Filed Pursuant to Rule 424(b)(5)
Registration No. 33-55673
Subject to Completion, dated June 21, 1995
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED OCTOBER 7, 1994)
1,000,000 CUBSSM
THE BEAR STEARNS COMPANIES INC.
CONSOLIDATION PORTFOLIO
CUSTOMIZED UPSIDE BASKET SECURITIESSM DUE 1998
The issue price (the "Issue Price") of each of the Consolidation Portfolio
Customized Upside Basket Securities Due 1998 (the "Securities" or "CUBS") of The
Bear Stearns Companies Inc. (the "Company") being offered hereby will be $10.00.
The Securities will mature on , 1998. The Basket (as defined herein)
consists of the common stocks of 24 corporations operating in seven different
industry groups.
The amount payable at maturity (the "Maturity Payment Amount") on each CUBS
will equal the product of (a) the Issue Price and (b) the sum of (i) one and
(ii) 90% (the "Participation Percentage") of the difference between the Average
Basket Maturity Value (as defined herein) and the Original Basket Value (as
defined herein) of 100, divided by the Original Basket Value of 100; provided
that the Maturity Payment Amount will not be less than $9.00. There will be no
payments with respect to the Securities prior to maturity. The Securities are
not redeemable by the Company prior to maturity. See "Description of Securities"
and "The Basket" herein.
PURCHASERS OF THE SECURITIES SHOULD BE PREPARED TO SUSTAIN A LOSS OF UP TO
10% OF THE ISSUE PRICE OF THEIR SECURITIES IF THE AVERAGE BASKET MATURITY VALUE
IS LESS THAN 100, AND ARE ADVISED TO CONSIDER CAREFULLY THE INFORMATION UNDER
"RISK FACTORS" ON PAGE S-6 HEREIN, AS WELL AS THE OTHER INFORMATION HEREIN AND
IN THE PROSPECTUS.
"CUBS" and "Customized Upside Basket Securities" are service marks of The
Bear Stearns Companies Inc.
Application has been made to list the CUBS on the American Stock Exchange
(the "AMEX"), subject to the receipt of requisite regulatory approvals, under
the symbol "KBB."
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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UNDERWRITING DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
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Per Security... $10.00 $ $
Total(3)....... $10,000,000 $ $
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting expenses estimated at $ .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
150,000 additional CUBS solely to cover over-allotments. If the option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
----------------------
The Securities are offered by the Underwriters, subject to prior sale, when,
as and if delivered to and accepted by the Underwriters, and subject to their
right to reject any order in whole or in part and to withdraw, cancel or modify
the offer without notice. It is expected that delivery of the Securities will be
made at the offices of Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New
York 10167 on or about , 1995.
Following the initial offering of the Securities, this Prospectus Supplement
and the accompanying Prospectus may be used by Bear, Stearns & Co. Inc. in
connection with offers and sales associated with market-making transactions in
the Securities. Bear, Stearns & Co. Inc. may act as principal or agent in such
transactions. Such offers and sales will be made at prices related to prevailing
market prices at the time.
BEAR, STEARNS & CO. INC.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS , 1995
<PAGE>
This prospectus supplement, which relates to securities that are the subject of
an effective Registration Statement under the Securities Act of 1933, as
amended, is subject to completion and amendment.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMEX, IN THE OVER-THE-COUNTER
MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in the Prospectus and this Prospectus Supplement
and in the documents incorporated therein and herein by reference. Appendix A
hereto ("Index of Defined Terms") contains a listing of defined terms and pages
on which they are defined in this Prospectus Supplement.
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Securities Offered........... 1,000,000 Consolidation Portfolio Customized Upside Basket
Securities Due 1998 (the "Securities" or "CUBS").
Issue Price.................. $10 per CUBS.
Maturity..................... , 1998 ("Maturity").
Interest..................... There will be no payments with respect to the Securities
prior to Maturity.
Maturity Payment Amount...... At Maturity, each Holder will be entitled to receive an
amount (the "Maturity Payment Amount") with respect to each
CUBS equal to the following:
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<S> <C> <C>
(Average Basket Maturity Value--100
$10 x [1 + ----------------------------------- x Participation Percentage)]
100
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provided that, the Maturity Payment Amount will not be less
than $9.00 per CUBS. The Participation Percentage will
always be 90%. The average basket value at Maturity (the
"Average Basket Maturity Value") will be determined by Bear,
Stearns & Co. Inc., an affiliate of the Company (the
"Calculation Agent"), and will be an amount equal to the sum
of the Monthly Basket Values (as defined below) for all
Calculation Dates through and including Maturity, divided by
the number of such Calculation Dates. The monthly basket
value (the "Monthly Basket Value") will be the Basket Value
(as defined below) determined by the Calculation Agent on
the day of each month at the end of that day, or if such
day is not a Trading Day (as defined herein), at the end of
the immediately preceding Trading Day (each such date being
a "Calculation Date"), commencing with the month of
(the first month after the date hereof) through and
including the month of 1998 (such final Calculation
Date being the date of Maturity). The basket value (the
"Basket Value") for any day will equal the sum of the
products of the Market Price of each security in the Basket
(each, a "Basket Security", and, collectively, the "Basket
Securities") on that day and the then applicable Multiplier
for that Basket Security. The applicable multiplier (the
"Multiplier") for each Basket Security is specified under
the caption "Description of Securities--Basket Securities"
below and indicates the number of shares (or the fraction of
one share) of that Basket Security included in the
calculation of the Basket Value. Each Multiplier will remain
constant for the term of the Securities unless adjusted for
certain corporate events, including a stock split, reverse
stock split or stock dividend. In the event of a merger or
consolidation of an issuer of a Basket Security in which
that issuer is not the surviving entity, the value of that
Basket Security will be
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based on the value of the consideration received in exchange
for that Basket Security, as adjusted for the accrual of
interest. See "Description of Securities--Adjustments to
the Multiplier and Basket" and"Description of Securities--Maturity
Payment Amount."
The Basket................... The Consolidation Portfolio Basket (the "Basket") consists
of the common stocks of 24 corporations operating in the
following seven industry groups: biotechnology, energy,
healthcare services, packaged foods, personal computer
("PC") software, pharmaceuticals and regional
banks/specialty finance. The Company believes that the trend
in each of these industry groups is toward increasing
consolidation over the next several years. The Company
believes that the companies selected for inclusion in the
Basket have the potential to benefit from such
consolidation. Ownership of the Securities will not entitle
Holders to receive any of the Basket Securities. The Basket
Securities have significantly different levels of market
value (i.e., the number of shares of a particular security
outstanding multiplied by the current market price of that
security). The original Multipliers will be determined so
that each Basket Security represents an equal percentage of
the Original Basket Value (as defined below) on the date the
Securities are priced for initial sale to the public. See
"Description of Securities--Basket Securities" herein. The
inclusion of any particular Basket Security in the Basket is
not a recommendation to buy or sell that Basket Security,
and neither the Company nor any of its affiliates makes any
representation as to the future performance of the Basket or
any of the Basket Securities.
Calculation and Dissemination
of the Basket Value.......... As long as the CUBS are listed on the AMEX, the AMEX intends
to calculate and disseminate the value of the Basket based
on the most recently reported prices at approximately 15
second intervals during AMEX business hours and the Basket
Value at the end of such day to vendors via the facilities
of the AMEX Tape under the symbol "XCB." See "Description of
Securities--Maturity Payment Amount" herein.
Original Basket Value........ Based on the individual prices of the Basket Securities on
the date that the Securities are priced for initial offering
to the public, the Multiplier for each Basket Security
initially will be set so that the Basket Value on that date
(the "Original Basket Value") will equal 100.
Risk Factors................. The Securities are subject to certain risk factors that are
distinct from those associated with a direct investment in
the common stocks that comprise the Basket Securities.
First, because the amount payable at Maturity on the
Securities is based on the average of the Basket Values on
the Calculation Dates throughout the term of the Securities
and a Participation Percentage of 90%, investors could
receive less than if they had purchased and held the Basket
Securities for the term of the Securities. Accordingly,
prospective investors should be aware that if the Average
Basket Maturity Value is less than 100, Holders will receive
a Maturity Payment
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<TABLE>
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Amount that is up to 10% less than the Issue Price, even if
the Basket Value at Maturity or the Average Basket Value (as
defined herein) or the Basket Value at some prior date may
have exceeded 100. Second, the amount payable at Maturity
will not reflect the payment of any dividends on the Basket
Securities prior to Maturity. Third, to the extent that the
amount received by a Holder at Maturity exceeds the amount
of its investment in the Securities, the excess will be
taxable as ordinary income rather than capital gain although
any loss realized at Maturity should be treated as a capital
loss. Fourth, there is substantial uncertainty regarding
whether any gain on the sale or exchange of the Securities
prior to Maturity should be treated as capital gain or
ordinary income and, as a result, a purchaser of the
Securities should be aware that all or a portion of any such
gain may be taxed as ordinary income. Fifth, there can be no
assurance as to how the Securities will trade in the
secondary market or whether the market for the Securities
will be liquid. The prices at which the Securities trade in
the secondary market are expected to depend on a combination
of factors, including the relationship between the Average
Basket Value at the time to the Original Basket Value of
100, the relationship between the then Basket Value and the
Original Basket Value, the time remaining to Maturity,
prevailing interest rates, the dividend rates of the Basket
Securities and the volatility of the Basket Value. In
addition, if a Market Price is no longer available for a
Basket Security for whatever reason, including the
liquidation or dissolution of the issuer of that Basket
Security or the subjection of the issuer to a proceeding
under any applicable bankruptcy, insolvency, or similar law,
then, for so long as a Market Price is unavailable for that
Basket Security, the value of that Basket Security will be
deemed to be zero for the purposes of calculating the Basket
Value and the Monthly Basket Value. See "Risk Factors"
herein.
It is suggested that prospective investors who consider
purchasing the Securities reach an investment decision only
after carefully considering with their advisers the
suitability of an investment in the Securities in the light
of their particular circumstances.
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S-5
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RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges was 1.1, 1.1 and 1.2 for
the fiscal quarters ended September 30, 1994, December 31, 1994 and March 31,
1995, respectively. The ratio was calculated by dividing the sum of the fixed
charges into the sum of the earnings before taxes and fixed charges. Fixed
charges for purposes of the ratio consist of interest expense and certain other
immaterial expenses.
USE OF PROCEEDS AND HEDGING
All or a portion of the net proceeds from the sale of the Securities will be
used by the Company or one or more of its subsidiaries in connection with
hedging the Company's obligations in respect of the Securities. Any remaining
net proceeds will be used for general corporate purposes. See "Use of Proceeds"
in the Prospectus.
Prior to the pricing of the Securities, the Company, through its
subsidiaries, hedged its anticipated obligations under the Securities and,
subject to market conditions, the Company expects that it will continue to hedge
its obligations under the Securities from time to time following this offering
by taking long or short positions in some or all of the Basket Securities or in
listed or over-the-counter options contracts in, or other derivative or
synthetic instruments related to, some or all of the Basket Securities. In
addition, the Company, through its subsidiaries, may purchase or otherwise
acquire a long or short position in the Securities from time to time and may, in
its sole discretion, hold or resell the Securities. The Company, through its
subsidiaries, also may take positions in other types of appropriate financial
instruments that may become available in the future. To the extent that the
Company, through its subsidiaries, has a long hedge position in some or all of
the Basket Securities or options contracts in, or other derivative or synthetic
instruments related to, some or all of the Basket Securities, the Company,
through its subsidiaries, may liquidate a portion of its holdings at or about
the time of the maturity of the Securities. Depending, among other things, on
future market conditions, the aggregate amount and the composition of those
positions are likely to vary over time. Profits or losses from any such position
cannot be ascertained until that position is closed out and any offsetting
position or positions are taken into account.
RISK FACTORS
NON-COMPARABILITY OF CUBS TO DIRECT INVESTMENT IN BASKET SECURITIES
The Securities are subject to certain risk factors that are distinct from
those associated with a direct investment in the common stocks that comprise the
Basket Securities. First, because the amount payable at Maturity on the
Securities is based on the average of the Basket Values on the Calculation Dates
throughout the term of the Securities and a Participation Percentage of 90%,
investors could receive less than if they had purchased and held the Basket
Securities for the term of the Securities. Accordingly, prospective investors
should be aware that if the Average Basket Maturity Value is less than 100,
Holders will receive a Maturity Payment Amount that is up to 10% less than the
Issue Price, even if the Basket Value at Maturity or the cumulative average of
the Monthly Basket Values as of any Calculation Date prior to maturity (the
"Average Basket Value") or the Basket Value at some prior date may have exceeded
100. Second, the amount payable at Maturity will not reflect the payment of any
dividends on the Basket Securities prior to Maturity. Third, the tax treatment
applicable to the Securities is different from that applicable to a direct
investment in the Basket Securities. See "-- Certain Federal Income Tax
Consequences of CUBS" below.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF CUBS
There are no final regulations, published rulings or judicial decisions
directly addressing the federal income tax treatment of securities with terms
substantially the same as the CUBS. However, although
S-6
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not free from doubt, the Company believes that the CUBS should be treated as its
debt for U.S. federal income tax purposes.
Based on this treatment, the Company intends to treat amounts payable at
Maturity on the CUBS that are in excess of the Issue Price, if any, as
"contingent interest" includable in income by United States Holders (as defined
herein) as ordinary income at such time. The IRS (as defined herein) may
contend, however, that income on the CUBS should be taxed in a manner, or at a
time, other than that described above (for example, beginning at such time, if
any, when it becomes certain that the minimum amount payable at Maturity would
exceed the Issue Price), with the result that a Holder may be taxed prior to the
receipt of any cash in respect thereof. If the amount payable at Maturity is
less than the Issue Price, the difference should be treated as a capital loss.
Upon the sale or exchange of the Securities, gain or loss will be recognized
equal to the difference between the amount realized and the adjusted tax basis
of the Securities. Under current law, any loss on such sale or exchange should
be treated as a capital loss. Counsel has advised the Company, however, that
there is substantial uncertainty regarding whether any gain on such sale or
exchange should be treated as capital gain or ordinary income. As a result, a
purchaser of the Securities should be aware that all or a portion of any such
gain may be taxed as ordinary income. See "Certain United States Federal Income
Tax Consequences."
TRADING
Application has been made to list the Securities on the AMEX, subject to
receipt of requisite regulatory approvals. There can be no assurance as to how
the Securities will trade in the secondary market or whether the market for the
Securities will be liquid.
The prices at which the Securities trade in the secondary market are
expected to depend on a combination of factors, including the relationship
between the Average Basket Value at the time to the Original Basket Value of
100, the relationship between the then Basket Value and the Original Basket
Value, the time remaining to Maturity, prevailing interest rates, the dividend
rates of the Basket Securities and the volatility of the Basket Value. Before
selling Securities, a holder of Securities should carefully consider, among
other things, (i) the trading price of the Securities, (ii) any related
transaction costs and (iii) each of the factors referred to in the preceding
sentence.
The factors affecting the trading value of the Securities are interrelated
and the relationship among them is complex. Investors should be aware that
factors other than the Average Basket Value and the Basket Value are likely to
affect the prices at which the Securities trade in the secondary market. The
expected effect on the trading value of the Securities of each of the factors
listed below, assuming in each case that all other factors are held constant, is
as follows:
Interest Rates. In general, if U.S. interest rates increase, the value
of the Securities is expected to decrease. If U.S. interest rates decrease,
the value of the Securities is expected to increase.
Volatility of the Basket Value. If the volatility of the Basket Value
increases, the trading value of the Securities is expected to increase. If
the volatility of the Basket Value decreases, the trading value of the
Securities is expected to decrease.
Time Remaining to Maturity. The Securities may trade at a value other
than that which may be inferred from the level of interest rates, the
Average Basket Value and the Basket Value. This difference may be due to
expectations concerning interest rates, volatility and the Basket Values on
future Calculation Dates during the period to Maturity. As the time
remaining to Maturity decreases, this difference in value is expected to
decrease.
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Dividend Rates. If dividend rates on the stocks comprising the Basket
Securities increase, the value of the Securities is expected to decrease.
Conversely, if dividend rates on the Basket Securities decrease, the value
of the Securities is expected to increase.
