscal year through the month the
Participant ceased to be a voting member of the Executive Committee,
and (b) the Bonus that would have been payable for the full fiscal
year based on (a) above shall be multiplied by a fraction the
numerator of which shall be the number of days in the fiscal year
through the date the Participant ceased to be a voting member of the
Executive Committee, and the denominator of which shall be the number
of
<PAGE>
<PAGE>
days in the fiscal year; provided, however, that if the application of
-------- -------
the preceding clause would cause the total Bonuses payable under the
Plan to exceed the Annual Bonus Pool, the Bonuses payable to each
Participant shall be reduced pro rata, so that the total of all
--- ----
Bonuses shall equal the Annual Bonus Pool. If a Participant ceases to
be a voting member of the Executive Committee after the end of the
fiscal year in respect of which such Bonus is payable, the amounts
thereof nonetheless shall be payable to him or his estate, as the case
may be.
6.3 Except as hereinafter provided, Bonuses for a fiscal year
shall be payable as soon as practicable following the determination of
Adjusted Pre-Tax Income for such fiscal year. In its discretion, the
Compensation Committee may authorize, prior to the final determination
of Adjusted Pre-Tax Income for such fiscal year, payments on account
of Bonuses payable hereunder to one or more Participants entitled to
such Bonuses, (a) during the last month of such fiscal year, in an
amount not exceeding 95% of the aggregate amount that would be payable
to such Participant or Participants hereunder as determined by the
Chief Financial Officer of the Company on the basis of his good faith
estimate of the Adjusted Pre-Tax Income of the Company for the portion
of the fiscal year preceding the date of determination, (b) during the
last 10 calendar days of such fiscal year or after the end of such
fiscal year in an amount not exceeding 98% of the aggregate amount
that would be payable to such Participant or Participants hereunder as
determined by the Chief Financial Officer of the Company on the basis
of his good faith estimate of the Adjusted Pre-Tax Income for such
fiscal year, and (c) at any time during such fiscal year or after the
end of such fiscal year to a Participant who ceases to be a voting
member of the Executive Committee for any reason prior to the end of
such fiscal year. Within the limitations set forth in the preceding
sentence, the Compensation Committee may authorize one or more such
"on account" payments, but the aggregate amount of any such on account
payment shall not exceed the aggregate amount permitted to be paid
pursuant to the Plan with respect to the same fiscal year. In
connection with any such "on account" payments, the Compensation
Committee shall require an undertaking or other assurance by or on
behalf of the Participant receiving such payment to repay the Company
the amount, if any, by which such "on account" payment exceeds the
actual amount determined to be due to such person under the Plan in
respect of such fiscal year. Any "on account" payments received prior
to the end of a fiscal year shall be discounted to reasonably reflect
the time value of money from the date of payment to the date 30 days
after the end of the fiscal year.
<PAGE>
<PAGE>
6.4 The Compensation Committee may determine that payment of a
portion of the Bonuses shall be deferred, the periods of such
deferrals and any interest, not to exceed a reasonable rate, to be
paid in respect of deferred payments. The Compensation Committee may
also define such other conditions of payment of Bonuses as it may deem
desirable in carrying out the purposes of the Plan.
6.5 In any fiscal year, any balance in the Annual Bonus Pool
attributable to a forfeiture of Bonus under Section 6.2 as a result of
a Participant ceasing to be a voting member of the Executive Committee
during such year shall not be distributed to other Participants and
shall not be carried forward or be available for distribution as
Bonuses under the Plan in a future year or years.
6.6 For purposes of this Plan, the "Adjusted Pre-Tax Income" for
a fiscal year shall be the consolidated pre-tax income of the Company
and its subsidiaries, determined in accordance with generally accepted
accounting principles, computed prior to taking into account all
amounts paid or accrued with respect to amounts payable under this
Plan and including the amounts of any pre-tax earnings or loss
attributable to discontinued operations or extraordinary items, if
any, (a) after deducting all amounts paid or accrued, if any, with
respect to Base Salaries for such fiscal year, (b) before deducting
the amount paid or accrued, if any, with respect to any adjustments
relating to the Capital Accumulation Plan for Senior Managing
Directors and (c) after deducting all amounts paid or accrued, if any,
with respect to dividends on the Company's preferred stock for such
fiscal year. Adjusted Pre-Tax Income may be decreased, but not
increased, by such amount determined by the Compensation Committee in
its sole discretion as appropriate to carry out the purposes of the
Plan.
6.7 For purposes of this Plan, the "Adjusted Pre-Tax Return on
Equity" for a fiscal year shall be the number expressed as a
percentage determined by dividing (a) Adjusted Pre-Tax Income for such
fiscal year by (b) the Consolidated Common Stockholders' Equity as of
the last day of the immediately preceding fiscal year, determined in
accordance with generally accepted accounting principles, in
accordance with the consolidated statements of financial condition for
the Company and its subsidiaries, as audited by the Company's
independent public accountants.
Section 7. Administration and Interpretation. The Plan shall be
---------------------------------
administered by the Compensation Committee, which shall have the sole
authority to make rules and regulations for the
<PAGE>
<PAGE>
administration of the Plan. The interpretations and decisions of the
Compensation Committee with regard to the Plan shall be final and
conclusive. The Compensation Committee may request advice or
assistance or employ such persons (including, without limitation,
legal counsel and accountants) as it deems necessary for the proper
administration of the Plan.
Section 8. Administrative Expenses. Any expense incurred in the
-----------------------
administration of the Plan shall be borne by the Company out of its
general funds and not charged against the Annual Bonus Fund, except
insofar as such expenses shall be taken into account in determining
Adjusted Pre-Tax Income hereunder.
Section 9. Amendment or Termination. The Compensation Committee
------------------------
of the Company may from time to time amend the Plan in any respect or
terminate the Plan in whole or in part, provided that no such action
shall retroactively impair or otherwise adversely affect the rights of
any Participant to benefits under the Plan which have accrued prior to
the date of such action.
Section 10. No Assignment. The rights hereunder, including
-------------
without limitation rights to receive a Base Salary or Bonus, shall not
be sold, assigned, transferred, encumbered or hypothecated by an
employee of the Company (except by testamentary disposition or
intestate succession), and during the lifetime of any recipient any
payment of Base Salary or a Bonus shall be payable only to such
recipient.
Section 11. The Company. For purposes of this Plan, the
-----------
"Company" shall include the successors and assigns of the Company, and
this Plan shall be binding on any corporation or other person with
which the Company is merged or consolidated, or which acquires
substantially all of the assets of the Company, or which otherwise
succeeds to its business.
Section 12. Stockholder Approval. This Plan shall be subject to
--------------------
approval of the material terms of the performance goal under which
Bonuses are payable under the Plan by an affirmative vote of a
majority of the shares cast in a separate vote of the stockholders of
the Company during each fiscal year for which Bonuses are to be paid
under the Plan, and such stockholder approval shall be a condition to
the right of a Participant to receive any Bonus hereunder.
<PAGE>
Exhibit (10)(a)(6)
------------------
THE BEAR STEARNS COMPANIES INC.
AMENDMENT TO THE CAPITAL ACCUMULATION PLAN
RESOLVED, that The Bear Stearns Companies Inc. Capital
Accumulation Plan for Senior Managing Directors, as amended and
restated as of July 1, 1993 (the "Plan"), be, and hereby is, amended
as follows:
1. The definition of "Enrollment Period" in
Section 2.1 of the Plan is amended in its entirety
to read as follows:
"Enrollment Period" in respect of a Plan Year
means the period commencing with the first day of
the fiscal quarter immediately preceding such Plan
Year and ending on December 31 of such Plan Year
or such shorter period contained therein
designated by the Board Committee. Without
limiting the generality of the foregoing, the
Board Committee may designate one Enrollment
Period for individuals who are Eligible Employees
on the first day of a Base Year and one or more
Enrollment Periods for individuals who become
Eligible Employees after the first day of a Base
Year; provided, however, with respect to Reporting
Persons in no event shall an Enrollment Period end
less than six months before the beginning of the
applicable Deferral Period; provided, further,
that with respect to participants in The Bear
Stearns Companies Inc. Management Compensation
Plan in no event shall any Enrollment Period in
respect of any Plan Year extend into such Plan
Year so as to allow a Participant to make an
election to increase or decrease the deferral
amount or Deferral Period relating to such Plan
Year.
2. The definition of "Adjusted Earnings Per Share" in
Section 2.1 of the Plan is amended by deleting the reference
therein to the term "Effective Tax Rate" and substituting in
lieu thereof the term "Marginal Tax Rate."
NYFS04...:\25\22625\0110\7120\EXH92094.X00<PAGE>
<PAGE>
3. The definition of "Pre-Plan Earning Per
Share" in Section 2.1 of the Plan is amended in
its entirety to read as follows:
"Pre-Plan Earnings Per Share" means, for any
Fiscal Year, (a) the sum of (i) the Company's
consolidated net income or loss for such Fiscal
Year less (ii) the amount of the Preferred Stock
Dividend Requirement for such Fiscal Year, plus
(iii) the amount obtained by multiplying the
Aggregate Imputed Costs of the Plan deducted in
the calculation of consolidated net income or loss
for such Fiscal Year by the fraction which is one
minus the Marginal Tax Rate for such Fiscal Year,
divided by (b) the sum of (x) the number of shares
of Common Stock outstanding during such Fiscal
Year, computed on a weighted average basis based
on the number of days outstanding during such
Fiscal Year, (y) the aggregate number of CAP Units
credited to the Accounts of all Participants
computed on a weighted average basis based on the
number of days outstanding during such Fiscal Year
but not including in such computation the day that
the CAP Units are credited, increased or decreased
pursuant to Section 5.1, 5.3 or 5.10 of the Plan,
and (z) the aggregate number of Earnings Units
credited to the Earnings Unit Accounts of all
participants in the PUP Plan computed on a
weighted average basis based on the number of days
outstanding during such Fiscal Year but not
including in such computation the day that
Earnings Units are credited, increased or
decreased pursuant to Section 4.2 or 4.5 of the
PUP Plan.
4. The definition of "Income Per Share" in
Section 2.1 of the Plan is amended by adding the
following language at the end thereof:
, and may be decreased, but not increased, by such
amount determined by the Board Committee in its
sole discretion as appropriate to carry out the
purposes of the Plan.
<PAGE>
<PAGE>
RESOLVED, that Amendment 1 above shall be effective as of the
date hereof.
RESOLVED, that the Amendments 2 and 3 above shall be effective
July 1, 1994, subject to stockholder approval at the 1994 Annual
Meeting of Shareholders of the Corporation.
RESOLVED, that Amendment 4 shall be effective July 1, 1994.
<PAGE>
Exhibit (10)(a)(7)
------------------
THE BEAR STEARNS COMPANIES INC.
AMENDMENT TO CAPITAL ACCUMULATION PLAN
RESOLVED, that Section 6.6 of the Bear Stearns Companies Inc.
Capital Accumulation Plan for Senior Managing Directors as amended and
restated as of July 1, 1993 (the "CAP Plan") be, and hereby is,
amended by adding the following sentence at the end hereof:
If shares of Common Stock are distributed
pursuant to Sections 6.1, 6.2(a), 6.2(b) or the
first sentence of 6.2(c)(iii) to any Participant
after the record date for any cash dividend
occurring after the Termination Date with respect
to which such shares are distributed or, in the
cases of Sections 6.2(a) or 6.2(b), after the end
of the Fiscal Year in which the death or
Disability of a Participant occurs, then such
Participant (or his estate or Beneficiary) shall
be entitled to receive from the Company an amount
of cash equal to the cash dividends per share
payable to holders of record on such record date
multiplied by the number of shares of Common Stock
so distributed to such Participant after such
record date.
RESOLVED, that Section 5.11 of the CAP Plan be, and hereby is,
amended in its entirety to read as follows:
5.11 Certification of the Board Committee.
------------------------------------
As a condition to the right of any Participant to receive
any shares payable in respect of CAP Units credited to such
Participant's Capital Accumulation Account or cash in
respect of such Participant's Cash Account, in respect of
fractional CAP Units credited to such Participant's Capital
Accumulation Account or payable pursuant to Section 6.6,
prior to the time CAP Units or cash is credited to the
appropriate Accounts of such Participant or a Participant
receives cash pursuant to Section 6.6, the Board Committee
shall be required to certify, by resolution of the Board
Committee or other appropriate action, that the amounts to
which such Participant is entitled have been
NYFS04...:\25\22625\0110\7120\EXH92094.Y90
<PAGE>
<PAGE>
accurately determined in accordance with the provisions of
the Plan.
RESOLVED, that the last sentence of the definition of "Enrollment
Period" in Section 2.1 of the CAP Plan be, and hereby is, amended by
adding the phrase "more than 90 days" after the word "extend".
RESOLVED, that the foregoing amendments to the CAP Plan are
effective as of July 1, 1994, except the amendment to Section 5.11
which is effective October 26, 1994; provided, however, that the
foregoing amendments to Section 5.11 and 6.6 of the CAP Plan insofar
as they relate to distributions after October 25, 1994 are subject to
stockholder approval at the 1994 Annual Meeting of Stockholders of the
Corporation.
<PAGE>
Exhibit (10)(a)(9)
------------------
THE BEAR STEARNS COMPANIES INC.
AMENDMENT TO PERFORMANCE UNIT PLAN
RESOLVED, that Section 5.5 of the Bear Stearns Companies Inc.
Performance Unit Plan for Senior Managing Directors (the "PUP Plan")
be, and hereby is, amended by adding the following sentence at the end
thereof:
If shares of Common Stock are distributed
pursuant to Section 5.1 to any Participant after
the record date for any cash dividend occurring
after the Termination Date with respect to which
such shares are distributed, then such Participant
shall be entitled to receive from the Company an
amount of cash equal to the cash dividends per
share payable to holders of record on such record
date multiplied by the number of shares of Common
Stock so distributed to such Participant after
such record date.
RESOLVED, that the foregoing amendment to the PUP Plan is
effective as of July 1, 1994.
NYFS04...:\25\22625\0110\7120\EXH92094.Z40
<PAGE>
EXHIBIT (10)(B)(3)
------------------
TENTH CITY ASSOCIATES,
Owner
TO
THE BEAR STEARNS COMPANIES, INC.,
Tenant
-----------------------
Lease
-----------------------
Dated as of August 26, 1994
<PAGE>
<PAGE>
TABLE OF CONTENTS
-----------------
1. Demise; Term; Rent . . . . . . . . . . . . . . . . . . . . . 1
2. Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. Tenant Alterations . . . . . . . . . . . . . . . . . . . . . 5
4. Maintenance and Repairs . . . . . . . . . . . . . . . . . . 8
5. Window Cleaning . . . . . . . . . . . . . . . . . . . . . . 9
6. Requirements of Law, Insurance, Floor Loads . . . . . . . . 10
7. Subordination . . . . . . . . . . . . . . . . . . . . . . . 12
8. Property - Loss, Damage, Reimbursement, Indemnity . . . . . 15
9. Destruction, Fire and Other Casualty . . . . . . . . . . . . 16
10. Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . 19
11. Assignment, Subletting Mortgage, Etc. . . . . . . . . . . . 19
12. Electric Current . . . . . . . . . . . . . . . . . . . . . . 27
13. Access to Premises . . . . . . . . . . . . . . . . . . . . . 31
14. Vault, Vault Space, Area . . . . . . . . . . . . . . . . . . 31
15. Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . 32
16. Default . . . . . . . . . . . . . . . . . . . . . . . . . . 32
17. Re-entry by Owner . . . . . . . . . . . . . . . . . . . . . 35
18. Damages; Injunction; Waiver . . . . . . . . . . . . . . . . 35
19. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . 37
20. Building Alterations and Management . . . . . . . . . . . . 37
21. No Representations by Owner . . . . . . . . . . . . . . . . 38
22. End of Term . . . . . . . . . . . . . . . . . . . . . . . . 39
23. Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . 40
24. Tenant Satellite Dish . . . . . . . . . . . . . . . . . . . 40
25. No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . 43
26. Waiver of Trial by Jury . . . . . . . . . . . . . . . . . . 44
27. Inability to Perform . . . . . . . . . . . . . . . . . . . . 44
28. Bills and Notices . . . . . . . . . . . . . . . . . . . . . 47
29. Services Provided by Owner . . . . . . . . . . . . . . . . . 48
30. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . 51
31. Definitions . . . . . . . . . . . . . . . . . . . . . . . . 51
32. Adjacent Excavation - Shoring . . . . . . . . . . . . . . . 52
33. Rules and Regulations . . . . . . . . . . . . . . . . . . . 52
34. Signage . . . . . . . . . . . . . . . . . . . . . . . . . . 53
35. Estoppel Certificate . . . . . . . . . . . . . . . . . . . . 54
36. Successors and Assigns . . . . . . . . . . . . . . . . . . . 54
37. Late Charge . . . . . . . . . . . . . . . . . . . . . . . . 54
38. Real Estate Tax Escalation . . . . . . . . . . . . . . . . . 54
39. Operating Expense Escalation . . . . . . . . . . . . . . . . 56
40. Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . 61
41. Renewal Option . . . . . . . . . . . . . . . . . . . . . . . 61
42. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . 64
43. Tenth Floor Expansion Space . . . . . . . . . . . . . . . . 65
44. Offer Space Option . . . . . . . . . . . . . . . . . . . . . 66
45. Tenant's Termination Option . . . . . . . . . . . . . . . . 69
NYFS04...:\25\22625\0110\7120\LSE92394.W00
<PAGE>
<PAGE>
EXHIBITS
--------
Exhibit A - Floor Plans
Exhibit B - Owner's work
Exhibit C - Form of License Agreement
Exhibit D - Cleaning Specifications
Exhibit E - Rules and Regulations
<PAGE>
<PAGE>
INDEX OF DEFINED TERMS
Definition Where Defined
---------- -------------
AAA Section 42(c)
ADA Section 6(a)
Affiliate Section 11(a)(iii)
Alleged Default Section 16(b)(i)
Amortized Capital Improvement Section 39(a)
Ancillary Uses Section 2(b)
Applicable Percentage Section 22(b)
Available Section 44(a)
Base Rent Section 1(c)
Base Tax Year Section 38(a)
Basic Year Section 39(a)
Building Introduction
Business Days Section 31(c)
Business Hours Section 31(d)
Conforming Transaction Section 11(b)
Contractor's Estimate Section 9(g)
Correspondents Section 11(a)(vi)
Correspondent Firm Section 11(a)(vi)
Critical Default Section 16(b)(ii)
Dispute Notice Section 16(b)(i)
Expansion Space Section 43(a)
Expansion Space Rent Commencement Date Section 43(b)
Expansion Space Inclusion Date Section 43(c)
Force Majeure Section 27(c)
Inclusion Amount Section 12(a)
Market Rent Section 41(c)(i)
Market Rental Notice Section 41(d)
New Tenant Section 22(b)(ii)
Notice of Estimate Section 12(a)
Offer Acceptance Notice Section 44(b)
Offer Notice Section 44(b)
Offer Space Section 44(a)
Offer Space Option Section 44(b)
Original Tenant Section 11(h)
OS Inclusion Date Section 44(a)
Owner Introduction;
Section 31(b)
Owner's Rate Schedule Section 12(b)(i)
Owner's Work Section 15(c)
Prime Rate Section 37
Qualified Alteration Section 3(a)
Recapture Date Section 11(b)
<PAGE>
<PAGE>
Recapture Notice Section 11(b)
Recapture Response Notice Section 11(b)
Recapture Right Section 11(b)
Renewal Notice Section 41(b)
Renewal Option Section 41(a)
Renewal Term Section 41(a)
Rent Section 1(c)
Rules and Regulations Section 33
Satellite Dish Section 24(a)
Submeter Date Section 12(b)(i)
Superior Instruments Section 7(a)
Taxes Section 38(a)
Tenant Introduction
Tenant Competitor Section 20(b)
Tenant Supported Charity Section 11(a)(vi)
Tenant's Basic Cost Section 11(f)(i)
Tenant's Estimated Share Section 39(b)
Tenant's Share Section 38(a)
Tentative Monthly Electric Charge Section 12(b)(ii)
Termination Date Section 45(a)
Termination Notice Section 45(a)
Termination Option Section 45(a)
Third Renewal Term Section 41(a)
Transaction Costs Section 11(f)(i)
Transfer Notice Section 11(c)
<PAGE>
<PAGE>
LEASE, made as of this 26th day of August, 1994, between TENTH
CITY ASSOCIATES, a New York general partnership having an office at 26
Broadway, New York, New York 10004-1898 ("Owner"), and THE BEAR
-----
STEARNS COMPANIES, INC., a Delaware corporation having an office at
245 Park Avenue, New York, New York 10167 ("Tenant").
------
W I T N E S S E T H
-------------------
WHEREAS, Owner is willing to lease to Tenant and Tenant is
willing to hire from Owner, on the terms hereinafter set forth,
certain space in the office building located at 575 Lexington Avenue,
New York, New York (the "Building").
--------
NOW, THEREFORE, Owner and Tenant agree as follows:
1. DEMISE; TERM; RENT:
------------------
(a) Owner hereby leases to Tenant and Tenant hereby hires from
Owner, subject to Section 1(e) below, the following space in the
Building:
(i) the entire 7th floor of the Building, as shown on the
plan annexed as Exhibit A-1;
(ii) the entire 8th floor of the Building, as shown on the
plan annexed as Exhibit A-2;
(iii) the entire 9th floor of the Building, as shown on the
plan annexed as Exhibit A-3;
(iv) the portion of the 10th floor of the Building
designated as suite "1020" on Exhibit A-4; and
(v) the entire 11th floor of the Building, as shown on the
plan annexed as Exhibit A-5.
(b) The term of this Lease shall be for a period of ten (10)
years and three (3) months, to commence on October 1, 1994 and to end
on December 31, 2004, both dates inclusive, as such term may be
extended pursuant to Article 41 below (including, without limitation,
Section 41(f)(iii)) or until such term shall sooner cease and expire
as hereinafter provided.
(c) Tenant shall pay to Owner base rent ("Base Rent") as
---------
follows:
<PAGE>
<PAGE>
(i) for the period commencing on April 1, 1995 to and
including the day before the Expansion Space Rent Commencement
Date, at an annual rate of THREE MILLION TWO HUNDRED FIFTEEN
THOUSAND SIX HUNDRED FORTY-SIX ($3,215,646.00) DOLLARS, payable
in equal monthly installments of TWO HUNDRED SIXTY SEVEN THOUSAND
NINE HUNDRED SEVENTY AND 50/100 ($267,970.50) DOLLARS; and
(ii) for the period commencing on the Expansion Space Rent
Commencement Date to and including the last day of the term of
this Lease, at an annual rate of THREE MILLION TWO HUNDRED
NINETY-TWO THOUSAND FOUR HUNDRED SIXTY-SEVEN AND 50/100
($3,292,467.50) DOLLARS, payable in equal monthly installments of
TWO HUNDRED SEVENTY FOUR THOUSAND THREE HUNDRED SEVENTY-TWO AND
29/100 ($274,372.29) DOLLARS.
If the Expansion Space Rent Commencement Date is not the first
day of the month, then the Base Rent for the month in which the
Expansion Space Rent Commencement Date occurs shall be appropriately
prorated. All monthly installments of Base Rent shall be due and
payable on the first day of each and every month in advance and Tenant
shall pay said monthly installments of Base Rent and any additional
rent that becomes due pursuant to this Lease or otherwise
(collectively (including Base Rent), "Rent") 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 payment at the office of
Owner or such other place as Owner may designate in writing, without
any set off or deduction whatsoever except as may be expressly
permitted pursuant to the provisions of this Lease.
(d) Prior to October 1, 1994, Tenant may take possession of the
demised premises for the purpose of constructing Tenant's initial
improvements therein and otherwise, subject to and in accordance with
all of the terms and provisions of this Lease (all of which shall
apply from and after the date of this Lease).
(e) Exhibits A-1 through A-5 indicate the existence of the
following (all indicated by X's on such floor plans):
(i) a door at the south side of the 7th floor of the
Building leading to a Building roof setback;
(ii) a door at the north side of the demised premises on the
8th floor of the Building leading to a Building mechanical room;
<PAGE>
<PAGE>
(iii) a door at the south side of the 8th floor of the
Building leading to a Building roof setback;
(iv) a door at the south side of the 9th floor of the
Building leading to a Building roof setback;
(v) three doors in the eastern portion of the demised
premises on the 10th floor of the Building leading to a Building
mechanical room; and
(vi) a door at the south side of the 11th floor of the
Building leading to a Building roof setback.
Except as may be otherwise expressly set forth in this Lease, Tenant
shall not have access to any of such setbacks or mechanical rooms and
all of the above-described doors shall remain locked and under the
control of Building personnel only. No part of such setbacks or
mechanical rooms are included in the demised premises and Tenant shall
not, nor shall Tenant suffer or permit Tenant's servants, agents,
employees, invitees or licensees to, go upon any of such setbacks or
make use thereof in any way. Notwithstanding the provisions of
Article 13 below, the maintenance personnel of the Building shall have
access to such setbacks and mechanical rooms through the demised
premises at such times and on such occasions as may be reasonably
necessary, subject to giving Tenant such notice thereof as shall be
appropriate under the circumstances.
2. OCCUPANCY:
---------
(a) Tenant shall use and occupy the demised premises for general
and executive offices for Tenant's business and for uses incidental
thereto (including, without limitation, as a computer or data
processing center, a communications center and as a trading floor) and
for no other purpose; provided, that in no event shall any of the
following be permitted in the demised premises: (i) offices of any
government or political subdivision thereof which is entitled to, or
whose occupants are entitled to, sovereign, diplomatic or other
immunity from legal proceedings under the laws of the United States,
(ii) offices of any governmental or quasi-governmental bureau or
agency of any government or political subdivision thereof which is
entitled to, or whose occupants are entitled to, sovereign, diplomatic
or other immunity from legal proceedings under the laws of the United
States, (iii) offices of any public utility company (other than
executive offices which do not service the general public), (iv)
health care activities (except as provided in Section 2(b) below), (v)
schools or other training or educational uses (other
<PAGE>
<PAGE>
than for the training of Tenant's employees), (vi) clerical support
services (other than those ancillary to an otherwise permitted use),
(vii) reservation centers for airlines or travel agencies (other than
for use by Tenant's employees), (viii) retail or restaurant use
(except as provided in Section 2(b) below), (ix) studios for radio,
television or other media (other than those ancillary to an otherwise
permitted use), (x) storage (other than storage ancillary to an
otherwise permitted use) or (xi) personnel agencies. Except with
Owner's prior written consent, the demised premises shall not be used
in a manner which would lower the first-class character of the
Building, unduly impair any of the Building operations or the proper
and economic heating, air-conditioning, cleaning or other servicing of
the Building, interfere with the use of the other areas of the
Building by any other tenants, or impair the appearance of the
Building.
(b) Notwithstanding Section 2(a), Tenant may, provided the same
are constructed and operated in accordance with all building, health,
sanitary, safety and fire codes and insurance company recommendations
and requirements and all other applicable legal requirements, use
portions of the demised premises as (i) a first-aid facility for the
use of Tenant's employees, (ii) a health and fitness center for the
use of Tenant's employees and/or (iii) a cafeteria or other dining and
cooking facilities for Tenant's employees and their guests only;
provided, in the case of any such cafeteria or other dining and
--------
cooking facilities, that Tenant shall (A) install, in accordance with
all other applicable provisions of this Lease, all flues, vents,
grease traps and ansul systems and other similar items reasonably
requested by Owner, (B) not allow odors to escape from the demised
premises into other portions of the Building, (C) contract with an
exterminator to exterminate vermin and rodents on a regular basis as
part of a program to keep the demised premises free of vermin and
rodents by reason of Tenant's operation of such cafeteria or other
dining and cooking facilities, (D) clean all grease traps, and (E) bag
all wet garbage, place same in containers that prevent the escape of
odors, and provide for a refrigerated waste facility to store such
garbage pending disposal. The uses described in clauses (i), (ii) and
(iii) of this Section 2(b) are collectively called the "Ancillary
---------
Uses".
----
(c) Tenant shall, consistent with applicable legal requirements,
set aside one or more designated smoking areas in the demised
premises, each of which shall be ventilated to the exterior of the
Building (other than through the Building's ventilation system).
<PAGE>
<PAGE>
(d) Tenant shall have access to the Building and the demised
premises, in each case for the uses permitted herein, 24 hours per
day, 365 days per year.
3. TENANT ALTERATIONS:
------------------
(a) Except as may be otherwise expressly provided in this Lease,
Tenant shall make no alterations, additions, installations or
improvements (including, without limitation, Tenant's initial
improvements to the demised premises) in or to the demised premises of
any nature without Owner's prior written consent; provided, that
--------
Owner's consent shall not be unreasonably withheld or delayed in
connection with any alteration, addition, installation or improvement
(a "Qualified Alteration") which (i) does not involve a structural
--------------------
change, (ii) does not adversely affect the proper and economic
operation of the HVAC, plumbing, electrical or other systems of the
Building, (iii) does not affect any space (including the common areas
of the Building) outside of the demised premises, (iv) does not affect
any fire protection, life safety, sprinkler or other emergency systems
maintained and operated by Owner in the Building (including the
demised premises), (v) does not affect the exterior of the Building,
(vi) is not visible from the exterior of the demised premises or the
Building and (vii) does not result in any violation of any law.
Notwithstanding the foregoing, Owner's consent shall not be required
in the case of (A) any alteration which is solely decorative in nature
or (B) any Qualified Alteration that costs less than Ten Thousand
($10,000.00) Dollars; provided, in the case of clauses (A) and (B),
that Tenant shall have delivered to Owner insurance certificates for
any contractors performing work in the Building. All contractors and
subcontractors retained by Tenant to perform any work in the demised
premises (including, without limitation, any repairs under Article 4)
shall be subject to the prior approval of Owner, which approval shall
not be unreasonably withheld, delayed or conditioned. Owner may retain
such independent consultants as may reasonably be required by Owner to
review the plans and specifications and the progress of construction
of any proposed alteration, including, without limitation, for the
purpose of insuring the integrity of the Building's mechanical
systems, and Owner shall be entitled to reimbursement from Tenant,
within thirty (30) days after request therefor, for all of the
reasonable out-of-pocket fees of such consultants. Tenant shall,
before making any alterations, additions, installations or
improvements, at Tenant's expense, obtain all permits, approvals and
certificates required by any governmental or quasi-governmental bodies
having jurisdiction and (upon completion) certificates of final
approval thereof or equivalents and,
<PAGE>
<PAGE>
promptly upon request of Owner, shall deliver to Owner duplicates of
all such permits, approvals and certificates or equivalents. Tenant
shall carry, and shall cause Tenant's contractors and sub-contractors
to carry, such worker's compensation, general liability, personal and
property damage insurance in the amounts specified in Article 6 below.
Tenant shall deliver to Owner, within thirty (30) days after the
completion of any alteration, a hard copy and a computer disc of the
final plans and specifications which show the actual construction for
all alterations. Without limiting the generality of this Section
3(a), Tenant may, subject to the other provisions of this Section
3(a), install internal staircases to interconnect contiguous floors
within the demised premises, provided that Owner shall have approved
the location thereof and the engineering drawings therefor.
(b) If any mechanic's lien is filed against the demised premises
or the Building for work claimed to have been done for, or materials
furnished to, Tenant, whether or not done pursuant to this Article 3,
the same shall be discharged by Tenant within thirty (30) days after
Tenant receives notice thereof, at Tenant's sole cost and expense, by
filing the bond required by law. If Tenant shall fail to cancel or
discharge any such lien within said thirty (30) day period, Owner may,
upon not less than ten (10) Business Days notice to Tenant, discharge
the same by bonding and, upon Owner's demand, Tenant shall reimburse
Owner for all costs incurred in so or discharging such lien (which
costs shall include, without limitation, any cash or other security
posted with the bonding company) such reimbursement to be made within
ten (10) days after receipt by Tenant of a written statement from
Owner as to the amount of such costs; provided, that if Tenant shall
--------
be in default under this Lease beyond applicable notice and grace
periods, then Owner may cancel any such lien by paying the amount
claimed by the holder of such lien and Tenant shall reimburse Owner
for the amount so paid by Owner within ten (10) days after receipt by
Tenant of a written statement therefor from Owner.
(c) All fixtures and all paneling, non-movable partitions,
railings and like installations, installed in the demised premises at
any time, either by Tenant or by Owner on Tenant's behalf, shall, upon
the expiration of the term of this Lease, become the property of Owner
and shall remain upon and be surrendered with the demised premises
unless Owner notifies Tenant at the time Owner grants consent to such
installation that Owner requires Tenant to remove such installation at
the time of termination of this Lease, in which event Tenant shall
remove the same from the demised premises prior to the expiration of
the
<PAGE>
<PAGE>
term of this Lease, at Tenant's expense. Notwithstanding the
foregoing, Tenant shall in all events, prior to the expiration of the
term of this Lease, remove all kitchen and cooking equipment from the
demised premises, remove all exterior vents and inter-connecting
stairways installed by Tenant and restore all concrete slab cuts made
by Tenant. Nothing in this Article 3 shall be construed to give Owner
title to or to prevent Tenant's removal of trade fixtures, movable
office furniture and equipment, but upon removal of any such trade
fixtures, movable office furniture and equipment from the demised
premises or upon removal of other installations as may be required by
Owner, Tenant shall, within five (5) days after notice from Owner, at
Tenant's sole cost and expense, repair any damage to the demised
premises or the Building due to such removal. All property permitted
or required to be removed, by Tenant at the end of the term hereof,
remaining in the demised premises after Tenant's removal shall be
deemed abandoned and may, at the election of Owner, either be retained
as Owner's property or may be removed from the premises by Owner, at
Tenant's sole cost and expense.
(d) In any instance in which Owner's consent shall be required
with respect to the performance of any alterations, installations,
additions or improvements, Owner shall, within ten (10) Business Days
following receipt of Tenant's plans for the performance of such
alterations, installations, additions or improvements, advise Tenant
of Owner's approval or disapproval of such plans or any part thereof.
If Owner shall fail to approve or disapprove Tenant's plans or any
part thereof within such ten (10) Business Day period, Owner shall be
deemed to have approved such plans. If Owner shall disapprove such
plans (or any part thereof), Owner shall set forth its reasons for
such disapproval in writing and in reasonable detail and itemize those
portions of the plans so disapproved. Owner shall advise Tenant
within five (5) Business Days following receipt of Tenant's revised
plans, or portions thereof, of Owner's approval or disapproval of the
revised plans, and shall set forth its reasons for any such further
disapproval in writing and in reasonable detail. If Owner fails to
approve or disapprove the revised plans or any portion thereof within
such five (5) Business Day period, Owner shall be deemed to have
approved the revised plans or such portions thereof.
