SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 31, 1996
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to ______________
Commission File Number 1-8989
The Bear Stearns Companies Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3286161
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
245 Park Avenue, New York, New York 10167
(Address of principal executive offices) (Zip Code)
(212)272-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of February 11, 1997, the latest practicable date, there were 114,392,510
shares of Common Stock, $1 par value, outstanding.
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition at December 31, 1996
(Unaudited) and June 30, 1996
Consolidated Statements of Income (Unaudited) for the three-and
six-month periods ended December 31, 1996 and December 31, 1995
Consolidated Statements of Cash Flows (Unaudited) for the six-month
periods ended December 31, 1996 and December 31, 1995
Notes to Consolidated Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
<TABLE>
THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Assets
<CAPTION>
December 31, June 30,
1996 1996
------------ ------------
(Unaudited)
(In thousands)
<S> <C> <C>
Cash and cash equivalents $ 832,067 $ 127,847
Cash and securities deposited with
clearing organizations or
segregated in compliance with
Federal regulations 2,152,131 1,702,124
Securities purchased under agreements
to resell 27,061,787 24,517,275
Securities borrowed 31,213,945 29,611,207
Receivables:
Customers 8,047,211 7,976,373
Brokers, dealers and others 1,897,497 811,391
Interest and dividends 246,483 305,725
Financial instruments owned, at
fair value 33,159,010 26,222,134
Property, equipment and leasehold
improvements, net of accumulated
depreciation and amortization 342,948 331,924
Other assets 443,071 479,157
------------ -----------
Total Assets $105,396,150 $92,085,157
============ ===========
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Liabilities and Stockholders' Equity
<CAPTION>
December 31, June 30,
1996 1996
-------------- -----------
(Unaudited)
(In thousands, except share data)
<S> <C> <C>
Short-term borrowings $ 12,620,911 $ 9,867,619
Securities sold under agreements
to repurchase 39,680,817 33,353,899
Payables:
Customers 24,571,887 21,905,015
Brokers, dealers and others 1,458,518 1,847,599
Interest and dividends 377,667 448,121
Financial instruments sold, but not
yet purchased, at fair value 16,056,170 13,916,581
Accrued employee compensation and benefits 545,766 712,962
Other liabilities and accrued expenses 616,704 1,094,333
----------- ------------
95,928,440 83,146,129
----------- ------------
Commitments and Contingencies
Long-term Borrowings 6,429,221 6,043,614
----------- ------------
Preferred Stock Issued by Subsidiary 150,000 150,000
----------- ------------
Stockholders' Equity
Preferred Stock 437,500 437,500
Common Stock, $1.00 par value:
200,000,000 shares authorized;
159,803,764 shares issued at
December 31, 1996 and June 30, 1996 159,804 159,804
Paid-in capital 1,696,419 1,696,217
Retained earnings 931,969 694,108
Capital Accumulation Plan 460,477 471,191
Treasury stock, at cost
Adjustable Rate Cumulative Preferred Stock,
Series A - 2,512,350 and 2,341,350 shares
at December 31, 1996 and June 30,
1996, respectively (103,043) (95,389)
Common Stock - 44,859,306 and 41,664,729
shares at December 31, 1996 and
June 30, 1996, respectively (680,936) (598,217)
Note receivable from ESOP Trust (13,701) (19,800)
------------- ------------
Total Stockholders' Equity 2,888,489 2,745,414
------------- ------------
Total Liabilities and Stockholders' Equity $105,396,150 $92,085,157
============= ============
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
--------------- -------------- -------------- ---------------
(In thousands, except share data)
<S> <C> <C> <C> <C>
Revenues
Commissions $ 183,584 $ 163,220 $ 345,154 $ 318,410
Principal transactions 429,239 260,840 724,131 530,755
Investment banking 183,138 150,397 291,832 237,802
Interest and dividends 745,610 607,060 1,405,867 1,160,981
Other income 14,959 8,546 25,699 16,549
-------------- -------------- -------------- --------------
Total Revenues 1,556,530 1,190,063 2,792,683 2,264,497
Interest expense 616,396 502,403 1,163,865 959,348
-------------- -------------- -------------- --------------
Revenues, net of interest expense 940,134 687,660 1,628,818 1,305,149
-------------- -------------- -------------- --------------
Non-interest expenses
Employee compensation and benefits 456,825 345,427 801,197 652,424
Floor brokerage, exchange
and clearance fees 34,447 30,787 66,013 60,533
Communications 24,778 22,407 49,334 44,905
Occupancy 21,945 21,256 43,291 42,402
Depreciation and amortization 21,450 17,347 41,418 33,623
Advertising and market development 16,683 14,382 31,439 26,906
Data processing and equipment 8,206 8,706 15,761 17,687