LIQUIDATION, DISSOLUTION OR BANKRUPTCY OF A BASKET SECURITY ISSUER
If the issuer of a Basket Security is being liquidated or dissolved or is
subject to a proceeding under any applicable bankruptcy, insolvency or similar
law, that Basket Security will continue to be included in the Basket so long as
a Market Price for that Basket Security is available. If a Market Price is no
longer available for a Basket Security for whatever reason, including the
liquidation or dissolution of the issuer of that Basket Security or the
subjection of the issuer to a proceeding under any applicable bankruptcy,
insolvency or similar law, then, for so long as a Market Price is unavailable
for that Basket Security, the value of that Basket Security will be deemed to be
zero for the purposes of calculating the Basket Value and the Monthly Basket
Value, and no attempt will be made to find a replacement Basket Security or
increase the value of the Basket to compensate for the deletion of such Basket
Security.
OTHER CONSIDERATIONS
It is suggested that prospective investors who consider purchasing the
Securities reach an investment decision only after carefully considering with
their advisers the suitability of the Securities in the light of their
particular circumstances.
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DESCRIPTION OF SECURITIES
GENERAL
The Securities are a series of Debt Securities to be issued under the
Indenture described in the accompanying Prospectus. Reference should be made to
the accompanying Prospectus for a detailed summary of additional provisions of
the Securities and the Indenture under which the Securities will be issued, and
to the Prospectus and the Indenture for the definition of certain capitalized
terms used herein. The Trustee under the Indenture (the "Trustee") is Chemical
Bank (formerly Manufacturers Hanover Trust Company).
The aggregate number of Securities to be issued will be 1,000,000, subject
to the over-allotment option granted by the Company to the Underwriters (see
"Underwriting" herein). The Securities will mature on , 1998.
The Securities are not redeemable by the Company or repayable at the option
of any Holder prior to Maturity and are not subject to any sinking fund. Upon
the occurrence and continuance of an Event of Default with respect to the
Securities, the Trustee or Holders of the Securities may accelerate the Maturity
of the Securities, as described under "Description of Securities--Events of
Default and Acceleration" herein and "Description of Debt Securities--Events of
Default" in the accompanying Prospectus. There will be no payments with respect
to the Securities prior to Maturity.
MATURITY PAYMENT AMOUNT
At Maturity, each Holder will be entitled to receive an amount with respect
to each CUBS equal to the following:
(Average Basket Maturity Value--100
$10 x [1 + ----------------------------------- x Participation Percentage)]
100
provided that, the Maturity Payment Amount will not be less than $9.00 per CUBS.
The Participation Percentage will be 90%. The Average Basket Maturity Value will
be determined by the Calculation Agent. The Average Basket Maturity Value will
be an amount equal to the sum of the Monthly Basket Values for all Calculation
Dates through and including Maturity, divided by the number of such Calculation
Dates. The Monthly Basket Value will be the Basket Value determined by the
Calculation Agent monthly on each Calculation Date at the end of that day,
commencing with the month of (the first month after the date hereof)
through and including the month of 1998 (such final Calculation Date
being the date of Maturity). The Basket Value for any day will equal the sum of
the products of the Market Price of each Basket Security on that day and the
then applicable Multiplier for that Basket Security. The applicable Multiplier
for each Basket Security is specified under the caption "Description of
Securities--Basket Securities" below and indicates the number of shares (or the
fraction of one share) of that Basket Security included in the calculation of
the Basket Value. Each Multiplier will remain constant for the term of the
Securities unless adjusted for certain corporate events, including a stock
split, reverse stock split or stock dividend. See "Description of Securities--
Basket Securities--Adjustments to the Multiplier and Basket" herein. If a Market
Disruption Event (as defined below) occurs with respect to a Basket Security on
a Calculation Date, then the calculation of the Market Price of that Basket
Security will be based on the Trading Day immediately preceding that Calculation
Date that does not have a Market Disruption Event with respect to that Basket
Security.
"Market Price," which will be determined by the Calculation Agent based on
information reasonably available to it, means for a Calculation Date the
following:
(i) If the Basket Security is listed on a national securities exchange
or is a NASDAQ National Market System ("NASDAQ-NMS") security, Market Price
means the last reported sale
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price of that Basket Security on that Calculation Date (or the preceding
Trading Day if that Basket Security is not traded on that Calculation Date)
on the principal national securities exchange on which such Basket Security
is listed or admitted to trading or NASDAQ-NMS, as the case may be.
(ii) If the Basket Security is not listed on a national securities
exchange or is not a NASDAQ-NMS security, Market Price means the last
reported bid price of that Basket Security in the over-the-counter market on
that Calculation Date.
As used herein, "Trading Day" means a day on which trading is generally
conducted on the New York Stock Exchange ("NYSE"), AMEX and NASDAQ-NMS and in
the over-the-counter market for equity securities as determined by the
Calculation Agent.
"Market Disruption Event" with respect to a Basket Security means any of the
following events as determined by the Calculation Agent:
(i) the suspension of or material limitation in trading in that Basket
Security for more than two hours of trading or during the one-half hour
period immediately preceding the time that Basket Security is to be priced
(for purposes of this definition, limitations pursuant to NYSE Rule 80A (or
any applicable rule or regulation enacted or promulgated by the NYSE, any
other self-regulatory organization or the Securities and Exchange Commission
that is deemed of similar scope by the Calculation Agent) on trading during
significant market fluctuations shall be considered "material"),
(ii) the suspension of or material limitation (whether by reason of
movements in price that exceed levels permitted by the relevant exchange or
otherwise) in trading in option contracts related to a Basket Security
traded on any exchange for more than two hours of trading or during the
one-half hour period immediately preceding the time that Basket Security is
to be priced, or
(iii) a banking moratorium has been declared by federal or any state
authorities.
For the purposes of this definition, a limitation on the hours in a trading
day and/or number of days of trading will not constitute a Market Disruption
Event if it results from an announced change in the regular business hours of
the relevant exchange.
All percentages resulting from any calculation by the Calculation Agent will
be rounded to the nearest one hundred-thousandth of a percentage point, with
five one millionths of a percentage point rounded upwards (e.g., 9.876545% (or
.09876545) would be rounded to 9.87655% (or .0987655)), and all dollar amounts
resulting from such calculation will be rounded to the nearest cent with
one-half cent being rounded upwards.
BASKET SECURITIES
The stocks listed below will be used to calculate the Basket Value. Holders
of the Securities will not have any right to receive the Basket Securities. The
following table sets forth the Basket Securities, the primary market on which
the Basket Securities are traded, the approximate aggregate market value of
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each Basket Security and the initial Multipliers. Each Basket Security will
initially represent 4 1/6% of the Original Basket Value.
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APPROXIMATE
AGGREGATE MARKET
PRIMARY VALUE OF
ISSUER OF THE TRADING BASKET INITIAL
BASKET SECURITY INDUSTRY GROUP MARKET SECURITY(1) MULTIPLIER
- ----------------------------------- ---------------------- ----------- ---------------- -----------
($MM)
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1. Agouron Pharmaceuticals,
Inc. ........................ Biotechnology NASDAQ-NMS 164.59
2. Biogen, Inc. ................ Biotechnology NASDAQ-NMS 1,491.81
3. Campbell Soup Company........ Pkgd. Foods NYSE 12,262.24
4. Crestar Financial
Corporation.................. Reg. Banks/Spec. Fin. NYSE 1,812.84
5. Electronic Arts, Inc. ....... PC Software NASDAQ-NMS 1,315.06
6. Heinz (H.J.) Company......... Pkgd. Foods NYSE 10,592.00
7. HealthCare COMPARE
Corporation.................. Healthcare Services NASDAQ-NMS 1,120.57
8. Integra Financial
Corporation.................. Reg. Banks/Spec. Fin. NYSE 1,576.20
9. McCormick & Company, Inc. ... Pkgd. Foods NASDAQ-NMS 270.00
10. Mercantile Bancorporation.... Reg. Banks/Spec. Fin. NYSE 2,239.48
11. Mesa, Inc. .................. Energy NYSE 248.19
12. Midlantic Corporation,
Inc. ........................ Reg. Banks/Spec. Fin. NASDAQ-NMS 1,986.14
13. The Money Store, Inc. ....... Reg. Banks/Spec. Fin. NASDAQ-NMS 457.54
14. Multicare Companies, Inc. ... Healthcare Services NASDAQ-NMS 333.60
15. Oryx Energy Company.......... Energy NYSE 1,510.89
16. Physician Corporation of
America...................... Healthcare Services NASDAQ-NMS 774.48
17. Protein Design Labs, Inc. ... Biotechnology NASDAQ-NMS 323.57
18. Quaker Oats Company.......... Pkgd. Foods NYSE 4,659.19
19. Santa Fe Energy Resources,
Inc. ........................ Energy NYSE 936.28
20. Sierra Health Services,
Inc. ........................ Healthcare Services NYSE 382.69
21. Triton Energy Corporation.... Energy NYSE 1,681.26
22. United Companies Financial
Corporation.................. Reg. Banks/Spec. Fin. NASDAQ-NMS 629.38
23. Upjohn Company............... Pharmaceuticals NYSE 6,435.71
24. Vertex Pharmaceuticals,
Inc. ........................ Biotechnology NASDAQ-NMS 284.13
</TABLE>
- ------------
(1) The approximate aggregate market value of each Basket Security was
calculated by multiplying the most recent publicly available number of
outstanding shares of common stock of the issuer of that Basket Security by
the Market Price for those shares on June 19, 1995.
The initial Multiplier relating to each Basket Security will indicate the
number of shares (or the fraction of one share) of that Basket Security, in
light of the market price of that Basket Security on , 1995, required to
be included in the calculation of the Original Basket Value so that each Basket
Security represents an equal percentage (i.e., 4 1/6%) of the Original Basket
Value. The price of each Basket Security used to calculate the initial
Multiplier relating to that Basket Security will be the last reported sale price
of that Basket Security on the date the Securities are priced by the Company for
initial sale to the public. The respective Multipliers will remain constant for
the term of the Securities, unless adjusted for certain corporate events as
described below.
The AMEX has informed the Company that, as long as CUBS are listed on the
AMEX, it intends to calculate and disseminate the value of the Basket based on
the most recently reported prices at approximately 15 second intervals during
AMEX business hours and the Basket Value at the end of that day to vendors via
the facilities of the AMEX Tape under the symbol "XCB". In the event a Basket
Security is converted into a Cash Component (as defined below), the interest
that has accrued on any given day will only be reflected in the Basket Value
quoted by AMEX at the end of such day and not in the values disseminated at
interim periods during the day.
S-11
<PAGE>
ADJUSTMENTS TO THE MULTIPLIER AND BASKET
The Multiplier with respect to any Basket Security and the Basket will be
adjusted by the Calculation Agent as follows:
1. If a Basket Security is subject to a stock split or reverse stock
split then, once the split has become effective, the Multiplier relating to
that Basket Security will be adjusted to equal the product of (i) the number
of shares of the Basket Security outstanding after the split has become
effective with respect to each share of such Basket Security outstanding
immediately prior to the effectiveness of such split and (ii) the prior
Multiplier.
2. If a Basket Security is subject to a stock dividend or stock
distribution (other than a stock dividend elected by a holder of that Basket
Security in lieu of an ordinary cash dividend) that is given equally to all
holders of that Basket Security, then, once that Basket Security is trading
ex-dividend, the Multiplier will be adjusted so that the new Multiplier
shall equal the former Multiplier plus the product of (i) the number of
shares of that Basket Security issued with respect to one such share of that
Basket Security and (ii) the prior Multiplier.
3. If the issuer of a Basket Security is being liquidated or dissolved
or is subject to a proceeding under any applicable bankruptcy, insolvency or
similar law, that Basket Security will continue to be included in the Basket
so long as a Market Price for that Basket Security is available. Subject to
paragraph 7 below, if a Market Price is no longer available for a Basket
Security for whatever reason, including the liquidation or dissolution of
the issuer of that Basket Security or the subjection of the issuer to a
proceeding under any applicable bankruptcy, insolvency or similar law, then,
for so long as a Market Price is unavailable for that Basket Security, the
value of that Basket Security will be deemed to be zero for the purposes of
calculating the Basket Value and the Monthly Basket Value, and no attempt
will be made to find a replacement Basket Security or increase the value of
the Basket to compensate for the deletion of such Basket Security.
4. If the issuer of a Basket Security has been subject to a merger or
consolidation and is not the surviving entity and holders of that Basket
Security are entitled to receive cash or securities in exchange for that
Basket Security, then a value for that Basket Security will be determined
(i) in the case of cash, at the time of receipt by those holders and will
equal the amount of such cash, and (ii) in the case of securities, on the
first Trading Day on which those securities are traded regular way, and will
equal the Market Price of those securities (in each of (i) and (ii), the
"Cash Component"); provided, that if those securities do not have a Market
Price, the Cash Component shall be the fair market value of those
securities, as determined by the Calculation Agent. The Cash Component, as
adjusted for the accrual of interest described below, will be constant for
the remaining term of the Securities. No adjustment will be made to the
Multiplier relating to the Basket Security.
The Cash Component will accrue interest at a rate equal to the London
Inter-Bank Offered Rate ("LIBOR") with a term equal to the period of time
from the Interest Commencement Date (as defined below) to , 1998 (the
"Specified Maturity"), determined and fixed on the first London Business Day
(the "LIBOR Determination Date") that is immediately following the date of
determination of such Cash Component. LIBOR will accrue on such Cash
Component commencing (i) in the case of cash, on the second London Business
Day following such LIBOR Determination Date and (ii) in the case of
securities, on the third London Business Day following such LIBOR
Determination Date (in each of (i) and (ii), the "Interest Commencement
Date") up to and including the Specified Maturity.
S-12
<PAGE>
LIBOR will be determined by the Calculation Agent in accordance with the
following provisions:
(i) On the relevant LIBOR Determination Date, LIBOR will be
determined through the application of linear interpolation by reference
to the offered rates for deposits of not less than U.S.$l,000,000 having
a maturity immediately before and immediately after the Specified
Maturity, commencing on the Interest Commencement Date, which appear
either (a) if the Specified Maturity is one year or less from the
relevant LIBOR Determination Date, on the display designated as Page 3750
on the Dow Jones Telerate Service (or such other page as may replace Page
3750 on that service for the purpose of displaying London Interbank
offered rates of major banks) ("Telerate Page 3750"), or (b) if the
Specified Maturity is more than one year from the relevant LIBOR
Determination Date, on each of Telerate Page 3750 and on the display
designated as page "SWAP" on the Reuter Monitor Money Rates Service (or
such other page as may replace the SWAP page on that service for the
purpose of displaying London Interbank offered rates of major banks)
("Reuters--SWAP"), in each case as of 11:00 A.M., London time; provided
that if there is an offered rate for the Specified Maturity, then LIBOR
will be such offered rate. If such offered rates do not appear, LIBOR
with respect to such LIBOR Determination Date will be determined as
described in (ii) below.
(ii) With respect to a LIBOR Determination Date on which no such
offered rates appear on Telerate Page 3750 or Reuters SWAP as described
in (i) above, LIBOR will be determined on the basis of the rates at
approximately 11:00 A.M., London time, on such LIBOR Determination Date,
at which deposits in U.S. dollars having the Specified Maturity are
offered to prime banks in the London Interbank market by four major banks
in the London Interbank market selected by the Calculation Agent
commencing on the Interest Commencement Date and in a principal amount
equal to an amount not less than U.S.$1,000,000 that in the Calculation
Agent's judgment is representative for a single transaction in such
market at such time (a "Representative Amount"). The Calculation Agent
will request the principal London office of each of such banks to provide
a quotation of its rate. If at least two such quotations are provided,
LIBOR with respect to such LIBOR Determination Date will be calculated by
reference to the arithmetic mean of such quotations. If fewer than two
quotations are provided, LIBOR with respect to such LIBOR Determination
Date will be calculated by reference to the arithmetic mean of the rates
quoted at approximately 11:00 A.M., New York City time, on such LIBOR
Determination Date by three major banks in The City of New York, selected
by the Calculation Agent, for loans in U.S. dollars to leading European
banks having the Specified Maturity commencing on the Interest
Commencement Date and in a Representative Amount; provided, however, that
if fewer than three banks selected as aforesaid by the Calculation Agent
are quoting as mentioned in this sentence, LIBOR with respect to such
Cash Component will be the LIBOR as last in effect.
"London Business Day" means any day on which dealings in deposits in
U.S. dollars are transacted in the London interbank market.