(e) Tenant shall designate a representative who shall serve as
its representative during construction. All directions, consents and
approvals given by Tenant's representative on behalf of Tenant, shall
be valid and binding on Tenant.
<PAGE>
<PAGE>
(f) If Owner disapproves any proposed alteration, and Tenant
disputes the reasonableness of such disapproval, the matter shall be
determined by expedited arbitration in the manner provided in Article
42; provided, that if Tenant prevails in any such arbitration,
Tenant's sole remedy shall be that the proposed alteration shall be
approved, and Tenant shall not be entitled to any damages or the
exercise of any other rights or remedies by reason thereof.
(g) Subject to the other provisions of this Article 3, in
connection with Tenant's initial improvements to the demised premises
Tenant shall install in each of the 7th, 8th, 9th and 11th floors of
the Building, and Tenant may install on the 10th floor of the
Building, in each case within fifty (50) feet of an existing wet
column, one (1) handicap accessible lavatory. Each such lavatory
shall comply with the requirements of ADA and any and all laws, rules
and regulations applicable to handicap accessibility and in effect as
of the commencement of construction of such lavatory, and shall be
sufficient such that, upon completion of each such lavatory, no
additional handicap accessible lavatory, and no modifications of any
other lavatory, shall be required on the floor of the demised premises
on which such completed lavatory is located (or, in the case of the
10th floor of the Building, in the portion of such floor which is part
of the demised premises; it being agreed by Tenant than any handicap
accessible lavatory constructed by Tenant on the 10th floor of the
Building shall be substantially the same as the handicap accessible
lavatories constructed by Tenant on the other floors of the demised
premises) in order to comply with ADA or any such laws, rules or
regulations. Following completion of each such lavatory, provided
that this Lease shall then be in full force and effect, Owner shall
reimburse Tenant for the cost of constructing and fixturing such
lavatories but not in excess of Eleven Thousand ($11,000.00) Dollars
per lavatory, within thirty (30) days after request for such
reimbursement accompanied by paid invoices or other evidence
reasonably satisfactory to Owner of the cost thereof.
4. MAINTENANCE AND REPAIRS:
-----------------------
Except as may be otherwise expressly provided in this Lease,
Tenant shall, throughout the term of this Lease, take good care of the
demised premises and the fixtures and appurtenances therein. Without
limiting the generality of the foregoing, Tenant shall be responsible
for all damage or injury to the demised premises or any other part of
the Building and the systems and equipment thereof, whether requiring
structural or nonstructural repairs, to the extent caused by or
resulting from
<PAGE>
<PAGE>
the negligence or willful misconduct of Tenant, Tenant's subtenants,
agents, employees, licensees or invitees (provided that Tenant shall
be responsible for Tenant's invitees only while such invitees are in
the demised premises). Tenant also shall repair all damage to the
Building and the demised premises caused by the moving of Tenant's
fixtures, furniture and equipment. Tenant promptly shall make, at
Tenant's expense, all repairs in and to the demised premises for which
Tenant is responsible. Any repairs in or to portions of the Building
outside the demised premises or which affect the Building's systems or
structure and for which Tenant is responsible shall be performed by
Owner at Tenant's expense. Owner shall maintain in good working order
and repair the exterior and structural portions of the Building,
including, by way of example only, the roof, foundation, footings,
exterior walls, load bearing columns, ceiling and floor slabs,
windows, window sills and sashes, and including, without limitation,
the structural portions of the demised premises, and the common,
service and public portions of the Building and the Building systems,
including, without limitation, the plumbing, electrical, heating and
ventilating systems serving the demised premises. Tenant shall give
to Owner prompt notice of any defective condition in the demised
premises for which Owner may be responsible hereunder, but Tenant's
failure to give such notice shall not impact upon Owner's obligation
to perform repairs as herein set forth. Except as may be expressly
provided in this Lease, there shall be no allowance to Tenant for
diminution of rental value and no liability on the part of Owner by
reason of inconvenience, annoyance or injury to business arising from
Owner or others making repairs, alterations, additions or improvements
in or to any portion of the Building or the demised premises or in and
to the fixtures, appurtenances or equipment thereof. The provisions
of this Article 4 shall not apply in the case of fire or other
casualty which are dealt with in Article 9 hereof.
5. WINDOW CLEANING:
---------------
Tenant shall not clean nor require, permit, suffer or allow any
window in the demised premises to be cleaned from the outside in
violation of Section 202 of the Labor Law or any other applicable law
or of the Rules of the Board of Standards and Appeals, or of any other
Board or body having jurisdiction.
6. REQUIREMENTS OF LAW, INSURANCE, FLOOR LOADS:
-------------------------------------------
(a) Prior to the commencement of the term hereof, if Tenant is
then in possession, and at all times thereafter, Tenant, at Tenant's
sole cost and expense, shall comply with all present and
<PAGE>
<PAGE>
future laws, orders and regulations of all state, federal, municipal
and local governments, departments, commissions and boards and any
direction of any public officer pursuant to law, and all orders, rules
and regulations of the New York Board of Fire Underwriters, Insurance
Services Office, or any similar body which shall impose any violation,
order or duty upon Owner or Tenant with respect to the demised
premises, arising out of Tenant's particular use or manner of use
thereof, or, with respect to the Building, if arising out of Tenant's
particular manner of use of the demised premises or the Building or
out of Tenant's use of the demised premises for any or all of the
Ancillary Uses. Nothing herein shall require Tenant (i) to make
structural repairs or alterations unless Tenant has, by its manner of
use of the demised premises, or by Tenant's use of the demised
premises for any or all of the Ancillary Uses, violated any such laws,
ordinances, orders, rules, regulations or requirements with respect
thereto or (ii) to effect compliance outside the demised premises with
the Americans with Disabilities Act ("ADA"), except that (A) Tenant
---
shall be responsible for complying with ADA in connection with the
lavatories constructed by Tenant pursuant to Section 3(g) and (B)
Tenant shall be responsible to pay Tenant's Share of the cost of any
such compliance to the extent that such cost is otherwise includable
as an operating expense in accordance with Article 39 below. Tenant
may, after securing Owner to Owner's reasonable satisfaction against
all damages, interest, penalties and expenses, including, without
limitation, reasonable attorney's fees and disbursements, by cash
deposit or by surety bond in an amount and in a company satisfactory
to Owner, contest and appeal any such laws, ordinances, orders, rules,
regulations or requirements provided same is done with all reasonable
promptness and provided such appeal shall not subject Owner to
prosecution for a criminal offense or constitute a default under any
Superior Instrument, or cause the demised premises or the Building or
any part thereof to be subjected to lien or to imminent risk of sale.
Tenant shall not knowingly do or permit any act or thing to be done in
or to the demised premises or the Building which is contrary to law,
or which will invalidate public utility, fire or other policies of
insurance then carried by Owner with respect to the demised premises
or the Building, or which shall subject Owner to any liability or
responsibility to any person or entity or for property damage. Tenant
shall not keep anything in the demised premises or the Building except
as now or hereafter permitted by the Fire Department, Board of Fire
Underwriters, Fire Insurance Rating Organization or other authority
having jurisdiction, and then only in such manner and such quantity so
as not to increase the rate for fire insurance applicable to the
Building, nor use the demised premises in a manner which will
<PAGE>
<PAGE>
increase the insurance rate for the Building or any property located
therein over that in effect prior to the commencement of Tenant's
occupancy. Owner represents to Tenant that, as of the date of this
Lease, the use of the demised premises for general and executive
office purposes and for uses incidental thereto shall not increase the
rate of any insurance carried by Owner over the rate that would
otherwise be in effect. Owner makes no representation to Tenant
concerning the Ancillary Uses. Tenant shall pay all costs, expenses,
fines, penalties or damages, which shall be imposed upon Owner to the
extent the same result from Tenant's failure to comply with the
provisions of this Article 6 and if by reason of such failure the fire
insurance rate shall, at the beginning of this Lease or at any time
thereafter, be higher than it otherwise would be, then Tenant shall
reimburse Owner, as additional rent hereunder, for that portion of all
fire insurance premiums thereafter paid by Owner which shall have been
charged because of such failure by Tenant; provided, that Owner shall
--------
have delivered to Tenant a statement from the insurer which expressly
identifies the specific act or activity of Tenant causing the increase
in insurance rates. In any action or proceeding wherein Owner and
Tenant are parties, a schedule or "make-up" of rate for the Building
or demised premises issued by the New York Fire Insurance Exchange, or
other body making fire insurance rates applicable to the Building and
the demised premises shall be prima facie evidence of the facts
therein stated and of the several items and charges in the fire
insurance rates then applicable to the Building and the demised
premises.
(b) Tenant shall not place a load on any floor of the demised
premises exceeding the floor load per square foot area which it was
designed to carry and which is allowed by law.
Owner represents to Tenant that each floor of the demised premises is
designed to carry a live load of no more than fifty (50) pounds per
square foot. Owner reserves the right to reasonably prescribe the
weight and position of all safes, heavy business machines and
mechanical equipment. Such installations shall be placed and
maintained by Tenant, at Tenant's expense, in settings sufficient, in
Owner's reasonable judgment, to absorb and prevent unreasonable levels
of vibration, noise and annoyance.
(c) Tenant shall maintain a policy or policies of (i) commercial
general liability insurance to afford minimum protection of not less
than $3,000,000 for personal injury or death in any one occurrence and
of not less than $1,000,000 for property damage in any one occurrence
and (ii) standard fire and extended insurance coverage on all of
Tenant's initial improvements to the demised premises and all
alterations. Each
<PAGE>
<PAGE>
such policy shall (A) be issued by a company permitted to write
policies in, and subject to the jurisdiction of, the State of New York
and having an A.M. Best rating level of A or better, (B) provide that
it cannot be canceled, lapse or be substantially modified except upon
thirty (30) days' prior notice to Owner and (C) in the case of the
commercial general liability insurance, shall name Owner and Owner's
managing agent as additional insureds thereunder. A copy or
certificate of each such policy of insurance shall be delivered to
Owner prior to the commencement of the term of this Lease, and
thereafter not less than thirty (30) days prior to the expiration of
the policy then in effect. Any such insurance may be carried using
umbrella coverage and/or under a blanket policy covering the demised
premises and other locations owned or leased by Tenant and/or Tenant's
Affiliates; provided, that such policies otherwise comply with this
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Lease and provide that the amount of coverage afforded thereunder with
respect to the demised premises shall not be reduced by claims
thereunder against such other properties.
7. SUBORDINATION:
-------------
(a) This Lease is and shall be subject and subordinate to all
ground or underlying leases which may now or hereafter affect the
Building or the land on which the Building is located and to all
mortgages which may now or hereafter affect such leases, the Building
or the land on which the Building is located, and to all renewals,
refinancings, modifications, replacements and extensions thereof
(hereinafter called "Superior Instruments"), provided that the holder
--------------------
of such Superior Instrument shall have executed and delivered a non-
disturbance and attornment agreement in recordable form substantially
to the effect that so long as this Lease is in full force and effect,
(i) this Lease shall not be terminated or cut off nor shall Tenant's
possession hereunder be disturbed by enforcement of any rights given
to such holder pursuant to such Superior Instrument, (ii) the holder
of such Superior Instrument shall recognize Tenant as the tenant under
this Lease and (iii) the holder of such Superior Instrument shall not
name or join Tenant in any proceeding (or trustee's sale) to terminate
this Lease, to re-enter the demised premises or to enforce the
Superior Instrument (unless under applicable law Tenant is a necessary
party to any such proceeding, in which event Tenant may be so named or
joined in such proceeding solely for the purpose of complying with
such law and not for the purpose of terminating Tenant's interest in
this Lease); and which otherwise contain terms which are not less
favorable to Tenant in any material respect than the terms contained
in the non-disturbance and attornment agreements delivered to Tenant
in
<PAGE>
<PAGE>
connection with the execution of this Lease by the holders of the two
mortgages which encumber the Building on the date of this Lease.
Notwithstanding anything contained in this Section 7(a) to the
contrary, if said holder executes and delivers a non-disturbance and
attornment agreement in the form herein described and such agreement
is not in any material respect inconsistent with the provisions of
this Lease and Tenant either fails or refuses to execute and deliver
such agreement within seven (7) Business Days after delivery of such
agreement to Tenant and Tenant has not reasonably objected to such
agreement within said seven (7) Business Day period, then this Lease
shall automatically be deemed to be subject and subordinate to such
Superior Instrument on the terms and conditions set forth in such non-
disturbance and attornment agreement and such non-disturbance and
attornment agreement shall be deemed to be in effect with respect to
such Superior Instrument. The provisions of this Section 7(a) shall
be self-operative and no further instrument of subordination shall be
required. In confirmation of such subordination and provided the
holder of such Superior Instrument shall have executed and delivered
to Tenant a non-disturbance and attornment agreement as set forth in
the preceding sentence, Tenant shall promptly execute and deliver at
its own cost and expense any reasonable instrument, in recordable form
if required, that Owner and the holder of any Superior Instrument or
any of their respective successors in interest may reasonably request
to evidence such subordination, within seven (7) Business Days after
such request. Concurrently with the execution and delivery of this
Lease, each existing holder of a Superior Instrument has executed and
delivered to Tenant a non-disturbance and attornment agreement that
satisfies the provisions of this Section 7(a).
(b) In the event of a termination of any ground or underlying
lease, or if the interests of Owner under this Lease are transferred
by reason of, or assigned in lieu of, foreclosure or other proceedings
for enforcement of any mortgage, then Tenant shall, at the option of
the holder of any such Superior Instrument or any person succeeding to
the interest of such holder, and provided that such party has assumed
in writing (subject to the provisions of Section 7(c) below) all of
Owner's obligations under this Lease, either (i) attorn to such holder
or successor-in-interest and perform for its benefit all of the terms,
covenants and conditions of this Lease on Tenant's part to be
performed with the same force and effect as if such holder or
successor-in-interest were the Owner originally named in this Lease,
or (ii) enter into a new lease with such holder or successor-in-
interest for the remaining term of this Lease and otherwise on the
same terms and conditions and with the same
<PAGE>
<PAGE>
options, if any, then remaining. The foregoing provisions of clause
(i) of this Section 7(b) shall inure to the benefit of such holder of
a Superior Instrument or such successor-in-interest, shall be self-
operative upon the exercise of such option, and no further instrument
shall be required to give effect to such option and to said
provisions. Tenant, however, upon demand of any such holder of a
Superior Instrument or such successor-in-interest, shall at Tenant's
expenses execute, from time to time, within seven (7) Business Days
after a request therefor, reasonable instruments in confirmation of
the foregoing provisions of this Section 7(b), reasonably satisfactory
to any such holder of a Superior Instrument or such successor-in-
interest, acknowledging such attornment.
(c) Notwithstanding anything contained herein to the contrary
under no circumstances shall any such holder of a Superior Instrument
or any such successor-in-interest, whether or not it shall have
succeeded to the interests of Owner under this Lease, be
(i) liable for any act, omission or default of any prior
owner;
(ii) subject to any offsets, claims or defenses which Tenant
might have against any prior owner, other than those expressly
provided for in Sections 27(b), (c), (d) and (e);
(iii) liable for the return of any monies paid to or on
deposit with any prior owner, except to the extent such monies or
deposits are delivered to such holder or successor-in-interest;
(iv) bound by any covenant to perform or complete any
construction in connection with the demised premises or the
Building or to pay any sums to Tenant in connection therewith;
(v) bound by any Base Rent or additional rent which Tenant
might have paid to any prior owner for more than one month in
advance, made without the prior written approval of such holder
or successor-in-interest; or
(vi) bound by any modification, amendment or abridgment of
the Lease, or any cancellation or surrender of the same, made
without the prior written approval of such holder or successor-
in-interest.
<PAGE>
<PAGE>
(d) If, in connection with any future financing or refinancing
of the Building, the holder of any mortgage shall request reasonable
modifications in this Lease as a condition of approval thereof, Tenant
shall not unreasonably withhold, delay or defer making such
modifications provided the same do not (i) increase the Base Rent or
additional rent payable by Tenant, (ii) extend or reduce the term of
this Lease, (iii) increase Tenant's obligations hereunder other than
to a de minimis extent or (iv) decrease Owner's obligations hereunder
other than to a de minimis extent.
8. PROPERTY - LOSS, DAMAGE, REIMBURSEMENT, INDEMNITY:
-------------------------------------------------
Owner and its agents shall not be liable for any damage to the
property of Tenant or of others entrusted to employees of the
Building, nor for loss of or damage to any property of Tenant by theft
or otherwise, nor for any injury or damage to persons or property
resulting from any cause of whatsoever nature, except to the extent
caused by or due to the negligence or willful misconduct of Owner, its
agents, servants, employees, contractors, invitees or licensees.
Owner and its agents will not be liable for any such damage caused by
other tenants or persons in, upon or about the Building or caused by
operations in construction of any private, public or quasi public
work, except to the extent caused by or due to the negligence or
willful misconduct of Owner, its agents, servants, employees,
contractors, invitees or licensees. If at any time any windows of the
demised premises are temporarily closed, darkened or bricked up (or
permanently closed, darkened or bricked up, if required by law or if
done by any person other than Owner) for any reason whatsoever
including, but not limited to Owner's own acts, Owner shall not be
liable for any damage Tenant may sustain thereby and Tenant shall not
be entitled to any compensation therefor nor abatement or diminution
of Rent nor shall the same release Tenant from its obligations
hereunder nor constitute an eviction. Tenant shall indemnify and save
harmless Owner against and from all liabilities, obligations, damages,
penalties, claims, costs and expenses for which Owner shall not be
reimbursed by insurance, including reasonable attorneys fees and
disbursements, paid, suffered or incurred as a result of any breach by
Tenant, Tenant's agents, contractors, employees, licensees or invitees
(provided that Tenant shall be responsible for Tenant's invitees only
while such invitees are in the demised premises), of any covenant or
condition of this Lease, or the negligence or willful misconduct of
Tenant, Tenant's agents, contractors, employees, licensees or invitees
(provided that Tenant shall be responsible for Tenant's invitees only
while such invitees are in the demised premises). Tenant's liability
under
<PAGE>
<PAGE>
this Lease extends to the acts and omissions of any subtenant, and any
agent, contractor, employee, invitee or licensee of any subtenant
(provided, that Tenant shall be responsible for such invitees only
while such invitees are in the demised premises). In case any action
or proceeding is brought against Owner by reason of any such claim
except to the extent caused by or due to the negligence or willful
misconduct of Owner its agents, servants, employees, contractors,
invitees or licensees, Tenant, upon written notice from Owner, shall,
at Tenant's sole cost and expense, resist or defend such action or
proceeding by counsel approved by Owner in writing, which approval
shall not be unreasonably withheld or delayed, Owner hereby approving
counsel of or selected by Tenant's insurer.
9. DESTRUCTION, FIRE AND OTHER CASUALTY:
------------------------------------
(a) If the demised premises or any part thereof shall be damaged
by fire or other casualty, Tenant shall give immediate notice thereof
to Owner and this Lease shall continue in full force and effect except
as hereinafter set forth.
(b) Subject to Sections 9(c) and (d) below, if the demised
premises or the Building are damaged or rendered unusable, in whole or
in part, by fire or other casualty, Owner shall promptly and
diligently restore the core (including, without limitation, all
Building systems) and shell of the Building and Tenant shall promptly
and diligently restore the improvements to the demised premises (it
being agreed that the new improvements constructed by Tenant need not
replicate the design of the damaged improvements), and the Rent shall
be apportioned according to the part of the demised premises which is
usable from the day following the casualty until the earlier of (i)
the substantial completion of all such restoration or (ii) the date
that is (A) 120 days after Tenant is first given access to the demised
premises to commence Tenant's restoration thereof, in the case of a
fire or other casualty affecting two (2) floors or less of the demised
premises, or (B) 180 days after Tenant is first given access to the
demised premises to commence Tenant's restoration thereof, in the case
of a fire or other casualty affecting more than two (2) floors of the
demised premises.
(c) If the demised premises are rendered wholly unusable or
(whether or not the demised premises are damaged in whole or in part)
if the Building shall be so damaged that Owner shall decide to
demolish it and not to rebuild it, then, in any of such events, Owner
may, provided that the leases of substantially all other tenants of
the Building are terminated in connection therewith, elect to
terminate this Lease by written notice to
<PAGE>
<PAGE>
Tenant, given within sixty (60) days after such fire or other
casualty, specifying a date for the expiration of the Lease, which
date shall not be more than sixty (60) days after the giving of said
notice, and upon the date specified in said notice the term of this
Lease shall expire as fully and completely as if said date were the
date set forth above for the termination of this Lease and Tenant
shall forthwith quit, surrender and vacate the demised premises
without prejudice however, to each party's rights and remedies against
the other under the provisions of this Lease in effect prior to such
termination, and any Rent owing shall be paid (subject to the terms of
this Article 9) up to the date of the casualty and any payments of
Rent made by Tenant which were on account of any period subsequent to
the date of the casualty shall be returned to Tenant.
(d) In case of any damage or destruction mentioned in this
Article 9 which Owner is required to repair and restore, Owner shall,
commencing within ninety (90) days after the date of the casualty,
expeditiously, diligently and continuously prosecute to completion all
such repairs and restoration. Tenant may terminate this Lease by
notice to Owner if Owner has not completed the making of the required
repairs and restorations within twelve (12) months after the date of
such damage or destruction, or within such period after such date (not
exceeding three (3) months) as shall equal the aggregate period Owner
may have been delayed in doing so by reason of Force Majeure.
(e) Nothing contained hereinabove shall relieve Tenant from
liability that may exist as a result of damage from fire or other
casualty. Notwithstanding the foregoing, each party shall look first
to any insurance in its favor before making any claim against the
other party for recovery for loss or damage resulting from fire or
other casualty, and to the extent permitted by law, Owner and Tenant
each hereby releases and waives all right of recovery against the
other or any one claiming through or under each of them by way of
subrogation or otherwise. The foregoing release and waiver shall be
in force only if both releasors' insurance policies contain a clause
providing that such a release or waiver shall not invalidate the
insurance. If, and to the extent, that such waiver can be obtained
only by the payment of additional premiums, then the party benefiting
from the waiver shall pay such premium within ten (10) days after
written demand or shall be deemed to have agreed that the party
obtaining insurance coverage shall be free of any further obligation
under the provisions of this Article 9 with respect to waiver of
subrogation. Tenant acknowledges that Owner will not carry insurance
on Tenant's furniture and/or furnishings or any fixtures or equipment,
improvements or appurtenances removable by
<PAGE>
<PAGE>
Tenant and agrees that Owner will not be obligated to repair any
damage thereto or to replace the same.
(f) Tenant hereby waives the provisions of Section 227 of the
Real Property Law and agrees that the provisions of this Article 9
shall govern and control in lieu thereof.
(g) If the demised premises shall be totally or substantially
damaged or shall otherwise be rendered wholly or substantially
untenantable as a result of fire or other casualty during the term
hereof, then, within sixty (60) days following the date of such fire
or other casualty, Owner shall deliver to Tenant an estimate prepared
by a contractor selected by Owner setting forth such contractor's
estimate as to the time reasonably required to repair such damage (the
"Contractor's Estimate"). If the period to repair set forth in such
---------------------
Contractor's Estimate shall exceed twelve (12) months from the date of
such fire or other casualty, Tenant may elect to terminate this Lease
by notice to Owner given not later than thirty (30) days following
Tenant's receipt of the Contractor's Estimate (time being of the
essence with respect to said thirty (30) day period). If Tenant shall
exercise such election, the term of this Lease shall terminate upon
the twentieth (20th) day following the date upon which such notice of
termination is given by Tenant to Owner as if such date was the date
hereinabove set forth as the Expiration Date, and all Rent shall be
apportioned as of the date of the applicable fire or other casualty.
(h) If, during the last 12 months of the term of this Lease,
fifty (50%) percent or more of the demised premises is damaged or
rendered unusable by fire or other casualty, Tenant shall have the
right, by notice to Owner given within sixty (60) days after such fire
or other casualty, to terminate this Lease, in which event the term of
this Lease shall terminate upon the twentieth (20th) day following the
date upon which such notice of termination is given by Tenant to Owner
as if such date was the date hereinabove set forth as the Expiration
Date, and all Rent shall be apportioned as of the date of the
applicable fire or other casualty.
10. EMINENT DOMAIN:
--------------
(a) If the whole of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi-public use or
purpose, then and in that event, the term of this Lease shall cease
and terminate from the date of title vesting in such proceeding and
Tenant shall have no claim for the value of any unexpired term of this
Lease and assigns to Owner Tenant's entire
<PAGE>
<PAGE>
interest in any such award. Notwithstanding anything to the contrary
contained herein, Tenant shall have the right to make a separate claim
which will not be part of or joined with Owner's claim in any such
eminent domain proceedings for the taking of its property and moving
expenses and any costs incurred by Tenant in connection with any
alterations or improvements made by Tenant to the demised premises;
provided that no such claim by Tenant shall reduce the amount of
--------
proceeds available to Owner.
(b) In the event of a taking of a portion of the Building (other
than a taking described in Section 10(a)) which results in Tenant not
having any reasonable means of access to the demised premises or in a
taking of fifty (50%) percent or more of the demised premises, Tenant
may, at Tenant's option, terminate this Lease as of the date of
vesting of title. If Tenant shall not so terminate this Lease, then
the Rent shall be proportionately adjusted as of the date of vesting
of title.
11. ASSIGNMENT, SUBLETTING MORTGAGE, ETC.:
-------------------------------------
(a) (i) Except as may be otherwise expressly provided in this
Lease, Tenant shall not assign, mortgage or encumber this Lease, nor
underlet, or suffer or permit the demised premises or any part thereof
to be used by others, without the prior written consent of Owner in
each instance. The direct or indirect transfer of a controlling
interest in the stock, partnership interests or other beneficial
ownership interests of Tenant shall be deemed an assignment of this
Lease. If this Lease be assigned, or if the demised premises or any
part thereof be underlet or occupied by anybody other than Tenant,
Owner may, after default by Tenant, collect rent from the assignee,
undertenant or occupant, and apply the net amount collected to the
Rent herein reserved, but no such assignment, underletting, occupancy
or collection shall be deemed a waiver of the provisions of this
Article 11, or a release of Tenant from the further performance by
Tenant of covenants on the part of Tenant herein contained. No
assignment or other transfer of this Lease and the term and estate
hereby granted, and no subletting of all or any portion of the demised
premises shall relieve Tenant of its liability under this Lease or of
the obligation to obtain Owner's prior consent to any further
assignment, other transfer or subletting. Any attempt to assign this
Lease or sublet all or any portion of the demised premises in
violation of this Article 11 shall be null and void.
(ii) Notwithstanding Section 11(a)(i), without the consent
of Owner, and without being subject to the provisions of Section
11(b), (c), (d) or (f) below, this Lease may be assigned
<PAGE>
<PAGE>
to (A) an entity created by merger, reorganization or recapitalization
of or with Tenant or (B) a purchaser of all or substantially all of
Tenant's assets; provided, in the case of both clause (A) and clause
(B), that (w) Owner shall have received a notice of such assignment
from Tenant, (x) the assignee assumes by written instrument reasonably
satisfactory to Owner all of Tenant's obligations under this Lease,
(y) such assignment is for a valid business purpose and not for the
principal purpose of avoiding any obligations under this Lease, and
(z) immediately after giving effect to such assignment, such assignee
shall have an aggregate net worth (computed in accordance with
generally accepted accounting principles, consistently applied) at
least equal to the aggregate net worth (as so computed) of Tenant
immediately prior to giving effect to such assignment.
(iii) Notwithstanding Section 11(a)(i), without the consent
of Owner, and without being subject to the provisions of Sections
11(b), (c), (d) or (f) below, Tenant may assign this Lease or sublet
all or any part of the demised premises at any time during the term of
this Lease to an Affiliate of Tenant; provided, that (A) Owner shall
have received a notice of such assignment or sublet from Tenant; and
(B) in the case of any such assignment, (x) the assignment is for a
valid business purpose and not for the principal purpose of avoiding
any obligations under this Lease, and (y) the assignee assumes by
written instrument reasonably satisfactory to Owner all of Tenant's
obligations under this Lease. "Affiliate" means, as to any designated
---------
person or entity, any other person or entity which controls, is
controlled by, or is under common control with, such designated person
or entity. If any person or entity to whom Tenant shall have assigned
this lease or sublet all or any portion of the demised premises
pursuant to and in accordance with this Section 11(a)(iii) shall
thereafter cease to be an Affiliate of Tenant, then no consent of
Owner shall be required for the continuation of such person's or
entity's tenancy or subtenancy, as applicable, but the provisions of
Section 11(f) shall thereafter apply to such tenancy or subtenancy.
(iv) Notwithstanding Section 11(a)(i), transfer of a
controlling interest in the stock or partnership interests or any
other beneficial ownership interest of Tenant shall not be deemed a
transfer of this Lease if (A) such transfer is for a valid business
purpose and not for the principal purpose of avoiding any obligations
under this Lease and (B) Tenant delivers to Owner a notice of such
transfer.
<PAGE>
<PAGE>
(v) Notwithstanding Section 11(a)(i), the transfer of
stock, partnership interests or other beneficial ownership interests
in Tenant shall not constitute a transfer of this Lease if such stock,
partnership or other interests are listed on a national securities
exchange (as defined in the Securities Exchange Act of 1934, as
amended) or is traded in the "over the counter" market with quotations
reported by the National Association of Securities Dealers.
(vi) Notwithstanding Section 11(a)(i), without the consent
of Owner and without being subject to the provisions of Sections
11(b), (c), (d) or (f) below, Tenant may, so long as The Bear Stearns
Companies, Inc. is the Tenant, (A) sublet or license portions of the
demised premises to Correspondent Firms; provided, that (w) Owner
--------
shall have received a notice of each such sublease or license from
Tenant, accompanied by evidence reasonably satisfactory to Owner that
the subtenant or licensee constitutes a Correspondent Firm and that
the other conditions of this Section 11(a)(vi)(A) have been satisfied,
(x) each such sublease or license shall provide that it terminates
automatically if The Bear Stearns Companies, Inc. is no longer the
Tenant or if the subtenant or licensee no longer constitutes a
Correspondent Firm and shall otherwise be substantially in the form of
Exhibit C, (y) the sole permitted use in the sublet or licensed space
shall be the clearing of securities transactions for or on behalf of
Tenant and/or Tenant's Affiliates (in the case of a Correspondent Firm
described in clause (1) of the definition thereof) or the provision of
other services to Tenant and/or Tenant's Affiliates (in the case of a
Correspondent Firm described in clause (2) of the definition thereof),
and (z) such subtenant or licensee shall have no right to further
sublet or license the sublet or licensed space and (B) sublet or
license portions of the demised premises to entities that qualify
under Section 501(c)(3) of the Internal Revenue Code of 1986, as
amended (or any successor provision thereto) (each, a "Tenant
------
Supported Charity"); provided, that (v) Owner shall have received a
----------------- --------
notice of each such sublease or license from Tenant, accompanied by
evidence reasonably satisfactory to Owner of such entity's tax exempt
status under said section of the Internal Revenue Code and that the
other conditions of this Section 11(a)(vi)(B) have been satisfied, (w)
each such sublease or license shall provide that it terminates
automatically if The Bear Stearns Companies, Inc. is no longer the
Tenant or if the subtenant or licensee loses its tax exempt status,
(x) the sole permitted use in the sublet or licensed space shall be as
general and executive offices for such Tenant Supported Charity, (y)
such subtenant or licensee shall have no right to further sublet or
license the sublet or licensed space and (z) the aggregate square
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<PAGE>
footage of all space at any time subleased or licensed to Tenant
Supported Charities under this Section 11(a)(vi)(B) shall not at any
time exceed ten (10%) percent of the then rentable square footage of
the demised premises. "Correspondent Firm" means any person or entity
------------------
which (1) receives or provides clearing services from or to Tenant
and/or Tenant's Affiliates in accordance with the rules and
regulations for the provision of such services promulgated by the New
York Stock Exchange, the Securities and Exchange Commission and/or any
other governmental regulatory agency, and their respective successors
or (2) is engaged as a material portion of its business in providing
services to Tenant and/or Tenant's Affiliates in connection with the
customary conduct of the business of Tenant and/or Tenant's
Affiliates. "Correspondents" means, collectively, Correspondent Firms
--------------
and Tenant Supported Charities.
(b) If Tenant intends to assign this Lease or to sublet all or
any portion of the demised premises, Tenant shall first give to Owner
a notice (a "Recapture Notice") containing (i) a statement that Tenant
----------------
desires to assign this Lease or to sublet all or a portion of the
demised premises, as the case may be and (ii) in the case of a
proposed sublease, a description of the portion of the demised
premises proposed to be sublet (including a floor plan). Owner shall
have the right (the "Recapture Right"), exercisable by notice (a
---------------
"Recapture Response Notice") given to Tenant within forty-five (45)
-------------------------
days after Owner's receipt of the Recapture Notice, to terminate this
Lease as of a date specified by Owner in the Recapture Response
Notice, which shall be no less than ninety (90) days nor more than one
year following the giving of the Recapture Response Notice (the
"Recapture Date"), as to the entire demised premises (in the case of a
--------------
proposed assignment) or the entire space proposed to be sublet (in the
case of a proposed subletting) or any one or more full floors of the
demised premises proposed to be sublet (in the case of a proposed
subletting of one full floor or more; provided, that if Owner so
--------
terminates this Lease as to less than all of the space that Tenant
proposes to sublet, then the floor or floors with respect to which the
Lease shall terminate shall consist of the uppermost or lowermost
floor or floors that Tenant proposed to sublet (Owner to advise Tenant
in the Recapture Response Notice which floor or floors shall be so
terminated) and, if applicable, shall be contiguous), in which event
Tenant shall be relieved as of the Recapture Date of all further
obligations under this Lease as to the space in question. If, within
said forty-five (45) day period, Owner notifies Tenant that it
declines to exercise the Recapture Right or if Owner fails to notify
Tenant of Owner's exercise of the Recapture Right, the Recapture Right
shall be deemed waived by Owner as to the
<PAGE>
<PAGE>
sublease or assignment in question and Tenant shall then have the
right, subject to the provisions of Sections 11(c)-(g), (A) if the
applicable Recapture Notice shall have proposed an assignment, to make
an assignment of this Lease so long as Tenant requests Owner's consent
in accordance with Section 11(c) to the assignment in question no
later than one year after giving of the Recapture Response Notice or
(B) if the applicable Recapture Notice shall have proposed a
subletting, to make one or more subleases of all or any portion of the
space referred to in the applicable Recapture Notice so long as Tenant
requests Owner's consent in accordance with Section 11(c) to the
sublease(s) in question no later than one year after the giving of the
Recapture Response Notice (any such assignment or sublease described
in clause (A) or clause (B) being herein called a "Conforming
----------
Transaction"). If Tenant shall propose to make any assignment or
-----------
sublease other than a Conforming Transaction, Tenant shall again
comply with the provisions of this Section 11(b). The failure by
Owner to exercise the Recapture Right with respect to any Recapture
Notice shall not be deemed a waiver of (x) Tenant's obligation to give
a further Recapture Notice if and when required by the foregoing
provisions of this Section 11(b) or (y) Owner's right to exercise the
Recapture Right with respect to any such further Recapture Notice or
any other Recapture Notice.
(c) If Owner does not exercise (or is deemed to have waived) the
Recapture Right pursuant to Section 11(b) within the time period set
forth therein, and Tenant thereafter intends to consummate a
Conforming Transaction, Tenant shall give Owner notice of such intent
a ("Transfer Notice"). Each Transfer Notice shall (i) identify the
---------------
proposed assignee or subtenant and (ii) provide Owner with all
material terms upon which Tenant intends to assign or sublease.
Tenant shall provide Owner with any reasonable additional information
or documents reasonably requested by Owner. Upon execution of an
agreement of assignment or sublease, Tenant shall provide Owner with a
copy of such executed agreement.
(d) Owner shall have a period of ten (10) Business Days
following the giving of a Transfer Notice (or, if later, five (5)
Business Days after Owner's receipt of any additional information
requested by Owner) within which to notify Tenant whether or not Owner
approves the proposed assignment or sublease, such approval not to be
unreasonably withheld or delayed so long as:
(i) the nature of the business of the proposed subtenant
shall be reasonably satisfactory to Owner;
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<PAGE>
(ii) Tenant shall not be in continuing default beyond
notice and the expiration of any applicable grace or cure periods
under any of the terms of this Lease; and
(iii) there shall not be more than three (3) separately
demised tenancies (exclusive of Tenant, Tenant's Affiliates and
Correspondents) on any floor of the demised premises.
(e) Granting of consent and the consummation of the subletting,
as above provided, shall not affect the liability of Tenant herein to
keep, perform and observe all of the terms, covenants and conditions
of this Lease and such liability shall remain and continue for the
balance of the term with the same force and affect as though there had
been no subletting. It is also understood that the granting of
consent and the consummation of such subletting shall not be deemed a
waiver of the conditions precedent to the subletting contained in this
Article 11 with respect to any further subletting by Tenant. Owner's
consent to additional tiers of subletting shall not be unreasonably
withheld provided the respective sublandlords and subtenants comply
with the conditions to subletting contained in this Article 11 Tenant
shall pay to Owner, within ten (10) days after receipt of a statement
therefor, all of Owner's reasonable out-of-pocket costs in connection
with any proposed subletting or assignment to which Section 11(b)
applies, whether or not approved by Owner, including, without
limitation, reasonable attorneys' fees and disbursements.
(f) (i) If the aggregate of the amounts payable as base rent
and as additional rent on account of taxes, operating expenses and
electricity by a subtenant under a sublease of any part of the demised
premises and the amount of any other consideration payable to Tenant
by such subtenant, whether received in a lump-sum payment or otherwise
shall be in excess of Tenant's Basic Cost therefor at that time then,
promptly after the collection thereof, Tenant shall pay to Owner as
additional rent, an amount equal to 50% of such excess. Tenant shall
deliver to Owner within 60 days after the end of each calendar year
and within 60 days after the expiration or earlier termination of this
Lease a statement specifying each sublease in effect during such
calendar year or partial calendar year, the number of square feet of
rentable area demised thereby, the term thereof and a computation in
reasonable detail showing the calculation of the amounts paid and
payable by the subtenant to Tenant, and by Tenant to Owner, with
respect to such sublease for the period covered by such statement.
"Tenant's Basic Cost" for sublet space at any time means the sum of
-------------------
(A) the portion of the
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<PAGE>
Base Rent and additional rent on account of Taxes and operating
expenses which is attributable to the sublet space, plus (B) the
amount payable by Tenant on account of electricity in respect of the
sublet space, plus (C) the amount of all Transaction Costs.
"Transaction Costs" means with respect to any assignment or sublease,
-----------------
the aggregate sum of (v) the amount of any costs reasonably incurred
by Tenant in making changes in the layout and finish of the space for
the subtenant or assignee amortized on a straight-line basis over the
term of the sublease or the assignment, (w) the amount of any
reasonable brokerage commissions and reasonable legal fees and
disbursements paid by Tenant in connection with the sublease or the
assignment amortized on a straight-line basis over the term of the
sublease or the assignment, (x) advertising costs, (y) any monetary
obligations actually assumed by Tenant on behalf of the subtenant or
assignee under such subtenant's or assignee's then existing leases and
(z) any other reasonable out-of-pocket costs incurred by Tenant in
connection with such sublease or assignment.
(ii)Upon any assignment of this Lease pursuant to the terms
hereof, Tenant shall pay to Owner 50% of the consideration received by
Tenant for such assignment, after deducting therefrom all applicable
Transaction Costs.
(g) Failure by Owner to approve or disapprove any proposed
assignment or sublease within the applicable time period provided in
the first sentence of Section 11(b) shall be deemed to constitute
Owner's approval thereof. If Owner disapproves any proposed sublease
or assignment with respect to which Owner may not unreasonably
withheld its consent under this Article 11, and Tenant disputes the
reasonableness of such disapproval, the matter shall be determined by
expedited arbitration in the manner provided in Article 42; provided,
that if Tenant prevails in any such arbitration, Tenant's sole remedy
shall be that the proposed sublease or assignment shall be deemed
approved, and Tenant shall not be entitled to any damages or the
exercise of any other remedies by reason thereof.
(h) If this Lease shall be assigned by The Bear Stearns
Companies, Inc. (the "Original Tenant") to a party that is not an
---------------
Affiliate of the Original Tenant, then Owner, when giving notice to
said assignee or any future assignee that is not an Affiliate of the
Original Tenant in respect of any default under this Lease, shall also
serve a copy of such notice upon the Original Tenant at its last
address for notice in accordance with this Lease, which notice shall
indicate the date on which the notice of default was given to the then
Tenant. Promptly following the last date upon which the then Tenant
may cure such default, if
<PAGE>
<PAGE>
the then Tenant shall fail to cure such default, Owner shall give
notice to the Original Tenant stating the manner in which the then
Tenant shall have failed to cure its said default, in which event, at
Owner's election set forth in such notice, either (i) the Original
Tenant shall have the option to (A) cure the default and, with respect
thereto, the Original Tenant shall have the same amount of time, after
such notice, within which to cure the said default, as is provided for
under the provisions of this Lease to be given to Tenant therefor
after notice, and should the Original Tenant so cure such default, the
Original Tenant shall be entitled at its option to obtain possession
of the demised premises to the extent it reserved for itself the right
to do so under its assignment agreement, subject to all of the terms,
covenants and conditions of this Lease and subject to any right of
possession of the demised premises which the then Tenant may have, or
(B) request Owner to terminate this Lease because of the default of
the then Tenant whereupon, if Owner had not already done so, Owner
shall promptly and in good faith, at the Original Tenant's expense,
initiate and prosecute to completion summary proceedings to obtain
vacant possession of the demised premises, and Owner and the Original
Tenant shall, at the Original Tenant's expense, enter into a new
lease, as "Owner" and "Tenant", respectively, for the remainder of the
Term, containing the provisions as then remain under this Lease,
whereupon, to the extent it has not already done so, the Original
Tenant shall remedy said condition giving rise to said default, it
being understood that any monetary defaults must be cured by the
Original Tenant within 5 Business Days after receipt of notice of such
default without regard to the exercise of the rights granted to the
Original Tenant under this Section 11(h) and such payment being a
precondition to the Original Tenant having the right to exercise the
rights herein contained, or (ii) Owner shall proceed to exercise its
remedies against the then Tenant with respect to such default without
permitting the Original Tenant to exercise the options contained in
clause (i) above, in which event Owner shall release the Original
Tenant from any further obligation or liability under this Lease,
including, without limitation, any liability with respect to such
default of the then Tenant.
12. ELECTRIC CURRENT:
----------------
(a) (i) Tenant shall have the right to use electricity on a
rent inclusion basis for ordinary office equipment, including, without
limitation, typewriters, word processors, personal computers, adding
machines, facsimile machines, copiers, lighting and communications
equipment required to support Tenant's normal office functions,
subject to adjustments if (A) there is an increase or decrease greater
than two (2%) percent in the rate
<PAGE>
<PAGE>
schedule of the utility company serving the Building, (B) the
consumption of electric current within the demised premises changes
materially or (C) the consumption of electric current in the demised
premises exceeds, by more than a de minimis amount, $2.50 per annum
per rentable square foot of space in the demised premises. Tenant
shall not knowingly permit the consumption of electricity to overtax
the capacity of the Building's electrical system. Except to the
extent resulting from the negligence or willful misconduct of Owner or
Owner's agents, employees, servants, contractors, invitees or
licensees, Owner shall not be liable to Tenant for any loss, damage or
expense resulting from change in the quantity or character of the
electric service or its being no longer suitable for Tenant's
requirements, or due to cessation or interruption of the supply of
current. Upon thirty (30) days prior written notice to Tenant, and
provided Tenant has obtained electricity directly from the public
utility company, Owner may, for so long as Tenant shall be able to so
obtain electricity directly from the utility company, discontinue
service of electricity to Tenant without affecting the tenancy or
Tenant's liability hereunder and without liability for loss or damage
caused Tenant by such discontinuance; except that in the event of the
discontinuance of such service, Tenant shall be entitled to an
appropriate adjustment of the Base Rent payable under this Lease.
Owner, in that event, shall permit Tenant to purchase electricity
directly from the public utility servicing the area where the Building
is located and permit Owner's electrical distribution system to be
used for that purpose. The portion of the Base Rent set forth in
Section 1(c) that is to be deemed attributable to electricity (the
"Inclusion Amount") is (x) in the case of Section 1(c)(i), THREE
----------------
HUNDRED FORTY TWO THOUSAND NINETY ($342,090.00) DOLLARS per annum, or
TWENTY EIGHT THOUSAND FIVE HUNDRED SEVEN AND 50/100 ($28,507.50)
DOLLARS per month and (y) in the case of Section 1(c)(ii), THREE
HUNDRED FIFTY THOUSAND TWO HUNDRED SIXTY-TWO AND 50/100 ($350,262.50)
DOLLARS per annum, or TWENTY NINE THOUSAND ONE HUNDRED EIGHTY-EIGHT
AND 54/100 ($29,188.54) DOLLARS per month. From and after October 1,
1994 to and including March 31, 1995, Tenant shall pay to Owner each
month, in the same manner as Base Rent, the applicable Inclusion
Amount in respect of electricity consumed in the demised premises
(appropriately prorated if the date of this Lease is not the first day
of a month).
(ii) Tenant may, within thirty (30) days after Tenant's
receipt of notice of such determination, dispute any determination
made by Owner under Section 12(a)(i) by notifying Owner of Tenant's
intention to appoint a reputable, independent electrical consultant,
at Tenant's expense. Tenant's electrical consultant shall promptly
perform its own survey and prepare an
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<PAGE>
estimate of the applicable charges for electricity. Tenant shall
promptly notify Owner (a "Notice of Estimate") as to whether Tenant's
------------------
electrical consultant claims that Owner's determination is incorrect
and of the estimate set forth by Tenant's electrical consultant. Any
dispute relating to a determination under this Section 12(a) that is
not resolved within thirty (30) days after delivery of a Notice of
Estimate may be submitted to arbitration by either party pursuant to
Article 42 hereof. If such dispute relates to a floor or floors that
is occupied in part by Tenant, then the other tenant(s) occupying such
floor or floors may be parties to such arbitration. Pending the
determination of such arbitration, Tenant shall pay to Owner the
amount that Owner had determined is due for electricity, without
prejudice to Tenant's position. Tenant, at Owner's request, shall be
a party to any arbitration between Owner and any other tenant
occupying a floor which is occupied in part by Tenant, concerning the
interpretation of any provision similar to this Section 12(a) in such
other tenant's lease. If, as a result of the resolution of any such
dispute, Tenant shall have underpaid or overpaid for electricity
consumed in the demised premises, then an adjustment required to
correct the amount previously paid by Tenant shall be made by the
appropriate party within thirty (30) days after such resolution.
(b) (i) At Tenant's election made at any time upon not less
than 60 days notice to Owner, Tenant may install, at Tenant's expense,
one or more electronic submeters measuring both demand and consumption
of electricity in all or a portion consisting of one or more full
floors of the demised premises (including, without limitation, all
peripheral fan-coil HVAC units in the demised premises, but excluding
the central fan-coil HVAC units servicing the demised premises).
Where more than one submeter measures electricity, the service
rendered through each submeter shall be aggregated. If Tenant so
elects, then (A) Tenant shall comply with the provisions of Article 3
in connection with the installation of such submeters, (B) from and
after the date that such submeters have been installed and are
operating to Owner's and Tenant's reasonable satisfaction (the
"Submeter Date"), Tenant shall pay Owner for electricity consumed in
-------------
the demised premises in the manner described in clause (ii) below, (C)
from and after the Submeter Date, the amount payable by Tenant to
Owner in respect of electricity consumed in the demised premises shall
be determined by applying both the number of KWs of demand for such
period and the KWHRs of consumption for such period, as measured in
each case by such submeters, to Owner's Rate Schedule for such period,
plus all sales tax payable on such amount plus 5% of the amount
otherwise payable under this clause (C) in respect of Owner's
administrative costs but without
<PAGE>
<PAGE>
any other profit or mark-up in favor of Owner and (D) from and after
the Submeter Date, the Base Rents set forth in Articles 1 and 43 shall
be reduced by the applicable Inclusion Amount. "Owner's Rate Schedule"
---------------------
means for any period, the rate schedule for the utility company
serving the Building for both KWs and KWHRs at which Owner purchases
electricity for the Building from the utility company serving the
Building during such period, excluding any sales tax but including all
other fees, charges and amounts which may be included in such
schedule.
(ii) If Tenant elects to install submeters in the demised
premises, then from and after the Submeter Date, Tenant shall pay
Owner for electricity consumed in the demised premises in accordance
with this Section 12(b)(ii). Prior to the beginning of each calendar
year during the term of this Lease (and prior to the Submeter Date
with respect to the year in which the Submeter Date occurs), Owner
shall notify Tenant of the Tentative Monthly Electric Charge and
Tenant shall pay to Owner on the first day of each month, as
additional rent, the Tentative Monthly Electric Charge. If Owner
fails timely to deliver any such notice, Tenant shall continue to pay
the Tentative Monthly Electric Charge theretofore in effect until
receipt of a new notice from Owner. "Tentative Monthly Electric
--------------------------
Charge" means a sum equal to one-twelfth (1/12th) of Owner's good
------
faith estimate of (A) the submeter charges for Tenant's consumption of
electricity for the current calendar year, plus (B) the charges
payable under clause (iii) below for the current calendar year. The
Tentative Monthly Electric Charge may be adjusted by Owner at any time
and from time to time. The amounts, if any, collected by Owner from
Tenant on account of the Tentative Monthly Electric Charge shall be
adjusted following the end of each calendar year (and following the
last day of the term of this Lease), and (x) if the sum of the
payments of the Tentative Monthly Electric Charge is less than the
submeter charges actually due for such year or partial year for
Tenant's consumption of electricity, Tenant shall pay such deficit to
Owner within 10 days following Owner's rendition of a bill therefor,
and (y) if the sum of the payments of the Tentative Monthly Electric
Charge is more than the submeter charges actually due for such year or
partial year, Owner shall pay to Tenant (which, at Owner's option, may
be in the form of a credit against the Rent next due) an amount equal
to such excess.
(iii) From and after the Submeter Date, Tenant shall pay to
Owner on the first day of each month Tenant's allocable share of the
electricity consumed by the central fan-coil HVAC units from time to
time serving the demised premises. The amount of electricity consumed
by such units shall be reasonably
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<PAGE>
determined by Owner. With respect to the premises initially demised
under this Lease, the relevant units and Tenant's allocable share
thereof, are as follows:
Fan No. Location Floors Served Allocable Share
------- -------- ------------- ---------------
3L Fl. 8 Fan Room 7 & 8 North Supply 100%
3U Fl. 8 Fan Room 9 & 10 North Supply 100%
6R Fl. 8 Fan Room 7-10 North Return 100%
4L Fl. 10 Fan Room 7-9 South Supply 100%
4U Fl. 10 Fan Room 1O-15 South Supply 20.57%
8R Fl. 10 Fan Room 7-15 South Return 56.37%
7 Fl. 12 Fan Room 11-15 North Supply 28.47%
20R Fl. 14 Fan Room 11-15 North Return 28.47%
(c) As of the date of this Lease, the following electrical
service is available in the Building electrical closet on each floor
of the premises demised under this Lease:
Floor Amps
----- ----
7 300
8 500
9 350
10 300
11 400
Throughout the term of this Lease there shall be available in the
Building electrical closet on each floor of the demised premises the
electrical service described in paragraph 2 of Exhibit B to this
Lease.
13. ACCESS TO PREMISES:
-------------------
<PAGE>
<PAGE>
Owner and Owner's agents shall have the right (but shall not be
obligated) to enter the demised premises in an emergency at any time
upon such notice as shall be practicable under the circumstances, and,
at other reasonable times upon reasonable notice and accompanied by a
representative of Tenant if Tenant makes such a representative
available, to examine the same and to make such repairs, replacements
and improvements as Owner may deem necessary and reasonably desirable
and for which entry is reasonably required. Except in the case of an
emergency, Owner shall not enter Tenant's communications center unless
accompanied by a representative of Tenant or Tenant otherwise consents
thereto. Tenant shall permit Owner to use and maintain and replace
pipes and conduits therein provided they are concealed within the
walls, floor or ceiling. Owner may, during the progress of any work
in the demised premises, take all necessary materials and equipment
into said premises without the same constituting an eviction and Owner
shall use reasonable efforts, consistent with customary practice for
the management of a first-class office building, to minimize
interference with the ordinary conduct of Tenant's business and shall
not, without Tenant's consent, store any such material or equipment in
the demised premises longer than one Business Day. Throughout the
term hereof, Owner shall have the right to enter the demised premises
upon reasonable notice and accompanied by a representative of Tenant
if Tenant makes such a representative available for the purpose of
showing the same to prospective purchasers or mortgagees of the
Building, and during the last 15 months of the term hereof for the
purpose of showing the demised premises to prospective tenants.
14. VAULT, VAULT SPACE, AREA:
------------------------
No vaults, vault space or area, whether or not enclosed or
covered, not within the property line of the Building is leased
hereunder, anything contained in or indicated on any sketch, blue
print or plan, or anything contained elsewhere in this Lease to the
contrary notwithstanding. Owner makes no representation as to the
location of the property line of the Building. All vaults and vault
space and all such areas not within the property line of the Building,
which Tenant may be permitted to use and/or occupy, is to be used
and/or occupied under a revocable license, and if any such license be
revoked, or if the amount of such space or area be diminished or
required by any federal, state or municipal authority or public
utility, Owner shall not be subject to any liability nor shall Tenant
be entitled to any compensation or diminution or abatement of Rent,
nor shall such revocation, diminution or requisition be deemed
constructive or actual eviction.
<PAGE>
<PAGE>
15. OCCUPANCY:
---------
(a) Owner represents to Tenant that, as of the date of this
Lease, the use of the demised premises for general and executive
office purposes does not violate the certificate of occupancy issued
for the Building. Owner shall, throughout the term of this Lease,
maintain, at Owner's cost and expense, a valid certificate of
occupancy for the Building which shall authorize the use of the
demised premises for general and executive office purposes. Owner
makes no representation to Tenant concerning the Ancillary Uses.
Tenant shall not at any time use or occupy the demised premises in
violation of such certificate of occupancy issued for the Building.
(b) Owner represents to Tenant that, as of the date of this
Lease (i) all of the Building systems and facilities servicing the
demised premises are in good working order and repair and (ii) the
demised premises is free of asbestos and asbestos-containing
materials. Anything contained in this Lease to the contrary
notwithstanding, in the event of the breach by Owner of any
representation made by Owner in this Section 15(b), Tenant's sole
remedy shall be to cause Owner to cure such breach and Tenant shall
not be entitled to any offset, credit, deduction or abatement against
Rent by reason of such breach (except as expressly provided in Section
27(b) below) nor shall such breach give rise to any right on the part
of Tenant to cancel this Lease.
(c) Tenant acknowledges that Tenant has heretofore had access to
the demised premises for the purposes of performing certain demolition
work in preparation of Tenant's occupancy and that Tenant has
inspected the demised premises and is familiar with the condition of
the demised premises. Tenant accepts the demised premises in its "as
is" condition on the date of this Lease, subject only to the
performance by Owner of the work described on Exhibit B ("Owner's
---------- -------
Work") and to Section 15(b) above. Except as expressly set forth in
----
this Lease, Owner makes no representation as to the condition of the
demised premises or the Building.
16. DEFAULT:
-------
(a) This Lease and the term and estate hereby granted are
subject to the limitation that:
(i) if Tenant defaults in the payment of any Base Rent,
additional rent or any other sum payable to Owner on any date upon
which the same is due, and any such default continues
<PAGE>
<PAGE>
for five (5) days after Owner gives to Tenant a notice specifying such
default, or
(ii) if Tenant defaults in the keeping, observance or
performance of any covenant or agreement (other than a default of the
character referred to in Section 16(a)(i)), and if such default
continues and is not cured within thirty (30) days after Owner gives
to Tenant a notice specifYing the same, or, in the case of a default
which for causes beyond Tenant's reasonable control cannot with due
diligence be cured within such period of thirty (30) days, if Tenant
shall not promptly upon the receipt of such notice, (A) advise Owner
of Tenant's intention duly to institute all steps necessary to cure
such default or (B) institute and thereafter diligently prosecute to
completion all steps necessary to cure the same, then, in any of such
cases, in addition to any other remedies available to Owner at law or
in equity, Owner shall be entitled to give to Tenant a notice of
intention to end the term of this Lease at the expiration of ten (10)
Business Days from the date of the giving of such notice, and, in the
event such notice is given, this Lease and the term and estate hereby
granted shall terminate upon the expiration of such ten (10) Business
Days with the same effect as if the last of such ten (10) Business
Days were the expiration date of the term of this Lease, but Tenant
shall remain liable for damages as provided herein or pursuant to law.
(b) (i) Anything contained in this Lease to the contrary
notwithstanding, Tenant may, within ten (10) days after the giving to
Tenant of a notice of a default described in Section 16(a)(ii) (an
"Alleged Default"), give to Owner a notice contesting the assertion by
---------------
Owner of such Alleged Default (a "Dispute Notice"), in which event (A)
--------------
Tenant shall, within 10 days after the giving of the applicable
Dispute Notice, institute an expedited arbitration proceeding in
accordance with the provisions of Article 42 below to determine
whether or not the Alleged Default exists and (B) Tenant's time to
cure the Alleged Default under Section 16(a)(ii) shall be tolled
pending the determination of the arbitrator. Failure by Tenant timely
to give a Dispute Notice with respect to any Alleged Default shall
constitute a waiver by Tenant of Tenant's right to contest such
Alleged Default under this Section 16(b)(i). Failure by Tenant timely
to institute an expedited arbitration proceeding shall constitute a
rescission by Tenant of the applicable Dispute Notice, a waiver by
Tenant of Tenant's right to contest such Alleged Default under this
Section 16(b)(i) and a reinstatement of Tenant's original cure period
under Section 16(a)(ii) with respect to such Alleged Default.
Notwithstanding the provisions of Article 42, the non-prevailing party
in any arbitration under
<PAGE>
<PAGE>
this Section 16(b) shall pay to the prevailing party, within thirty
(30) days after receipt of an invoice therefor accompanied by
reasonable back-up, the actual out-of-pocket expenses incurred by the
prevailing party in such arbitration. If the arbitrator determines
that the Alleged Default exists, then the date on which Tenant
receives notice of such determination shall be deemed to be the date
that notice of the Alleged Default was given to Tenant so that Tenant
shall thereafter have the period set forth in Section 16(a)(ii) to
cure such Alleged Default, except that the thirty (30) day period
provided for therein shall be reduced to fifteen (15) days. If the
arbitrator determines that the Alleged Default does not exist, then
Owner's notice to Tenant of such Alleged Default shall be deemed to
have been rescinded, but Tenant shall not be entitled to any damages
or to any offset, credit, deduction or abatement against Rent by
reason thereof, nor shall the same give rise to any right of Tenant to
cancel this Lease or constitute a default by Owner under this Lease.
(ii) Notwithstanding the provisions of Section 16(b)(i), at
any time after the giving by Tenant of a Dispute Notice with respect
to any Alleged Default, Owner may give to Tenant a notice that such
Alleged Default constitutes a Critical Default, in which event (A)
upon the giving of Owner's notice, the cure period under Section
16(a)(ii) with respect to such Alleged Default shall no longer be
tolled, and (B) the curing of such default by Tenant shall be a
condition to Tenant's right to continue to contest whether the Alleged
Default constitutes a default on the part of Tenant. If the
arbitrator determines that the Alleged Default did not exist, then the
last sentence of Section 16(b)(i) shall apply, except that Owner shall
reimburse Tenant, within thirty (30) days after the submission by
Tenant to Owner of an invoice accompanied by such reasonable back-up
as Owner may require, for the actual out-of-pocket costs incurred by
Tenant in curing such Alleged Default. "Critical Default" means that,
----------------
in Owner's judgment, the failure promptly to cure the Alleged Default
in question will (w) have a material, adverse effect on the Building
or any portion thereof or the land underlying the Building or on the
interest of Owner or any person claiming under or through Owner in any
thereof or subject any thereof to imminent imposition of a lien or to
imminent risk of sale, (x) constitute a default under any Superior
Instrument, (y) threaten the health or safety of any person or (z)
subject Owner to the risk of criminal liability.
17. RE-ENTRY BY OWNER:
-----------------
<PAGE>
<PAGE>
If this Lease shall have been terminated as in Article 16
provided, Owner or Owner's agents and servants may immediately or at
any time thereafter re-enter into or upon the demised premises, or any
part thereof in the name of the whole, either by summary dispossess
proceedings or by any suitable action or proceeding at law, and may
repossess the same, to the end that Owner may have, hold and enjoy the
demised premises again as and of its first estate and interest
therein. The words "re-enter" and "re-entering" as used in this Lease
-------- -----------
are not restricted to their technical legal meanings.
18. DAMAGES; INJUNCTION; WAIVER:
---------------------------
(a) In the event of a termination of this Lease, Tenant shall
pay to Owner as damages, at the election of Owner, either:
(i) a sum which, at the time of such termination,
represents the then value of the excess, if any, of (A) the aggregate
of the Base Rent and additional rent which, had this Lease not
terminated, would have been payable hereunder by Tenant for the period
commencing with the day following the date of such termination and
ending with the date hereinbefore set for the expiration of the term
of this Lease over (B) the aggregate fair rental value of the demised
premises for the same period (conclusively presuming the additional
rent to be the same as was payable for the year immediately preceding
such termination except that additional rent on account of Taxes and
operating expenses shall be presumed to increase at the average of the
rates of increase thereof previously experienced by Owner during the
period (not to exceed 3 years) prior to such termination), or
(ii) sums equal to the Base Rent and additional rent that
would have been payable by Tenant had this Lease not terminated,
payable upon the due dates therefor specified herein until the date
hereinbefore set for the expiration of the term of this Lease;
provided, that if Owner shall relet all or any part of the demised
premises for all or any part of the period commencing on the day
following the date of such termination and ending on the date
hereinbefore set for the expiration of the term of this Lease, Owner
shall credit Tenant with the net rents received by Owner from such
reletting, such net rents to be determined by first deducting from the
gross rents as and when received by Owner from such reletting the
actual expenses paid by Owner in terminating this Lease and re-
entering the demised premises and securing possession thereof, as well
as the actual expenses of reletting, including, without limitation,
altering and preparing the demised premises for new tenants, brokers'
commissions, and all other expenses properly chargeable against
<PAGE>
<PAGE>
the demised premises and the rental therefrom in connection with such
reletting, it being understood that any such reletting may be for a
period equal to or shorter or longer than said period; provided,
further, that (A) in no event shall Tenant be entitled to receive any
excess of such net rents over the sums payable by Tenant to Owner
under this Lease, (B) in no event shall Tenant be entitled, in any
suit for the collection of damages pursuant to this Section 18(a)(ii),
to a credit in respect of any net rents from a reletting except to the
extent that such net rents are actually received by Owner prior to the
commencement of such suit, and (C) if the demised premises or any part
thereof should be relet in combination with other space, then proper
apportionment on a square foot rentable area basis shall be made of
the rent received from such reletting and of the actual expenses of
reletting.
(b) Suit or suits for the recovery of any damages payable
hereunder by Tenant, or any installments thereof, may be brought by
Owner from time to time at its election, and nothing contained herein
shall require Owner to postpone suit until the date when the term of
this Lease would have expired but for such termination. Nothing
herein contained shall be construed as limiting or precluding the
recovery by Owner against Tenant of any sums or damages to which, in
addition to the damages particularly provided above, Owner may
lawfully be entitled by reason of any default hereunder on the part of
Tenant.
(c) In the event of a breach or threatened breach on the part of
Tenant with respect to any of the covenants or agreements on the part
of or on behalf of Tenant to be kept, observed or performed, Owner
shall also have the right of injunction. The specified remedies to
which Owner may resort hereunder are cumulative and are not intended
to be exclusive of any other remedies or means of redress to which
Owner may lawfully be entitled at any time, and Owner may invoke any
remedy allowed at law or in equity as if specific remedies were not
herein provided for.
(d) Tenant waives and surrenders all right and privilege that
Tenant might have under or by reason of any present or future law to
redeem the demised premises or to have a continuance of this Lease for
the term hereof after Tenant is dispossessed or ejected therefrom by
process of law or under the terms of this Lease. Tenant also waives
the provisions of any law relating to notice and/or delay in levy of
execution in case of any eviction or dispossession for nonpayment of
Rent, and the provisions of any successor or other law of like import.
<PAGE>
<PAGE>
19. FEES AND EXPENSES:
-----------------
If Tenant shall default beyond the expiration of any applicable
grace and notice period under Article 16 in the observance or
performance of any term or covenant on Tenant's part to be performed
under or by virtue of any of the terms or provisions of this Lease,
Owner may, upon not less than three (3) Business Days notice to
Tenant, perform the obligation of a Tenant thereunder. If Owner, in
connection with the foregoing or in connection with any default by
Tenant in the covenant to pay Rent hereunder, makes any reasonable
expenditures or incurs any obligations for the payment of money,
including, without limitation, reasonable attorney's fees and
disbursements, in instituting, prosecuting or defending any action or
proceeding, then Tenant shall reimburse Owner for such reasonable sums
so paid or obligations incurred, together with interest thereon at the
Prime Rate plus 2% from the date incurred by Owner until paid by
Tenant. The foregoing expenses incurred by Owner shall be deemed to
be additional rent hereunder and shall be paid by Tenant to Owner
within thirty (30) days of rendition of any bill or statement to
Tenant therefor. Tenant's compliance with any notice given by Owner
alleging failure by Tenant to perform any obligation of Tenant under
this Lease shall not be deemed a waiver of Tenant's right to contest,
in accordance with the provisions of this Lease, Tenant's obligation
to so comply.
20. BUILDING ALTERATIONS AND MANAGEMENT:
-----------------------------------
(a) Owner shall have the right at any time without the same
constituting an eviction and without incurring liability to Tenant
therefor (i) to change the arrangement and/or location of public
entrances, passageways, doors, doorways, corridors, elevators, stairs,
toilets or other public parts of the Building; provided, that such
change shall not deprive Tenant of a reasonable means of access to the
Building or the demised premises or of the use of the demised premises
for the ordinary conduct of Tenant's business, and provided further,
that the premises initially demised under this Lease shall be served
throughout the Term of this Lease by the Building's low-rise elevator
bank, which presently serves the lobby through the 14th floor of the
Building, inclusive, and (ii) except as set forth in Section 20(b), to
change the name, number or designation by which the Building may be
known. Except as expressly provided in this Lease, there shall be no
allowance to Tenant for diminution of rental value and no liability on
the part of Owner by reason of inconvenience, annoyance or injury to
business arising from Owner or other tenants making any repairs in the
Building or any such alterations, additions and improvements.
Furthermore, Tenant
<PAGE>
<PAGE>
shall not have any claim against Owner by reason of Owner's imposition
of such controls of the manner of access to the Building by Tenant's
social or business visitors as Owner may reasonably deem necessary for
the security of the Building and its occupants; provided, that such
--------
controls shall be imposed upon substantially all other tenants at the
Building and provided further, that Tenant shall not be required to
----------------
incur (other than by way of the payment of Operating Expenses under
Article 39) any out-of-pocket costs in connection therewith.
(b) (i) Notwithstanding Section 20(a) and subject to clauses
(ii) and (iii) below, Owner shall not, without the prior consent of
Tenant, use as the name for the Building the name of any Tenant
Competitor. "Tenant Competitor" means any entity whose principal
-----------------
business is that of an investment bank.
(ii) Notwithstanding clause (i) above, clause (i) above
shall be null and void and of no further force or effect (and there
shall be no restriction on Owner's right to name the Building) if (A)
The Bear Stearns Companies, Inc. is no longer the Tenant under this
Lease, (B) The Bear Stearns Companies, Inc. (together with its
Affiliates and Correspondents) at any time fails to occupy at least
119,000 rentable square feet in the Building or (C) The Bear Stearns
Companies, Inc. shall be in default under this Lease beyond any
applicable period of grace.
(iii) Notwithstanding clause (i) above, if at any time a
Tenant Competitor leases 200,000 or more rentable square feet in the
Building, then the restriction in clause (i) above shall not apply as
to such Tenant Competitor and Owner shall have the right to name the
Building for such Tenant Competitor.
21. NO REPRESENTATIONS BY OWNER:
---------------------------
(a) Neither Owner nor Owner's agents have made any
representations or promises with respect to the physical condition of
the Building, the land upon which it is erected or the demised
premises, the rents, leases, expenses of operation or any other matter
or thing affecting or related to the demised 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 in
the provisions of this Lease. All understandings and agreements
heretofore made between the parties hereto are merged in this
contract, which alone fully and completely expresses the agreement
between Owner and Tenant and any executory agreement hereafter made
shall be ineffective to change, modify, discharge or effect an
abandonment of it in whole or in part, unless such executory agreement
is in writing
<PAGE>
<PAGE>
and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought.