The value as of any given day of any Basket Security converted into a
Cash Component will equal the sum of the Cash Component and all interest
accrued thereon through that day. The interest that has accrued on any given
day will only be reflected in the Basket Value quoted by AMEX at the end of
that day and not in the values disseminated at interim periods during the
day. For purposes of calculating the Monthly Basket Value as of any
Calculation Date, the value of any such Basket Security will equal the sum
of the Cash Component and all interest accrued up to and including such
Calculation Date. Interest will not be compounded.
5. If all the Basket Securities of any class or series of an issuer are
converted into or exchanged for the same or a different number of shares of
any class or classes of equity security of
S-13
<PAGE>
that issuer other than such Basket Security, whether by capital
reorganization, recapitalization, reclassification or otherwise, then, once
that conversion or exchange has become effective, the former Basket Security
will be removed from the Basket and the new equity securities will be added
to the Basket as new Basket Securities. The Multiplier relating to each such
new Basket Security will equal the product of (i) the last value of the
Multiplier with respect to the former Basket Security and (ii) the number of
shares of the new Basket Security issued with respect to one share of the
former Basket Security.
6. If the issuer of a Basket Security distributes to all of its
shareholders equity securities of any other issuer, then such new equity
securities will be added to the Basket as a new Basket Security. The
Multiplier for the new Basket Security will equal the product of (i) the
last value of the Multiplier relating to the Basket Security in respect of
which the new Basket Security is being distributed (the "Original Basket
Security") and (ii) the number of shares of the new Basket Security
distributed with respect to one share of the Original Basket Security.
7. If a Basket Security is subject to an extraordinary dividend or an
extraordinary distribution (including upon liquidation or dissolution) of
cash or other property of any kind (other than any such dividend or
distribution otherwise addressed in the preceding paragraphs) that is
received equally by all holders of that Basket Security, then the
Calculation Agent shall determine the fair market value, if any, of the cash
or other property received in respect of each share of that Basket Security
and the Basket shall thereafter be deemed to include an amount equal to the
product of the Multiplier relating to that Basket Security on that date and
the fair market value as so determined.
No adjustments of any Multiplier of a Basket Security will be required
unless that adjustment would require a change of at least 1% in the Multiplier
then in effect. The Multiplier resulting from any of the adjustments specified
above will be rounded to the nearest one thousandth with five ten-thousandths
being rounded upward.
EVENTS OF DEFAULT AND ACCELERATION
If an Event of Default with respect to any Securities occurs and is
continuing, the amount payable to a Holder of a Security upon any acceleration
permitted under the Indenture will be equal to the Maturity Payment Amount
calculated as though the date of acceleration was Maturity. See "Description of
Securities--Maturity Payment Amount" herein. If a bankruptcy proceeding is
commenced in respect of the Company, the claim of the Holder of a Security may
be limited, under Section 502(b)(2) of Title 11 of the United States Code, to
the principal amount of the Security, calculated as though the commencement of
the proceeding was Maturity.
CALCULATION AGENT
All determinations made by the Calculation Agent shall be at the sole
discretion of the Calculation Agent and, in the absence of manifest error, shall
be conclusive for all purposes and binding on the Company and the Holders of the
Securities and the Calculation Agent shall have no liability therefor.
S-14
<PAGE>
THE BASKET
GENERAL
The Basket consists of securities of 24 companies operating in the following
seven industry groups: biotechnology, energy, healthcare services, packaged
foods, PC software, pharmaceuticals and regional banks/specialty finance. The
Company believes that the trend in each of these industries is toward
consolidation over the next several years. The companies selected for inclusion
in the Basket are those in each of these industry groups that the Company
believes have the potential to benefit from such consolidation. The inclusion of
a Basket Security in the Basket is not a recommendation to buy or sell that
Basket Security, and neither the Company nor any of its affiliates makes any
representation to any purchaser of Securities as to the future performance of
the Basket or any Basket Security.
THIS PROSPECTUS SUPPLEMENT RELATES ONLY TO THE CUBS OFFERED HEREBY AND DOES
NOT RELATE TO THE BASKET SECURITIES. ALL DISCLOSURES CONTAINED IN THIS
PROSPECTUS SUPPLEMENT REGARDING THE ISSUERS OF THE BASKET SECURITIES ARE DERIVED
FROM THE PUBLICLY AVAILABLE DOCUMENTS DESCRIBED BELOW. NEITHER THE COMPANY NOR
THE UNDERWRITERS HAVE VERIFIED THE ACCURACY OR THE COMPLETENESS OF THE
INFORMATION CONCERNING THE ISSUERS OF THE BASKET SECURITIES INCLUDED IN THOSE
DOCUMENTS. THUS, THERE CAN BE NO ASSURANCE THAT ALL EVENTS OCCURRING PRIOR OR
SUBSEQUENT TO THE DATE HEREOF (INCLUDING EVENTS THAT WOULD AFFECT THE ACCURACY
OR COMPLETENESS OF THE PUBLICLY AVAILABLE DOCUMENTS DESCRIBED BELOW) THAT WOULD
AFFECT THE TRADING PRICE OF THE BASKET SECURITIES HAVE BEEN PUBLICLY DISCLOSED
BY THE ISSUERS OF THOSE BASKET SECURITIES. BECAUSE THE AMOUNT PAYABLE IN RESPECT
OF THE CUBS AT MATURITY IS RELATED TO THE MARKET PRICES OF THE BASKET SECURITIES
ON THE CALCULATION DATES, SUCH EVENTS, IF ANY, COULD ALSO AFFECT THE TRADING
PRICE OF THE CUBS. THE COMPANY DOES NOT INTEND TO FURNISH TO HOLDERS OF CUBS
SUBSEQUENT INFORMATION WITH RESPECT TO THE ISSUERS OF THE BASKET SECURITIES.
The Company or its affiliates may from time to time engage in business with
one or more of the issuers of the Basket Securities or with persons seeking to
acquire those issuers, including providing advisory services to those issuers or
other persons, including merger and acquisition advisory services. In the course
of such business, the Company or its affiliates may acquire non-public
information with respect to those issuers and, in addition, one or more
affiliates of the Company may publish research reports with respect to those
issuers. Bear, Stearns & Co. Inc. may also from time to time make a market in
one or more Basket Securities. The actions described in the preceding sentences,
including merger and acquisition advisory services and market-making
transactions, may directly adversely affect the Market Prices of the Basket
Securities. The Company does not make any representation to any purchaser of a
Security with respect to any matters whatsoever relating to those issuers. Any
prospective purchaser of a Security should undertake such independent
investigation of the issuers of the Basket Securities as the purchaser deems
appropriate to make an informed decision with respect to an investment in the
Securities.
THE BASKET SECURITIES
Each issuer of a Basket Security files certain information reports with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, as amended. Based upon such publicly available information, the following
is a summary description of the business of the issuer of each Basket Security
in each of the indicated industry groups:
S-15
<PAGE>
BIOTECHNOLOGY
AGOURON PHARMACEUTICALS, INC. Agouron Pharmaceuticals, Inc. ("Agouron")
develops the technologies that permit the rational, atom-by-atom design of
novel synthetic drugs based on the molecular structures of proteins which
play key roles in human disease. Agouron applies these technologies to the
design and development of drugs for the treatment of cancer, AIDs and other
serious diseases. Agouron is currently conducting Phase I clinical testing
of two anti-cancer compounds and is engaged in preclinical development of a
potential anti-HIV compound.
BIOGEN, INC. Biogen, Inc. ("Biogen") develops and manufactures drugs for
human health care through genetic engineering. Biogen focuses its research
in the areas of inflammatory and respiratory diseases, multiple sclerosis
and certain cancers and viruses. Biogen's leading product candidate is
recombinant beta interferon, a protein developed for use as a therapy for
multiple sclerosis. In addition, the company is engaged in preclinical tests
on anti-inflammatory product candidates and on an anti-mucolytic agent for
treatment in cystic fibrosis and other pulmonary diseases.
PROTEIN DESIGN LABS, INC. Protein Design Labs, Inc. ("PDL") develops
human and humanized antibodies and other potential drugs to prevent or treat
certain diseases, including viral infections, autoimmune conditions,
inflammatory diseases and cancers. PDL currently has more than a dozen
compounds under development. PDL's four drugs in the human clinical trial
phase are designed to prevent or treat problems such as organ transplant
rejection, leukemia, lymphoma, graft-versus-host disease, autoimmune
diseases, cytomegalovirus and hepatitis-B.
VERTEX PHARMACEUTICALS INCORPORATED. Vertex Pharmaceuticals Incorporated
("Vertex") is a leader in the use of structure-based drug designs. Vertex
develops orally active compounds by determining the detailed atomic
structure of protein targets linked to particular disease processes. Vertex
is developing pharmaceuticals for the treatment of viral diseases, multidrug
resistance in cancer, hemoglobin disorders, inflammation, autoimmune
diseases and organ transplant rejection.
ENERGY
MESA INC. Mesa, Inc. ("Mesa") explores, develops, produces and processes
domestic oil and gas, principally in the Hugoton Field, located in Kansas
and Texas. Mesa owns approximately 1.8 trillion cubic feet of equivalent
proved natural gas reserves, of which 70% are natural gas and the balance
natural gas liquids.
ORYX ENERGY COMPANY. Oryx Energy Company ("Oryx") engages exclusively in
the exploration for and the development of oil and gas. Oryx has a strong
base of American and international reserves and exploration and development
projects in the Gulf of Mexico and the North Sea (U.K.), in addition to
producing assets in Ecuador and Indonesia.
SANTA FE ENERGY RESOURCES, INC. Sante Fe Energy Resources, Inc. ("Sante
Fe") engages in the exploration, development and production of oil and
natural gas in the continental United States, Argentina and Indonesia. Santa
Fe also has undeveloped exploration rights in Bolivia, Canada, Gabon and
Morocco.
TRITON ENERGY CORPORATION. Triton Energy Corporation ("Triton"), through
its subsidiaries and affiliates, engages in the exploration and production
of oil and gas. Triton's principal properties and operations are located in
Colombia, Malaysia and Thailand, in addition to other oil and gas interests
around the world. Triton also provides a variety of aviation products to the
general aviation industry through airport facilities at Love Field in
Dallas, Texas.
S-16
<PAGE>
HEALTHCARE SERVICES
HEALTHCARE COMPARE CORP. HealthCare COMPARE Corp. ("HealthCare")
provides medical cost management services to employers. HealthCare's
AFFORDABLE Medical Network facilitates the delivery of quality care at
fixed, negotiated rates though its national network of hospitals, physicians
and outpatient care providers. HealthCare also features (i) a utilization
management program that facilitates the delivery of medically necessary care
and identifies cost-effective treatment alternatives and (ii) a system that
provides computer-assisted bill review and audit, fee schedule review and
claims pricing services to maximize savings on workers' compensation claims.
THE MULTICARE COMPANIES, INC. The Multicare Companies, Inc.
("Multicare") provides high-quality, long-term care and specialty medical
services in New Jersey, Ohio, Connecticut, Illinois, Pennsylvanian,
Wisconsin, Vermont and Virginia. Multicare's long-term care services include
skilled nursing care, Alzheimer's care and related support activities
traditionally provided in long--term care facilities. Multicare's specialty
medical services consist of rehabilitation therapy and subacute care. In
addition to acquiring an institutional pharmacy business, Multicare has also
developed an institutional pharmacy program to provide prescription drugs,
infusion therapies and certain medical supplies to its patients.
PHYSICIAN CORPORATION OF AMERICA. Physician Corporation of America
("PCA") is a managed health care company that provides comprehensive health
care services through its health maintenance organizations, and
administrative and management services through its workers compensation
third-party administration companies. PCA operates principally in Alabama,
Florida, Georgia, Texas and Puerto Rico and provides its variety of services
to large and small employers, individuals and government sponsored
beneficiaries.
SIERRA HEALTH SERVICES, INC. Sierra Health Services, Inc. ("Sierra") is
a managed health care company that provides and administers the delivery of
comprehensive health care programs, Sierra offers a portfolio of managed
health care products through its federally qualified health maintenance
organizations, managed indemnity plans, a third-party administrative
services program for employer funded health benefit plans and workers'
compensation medical management programs. Sierra's Point of Service plan
allows members to choose one of the above coverage options at the time when
medical services are required rather than one plan for the entire year.
Sierra provides 95% of its services in the state of Nevada.
PACKAGED FOODS
CAMPBELL SOUP COMPANY. Campbell Soup Company ("Campbell"), together with
its consolidated subsidiaries, manufactures and markets high quality,
branded convenience food products. Campbell produces a wide array of canned
foods, including soups, juices, gravies, meats and vegetables, in addition
to frozen meals, breads, dips, dressings, sauces, nuts, beverages, crackers,
snacks and condiments. Campbell maintains high quality standards through a
rigorous system of quality assurance. Campbell's customers include
individual and chain stores, wholesalers, institutions, convenience and club
stores and certain government agencies.
H.J. HEINZ COMPANY. H.J. Heinz Company ("Heinz"), together with its
consolidated subsidiaries, manufactures and markets an extensive line of
processed food and pet food products worldwide. Heinz's products include
ketchup, tuna and other seafood products, pet food, baby food, frozen foods
and meals (regular and low-calorie), sauces, condiments, pasta, bakery
products, chicken, vegetables and many others. Processed food products
represent over 90% of Heinz's sales. Heinz's pet products consist of a
variety of food and snacks. Heinz also owns Weight Watchers International
which operates and franchises weight control classes and related programs
and
S-17
<PAGE>
activities. Heinz's customers include individual and chain stores,
wholesalers, cooperative and independent grocery accounts, institutions such
as hotels and restaurants and certain government agencies.
MCCORMICK & COMPANY, INCORPORATED. McCormick & Company, Incorporated
("McCormick') is a diversified specialty food company principally engaged in
the manufacture of spices, seasonings, flavorings and other specialty food
products. These products account for over 90% of McCormick's consolidated
net sales. McCormick markets its consumer and foodservice products through
its own sales organization, food brokers and distributors.
QUAKER OATS COMPANY. Quaker Oats Company ("Quaker Oats") manufactures
brandname packaged foods and specialty drinks. Food and beverage products
include ready-to-eat cereals, hot cereals, pancake mixes and syrup, frozen
waffles, frozen pizza and iced teas under the names "Aunt Jemima,"
"Celeste," "Cap'N Crunch," "Noodle-Roni" and "Snapple."
PC SOFTWARE
ELECTRONIC ARTS INC. Electronic Arts Inc. ("Electronic Arts") creates,
markets and distributes interactive entertainment software for a variety of
hardware platforms. Since its inception, Electronic Arts has developed
products for over 30 computer hardware platforms including personal
computers, various Nintendo entertainment systems and Sega Genesis.
Electronic Arts is currently developing CD-ROM products for personal
computers, 3DO Interactive Multiplayer and coin-operated videogame machines.
Electronic Arts distributes its products to retail outlets in the United
States and to third-party distributors in Europe and Asia.
PHARMACEUTICALS
THE UPJOHN COMPANY. The Upjohn Company ("Upjohn") engages primarily in
the research, development, production and sales of prescription
pharmaceuticals and is one of the largest drug manufacturers in the United
States. Upjohn manufactures a broad line of prescription drugs, primarily
central nervous system agents, non-steroidal anti-inflammatory and analgesic
agents, antibiotics, steroids, oral antidiabetes agents and a hair growth
product. Upjohn also manufactures for distribution to the general public
certain non-prescription drugs and manufactures pharmaceutical chemicals for
use in its own products and for bulk sales.
REGIONAL BANKS/SPECIALTY FINANCE
CRESTAR FINANCIAL CORPORATION. Crestar Financial Corporation ("Crestar")
is a holding company for Crestar Bank (Virginia), Crestar Bank N.A.
(Washington, D.C.) and Crestar Bank MD (Maryland). Crestar services
customers through a network of approximately 336 banking offices and
approximately 278 automated teller machines. The Crestar banks offer a broad
range of banking services, including various types of deposit accounts and
instruments, commercial and consumer loans, trust and investment management
services, bank credit cards and international banking services. Crestar's
non-banking subsidiaries also offer a variety of personal and business
insurance products, a securities brokerage, investment banking, mortgage
loans and investment advisory services.
INTEGRA FINANCIAL CORPORATION. Integra Financial Corporation ("Integra")
is a regional multi-bank holding company that offers a full range of loan
and deposit products to individual and business customers through
approximately 260 branches in western Pennsylvania. In addition, Integra's
non-retail banking subsidiaries provide trust, mortgage banking, consumer
financing, commercial leasing, securities brokerage and credit life and
disability reinsurance services.