(b) Tenant shall look solely to Owner's interest in the Property
for the satisfaction of any right or remedy of Tenant for the
collection of a judgment (or other judicial process) requiring the
payment of money by Owner, its partners, officers or shareholders, in
the event of any liability by Owner, and no other property or assets
of Owner, its partners, officers or shareholders shall be subject to
levy, execution, attachment or other enforcement procedure for the
satisfaction of Tenant's remedies under or with respect to this Lease,
the relationship of Owner, its partners, officers or shareholders and
Tenant hereunder, or Tenant's use and occupancy of the demised
premises, or any other liability of Owner, its partners, officers or
shareholders to Tenant. For purposes of this Section 21(b), Owner's
interest in the Property shall include (i) the proceeds of any sale of
the Building and/or the land on which the Building is located and (ii)
an amount equal to any condemnation awards and the proceeds of any
casualty insurance until the Building is restored to substantially the
same condition that existed prior to the casualty or condemnation.
22. END OF TERM:
-----------
(a) Upon the expiration or other termination of the term of this
Lease, Tenant shall quit and surrender to Owner the demised premises,
broom clean, in good order and condition, ordinary wear, damage from
fire or other casualty and damages which Tenant is not required to
repair as provided elsewhere in this Lease excepted. Tenant's
obligation to observe or perform this covenant shall survive the
expiration or other termination of this Lease. If the last day of the
term of this Lease or any renewal thereof falls on a Sunday, this
Lease shall expire at noon on the next succeeding Business Day.
(b) If Tenant holds over without the consent of Owner after
expiration or termination of this Lease, Tenant shall:
(i) pay as hold-over rental for each month of the hold-over
tenancy an amount equal to the greater of (A) the fair market rental
value of the demised premises for such month (as reasonably determined
by Owner) or (B) the Applicable Percentage of the Base Rent and
additional rent which Tenant was obligated to pay for the month
immediately preceding the end of the term of this Lease; and
<PAGE>
<PAGE>
(ii) if such holdover continues for more than ninety (90)
days, be liable to Owner for (A) any payment or rent concession which
Owner may be required to make to any tenant obtained by Owner for all
or any part of the demised premises (a "New Tenant") in order to
----------
induce such New Tenant not to terminate its lease by reason of the
holding-over by Tenant and (B) the loss of the benefit of the bargain
if any New Tenant shall terminate its lease by reason of the holding-
over by Tenant.
No holding-over by Tenant after the term of this Lease shall
operate to extend the term of this Lease. In the event of any
unauthorized holding-over for more than ninety (90) days, Tenant shall
indemnify Owner against all claims for damages by any other tenant to
whom Owner may have leased all or any part of the demised premises
elective upon the termination of this Lease. "Applicable Percentage"
---------------------
means (x) 125% for the first 36 days of the hold-over tenancy, (y)
150% for the next sixty (60) days of the hold-over tenancy and (z)
200% thereafter.
23. QUIET ENJOYMENT:
---------------
Owner covenants to Tenant that, so long as this Lease is in full
force and effect, Tenant may peaceably and quietly enjoy the premises
hereby demised, subject, nevertheless, to the terms and conditions of
this Lease including, but not limited to Articles 7 and 31 hereof
24. TENANT SATELLITE DISH:
---------------------
(a) Tenant may, subject to and in accordance with the provisions
of this Article 24, use a portion of the roof of the Building or the
setback on the 7th, 9th or 11th floor of the Building to install,
maintain and operate one or more antennas and/or satellite dishes,
together with related equipment and support structures (collectively,
the "Satellite Dish") and to run lines therefrom into the demised
--------------
premises, subject to Owner's prior approval, not to be unreasonably
withheld or delayed, of the size and configuration of the Satellite
Dish. If Tenant desires to locate the Satellite Dish on a setback of
the Building, then (i) the Satellite Dish shall be located as far east
as possible on the 51st Street side of the Building, (ii) the
Satellite Dish shall not interfere in any respect with the Building
window washing equipment and (iii) the Satellite Dish shall not be
visible from the street. Tenant shall furnish detailed plans and
specifications for the Satellite Dish (or any modification thereof) to
Owner for Owner's approval.
<PAGE>
<PAGE>
(b) Tenant's use of the roof of the Building under this Article
24 is a non-exclusive use and Owner may permit the use of any other
portion of the roof by any other person for any use including
installation of other antennas, satellite dishes and related equipment
and support structures. Owner shall use reasonable efforts to insure
that such use does not impair Tenant's data transmission and reception
via Tenant's Satellite Dish. Tenant shall use its reasonable efforts
to insure that Tenant's use of the roof does not impair such other
person's data transmission and reception via its respective antennas
and support equipment.
(c) If Tenant's construction, installation, maintenance, repair,
operation or use of the Satellite Dish shall interfere with the rights
of Owner (including, without limitation, Owner's right reasonably to
use the remainder of the roof or any setback) or other tenants in the
Building, Tenant shall cooperate with Owner or such other tenants in
eliminating such interference; provided, that the cost of remedying
--------
such interference shall be borne by Owner, unless the party which is
suffering such interference was using the roof or such setback in the
manner suffering such interference prior to the use of the Satellite
Dish causing such interference by Tenant, in which case the cost of
remedying such interference shall be borne by Tenant. If
construction, installation, maintenance, repair, operation or use of
any antennas or support equipment, or any other equipment, by Owner or
any other person shall interfere with the rights of Tenant, Owner
shall cooperate, and shall cause such other persons to cooperate, with
Tenant in eliminating such interference; provided, that the cost of
--------
remedying such interference shall be borne by Tenant, unless Tenant
was using the roof or such setback in the manner suffering such
interference prior to the use of such antennas or support equipment,
or other equipment, causing such interference, in which case the cost
of remedying such interference shall be borne by Owner.
(d) Tenant shall comply with all laws, rules, regulations and
insurance requirements applicable to the Satellite Dish. Owner makes
no warranties as to the permissibility of a Satellite Dish under
applicable laws, rules, regulations and insurance requirements or the
suitability of the roof or any setback of the Building for the
installation thereof. If Owner's structural engineer deems it
reasonably necessary that there be structural reinforcement of the
roof or any setback in connection with the installation of the
Satellite Dish, Owner shall perform same at Tenant's cost and Tenant
shall not perform any such installation prior to the completion of any
such structural reinforcement. The installation of the Satellite Dish
shall be subject to
<PAGE>
<PAGE>
Article 3 above. For the purpose of installing, servicing or
repairing the Satellite Dish, Tenant shall have access to the roof or
the applicable setback of the Building at reasonable times upon
reasonable notice to Owner and Owner shall have the right to require,
as a condition to such access, that Tenant (or its employee,
contractor or other representative) at all times be accompanied by a
representative of Owner who Owner shall make available, without cost
to Tenant, upon reasonable notice (except that such accompaniment
shall be required in the case of an emergency only if practicable).
All work required to be performed to the roof, any setback or other
parts of the Building outside of the demised premises in connection
with the installation of the Satellite Dish (including, without
limitation, any roof penetrations, structural modifications and
reroofing, but excluding the actual installation of the Satellite
Dish) shall be performed by Owner and Tenant shall reimburse Owner for
the reasonable out-of-pocket costs incurred by Owner in so performing.
Tenant, using a vendor approved by Owner (such approval not to be
unreasonably withheld) shall perform the actual installation of the
Satellite Dish. Unless the electricity consumed by the Satellite Dish
is included on Tenant's submeters, Owner shall reasonably estimate the
electricity consumed by the Satellite Dish and Tenant shall pay to
Owner on the first day of each month the amount so determined by
Owner.
(e) Tenant shall be responsible for all costs and expenses for
repairs and maintenance of the roof or any other part of the Building
which result from Tenant's use of the roof or any setback for the
construction, installation, maintenance, repair, operation and use of
the Satellite Dish.
(f) Notwithstanding the provisions of Section 3(c) above, upon
the expiration of the term of this Lease, the Satellite Dish shall be
removed by Tenant and Tenant shall pay for any damage to and restore
the roof or any other portions of the Building to substantially their
condition immediately prior to Tenant's installation of the Satellite
Dish (ordinary wear and tear and damage by casualty excepted).
(g) Tenant shall not be required to pay Base Rent for the use of
the Satellite Dish or use of the roof; any setback or any shaft space
for the purposes permitted herein and none of the same shall be
included in the calculation of Tenant's proportionate share for
purposes of the payment of Taxes and operating expenses.
<PAGE>
<PAGE>
(h) Notwithstanding anything to the contrary contained in this
Article 24, Owner may, on not less than 60 days' prior notice,
relocate the Satellite Dish to another location on the roof or any
setback of the Building, which new location shall be no less suitable
for the installation and use of the Satellite Dish than was the
original location thereof and which otherwise conforms to the
foregoing provisions of this Article 24. Such relocation shall be
performed during non-Business Hours. Owner shall bear all costs of
such relocation (including the charges of Tenant's vendor who shall
perform the actual deinstallation and reinstallation), unless such
relocation is required by applicable laws, rules and regulations in
which case Tenant shall reimburse Owner for the reasonable out-of-
pocket costs incurred by Owner in so relocating the Satellite Dish.
In no event shall any such relocation result in Tenant having greater
obligations or lesser rights under paragraph (c) hereof.
(i) The rights granted in this Article 24 are given in
connection with, and as part of the rights created under, this Lease
and are not transferable or assignable other than in connection with
an assignment or sublease under Article II. Tenant shall use the
Satellite Dish solely in connection with activities permitted under
Article 2. Tenant shall not sell any services arising out of the use
of the Satellite Dish (A) to any other tenant (other than subtenants
of Tenant) or (B) to the general public.
25. NO WAIVER:
---------
The failure of Owner or Tenant to seek redress for violation of,
or to insist upon the strict performance of any covenant or condition
of this Lease or of any of the Rules or Regulations set forth or
hereafter adopted by Owner and of which Tenant has been given
reasonable notice and an opportunity to contest as provided in Article
33 below, shall not prevent a subsequent act which would have
originally constituted a violation from having all the force and
effect of an original violation. The receipt by Owner or payment by
Tenant of Rent with knowledge of the breach of any covenant of this
Lease shall not be deemed a waiver of such breach and no provision of
this Lease shall be deemed to have been waived by Owner or Tenant
unless such waiver be in writing signed by Owner or Tenant. No
payment by Tenant or receipt by Owner of a lesser amount than the
monthly Rent herein stipulated shall be deemed to be other than on
account of the earliest stipulated Rent, nor shall any endorsement or
statement of any check or any letter accompanying any check or payment
as Rent be deemed an accord and satisfaction, and Owner may accept
such check or payment without prejudice to Owner's right to recover
<PAGE>
<PAGE>
the balance of such Rent or pursue any other remedy in this Lease
provided. No employee of Owner or Owner's agent shall have any power
to accept the keys of said demised premises prior to the expiration or
other termination of this Lease and the delivery of keys to any such
agent or employee shall not act as a termination of this Lease or a
surrender of the demised premises.
26. WAIVER OF TRIAL BY JURY:
-----------------------
It is mutually agreed by and between Owner and Tenant that 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 or
property damage) on any matters whatsoever arising out of or in any
way connected with this Lease, the relationship of Owner and Tenant,
Tenant's use of or occupancy of said demised premises, and any
emergency statutory or other statutory remedy. It is further mutually
agreed that in the event Owner commences any summary proceeding for
possession of the demised premises, Tenant will not interpose any
counterclaim of whatever nature or description in any such proceeding
including a counterclaim under Article 4 hereof, except such
counterclaim which, if not interposed, will be waived for all purposes
as a matter of law.
27. INABILITY TO PERFORM:
--------------------
(a) This Lease and the obligation of Tenant to pay Rent
hereunder and perform all of the other covenants and agreements
hereunder on the part of Tenant to be performed shall in no way be
affected, impaired or excused because Owner is unable to fulfill any
of its obligations under this Lease or to supply or is delayed in
supplying any service expressly or impliedly to be supplied or is
unable to make, or is delayed in making any repair, additions,
alterations or decorations or is unable to supply or is delayed in
supplying any equipment or fixtures, if in each case Owner is
prevented or delayed from so doing by reason of Force Majeure or any
other cause whatsoever, other than Owner's negligence or willful
misconduct.
(b) Notwithstanding Section 27(a) above, if Tenant is precluded
from using the whole of the demised premises or a portion thereof
consisting of 50,000 or more contiguous rentable square feet because
the demised premises or such portion thereof is untenantable for a
period in excess of ten (10) consecutive days because Owner shall be
unable or shall fail to supply any essential service which Owner is
obligated to supply under this Lease, and provided that (i) Tenant
does not occupy such space
<PAGE>
<PAGE>
during such period for the ordinary conduct of Tenant's business, (ii)
such inability or failure shall not have resulted from the negligence
or willful misconduct of Tenant or Tenant's officers, contractors,
agents, employees, licensees or invitees (provided that Tenant shall
be responsible for Tenant's invitees only while such invitees are in
the demised premises) and (iii) Owner shall not be prosecuting with
all due diligence to furnish or restore the service in question, then
the Rent payable under this Lease shall be abated (or in the event
only a portion of the demised premises is affected, proportionately
abated based upon the rentable square footage of the space that is so
untenantable) for the period of time commencing on the eleventh (11th)
day following the date Tenant was precluded from using the demised
premises or such portion thereof by reason of such inability or
failure until the earlier of such time as Tenant reoccupies the
demised premises or such portion thereof for the conduct of Tenant's
business, as applicable, or such time as such service is restored.
(c) If (i) Owner fails to perform any of its obligations under
this Lease (other than by reason of Force Majeure), which failure (A)
materially interferes with Tenant's use of the demised premises for
the ordinary conduct of Tenant's business and (B) continues for at
least ten (10) consecutive Business Days after the date Tenant
notifies Owner of such failure and (ii) (A) Tenant again notifies
Owner after the expiration of such ten (10) Business Day period of
such failure and of Tenant's intention to cure same, which notice
shall state that Owner's failure to timely comply therewith shall
entitle Tenant to exercise Tenant's rights under this Section 27(c)
and (B) such failure continues for not less than three (3) consecutive
Business Days from the giving to Owner of such second notice, provided
that, in the case of a failure which by reason of Force Majeure cannot
with due diligence be cured within such three (3) Business Day period,
such three (3) Business Day period shall be extended for such period
as may be necessary to cure such failure provided that Owner shall be
diligently prosecuting such cure, then at Tenant's election and as
Tenant's sole remedy, Tenant may take such actions as may be
reasonably necessary to cure such failure and Owner shall reimburse
Tenant for the reasonable out-of-pocket costs incurred by Tenant in
performing same, provided the performance of such obligation by Tenant
(x) takes place exclusively within the demised premises, (y) does not
affect any space outside the demised premises and (z) does not affect
the structure or the electrical, HVAC, plumbing, mechanical, life
safety or other systems of the Building (provided, that
--------
notwithstanding the foregoing, Tenant may perform an obligation of
Owner that affects a Building system, whether within or
<PAGE>
<PAGE>
outside the demised premises, if the portion of the system on which
Tenant will perform work serves no leasable space in the Building
other than the demised premises). If Tenant performs any of Owner's
obligations under this Lease in accordance with this Section 27(c),
Owner shall pay to Tenant the reasonable costs actually incurred by
Tenant in performing such obligation within thirty (30) days after
receipt by Owner of a written statement as to the amount of such costs
accompanied by paid invoices or other evidence reasonably satisfactory
to Owner of the amount so incurred; provided, that if (1) Owner fails
to pay such costs to Tenant within such thirty (30) day period and (2)
Tenant thereafter obtains the determination of an arbitrator in an
arbitration conducted in accordance with Article 42 below that such
costs are due and owing to Tenant and Owner fails to pay such costs to
Tenant within thirty (30) days after Owner is notified of such
determination (provided, that the arbitration described in this clause
(2) shall not be required unless Owner notifies Tenant, within the
thirty (30) day period referred to in clause (i), that Owner contests
Tenant's entitlement to such payment), then Tenant may credit such
costs, together with interest thereon at the Prime Rate from the date
such payment was first requested by Tenant until credited, against the
next subsequent Rent payments to come due under this Lease. "Force
-----
Majeure" means, with respect to the occurrence of a specified date or
-------
event, any and all events beyond the reasonable control of Owner,
including, without limitation, strikes, lockouts, acts of God, enemy
actions, civil commotion or war, casualties and governmental actions,
but excluding lack of funds, which events delay the occurrence of the
specified date or event in question.
(d) Anything contained in this Lease to the contrary
notwithstanding, if Owner fails substantially to complete any item of
Owner's Work on or before the date specified therefor on Exhibit B,
and such failure continues for at least ten (10) days after the date
that Tenant gives notice of such failure to Owner and to each holder
of a Superior Instrument of which Tenant has notice, then at Tenant's
election and as Tenant's sole remedy (i) Tenant may take such actions
as may be reasonably necessary to perform such item of Owner's Work
and Owner shall reimburse Tenant for the reasonable out-of-pocket
costs incurred by Tenant in performing same, such reimbursement to be
made within thirty (30) days after receipt by Owner of a written
statement as to the amount of such costs, accompanied by paid invoices
or other evidence reasonably satisfactory to Owner of the costs so
incurred, and (ii) if Owner fails so to reimburse Tenant within such
thirty (30) day period, Tenant may credit such costs against the next
subsequent Rent payments to come due under this Lease.
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<PAGE>
(e) Anything contained in this Lease to the contrary
notwithstanding, if (i) Owner fails to pay any amount due under that
certain In Rem Installment Agreement, dated December 20, 1993, between
Owner and The City of New York Department of Finance, or (ii) the
Building is listed or included in an in rem tax foreclosure proceeding
by reason of Owner's failure to pay any other Taxes (or notice that
the Building is to be so listed or included in an in rem tax
foreclosure proceeding has been given to Owner), then at Tenant's
election and as Tenant's sole remedy (A) Tenant may, upon not less
than ten (10) days prior notice (or such shorter notice as shall be
practicable if (x) title to the Building is to vest in The City of New
York or (y) The City of New York would obtain a judgment of
foreclosure, in either case in less than ten (10) days) given to Owner
and to each holder of a Superior Instrument of which Tenant has
notice, pay all or any portion of the Taxes then due and owing,
together with interest and penalties, if any, payable thereon, and
Owner shall reimburse Tenant for any amounts so paid by Tenant, such
reimbursement to be made within thirty (30) days after receipt by
Owner of a written statement as to the amount so paid accompanied by
proof of payment thereof; and (B) if Owner fails so to reimburse
Tenant within such thirty (30) day period, Tenant may credit such
costs against the next subsequent Rent payments to come due under this
Lease.
28. BILLS AND NOTICES:
-----------------
Except as otherwise in this Lease specifically provided, a notice
or communication which either party is required or desires to give to
the other shall be in writing and shall be given by personal delivery,
certified or registered mail return receipt requested, or overnight
courier, in each case addressed to the other at the address below set
forth or to such other address as either party may be from time to
time direct by written notice given in the manner herein prescribed.
To Owner: Tenth City Associates
26 Broadway
New York, New York 10004-1898
To Tenant: The Bear Stearns Companies, Inc.
One Metrotech Center North
Brooklyn, New York 11201
Attention: Mr. James Lang
<PAGE>
<PAGE>
with a copy in the case of notices alleging a Tenant default to:
Stroock & Stroock & Lavan
7 Hanover Square
New York, New York 10004-2696
Attention: Leslie G. Kanter, Esq.
All notices shall be deemed to have been given when actually received,
as evidenced by a signed receipt. Rejection or other refusal to
accept a notice, or the inability to deliver a notice because of a
changed address of which no notice was given, shall be deemed to
constitute receipt of such notice.
29. SERVICES PROVIDED BY OWNER:
--------------------------
(a) Owner shall provide:
(i) the non-exclusive service of not less than eight (8)
passenger elevators (except to the extent the same may be taken
out of service for repairs or maintenance) on Business Days from
8:00 A.M. to 6:00 P.M. and on Saturdays from 8:00 A.M. to 1:00
P.M., at least two (2) passenger elevators subject to call on
Business Days from 6:00 P.M. to 8:00 P.M. and at least one (1)
passenger elevator subject to call at all other times, and the
non-exclusive service of the Building freight elevator from 8:00
A.M. to 5:00 P.M. on Business Days on a first come, first served
basis;
(ii) heat to the demised premises as seasonably required
during Business Hours on Business Days;
(iii) water for ordinary lavatory, drinking fountain and
"kitchenette" type purposes, but if Tenant uses or consumes water
for any other purpose or in unusual quantities (in Owner's
reasonable judgment), Owner may install a water meter(s) at
Tenant's expense which Tenant shall thereafter maintain at
Tenant's expense in good working order and repair to register
such water consumption and Tenant shall pay for water consumed in
excess of the usual quantities as shown on said meter(s) as
additional rent within thirty (30) days bills therefor are
rendered;
(iv) cleaning service for the demised premises (exclusive
of Tenant's communications center) on Business Days in accordance
with the specifications set forth on Exhibit D, provided that the
---------
demised premises are kept in order by Tenant; and
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<PAGE>
(v) air conditioning from 8:00 A.M. to 6:00 P.M. on
Business Days during the period from May 1st to October 31st of
each year, in accordance with Section 29(b) below.
(b) (i) Tenant shall cause to be closed, and shall keep closed,
all windows in the demised premises whenever the air conditioning
system is in operation and at all times to cooperate with Owner and to
abide by all reasonable regulations and requirements which Owner may
reasonably prescribe for the proper functioning and protection of the
air conditioning equipment. The system shall supply to the demised
premises not less than 10% fresh air. The inside temperature shall
be, with respect to not less than 90% of the demised premises,
approximately 75 degrees F. dry bulb, relative humidity approximately
50%, when the outside temperature is 95 degrees E. dry bulb and 75
degrees F. wet bulb (such specification to be met on each applicable
Business Day at 8:00 A.M. and thereafter throughout the Business Day
until at least 6:00 P.M.).
(ii) Subject to the other provisions of this Lease, Owner
reserves the right to interrupt, curtail, stop or suspend air
conditioning (whether during or after Business Hours) when necessary
because of accident, repairs, alterations or improvements which in the
judgment of Owner are desirable or necessary, or to comply with
government restrictions in the use of materials or in the use of the
air conditioning system or because of other causes beyond the
reasonable control of Owner, and, except as expressly provided in this
Lease, no diminution or abatement of Rent or other compensation shall
or will be claimed by Tenant nor shall this Lease or any of the
obligations of Tenant be affected or reduced by reasons of the
interruptions, curtailment, stoppage or suspension of air
conditioning. Except in the case of an emergency, Owner shall provide
Tenant with reasonable advance notice of any such stoppage and its
estimated duration. Owner shall use reasonable efforts, consistent
with customary practice for the management of a first-class office
building, to minimize interference with Tenant's use of the demised
premises for the ordinary conduct of Tenant's business by reason of
such stoppage and to resume such service as soon as possible. To the
extent practicable, Owner shall confine such stoppages to times other
than Business Hours on Business Days. If Tenant requests heat,
ventilation or air conditioning, by timely notice (such notice to be
given (A) not later than 12:00 noon on any Business Day for after
hours service on such Business Day and (B) not later than 12:00 noon
on the last Business Day before a day other than a Business Day for
service on such non-Business Day), on days or hours other than the
regular days or hours as above provided, then Tenant shall pay Owner's
charges at
<PAGE>
<PAGE>
the then current rate per hour for providing such additional air
conditioning upon being billed by Owner and such charges shall be
collectible as additional rent. If one or more tenants other than
Tenant that are served by the same central fans as Tenant request
overtime heating, ventilation or air conditioning during the same time
as the same is requested by Tenant, then the charge for such overtime
service shall be appropriately prorated between Tenant and such other
tenant(s).
(c) (i) Tenant may install supplemental air conditioning
equipment, subject to charges for the energy consumed by same. Owner
shall not be responsible for the operation or repair of said equipment
and Tenant shall at all times have a "service or maintenance"
agreement in place regarding said equipment. Charges for the energy
consumed by this equipment shall be based upon an appraisal of the
cost of electricity consumed by said equipment made by a company
regularly engaged in the business of reading electric meters and
calculating electricity consumption and an addition will be made to
Tenant's monthly Rent to reflect said appraisal. Thereafter, after
such company has taken twelve (12) consecutive monthly readings Owner
shall calculate Tenant's average monthly usage and adjust Tenant's
billing accordingly for that initial twelve (12) month period. Then
the average monthly amount for the first twelve month period will be
the charge that is added to Tenant's monthly Rent for the successive
twelve (12) month period and a new calculation and adjustment will
similarly be made every twelve (12) months.
(ii) Tenant may install said supplemental air conditioning
equipment on the setbacks on the 7th, 9th and/or 11th floors of the
Building; provided, that (A) such equipment shall be located as far
--------
east as possible on the 51St Street side of the Building, (B) none of
such equipment shall be visible from the street, (C) such equipment
shall not interfere in any respect with the Building window washing
equipment and (D) such installation does not violate any applicable
laws, rules, regulations or insurance requirements. Owner makes no
representation to Tenant as to the permissibility of such installation
under applicable laws, rules, regulations and insurance requirements
or the suitability of such setback for such installation. If Owner's
structural engineer deems it reasonably necessary that there be
structural reinforcement of such setback in connection with the
installation of such equipment, Owner shall perform same at Tenant's
cost and Tenant shall not perform any such installation prior to the
completion of any such structural reinforcement. The installation of
such equipment shall be subject to Article 3. Tenant shall be
responsible for all costs and expenses for repairs and
<PAGE>
<PAGE>
maintenance of such setback or any other part of the Building which
result from Tenant's use of such setback for the installation,
maintenance, repair, operation and use of such equipment.
Notwithstanding the provisions of Section 3(c) above, upon the
expiration of the term of this Lease, such equipment shall be removed
by Tenant and Tenant shall pay for any damage to and restore such
setback or any other portions of the Building to substantially their
condition immediately prior to Tenant's installation of such equipment
(ordinary wear and tear and damage by casualty excepted).
(d) Subject to the other provisions of this Lease, Owner
reserves the right to stop services of the heating, elevators
(provided at least one elevator is made available for Tenant's use at
all times), plumbing, air conditioning, power systems or cleaning or
other services, if any, when necessary by reason of accident or for
repairs, alterations, replacements or improvements necessary or
desirable in the judgment of Owner for so long as may be reasonably
required by reason thereof. If the Building supplies manually
operated elevator service, Owner at any time may substitute automatic
control elevator service and upon ten (10) days' written notice to
Tenant, proceed with alterations necessary therefor without in any way
affecting this Lease or the obligations of Tenant hereunder. The same
shall be done with a minimum of inconvenience to Tenant and Owner
shall pursue the alteration with due diligence.
30. CAPTIONS:
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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 provisions hereof.
31. DEFINITIONS:
-----------
(a) The term "office" or "offices", wherever used in this Lease,
------ --------
shall not be construed to mean 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.
(b) The term "Owner" means only the owner, or the mortgagee in
-----
possession, for the time being of the land and Building (or the owner
of a lease of the Building or of the land and Building), so that in
the event of any sale or sales of said land and Building or of said
lease, or in the event of a lease of said Building, or of the land and
Building, the said Owner shall be
<PAGE>
<PAGE>
and hereby is entirely freed and relieved prospectively of all
covenants and obligations of Owner hereunder, and it shall be deemed
and construed without further agreement between the parties or their
successors in interest, or between the parties and the purchaser, at
any such sale, or the said lessee of the Building, or of the land and
Building, that the purchaser or the lessee of the Building has assumed
and agreed to carry out any and all covenants and obligations of Owner
hereunder.
(c) The term "Business Days" as used in this Lease shall exclude
-------------
Saturdays, Sundays and all days observed by the state and federal
government as legal holidays and those designated as holidays by the
applicable building service union employees service contract or by the
applicable Operating Engineers contract with respect to HVAC service.
(d) The term "Business Hours" means 8:30 A.M. to 5:30 P.M.
--------------
32. ADJACENT EXCAVATION - SHORING:
-----------------------------
If an excavation shall be made upon land adjacent to the
Building, or shall be authorized to be made, Tenant shall afford to
the person causing or authorized to cause such excavation, license to
enter upon the demised premises, but only for the purpose of doing
such work as shall be 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 Owner, or
diminution or abatement of Rent (except as may be otherwise expressly
provided in this Lease).
33. RULES AND REGULATIONS:
---------------------
Tenant and Tenant's servants, employees, agents, visitors and
licensees shall observe and comply with the rules and regulations set
forth in Exhibit E and such other and further reasonable rules and
---------
regulations as Owner or Owner's agents may from time to time adopt
(collectively, the "Rules and Regulations"). No rule or regulation
---------------------
adopted after the date of this Lease shall, without Tenant's consent,
except to a de minimis extent, increase any of Tenant's obligations
under this Lease or reduce any of Tenant's rights under this Lease or
reduce any of Owner's obligations under this Lease. Tenant shall be
given not less than thirty (30) days' notice of any additional rules
or regulations, in such manner as Owner may reasonably elect. In case
Tenant disputes the reasonableness of any additional rule or
regulation hereafter made or adopted by Owner or Owner's agents, the
parties hereto agree to submit the question of the reasonableness of
such rule or regulation for
<PAGE>
<PAGE>
arbitration in accordance with Article 42 below. 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, in writing upon Owner within thirty (30) days
after the giving of notice thereof. Tenant's compliance with any such
additional rule or regulation shall not be deemed a waiver of Tenant's
right to contest the reasonableness thereof in accordance with this
Article 33. Owner shall not enforce any of the Rules and Regulations
against Tenant in a discriminatory manner. Nothing in this Lease
contained shall be construed to impose upon Owner any duty or
obligation to enforce the Rules and Regulations or terms, covenants or
conditions in any other lease, as against any other tenant and Owner
shall not be liable to Tenant for violation of the same by any other
tenant, its servants, employees, agents, visitors or licensees.
34. SIGNAGE:
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(a) Subject to the provisions of Section 34(b), Tenant shall
have the non-exclusive right to place signs containing Tenant's name
in the lobby of the Building and on the exterior of the Building;
provided, that all such signage shall (i) be compatible with the
first-class nature of the Building and the design of the area in which
such signage is to be placed and (ii) be subject to Owner's prior
consent, not to be unreasonably withheld, as to the size, location,
color, layout, materials and method of installation.
(b) The provisions of Section 34(a) shall be null and void and
of no further force and effect, and Owner shall have the right to
remove any signage theretofore installed by Tenant, if (i) The Bear
Stearns Companies, Inc. is no longer the Tenant under this Lease, (ii)
the demised premises consists of less than 125,000 rentable square
feet in the Building, (iii) The Bear Stearns Companies, Inc. (together
with its Affiliates and Correspondents) shall be occupying less than
75% of the then demised premises or (iv) The Bear Steams Companies,
Inc. shall be in default under this Lease beyond any applicable period
of grace.
(c) Upon the expiration of the term of this Lease (or earlier,
if required by Owner under Section 34(b)), any signage of Tenant shall
be removed by Tenant and Tenant shall reimburse Owner for any costs
incurred by Owner to repair or restore the areas from which such
signage was removed (ordinary wear and tear excepted).
<PAGE>
<PAGE>
35. ESTOPPEL CERTIFICATE:
--------------------
Tenant or Owner, at any time, and from time to time, upon at
least ten (10) days' prior written notice given by the other party,
shall execute, acknowledge and deliver to the other party, and/or to
any other person or entity specified by the other party, a statement
certifying that this Lease is unmodified and in full force and effect
(or, if there have been modifications, that the same is in full force
and effect as modified and stating the modification), stating the
dates to which the Base Rent and additional rent have been paid and
stating whether or not, to the best knowledge of the certifying party,
there exists any default by the other party under this Lease, and, if
so, specifying each such default.
36. SUCCESSORS AND ASSIGNS:
----------------------
The covenants, conditions and agreements contained in this Lease
shall bind and inure to the benefit of Owner and Tenant and their
respective heirs, distributees, executors, administrators, successors,
and except as otherwise provided in this Lease, their assigns.
37. LATE CHARGE:
-----------
If Tenant fails to pay any Base Rent or additional rent as herein
provided, Tenant shall pay interest thereon from the date when such
Base Rent or additional rent became due and payable to the date of
Owner's receipt thereof at a rate per annum equal to the lesser of (a)
the base lending rate from time to time announced by Citibank, N.A.
(or, if Citibank, N.A., shall not exist, such other bank in New York,
New York, as shall be designated by Owner in a notice to Tenant) to be
in effect at its principal office in New York, New York (the "Prime
-----
Rate") plus 4% or (b) the maximum rate permitted by law.
----
38. REAL ESTATE TAX ESCALATION:
--------------------------
(a) If the amount of real estate taxes, assessments, sewer
rents, rates and charges, county taxes, transit taxes, or any other
governmental charge, general, special, ordinary or extraordinary,
foreseen or unforeseen (hereinafter collectively called "Taxes") which
-----
may now or hereafter be levied or assessed against the land upon which
the Building stands and upon the Building (hereinafter collectively
called the real property) attributable to any tax year (July 1 to June
30) subsequent to the Base Tax Year shall be greater than the amount
of Taxes on the real property attributable to the tax year July 1,
1994 -
<PAGE>
<PAGE>
June 30, 1995 (the "Base Tax Year"), then Tenant shall pay to Owner as
-------------
additional rent Tenant's share of the increase in Taxes for such tax
year. If due to a future change in the method of taxation any
franchise, income, profit or other tax shall be levied in substitution
for or in lieu of any tax which would otherwise constitute Taxes
hereunder, or a tax or excise shall be imposed upon or measured by
rents, such franchise, income, profit or other tax, or tax or excise
imposed upon or measured by rents, shall be deemed to be Taxes for the
purposes hereof, but only to the extent the same would be payable by
Owner if the real property were the only property owned by Owner.
Taxes shall not include (i) except for substitute taxes described in
the preceding sentence, any succession, gains, recording, income,
franchise, transfer, inheritance, capital stock, excise, excess
profits, occupancy or rent, gift, estate, foreign ownership or
control, payroll or stamp tax of Owner or any superior party, or any
other tax, assessment, charge or levy on the Rent reserved under this
Lease or (ii) any penalties, interest or late charges imposed against
Owner or any superior party with respect to real estate taxes,
assessments and the like which are otherwise includable within Taxes,
unless such penalties, interest or late charges result from Tenant's
failure timely to pay Tenant's Share of Taxes pursuant to this Article
38. Owner represents to Tenant that, as of the date of this Lease,
Tenant's Share represents the proportion which the rentable square
footage of the demised premises bears to the rentable square footage
of the Building. "Tenant's Share" means (A) 23.8884% for so long as
--------------
the only space in the Building leased by Tenant is the space initially
demised under this Lease (exclusive of the Expansion Space), (B)
24.4591% from and after the Expansion Space Inclusion Date (assuming
that Tenant is not then leasing any other space in the Building not
initially demised to Tenant under this Lease) and (C) subject to such
further adjustment from time to time as may be provided for in
accordance with the provisions of this Lease.
(b) Owner may take the benefit of the provisions of any statute
or ordinance permitting any Taxes to be paid over a period of time and
the installments of any such Taxes as shall become due and payable
during any years of the term of this Lease or any renewal hereof shall
be included in the calculation of Tenant's Share of the tax increase
provided. Any amount due Owner under the provisions of this Article
38 shall be paid within thirty (30) days after Owner shall have
submitted a bill and statement to Tenant showing in reasonable detail
the computation of the amount due Owner, but such bill shall not be
payable prior to the date that is twenty (20) days before the date on
which payment by Owner of the installment upon which Owner's bill to
Tenant is based is due. Upon request, Owner
<PAGE>
<PAGE>
shall provide to Tenant a copy of the receipted tax bill for the
Building. Any such tax increase for the tax year in which this Lease
shall end shall be apportioned so that Tenant shall pay Tenant's share
of only that portion thereof which corresponds with the portion of
said tax year which is within the term hereby demised. The amount of
Taxes for the Base Tax Year, against which Tenant's liability for
additional rent in subsequent years is determined, shall be the amount
thereof finally determined to be legally payable by legal proceedings
or otherwise.
(c) If Owner shall receive any tax refund in respect of any tax
year following the Base Tax Year with respect to which Tenant shall
have paid any moneys pursuant to Section 38(a), Owner may retain out
of such tax refund any reasonable expense incurred by it in obtaining
such refund and out of any of the then remaining balance of such tax
refund, Owner shall pay to Tenant, provided Tenant is not in
continuing default under this Lease beyond applicable notice and grace
periods, the percentage specified in Section 38(a) of such remaining
balance of such tax refund.
39. OPERATING EXPENSE ESCALATION:
----------------------------
(a) If the cost of maintaining and operating the Building (as if
the Building were fully occupied in theory or in fact) (hereinafter
referred to as "operating expense" as such term operating expense is
hereinafter defined) for any calendar year during the term hereof
subsequent to the Basic Year shall be greater than the operating
expense (as if the Building were fully occupied in theory or in fact)
for the calendar year 1994 (the "Basic Year"), then the Tenant, as
----------
additional rent, shall pay to Owner Tenant's Share of such increase.
For the purpose of this Article 39 the term operating expense or "cost
of labor and materials for maintaining and operating the Building"
shall mean any and all costs and expenses (exclusive of Taxes)
actually paid by, incurred by or charged to Owner in connection with
the operation, servicing and maintenance of the Building (as if fully
occupied in theory or in fact), including, without limitation,
materials, fuels, supplies and the wages and salaries paid to all
persons up to and including the level of building manager engaged in
the operation, maintenance and repair of the Building for the subject
period and of so-called "fringe benefits", and in addition all social
security taxes, unemployment insurance taxes, cost of providing
coverage for disability benefit provisions imposed by law, cost of any
pension, hospitalization, welfare or retirement plan, or any other
similar or like expense incurred under the provisions of any
collective bargaining agreement, or any other cost or expense which
Owner in good faith pays or incurs to provide benefits for employees
so engaged. Persons
<PAGE>
<PAGE>
engaged in the operation, maintenance and repair of the Building shall
include all persons engaged in cleaning and janitor work, elevator
starters, porters, maintenance people, watchmen, matrons, mechanics,
engineers, superintendents or any other person up to and including the
level of building manager so engaged whether or not specifically
mentioned herein. If any of the work of maintaining and operating the
Building as hereinbefore specified at any time shall be done by an
independent contractor whether or not under contract with Owner or its
representative, then the amount for such work by any independent
contract shall be an operating expense for the purpose of this Article
39. Operating expense shall also include amortization of costs (on a
straight-line basis over a depreciable life consistent with generally
accepted accounting principles), including actual or imputed financing
or leasing costs, incurred by Owner for any equipment, device or
capital improvement installed by Owner (any such equipment, device or
capital improvement being herein called an "Amortized Capital
-----------------
Improvement") which is (i) designed as a Building-wide, labor-saving
-----------
measure or designed to effect other Building-wide economies or
efficiencies in the operation or maintenance of the Building (but the
amount included in any year with respect to any Amortized Capital
Improvement so designed shall not exceed the amount by which operating
expenses were reduced in that calendar year by reason of such
Amortized Capital Improvement) or (ii) which is required by any
applicable laws, rules or regulations enacted, or with respect to
which the applicable obligation to comply first arises, after the date
of this Lease.
(b) Prior to January 1, 1995, Owner shall present to Tenant a
reasonable estimate of Tenant's Share of operating expense for such
calendar year ("Tenant's Estimated Share"). Tenant shall pay Tenant's
------------------------
Estimated Share for each calendar year in 12 equal monthly
installments in advance commencing on January 1, 1995 and on the first
day of each and every month thereafter. If Owner fails timely to
deliver to Tenant notice of Tenant's Estimated Share, Tenant shall
continue to pay Tenant's Share of operating expense based on Tenant's
Estimated Share theretofore in effect until thirty (30) days after
receipt of a new notice from Owner. After Owner notifies Tenant of
Tenant's Estimated Share for any calendar year, Tenant's Estimated
Share for such calendar year and Tenant's monthly installments may be
adjusted one time during such calendar year by notice from Owner to
Tenant in order to reflect increases or decreases in Owner's
reasonable estimate of operating expense for such calendar year.
Within one hundred and twenty (120) days after the end of the calendar
year in which the term of this Lease begins and of each calendar year
thereafter, Owner shall provide to Tenant a reasonably itemized
statement
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<PAGE>
showing the operating expense for such calendar year, and a statement
prepared by Owner comparing the amount paid by Tenant in respect of
Tenant's Estimated Share with such statement. If the amount paid by
Tenant in respect of Tenant's Estimated Share exceeds the amount
properly payable by Tenant in respect of Tenant's Share of operating
expense for such calendar year, Owner shall pay to Tenant (which, at
Owner's option, may be in the form of a credit against the Rent next
due) an amount equal to such excess. If the amount properly payable
by Tenant in respect of Tenant's Share of operating expense exceeds
the amount paid by Tenant in respect of Tenant's Estimated Share for
such calendar year, Tenant shall pay to Owner, within thirty (30) days
after receipt of the statement, an amount equal to such difference.
(c) If the last year of the term of this Lease ends on any day
other than the last day of a calendar year, any payment due by reason
of any increase in operating expense shall be prorated and Tenant
shall pay any amount due Owner within thirty (30) days after being
billed therefor.
(d) All statements furnished by Owner pursuant to this Article
39 shall be prepared by an independent Certified Public Accountant in
accord with generally accepted accounting principles.
(e) Notwithstanding anything in this Article 39 to the contrary,
the term "operating expense" as used herein specifically excludes the
following: interest expense; mortgage payments; other debt service;
ground rent; advertising and promotional expenditures; real estate
brokerage commissions or other expenses incurred in the leasing of
space; expenditures deemed by generally accepted accounting principles
to be of a capital nature (except operating expense shall include any
Amortized Capital Improvement and depreciation of the cost of any
replacement item which, in accordance with generally accepted
accounting principles, is depreciable over a period of not more than
10 years and the depreciation of any costs incurred for hand tools or
movable equipment); items peculiar to one tenant for which Owner has
been reimbursed by that tenant; executives above the grade of building
manager salaries, bonuses, other direct compensation and fringe
benefits; Owner's contribution or any funds or money given to other
tenants in cash, by offset or otherwise, or work done for other
tenants in connection with the leasing of space in the Building;
franchise, gross receipts, unincorporated business, inheritance,
foreign ownership or control or income tax imposed upon Owner; costs
incurred in connection with the transfer or disposition of direct or
indirect ownership in the Building or Owner; court costs, attorneys'
fees
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and disbursements in connection with any summary proceeding to
dispossess any tenant; depreciation; legal, accounting and other
professional fees and disbursements other than those incurred in
connection with the operation and management (but not the Leasing) of
the Building; the cost of any work or service provided for another
tenant at that tenant's sole cost and expense; lease take-over costs;
depreciation, interest and amortization; cost of repairs or
replacements incurred by reason of fire or other casualty or
condemnation to the extent reimbursed by the proceeds of insurance or
any condemnation proceedings; the cost of any work or service
performed for any party or tenant of the Building other than Tenant
and which is not performed for Tenant or for any facility other than
the Building; the cost of any additions to the Building after the date
of this Lease and any costs arising therefrom (including, without
limitation, increased taxes and operating expenses); any costs
included in operating expenses representing an amount paid to an
Affiliate of Owner which is in excess of the competitive amount that
would have been paid in the absence of such relationship; charges
(including applicable taxes) for electricity and other utilities which
Tenant is obligated to pay or for which Owner is entitled to
reimbursement from Tenant or any other tenant or other party (other
than by way of payments for operating expenses); all costs incurred in
connection with a sale of the land and/or the Building or any interest
therein; any costs which duplicate costs for which Owner is reimbursed
by Tenant under other provisions of this Lease; the cost of any
repairs or improvements to leasable areas of the Building (which for
purposes hereof shall be deemed to exclude any repairs to common
areas, common systems and the Building's structure and core); the cost
of any work or service performed for or facilities furnished to any
tenant of the Building to the extent the same is performed or
furnished to a greater extent or in a manner more favorable to such
tenant than that performed for or furnished to Tenant under this
Lease; and any costs which duplicate costs for which Owner is
reimbursed by any other party.
(f) Tenant and Tenant's authorized representatives shall have
the right to examine Owner's records, files and books for all years
during the term of this Lease as they relate to statements of
operating expense used by Owner to bill Tenant pursuant to this
Article 39 provided that Tenant gives Owner notice of its desire to do
so within one hundred and eighty (180) days of being billed by Owner
therefor. In no event shall the provisions of this Section 39(f) be
deemed to limit any rights of Tenant at pre-trial discovery and
disclosure in any action or proceeding. Payment by Tenant of amounts
due by Tenant under
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<PAGE>
this Article 39 shall not preclude Tenant from later disputing, in
accordance herewith, the correctness thereof.
(g) As used in Section 39(a), the phrase "as if the Building
were fully occupied in theory or in fact" means that if during all or
part of any year (including, without limitation, the Basic Year),
Owner shall not furnish any particular item(s) of work or service
(which would constitute an operating expense) to portions of the
Building, due to the fact such portions are not occupied or leased, or
because such item of work or service is not required or desired by the
tenant of such portion, or such tenant is itself obtaining and
providing such item of work or service, then, for the purpose of
computing the additional rent payable hereunder, the amount of
operating expense for such item for such period shall be increased by
an amount equal to the actual incremental cost which would reasonably
have been incurred during such period by Owner if it had at its own
expense furnished such item of work or services to such portion of the
Building.
(h) All contracts for services included within operating
expenses shall, if appropriate in Owner's reasonable judgment, be
competitively bid by Owner. If any reimbursement or refund of an
amount included in operating expenses in a particular year is received
by Owner in a later year, then such reimbursement or refund shall be
applied against the operating expenses for such later year; provided,
however, that, if the term of this Lease has then expired, Tenant's
Share for such item shall be refunded by Owner to Tenant within thirty
(30) days after Owner shall have received the same. It is the
intention of the parties that operating expenses for the Basic Year
shall not be kept artificially low for the purpose of increasing
Tenant's operating expense payments in subsequent years, and,
accordingly (and by way of example only) Owner shall not, solely for
the purpose of so increasing Tenant's operating expense payments: (i)
enter into any contract for services extending beyond the Basic Year
which artificially defers or "back-loads" payments to subsequent years
or (ii) utilize one contractor to perform a service or services during
the Basic Year, and another contractor during later years to perform
the same service(s) at a higher cost.
40. BROKERAGE:
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Tenant warrants to Owner and Owner warrants to Tenant that the
only broker with whom they dealt concerning this Lease and the demised
premises was Koeppel Tener Real Estate Services, Inc., Owner's
exclusive leasing agent for the Building. Owner shall to pay a
commission to said broker in accordance with a
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<PAGE>
separate agreement between Owner and said broker. Tenant shall
indemnify and hold Owner harmless from and against any claim or claims
for brokerage or other commissions arising from or out of any breach
by Tenant of the foregoing warranty. Owner shall indemnify and hold
Tenant harmless from and against any claim or claims for brokerage or
other commissions arising from or out of any breach by Owner of the
foregoing warranty.
41. RENEWAL OPTION:
--------------
(a) Provided that on the date that Tenant exercises the Renewal
Option and on the commencement of the Renewal Term (i) this Lease is
in full force and effect, (ii) The Bear Stearns Companies, Inc.
(together with its Affiliates and Correspondents), occupies at least
50% of the demised premises and (iii) Tenant has not exercised a
Termination Option, Tenant shall have the option (the "Renewal
-------
Option") to extend the term of this Lease for an additional period of
------
5 years, commencing on January 1, 2005 to and including December 31,
2009 (the "Renewal Term").
------------
(b) Tenant shall exercise the Renewal Option by delivering to
Owner notice of such exercise (the "Renewal Notice") on or before
--------------
December 31, 2003. If Tenant fails timely to give the Renewal Notice,
the Renewal Option shall be terminated and deemed waived by Tenant.
If this Lease shall be terminated before the commencement of the
Renewal Term, the Renewal Option or Tenant's exercise thereof, or the
Renewal Term or lease created by any such exercise, shall be abrogated
and rendered null and void. If Tenant at any time exercises a
Termination Option, the Renewal Option shall be terminated and deemed
waived by Tenant.
(c) The Renewal Term shall be upon the same terms and conditions
as are contained in this Lease except that:
(i) the Base Rent during the Renewal Term shall be at an
annual rate equal to the sum of (A) the greater of (x) the Base
Rent payable under this Lease as of the last day of the initial
term of this Lease, exclusive of the then applicable Inclusion
Amount, if any, or (y) the fair market rent for the demised
premises for the Renewal Term (the "Market Rent"), as determined
-----------
pursuant to Section 41(d) below, plus (B) the then applicable
Inclusion Amount, if any;
(ii) Tenant shall have no option to renew this Lease beyond
the expiration of the Renewal Term; and
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<PAGE>
(iii) the demised premises shall be delivered in their
existing condition (on an "as is" basis) at the time the Renewal
Term commences (and Owner shall have no obligation to perform any
of Owner's Work).
(d) Within twenty (20) days after the giving of the Renewal
Notice, Owner shall give to Tenant a notice (the "Market Rental
-------------
Notice") setting forth Owner's determination of the Market Rent.
------
Tenant may dispute Owner's determination of the Market Rent by notice
delivered to Owner not later than ten (10) Business Days after
delivery to Tenant of the Market Rental Notice (which notice shall set
forth Tenant's determination of the Market Rent), in which event
either party may submit the determination of the Market Rent to
arbitration as provided in Article 42, subject to the modifications in
Section 41(e) below and subject to the further modification that the
determination of the arbitrator shall not be binding on the parties
and the provisions of Section 41(f) below shall apply notwithstanding
the determination of the arbitrator. Failure by Tenant to dispute
Owner's determination of the Market Rent within ten (10) Business Days
after the giving of the applicable Market Rental Notice shall bind
Tenant to Owner's determination of the Market Rent.
(e) If the Market Rent for the Renewal Term or the fair market
rent for any Offer Space is submitted to arbitration in accordance
with Article 42 hereof, the following modifications shall be made to
the arbitration procedure:
(i) On the twentieth (20th) day after the arbitrator is
appointed or selected, the parties shall each simultaneously submit in
sealed envelopes their opinions of the fair market rent, together with
any written arguments or data in support of said opinions, to the
arbitrator. Failure by either party timely to submit its opinion to
the arbitrator shall constitute acceptance by such party of the
opinion submitted by the other party (except in the case of Market
Rent which shall be subject to Section 41(f) below) and a waiver of
the right to arbitration.
(ii) Within twenty (20) days after the submission by the
parties to the arbitrator of their opinions of the fair market rent,
the arbitrator shall determine the fair market rent by selecting the
one of the two opinions submitted by the parties that the arbitrator
determines is closest to the arbitrator's determination of fair market
value.
(iii) In rendering such decision, the arbitrator shall
determine the fair market rent that would be agreed upon by Owner and
a new unrelated third party tenant, and in connection
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<PAGE>
therewith shall assume or take into consideration as appropriate all
of the following: (A) Owner and prospective tenant are typically
motivated; (B) Owner and prospective tenant are well informed and well
advised and each is acting in what it considers its own best interest;
(C) a reasonable time under then-existing market conditions is allowed
for exposure of the demised premises on the open market; (D) the rent
is unaffected by concessions, special financing amounts and/or terms,
or unusual services, fees, costs or credits in connection with the
leasing transaction; (E) the demised premises are fit for immediate
occupancy and use "as-is" and require no additional work by Owner and
that no work has been carried out therein by Tenant, any subtenant, or
their predecessors in interest during the term which has diminished
the rental value of the demised premises; (F) if the demised premises
have been destroyed or damaged by fire or other casualty, they have
been fully restored; (G) the demised premises are to be let with
vacant possession and subject to the provisions of this Lease for a
ten year term; (H) market rents then being charged for comparable
space in other similar office buildings in the same area; (I) the
number of rentable square feet contained in the demised premises shall
be the same as that originally agreed to by Owner and Tenant; (J) the
Base Tax Year and the Basic Year for purposes of Articles 38 and 39
shall be as stated herein (for example, if the Market Rent based on a
calendar year 2004 base year for Taxes and operating expenses would be
$50.00, and the escalations payable by Tenant under Article 38 and 39
during calendar year 2004 are $10.00, then the Market Rent shall be
$40.00 and Tenant shall continue to pay Taxes and operating expenses
in accordance with Articles 38 and 39 utilizing the Base Tax Year and
Basic Year set forth therein); (K) a full brokerage commission shall
be payable by Owner, on then-market terms and (L) no amount shall be
included in such fair market rent in respect of electricity consumed
by Tenant in the demised premises. In rendering such decision and
award, the arbitrator shall not modify the provisions of this Lease.
(f) If within ninety (90) days after the giving of the Renewal
Notice, Owner and Tenant shall not have agreed as to the Market Rent
(whether or not the dispute shall have been submitted to arbitration,
and whether or not the arbitrator shall have rendered a
determination), then, without any further act required on the part of
Tenant or Owner (i) Tenant's exercise of the Renewal Option, and the
Renewal Term and any lease created by such exercise, shall be
abrogated and rendered null and void, (ii) Tenant shall have no
further right to exercise the Renewal Option and (iii) the term of
this Lease shall be extended until March 31, 2005 upon all of the same
terms and conditions set
<PAGE>
<PAGE>
forth in this Lease as though such date were the date originally set
forth for the expiration of the term of this Lease.
(g) Promptly after the date that Owner and Tenant agree as to
the Market Rent, Owner and Tenant shall confirm the resulting
extension of the term of this Lease by executing and delivering a
separate confirmatory instrument reasonably satisfactory to Owner and
Tenant; provided, that failure to execute and deliver such instrument
shall not affect the extension of the term of this Lease in accordance
with this Article 41.
42. ARBITRATION:
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(a) Whenever any provision of this Lease provides that a matter
shall be determined by arbitration and either party requests the other
that such matter be so determined, then such matter shall be finally
determined in New York County by a single independent arbitrator who
shall be sworn fairly and impartially to perform his or her duties as
arbitrator, shall not be a present or past employee of Owner, Tenant,
any of their respective Affiliates or any Corespondent Firm, and shall
have at least 10 years experience in the leasing or management of
office space in the midtown Manhattan office market, and shall be
governed (except as otherwise provided in this Lease) in accordance
with the Rules for Commercial Arbitration of the American Arbitration
Association (or any successor thereto). If the parties are unable to
agree on an arbitrator within 15 days after request for such
arbitrator, then either party on behalf of both may request such
appointment by the then president of The Real Estate Board of New
York, Inc. (or any successor organization) or, in his absence,
refusal, failure or inability to act, either party may apply to the
presiding justice of the highest court in New York County for the
appointment of such third arbitrator, and the other party shall not
raise any question as to the court's full power and jurisdiction to
entertain the application and make the appointment. Judgment on the
award rendered by the arbitrator may be entered in any court having
jurisdiction. The fees and expenses of any arbitration shall be borne
by the parties equally, but each party shall bear the expense of its
own attorneys and experts and the additional expenses of presenting
its own proof.
(b) Owner and Tenant shall sign all documents and do all other
things necessary to submit any such matter to arbitration and each
hereby waives any and all rights it may at any time have to revoke its
agreement hereunder to submit to arbitration and to abide by the
decision rendered thereunder.
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(c) In any dispute relating to the reasonableness of the grant
or denial of a consent by the other party with respect to which this
Lease expressly provides for the resolution of such dispute by
arbitration, either party may submit to binding arbitration under the
then applicable expedited procedures provisions of the Commercial
Arbitration Rules of the American Arbitration Association ("AAA"). In
---
cases where the parties utilize such arbitration: (i) the parties
shall have no right to object if the arbitrator so appointed was on
the list submitted by the AAA, was not objected to in accordance with
said rules and otherwise meets the requirements of Section 42(a), (ii)
the first hearing shall be held within seven (7) Business Days after
the appointment of the arbitrator, (iii) if the arbitrator shall find
that a party acted unreasonably in withholding or delaying a consent
or approval, such consent or approval shall be deemed granted, and
(iv) the losing party in such arbitration shall pay the arbitration
costs charged by AAA and/or the arbitrator, but shall not be subject
to any other damages, nor shall the same give rise to any other rights
or remedies on the part of the prevailing party.
43. TENTH FLOOR EXPANSION SPACE:
---------------------------
(a) Tenant shall be obligated to lease the portion of the tenth
floor of the Building designated as suite "1000" on Exhibit A-4 hereto
the "Expansion Space"), in accordance with this Article 43.
---------------
(b) Effective as of the Expansion Space Inclusion Date, the
Expansion Space shall become part of the demised premises without any
further act of Owner or Tenant and upon all of the terms and
conditions of this Lease, except that (i) the Expansion Space shall be
delivered to Tenant in its then existing condition, on an "as is"
basis, on the Expansion Space Inclusion Date (and Owner shall have no
obligation to perform any of Owner's Work in connection therewith),
(ii) Tenant shall pay electricity charges with respect to the
Expansion Space from and after the Expansion Space Inclusion Date,
(iii) Tenant shall pay Base Rent in respect of the Expansion Space
commencing on the date (the "Expansion Space Rent Commencement Date")
--------------------------------------
that is six months after the Expansion Space Inclusion Date, (iv) the
Base Rent in respect of the Expansion Space shall be as set forth in
Section 1(c)(ii) above, and (v) Tenant's Share shall be increased as
of the Expansion Space Inclusion Date by .5707% (as set forth in
Section 38(B)).
(c) "Expansion Space Inclusion Date" means March 1, 1995;
------------------------------
provided, that if on the Expansion Space Inclusion Date there is
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<PAGE>
a holdover tenancy in all or any portion of the Expansion Space or
Owner is otherwise unable to deliver legal possession thereof to
Tenant, then the Expansion Space Inclusion Date shall be the first
date on which such holdover tenancy no longer exists or on which Owner
delivers legal possession thereof to Tenant, whichever is later.
(d) Promptly after the occurrence of the Expansion Space
Inclusion Date, Owner and Tenant shall confirm the occurrence thereof
and the inclusion of the Expansion Space in the demised premises by
executing and delivering a separate confirmatory instrument reasonably
satisfactory to Owner and Tenant; provided, that failure by Owner or
--------
Tenant to execute and deliver such instrument shall not affect the
inclusion of the Expansion Space in the demised premises in accordance
with this Article 43.
(e) If on the Expansion Space Inclusion Date there is a holdover
tenancy in all or any portion of the Expansion Space, Owner shall use
reasonable efforts (including the commencement and prosecution of
summary dispossess proceedings) to terminate such holdover tenancy.
Owner shall keep Tenant advised of Owner's efforts to terminate such
holdover tenancy.
(f) The provisions of Sections 43(c) and (e) are intended to
constitute an express provision to the contrary for purposes of
Section 223-a of the Real Property Law of the State of New York and
any other law of like import now or hereafter in effect.
44. OFFER SPACE OPTION:
------------------
(a) As used herein:
"Available" means, as to any Offer Space, that such space is
---------
vacant and free of any present or future possessory right in
favor of any third party. Any space that is vacant on the date
of this Lease shall not be considered Available unless such
vacant space is leased after the date hereof and subsequently
becomes Available.
"Offer Space" means any Available office space on or above
-----------
the 2nd floor, and on or below the 19th floor, of the Building
(exclusive of the demised premises) and comprised of at least
7,500 contiguous rentable square feet on one floor.
"OS Inclusion Date" means, as to any Offer Space, the later
-----------------
of (i) the date Tenant gives an Offer Acceptance Notice with
respect to such Offer Space and (ii) the date
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<PAGE>
that such Offer Space is first Available and vacant possession of
such space has been delivered to Tenant.
(b) Subject to paragraph (c) below, if at any time during the
term of this Lease any Offer Space becomes, or Owner reasonably
anticipates that within the next 12 months it will become, Available,
Owner shall give Tenant prompt notice (an "Offer Notice") thereof;
------------
specifYing (i) the location of such Offer Space, (ii) the date or
approximate date that such Offer Space has or shall become Available,
(iii) the rentable area of such Offer Space and (iv) Owner's
determination of the fair market rental value of the Offer Space in
question as of the applicable OS Inclusion Date. Provided that on the
date that Tenant exercises an Offer Space Option and on the applicable
OS Inclusion Date (A) this Lease is in full force and effect, (B)
Tenant is not in default under this Lease beyond any applicable notice
and grace period, (C) the demised premises consists of not less than
125,000 rentable square feet in the Building, (D) The Bear Stearns
Companies, Inc. (together with its Affiliates and Correspondents)
occupies not less than 50% of the then demised premises and (E) there
are not less than 3 years remaining in the term of this Lease
(including the term of any exercised Renewal Option), Tenant shall
have the option (the "Offer Space Option"), exercisable by notice (the
------------------
"Offer Acceptance Notice") given to Owner on or before the date that
-----------------------
is 10 Business Days after the giving of the Offer Notice, to include
such Offer Space in the demised premises.
(c) Owner shall not grant to any other tenant in the Building,
with respect to space that may constitute Offer Space, any right in
the nature of a right of first offer or right of first refusal which
is, in either case, superior to the rights of Tenant under this
Article 44; except that Owner may grant any such superior right to
another tenant, if, at the time such right is granted, such other
tenant leases more rentable square feet of space (in the aggregate) in
the Building than Tenant.
(d) If Tenant timely exercises the Offer Space Option with
respect to any Offer Space, such Offer Space shall on the applicable
OS Inclusion Date become part of the demised premises without any
further act by Owner or Tenant and upon all of the terms and
conditions set forth in this Lease except that:
(i) such Offer Space shall be delivered to Tenant in its
then existing condition, on an "as is" basis on the OS Inclusion
Date for such Offer Space (and Owner shall have no obligation to
perform any of Owner's Work);
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<PAGE>
(ii) the Base Rent for the Offer Space in question shall
be the sum of (A) the greater of (x) the Base Rent then payable
under this Lease, exclusive of the then applicable Inclusion
Amount, if any, or (y)the fair market rental value as determined
by Owner and set forth in the Offer Notice (or, if Tenant shall
dispute Owner's determination by noting such dispute in the Offer
Acceptance Notice, as determined by arbitration in accordance
with Article 42, as modified by the provisions of Section 41(e)
above), plus (B) the then applicable Inclusion Amount, if any,
and shall be payable at the same time and in the same manner as
the Base Rent applicable to the space initially demised under
this Lease;
(iii) Tenant's Share shall be proportionately increased as
of the applicable OS Inclusion Date based on the rentable square
footage of the Offer Space in question;
(iv) if the electricity consumed in such Offer Space is
not measured by a Tenant submeter, then the Inclusion Amount
shall be increased by the product of (A) $2.50, as such amount
may be adjusted in accordance with Section 12(a) above and (B)
the rentable square footage of the Offer Space in question; and
(v) payment of Base Rent, real estate tax escalations in
accordance with Article 38, operating expense escalations in
accordance with Article 39, and electricity charges applicable to
the Offer Space in question shall commence on the applicable OS
Inclusion Date.
(e) If arbitration concerning Base Rent for any Offer Space
shall not be concluded before the date set for commencement of Base
Rent payments for such Offer Space, Tenant shall pay Base Rent to
Owner for such Offer Space at the annual rent equal to the fair market
rental value specified in the Offer Notice therefor. If Base Rent for
such Offer Space as determined by arbitration is less than such fair
market rental value, then Owner shall refund to Tenant, within thirty
(30) days after the arbitration determination, any amount overpaid by
Tenant on account of such Base Rent.
(f) If Tenant does not timely deliver an Offer Acceptance Notice
with respect to any Offer Space, Owner may enter into a lease of such
Offer Space with a third party on such terms and conditions as Owner
shall determine and Owner shall have no obligation to again offer such
Offer Space to Tenant. Notwithstanding the foregoing, Owner shall
give to Tenant an
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<PAGE>
Offer Notice and Tenant shall have the right to exercise the Offer
Space Option in accordance with the terms and conditions of this
Article 44 if such Offer Space thereafter again becomes Available.
(g) Promptly after the occurrence of any OS Inclusion Date,
Owner and Tenant shall confirm the occurrence thereof and the
inclusion of the applicable Offer Space in the demised premises by
executing and delivering an instrument reasonably satisfactory to
Owner and Tenant; provided, that failure by Owner or Tenant to execute
--------
such instrument shall not affect the inclusion of the applicable Offer
Space in the demised premises in accordance with this Article 44.
(h) The Offer Space Option shall be null and void and of no
further force or effect if (i) The Bear Stearns Companies, Inc. is no
longer the Tenant under this Lease, (ii) the demised premises consists
of less than 125,000 rentable square feet in the Building or (iii) The
Bear Stearns Companies, Inc. shall be in default under this Lease
beyond any applicable period of grace.
45. TENANT'S TERMINATION OPTION:
---------------------------
(a) Tenant shall have the option (each, a "Termination Option")
------------------
(i) to terminate this Lease effective as of December 31, 2000 or (ii)
to terminate this Lease effective as of December 31, 2002 (in either
case, a "Termination Date"), by giving notice of such election (the
----------------
"Termination Notice") to Owner, in either case, no later than 9 months
------------------
prior to the applicable Termination Date.
(b) If Tenant fails timely to give a Termination Notice, the
applicable Termination Option shall be abrogated and be deemed waived
by Tenant.
(c) If Tenant at any time exercises the Renewal Option, any then
unexpired Termination Options shall be abrogated and be deemed waived
by Tenant.
(d) If Tenant timely exercises a Termination Option, then on the
applicable Termination Date this Lease shall terminate as if the
Termination Date was the date set forth above for the expiration of
this Lease.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, Owner and Tenant have executed this Lease as
of the day and year first above written.
OWNER: TENTH CITY ASSOCIATES
By:
------------------------------------------
Name:
Title:
TENANT: THE BEAR STEARNS COMPANIES, INC.
By:
------------------------------------------
Name:
Title:
<PAGE>
EXHIBIT 11
----------
<TABLE>
THE BEAR STEARNS COMPANIES INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
June 30, 1994 June 30, 1993 June 30, 1992
------------- ------------- -------------
(In thousands, except per share data)
<S> <C> <C> <C>
Weighted average common
and common equivalent
shares outstanding (1):
Common Stock 118,412 119,875 123,693
Common Stock equivalents:
Common Stock issuable assuming
conversion of CAP Units 8,636 4,872 3,639
Common stock issuable under
benefits plans 1,003 1,051 1,265
------- -------- --------
Total weighted average common and
common equivalent shares outstanding 128,051 125,798 128,597
======== ======== ========
Net income $ 386,965 $ 362,447 $ 294,578
Adjustable Rate Cumulative Preferred
Stock dividend requirements (24,373) (6,751) (3,228)
Income adjustment, net of tax,
applicable to conversion of CAP Units 7,274 3,687 8,947
-------- ------- --------
Adjusted net income $ 369,866 $ 359,383 $ 300,297
======== ======= ========
Earnings per share $ 2.89 $ 2.86 $ 2.34
======== ======= ========
<FN>
(1) Adjusted to reflect stock dividends.
</TABLE>
NYFS04...:\25\22625\0110\7120\EXH92194.X20
<PAGE>
EXHIBIT 12
----------
<TABLE>
THE BEAR STEARNS COMPANIES INC.
STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In thousands, except for ratio)
<CAPTION>
Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended Ended Ended
June 30, 1994 June 30, 1993 June 30, 1992 June 30, 1991 June 30, 1990
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Earnings before taxes on
income $ 642,799 $ 614,398 $ 507,625 $ 229,501 $ 192,532
--------- ---------- --------- --------- ---------
Add: Fixed Charges
Interest 1,020,055 710,086 834,859 1,141,029 1,217,212
Interest factor in
rents 21,772 20,084 20,874 18,715 18,999
--------- ---------- --------- --------- ---------
Total fixed charges 1,041,827 730,170 855,733 1,159,744 1,236,211
--------- ---------- --------- --------- ---------
Earnings before fixed charges,
and provision for income taxes $1,684,626 $1,344,568 $1,363,358 $1,389,245 $1,428,743
========= ========== ========= ========= =========
Ratio of earnings to fixed charges 1.6 1.8 1.6 1.2 1.2
========= ========== ========= ========= =========
</TABLE>
NYFS04...:\25\22625\0110\7120\EXH92194.X30
<PAGE>
EXHIBIT 13
----------
SELECTED FINANCIAL DATA
THE BEAR STEARNS COMPANIES INC.