S-18
<PAGE>
MERCANTILE BANCORPORATION INC. Mercantile Bancorporation Inc.
("Mercantile") is a bank holding company owning banks throughout Missouri,
Kansas, Illinois and Iowa in addition to a savings-and-loan association in
Lebanon, Missouri and other non-bank subsidiaries. Through these
subsidiaries, Mercantile offers complete banking and trust services to the
commercial, industrial, residential and agricultural areas which it serves.
Mercantile's largest subsidiary bank is a bankers' bank--a correspondent
bank for approximately 552 commercial banks throughout the United States.
Mercantile also offers its customers a wide range of trust and investment
advisory services.
MIDLANTIC CORPORATION Midlantic Corporation ("Midlantic") is a regional
bank holding company serving communities in New Jersey and Pennsylvania.
Through its subsidiaries, Midlantic engages in commercial and retail banking
activities serving individual, business, governmental and institutional
customers. In addition to the usual deposit functions of a commercial bank,
Midlantic furnishes financial and data processing services to customers and
other banks and provides cash management facilities to commercial customers
and complete personal and corporate trust and fiduciary services. Midlantic
also owns an offshore bank in the Cayman Islands.
THE MONEY STORE INC. The Money Store Inc. ("The Money Store"), together
with its subsidiaries, is a financial services company engaged in the
business of originating (including purchasing), selling and servicing
consumer and commercial loans of specified types and offering related
services. Loans originated by the Money Store consist primarily of home
equity loans, loans guaranteed in part "Section 7(a) Loans" by the United
States Small Business Administration and commercial first mortgage loans
made in conjunction with loans as a part of the SBA's 504 Loan program and
government guaranteed student loans. The Money Store operates out of
approximately 157 locations in 40 states, Washington, D.C. and Puerto Rico.
UNITED COMPANIES FINANCIAL CORPORATION. United Companies Financial
Corporation ("UCFC") is a financial services holding company having mortgage
and insurance operations. UCFC's mortgage operations focus on the
origination, sale and service of first mortgage, non-conventional, home
equity loans. UCFC sells substantially all of its home equity loans through
loan securitizations pursuant to which mortgage-backed securities are issued
and publicly sold under a company-sponsored shelf registration statement.
UCFC's insurance operations sell primarily deferred annuities marketed in 47
states, Washington, D.C. and Puerto Rico and underwrite primarily
residential title insurance in 28 states.
S-19
<PAGE>
HISTORICAL INFORMATION
The following table sets forth the high and low price for each of the Basket
Securities as reported on the principal market in which it trades, during 1992,
1993, 1994 and during 1995 (through June 19, 1995), and the last closing price
on December 31, 1992, 1993 and 1994 and on June 19, 1995. Historical prices of
the Basket Securities should not be taken as an indication of future
performance. The historical prices set forth herein have been adjusted to
reflect certain corporate events that affected those prices, including, but not
limited to, stock splits and stock dividends. Certain adjustments to the
Multiplier and the Basket will be made by the Calculation Agent as set forth
under "Description of Securities--Adjustments to the Multiplier and Basket."
These adjustments may not correspond to the adjustments made in determining the
historical stock prices set forth herein.
<TABLE>
<CAPTION>
BASKET SECURITIES HIGH LOW LAST
----------------- ------ ------ ------
<S> <C> <C> <C>
Agouron Pharmaceuticals, Inc.
1992............................................................ $24.00 $ 9.50 $13.00
1993............................................................ 13.75 6.75 11.75
1994............................................................ 16.75 9.50 11.25
1995 (through June 19, 1995).................................... 23.25 11.00 22.50
Biogen, Inc.
1992............................................................ 49.75 18.25 47.00
1993............................................................ 47.75 24.25 39.88
1994............................................................ 55.75 27.25 41.75
1995 (through June 19, 1995).................................... 44.75 32.25 44.75
Campbell Soup Company
1992............................................................ 45.25 31.50 42.13
1993............................................................ 45.38 35.25 41.00
1994............................................................ 46.00 34.25 44.00
1995 (through June 19, 1995).................................... 51.25 41.25 49.13
Crestar Financial Corporation
1992............................................................ 39.75 17.25 39.00
1993............................................................ 46.50 35.13 41.88
1994............................................................ 49.75 36.13 37.63
1995 (through June 19, 1995).................................... 48.13 37.25 47.88
Electronic Arts, Inc.
1992............................................................ 21.75 9.19 20.63
1993............................................................ 42.00 19.75 30.00
1994............................................................ 33.50 12.75 19.25
1995 (through June 19, 1995).................................... 28.00 16.88 27.25
Heinz (H.J.) Company
1992............................................................ 45.50 35.13 44.13
1993............................................................ 45.25 34.13 35.88
1994............................................................ 39.00 30.75 36.75
1995 (through June 19, 1995).................................... 46.00 37.00 43.50
HealthCare COMPARE Corporation
1992............................................................ 44.00 23.75 30.00
1993............................................................ 31.88 10.50 24.63
1994............................................................ 34.38 15.50 34.13
1995 (through June 19, 1995).................................... 38.00 27.75 32.75
</TABLE>
S-20
<PAGE>
<TABLE>
<CAPTION>
BASKET SECURITIES HIGH LOW LAST
----------------- ------ ------ ------
<S> <C> <C> <C>
Integra Financial Corporation
1992............................................................ 42.00 30.00 41.63
1993............................................................ 50.75 39.50 43.00
1994............................................................ 49.75 38.38 41.13
1995 (through June 19, 1995).................................... 48.75 37.00 48.13
McCormick & Company, Inc.
1992............................................................ 30.25 20.50 30.25
1993............................................................ 29.75 20.00 24.63
1994............................................................ 24.75 17.75 18.25
1995 (through June 19, 1995).................................... 23.13 18.13 20.63
Mercantile Bancorporation
1992............................................................ 32.17 23.17 32.17
1993............................................................ 37.67 29.08 30.08
1994............................................................ 39.25 29.50 31.25
1995 (through June 19, 1995).................................... 42.50 31.75 42.50
Mesa, Inc.
1992............................................................ 13.38 2.50 4.63
1993............................................................ 8.13 3.50 5.63
1994............................................................ 8.50 3.63 4.88
1995 (through June 19, 1995).................................... 6.13 3.75 3.88
Midlantic Corporation, Inc.
1992............................................................ 21.88 4.50 19.88
1993............................................................ 28.63 17.50 25.50
1994............................................................ 31.88 24.00 26.50
1995 (through June 19, 1995).................................... 38.88 26.50 38.25
The Money Store, Inc.
1992............................................................ 15.08 6.83 10.83
1993............................................................ 18.33 10.33 16.08
1994............................................................ 22.25 15.50 18.50
1995 (through June 19, 1995).................................... 33.88 18.00 33.75
Multicare Companies, Inc.
1992............................................................ -- -- --
1993*........................................................... 18.25 10.00 18.25
1994............................................................ 21.75 15.00 19.75
1995 (through June 19, 1995).................................... 23.13 17.88 18.88
Oryx Energy Company
1992............................................................ 27.25 16.75 19.63
1993............................................................ 26.25 16.25 17.25
1994............................................................ 20.00 10.63 11.88
1995 (through June 19, 1995).................................... 14.63 10.00 14.63
Physician Corporation of America
1992............................................................ -- -- --
1993*........................................................... 26.00 7.50 25.00
1994............................................................ 30.25 18.50 20.50
1995 (through June 19, 1995).................................... 27.25 17.75 19.75
</TABLE>
- ------------
* Partial period data.
S-21
<PAGE>
<TABLE>
<CAPTION>
BASKET SECURITIES HIGH LOW LAST
----------------- ------ ------ ------
<S> <C> <C> <C>
Protein Design Labs, Inc.
1992*........................................................... 18.75 5.88 11.88
1993............................................................ 26.63 6.50 24.25
1994............................................................ 29.88 13.75 15.75
1995 (through June 19, 1995).................................... 24.88 14.13 21.19
Quaker Oats Company
1992............................................................ 37.19 25.13 32.50
1993............................................................ 38.50 30.19 35.50
1994............................................................ 42.50 29.69 30.75
1995 (through June 19, 1995).................................... 36.75 30.75 34.75
Santa Fe Energy Resources, Inc.
1992............................................................ 9.88 7.00 8.63
1993............................................................ 11.88 7.75 9.25
1994............................................................ 10.00 7.50 8.00
1995 (through June 19, 1995).................................... 10.50 8.00 10.38
Sierra Health Services, Inc.
1992............................................................ 21.63 8.06 21.63
1993............................................................ 22.63 11.50 22.13
1994............................................................ 33.50 21.25 31.63
1995 (through June 19, 1995).................................... 32.88 23.75 26.00
Triton Energy Corporation
1992............................................................ 48.13 25.75 33.75
1993............................................................ 43.88 26.75 30.13
1994............................................................ 37.63 24.75 34.00
1995 (through June 19, 1995).................................... 48.50 31.00 47.25
United Companies Financial Corporation
1992............................................................ 9.77 7.39 8.19
1993............................................................ 37.05 7.50 35.91
1994............................................................ 43.64 22.00 27.13
1995 (through June 19, 1995).................................... 46.13 23.75 45.25
Upjohn Company
1992............................................................ 45.88 29.63 32.25
1993............................................................ 35.00 25.63 29.00
1994............................................................ 37.13 25.75 30.75
1995 (through June 19, 1995).................................... 38.13 30.25 37.25
Vertex Pharmaceuticals, Inc.
1992............................................................ 17.50 6.63 9.75
1993............................................................ 19.00 6.50 18.50
1994............................................................ 20.00 10.50 15.00
1995 (through June 19, 1995).................................... 16.75 12.75 16.50
</TABLE>
- ------------
* Partial period data.
The following table and graph set forth the historical Basket Values at
March 31, June 30, September 30 and December 31 in each of 1992, 1993 and 1994
and at March 31 and June , 1995. Historical Basket Values should not be taken
as an indication of future performance. The historical values set forth herein
have been adjusted to reflect certain corporate events that affected those
values, including, but not limited to, stock splits and stock dividends. Certain
adjustments to the Multiplier and the Basket will be made by the Calculation
Agent as set forth under "Description of Securities-- Adjustments to the
Multiplier and Basket." Those adjustments may not correspond to the adjustments
made in determining the historical Basket Values set forth herein. In addition,
the Maturity Payment
S-22
<PAGE>
Amount will be calculated based upon (i) the averaging of Monthly Basket Values
to obtain the Average Basket Maturity Value and (ii) the Participation
Percentage.
DATE BASKET VALUE
- ---- ------------
1992:
March 31.....................................................
June 30......................................................
September 30.................................................
December 31..................................................
1993:
March 31.....................................................
June 30......................................................
September 30.................................................
December 31..................................................
1994:
March 31.....................................................
June 30......................................................
September 30.................................................
December 31..................................................
1995:
March 31.....................................................
June ......................................................
<TABLE>
<CAPTION>
HISTORICAL BASKET VALUES
(BASKET VALUES THROUGH JUNE , 1995)
--
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
100.00
90.00
80.00
70.00
60.00
50.00
Mar 92 Jun 92 Sept 92 Dec 92 Mar 93 Jun 93 Sept 93 Dec 93 Mar 94 Jun 94 Sept 94 Dec 94 Mar 95 Jun 95
--
</TABLE>
Source: Prepared by the Company from data obtained from the primary market on
which each Basket Security is traded.
S-23
<PAGE>
FORM OF SECURITIES
CONVERSION OPTION
The Securities will initially be evidenced by certificates in fully
registered form (each, a "Certificate"). One-hundred eighty (180) calendar days
after the closing of the offering (which closing date is expected to be June
, 1995), each Holder will have the option (the "Conversion Option") to
convert the form of such Holder's Securities from certificated to book-entry
form within a forty-five calendar day period (the "Conversion Option Period").
The Conversion Period is expected to run from December , 1995 through February
, 1996. In order to be exchanged for Securities in book-entry form
(represented by a beneficial interest in the Global Security described below), a
Certificate evidencing such certificated Security must be delivered to The
Depositary Trust Company, New York, New York ("DTC"), in proper form for
deposit, by a participating organization in DTC (a "Participant"). Accordingly,
a registered holder of a Security who is not a Participant must deliver his
Certificate, in proper form for deposit, to a Participant, either directly or
through an indirect participant in DTC (such as a bank, brokerage firm, dealer
or trust company that clears through, or maintains a custodial relationship
with, a Participant) or a brokerage firm which maintains an account with a
Participant, in order to have his certificated Security exchanged for a Security
in book-entry form. Holders who desire to exchange their certificated Security
for Securities in book-entry form should contact their brokers or other
Participants or indirect participants to obtain information on procedures for
submitting their Certificates to DTC, including the proper form for submission,
and (during the Conversion Option Period) the cut-off times for same day and
next day exchange. Certificated Securities which are held by a Holder in nominee
or "street" name may be automatically exchanged into book-entry form by the
broker or other entity in whose name the Certificates evidencing such
certificated Securities are registered, without action of, or consent by, the
beneficial owner of such certificated Securities. Under no circumstances may
certificated Securities be converted into Securities in book-entry form through
the facilities of CEDEL or Euroclear (each as defined below).
Certificated securities received by DTC for exchange during the Conversion
Option Period will be exchanged for Securities in book-entry form by the close
of business on the New York Business Day that the Certificates evidencing such
certificated Securities are received by DTC (if received by DTC at its then
applicable cut-off time for same day credit) or on the following New York
Business Day (if received by DTC at its then applicable cut-off time for next
day credit). After the last day of the Conversion Option Period, DTC will not be
required to accept delivery of certificated Securities for exchange for
book-entry Securities, but may permit certificated Securities to be so exchanged
on a case-by-case basis. However, there can be no assurance that such
certificated Securities would be accepted for exchange. Because certificated
Securities are not required to be exchanged for Securities in book-entry form,
it is likely that not all certificated Securities will be so exchanged.
Accordingly, a Holder purchasing Securities in secondary market trading after
commencement of the Conversion Option Period may wish to consult with his broker
or another Participant or indirect participant if he wishes to purchase
Securities only in book-entry form and not certificated form.
The Company has been informed by CEDEL and Euroclear that such clearing
agencies will only clear Securities in book-entry form.
Once a registered holder of a Security has elected the Conversion Option,
such holder may hold his Securities only in book-entry form and will not be able
to change his election or withdraw from the book-entry system during the
Conversion Option Period or thereafter. Accordingly, except in certain limited
circumstances, ownership of the Securities in certificated form will no longer
be available to investors who have elected the Conversion Option.
S-24
<PAGE>
DTC
DTC is a limited-purpose trust company which was created to hold securities
for its Participants and to facilitate the clearance and settlement of
securities transactions between Participants in such securities through
electronic book-entry changes in accounts of its Participants. Participants
include securities brokers and dealers, banks and trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly ("indirect participants"). Persons who are not
Participants may beneficially own securities held by DTC only through
Participants or indirect participants.
Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in Securities held in book-entry form, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
A Holder that is not a Participant will have its ownership of a Security in
book-entry form recorded on or through the records of the brokerage firm or
other entity that maintains such Holder's account. In turn, the total number of
Securities held by an individual brokerage firm for its clients will be
maintained on the records of DTC in the name of such brokerage firm (or in the
name of a Participant or indirect participant that acts as agent for the
Holder's brokerage firm if such firm is not a Participant or indirect
participant). Therefore, a Holder must rely upon the foregoing procedures to
evidence such Holder's ownership of a Security. Transfer of ownership of any
Security may be effected only through the selling Holder's brokerage firm or
other entity that maintains the Holder's account.
If DTC is at any time unwilling or unable to continue as depository and a
successor depository is not appointed by the Company within 90 days, the Company
will issue Securities in definitive form in exchange for the Securities held in
book-entry form. In addition, the Company may at any time determine not to have
the Securities held in book-entry form and, in such event, will issue Securities
in definitive form in exchange therefor. In either instance, an owner of a
beneficial interest in Securities held in book-entry form will be entitled to
have Securities equal in aggregate amount to such beneficial interest registered
in its name and will be entitled to physical delivery of such Securities in
definitive form.
CEDEL AND EUROCLEAR
Holders may hold their Securities only in book-entry form through CEDEL or
Euroclear if they are participants of such systems, or indirectly through
organizations which are participants in such systems. Certificated ownership of
Securities will not be available through such systems.