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended Ended Ended
June 30, 1994 June 30, 1993 June 30, 1992 June 30, 1991 June 30, 1990
------------- ------------- ------------- ------------- -------------
(In thousands, except share and employee data)
Operating Results
-----------------
<S> <C> <C> <C> <C> <C>
Revenues $ 3,441,072 $ 2,853,185 $ 2,678,933 $ 2,379,953 $ 2,386,053
Interest expense 1,020,055 710,086 834,859 1,141,029 1,217,212
- - - - - - - -------------------------------------------------------------------------------------------------------------------------
Revenues, net of interest expense 2,421,017 2,143,099 1,844,074 1,238,924 1,168,841
- - - - - - - -------------------------------------------------------------------------------------------------------------------------
Non-interest expenses
Employee compensation and benefits 1,227,061 1,037,099 909,916 652,186 608,291
Other 551,157 491,602 426,533 357,237 368,018
- - - - - - - -------------------------------------------------------------------------------------------------------------------------
Total non-interest expenses 1,778,218 1,528,701 1,336,449 1,009,423 976,309
- - - - - - - -------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 642,799 614,398 507,625 229,501 192,532
Provision for income taxes 255,834 251,951 213,047 86,636 73,164
- - - - - - - -------------------------------------------------------------------------------------------------------------------------
Net income $ 386,965 $ 362,447 $ 294,578 $ 142,865 $ 119,368
=========================================================================================================================
Net income applicable to common shares $ 362,592 $ 355,696 $ 291,350 $ 139,028 $ 114,877
=========================================================================================================================
<CAPTION>
Financial Position
------------------
<S> <C> <C> <C> <C> <C>
Total assets $ 67,392,018 $ 57,439,505 $ 45,768,333 $ 39,284,913 $ 31,574,487
Long-term borrowings $ 3,408,096 $ 1,883,123 $ 1,040,396 $ 681,846 $383,890
Stockholders' equity $ 2,316,566(1) $ 1,776,530 $ 1,276,984 $ 1,096,023 $ 1,076,057
Common shares outstanding(2) 113,439,155 120,507,836 117,758,410 125,898,591 137,342,654
=========================================================================================================================
<CAPTION>
Per share data
--------------
<S> <C> <C> <C> <C> <C>
Earnings per share(2)(3) $ 2.89 $ 2.86 $ 2.34 $ 1.08 $ .82
Cash dividends declared per common share $ .60 $ .60 $ .65 $ .57 $ .56
Book value per common share(2) $ 14.25 $ 11.95 $ 9.56 $ 8.10 $ 7.42
=========================================================================================================================
<CAPTION>
Other data
----------
<S> <C> <C> <C> <C> <C>
Return on average common equity 23.3% 28.8% 27.6% 13.6% 11.5%
Profit margin(4) 26.6% 28.6% 27.5% 18.5% 16.5%
Employees 7,321 6,306 5,873 5,612 5,732
=========================================================================================================================
<FN>
- - - - - - - -----------------------
(1) Includes $150,000,000 of Exchangeable Preferred Income Cumulative Shares, which were issued by a subsidiary of the
Company. See note 8 of Notes to Consolidated Financial Statements.
(2) Adjusted to reflect stock dividends.
(3) See Note 1 of Notes to Consolidated Financial Statements.
(4) Represents the ratio of income before provision for income taxes to revenues, net of interest expense.
</TABLE>
NYFS04...:\25\22625\0110\7120\ARS92394.P00<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The Company's principal business activities, investment
banking, securities trading and brokerage, are, by their nature,
highly competitive and subject to various risks, particularly volatile
trading markets and fluctuations in the volume of market activity.
Consequently, the Company's net income and revenues have in the past
been and are likely to continue to be, subject to wide fluctuations,
reflecting the impact of many factors, including securities market
conditions, the level and volatility of interest rates, competitive
conditions and the size and timing of transactions, over which the
Company has little control.
BUSINESS ENVIRONMENT
The business environment in fiscal 1994 was marked by two
dramatically contrasting scenarios. The first seven months of fiscal
1994 were characterized by continued declining interest rates which
contributed to strong domestic equity and fixed income markets and
increased underwriting activities. The trend of low interest rates
during the first seven months of the fiscal year led to a surge in the
volumes of investment-grade and non-investment-grade debt and
municipal securities offerings during the early part of the fiscal
year as issuers moved to take advantage of the low rate environment.
Favorable long-term interest rates also continued to benefit domestic
mortgage-backed securities markets as homeowners refinanced existing
mortgages which increased levels of mortgage-backed securities
issuances to record levels. International markets continued to be
strong for the first part of fiscal 1994 with a high demand for equity
issuances from the emerging markets, particularly Mexico, Latin
America and Asia.
In February 1994, the Federal Reserve Board began the first
of several moves to raise short-term interest rates. These increases
created significant instability in the global fixed income markets
during the remainder of fiscal 1994. Mortgage-backed securities
markets experienced particular volatility during the fourth quarter,
reflecting the general rise in interest rates together with investor
concerns over prepayment patterns. The volatile fixed income markets
also impacted the domestic equity markets and resulted in a sharp
decline in equity underwriting activity. Stock prices and average
daily trading volumes decreased as investors' concerns about the
domestic economy increased. International markets weakened in the
second
<PAGE>
<PAGE>
half of fiscal 1994 with significantly lower levels of new issues and
market volume.
Reflecting the difficult market environment, the Company
experienced a decline in both net revenues and net income during the
fourth quarter of fiscal 1994 when compared with previous quarters.
Revenues, net of interest expense, for the Company's fourth quarter
declined to $429.9 million compared with $679.9 million in the
comparable 1993 period. Net income declined to $32.4 million or $.21
per share from $124.8 million or $.97 per share in the fourth quarter
of fiscal 1993. The decline in revenues and profitability reflected
the impact of difficult trading markets brought on by price volatility
and declining customer order flow in mortgage-backed securities,
bankruptcy/high yield, convertibles and emerging markets. In
addition, rising interest rates resulted in a sudden and precipitous
reduction in the level of new home mortgage originations which in turn
significantly slowed the level of mortgage-backed securities sales and
underwriting activity. As a result, the Company experienced a
significant decline in revenues derived from mortgage-backed
securities activity reflecting a combination of difficult market
conditions and losses from the markdown of mortgage-backed securities
inventory.
Market conditions during the first quarter of fiscal 1995
continue to be difficult. Continued uncertainty in the fixed income
markets has resulted in price volatility and declining trading volume,
thereby reducing the levels of sales, trading and underwriting
revenues. Despite an increase in merger and acquisition activity and
the continued growth in clearance related activities, the Company
presently anticipates that revenues, net income and earnings per share
will be below the levels achieved in the first quarter of fiscal 1994.
Fiscal 1993 was generally characterized by declining long-
term interest rates which contributed to strong domestic equity and
fixed income markets and robust underwriting activity. The
international markets were also strong with a significant amount of
new equity issuances in the emerging markets areas. Declining long-
term interest rates led to the increase in new mortgage originations
which in turn led to record levels of mortgage-backed securities
originations.
<PAGE>
<PAGE>
RESULTS OF OPERATIONS
The Company reported record results in fiscal 1994 as net
income of $386,965,000, or $2.89 per share, increased 6.8% from
$362,447,000, or $2.86 per share, in fiscal 1993. The Company
reported net income of $294,578,000, or $2.34 per share, in fiscal
1992.
Revenues, net of interest expense ("net revenues"),
increased 13.0% to $2,421,017,000 in fiscal 1994 from $2,143,099,000
in fiscal 1993, reflecting a significant increase in revenues derived
from commissions, net interest and investment banking. Net revenues in
fiscal 1992 amounted to $1,844,074,000.
Commission revenues in fiscal 1994 increased 14.7% to
$482,988,000 from $421,090,000 in fiscal 1993. Commission revenues
derived from retail and institutional investors increased, reflecting
the higher levels of activity throughout the period. Securities
clearance revenues increased reflecting the continued growth in the
Company's client base. Commodity commissions increased 36.3%,
reflecting the expansion of the business both domestically and
internationally. Fiscal 1993 commission revenues improved 12.4% from
$374,752,000 in fiscal 1992, also reflecting higher levels of
activities and increases in the client base.
Revenues from principal transactions in fiscal 1994
decreased 2.2% to $1,131,914,000 from $1,156,816,000 in fiscal 1993,
reflecting decreases in revenues from the Company's fixed income
activities, particularly U.S. government, corporate bond and the
bankruptcy/high yield areas. These decreases reflect weakened market
conditions attributable to rising interest rates during the second
half of fiscal 1994 and declining customer demand. The decreases were
partially offset by increases in revenues derived from the Company's
mortgage-related and mortgage-backed securities activities, derivative
activities and over-the-counter market making activities.
Additionally, the Company experienced an increase in revenues from its
emerging markets group, reflecting expansion of the Company's equity
and fixed income activities in Latin America and Asia. Fiscal 1993
principal transactions revenues increased 19.2% from $970,841,000 in
fiscal 1992, reflecting increases in revenues from the Company's fixed
income and equity securities trading areas.
The following table summarizes the Company's principal
transaction revenues by reporting categories:
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
In thousands June 30, 1994 June 30, 1993 June 30, 1992
------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed Income $ 733,449 $ 852,546 $ 723,486
Equity 307,274 256,476 240,738
Foreign exchange &
derivative financial
instruments 91,191 47,794 6,617
------------------------------------------------------------------------------
$1,131,914 $1,156,816 $ 970,841
==============================================================================
</TABLE>
Investment banking revenues in fiscal 1994 increased 41.2%
to $493,739,000 from $349,736,000 in fiscal 1993. Underwriting
revenues, management fees and selling concessions increased during
fiscal 1994, reflecting the increased volume of new issues of
investment-grade and non-investment-grade debt, common equity and
municipal securities as well as an increase in the Company's market
share. Fiscal 1993 investment banking revenues increased 14.1% from
$306,454,000 in fiscal 1992 principally reflecting a significant
increase in underwriting revenues and advisory fees. The fiscal 1993
period included revenues of approximately $30,000,000 resulting from
the increase in the carrying value related to the Company's
investments in leveraged acquisitions. Excluding these revenues,
investment banking revenues increased 54.4% in fiscal 1994.
Net interest and dividends (revenues from interest and net
dividends less interest expense) in fiscal 1994 increased 42.4% to
$284,337,000 from $199,723,000 in fiscal 1993, principally reflecting
higher levels of interest earning assets, particularly customer margin
debt. The increase in the Company's customer margin debt principally
reflected an increase in the securities clearance client base and
favorable equity market conditions. Net interest and dividends in
fiscal 1993 increased 18.8% from $168,133,000 in fiscal 1992,
reflecting higher levels of interest earning assets due to favorable
equity market conditions and an increase in the securities clearance
client base.
Employee compensation and benefits in fiscal 1994 increased
18.3% to $1,227,061,000 from $1,037,099,000 in fiscal 1993. The
increase is attributable to higher levels of incentive and
discretionary bonuses associated with the increased net
<PAGE>
<PAGE>
revenues in fiscal 1994 and an increase in salesmen's compensation as
a result of higher commission revenues. Employee compensation and
benefits as a percentage of net revenues increased to 50.7% for fiscal
1994 from 48.4% for fiscal 1993 principally as a result of the change
in the mix of operating revenues. Employee compensation and benefits
in fiscal 1993 increased 14.0% from $909,916,000 in fiscal 1992,
reflecting increased discretionary and incentive bonuses associated
with higher earnings in fiscal 1993 and an increase in salesmen's
compensation.
Remaining non-interest expenses in fiscal 1994 increased
12.1% to $551,157,000 from $491,602,000 in fiscal 1993. Floor
brokerage, exchange and clearance fees increased 15.1% in fiscal 1994,
reflecting the increase in the volume of securities transactions
processed in fiscal 1994. Additionally, the Company incurred
increased communications and promotional costs, reflecting expansion
of the Company's business activities. Remaining non-interest expenses
in fiscal 1993 increased 15.3% from $426,533,000 in fiscal 1992,
principally attributable to an increase in communications and
promotional costs and a write-down in the value of the Company's
investment in a real estate limited partnership offset by a decrease
in the Company's data processing costs.
The decrease in the Company's effective tax rate to 39.8% in
fiscal 1994 from 41.0% in fiscal 1993 is attributable to
proportionately higher levels of tax preference items and the
Company's adoption of Statement of Financial Accounting Standards No.
109, which were partially offset by the increase in the Federal
statutory rate to 35%. In fiscal 1993, the effective tax rate
decreased from 42.0% in fiscal 1992 due to a reduction of the impact
of state and local taxes.
During the year ended June 30, 1994, the Company adopted
Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The
effect of initial adoption did not have a material impact on the
Company's financial condition or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL LEVERAGE
The Company maintains a highly liquid balance sheet with a
majority of the Company's assets consisting of marketable
<PAGE>
<PAGE>
securities inventories, which are marked to market daily, and
collateralized receivables arising from customer-related and
proprietary securities transactions. Collateralized receivables
consist of resale agreements, secured by U.S. government and agency
securities, and customer margin loans and securities borrowed which
are typically secured with marketable corporate debt and equity
securities. The nature of the Company's business as a securities
dealer requires it to carry significant levels of securities
inventories in order to meet its customer and proprietary trading
needs. Additionally, the Company's role as a financial intermediary
for customer activities that it conducts on a principal basis together
with its customer related activities attributable to its clearance
business result in significant levels of customer-related balances,
including customer margin debt and repurchase activity. Accordingly,
the Company's total assets and financial leverage can fluctuate
significantly depending largely upon economic and market conditions,
volume of activity, customer demand and underwriting commitments.
The Company's total assets at June 30, 1994 increased to
$67.4 billion from $57.4 billion at June 30, 1993. The increase is
attributable to the growth in resale agreements, securities borrowed
and customer margin debt. The Company funded this increase with
secured borrowings, principally repurchase agreements, unsecured
commercial paper and medium-term notes and an increase in the
Company's capital, including long-term borrowings and stockholders'
equity.
The Company's ability to support increases in total assets
is a function of its ability to obtain short-term secured and
unsecured funding and its access to sources of long-term capital. The
adequacy of the Company's capital base is continually monitored by the
Company and is a function of asset quality and liquidity. The
relationship between an asset's liquidity and the level of capital
required to support the asset reflects the need to provide
counterparties with additional collateral, or margin, in order to
obtain secured financing.
Highly liquid assets such as U.S. government and agency
securities typically are funded by the use of repurchase agreements
and securities lending arrangements, which require very low levels of
margin. In contrast, assets of lower quality or liquidity require
higher margin levels and consequently increased levels of capital in
order to obtain secured financing. The level of customer receivables
and proprietary inventories the Company can maintain is also limited
by Securities and Exchange Commission Rule 15c3-1 (the "Net Capital
Rule"). Accordingly,
<PAGE>
<PAGE>
the mix of assets being held by the Company significantly influences
the amount of leverage the Company can employ and the adequacy of its
capital base.
FUNDING STRATEGY
Generally, the Company's funding strategy provides for the
diversification of its short-term funding sources in order to maximize
liquidity. Sources of short-term funding consist principally of
collateralized borrowings, including repurchase transactions and
securities lending arrangements, customer free credit balances,
unsecured commercial paper, medium-term notes and bank borrowings
generally having maturities from overnight to one year. Repurchase
transactions, whereby securities are sold with a commitment for
repurchase by the Company at a future date, represent the dominant
component of secured short-term funding. The Company continued to
increase its utilization of medium-term note financing during fiscal
1994 in order to extend maturities and provide further diversification
to its funding sources. In addition to short-term funding sources,
the Company utilizes long-term senior debt, including medium-term
notes, as a longer term source of unsecured financing. During fiscal
1994, the Company initiated a Euro-commercial paper program and also
placed $300,000,000 of long-term debt in the Euromarket in order to
further diversify its global funding sources. In addition, in early
fiscal 1995, the Company launched its European and Asian medium-term
note program.
The Company maintains an alternative liquidity strategy
focused on the liquidity and self-funding ability of the underlying
assets. The objective of the strategy is to maintain sufficient
sources of alternative funding to enable the Company to fund debt
obligations maturing within one year without issuing any new unsecured
debt, including commercial paper. The most significant source of
alternative funding is the Company's ability to hypothecate or pledge
its unencumbered assets as collateral for short-term funding.
As part of the Company's alternative liquidity strategy, the
Company regularly monitors and analyzes the size, composition and
liquidity characteristics of the assets being financed and evaluates
its liquidity needs in light of current market conditions and
available funding alternatives. A key factor in this analysis is the
determination for each asset category of the level of
overcollateralization, or margin, that may be required by a lender in
providing secured financing in accordance with legal and regulatory
guidelines and market
<PAGE>
<PAGE>
practice. The next component of the analysis is the determination of
the estimated length of time that would be required to convert the
asset into cash based upon the depth of the market in which the asset
is traded, the size of the position and ordinary settlement periods.
For each class of asset, the Company categorizes the margin
requirement by maturity from overnight to in excess of one year and
attempts to match the schedule of its liabilities and determine its
prospective liquidity needs in terms of timing and amount.
Through the use of this analysis, the Company can
continuously evaluate the adequacy of its equity base and the schedule
of maturing term debt supporting its present asset levels. The
Company can then seek to adjust its maturity schedule, as necessary,
in light of market conditions and funding alternatives. The Company
also maintains $1,495,000,000 of committed unsecured revolving lines
of credit which support the Company's commercial paper programs and
which expire on November 8, 1994. It has never been necessary for the
Company to activate these or prior lines of credit.
CAPITAL RESOURCES
The Company conducts substantially all of its operating
activities within its regulated broker-dealer subsidiaries, Bear,
Stearns & Co. Inc. ("Bear Stearns"), Bear, Stearns Securities Corp.
("BSSC"), Bear, Stearns International Limited ("BSIL") and Bear
Stearns International Trading Limited ("BSIT"). In connection
therewith, a substantial portion of the Company's long-term borrowings
and equity have been used to fund investments in and advances to Bear
Stearns, BSSC, BSIL and BSIT. The Company regularly monitors the
nature and significance of those assets or activities conducted
outside the broker-dealer subsidiaries and attempts to fund such
assets with either capital or borrowings having maturities consistent
with the nature and liquidity of the assets being financed.
During fiscal 1994, the Company moved to take advantage of
favorable long-term financing opportunities and completed several
capital-related transactions. The Company expanded its long-term
borrowing base to $3,408,096,000 through the issuance of senior notes
in an aggregate principal amount of $1,196,000,000. The Company also
issued, for aggregate proceeds of $100,000,000, Cumulative Preferred
Stock. The issuance of the Cumulative Preferred Stock together with
increased retained earnings served to increase stockholders' equity
from $1,776,530,000 at June 30, 1993 to $2,166,566,000 at June 30,
<PAGE>
<PAGE>
1994. Additionally, Bear Stearns Finance LLC ("BSF") a wholly-owned
subsidiary of the Company, issued Exchangeable Preferred Income
Cumulative Shares ("EPICS"), for proceeds of $150,000,000. The
proceeds of the EPICS issuance were loaned by BSF to the Company under
the terms of a 30-year subordinated loan agreement which provided the
Company with two consecutive 30-year renewal options. Additionally,
the Company has the right, subject to certain conditions, to issue to
BSF, in exchange for each note, depositary shares evidencing Preferred
Stock of the Company. The increase in the Company's long-term
borrowings and equity capital base was predicated upon both the
availability of long-term financing opportunities at historically low
levels of interest rates and growth in the Company's balance sheet and
liquidity needs.
The Company's Capital Accumulation Plan for Senior Managing
Directors (the "CAP Plan") allows participants to defer portions of
their total annual compensation and ultimately receive shares of the
Company's Common Stock in satisfaction thereof. Additionally, under
the terms of the Company's Performance Unit Plan for Senior Managing
Directors (the "PUP Plan"), participants were eligible to receive
additional shares of the Company's Common Stock based upon the level
of the Company's annual pre-tax earnings. In connection with the CAP
Plan and PUP Plan, the Company repurchased a total of 6,833,843 shares
of Common Stock in open market transactions at a cost of approximately
$137,084,000 during the fiscal year ended June 30, 1994. Repurchases
of Common Stock pursuant to the CAP Plan and PUP Plan were not made
pursuant to the Company's Stock Repurchase Program authorized by the
Board of Directors and were not included in calculating the maximum
aggregate number of shares of Common Stock that the Company may
repurchase under the Stock Repurchase Program. Of the shares
repurchased, a total of 6,670,306 shares were credited to the
participants of the CAP Plan at a cost of approximately $133,807,000
and a total of 163,537 shares were credited to the participants of the
PUP Plan at a cost of approximately $3,277,000 at June 30, 1994.
Effective June 30, 1994, the PUP Plan was terminated. It is
anticipated that during October 1994, the 414,372 shares held under
the PUP Plan will be distributed to the participants. The Company
intends, subject to market conditions, to continue to purchase in
future periods a sufficient number of shares of Common Stock in the
open market to enable the Company to issue shares in respect of all
compensation deferred and any additional amounts allocated to
participants under the CAP Plan.
<PAGE>
<PAGE>
CASH FLOWS
Cash and cash equivalents decreased to $294.6 million at the
end of fiscal 1994 from $317.9 million at the end of fiscal 1993, a
decrease of $23.3 million. Fiscal 1993 year end cash and cash
equivalents increased $193.8 million from $124.1 million at the end of
fiscal 1992. Cash provided from financing activities was primarily
used to support the growth in operating activities in each of the
three fiscal years.
Cash used in operating activities in fiscal 1994 was $3.4
billion. The usage was primarily attributable to increases in
securities borrowed of $4.4 billion, customer receivables of $2.3
billion, securities purchased under agreements to resell of $3.5
billion, offset by an increase in customer payables of $3.3 billion
and in securities sold under agreements to repurchase of $4.8 billion.
Cash used in operating activities in fiscal 1993 was $3.1
billion and was primarily attributable to increases in securities
borrowed of $7.0 billion, financial instruments owned of $3.0 billion
and customer receivables of $1.2 billion, offset by increases in
customer payables of $3.6 billion, securities sold under agreements to
repurchase of $2.7 billion and financial instruments sold, but not yet
purchased of $2.8 billion. Cash used in operating activities in
fiscal 1992 was $1.5 billion and was primarily attributable to
increases in financial instruments owned, securities purchased under
agreement to resell and a reduction in securities loaned, offset by
increases in financial instruments sold, but not yet purchased,
customer payables and securities sold under agreements to repurchase.
Cash provided by financing activities in each of the three
fiscal years ended June 30, 1994 was primarily attributable to
increased net borrowings which were used to support the Company's
growth over the same periods while taking advantage of favorable long-
term financing opportunities.
Investing activities in fiscal 1994 used $66.1 million of
cash primarily for purchases of $80.9 million of property, equipment
and leasehold improvements and $17.2 million of investment securities
and other assets partially offset by proceeds from the sale of
investment securities and other assets of $31.9 million.
Investing activities in fiscal 1993 provided $48.2 million
in cash. Cash of $113.5 million was provided by the proceeds from the
sale of investment securities and other assets
<PAGE>
<PAGE>
partially offset by the purchase of investment securities and other
assets of $11.0 million. Cash of $54.2 million was used for the
purchase of property, equipment and leasehold improvements.
Cash used for investing activities in fiscal 1992 was $76.1
million. Purchases of property, equipment and leasehold improvements
of $69.6 million and purchases of investment securities and other
assets of $30.6 million were partially offset by the proceeds from the
sale of investment securities and other assets of $24.1 million.
REGULATED SUBSIDIARIES
As registered broker-dealers, Bear Stearns and BSSC are
subject to the net capital requirements of the Securities and Exchange
Commission, the New York Stock Exchange, Inc. and the Commodity
Futures Trading Commission, which are designed to measure the general
financial soundness and liquidity of broker-dealers. Bear Stearns and
BSSC have consistently operated in excess of the minimum net capital
requirements imposed by these agencies.
Additionally, BSIL and BSIT, London-based broker-dealer
subsidiaries, are subject to the regulatory capital requirements of
the Securities and Futures Authority, a self-regulatory organization
established pursuant to the United Kingdom Financial Services Act of
1986. BSIL and BSIT have consistently operated in compliance with
these capital adequacy requirements.
MERCHANT BANKING AND HIGH YIELD SECURITIES
As part of the Company's merchant banking activities, it
participates from time to time in principal investments in leveraged
acquisitions. As part of these activities, the Company originates,
structures and invests in merger, acquisition, restructuring and
leveraged capital transactions, including leveraged buyouts. The
Company's principal investments in these transactions are generally
made in the form of equity investments or subordinated loans and have
not required significant levels of capital investment. At June 30,
1994, the Company held direct equity investments in 15 leveraged
transactions with an aggregate carrying value of $53,905,000. The
Company did not make any significant direct investments in leveraged
acquisitions during fiscal 1994.
<PAGE>
<PAGE>
As part of the Company's fixed income securities activities,
the Company participates in the trading and sale of high yield, non-
investment-grade debt securities, non-investment-grade mortgage loans
(including real estate owned) and the securities of companies that are
the subject of pending bankruptcy proceedings (collectively "high
yield securities"). Non-investment-grade mortgage loans are
principally secured by residential properties and include both non-
performing loans and real estate owned properties. At June 30, 1994,
the Company held in inventory approximately $1,629,576,000 of such
investments. These investments generally involve greater risk than
investment-grade debt securities due to credit considerations,
liquidity of secondary trading markets and vulnerability to general
economic conditions. The level of the Company's high yield securities
inventories, and the impact of such activities upon the Company's
results of operations, can fluctuate from period to period as a result
of customer demands and economic and market considerations. The
Company's Risk Committee continuously monitors exposure to market and
credit risk with respect to high yield securities inventories and
establishes limits with respect to overall market exposure and
concentrations of risk by both individual issuer and industry group.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments represent contractual
commitments between counterparties which derive their value from
changes in the underlying interest rate, currency exchange rate, index
(eg. S&P 500), reference rate (eg. LIBOR) or asset value referenced in
the related contract. Derivatives can be traded on an exchange, such
as futures contracts, certain options and indexed referenced warrants
or negotiated in the over-the-counter markets, such as interest rate
and currency swaps, caps, floors and forward contracts. Derivatives
generate both on-and off-balance sheet considerations depending on the
nature of the contract.
The Company is engaged as a dealer in over-the-counter
derivative activity and, accordingly, enters into transactions
involving derivative instruments as part of its customer related and
proprietary trading activities. The Company's dealer activities
require it to make markets and trade a variety of derivative
instruments including interest rate and currency swaps, caps, collars,
floors and swaptions, and equity derivative transactions including
structured notes and warrants. In connection with these activities,
the Company attempts to mitigate its exposure to market risk by
entering into essentially
<PAGE>
<PAGE>
offsetting hedging transactions which may include over-the-counter
derivative contracts or the purchase or sale of interest bearing
securities, equity securities, financial futures and forward
contracts. The Company also utilizes derivative instruments in order
to hedge proprietary market-making and trading activities. In this
regard, the utilization of derivative instruments is designed to
reduce or mitigate market risks associated with holding dealer
inventories or in connection with arbitrage related trading
activities. The Company also utilizes interest rate and currency
swaps to hedge its fixed rate debt issuances as part of its asset and
liability management.
The aggregate notional value of derivative contracts is a
reflection of the level of activity and does not represent the amounts
that are recorded on the Consolidated Statement of Financial
Condition. As of June 30, 1994 and 1993, respectively, the Company
had notional/contract amounts of $89,095,000,000 and $57,875,000,000
of derivative financial instruments, of which $24,351,000,000 and
$8,719,000,000, were listed futures and options contracts. The
Company's derivative financial instruments which are used to either
hedge trading positions or are part of its derivative dealer
activities are marked to fair value on a daily basis. The unrealized
gain or loss is recorded on the Consolidated Statement of Financial
Condition and the related income or loss is reflected in revenues
derived from principal transactions. Unrealized gains and losses on
derivative financial instruments used to hedge the Company's long-term
debt issuances are deferred and related income and loss is recorded on
an accrual basis together with the interest expense incurred on the
underlying debt instrument. The Company hedges its long-term debt
issuances principally by converting fixed rate instruments to floating
rate debt, generally based on LIBOR, using interest rate swaps. This
strategy allows the Company to manage interest rate exposure on its
assets and liabilities and has enabled the Company to reduce its
interest expense by $54,350,000, $38,452,000 and $18,045,000 during
fiscal 1994, 1993 and 1992, respectively.
Fair value on exchange traded derivative financial
instruments is based upon quoted market values, while over-the-counter
derivative financial instruments are valued at mid-market based upon
dealer price quotations and valuation pricing models. Valuation
pricing models consider time value and volatility factors underlying
each of the financial instruments, as well as other relevant economic
factors such as market, credit, and liquidity risk.
<PAGE>
<PAGE>
Exposures to market risk arising from derivative financial
instruments are similar to the market risks of cash securities. The
Company actively manages its market risk profile through the use of
pricing and risk management models. These techniques include
projecting the effects of potential changes, such as the level of
interest and foreign exchange rates or equity prices on the Company's
derivative portfolio in order to measure market risk sensitivity.
Credit risk from derivative financial instruments arises
from the potential failure of counterparties to perform in accordance
with the terms of their contract. The Company's exposure to credit
risk associated with counterparty non-performance is measured by the
current replacement cost of derivative contracts in a gain position,
net of any related collateral held. The Company attempts to control
its exposure to credit risk arising from derivatives by adhering to an
established credit approval process including the establishment of
credit limits and the use of credit enhancement techniques. Such
techniques include the requirement to post collateral to secure
replacement cost exposures or, in the event of a counterparty being
downgraded, the requirement to post additional collateral or to
terminate the contract. The Company also attempts to obtain master
netting agreements which provide protection in the event of
counterparty default by allowing for the net settlement of open
obligations. Credit exposures are monitored on a daily basis and are
continuously analyzed to verify that current and potential credit
exposures are within prescribed limits. For further discussion of the
Company's derivative activities and the associated risks, see Note 11
to the Consolidated Financial Statements.
RISK MANAGEMENT
The Company's exposure to market risk is directly related to
its role as a financial intermediary in customer-related transactions
and to its proprietary trading and arbitrage activities. As a
financial intermediary, the Company often acts as principal in
customer-related transactions in financial instruments which exposes
the Company to the risk of market price movements. The Company seeks
to manage this risk by entering into hedging transactions designed to
offset the market risk the Company has taken for its customers.
The Company also engages in proprietary trading and
arbitrage activities. The Company makes dealer markets in investment-
grade corporate debt and equity securities, non-
<PAGE>
<PAGE>
investment-grade corporate debt securities, U.S. government and agency
securities, mortgages and mortgage-backed securities and municipal
bonds. In connection therewith the Company is required to maintain
significant inventories in order to ensure availability and facilitate
customer order flow. The Company attempts to hedge its exposure to
market risk with respect to its dealer inventories by entering into
essentially offsetting transactions, including options, futures and
forward contracts, the design of which is to reduce or mitigate the
Company's market risk profile. Additionally, the Company marks to
market its securities inventories daily and regularly monitors the
aging of inventory positions.
The Company's arbitrage activities are designed to take
advantage of market price discrepancies between securities trading in
different markets or between related products or derivative
securities. Arbitrage activities generally involve maintaining
offsetting positions in other financial instruments designed to reduce
the overall market risk of the transaction. In many instances, the
Company may be required to purchase or sell derivative financial
instruments as part of the arbitrage of a cash market security. These
transactions may involve forward settling transactions such as
forwards or futures, where the objective may be to capture differences
in the time value of money, or option transactions, where the
motivation is trading the volatility of the underlying instrument.
In addition to those specific methods discussed above, the
Company utilizes a variety of hedging strategies and credit monitoring
techniques in order to monitor its exposure to market and counterparty
risk. These procedures include daily profit and loss statements and
position reports and weekly meetings of Bear Stearns' Risk Committee,
composed of Senior Managing Directors of the various trading
departments and chaired by Alan C. Greenberg, Chairman of the Board of
the Company and of Bear Stearns. In addition, the Company's Risk
Management Department together with departmental management,
consisting principally of Senior Managing Directors who have day-to-
day responsibility for management oversight, review the age and
composition of their departments' proprietary accounts and the profits
and losses of each portfolio on a daily basis in order to ensure that
trading strategies are being adhered to within acceptable risk
parameters. Additionally, trading department management report
positions, profits and losses and trading strategies to the Risk
Committee on a weekly basis. The Company utilizes state-of-the-art
portfolio hedging techniques and highly automated analytical systems
in order to monitor the Company's risk profile and enhance management
oversight.
<PAGE>
<PAGE>
Bear Stearns' Institutional Credit Committee establishes and
reviews appropriate credit limits for customers other than margin
credit to individual investors. The Institutional Credit Committee is
composed of senior members of management. The committee generally
meets once a week and establishes credit limits for customers seeking
repurchase and resale agreement facilities, derivative financial
instruments and other forms of secured and unsecured credit, including
derivative contracts, and establishes exposure limits for various
other institutional customers. The members of this committee
generally are management personnel who are not involved in the
operations of the departments seeking credit approval for customers.
The Company monitors its exposure to counterparty risk on a daily
basis through the review of customer credit exposure reports and the
monitoring of collateral values.
EFFECTS OF INFLATION
Because the Company's assets are, to a large extent, liquid
in nature, they are not significantly affected by inflation. However,
the rate of inflation affects the Company's expenses, such as employee
compensation, office space leasing costs and communication charges,
which may not be readily recoverable in the price of services offered
by the Company. To the extent inflation results in rising interest
rates and has other effects upon the securities markets and on the
value of securities held in inventory, it may adversely affect the
Company's financial position and results of operations.
EFFECTS OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
The FASB issued Statement of Financial Accounting Standards
No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS
112"), which is effective for fiscal years beginning after December
15, 1993. SFAS 112 establishes accounting standards for employers who
provide benefits to former or inactive employees after employment but
before retirement. The statement requires employers to accrue the
obligations associated with service rendered to date for employee
benefits accumulated or vested where payment is probable and can be
reasonably estimated. The initial adoption of SFAS 112 will not have
a material effect on the liquidity, operating results or financial
condition of the Company.
The FASB issued Interpretation No. 39, "Offsetting of
Amounts Related to Certain Contracts" ("Interpretation 39"),
<PAGE>
<PAGE>
which is effective for the Company's fiscal years beginning July 1,
1994. Interpretation 39 requires that unrealized gains and losses on
swaps, forwards, options and similar contracts be recognized as assets
and liabilities, respectively; whereas it is the Company's current
policy to record such unrealized gains and losses on a net basis on
the Consolidated Statement of Financial Condition. Netting will be
permitted only when a legal right of offset exists with the same
counterparty under a master netting arrangement. The Financial
Accounting Standards Board is currently reconsidering Interpretation
39 as it relates to repurchase agreements. The Company expects that
implementation of Interpretation 39 after the FASB's reconsideration
will not materially affect the financial statements. At June 30,
1994, total assets and liabilities would have increased by
approximately $8,100,000,000 under the present terms of Interpretation
39.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
The Bear Stearns Companies Inc.
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
In thousands, except share data June 30, 1994 June 30, 1993 June 30, 1992
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Commissions $ 482,988 $ 421,090 $ 374,752
Principal transactions 1,131,914 1,156,816 970,841
Investment banking 493,739 349,736 306,454
Interest and dividends 1,304,392 909,809 1,002,992
Other income 28,039 15,734 23,894
-------------------------------------------------------------------------------------------------------------
Total revenues 3,441,072 2,853,185 2,678,933
Interest expense 1,020,055 710,086 834,859
-------------------------------------------------------------------------------------------------------------
Revenues, net of interest expense 2,421,017 2,143,099 1,844,074
-------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSES
Employee compensation and benefits 1,227,061 1,037,099 909,916
Floor brokerage, exchange and clearance fees 98,592 85,693 67,063
Communications 75,406 59,705 52,799
Occupancy 76,317 69,818 71,268
Depreciation and amortization 47,984 41,234 39,684
Advertising and market development 52,693 43,718 32,484
Data processing and equipment 27,404 27,051 35,313
Other expenses 172,761 164,383 127,922
-------------------------------------------------------------------------------------------------------------
Total non-interest expenses 1,778,218 1,528,701 1,336,449
-------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 642,799 614,398 507,625
Provision for income taxes 255,834 251,951 213,047
-------------------------------------------------------------------------------------------------------------
Net income $ 386,965 $ 362,447 $ 294,578
=============================================================================================================
Net income applicable to common shares $ 362,592 $ 355,696 $ 291,350
=============================================================================================================
Earnings per share $ 2.89 $ 2.86 $ 2.34
=============================================================================================================
Weighted average common and
common equivalent shares outstanding 128,051,287 125,797,870 128,597,392
=============================================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
The Bear Stearns Companies Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
In thousands, except share data June 30, 1994 June 30, 1993
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 294,604 $ 317,886
Cash and securities deposited with clearing organizations
or segregated in compliance with Federal regulations 2,989,948 2,291,992
Securities purchased under agreements to resell 19,515,764 16,038,657
Securities borrowed 21,073,208 16,721,404
Receivables
Customers 7,266,609 4,954,404
Brokers, dealers and others 980,452 1,016,068
Interest and dividends 178,123 109,217
Financial instruments owned-at fair value 14,443,918 15,214,510
Property, equipment and leasehold improvements,
net of accumulated depreciation and amortization of
$170,020 in 1994 and $185,866 in 1993 271,807 238,936
Other assets 377,585 536,431
-------------------------------------------------------------------------------------------------------------
Total Assets $ 67,392,018 $ 57,439,505
=============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 7,860,311 $ 6,118,894
Securities sold under agreements to repurchase 26,863,122 22,058,354
Securities loaned 124,037 565,584
Payables
Customers 16,387,932 13,038,380
Brokers, dealers and others 710,053 1,595,098
Interest and dividends 287,326 177,948
Financial instruments sold, but not yet purchased-at fair value 8,351,258 8,973,839
Accrued employee compensation and benefits 593,742 469,376
Other liabilities and accrued expenses 489,575 782,379
-------------------------------------------------------------------------------------------------------------
61,667,356 53,779,852
-------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Long-term borrowings 3,408,096 1,883,123
-------------------------------------------------------------------------------------------------------------
Preferred Stock Issued by Subsidiary 150,000
-------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred Stock, $1.00 par value; 10,000,000 shares authorized;
Adjustable Rate Cumulative Preferred Stock, Series A;
$50 liquidation preference; 3,000,000 shares issued 150,000 150,000
Cumulative Preferred Stock, Series B; $200 liquidation preference;
937,500 shares issued and outstanding 187,500 187,500
Cumulative Preferred Stock, Series C; $200 liquidation preference;
500,000 shares issued and outstanding 100,000
Common Stock, $1.00 par value; 200,000,000 shares authorized;
144,965,094 shares and 131,507,178 shares issued in
1994 and 1993, respectively 144,965 131,507
Paid-in capital 1,447,066 1,225,557
Retained earnings 388,685 328,414
Capital Accumulation Plan 275,415 138,331
Treasury stock, at cost-
Adjustable Rate Cumulative Preferred Stock, Series A;
2,118,550 shares in 1994 and 2,118,550 shares in 1993 (85,507) (85,507)
Common Stock; 31,525,939 shares in 1994 and 22,203,018 shares in 1993 (410,882) (263,755)
Note receivable from ESOP Trust (30,676) (35,517)
-------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 2,166,566 1,776,530
-------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 67,392,018 $ 57,439,505
=============================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
The Bear Stearns Companies Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
In thousands June 30, 1994 June 30, 1993 June 30, 1992
- - - - - - - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 386,965 $ 362,447 $ 294,578
Adjustments to reconcile net income to cash used in operating activities:
Depreciation and amortization 47,984 41,234 39,684
Deferred income taxes (63,381) 5,528 (14,131)
Other (9,414) (6,723) 15,283
(Increases) decreases in operating receivables:
Securities borrowed (4,351,804) (7,030,538) (232,231)
Brokers, dealers and others 35,616 (452,640) (28,606)
Customers (2,312,205) (1,206,310) (400,984)
Other (85,730) 83,933 (62,105)
Increases (decreases) in operating payables:
Securities loaned (441,547) (930,097) (2,023,840)
Brokers, dealers and others (883,098) (265,666) 395,308
Customers 3,349,552 3,565,820 1,926,214
Other 109,378 (70,067) 71,168
(Increases) decreases in:
Cash and securities deposited with clearing organizations or
segregated in compliance with Federal regulations (697,956) (132,653) (306,020)
Securities purchased under agreements to resell (3,477,107) 251,311 (2,313,758)
Financial instruments owned 795,307 (3,033,106) (3,374,302)
Other assets 165,322 (30,498) (86,218)
Increases (decreases) in:
Securities sold under agreements to repurchase 4,804,768 2,740,390 1,604,497
Financial instruments sold, but not yet purchased (622,581) 2,806,958 2,522,592
Accrued employee compensation and benefits 108,491 34,353 159,474
Other liabilities and accrued expenses (227,934) 150,227 317,554
- - - - - - - -----------------------------------------------------------------------------------------------------------------------------
Cash used in operating activities (3,369,374) (3,116,097) (1,495,843)
- - - - - - - -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of Cumulative Preferred Stock, Series B 181,307
Net proceeds from issuance of Cumulative Preferred Stock, Series C 96,689
Net proceeds from issuance of Preferred Stock by subsidiary 145,000
Net proceeds from short-term borrowings 1,741,417 2,302,560 972,707
Issuance of long-term borrowings 1,795,979 840,347 357,425
Capital Accumulation Plan 137,084 138,331 114,089
Other Common Stock transactions 3,733 2,577
Note repayment from ESOP trust 4,841 4,483
Payments for:
Retirement of Senior Notes (273,000)
Retirement of Subordinated Notes (1,000) (1,000) (1,000)
Treasury stock purchases (147,763) (140,504) (116,997)
Note receivable from ESOP Trust (40,000)
Cash dividends paid (90,769) (66,425) (68,305)
- - - - - - - -----------------------------------------------------------------------------------------------------------------------------
Cash provided by financing activities 3,412,211 3,261,676 1,217,919
- - - - - - - -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, equipment and leasehold improvements (80,855) (54,202) (69,613)
Purchases of investment securities and other assets (17,192) (11,030) (30,619)
Proceeds from sale of investment securities and other assets 31,928 113,451 24,091
- - - - - - - -----------------------------------------------------------------------------------------------------------------------------
Cash (used in) provided by investing activities (66,119) 48,219 (76,141)
- - - - - - - -----------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (23,282) 193,798 (354,065)
Cash and cash equivalents, beginning of year 317,886 124,088 478,153
- - - - - - - -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 294,604 $ 317,886 $ 124,088
=============================================================================================================================
<FN>
Non-cash financing activities totaled $1,947, $2,846 and $7,599 for the years ended June 30, 1994, 1993 and 1992,
respectively.
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE>
<TABLE>
The Bear Stearns Companies Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
Treasury Stock
-------------------
Adjustable Adjustable
Rate Cumulative Cumulative Rate
Cumulative Preferred Preferred Cumulative
Preferred Stock, Stock, Preferred
Stock, Series Series Stock,
Series B-$200 C-$200 Common Capital Series Common Note
In thousands, A-$50 Liquid- Liquid- Stock Accumu- A-$50 Stock Receivable
except Liquidation ation ation $1 Par Paid-In Retained lation Liquidation $1 Par From
share data Preference Preference Preference Value Capital Earnings Plan Preference Value ESOP Trust
- - - - - - - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June
30, 1991 $150,000 $ $ $113,630 $ 991,771 $ 43,976 $ 23,414 $(78,094) $(148,674) $
Net income 294,578
Cash
dividends
declared -
Common
($.65 per
share) (64,397)
Preferred (3,192)
Purchase of
treasury
stock -
Adjustable
Rate
Cumulative
Preferred
Stock,
Series A
(165,900
shares) (6,969)
Common Stock
(8,726,464
shares) (115,543)
Common Stock
issued out of
treasury
(180,383
shares) 742 1,653
5% stock
dividends
(11,625,382
shares) 11,625 145,873 (157,498)
Note
receivable
from ESOP
Trust (40,000)
Allocations
under
Capital
Accumulation
Plan 114,089
- - - - - - - -------------------------------------------------------------------------------------------------------------------------------
Balance, June
30, 1992 $150,000 $ $ $125,255 $1,138,386 $113,467 $137,503 $(85,063) $(262,564) $(40,000)
===============================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE>
<TABLE>
The Bear Stearns Companies Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
Treasury Stock
-------------------
Adjustable Adjustable
Rate Cumulative Cumulative Rate
Cumulative Preferred Preferred Cumulative
Preferred Stock, Stock, Preferred
Stock, Series Series Stock,
Series B-$200 C-$200 Common Capital Series Common Note
In thousands, A-$50 Liquid- Liquid- Stock Accumu- A-$50 Stock Receivable
except Liquidation ation ation $1 Par Paid-In Retained lation Liquidation $1 Par From
share data Preference Preference Preference Value Capital Earnings Plan Preference Value ESOP Trust
- - - - - - - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June
30, 1992 $ 150,000 $ $ $125,255 $1,138,386 $113,467 $ 137,503 $(85,063) $(262,564) $(40,000)
Net income 362,447
Cash
dividends
declared -
Common
($.60 per
share) (62,625)
Preferred (7,225)
Issuance of
Cumulative
Preferred
Stock,
Series B 187,500 (6,193)
Purchase of
treasury
stock -
Adjustable
Rate
Cumulative
Preferred
Stock,
Series A
(10,000
shares) (444)
Common Stock
(8,882,232
shares) (135,307)
Common Stock
issued out of
treasury
(10,210,238
shares) 9,621 (137,503) 134,116
Income tax
benefits
attributable
to Common
Stock issued
out of
treasury 12,345
5% stock
dividend
(6,252,011
shares) 6,252 71,398 (77,650)
Note repayment
from ESOP
Trust 4,483
Allocations
under
Capital
Accumulation
Plan 138,331
- - - - - - - -------------------------------------------------------------------------------------------------------------------------------
Balance, June
30, 1993 $150,000 $187,500 $ $131,507 $1,225,557 $328,414 $ 138,331 $(85,507) $(263,755) $(35,517)
===============================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE>
<TABLE>
The Bear Stearns Companies Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
Treasury Stock
-------------------
Adjustable Adjustable
Rate Cumulative Cumulative Rate
Cumulative Preferred Preferred Cumulative
Preferred Stock, Stock, Preferred
Stock, Series Series Stock,
Series B-$200 C-$200 Common Capital Series Common Note
In thousands, A-$50 Liquid- Liquid- Stock Accumu- A-$50 Stock Receivable
except Liquidation ation ation $1 Par Paid-In Retained lation Liquidation $1 Par From
share data Preference Preference Preference Value Capital Earnings Plan Preference Value ESOP Trust
- - - - - - - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June
30, 1993 $ 150,000 $ 187,500 $ $131,507 $1,225,557 $328,414 $138,331 $(85,507) $(263,755) $(35,517)
Net income 386,965
Cash
dividends
declared -
Common
($.60 per
share) (67,150)
Preferred (24,667)
Issuance of
Cumulative
Preferred
Stock,
Series C 100,000 (3,311)
Purchase of
treasury
stock-
Common Stock
(7,477,587
shares) (149,710)
Common Stock
issued out of
treasury
(416,769
shares) 1,150 2,583
Income tax
benefits
attributable
to Common
Stock issued
out of
treasury 2,251
5% stock
dividend
(13,457,916
shares) 13,458 221,419 (234,877)
Note repayment
from ESOP
Trust 4,841
Allocations
under
Capital
Accumulation
Plan 137,084
- - - - - - - ------------------------------------------------------------------------------------------------------------------------------
Balance, June
30, 1994 $150,000 $187,500 $100,000 $144,965 $1,447,066 $388,685 $275,415 $ (85,507) $(410,882) $(30,676)
==============================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts
of The Bear Stearns Companies Inc. and its subsidiaries (the
"Company"). All material intercompany transactions and balances have
been eliminated. Certain prior year amounts have been reclassified to
conform with the current year's presentation.
The Company, through its principal subsidiaries, Bear,
Stearns & Co. Inc. ("Bear Stearns"), Bear, Stearns Securities Corp.
("BSSC") and Bear, Stearns International Limited ("BSIL"), is
primarily engaged in a single line of business as a securities broker
and dealer, which comprises several classes of services, such as
principal transactions, agency transactions and underwriting and
investment banking.
FINANCIAL INSTRUMENTS
Proprietary securities and commodities transactions,
commission revenues and related expenses are recorded on a trade date
basis. Financial instruments owned and financial instruments sold,
but not yet purchased, including contractual commitments arising
pursuant to futures, forward and option contracts, interest rate swaps
and other derivative contracts are recorded at fair value with the
resulting net unrealized gains and losses reflected in net income.
Fair value is generally based on quoted market prices. If
quoted market prices are not available, or if liquidating the
Company's position is reasonably expected to impact market prices,
fair value is determined based on other relevant factors, including
dealer price quotations, price activity for equivalent instruments and
valuation pricing models. Valuation pricing models consider time
value and volatility factors underlying financial instruments as well
as other relevant economic measurements.
Equity securities acquired as a result of leveraged
acquisition transactions are reflected in the financial statements at
their initial cost until such time as significant transactions or
developments indicating that an increase in the
<PAGE>
<PAGE>
carrying value of the securities is appropriate. Generally the
carrying values of these securities will be increased only in those
instances where market values are readily ascertainable by reference
to substantial transactions occurring in the marketplace. Reductions
to the carrying value of these securities are made in the event that
the Company's estimate of net realizable value has declined below the
carrying value.
RESALE AND REPURCHASE AGREEMENTS
Transactions involving purchases of securities under
agreements to resell ("reverse repurchase agreements") or sales of
securities under agreements to repurchase ("repurchase agreements")
are treated as collateralized financing transactions and are recorded
at their contracted resale or repurchase amounts plus accrued
interest. It is the Company's policy to take possession of securities
with a market value in excess of the principal amount loaned plus
accrued interest in order to collateralize reverse repurchase
agreements. Similarly, the Company is required to provide securities
to counterparties in order to collateralize repurchase agreements.
The Company's agreements with counterparties generally contain
contractual provisions to allow for additional collateral to be
obtained, or excess collateral returned, when necessary. It is the
Company's policy to value collateral daily and to obtain additional
collateral or retrieve excess collateral from counterparties where
deemed appropriate.
SECURITIES LENDING ACTIVITIES
Securities borrowed and securities loaned are recorded at
the amount of cash collateral advanced or received. Securities
borrowed transactions require the Company to deposit cash, letters of
credit or other collateral with the lender. With respect to
securities loaned, the Company receives collateral in the form of cash
or other collateral. The amount of collateral required to be
deposited for securities borrowed or received for securities loaned is
an amount generally in excess of the market value of the applicable
securities borrowed or loaned. The Company monitors the market value
of securities borrowed and loaned on a daily basis with additional
collateral obtained or refunded as necessary.
<PAGE>
<PAGE>
FIXED ASSETS
Depreciation of property and equipment is provided by the
Company on a straight-line basis over the estimated useful life of the
asset. Amortization of leasehold improvements is provided on a
straight-line basis over the lesser of the respective estimated useful
life of the asset or the remaining life of the lease, as appropriate.
TRANSLATION OF FOREIGN CURRENCIES
Assets and liabilities denominated in foreign currencies are
translated at year-end rates of exchange, while income statement items
are translated at average rates of exchange for the year. Gains or
losses resulting from foreign currency transactions are included in
net income.
INCOME TAXES
The Company and certain of its wholly-owned subsidiaries
file a consolidated Federal income tax return. During the quarter
ended September 24, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). Under SFAS 109, deferred income taxes are provided based upon
the net tax effects of temporary differences between the financial
reporting and tax bases of assets and liabilities. In addition,
deferred income taxes are determined using the enacted tax rates and
laws which will be in effect when the related temporary differences
are expected to be reversed. The cumulative effect of adopting the
provisions of SFAS 109 was not material to the liquidity, operating
results or financial condition of the Company. As permitted under
SFAS 109, prior years' financial statements have not been restated.
EARNINGS PER SHARE
Earnings per share is based upon net income applicable to
common shares and the weighted average number of shares of Common
Stock and common stock equivalents outstanding during each period
presented. Common stock equivalents include the assumed distribution
of shares of Common Stock issuable under certain of the Company's
deferred compensation arrangements with appropriate adjustments made
to net income for earnings accruals related thereto. Additionally,
shares of Common Stock issued or issuable
<PAGE>
<PAGE>
under various employee benefit plans are included as common stock
equivalents.
STATEMENT OF CASH FLOWS
For purposes of the Consolidated Statements of Cash Flows,
the Company has defined cash equivalents as highly liquid investments
not held for sale in the ordinary course of business. Cash payments
for interest approximated interest expense for the years ended June
30, 1994, 1993 and 1992.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments" requires the
Company to report the fair value of financial instruments, as defined.
Approximately 99.0% of the Company's assets and 99.2% of the Company's
liabilities are carried at fair value or contracted amounts which
approximate fair value.
Financial instruments owned and financial instruments sold,
but not yet purchased are carried at fair value. Assets which are
recorded at contracted amounts approximating fair value consist
largely of short-term secured receivables, and include reverse
repurchase agreements, securities borrowed, and certain other
receivables. Similarly, the Company's short-term liabilities pursuant
to bank loans, commercial paper, medium-term notes, repurchase
agreements, securities loaned and certain other payables are recorded
at contracted amounts approximating fair value. These instruments
generally have variable interest rates or short-term maturities, in
many cases overnight, and accordingly are not materially affected by
changes in interest rates.
The estimated market value of the Company's long-term
borrowings based upon market rates of interest available to the
Company at June 30, 1994 for debt obligations of similar maturity is
approximately $3,347,172,000, which is less than the aggregate
carrying value by approximately $60,924,000. However, the Company
enters into interest rate swaps and other transactions designed to
either convert its fixed rate debt into floating rates or otherwise
hedge its exposure to interest rate movements. Accordingly,
unrecognized gains on interest rate swaps and other transactions
hedging the Company's long-term borrowings substantially offset the
effect of changes in interest rates on the fair value of the Company's
long-term borrowings.
<PAGE>
<PAGE>
3. FINANCIAL INSTRUMENTS
Financial instruments owned and financial instruments sold,
but not yet purchased, consist of the Company's proprietary trading
and investment accounts, at fair value, as follows:
<TABLE>
<CAPTION>
In thousands June 30, 1994 June 30, 1993
------------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL INSTRUMENTS OWNED:
United States government and agency $3,674,261 $7,644,206
Non-U.S. government 495,645 432,008
State and municipal 162,487 234,503
Equities and convertible debt 4,295,161 3,136,707
Derivative financial instruments 989,385 242,507
Corporate debt 2,065,930 1,810,815
Mortgages and other mortgage-backed securities 1,964,036 1,613,514
Other 797,013 100,250
------------------------------------------------------------------------------------
$14,443,918 $15,214,510
====================================================================================
FINANCIAL INSTRUMENTS SOLD, BUT
NOT YET PURCHASED:
United States government and agency $3,307,797 $5,879,085
Non-U.S. government 484,062 82,281
Corporate equity 3,216,645 2,090,848
Corporate debt 767,629 490,563
Derivative financial instruments 527,379 383,026
Other 47,746 48,036
------------------------------------------------------------------------------------
$8,351,258 $8,973,839
====================================================================================
</TABLE>
<PAGE>
<PAGE>
Financial instruments sold, but not yet purchased represent
obligations of the Company to deliver the specified financial
instrument at the contracted price, and thereby create a liability to
repurchase the financial instrument in the market at prevailing
prices. Accordingly, these transactions result in off-balance-sheet
risk as the Company's ultimate obligation to satisfy the sale of
financial instruments sold, but not yet purchased may exceed the
amount recognized in the Consolidated Statements of Financial
Condition.
4. SHORT-TERM FINANCING
The Company's short-term financing is generally obtained on
a secured basis through the use of repurchase agreements and
securities lending arrangements. Additionally, the Company obtains
short-term financing on an unsecured basis through the issuance of
commercial paper, medium-term notes and bank loans. Repurchase
agreements are collateralized principally by U.S. government and
agency securities. Securities lending arrangements are typically
secured by corporate equity and debt securities, utilizing both
securities owned by the Company and customers' securities. The
interest rates on such short-term borrowings reflect money market
rates of interest at the time of the transactions.
Short-term borrowings at June 30, 1994 and 1993, include
$3,689,230,000 and $4,404,160,000, respectively, of borrowings made
under the Company's commercial paper programs. During the year ended
June 30, 1994, the weighted average interest rate on such borrowings
was 3.46%.
At June 30, 1994 and 1993, the Company had outstanding
$3,892,200,000 and $1,587,255,000, respectively, principal amount of
Medium-Term Notes maturing from nine to eighteen months from the date
of issue. The Medium-Term Notes generally bear interest at variable
rates based upon the London Interbank Offered Rate ("LIBOR"). The
weighted average interest rate on the Medium-Term Notes was 3.65%
during the year ended June 30, 1994.
The Company maintains $1,495,000,000 of committed lines of
credit under revolving credit facilities which provide for unsecured
borrowings at fluctuating interest rates related to LIBOR. Fees are
payable on these lines of credit at a rate of 1/8 of 1% per annum on
the total commitment. The revolving credit facilities contain various
covenants that require, among other things, that the Company maintain
specified minimum levels of stockholders' equity and Bear Stearns and
BSSC maintain
<PAGE>
<PAGE>
minimum levels of net capital. At June 30, 1994, there were no
borrowings outstanding under any of these agreements and the Company
was in compliance with all covenants contained in the revolving credit
facilities. The agreements expire on November 8, 1994.
5. LONG-TERM BORROWINGS
Long-term borrowings at June 30 consist of the following:
<TABLE>
<CAPTION>
In thousands 1994 1993
------------------------------------------------------------------------------
<S> <C> <C>
THE BEAR STEARNS COMPANIES INC.
Floating Rate Notes due 1994 to 2004 $ 895,000 $ 200,000
5 1/4% Swiss Franc Bonds due 1996 99,043
Accrual related to hedging 5 1/4% Bonds (19,043)
Fixed-Rate Senior Notes due 1996 to 2004;
interest rates ranging from 5 7/8% to 9 3/8% 1,596,510 1,248,148
Medium-Term Notes & Other 916,586 353,975
BEAR, STEARNS & CO. INC.
10 3/4% Senior Subordinated Notes due 1994 1,000
------------------------------------------------------------------------------
$3,408,096 $1,883,123
==============================================================================
</TABLE>
The Floating Rate Notes are unsecured and bear interest at
rates primarily related to LIBOR. For those Floating Rate Notes which
are not based upon LIBOR, the Company has entered into interest rate
swaps and certain other transactions in order to convert them into
floating rates based upon LIBOR. During the year ended June 30, 1994,
the weighted average effective interest rate on the Floating Rate
Notes was 3.96%. The weighted average effective interest rate on the
Floating Rate Notes at June 30, 1994 was 4.83%.
The Company has entered into interest rate swaps and certain
other transactions in order to convert its fixed-rate Senior Notes
into floating rates based upon LIBOR. The weighted average effective
interest rate on the Company's Senior Notes
<PAGE>
<PAGE>
during the year ended June 30, 1994 was 4.22%. The weighted average
effective interest rate on the Company's Senior Notes at June 30, 1994
was 4.94%.
The Company's Medium-Term Notes have maturities ranging from
eighteen months to thirty years from the date of issue and bear
interest at either a fixed rate or a variable rate primarily based
upon LIBOR. During the year ended June 30, 1994, the weighted average
interest rate on the Medium-Term Notes was 4.40%. The weighted
average interest rate on the Company's Medium-Term Notes at June 30,
1994 was 4.93%.
During the year ended June 30, 1994, the Company called and
redeemed both $100,000,000 of 8 1/8% Senior Notes due 1997 and the
entire issue of 5 1/4% Swiss Franc Bonds. In addition, the interest
rate and currency swap related to the 5 1/4% Swiss Franc Bonds was
terminated.
Maturities of long-term borrowings at June 30, 1994 consist
of the following:
<TABLE>
<CAPTION>
In thousands
------------------------------------------------------
<S> <C>
Fiscal Year Amount
1995 $ 371,000
1996 673,050
1997 425,537
1998 204,655
1999 272,000
Thereafter 1,461,854
------------------------------------------------------
$3,408,096
======================================================
</TABLE>
Instruments governing certain indebtedness of the Company
contain various covenants, the most significant of which require the
maintenance of minimum levels of stockholders' equity by the Company
and Bear Stearns. At June 30, 1994, the Company and Bear Stearns were
in compliance with all covenants contained in these various debt
agreements.
<PAGE>
<PAGE>
6. INCOME TAXES
During the quarter ended September 24, 1993, the Company
adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). The cumulative effect of
adopting the provisions of SFAS 109 was not material to the liquidity,
operating results or financial condition of the Company. As permitted
under SFAS 109, prior years' financial statements have not been
restated.
The provision (benefit) for income taxes for the fiscal
years ended June 30 consists of:
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $206,010 $167,302 $144,621
State and local 83,746 71,816 70,700
Foreign 29,459 7,305 11,857
------------------------------------------------------------------------------
319,215 246,423 227,178
------------------------------------------------------------------------------
Deferred
Federal (43,265) 3,585 (9,493)
State and local (20,116) 1,943 (4,638)
------------------------------------------------------------------------------
(63,381) 5,528 (14,131)
------------------------------------------------------------------------------
$255,834 $251,951 $213,047
==============================================================================
</TABLE>
Significant components of the Company's deferred tax assets
(liabilities) as of June 30 are as follows:
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
In thousands 1994 1993(1) 1992
------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred Tax Assets:
Deferred compensation $121,463 $ 61,236 $ 56,807
Valuation reserves 12,680 9,220 8,688
Liability reserves 28,409 19,529 8,781
Other 1,470 6,613 12,967
------------------------------------------------------------------------------
Total deferred tax assets $164,022 $ 96,598 $ 87,243
------------------------------------------------------------------------------
Deferred Tax Liabilities:
Real estate partnership $(51,348) $(41,975) $(38,487)
Unrealized appreciation (8,432) (15,288)
Depreciation (7,985) (11,798) (10,743)
Accrued dividends (1,572) (516) (11,706)
Other (16,373) (12,090) (7,146)
------------------------------------------------------------------------------
Total deferred tax liabilities $(85,710) $(81,667) $(68,082)
------------------------------------------------------------------------------
Net Deferred Tax Asset $ 78,312 $ 14,931 $ 19,161
==============================================================================
<FN>
(1) The deferred tax assets (liabilities) as of June 30, 1993 have been
effected for the adoption of SFAS 109.
</TABLE>
Undistributed earnings of foreign subsidiaries, which would
be subject to additional income taxes if repatriated, amounted to
approximately $38,391,000 as of June 30, 1994. No deferred Federal
income taxes have been provided for these undistributed earnings as
the Company intends to permanently reinvest earnings of foreign
subsidiaries. In the event these undistributed earnings are
repatriated, the amount of potential Federal income tax is not
expected to be material. Income before provision for income taxes for
operations within foreign jurisdictions amounted to approximately
$47,686,000, $19,808,000 and $32,780,000 for the years ended June 30,
1994, 1993 and 1992, respectively.
<PAGE>
<PAGE>
A reconciliation of the statutory Federal income tax rate
and the Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
June 30, 1994 June 30, 1993 June 30, 1992
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 35.0% 34.0% 34.0%
State and local income taxes,
net of Federal benefit 6.4% 7.9 8.6
Dividend exclusion (1.1) (0.6) (0.7)
Other, net (0.5) (0.3) 0.1
------------------------------------------------------------------------------------
39.8% 41.0% 42.0%
====================================================================================
</TABLE>
The Omnibus Budget Reconciliation Act of 1993 (the "Revenue
Act") was enacted on August 10, 1993. Under the Revenue Act, the
corporate statutory rate was increased to 35.0% retroactive to January
1, 1993. The impact of this change was not reflected in the fiscal
1993 results of operations as the Revenue Act was passed into law
subsequent to June 30, 1993. The cumulative effect of the retroactive
increase in the corporate statutory rate was not material.
Not included in the reconciliation table reflected above are
approximately $2,251,000 and $12,345,000 of income tax benefits
attributable to the distribution of Common Stock under the Capital
Accumulation Plan for Senior Managing Directors, as amended (the "CAP
Plan"), other deferred compensation plans and the exercise of stock
options, credited directly to paid-in capital, for fiscal 1994 and
1993, respectively.
Income taxes paid totaled $276,565,000, $223,550,000 and
$210,134,000 for the fiscal years ended June 30, 1994, 1993 and 1992,
respectively.
7. REGULATORY REQUIREMENTS
Bear Stearns and BSSC, a wholly-owned subsidiary of Bear
Stearns, are registered broker-dealers and, accordingly, are subject
to Securities and Exchange Commission Rule 15c3-1 (the "Net Capital
Rule") and the capital rules of the New York Stock Exchange, Inc.
("NYSE") and other principal exchanges of which
<PAGE>
<PAGE>
Bear Stearns and BSSC are members. Bear Stearns and BSSC have
consistently operated in excess of the minimum net capital
requirements imposed by the capital rules. Included in the
computation of net capital of Bear Stearns is net capital of BSSC in
excess of 5% of aggregate debit items arising from customer
transactions, as defined. At June 30, 1994, Bear Stearns' net
capital, as defined, of $1,000,371,000 exceeded the minimum
requirement by $983,291,000.
BSIL and certain other wholly-owned London-based
subsidiaries are subject to regulatory capital requirements of the
Securities and Futures Authority, a self regulatory organization
established pursuant to the United Kingdom Financial Services Act of
1986. BSIL and the other subsidiaries have consistently operated in
excess of these requirements.
The regulatory rules referred to above, and certain
covenants contained in various instruments governing indebtedness of
the Company, Bear Stearns and other regulated subsidiaries, may
restrict the Company's ability to withdraw capital from its regulated
subsidiaries which in turn could limit the Company's ability to pay
dividends. At June 30, 1994, approximately $830,659,000 of net assets
of consolidated subsidiaries are restricted as to the payment of cash
dividends and advances to the Company.
8. PREFERRED STOCK
PREFERRED STOCK ISSUED BY THE BEAR STEARNS COMPANIES INC.
The Adjustable Rate Cumulative Preferred Stock, Series A
(the "Preferred Stock") has a liquidation preference of $50 per share
and is entitled to dividends, on a cumulative basis, at a rate equal
to 135 basis points below the highest of the Treasury Bill Rate, the
Ten Year Constant Maturity Rate and the Thirty Year Constant Maturity
Rate, as defined; however, the dividend rate for any dividend period
may not be less than 5.50% per annum, nor greater than 11.00% per
annum. The Company may redeem the Preferred Stock, either in whole or
in part, at a redemption price of $50 per share plus accumulated and
unpaid dividends. The weighted average dividend rate on the Preferred
Stock was 5.54% during the year ended June 30, 1994.
The Company has outstanding 7,500,000 depositary shares
representing 937,500 shares of Cumulative Preferred Stock, Series B
("Series B Preferred Stock"), having an aggregate liquidation
preference of $187,500,000. Each depositary share represents a
<PAGE>
<PAGE>
one-eighth interest in a share of Series B Preferred Stock. Dividends
on the Series B Preferred Stock are payable at an annual rate of
7.88%. Series B Preferred Stock is redeemable at the option of the
Company at any time on or after April 15, 1998, in whole or in part,
at a redemption price of $200 per share (equivalent to $25 per
depositary share), plus accrued and unpaid dividends.
On July 22, 1993, the Company issued 4,000,000 depositary
shares representing 500,000 shares of Cumulative Preferred Stock,
Series C ("Series C Preferred Stock"), having an aggregate liquidation
preference of $100,000,000. Each depositary share represents a one-
eighth interest in a share of Series C Preferred Stock. Dividends on
the Series C Preferred Stock are payable at an annual rate of 7.60%.
Series C Preferred Stock is redeemable at the option of the Company at
any time on or after July 15, 1998, in whole or in part, at a
redemption price of $200 per share (equivalent to $25 per depositary
share), plus accrued and unpaid dividends.
PREFERRED STOCK ISSUED BY SUBSIDIARY
In February 1994, Bear Stearns Finance LLC ("BSF"), a
wholly-owned subsidiary of the Company, issued Exchangeable Preferred
Income Cumulative Shares ("EPICS"), Series A, which have a liquidation
value of $25 per share, and an annual dividend rate of 8%. The EPICS
are callable at the option of BSF, in whole or in part, at any time,
on or after February 28, 1999, at their stated liquidation value.
The proceeds of the EPICS issuance were loaned by BSF to the
Company under the terms of a 30-year subordinated loan agreement.
This agreement allows the Company to extend the maturity of the loan
through two 30-year renewal options. On any given monthly dividend
date, on or after August 31, 1994, the Company has the right, subject
to certain conditions, to issue to BSF, in exchange for such note,
depositary shares evidencing Preferred Stock of the Company. In the
event of such exchange, BSF is required to redeem the EPICS, in their
entirety, solely in exchange for such depositary shares.
9. EMPLOYEE BENEFIT PLANS
The Company has a qualified noncontributory profit sharing
plan covering substantially all employees. Contributions are made at
the discretion of management in amounts that relate
<PAGE>
<PAGE>
to the Company's level of income before provision for income taxes.
The Company's expense related to the profit sharing plan for the years
ended June 30, 1994, 1993 and 1992 was $9,874,000, $8,866,000, and
$7,465,000, respectively.