CEDEL and Euroclear will hold omnibus book-entry positions on behalf of
their participants through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective depositaries which in turn
will hold such positions in customers' securities accounts in the names of the
nominees of the depositaries on the books of DTC. Citibank, N.A., New York
Office ("Citibank"), will act as depositary for CEDEL and Morgan Guaranty Trust
Company of New York, New York Office ("Morgan"), will act as depositary for
Euroclear (in such capacities, the "Depositaries"). All securities in CEDEL or
Euroclear are held on a fungible basis without attribution of specific
certificates to specific securities clearance accounts.
Cedel, societe anonyme ("CEDEL") is incorporated under the laws of
Luxembourg as a professional depository. CEDEL holds securities for its
participating organizations and facilitates the clearance and settlement of
securities transactions between CEDEL participants through electronic book-entry
changes in accounts of CEDEL participants, thereby eliminating the need for
physical movement of certificates. Transactions may be settled in CEDEL in any
of 28 currencies, including U.S.
S-25
<PAGE>
dollars. CEDEL provides to its participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. CEDEL interfaces with domestic
markets in several countries. As a professional depository, CEDEL is subject to
regulation by the Luxembourg Monetary Institute. CEDEL participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations and may include the Underwriter (as hereinafter
defined). Indirect access to CEDEL is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a CEDEL participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for participants
in the Euroclear System and to clear and settle transactions between Euroclear
participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of certificates and
any risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in any of 30 currencies, including U.S. dollars.
The Euroclear System includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. The Euroclear System is operated by Morgan's Brussels, Belgium
office (the "Euroclear Operator" or "Euroclear"), under contract with Euroclear
Clearance System S.C., a Belgian cooperative corporation (the "Cooperative").
Morgan is a member bank of the United States Federal Reserve System. All
operations are conducted by the Euroclear Operator, and all Euroclear securities
clearance accounts and Euroclear cash accounts are accounts with the Euroclear
Operator, not the Cooperative. The Cooperative establishes policy for the
Euroclear System on behalf of Euroclear participants. Euroclear participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries and may include the Underwriters.
Indirect access to the Euroclear System is also available to other firms that
clear through or maintain a custodial relationship with a Euroclear participant,
either directly or indirectly.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System, and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipt of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear participants, and has no record
of or relationship with persons holding through Euroclear participants.
All information herein on CEDEL and Euroclear is derived from CEDEL or
Euroclear, as the case be, and reflects the policies of such organizations; such
policies are subject to change without notice.
CERTIFICATES FOR SECURITIES
The Trustee will maintain a register (the "Security Register") for
registering the ownership of and transfers of Securities represented by
Certificates. Prior to due presentment for registration of transfer, the
Company, the Trustee, and any agent of either of them may deem and treat the
person in whose name a Certificate is registered (the "registered holder") as
the absolute owner of the Securities evidenced by such Certificate for any
purpose whatsoever, and as the person entitled to exercise the rights
represented by the Securities evidenced thereby, and neither the Company, the
Trustee, nor any agent of either of them shall be affected by any notice to the
contrary. Accordingly, if a beneficial owner of a Security evidenced by a
Certificate is not the registered holder thereof (for example, if it holds the
Certificate through a broker holding such Certificate in nominee or "street"
name), it may exercise its rights as a Holder only through the registered
holder.
S-26
<PAGE>
The Trustee shall from time to time register the transfer of any outstanding
Certificates upon surrender thereof at the Trustee's office, duly endorsed, or
accompanied by a written instrument or instruments of transfer in form
satisfactory to the Trustee duly executed by the registered holder thereof, by
the duly appointed legal representative thereof or by its duly authorized
attorney, such signature to be guaranteed by a bank or trust company located, or
with a correspondent office, in The City of New York or by a broker or dealer
which is a member of a national securities exchange. A new Certificate shall be
issued to the transferee upon any such registration of transfer.
At the option of a Holder, Certificates may be exchanged for other
Certificates, representing a like principal amount of Securities upon surrender
to the Trustee at the Trustee's office of the Certificates to be exchanged. the
Company shall thereupon execute, and the Trustee shall countersign and deliver,
one or more new Certificates representing a like principal amount of Securities.
If any Certificate is mutilated, lost, stolen or destroyed, the Company may
in its discretion execute, and the Trustee may countersign and deliver, in
exchange and substitute for and upon cancellation of the mutilated Certificate,
or in lieu of the lost, stolen or destroyed Certificate, a new Certificate of
like tenor and representing an equivalent principal amount of Securities, but
only (in the case of loss, theft or destruction) upon receipt of evidence
satisfactory to the Company and the Trustee of such loss, theft or destruction
of such Certificate and security or indemnity, if requested, also satisfactory
to them. Applicants for substitute Certificates must also comply with such other
reasonable regulations and pay such other reasonable charges as the Company or
the Trustee may prescribe.
The Maturity Payment Amount on Securities in certificated form will be
payable when due at the office of the Trustee, Chemical Bank, Corporate Trust
Services, at 450 West 33rd Street, New York, New York 10001.
LISTING
Application has been made to list the CUBS on the AMEX, subject to the
receipt of requisite regulatory approvals, under the symbol "KBB."
CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES
In the opinion of Weil, Gotshal & Manges, counsel to the Company, the
following discussion is an accurate summary of the principal U.S. federal income
tax consequences that may be relevant to a holder of CUBS that is a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States (or any political
subdivision thereof), or an estate or trust the income of which is subject to
U.S. federal income taxation regardless of its source (a "United States
Holder"), and certain aspects of U.S. federal taxation relevant to holders of
CUBS other than United States Holders (a "Non-U.S. Holder").
The summary is based upon the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), and regulations, rulings and judicial decisions
thereunder as of the date hereof, all of which are subject to change, possibly
on a retroactive basis. If so, the federal income tax consequences may be
different from those discussed below. Except where noted, it addresses only CUBS
held by initial purchasers as capital assets and does not consider purchasers
with particular tax characteristics or special situations, such as dealers in
securities, financial institutions, insurance companies, tax exempt persons,
persons holding CUBS as a position in a "straddle," as part of a "hedge," a
"conversion transaction" or other integrated investment comprised of CUBS and
one or more other investments, or persons that hold the CUBS through a
partnership or other pass-through entity. This summary also does not address
either the tax consequences to persons that have a "functional currency" other
than the U.S. dollar or the possible state and local tax consequences to a
holder. PERSONS CONSIDERING THE
S-27
<PAGE>
PURCHASE, OWNERSHIP OR DISPOSITION OF CUBS SHOULD CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE APPLICATION TO THEIR PARTICULAR SITUATION OF THE U.S. FEDERAL
INCOME TAX CONSIDERATIONS DISCUSSED BELOW, AS WELL AS ANY CONSEQUENCES ARISING
UNDER ANY STATE, LOCAL OR FOREIGN TAX LAWS.
GENERAL
There are no final regulations, published rulings or judicial decisions
directly addressing the income tax treatment of securities with terms
substantially the same as the CUBS. However, although not free from doubt, the
Company believes that the CUBS should be treated as its debt for U.S. federal
income tax purposes. Accordingly, the Company intends both to treat the CUBS as
debt for U.S. federal income tax purposes and to file information returns with
the Internal Revenue Service (the "IRS") consistent with such treatment. The
discussion that follows is based on such approach.
UNITED STATES HOLDERS
Taxation of the Maturity Payment Amount
Interest generally is included in income for federal income tax purposes
when paid or accrued, in accordance with a holder's regular method of tax
accounting. Moreover, in accordance with such general tax principles,
"contingent interest" on debt ordinarily is not includable in income before the
amount of such interest becomes fixed. Accordingly, the Company intends to treat
amounts payable at Maturity on the CUBS that are in excess of the Issue Price,
if any, as contingent interest includable in income by United States Holders as
ordinary income at such time. If the amount payable at Maturity is less than the
Issue Price, such difference should be treated as a capital loss.
The IRS may contend, however, that income on the CUBS should be taxed in a
manner, or at a time, other than that described above (for example, beginning at
such time, if any, when it becomes certain that the minimum amount payable at
Maturity would exceed the Issue Price), with the result that a Holder may be
taxed prior to the receipt of any cash in respect thereof. Moreover, any final
Treasury regulations that may be adopted may apply rules different from those
described above retroactively to the CUBS. In such case, the timing, and
possibly the character, of a United States Holder's income could be affected,
but not its aggregate amount.
For example, proposed regulations (the "Proposed Regulations") were issued
in December of 1994 concerning the treatment of contingent payment debt
obligations. The Proposed Regulations require the issuer to construct a
projected payment schedule based on any fixed payments due, and on projections
of contingent payments that may become due, on the contingent payment obligation
and require the holder to accrue interest based on this schedule. In general,
the projected contingent amounts are determined by reference to forward contract
prices (where available) or by assuming an amount that produces a "reasonable
rate of return," taking into account (as of the issue date) general market
conditions, the credit quality of the issuer, and the terms and conditions of
the debt instrument. The Proposed Regulations are proposed to be effective to
all debt instruments issued on or after a date 60 days after the regulations are
issued in final form and so by their terms would not apply to the CUBS.
Under earlier proposed regulations that were issued in 1991 (the
"Bifurcation Regulations") and that were proposed to be effective retroactively
but were superseded with the issuance of the Proposed Regulations, CUBS could be
treated as two separate instruments: (1) a debt instrument of the Company with a
stated redemption price at maturity equal to its minimum Maturity Payment Amount
of $9.00 and (2) a cash settled option based upon the value of the Basket that
must be exercised by delivering CUBS. (Alternatively, the CUBS could be treated
as a combination of one or more other financial instruments.) The Bifurcation
Regulations, however, would not have applied to an instrument if its issue price
exceeded the total noncontingent payments under the instrument by more than an
"insubstantial amount," although such term was not defined in the Bifurcation
Regulations.
S-28
<PAGE>
If the Proposed Regulations (or rules similar to the superseded Bifurcation
Regulations) were to apply to the CUBS, a United States Holders' recognition of
income could be significantly accelerated. As described above, however, the
Company intends to treat the CUBS as requiring no accrual of contingent interest
by United States Holders until such amounts are fixed, and the Company will file
information returns with the IRS consistent with such treatment.
Sale or Exchange of CUBS
A United States Holder's tax basis in CUBS will, in general, be such
holder's cost therefor. Upon the sale or exchange of CUBS, gain or loss will be
recognized equal to the difference between the amount realized and the adjusted
tax basis of the CUBS. Under current law, any such loss should be treated as
capital loss. Counsel has advised the Company, however, that there is
substantial uncertainty regarding whether any such gain should be capital gain
or ordinary income. As a result, a purchaser of CUBS should be aware that all or
a portion of any such gain may be taxed as ordinary income. Under the Proposed
Regulations, gain on the sale, exchange, or retirement of a contingent debt
obligation generally would be treated as interest income. Losses, on the other
hand, would be treated as ordinary only to the extent of the Holder's prior
interest inclusions and capital to the extent in excess thereof.
Subsequent Purchasers
A subsequent United States Holder that purchases CUBS for an amount in
excess of the Issue Price may have bond premium which may be amortizable against
the interest component of the Maturity Payment Amount. However, such holder may
be required to make an election in order to amortize such premium.
On the other hand, a subsequent United States Holder that purchases CUBS for
an amount less than its Issue Price may have "market discount," in which case
some or all of any gain realized on a sale or other disposition or at Maturity
may be treated as ordinary income. Additionally, such holder may be required to
defer until disposition a portion of any interest expense that is otherwise
deductible on indebtedness incurred or maintained to purchase or carry CUBS.
Accordingly, subsequent United States Holders should consult their tax
advisors concerning whether they have bond premium or market discount and, if
so, whether there are any tax elections that they should make.
NON-U.S. HOLDERS
Under present U.S. federal income and estate tax law, and assuming the
Company's characterization of the CUBS, and timing of interest thereon, is as
described above, and subject to the discussion below concerning backup
withholding, for a Non-U.S. Holder that has no connection with the United States
other than holding CUBS:
(a) no withholding of U.S. federal income tax will be required with
respect to any gain or income realized upon the sale or exchange of CUBS or
with respect to the payment by the Company or any paying agent of the
Maturity Payment Amount on CUBS, provided that (i) the beneficial owner does
not actually or constructively own 10% or more of the total combined voting
power of all classes of stock of the Company entitled to vote within the
meaning of section 871(h)(3) of the Code and the regulations thereunder,
(ii) the beneficial owner is not a controlled foreign corporation that is
related to the Company through stock ownership, and (iii) the beneficial
owner satisfies the statement requirement (described generally below) set
forth in section 871(h) or section 881(c) of the Code and the regulations
thereunder; or
(b) CUBS beneficially owned by an individual who at the time of death is
a Non-U.S. Holder will not be subject to U.S. federal estate tax as a result
of such individual's death, provided both that such individual does not
actually or constructively own 10% or more of the total combined
S-29
<PAGE>
voting power of all classes of stock of the Company entitled to vote within
the meaning of section 871(h)(3) of the Code and that the Maturity Payment
Amount with respect to such CUBS would not have been, if received at the
time of such individual's death, effectively connected with the conduct of a
U.S. trade or business by such individual.
To satisfy the requirement referred to in (a)(iii) above, the beneficial
owner of such CUBS or a financial institution holding the CUBS on behalf of such
owner must provide, in accordance with specified procedures, the Company (or its
paying agent) a statement certifying that the beneficial owner is not a U.S.
person, citizen or resident. These requirements will be met if (1) the
beneficial owner provides his name and address and certifies, under penalties of
perjury, that he is not a U.S. person, citizen or resident (which certification
may be made on an IRS Form W-8 or a substantially similar or successor form) or
(2) a financial institution holding the CUBS on behalf of the beneficial owner
certifies, under penalties of perjury, that such statement has been received by
it and furnishes a paying agent of the Company with a copy thereof.
Payments to Non-U.S. Holders not meeting the requirements of paragraph (a)
above and subject to withholding of U.S. federal income tax may nevertheless be
exempt from such withholding if the beneficial owner of the CUBS provides the
Company with a properly executed (1) IRS Form 1001 (or successor form) claiming
an exemption from withholding under the benefit of a tax treaty or (2) IRS Form
4224 (or successor form) stating that interest paid on the CUBS is not subject
to withholding tax because it is effectively connected with the holder's conduct
of a trade or business in the United States.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A holder of CUBS may be subject to information reporting and backup
withholding at a rate of 31% of certain amounts paid to a holder unless such
holder: (a) is a corporation or other exempt recipient and, when required,
provides proof of such exemption or (b) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. Information reporting and backup withholding do not apply to
payments to a holder of CUBS that is a Non-U.S. Holder if the beneficial owner
of CUBS certifies to its Non-U.S. status (as described above in (a)(iii) under
"Non-U.S. Holders") or otherwise establishes an exemption and the payor does not
have actual knowledge that the beneficial owner is a U.S. person.
Payment of the proceeds of a sale of CUBS to or through a foreign office of
a broker will not be subject to information reporting or backup withholding
unless the broker is a U.S. person or "U.S. related person." For this purpose, a
"U.S. related person" is a (i) a "controlled foreign corporation" for federal
income tax purposes, or (ii) a foreign person 50% or more of whose gross income
from all sources for a three year period ending with the close of its taxable
year preceding the year of payment (or such part of the period that the broker
has been in existence) is effectively connected with the conduct of a U.S. trade
or business.
In the case of proceeds from the sale of CUBS to or through a non-U.S.
office of a broker that is a U.S. person or a U.S. related person, current
regulations require information reporting on the payment, unless the broker both
has documentary evidence in its files that the owner is a Non-U.S. person and
has no knowledge to the contrary but do not require backup withholding (absent
actual knowledge that the payee is a U.S.person).
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against such Holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
S-30
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
dated the date hereof (the "Underwriting Agreement"), the Company has agreed to
sell to each of the underwriters named below (the "Underwriters") for whom Bear,
Stearns & Co. Inc. is acting as representative (the "Representative"), and each
of the Underwriters has severally agreed to purchase, the number of CUBS set
forth opposite its name below.
NUMBER OF
UNDERWRITERS CUBS
- ---------------------------------------------------------------- ---------
Bear, Stearns & Co. Inc.........................................