The Company maintains a nonqualified defined contribution
retirement plan covering substantially all account executives. The
plan provides for retirement benefits to be paid based upon a
percentage of each participant's compensation and the performance of
certain participant selected investment options for benefits accrued.
The Company also maintained a qualified defined contribution
retirement plan which covered substantially all account executives
which was terminated on December 31, 1991 and following Internal
Revenue Service approval all vested accounts were distributed to
participants. The Company's combined expense for these plans for the
years ended June 30, 1994, 1993 and 1992 was $3,789,000, $3,530,000
and $3,750,000, respectively.
The Company maintains a $40,000,000 leveraged employee stock
ownership plan (the "ESOP") covering substantially all full time
employees. Pursuant to the terms of a Brokerage and Loan Agreement,
the Company advanced funds to the ESOP trust to acquire shares of
Common Stock in open market transactions. Advances made under the
ESOP Note (the "Note") bear interest at a rate of 8.00% per annum.
The Note is repayable in seven annual principal installments which
commenced December 31, 1992. The Note is expected to be repaid
through a combination of contributions by the Company and dividends on
the shares of Common Stock held by the ESOP trust. The note
receivable from the ESOP trust is reflected as a reduction in the
Company's stockholders' equity. The Company's expense related to the
ESOP for the years ended June 30, 1994, 1993 and 1992 was $6,176,000,
$6,262,000 and $2,701,000, respectively.
The Company maintains a benefit plan which provides health
care benefits for retired employees. During the year ended June 30,
1994, the Company adopted Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" ("SFAS 106"). SFAS 106 requires that the Company accrue the
expected cost of providing various postretirement benefits during the
years that the employee renders the necessary service. The adoption
of SFAS 106 did not have a material impact on the Company.
<PAGE>
<PAGE>
10. EMPLOYEE STOCK PLANS
DEFERRED COMPENSATION PLANS
The Company maintains nonqualified deferred compensation
plans (the "Plans") for certain key employees which allowed
participants to defer a portion of their fiscal 1990 compensation.
Under the terms of the Plans, compensation deferred was credited to
participants' deferred compensation accounts in the form of Stock
Units which are equivalent to, and payable in, shares of Common Stock.
Under the Plans, such Stock Units give participants an unsecured right
to receive payments, whenever the Company declares a dividend on its
Common Stock, in an amount equal to the cash dividends payable on an
equivalent number of shares of Common Stock. Participants may also
elect to receive such dividend equivalents in the form of additional
Stock Units. Upon completion of each participant's deferral period,
distributions of amounts deferred are made through the issuance of
shares of Common Stock equal to the number of Stock Units then
credited to a participant's account.
During the year ended June 30, 1993, the Company terminated
one of the Plans, the 1989 Deferred Compensation Plan for Executive
Officers and distributed shares of Common Stock held in treasury in
satisfaction of its obligations thereunder.
The activity related to Stock Units for the fiscal years
ended June 30, was as follows:
<TABLE>
<CAPTION>
1994 1993
------------------------------------------------------------------------------
<S> <C> <C>
Outstanding, beginning of year 65,029 458,784
Resulting from dividend equivalents 2,891
Distributed (53,542) (396,646)
------------------------------------------------------------------------------
Outstanding, end of year 11,487 65,029
==============================================================================
</TABLE>
CAPITAL ACCUMULATION PLAN
The CAP Plan allows participants to defer a defined minimum
percentage of their total annual compensation. Participants'
compensation generally must be deferred for a minimum of five years
from the date it was otherwise payable and is to be credited to
participants' deferred compensation accounts
<PAGE>
<PAGE>
in the form of CAP Units. The number of CAP Units credited is a
function of the amount deferred by each participant and the average
per share cost of Common Stock acquired by the Company in the open
market for the combined purpose of the CAP Plan and the Performance
Unit Plan for Senior Managing Directors (the "PUP Plan") as described
below. The aggregate number of CAP Units that may be credited to
participants in any fiscal year may not exceed the number of shares of
Common Stock acquired by the Company.
Each CAP Unit gives the participant an unsecured right to
receive, on an annual basis, an amount equal to the Company's pre-tax
income or loss per share, as defined by the CAP Plan, less the value
of changes in the Company's book value per Common Share during such
fiscal year resulting from increases or decreases in the Company's
consolidated retained earnings (the "earnings adjustment"). The
earnings adjustment will be credited to each participant's deferred
compensation account in the form of additional CAP Units, subject to
the limitations discussed above, based on the number of CAP Units in
such account at the end of each fiscal year. Upon completion of the
deferral period, participants are entitled to receive shares of Common
Stock equal to the number of CAP Units then credited to their
respective deferred compensation accounts.
During the years ended June 30, 1994, 1993 and 1992,
participants deferred compensation of approximately $120,551,000,
$127,839,000 and $86,932,000, respectively. During the years ended
June 30, 1994, 1993 and 1992, the Company recognized expense of
approximately $13,256,000, $6,336,000 and $15,742,000, respectively,
attributable to shares of Common Stock or cash credited to
participants' deferred compensation accounts with respect to earnings
adjustments. The aggregate number of shares of Common Stock
distributable pursuant to the Company's obligation for CAP Units at
June 30, 1994, 1993 and 1992 was 15,466,094, 8,376,410 and 10,603,217,
respectively. Compensation deferred pursuant to the CAP Plan and
allocated to participants' deferred compensation accounts in the form
of CAP Units is shown as a separate component of the Company's
stockholders' equity. Included in this component of the Company's
stockholders' equity are costs incurred attributable to the PUP Plan.
On December 16, 1992, the Company terminated all deferrals
previously made for fiscal 1991 and 1992 pursuant to the CAP Plan and
concurrently distributed 10,060,730 shares of Common Stock in
satisfaction of its obligations thereunder.
<PAGE>
<PAGE>
PERFORMANCE UNIT PLAN
Effective January 1, 1993, the Company established the
Performance Unit Plan and granted 6,630,251 Performance Units to
eligible employees.
Each Performance Unit gives the participant solely an
unsecured right to receive an amount in cash or stock equal to the
Company's annual pre-tax income or loss per share, as defined by the
PUP Plan, net of an adjustment which reflects changes in the Company's
book value per common share (the PUP "earnings adjustment").
During the year ended June 30, 1994 and the six months ended
June 30, 1993, the Company incurred costs of $3,277,000 and $4,156,000
attributable to the earnings adjustment. The number of Earnings Units
credited for the years ended June 30, 1994 and 1993 were 163,537 and
259,445, respectively.
STOCK OPTION PLAN
The Company has a stock option plan providing for the
issuance of up to 9,899,651 shares of Common Stock to certain key
employees of the Company. On August 17, 1989, the Company granted
stock options for 2,187,855 shares of Common Stock with an exercise
price of $10 1/8. These stock options are all exercisable as of
August 17, 1994 and expire August 16, 1995. Shares of Common Stock
issued upon exercise of the stock options are issued out of the
Company's Common Stock held in treasury. The activity related to the
stock options for the fiscal year ended June 30, 1994 was as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------
<S> <C>
Outstanding, beginning of year 1,827,618
Exercised (339,800)
Forfeited (58,492)
--------------------------------------------------------
Outstanding, end of year 1,429,326
========================================================
</TABLE>
<PAGE>
<PAGE>
11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
MARKET RISK
The Company, in its capacity as a dealer in over-the-counter
derivative financial instruments and in connection with its
proprietary market-making and trading activities, enters into
transactions in a variety of financial instruments in order to reduce
its exposure to market, currency and interest rate risk. Derivative
financial instruments include forward and option contracts, financial
futures and interest rate swaps including caps, floors and collars.
Generally these financial instruments represent future commitments to
exchange interest payment streams or purchase or sell other financial
instruments at specific terms at specified future dates, or to
exchange currencies. Option contracts provide the holder with the
right, but not the obligation, to purchase or sell a financial
instrument at a specific price before or on an established date.
These financial instruments involve varying degrees of off-
balance-sheet market risk whereby changes in interest rates, foreign
currency exchange rates, market values of the underlying financial
instruments or commodities may result in changes in the value of the
financial instrument which are in excess of the amounts recognized in
the Consolidated Statements of Financial Condition. The Company
attempts to control its exposure to market risk arising from the use
of these financial instruments through the use of hedging strategies
and various analytical monitoring techniques.
In order to measure derivative activity, notional or
contract amounts are frequently utilized. Notional/contract amounts,
which are not included on the balance sheet, are used to calculate
contractual cash flows to be exchanged and are generally not actually
paid or received, with the exception of currency swaps and foreign
exchange forwards. The notional/contract amounts of financial
instruments that give rise to off-balance-sheet market risk are
indicative only of the extent of involvement in the particular class
of financial instrument and are not necessarily an indication of
overall market risk. The Company's exposure to market risk is
influenced by a number of factors, including the relationship among
off-balance-sheet financial instruments and between off-balance-sheet
financial instruments and the Company's proprietary securities and
commodities inventories. In many cases, the use of financial
instruments serves to modify or offset market risk associated with
other transactions and accordingly, serves to decrease the Company's
overall exposure to market risk.
<PAGE>
<PAGE>
The following table represents the notional/contract amounts
of the Company's outstanding derivative contracts at June 30, 1994 and
1993:
<TABLE>
<CAPTION>
Notional/Contract Amount
___________________________________________
In millions June 30, 1994 June 30, 1993
------------------------------------------------------------------------------
<S> <C> <C>
Forward Contracts:
Mortgage-Backed Securities $ 26,097(1) $ 35,900
Foreign Exchange 2,067(2) 4,056
Securities Futures Contracts 24,016(3) 7,923
Swap Agreements:(4)
U.S. Dollar 24,203 7,313
Non-Dollar 8,076
Options Written:
Securities 3,003 1,532
Foreign Exchange 1,633 1,151
==============================================================================
<FN>
1. Represents purchases of $11,789 and sales of $14,308.
2. Represents purchases of $833 and sales of $1,234.
3. Represents purchases of $15,128 and sales of $8,888.
4. Includes swap options, caps, collars and floors.
</TABLE>
As part of the Company's proprietary commodity trading
activities, the Company enters into commodity futures and forward
contracts providing for the purchase and sale of crude oil and
petroleum products with contract amounts at June 30, 1994 of
$741,405,000 and $956,508,000, respectively, compared to $727,500,000
and $689,740,000, respectively, at June 30, 1993. The prices of a
significant portion of the forward purchase and sales commitment with
respect to crude oil are only determinable in the future based upon
contracted pricing formulas specified in the agreement.
The majority of the Company's off-balance-sheet transactions
are short-term in duration with a weighted average maturity of
approximately 1.48 years at June 30, 1994. At June 30, 1994,
$67,825,000,000 of all outstanding derivatives contracts, including
purchased options, will mature in fiscal
<PAGE>
<PAGE>
year 1995, $10,759,000,000 in 1996, $5,588,000,000 in 1997,
$4,545,000,000 in 1998, $5,351,000,000 in 1999 and $4,170,000,000
thereafter.
CREDIT RISK
The notional/contract amounts of these instruments do not
represent the Company's potential risk of loss due to counterparty
nonperformance. Credit risk arises from the potential inability of
counterparties to perform in accordance with the terms of the
contract. The Company's exposure to credit risk associated with
counterparty nonperformance is limited to the net replacement cost of
over-the-counter contracts (including purchased options) in a gain
position which are recognized in the Company's Consolidated Statements
of Financial Condition. Options written do not give rise to
counterparty credit risk since they obligate the Company (not its
counterparty) to perform. Exchange traded financial instruments such
as futures and options generally do not give rise to significant
counterparty exposure due to the margin requirements of the individual
exchanges.
The Company has controls in place to monitor credit
exposures by limiting transactions with specific counterparties and
assessing the future creditworthiness of counterparties. The Company
also seeks to control credit risk by following an established credit
approval process, monitoring credit limits, and requiring collateral
where appropriate.
At June 30, 1994 and 1993, the Company's exposure to credit
risk on over-the-counter financial instruments was approximately
$351,797,000 and $614,779,000 for forward contracts and purchased
options, $383,962,000 and $74,427,000 for swap agreements. The
following table summarizes the counterparty credit ratings for the
replacement cost (net of $349,028,000 of collateral) of contracts in a
gain position at June 30, 1994:
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
In millions
----------------------------------------------------------
RATING(1) NET REPLACEMENT COST
<S> <C>
AAA $ 54
AA 79
A 219
BBB and lower 14
Other(2) 21
-----------------------------------------------------------
<FN>
1. Rating Agency Equivalent
2. Other indicates counterparties for which no credit rating was available
from an independent third party source. It does not necessarily
indicate the counterparties credit rating is below investment grade.
</TABLE>
CUSTOMER ACTIVITIES
The Company's clearance activities for customers and
correspondents ("customers") involve the execution, settlement and
financing of various customer securities and commodities transactions.
Customer securities activities are transacted on either a cash or
margin basis and customer commodity transactions are generally
transacted on a margin basis subject to individual exchange
regulations. In connection with these activities, the Company
executes and clears customer transactions involving the sale of
securities not yet purchased ("short sales") and the writing of option
contracts. These transactions may expose the Company to off-balance-
sheet risk in the event the customer is unable to fulfill its
contracted obligations and margin requirements are not sufficient to
fully cover losses which customers may incur. In the event the
customer fails to satisfy its obligations, the Company may be required
to purchase or sell financial instruments at prevailing market prices
in order to fulfill the customer's obligations.
The Company seeks to control the risks associated with its
customer activities by requiring customers to maintain margin
collateral in compliance with various regulatory and internal
guidelines. The Company monitors required margin levels daily and,
pursuant to such guidelines, requires the customers to deposit
additional collateral, or reduce positions, when necessary. The
Company also establishes credit limits for customers engaged in
commodity futures activities, which are
<PAGE>
<PAGE>
monitored daily. Additionally, with respect to the Company's
correspondent clearing activities, introducing correspondent brokers
are required to guarantee the performance of their customers in
meeting contracted obligations.
The Company's customer financing and securities settlement
activities may require the Company to pledge customer securities as
collateral in support of various secured financing sources such as
bank loans, securities loaned and repurchase agreements and to satisfy
margin deposits of various exchanges. In the event the counterparty
is unable to meet its contracted obligation to return customer
securities pledged as collateral, the Company may be exposed to the
risk of acquiring the securities at prevailing market prices in order
to satisfy its customer obligations. The Company controls this risk
by monitoring the market value of securities pledged on a daily basis
and by requiring adjustments of collateral levels in the event of
excess market exposure. Additionally, the Company establishes credit
limits for such activities and monitors compliance on a daily basis.
At June 30, 1994, the market value of customer securities pledged
under these secured financing transactions approximated the amounts
due.
CONCENTRATIONS OF CREDIT RISK
As a securities broker and dealer, the Company is engaged in
various securities underwriting, brokerage and trading activities.
These services are provided to a diverse group of domestic and foreign
corporations, governments and institutional and individual investors.
A substantial portion of the Company's transactions are collateralized
and are executed with and on behalf of institutional investors
including other brokers and dealers, commercial banks, insurance
companies, pension plans and mutual funds and other financial
institutions. The Company's exposure to credit risk associated with
the nonperformance of these customers in fulfilling their contractual
obligations pursuant to securities and commodities transactions can be
directly impacted by volatile or illiquid trading markets which may
impair the customers' ability to satisfy their obligations to the
Company. The Company attempts to minimize credit risk associated with
these activities by monitoring customer credit exposure and collateral
values on a daily basis and requiring additional collateral to be
deposited with or returned to the Company when deemed necessary.
A significant portion of the Company's securities processing
activities includes clearing transactions for
<PAGE>
<PAGE>
specialists, market makers, risk arbitrageurs, hedge funds and other
professional traders. Due to the nature of their operations, which
may include significant levels of margin lending and involve short
sales and option writing, the Company may have significant credit
exposure due to the potential inability of these customers to meet
their commitments. The Company seeks to control this risk by
monitoring margin collateral levels on a daily basis for compliance
with both regulatory and internal guidelines and requesting additional
collateral where necessary. Additionally, in order to further control
this risk, the Company has developed computerized risk control systems
which analyze the customer's sensitivity to major market movements.
Where deemed necessary, the Company will require the customer to
deposit additional margin collateral, or reduce positions, if it is
determined that the customer's activities may be subject to above-
normal market risks.
12. COMMITMENTS AND CONTINGENCIES
LEASES
The Company occupies office space under leases which expire
at various dates through 2016. The lease commitments include the
lease of the Company's headquarters at 245 Park Avenue, New York City
which expires on December 31, 2002. At June 30, 1994, future minimum
aggregate annual rentals payable under these noncancelable leases (net
of subleases) for the fiscal years ending 1995 through 1999 and the
aggregate amount thereafter, are as follows:
<TABLE>
<CAPTION>
In thousands
---------------------------------------------------
FISCAL YEAR
<S> <C>
1995 $ 47,782
1996 47,209
1997 45,789
1998 44,304
1999 43,130
Aggregate amount thereafter 165,658
---------------------------------------------------
</TABLE>
<PAGE>
<PAGE>
The various leases contain provisions for periodic
escalations to the extent of increases in certain operating and other
costs. Rental expense, including escalation, under these leases was
$65,316,000, $60,253,000, and $62,621,000, for the years ended June
30, 1994, 1993 and 1992, respectively.
LETTERS OF CREDIT
At June 30, 1994, the Company is contingently liable for
unsecured letters of credit of $1,551,974,000 and letters of credit of
$356,400,000 secured by financial instruments which are principally
used as deposits for securities borrowed and to satisfy margin
deposits at option and commodity exchanges.
BORROW VERSUS PLEDGE
At June 30, 1994, U.S. government and agency securities with
a market value of approximately $5,981,080,000 have been pledged
against borrowed securities with an approximate market value of
$5,819,292,000.
LITIGATION
In the normal course of business, the Company has been named
as a defendant in several lawsuits which involve claims for
substantial amounts. Although the ultimate outcome of these suits
cannot be ascertained at this time, it is the opinion of management,
after consultation with counsel, that the resolution of such suits
will not have a material adverse effect on the results of operations
or the financial condition of the Company.
13. SEGMENT AND GEOGRAPHIC AREA DATA
The Company is primarily engaged in a single line of
business as a securities broker and dealer, which comprises several
classes of services, such as principal transactions, agency
transactions, and underwriting and investment banking. These
activities constitute a single industry segment for purposes of
Statement of Financial Accounting Standards No. 14. Information
regarding the Company's operations are as follows:
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign revenues $ 199,461 $ 134,349 $ 134,910
Domestic revenues 3,241,611 2,718,836 2,544,023
-------------------------------------------------------------------------------------------------------------
Consolidated revenues $ 3,441,072 $ 2,853,185 $ 2,678,933
=============================================================================================================
Foreign income before provision for income taxes $ 52,461 $ 4,450 $ 34,037
Domestic income before provision for income taxes 590,338 609,948 473,588
-------------------------------------------------------------------------------------------------------------
Consolidated income before provision for income taxes $ 642,799 $ 614,398 $ 507,625
=============================================================================================================
Foreign assets $ 8,925,849 $ 8,229,623 $ 5,190,905
Domestic assets 58,466,169 49,209,882 40,577,428
-------------------------------------------------------------------------------------------------------------
Consolidated assets $67,392,018 $57,439,505 $45,768,333
=============================================================================================================
</TABLE>
Because of the international nature of the financial markets
and the resultant integration of U.S. and non-U.S. services, it is
difficult to precisely separate foreign operations. The Company
conducts and manages these activities with a view toward the
profitability of the Company as a whole. Accordingly, the foreign
operations information is, of necessity, based upon certain management
judgments and internal allocations.
<PAGE>
<PAGE>
14. QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
In thousands, except per share data Quarter Quarter Quarter Quarter Total
- - - - - - - ------------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED JUNE 30, 1994
<S> <C> <C> <C> <C> <C>
Revenues $ 769,361 $1,002,557 $ 898,961 $ 770,193 $3,441,072
Interest expense 184,006 250,452 245,324 340,273 1,020,055
- - - - - - - ------------------------------------------------------------------------------------------------------------------------------
Revenues, net of interest expense 585,355 752,105 653,637 429,920 2,421,017
- - - - - - - ------------------------------------------------------------------------------------------------------------------------------
Non-interest expenses
Employee compensation and benefits 289,373 379,427 321,042 237,219 1,227,061
Other 117,990 140,764 136,097 156,306 551,157
- - - - - - - ------------------------------------------------------------------------------------------------------------------------------
Total non-interest expenses 407,363 520,191 457,139 393,525 1,778,218
- - - - - - - ------------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 177,992 231,914 196,498 36,395 642,799
Provision for income taxes 73,689 97,101 81,048 3,996 255,834
- - - - - - - ------------------------------------------------------------------------------------------------------------------------------
Net income $ 104,303 $ 134,813 $ 115,450 $ 32,399 $ 386,965
==============================================================================================================================
Earnings per share(1) $ .77 $ 1.00 $ .88 $ .21 $ 2.89
==============================================================================================================================
Cash dividends declared per common share $ .15 $ .15 $ .15 $ .15 $ .60
==============================================================================================================================
<CAPTION>
First Second Third Fourth
In thousands, except per share data Quarter Quarter Quarter Quarter Total
- - - - - - - ------------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED JUNE 30, 1993
<S> <C> <C> <C> <C> <C>
Revenues $ 603,229 $ 632,569 $ 733,895 $ 883,492 $2,853,185
Interest expense 165,171 177,887 163,428 203,600 710,086
- - - - - - - ------------------------------------------------------------------------------------------------------------------------------
Revenues, net of interest expense 438,058 454,682 570,467 679,892 2,143,099
Non-interest expenses
Employee compensation and benefits 217,307 231,756 276,148 311,888 1,037,099
Other 112,207 112,073 110,892 156,430 491,602
- - - - - - - ------------------------------------------------------------------------------------------------------------------------------
Total non-interest expenses 329,514 343,829 387,040 468,318 1,528,701
- - - - - - - ------------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 108,544 110,853 183,427 211,574 614,398
Provision for income taxes 45,588 46,559 73,011 86,793 251,951
- - - - - - - ------------------------------------------------------------------------------------------------------------------------------
Net income $ 62,956 $ 64,294 $ 110,416 $ 124,781 $ 362,447
==============================================================================================================================
Earnings per share(1) $ .52 $ .50 $ .88 $ .97 $ 2.86
==============================================================================================================================
Cash dividends declared per common share $ .15 $ .15 $ .15 $ .15 $ .60
==============================================================================================================================
<FN>
(1) The sum of the quarters' earnings per share amounts does not equal the full fiscal years' amounts due to the effect of
averaging the number of shares of Common Stock and common stock equivalents throughout the year.
</TABLE>
<PAGE>
<PAGE>
Independent Auditors' Report
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF THE BEAR STEARNS COMPANIES INC.
We have audited the accompanying consolidated statements of financial
condition of The Bear Stearns Companies Inc. and Subsidiaries as of
June 30, 1994 and 1993, and the related consolidated statements of
income, cash flows and changes in stockholders' equity for each of the
three years in the period ended June 30, 1994. 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, such consolidated financial statements present fairly,
in all material respects, the financial position of The Bear Stearns
Companies Inc. and Subsidiaries at June 30, 1994 and 1993, and the
results of their operations and their cash flows for each of the three
years in the period ended June 30, 1994 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
August 15, 1994
<PAGE>
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock of the Company is traded on the NYSE under the
symbol BSC. The following table sets forth for the periods indicated
the high and low sales prices for the Common Stock on the NYSE, as
adjusted to reflect the 5% stock dividends distributed on the Common
Stock on August 31, 1993 and May 27, 1994, and the cash dividends
declared on the Common Stock.
As of September 1, 1994, there were 4,022 holders of record of
the Company's Common Stock. On September 1, 1994, the last reported
sales price of the Company's Common Stock was $17F.
On August 2, 1994, the Company announced the declaration of a
quarterly cash dividend of $0.15 per share on its Common Stock to
stockholders of record on August 12, 1994, which was paid on August
26, 1994. The Board of Directors of the Company presently intends to
continue paying cash dividends on the outstanding shares of Common
Stock on a quarterly basis although the timing and amount of such
dividends will depend upon the Company's earnings, financial condition
and cash requirements at the time such payment is considered.
Dividends are payable on January 15, April 15, July 15, and
October 15in each year on the Company's outstanding Adjustable Rate
Cumulative Preferred Stock, Series A, Cumulative Preferred Stock,
Series B and Cumulative Preferred Stock, Series C (collectively, the
"Preferred Stock"). The terms of the Preferred Stock require that all
accrued dividends in arrears be paid prior to the payment of any
dividend on the Common Stock.
Since the Company is a holding company, its ability to pay
dividends is limited by the ability of its subsidiaries to pay
dividends and to make advances to the Company. See the Notes to
Consolidated Financial Statements under the caption "Regulatory
Requirements" for a further description.
<TABLE>
<CAPTION>
Cash Dividends
Declared
Per Common
High Low Share
------ ------- -----------
<S> <C> <C> <C>
FISCAL YEAR ENDED JUNE 30, 1993
First Quarter (through September 25, 1992) $ 14-5/8 $ 13 $ .15
Second Quarter (through December 31, 1992) 15-7/8 12-1/4 .15
Third Quarter (through March 26, 1993) 16-5/8 14-1/4 .15
Fourth Quarter (through June 30, 1993) 21-1/4 16 .15
FISCAL YEAR ENDED JUNE 30, 1994
First Quarter (through September 24, 1993) $ 24-1/8 $ 20-3/4 $ .15
Second Quarter (through December 31, 1993) 24-5/8 19-3/8 .15
Third Quarter (through March 25, 1994) 23-1/8 19-5/8 .15
Fourth Quarter (through June 30, 1994) 21-5/8 16-7/8 .15
</TABLE>
<PAGE>
EXHIBIT 21
----------
SUBSIDIARIES OF REGISTRANT
--------------------------
Jurisdiction of
Incorporation
Subsidiary or Organization
---------- ---------------
Battery Park Capital Corp.
BS Agency GP Capital Inc. Delaware
Bear Stearns (Israel), Inc. Delaware
Bear Stearns Acquisition Corp. Delaware
Bear Stearns Acquisition IX, Inc. Delaware
Bear Stearns Acquisition II, Inc. Delaware
Bear Stearns Acquisition Corporation IV Delaware
CDG Holdings, Inc. Massachusetts
Cambridge Dry Goods Co. Inc. Massachusetts
Bear Stearns Acquisition V, Inc. Delaware
Bear Stearns Acquisition Corporation VII Delaware
Bear Stearns Acquisition Corporation XI Delaware
Sure Fit Holdings, Inc. Delaware
Bear Stearns Acquisition XII, Inc. Delaware
Monetary Management Holdings, Inc. Delaware
Bear Stearns Acquisition XIV, Inc. Delaware
Bear Stearns Argentina Inc. Delaware
Bear Stearns Asset Backed Investors Corp. Delaware
Bear Stearns Capital Markets Inc. Delaware
Bear Stearns Fiduciary Services, Inc. Delaware
Bear Stearns Forex Inc. Delaware
Bear Stearns Funds Management Inc. New York
NYFS04...:\25\22625\0110\7120\EXH91994.Y90
<PAGE>
<PAGE>
Jurisdiction of
Incorporation
Subsidiary or Organization
---------- ---------------
Bear Stearns FLLC Corp. Delaware
Bear Stearns Finance LLC Cayman Islands
Bear Stearns Government Securities, Inc. New York
Bear Stearns Global Asset Holdings, Ltd. Cayman Islands
Bear Stearns Government Product Corp. Delaware
Bear Stearns Global Equity Derivatives Inc. Delaware
Bear Stearns Global Investors Inc. New York
Bear Stearns Finance S.A. France
CLBS Titrisation S.A. France
ABC Gestion France
Bear Stearns Holdings Limited United Kingdom
Bear, Stearns International Limited United Kingdom
Bear Stearns U.K. Limited United Kingdom
Bear Stearns International Trading Limited United Kingdom
Bear Stearns Oil Trading Limited United Kingdom
Bear Stearns China SPC, Inc. Delaware
BSCP Cayman, Inc. Cayman Islands
Bear Stearns China L.P. Cayman Islands
L.P.
Bear Stearns China Direct Cayman Islands
Investment Fund L.P. L.P.
Bear, Stearns Insurance Agency Incorporated Massachusetts
Bear Stearns Insurance Agency of California, California
Incorporated
Bear, Stearns International Holdings Inc. New York
Bear Stearns Hong Kong Limited Hong Kong
<PAGE>
<PAGE>
Jurisdiction of
Incorporation
Subsidiary or Organization
---------- ---------------
Bear Stearns Asia Limited Hong Kong
Bear Stearns Investment Advisors Inc. Delaware
Bear Stearns Mortgage Capital Corporation Delaware
Bear, Stearns Funding, Inc. Delaware
Bear, Stearns Mortgage Securities Inc. Delaware
Bear Stearns Municipal Capital Markets Delaware
Bear Stearns N.Y., Inc. New York
Bear, Stearns Netherlands Holding B.V. Netherlands
Bear Stearns Jahangir Siddiqui Ltd. Pakistan j.v.
(< 30%)
Bear Stearns Bank GmbH Germany
Bear Stearns Securities Administration Corporation Delaware
Bear Stearns Real Estate Group Inc. New York
Bear, Stearns Realty Investors, Inc. Delaware
Bear Stearns Realty Partners Corporation Delaware
Bear Stearns Realty Partners Delaware L.P.
Apartment Fund I LP (GP)
Bear Stearns Realty Inc. Texas
Bear Stearns Secured Investors Inc. Delaware
Bear Stearns Secured Investors Inc. II Delaware
Bear Stearns Spanish Securitization Corp. Delaware
Bear Stearns Structured Products Corp. Delaware
Bear, Stearns & Co. Inc. Delaware
Bear Stearns & Co. L.P. Delaware L.P.
Bear, Stearns Government Securities, Inc. New York
<PAGE>
<PAGE>
Jurisdiction of
Incorporation
Subsidiary or Organization
---------- ---------------
Bear, Stearns N.V. Netherlands
Antilles
CMC Commercial Assets Corporation New York
Bear, Stearns Commercial Delaware
Mortgage Securities Inc.
Bear Tel Corp. Delaware
BS Fund America 1993-C GP Capital Inc. Delaware
BS Fund America 1993-D GP Capital Inc. Delaware
BSC Hotel Capital Corporation New York
BSC Service Corp. Delaware
Custodial Trust Company New Jersey
CTC Services, Inc. New York
Custrust New Jersey
G.P.
Bear Stearns Investment Advisors Inc. Delaware
Street Pricing Service New York G.P.
EMC Mortgage Corporation Delaware
EMC Funding Corporation Delaware
EMC Funding Corporation Two Delaware
EMCGP Capital Inc. Delaware
EMC Residential Mortgage Corporation Delaware
ISB Real Estate Corporation Delaware
Bear Stearns Park Avenue Trading Corporation Delaware
Bear Stearns Global Investors Inc. New York
Sloate, Weisman, Bear, Stearns Capital Delaware
Management, Inc.
MAX Recovery Inc. Delaware
<PAGE>
<PAGE>
Jurisdiction of
Incorporation
Subsidiary or Organization
---------- ---------------
Bear Stearns Philippines Ltd. Delaware
Bear Stearns State Asia, Inc. Philippines
Bear Stearns Investment Advisors Inc. Delaware
Street Pricing Service New York
Partnership
BSMSI 1993-12 Reserve Fund Corp. Delaware
BSTE Funding I Inc. Delaware
BSTE Funding II Inc. Delaware
BSTE Funding III Inc. Delaware
Thanksgiving Properties, Inc. Texas
Blaylock & Co. L.P. (25% owned) Delaware
<PAGE>
<PAGE>
Subsidiaries or Indirect Subsidiaries of
Bear, Stearns & Co. Inc.
------------------------
Jurisdiction of
Incorporation
Subsidiary or Organization
---------- ---------------
Bear, Stearns Securities Corp. Delaware
Common Back Office, Inc. Delaware
BSC Securities Corp. New York
Bear Stearns S.A. France
Bear Specialist, Inc. New York
Bear Stearns American Specialist Inc. New York
Bear, Stearns Benefits Planning Group Inc. New York
Bear Stearns Benefits Planning Group New York L.P.
B.S.C. Nominee Corp. New York
Brokers' Soft Dollar, Inc. New York
Autobond Inc. New York
Bear Stearns Global Asset Trading, Ltd. Cayman Islands
Bear Stearns (Japan), Ltd. Delaware
<PAGE>
EXHIBIT 23
----------
INDEPENDENT AUDITORS' CONSENT
-----------------------------
We consent to the incorporation by reference in Registration
Statements of The Bear Stearns Companies Inc. on Form S-3
(file Nos. 33-44521, 33-48829, 33-57824, 33-65796, 33-59140,
33-50393, 33-51733, 33-52053, 33-52701) and Form S-8 (File
Nos. 33-50012, 33-55804, 33-49979) of our reports dated
August 15, 1994, appearing in and incorporated by reference
in the Annual Report on Form 10-K of The Bear Stearns
Companies Inc. for the year ended June 30, 1994.
DELOITTE & TOUCHE LLP
New York, New York
September 27, 1994
NYFS04...:\25\22625\0110\7120\EXH92694.U60
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This Schedule contains summary financial
information extracted from the financial
statements contained in the body of the
accompanying Form 10-K and is qualified in its
entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-END> JUN-30-1994
<CASH> 294,604
<RECEIVABLES> 8,425,184
<SECURITIES-RESALE> 19,515,764
<SECURITIES-BORROWED> 21,073,208
<INSTRUMENTS-OWNED> 14,443,918
<PP&E> 271,807
<TOTAL-ASSETS> 67,392,018
<SHORT-TERM> 7,860,311
<PAYABLES> 17,385,311
<REPOS-SOLD> 26,863,122
<SECURITIES-LOANED> 124,037
<INSTRUMENTS-SOLD> 8,351,258
<LONG-TERM> 3,408,096
0
437,500
<COMMON> 144,965
<OTHER-SE> 1,584,101
<TOTAL-LIABILITY-AND-EQUITY> 67,392,018
<TRADING-REVENUE> 1,131,914
<INTEREST-DIVIDENDS> 1,304,392
<COMMISSIONS> 482,988
<INVESTMENT-BANKING-REVENUES> 493,739
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 1,020,055
<COMPENSATION> 1,227,061
<INCOME-PRETAX> 642,799
<INCOME-PRE-EXTRAORDINARY> 642,799
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 386,965
<EPS-PRIMARY> 3.89
<EPS-DILUTED> 3.89
</TABLE>