---------
Total................................................... 1,000,000
---------
---------
The Underwriters have advised the Company that they propose to offer the
Securities to the public initially at the public offering price set forth on the
cover page of this Prospectus Supplement, and to certain dealers at such price
less a concession not in excess of $ per Security. The Underwriters may
allow, and such dealers may reallow a concession not in excess of $ per
Security to certain other dealers. After the initial public offering, the public
offering price and such concessions may be changed.
The Company has granted the Underwriters an option, exercisable within 30
days of the date of this Prospectus Supplement, to purchase up to an additional
150,000 CUBS to cover over-allotments, if any, at the price per Security as
described above. This option may be exercised only for the purpose of covering
over-allotments, if any, made in the sale of the Securities offered hereby.
Application has been made to list the Securities on the AMEX, subject to the
receipt of requisite regulatory approvals. The Company will use its best efforts
to obtain and maintain the listing of the Securities on the AMEX or another
national securities exchange. Nevertheless, no assurances can be given as to the
liquidity of the market for the Securities.
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all the Securities if any are purchased.
The Company has agreed to indemnify the Underwriters against, and to
contribute to losses arising out of, certain liabilities, including liabilities
under the Securities Act of 1933, as amended.
Bear, Stearns & Co. Inc. is a wholly-owned subsidiary of the Company. The
offer and sale of the Securities in respect of which this Prospectus Supplement
is delivered complies with the requirements of Schedule E of the By-Laws of the
NASD regarding underwriting securities of an affiliate of an NASD member.
VALIDITY OF THE SECURITIES
The validity of the Securities will be passed upon for the Company by Weil,
Gotshal & Manges, New York, New York, a partnership including professional
corporations, and for the Underwriters by Kramer, Levin, Naftalis, Nessen, Kamin
& Frankel, New York, New York.
S-31
<PAGE>
APPENDIX A
INDEX OF DEFINED TERMS
Set forth below are definitions of some of the terms used in this Prospectus
Supplement and not defined in the accompanying Prospectus.
"Business Day" means a day of the week which is not a day on which banking
institutions in New York, New York, are authorized or required by law to close.
"Maturity" of any Security means the date on which the principal of such
Security becomes due and payable as provided therein or in the Senior Indenture,
whether at Maturity or by declaration of acceleration or otherwise.
"Holder" means, with respect to any certificated Security, the Person in
whose name the certificate is registered in the Security Register and, with
respect to any Global Security, any Beneficial Holder thereof to the extent of
such Beneficial Holder's interest therein.
In addition, definitions for the following terms are set forth in this
Prospectus Supplement at the pages indicated:
<TABLE>
<CAPTION>
DEFINED TERM PAGE
------------ --------
<S> <C>
AMEX.............................................................................. S-1
Average Basket Value.............................................................. S-6
Average Basket Maturity Value..................................................... S-3
Basket............................................................................ S-4
Basket Securities................................................................. S-3
Basket Security................................................................... S-3
Basket Value...................................................................... S-3
Bifurcation Regulations........................................................... S-28
Calculation Agent................................................................. S-3
Calculation Date.................................................................. S-3
Cash Component.................................................................... S-12
CEDEL............................................................................. S-25
Certificate....................................................................... S-24
Company........................................................................... S-1
Conversion Option................................................................. S-24
Code.............................................................................. S-27
Conversion Option Period.......................................................... S-24
Cooperative....................................................................... S-26
CUBS.............................................................................. S-1, S-3
DTC............................................................................... S-24
Euroclear......................................................................... S-26
Euroclear Operator................................................................ S-26
indirect participants............................................................. S-25
IRS............................................................................... S-28
</TABLE>
S-32
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM PAGE
------------ --------
<S> <C>
Issue Price....................................................................... S-1
LIBOR............................................................................. S-12
LIBOR Determination Date.......................................................... S-12
London Business Day............................................................... S-13
Market Disruption Event........................................................... S-10
Market Price...................................................................... S-9
Maturity.......................................................................... S-3
Maturity Payment Amount........................................................... S-1, S-3
Monthly Basket Value.............................................................. S-3
Multiplier........................................................................ S-3
NASDAQ-NMS........................................................................ S-9
NYSE.............................................................................. S-10
Non-U.S. Holder................................................................... S-27
Original Basket Value............................................................. S-4
Original Basket Security.......................................................... S-14
Participant....................................................................... S-24
Participation Percentage.......................................................... S-1
Proposed Regulations.............................................................. S-28
registered holder................................................................. S-26
Representative.................................................................... S-31
Securities........................................................................ S-1, S-3
Security Register................................................................. S-26
Specified Maturity................................................................ S-12
Trading Day....................................................................... S-10
Trustee........................................................................... S-9
Underwriters...................................................................... S-31
Underwriting Agreement............................................................ S-31
United States Holder.............................................................. S-27
</TABLE>
S-33
<PAGE>
PROSPECTUS
$3,891,376,750
THE BEAR STEARNS COMPANIES INC.
DEBT SECURITIES AND WARRANTS
The Company may issue and sell from time to time, in one or more series with
an aggregate initial public offering price of up to $3,891,376,750 (or the
equivalent in foreign denominated currency or units based on or relating to such
currencies), debt securities ("Debt Securities") consisting of debentures, notes
and/or other unsecured evidences of indebtedness and warrants ("Warrants") to
purchase Debt Securities or to buy and sell government debt securities,
currencies, currency units, currency indices or currency baskets, stock indices,
stock baskets, commodities, commodity indices or another index or reference. The
Debt Securities and Warrants are herein collectively referred to as the
"Securities." The Debt Securities and Warrants may be offered independently or
together for sale directly to purchasers or through dealers, underwriters or
agents. The Company will offer the Securities to the public on terms determined
by market conditions. The Securities may be sold for, and principal of and
interest on Debt Securities and the cash settlement value of the Warrants may be
payable in, United States dollars, foreign denominated currency or currency
units, in each case, as the Company specifically designates.
The accompanying Prospectus Supplement sets forth the specific designation,
aggregate principal amount, purchase price, maturity, interest rates (or manner
of calculation thereof), time of payment of interest (if any), currency or
currency units in which payments will be made (if other than United States
dollars), listing (if any) on a securities exchange and any other specific terms
of the Debt Securities, the purchase price, exercise price, exercise period,
detachability and any other specific terms of any Warrants and the name of and
compensation to each dealer, underwriter or agent (if any) involved in the sale
of the Securities. The managing underwriters with respect to each series sold to
or through underwriters will be named in the accompanying Prospectus Supplement.
Any such underwriters (and any representative thereof), dealers or agents may
include Bear, Stearns & Co. Inc., a wholly-owned subsidiary of the Company.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR ANY SUPPLEMENT HERETO. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
The Securities may be offered through dealers, through underwriters or
through agents designated from time to time, as set forth in the accompanying
Prospectus Supplement. The net proceeds to the Company will be, in the case of a
dealer, the sales price to such dealer, in the case of an underwriter, the
public offering price less the applicable underwriting discount or commission,
and, in the case of an agent, the public offering price less the applicable
agency commission, in each case, less other expenses attributable to issuance
and distribution. See "Plan of Distribution" for possible indemnification
arrangements for dealers, underwriters and agents.
This Prospectus and the accompanying Prospectus Supplement may be used by
Bear, Stearns & Co. Inc. in connection with offers and sales of Debt Securities
and Warrants in market-making transactions at negotiated prices related to
prevailing market prices at the time of sale or otherwise. Bear, Stearns & Co.
Inc. may act as a principal or agent in such transactions.
-------------------
BEAR, STEARNS & CO. INC.
OCTOBER 7, 1994
<PAGE>
IN CONNECTION WITH THE OFFERING OF CERTAIN SECURITIES HEREUNDER, THE
UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN
THE MARKET PRICES OF THOSE SECURITIES, OR OTHER SECURITIES OF THE COMPANY, AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
-------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER, DEALER OR AGENT. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SECURITIES BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company with the Commission can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 or at its Regional
Offices located at the Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, 13th Floor,
New York, New York 10048, and copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Reports, proxy statements and other
information concerning the Company can also be inspected at the offices of the
New York Stock Exchange, 20 Broad Street, New York, New York 10005.
This Prospectus constitutes a part of a Registration Statement filed by the
Company with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus omits certain of the information contained in
the Registration Statement in accordance with the rules and regulations of the
Commission. Reference is hereby made to the Registration Statement and related
exhibits for further information with respect to the Company and the Securities.
Statements contained herein concerning the provisions of any document are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety by
such reference.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The the Annual Report on Form 10-K (including the portions of the Company's
Annual Report to Stockholders incorporated by reference therein) for the fiscal
year ended June 30, 1994 (the "1994 Form 10-K") filed by the Company with the
Commission pursuant to Section 13 of the Exchange Act (File No. 1-8989) is
incorporated herein by reference. All documents filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offering of the Securities
shall be deemed to be incorporated by reference into this Prospectus and to be a
part hereof from the date of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all documents incorporated by reference into this Prospectus
except the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Requests for such copies should be
directed to Corporate Communications Department, The Bear Stearns Companies
Inc., 245 Park Avenue, New York, New York 10167; telephone number (212)
272-2000.
3
<PAGE>
THE COMPANY
The Company is a holding company that, through its subsidiaries, 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. The business of the Company and its
subsidiaries includes market-making and trading in corporate, 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 restructurings 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 (the "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 Geneva, Hong Kong
and Shanghai, through international subsidiaries in Frankfurt, Hong Kong, London
and Paris, through a branch office in 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 Commission,
futures commission merchants registered with the Commodity Futures Trading
Commission, members of the NYSE and all other principal United States securities
and commodities exchanges and members of the National Association of Securities
Dealers, Inc. (the "NASD") and the National Futures Association. Bear Stearns is
also recognized as a "primary dealer" in United States government securities
designated by the Federal Reserve Bank of New York.
The Company is incorporated in Delaware. The principal executive office of
the Company is located at 245 Park Avenue, New York, New York 10167; its
telephone number is (212) 272-2000.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of the Securities for
general corporate purposes, which may include additions to working capital, the
repayment of short-term indebtedness and investments in, or extensions of credit
to, subsidiaries.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges was 1.6, 1.8, 1.6, 1.2 and 1.2 for
the fiscal years ended June 30, 1994, 1993, 1992, 1991 and 1990, respectively.
These ratios were calculated by dividing the sum of fixed charges into the sum
of earnings before taxes and fixed charges. Fixed charges for these purposes
consist of all interest expense and certain other immaterial expenses.
4
<PAGE>
DESCRIPTION OF DEBT SECURITIES
GENERAL
The following description sets forth certain general terms and provisions of
the Debt Securities to which any Prospectus Supplement may relate. The
particular terms of the Debt Securities offered by any Prospectus Supplement and
the extent, if any, to which such general terms and provisions will not apply to
the Debt Securities so offered will be described in the Prospectus Supplement
relating to those Debt Securities.
The Debt Securities will be issued under an Indenture, dated as of May 31,
1991 (the "Indenture"), between the Company and Chemical Bank (formerly
Manufacturers Hanover Trust Company), as trustee (the "Trustee"). A copy of the
Indenture is filed as an exhibit to the Registration Statement of which this
Prospectus forms a part (the "Registration Statement"). The following summaries
of certain provisions of the Indenture do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all provisions
of the Indenture, including the definitions therein of certain terms.
The Indenture does not limit the principal amount of Debt Securities that
may be issued thereunder, and provides that Debt Securities may be issued
thereunder in one or more series up to the aggregate principal amount that may
be authorized from time to time by the Company. The Company from time to time
may, without the consent of the Holders of outstanding Debt Securities, provide
for the issuance of other debt securities under the Indenture in addition to the
Debt Securities authorized on the date of this Prospectus. The Indenture
provides the Company with the ability, in addition to the ability to issue Debt
Securities with terms different than those of Debt Securities previously issued,
to "reopen" a previous issue of a series of Debt Securities and issue additional
Debt Securities of such series. Debt Securities in an aggregate principal amount
of up to $3,891,376,750 may be offered pursuant to this Prospectus. As of the
date of this Prospectus, $6,385,838,250 aggregate principal amount of Debt
Securities have been issued under the Indenture and are outstanding.
Reference is hereby made to the Prospectus Supplement relating to the
particular series of Debt Securities offered thereby for the terms of those Debt
Securities, including, where applicable (4) the title of the Debt Securities and
the series of which those Debt Securities are a part; (5) the aggregate
principal amount of, or any limit on the aggregate principal amount of, those
Debt Securities; (6) the date or dates on which those Debt Securities will
mature; (7) the rate or rates per annum (which may be fixed or variable) at
which those Debt Securities will bear interest, if any; (8) the date or dates on
which such interest, if any, will be payable and the record date or dates
relating thereto; (9) the provisions, if any, for redemption of those Debt
Securities and the redemption price thereof; (10) the sinking fund requirements,
if any, with respect to those Debt Securities; (11) whether those Debt
Securities provide for payment in United States dollars, a foreign currency or a
composite currency; (12) any index, formula or other method used to determine
the amount of ayments of principal (and premium, if any) or interest, if any, on
those Debt Securities; (13) the form (registered or bearer or both) in which
those Debt Securities may be issued and any restrictions applicable to the
exchange of one form for another and to the offer, sale and delivery of the Debt
Securities in either form; (14) whether those Debt Securities will be issued in
book-entry form (a "Global Security") or in certificated form; (15) whether and
under what circumstances the Company will pay additional amounts ("Additional
Amounts") relating to specified taxes, assessments or other governmental charges
in respect of those Debt Securities and whether the Company has the option to
redeem those Debt Securities rather than pay such Additional Amounts, and the
terms of any such redemption; (16) if the amount of payments of principal of
(and premium, if any) or interest, if any, on, and Additional Amounts in respect
of those Debt Securities may be determined with reference to an index, formula
or other method based on a coin or currency other than that in which the Debt
Securities are stated to be payable, the manner in which those amounts will be
determined; (17) the provisions, if any, for the defeasance of those Debt
Securities; and (18) any other terms of those Debt Securities not inconsistent
with the provisions of the Indenture.
5
<PAGE>
Unless otherwise provided in the applicable Prospectus Supplement, Debt
Securities will be issued only in registered form without coupons ("Registered
Securities") in denominations of $1,000 and integral multiples thereof, and in
bearer form with or without coupons ("Bearer Securities") in the denomination of
$5,000. If Bearer Securities of a series are issued, the federal income tax
consequences and other special considerations applicable to those Bearer
Securities will be described in the Prospectus Supplement relating to that
series.
Unless otherwise provided in the applicable Prospectus Supplement,
Registered Securities may be transferred or exchanged at the corporate trust
office or agency of the Trustee in the City and State of New York, subject to
the limitations provided in the Indenture, without the payment of any service
charge, other than any tax or other governmental charge that may be imposed in
connection therewith. Bearer Securities will be transferable by delivery.
Provisions with respect to the exchange of Bearer Securities of any series will
be described in the Prospectus Supplement relating thereto.
If the amount of payments of principal of (and premium, if any) or any
interest on Debt Securities of any series is to be determined with reference to
any type of index, formula or other method, the federal income tax consequences
(if material), specific terms of and other information with respect to those
Debt Securities and that index, formula or other method will be described in the
Prospectus Supplement relating to that series.
If the principal of (and premium, if any) or any interest on Debt Securities
of any series are payable in a foreign or composite currency, the restrictions,
elections, federal income tax consequences, specific terms and other information
with respect to those Debt Securities and such currency will be described in the
Prospectus Supplement relating to that series.
One or more series of Debt Securities may be sold at a substantial discount
below its or their stated principal amount, bearing no interest or interest at a
rate that at the time of issuance is below market rate. One or more series of
Debt Securities may be variable rate debt securities that may be exchangeable
for fixed rate debt securities. Federal income tax consequences and other
special considerations applicable to any such series will be described in the
Prospectus Supplement relating thereto.
The Debt Securities will be unsecured and will rank pari passu with all
other unsecured and unsubordinated indebtedness of the Company. The Company
extends credit to its subsidiaries from time to time. Extensions of credit to
subsidiaries may be subordinated to the claims of unaffiliated creditors of
those subsidiaries. In addition, since the Company is a holding company, the
right of the Company and hence the right of creditors of the Company (including
the Holders of the Debt Securities) to participate in any distribution of the
assets of any subsidiary upon its liquidation or reorganization, or otherwise,
is necessarily subject to the prior claims of creditors of the subsidiary,
except to the extent that claims of the Company itself as a creditor of the
subsidiary may be recognized. Furthermore, dividends, loans and advances to the
Company from certain of its subsidiaries, including Bear Stearns and BSSC, are
restricted by net capital requirements under the Exchange Act and under rules of
certain exchanges and other regulatory bodies and by covenants governing certain
indebtedness of those subsidiaries.
Unless otherwise provided in the applicable Prospectus Supplement, the
principal of (and premium, if any) and any interest on Debt Securities will be
payable (in the case of Registered Securities) at the corporate trust office or
agency of the Trustee in the City and State of New York or (in the case of
Bearer Securities) at the office of the Trustee located outside the United
States maintained for such purpose; provided, however, that payment of interest
other than interest payable at maturity (or on the date of redemption, if any,
if the Debt Securities are redeemable by the Company prior to maturity, or on
the date of repayment, if the Debt Securities are repayable at the option of the
Holder thereof prior to maturity) on Registered Securities may be made at the
option of the Company by check mailed to the address of the person entitled
thereto or, at the option of a Holder of at least $10,000,000 in principal
amount of Registered Securities, by wire transfer to an account designated by
such Holder in writing at
6
<PAGE>
least 16 days prior to the date on which such payment is due. Unless otherwise
provided in the applicable Prospectus Supplement, no payment on a Bearer
Security will be made by mail to an address in the United States or by wire
transfer to an account maintained by the Holder thereof in the United States or
will otherwise be made inside the United States.
NOTICES
Unless otherwise provided in the applicable Prospectus Supplement, any
notice required to be given to a Holder of a Debt Security of any series that is
a Registered Security will be mailed to the last address of such Holder set
forth in the applicable Security Register. Any notice required to be given to a
Holder of a Debt Security that is a Bearer Security will be published in a daily
newspaper of general circulation in the city or cities specified in the
Prospectus Supplement relating to such Bearer Security.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities that will be deposited with, or on behalf
of, a depositary (the "Depositary") identified in the Prospectus Supplement
relating to such series. Global Securities may be issued in either registered or
bearer form and in either temporary or definitive form. Unless and until it is
exchanged in whole or in part for the individual Debt Securities represented
thereby, a Global Security may not be transferred except as a whole by the
Depositary for such Global Security to a nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of the Depositary
or by the Depositary or any nominee to a successor of the Depositary or a
nominee of the successor.
The specific terms of the depositary arrangement with respect to any Debt
Securities of a series will be described in the Prospectus Supplement relating
to such series. The Company anticipates that the following provisions will apply
to all depositary arrangements.
Upon the issuance of a Global Security, the Depositary will credit on its
book-entry system the respective principal amounts of the individual Debt
Securities represented by such Global Security to the accounts of institutions
that have accounts with the Depositary ("participants"). The accounts to be
credited shall be designated by the underwriters of the Debt Securities, or if
the Debt Securities are offered and sold directly by the Company or through
agents, by the Company or those agents. Ownership of beneficial interest in a
Global Security will be limited to participants or persons that may hold
beneficial interests through participants. Ownership of beneficial interest in a
Global Security will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the Depositary's participants or
persons that hold through participants. The laws of some states require that
certain purchasers of securities take physical delivery of securities. Such
limits and such laws may limit the market for beneficial interests in a Global
Security.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of a Global Security, the Depositary or nominee, as the case
may be, will be considered the sole owner or Holder of the Debt Securities
represented by the Global Security for all purposes under the Indenture. Except
as provided below, owners of beneficial interests in a Global Security will not
be entitled to have Debt Securities represented by Global Securities registered
in their names, will not receive or be entitled to receive physical delivery of
Debt Securities in definitive form and will not be considered the owners or
Holders thereof under the Indenture.
Subject to the restrictions discussed under "Limitations on Issuance of
Bearer Securities and Bearer Warrants" below, payments of principal of (and
premium, if any) and any interest on the individual Debt Securities registered
in the name of the Depositary or its nominee will be made to the Depositary or
its nominee, as the case may be, as the Holder of such Global Security. Neither
the Company nor the Trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests of a Global Security, or for maintaining, supervising or
reviewing any records relating to beneficial ownership interests and each of
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them may act or refrain from acting without liability on any information
provided by the Depositary. The Company expects that the Depositary, upon
receipt of any payment of principal, premium or interest in respect of a Global
Security, will credit immediately the accounts of the participants with payment
in amounts proportionate to their respective holdings in principal amount of
beneficial interest in a Global Security as shown on the records of the
Depositary. The Company also expects that payments by participants to owners of
beneficial interests in a Global Security will be governed by standing customer
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such participants. Receipt by owners of beneficial
interests in a temporary Global Security of payments of principal, premium or
interest in respect thereof will be subject to the restrictions discussed under
"Limitations on Issuance of Bearer Securities and Bearer Warrants" below.
If interest is paid on a bearer Global Security, or if no interest has been
paid but the bearer Global Security remains outstanding beyond a reasonable
period of time after the restricted period (as defined in applicable U.S.
Treasury regulations) has ended, the Depositary must provide the Company with a
certificate to the effect that the owners of the beneficial interests in the
Global Security are non-U.S. persons or U.S. persons that are permitted to hold
bearer securities under applicable U.S. Treasury regulations. In general, U.S.
persons that are permitted to hold bearer securities are U.S. persons who
acquire the securities through the foreign branch of certain U.S. financial
institutions and certain U.S. financial institutions that hold the securities
for resale to non-U.S. persons or who hold the securities on their own account
through a foreign branch. The certificate must be provided within a reasonable
period of time after the end of the restricted period, but in no event later
than the date when interest is paid. The certificate must be based on statements
provided to the Depositary by the owners of the beneficial interests.
If the Depositary is at any time unwilling or unable or ineligible to
continue as depositary and a successor depositary is not appointed by the
Company within 90 calendar days, then the Company will issue Debt Securities in
certificated form in exchange for all outstanding Global Securities. In
addition, the Company (but not a Holder) may at any time determine not to have
Debt Securities represented by a Global Security and, in that event, will issue
Debt Securities in definitive form in exchange for all Global Securities. In any
such instance, an owner of a beneficial interest in the Global Securities to be
exchanged will be entitled to delivery in definitive form of Debt Securities
equal in principal amount to such beneficial interest and to have such Debt
Securities registered in its name. Individual Debt Securities of the series so
issued will be issued (a) as Registered Securities in denominations, unless
otherwise specified by the Company, of $1,000 and integral multiples thereof if
the Debt Securities of that series are issuable as Registered Securities, (b) as
Bearer Securities in the denomination or denominations specified by the Company
if the Debt Securities of that series are issuable as Bearer Securities or (c)
as either Registered or Bearer Securities, if the Debt Securities of that series
are issuable in either form. See, however, "Limitations on Issuance of Bearer
Securities and Bearer Warrants" below for a description of certain restrictions
on the issuance of individual Bearer Securities in exchange for beneficial
interests in a Global Security.
LIMITATION ON LIENS
The Indenture provides that the Company may not, and may not permit any
Restricted Subsidiary to, issue, incur, assume, guarantee or suffer to exist any
indebtedness for borrowed money secured by a pledge of, lien on or security
interest in any shares of Voting Stock of any Restricted Subsidiary without
effectively providing that the securities issued under the Indenture, including
the Debt Securities, will be secured equally and ratably with such secured
indebtedness. The term "Restricted Subsidiary" as defined in the Indenture means
Bear Stearns, Custodial Trust Company, BSSC and any other subsidiary of the
Company owning, directly or indirectly, any of the common stock of, or
succeeding to a significant portion of the business, property or assets of a
Restricted Subsidiary, or with which a Restricted Subsidiary is merged or
consolidated.
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MERGER AND CONSOLIDATION
The Indenture provides that the Company may consolidate or merge with or
into any other corporation, and the Company may sell, lease or convey all or
substantially all of its assets to any corporation, organized and existing under
the laws of the United States of America or any state thereof, provided that (a)
the corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or that shall have received such assets shall expressly
assume payment of the principal of, and premium, if any, and interest on, (and
any Additional Amounts payable in respect of) the Debt Securities and the
performance and observance of all of the covenants and conditions of the
Indenture to be performed or observed by the Company, and (b) the Company or
such successor corporation shall not immediately thereafter be in default under
the Indenture.
Unless otherwise provided in the applicable Prospectus Supplement, the
Indenture does not restrict (i) a consolidation, merger, sale of assets or other
similar transaction that may adversely affect the creditworthiness of the
Company or a successor or combined entity, (ii) a change in control of the
Company or (iii) a highly leveraged transaction involving the Company, whether
or not involving a change in control, and the Indenture therefore will not
protect holders of the Debt Securities from the substantial impact that any of
the foregoing transactions may have on the value of the Debt Securities.
MODIFICATION AND WAIVER
Modification and amendment of the Indenture may be effected by the Company
and the Trustee with the consent of the Holders of 66 2/3% in principal amount
of the outstanding Debt Securities of each series affected thereby, provided
that no such modification or amendment may, without the consent of the Holder of
each outstanding Debt Security affected thereby (a) change the Stated Maturity
or the date of any installment of principal of, or interest on, any Debt
Security or change the Redemption Price or the Optional Redemption Price
thereof; (b) reduce the principal amount of, or the rate of interest on, or the
amount of any Additional Amount payable in respect of, any Debt Security or
reduce the amount of principal that could be declared due and payable prior to
the Stated Maturity of that Debt Security, or change the obligation of the
Company to pay any Additional Amounts (except as contemplated or permitted under
the Indenture), or reduce the amount of the principal of a Discount Security
that would be due and payable upon a declaration of acceleration of the maturity
of that Debt Security pursuant to the Indenture; (c) change the place or
currency of any payment of principal, premium, if any, or interest on any Debt
Security; (d) impair the right to institute suit for the enforcement of any
payment on or with respect to any Debt Security; (e) reduce the percentage in
principal amount of the outstanding Debt Securities of any series, the consent
of whose Holders is required to modify or amend the Indenture; or (f) modify the
foregoing requirements or reduce the percentage of outstanding Debt Securities
necessary to waive any past default to less than a majority. Except with respect
to certain fundamental provisions, the Holders of at least a majority in
principal amount of outstanding Debt Securities of any series may, with respect
to that series, waive past defaults under the Indenture and waive compliance by
the Company with certain provisions of the Indenture.
EVENTS OF DEFAULT
Under the Indenture, the following will be Events of Default with respect to
any series of Debt Securities: (a) default in the payment of interest on, or any
Additional Amounts payable in respect of, any Debt Securities of that series
when due, which default has continued for 30 days; (b) default in the payment of
the principal of, and premium, if any, on, any Debt Security of that series when
due; (c) default in the deposit of any sinking fund payment, when due, in
respect of any Debt Security of that series; (d) default in the performance of
any other covenant of the Company contained in the Indenture or in the Debt
Securities of that series, which default has continued for 60 days after written
notice as provided in the Indenture; (e) default for 10 days after notice as
provided in the Indenture, in respect of any other indebtedness for borrowed
money of the Company or any Restricted Subsidiary in excess of $10,000,000 that
has been declared due and payable prior to maturity; (f) certain events of
bankruptcy,
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insolvency or reorganization; and (g) any other Event of Default with respect to
Debt Securities of that series. The Trustee or the Holders of 25% in principal
amount (or any lesser amount that may be provided for in the Debt Securities of
that series) of the outstanding Debt Securities of that series may declare the
principal amount of all outstanding Debt Securities of that series due and
payable immediately if an Event of Default with respect to the Debt Securities
of that series shall occur and be continuing at the time of declaration. At any
time after a declaration of acceleration has been made with respect to the Debt
Securities of any series, but before a judgment or decree for payment of money
due has been obtained by the Trustee, the Holders of a majority in principal
amount of the outstanding Debt Securities of that series may rescind any
declaration of acceleration and its consequences, if all payments due (other
than those due solely as a result of acceleration) have been made and all Events
of Default have been remedied or waived. Any Event of Default with respect to
Debt Securities of any series may be waived by the Holders of a majority in
principal amount of all outstanding Debt Securities of that series, except in a
case of failure to pay the principal of, and premium, if any, or interest on, or
any Additional Amounts payable in respect of, any Debt Security of that series
for which payment had not been subsequently made or in respect of a covenant or
provision that cannot be modified or amended without the consent of the Holder
of each outstanding Debt Security of that series.
The Holders of a majority in principal amount of the outstanding Debt
Securities of a series may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee with respect to Debt Securities of that series,
provided that this direction shall not be in conflict with any rule of law or
the Indenture. Before proceeding to exercise any right or power under the
Indenture at the direction of those Holders, the Trustee shall be entitled to
receive from those Holders reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in complying with any
such direction.
The Company will be required to furnish to the Trustee annually a statement
as to the fulfillment by the Company of all of its obligations under the
Indenture.
DEFEASANCE
If so established by the Company under the terms of the Indenture with
respect to Debt Securities of any series that are Registered Securities
denominated and payable only in United States dollars (except as otherwise
provided under the Indenture), the Company, at its option, (a) will be
discharged from any and all obligations in respect of the Debt Securities of
that series (except for certain obligations to register the transfer or exchange
of Debt Securities of that series, replace stolen, lost or mutilated Debt
Securities of that series, maintain paying agents and hold moneys for payment in
trust) on the 91st day after the applicable conditions described in this
paragraph have been satisfied or (b) will not be subject to provisions of the
Indenture described above under "Limitation on Liens" and "Merger and
Consolidation" with respect to the Debt Securities of that series, in each case
if the Company deposits with the Trustee, in trust, money or U.S. Government
Obligations that, through the payment of interest thereon and principal thereof
in accordance with their terms, will provide money in an amount sufficient to
pay all the principal (including any mandatory sinking fund payments) of, and
premium, if any, and any interest on, the Debt Securities of that series on the
dates such payments are due in accordance with the terms of those Debt
Securities. To exercise either option, the Company is required to deliver to the
Trustee an opinion of counsel to the effect that (a) the deposit and related
defeasance would not cause the Holders of the Debt Securities of the series
being defeased to recognize income, gain or loss for United States Federal
income tax purposes and (b) if the Debt Securities of that series are then
listed on the NYSE, the exercise of the option would not result in delisting.
Defeasance provisions, if any, with respect to any series of Debt Securities may
be specified by the Company under the terms of the Indenture.
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DESCRIPTION OF WARRANTS
The following description sets forth certain general terms and provisions of
the Warrants to which any Prospectus Supplement may relate. The particular terms
of the Warrants offered by any Prospectus Supplement and the extent, if any, to
which such general terms and provisions will not apply to the Warrants so
offered will be described in the Prospectus Supplement relating to those
Warrants.
The Company may issue Warrants for the purchase of Debt Securities, Warrants
to buy or sell debt securities of or guaranteed by the United States or other
sovereign states ("Government Debt Securities"), Warrants to buy or sell
currencies, currency units or units of a currency index or currency basket,
Warrants to buy or sell units of a stock index or stock basket and Warrants to
buy and sell a commodity or a commodity index. Warrants may be offered
independently of or together with any series of Debt Securities and may be
attached to or separate from those Debt Securities. The Warrants will be settled
either through physical delivery or through payment of a cash settlement value
as set forth herein and in any applicable Prospectus Supplement. Each series of
Warrants will be issued under a separate warrant agreement (a "Warrant
Agreement") to be entered into between the Company and a bank or a trust
company, as warrant agent (the "Warrant Agent"), all as described in the
Prospectus Supplement relating to that series of Warrants. The Warrant Agent
will act solely as the agent of the Company under the applicable Warrant
Agreement and in connection with the certificates for the Warrants (the "Warrant
Certificates"), if any, of that series, and will not assume any obligation or
relationship of agency or trust for or with any holders of those Warrant
Certificates or beneficial owners of those Warrants. The following summaries of
certain provisions of the forms of Warrant Agreements and Warrant Certificates
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all the provisions of the Warrant Agreements and the
Warrant Certificates, copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part.
GENERAL
Reference is hereby made to the Prospectus Supplement relating to the
particular series of Warrants, if any, offered thereby for the terms of those
Warrants, including, where applicable: (1) whether the Warrant is for Debt
Securities, Government Debt Securities, currencies, currency units, currency
indices or currency baskets, stock indices, stock baskets, commodities,
commodity indices or any other index or reference as therein described; (2) the
offering price; (3) the currency, currency unit, currency index or currency
basket based on or relating to currencies for which those Warrants may be
purchased; (4) the date on which the right to exercise those Warrants will
commence and the date (the "Expiration Date") on which that right will expire;
(5) whether those Warrants are to be issuable in registered form ("Registered
Warrants") or bearer form ("Bearer Warrants"); (6) whether those Warrants are
extendable and the period or periods of such extendibility; (7) the terms upon
which Bearer Warrants, if any, of any series may be exchanged for Registered
Warrants of that series; (8) whether those Warrants will be issued in book-entry
form (a "Global Warrant Certificate") or in certificated Form; (9) United States
federal income tax consequences applicable to those Warrants; and (10) any other
terms of those Warrants not inconsistent with the applicable Warrant Agreement.
If the offered Warrants are to purchase Debt Securities, the Prospectus
Supplement will also describe (1) the designation, aggregate principal amount,
currency, currency unit or currency basket and other terms of the Debt
Securities purchasable upon exercise of those Warrants; (2) the designation and
terms of the Debt Securities with which those Warrants are issued and the number
of those Warrants issued with each such Debt Security; (3) the date or dates on
and after which those Warrants and the related Debt Securities will be
separately transferable; and (4) the principal amount of Debt Securities
purchasable upon exercise of one offered Warrant and the price at which and
currency, currency unit or currency basket in which such principal amount of
Debt Securities may be purchased
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upon such exercise. Prior to exercising their Warrants, holders of those
Warrants will not have any of the rights of Holders of the Debt Securities of
the series purchasable upon such exercise, including the right to receive
payments of principal of, or premium, if any, or interest, if any, on, those
Debt Securities, or to enforce any of the covenants in the Indenture.
If the offered Warrants are to buy or sell Government Debt Securities or a
currency, currency unit, currency index or currency basket, the Prospectus
Supplement will describe the amount and designation of the Government Debt
Securities or currency, currency unit, currency index or currency basket, as the
case may be, subject to each Warrant, whether those Warrants provide for cash
settlement or delivery of the Government Debt Securities or currency, currency
unit, currency index or currency basket upon exercise.
If the offered Warrants are Warrants on a stock index or a stock basket,
those Warrants will provide for payment of an amount in cash determined by
reference to increases or decreases in such stock index or stock basket, and the
Prospectus Supplement will describe the terms of those Warrants, the stock index
or stock basket covered by those Warrants and the market to which the stock
index or stock basket relates.
If the offered Warrants are Warrants on a commodity or commodity index,
those Warrants will provide for cash settlement or delivery of the particular
commodity or commodity index. The Prospectus Supplement will describe the terms
of those Warrants, the commodity or commodity index covered by those Warrants
and the market, if any, to which the commodity or commodity index relates.
Registered Warrants of any series will be exchangeable for Registered
Warrants of the same series representing in the aggregate the number of Warrants
surrendered for exchange. Warrant Certificates, to the extent exchangeable, may
be presented for exchange, and Registered Warrants may be presented for
transfer, at the corporate trust office of the Warrant Agent for that series of
Warrants (or any other office indicated in the Prospectus Supplement relating to
that series of Warrants). Warrants to buy or sell Government Debt Securities or
a currency, currency unit, currency index or currency basket, and Warrants on
stock indices or stock baskets or on commodities or commodity indices, may be
issued in the form of a single Global Warrant Certificate, registered in the
name of the nominee of the depository of the Warrants, or may initially be
issued in the form of definitive certificates that may be exchanged, on a fixed
date, or on a date or dates selected by the Company, for interests in a Global
Warrant Certificate, as set forth in the applicable Prospectus Supplement.
Bearer Warrants will be transferable by delivery. The Prospectus Supplement will
describe the terms of exchange applicable to any Bearer Warrants.
EXERCISE OF WARRANTS
Each Warrant will entitle the Holder to purchase such principal amount of
the Debt Securities or buy or sell such amount of Government Debt Securities or
of a currency, currency unit, currency index or currency basket, commodity or
commodities at the exercise price, or receive a settlement value in respect of
such amount of Government Debt Securities or of a currency, currency unit,
currency index or currency basket, stock index or stock basket, commodity or
commodity index, as shall in each case be set forth in or calculable from, the
Prospectus Supplement relating to that series of Warrants or as otherwise set
forth in the Prospectus Supplement. Warrants may be exercised at the corporate
trust office of the Warrant Agent (or any other office indicated in the
Prospectus Supplement relating to those Warrants) at any time up to 5:00 p.m.
New York time on the date set forth in the Prospectus Supplement relating to
those Warrants or as may be otherwise set forth in the Prospectus Supplement.
After such time on that date (or such later date to which such date may be
extended by the Company), unexercised Warrants will become void.
Subject to any restrictions and additional requirements that may be set
forth in the Prospectus Supplement relating thereto, Warrants may be exercised
by delivery to the Warrant Agent of the Warrant Certificate evidencing such
Warrants properly completed and duly executed and of payment as
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provided in the Prospectus Supplement of the amount required to purchase the
Debt Securities, or (except in the case in the case of Warrants providing for
cash settlement) payment for or delivery of the Government Debt Securities or
currency, currency unit, currency basket, stock index, stock basket, commodity
or commodity index, as the case may be, purchased or sold upon such exercise.
Only Registered Securities will be issued and delivered upon exercise of
Registered Warrants. Warrants will be deemed to have been exercised upon receipt
of such Warrant Certificate and any payment, if applicable, at the corporate
trust office of the Warrant Agent or any other office indicated in the
Prospectus Supplement and the Company will, as soon as practicable thereafter,
issue and deliver the Debt Securities purchasable upon such exercise, or buy or
sell such Government Debt Securities or currency, currency unit, currency
basket, commodity or commodities or pay the settlement value in respect of the
Warrants. If fewer than all of the Warrants represented by such Warrant
Certificate are exercised, a new Warrant Certificate will be issued for the
remaining amount of the Warrants. Special provisions relating to the exercise of
any Bearer Warrants or automatic exercise of Warrants will be described in the
related Prospectus Supplement.
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES AND BEARER WARRANTS
In compliance with United States federal income tax laws and regulations,
the Company and any underwriter, agent or dealer participating in the offering
of any Bearer Security will agree that, in connection with the original issuance
of such Bearer Security or during the restricted period (as defined in
applicable U.S. Treasury regulations) of such Bearer Security, they will not
offer, sell or deliver such Bearer Security, directly or indirectly, to a U.S.
Person or to any person within the United States, except to the extent permitted
under U.S. Treasury regulations.
Each Bearer Security, including Bearer Global Securities that will not be
exchanged for definitive individual Securities prior to the stated maturity,
will bear on the face of the Security and on any interest coupons that may be
detachable therefrom a legend to the following effect: "Any United States Person
who holds this obligation will be subject to limitations under the United States
income tax laws, including the limitations provided in Sections 165(j) and
1287(a) of the Internal Revenue Code." The sections referred to in the legend
provide that, with certain exceptions, a United States taxpayer who holds Bearer
Securities will not be allowed to deduct any loss, and will not be eligible for
capital gain treatment with respect to any gain, realized on a sale, exchange,
redemption or other disposition of those Bearer Securities. The legend described
above will also be evidenced on any book-entry system maintained with respect to
the Bearer Securities.
As used herein, "United States" means the United States of America and its
possessions, and "U.S. Person" means a citizen or resident of the United States,
a corporation, partnership or other entity created or organized in or under the
laws of the United States, or an estate or trust the income of which is subject
to United States federal income taxation regardless of its source.
Pending the availability of a definitive Global Security or individual
Bearer Securities, as the case may be, Debt Securities that are issuable as
Bearer Securities may initially be represented by a single temporary Global
Security. Following the availability of a definitive Global Security in bearer
form, or individual Bearer Securities, and subject to any further limitations
described in the applicable Prospectus Supplement, the temporary Global Security
will be exchangeable for interests in such definitive Global Security or for
such individual Bearer Securities, respectively, only upon receipt of a
"Certificate of Non-U.S. Beneficial Ownership" unless such a certificate has
already been provided by the Depositary because interest has been paid on the
Global Security or because a reasonable period of time after the end of the
restricted period has passed.
Limitations on the offer, sale, delivery and exercise of Bearer Warrants
(including a requirement that a Certificate of Non-U.S. Beneficial Ownership be
delivered upon exercise of a Bearer Warrant) will be described in the Prospectus
Supplement relating to those Bearer Warrants.
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PLAN OF DISTRIBUTION
The Company may sell the Securities in any of three ways: (i) to
underwriters (including Bear Stearns) or dealers, who may act directly or
through a syndicate represented by one or more managing underwriters (including
Bear Stearns); (ii) through broker-dealers (including Bear Stearns) designated
by the Company to act on its behalf as agents; or (iii) directly to one or more
purchasers. Each Prospectus Supplement will set forth the manner and terms of
the offering of the Securities covered thereby, including (i) whether that
offering is being made to underwriters or through agents; (ii) any underwriting
discounts, dealer concessions, agency commissions and any other items that may
be deemed to constitute underwriters', dealers' or agents' compensation, and
(iii) the purchase price or initial public offering price of the Securities and
the anticipated proceeds to the Company from the sale of the Securities.
When Securities are to be sold to underwriters, unless otherwise set forth
in the applicable Prospectus Supplement, the obligations of the underwriters to
purchase those Securities will be subject to certain conditions precedent but
the underwriters will be obligated to purchase all of the Securities if any are
purchased. The Securities will be acquired by the underwriters for their own
account and may be resold by the underwriters, either directly to the public or
to securities dealers, from time to time in one or more transactions, including
negotiated transactions, either at fixed public offering price or at varying
prices determined at the time of sale. The initial public offering price, if
any, and any concessions allowed or reallowed to dealers, may be changed from
time to time.
To the extent that any Securities underwritten by Bear Stearns are not
resold by Bear Stearns for an amount at least equal to the public offering price
thereof, the proceeds from the offering of those Securities will be reduced.
Bear Stearns intends to resell any of those Securities from time to time
following termination of the offering at varying prices related to prevailing
market prices at the time of sale, subject to applicable prospectus delivery
requirements.
Unless otherwise indicated in the applicable Prospectus Supplement, when
Securities are sold through an agent, the designated agent will agree, for the
period of its appointment as agent, to use its best efforts to sell the
Securities for the Company's account and will receive commissions from the
Company as set forth in the applicable Prospectus Supplement.
Securities purchased in accordance with a redemption or repayment pursuant
to their terms may also be offered and sold, if so indicated in the applicable
Prospectus Supplement, in connection with a remarketing by one or more firms
("remarketing firms") acting as principals for their own accounts or as agents
for the Company. Any remarketing firm will be identified and the terms of its
agreement, if any, with the Company and its compensation will be described in
the Prospectus Supplement. Remarketing firms may be deemed to be underwriters in
connection with the Securities remarketed by them.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize agents, underwriters or dealers to solicit offers by certain specified
institutions to purchase Securities at the public offering price set forth in
the Prospectus Supplement pursuant to delayed delivery contracts providing for
payment and delivery on a future date specified in the Prospectus Supplement.
These contracts will be subject only to those conditions set forth in the
applicable Prospectus Supplement and the Prospectus Supplement will set forth
the commissions payable for solicitation of these contracts.
Underwriters and agents participating in any distribution of Securities may
be deemed "underwriters" within the meaning of the Securities Act and any
discounts or commissions they receive in connection therewith may be deemed to
be underwriting compensation for the purposes of the Securities Act. Those
underwriters and agents may be entitled, under their agreements with the
Company, to indemnification by the Company against certain civil liabilities,
including liabilities under the Securities Act, or to contribution by the
Company to payments that they may be required to make in respect of
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those civil liabilities. Various of those underwriters or agents may be
customers of, engage in transactions with or perform services for the Company or
its affiliates in the ordinary course of business.
Following the initial distribution of any series of Securities, Bear Stearns
may offer and sell previously issued Securities of that series from time to time
in the course of its business as a broker-dealer. Bear Stearns may act as
principal or agent in those transactions. This Prospectus and the Prospectus
Supplement applicable to those Securities will be used by Bear Stearns in
connection with those transactions. Sales will be made at prices related to
prevailing prices at the time of sale.
Each distribution of Securities will conform to the requirements set forth
in the applicable sections of Schedule E to the By-laws of the NASD.
ERISA CONSIDERATIONS
Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"),
prohibits the borrowing of money, the sale of property and certain other
transactions involving the assets of plans that are qualified under the Code
("Qualified Plans") or individual retirement accounts ("IRAs") and persons who
have certain specified relationships to them. Section 406 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), prohibits similar
transactions involving employee benefit plans that are subject to ERISA ("ERISA
Plans"). Qualified Plans, IRAs and ERISA Plans are hereinafter collectively
referred to as "Plans."
Persons who have such specified relationships are referred to as "parties in
interest" under ERISA and as "disqualified persons" under the Code. "Parties in
interest" and "disqualified persons" encompass a wide range of persons,
including any fiduciary (e.g., investment manager, trustee or custodian), any
person providing services (e.g., a broker), the Plan sponsor, an employee
organization any of whose members are covered by the Plan, and certain persons
related to or affiliated with any of the foregoing.
The Company, Bear Stearns and/or BSSC each is considered a "party in
interest" or "disqualified person" with respect to many Plans, including IRAs
established with any of them. The purchase and/or holding of Securities by a
Plan with respect to which the Company, Bear Stearns and/or BSSC is a fiduciary
and/or a service provider (or otherwise is a "party in interest" or
"disqualified person") would constitute or result in a prohibited transaction
under Section 406 of ERISA or Section 4975 of the Code, unless such Securities
are acquired or held pursuant to and in accordance with an applicable statutory
or administrative exemption. An IRA that engages in a non-exempt prohibited
transaction could forfeit its tax-exempt status under Section 408 of the Code.
Applicable exemptions may include the exemption for services under Section
408(b)(2) of ERISA and certain prohibited transaction class exemptions (e.g.,
Prohibited Transaction Class Exemption 84-14 relating to qualified professional
asset managers and Prohibited Transaction Class Exemptions 75-1 and 86-128
relating to securities transactions involving employee benefit plans and broker-
dealers).
In accordance with ERISA's general fiduciary requirement, a fiduciary with
respect to any ERISA Plan who is considering the purchase of Securities on
behalf of such plan should determine whether such purchase is permitted under
the governing plan document and is prudent and appropriate for the ERISA Plan in
view of its overall investment policy and the composition and diversification of
its portfolio. No IRA established with, or for which services are provided by,
the Company, Bear Stearns, and/or BSSC should acquire any Securities and other
Plans established with, or for which services are provided by, the Company, Bear
Stearns and/or BSSC should consult with counsel prior to making any such
acquisition.
15
<PAGE>
EXPERTS
The consolidated financial statements and the related financial statement
schedules incorporated in this prospectus by reference from the Company's 1994
Annual Report on Form 10-K have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports, which are incorporated herein
by reference, and have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
VALIDITY OF THE SECURITIES
The validity of the Debt Securities and the Warrants will be passed upon for
the Company by Weil, Gotshal & Manges (a partnership including professional
corporations), New York, New York.
16
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO
NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
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TABLE OF CONTENTS
PAGE
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PROSPECTUS SUPPLEMENT
Prospectus Summary................... S-3
Ratio of Earnings to Fixed Charges... S-6
Use of Proceeds and Hedging.......... S-6
Risk Factors......................... S-6
Description of Securities............ S-9
The Basket........................... S-15
Form of Securities................... S-24
Certain United States Federal Income
Tax Consequences................... S-27
Underwriting......................... S-31
Validity of the Securities........... S-31
Appendix A: Index of Defined Terms... S-32
PROSPECTUS
Available Information................ 2
Incorporation of Certain Documents by
Reference.......................... 3
The Company.......................... 4
Use of Proceeds...................... 4
Ratio of Earnings to Fixed Charges... 4
Description of Debt Securities....... 5
Description of Warrants.............. 11
Limitations on Issuance of Bearer
Securities and Bearer Warrants..... 13
Plan of Distribution................. 14
ERISA Consideration.................. 15
Experts.............................. 16
Validity of the Securities........... 16
1,000,000 CUBSSM
THE BEAR STEARNS
COMPANIES INC.
CONSOLIDATION PORTFOLIO
CUSTOMIZED UPSIDE BASKET
SECURITIESSM DUE 1998
-----------------------------------------
PROSPECTUS SUPPLEMENT
-----------------------------------------
BEAR, STEARNS & CO. INC.
,1995
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