Other expenses 65,245 46,467 111,293 89,378
-------------- -------------- -------------- --------------
Total non-interest expenses 649,579 506,779 1,159,746 967,858
-------------- -------------- -------------- --------------
Income before provision for
income taxes 290,555 180,881 469,072 337,291
Provision for income taxes 114,043 75,725 184,111 138,289
-------------- -------------- -------------- --------------
Net income $ 176,512 $ 105,156 $ 284,961 $ 199,002
============== ============== ============== ==============
Net income applicable to
common shares $ 170,573 $ 98,956 $ 272,991 $ 186,592
============== ============== ============== ==============
Earnings per share $ 1.21 $ 0.69 $ 1.92 $ 1.29
============== ============== ============== ==============
Weighted average common and
common equivalent shares
outstanding 148,780,831 150,209,550 149,826,971 150,861,434
============== ============== ============== ==============
Cash dividends declared
per common share $ 0.15 $ 0.15 $ 0.15 $ 0.15
============== ============== ============== ==============
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months Ended
December 31, December 31,
1996 1995
------------- -------------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 284,961 $ 199,002
Adjustments to reconcile net income to
cash used in operating activities:
Depreciation and amortization 41,418 33,623
Deferred income taxes (38,419) (17,771)
Other 33,010 26,405
(Increases) decreases in operating receivables:
Securities borrowed (1,602,738) 1,489,306
Customers (70,838) 51,966
Brokers, dealers and others (1,086,106) (725,586)
Other 44,425 (10,385)
Increases (decreases) in operating payables:
Customers 2,666,872 1,147,630
Brokers, dealers and others (384,326) 2,346,449
Other (70,454) 6,932
(Increases) decreases in:
Cash and securities deposited with clearing
organizations or segregated in compliance
with Federal regulations (450,007) (229,246)
Securities purchased under agreements to resell (2,544,512) (7,134,932)
Financial instruments owned (6,936,876) (5,468,771)
Other assets 129,915 44,359
Increases (decreases) in:
Securities sold under agreements to repurchase 6,326,918 6,925,139
Financial instruments sold, but not
yet purchased 2,139,589 (93,821)
Accrued employee compensation and benefits (193,796) (88,912)
Other liabilities and accrued expenses (479,765) 47,991
------------- -------------
Cash used in operating activities (2,190,729) (1,450,622)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from short-term borrowings 2,753,292 565,690
Issuance of long-term borrowings 862,638 719,308
Capital Accumulation Plan (10,714) 5,227
Common Stock distributions 10,729 103
Note repayment from ESOP Trust 6,099 5,647
Payments for:
Retirement of Senior Notes (478,944) (289,000)
Treasury stock purchases (105,655) (51,741)
Cash dividends paid (47,064) (47,892)
------------- -------------
Cash provided by financing activities 2,990,381 907,342
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, equipment and leasehold
improvements (52,442) (40,790)
Purchases of investment securities and other assets (78,661) (2,259)
Proceeds from sales of investment securities 35,671 18,865
------------- -------------
Cash used in investing activities (95,432) (24,184)
------------- -------------
Net increase (decrease) in cash and cash equivalents 704,220 (567,464)
Cash and cash equivalents, beginning of period 127,847 700,501
------------- -------------
Cash and cash equivalents, end of period $ 832,067 $ 133,037
============= =============
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of The Bear Stearns Companies Inc. and its subsidiaries (the
"Company"). All material intercompany transactions and balances have been
eliminated. Certain prior period amounts have been reclassified to conform with
the current period's presentation or restated for the effects of stock
dividends. The consolidated financial statements reflect all adjustments which,
in the opinion of management, are normal and recurring and are necessary for a
fair statement of the results for the interim periods presented. The
consolidated financial statements are prepared in conformity with generally
accepted accounting principles which require management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates. The nature of the Company's business is such that the results of any
interim period may not be indicative of the results to be expected for an entire
fiscal year.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments owned and financial instruments sold, but not yet
purchased consist of the Company's proprietary trading and investment accounts,
at fair value, as follows:
<TABLE>
<CAPTION>
December 31 June 30
(in thousands) 1996 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Financial instruments owned:
US government and agency $ 12,423,759 $ 8,258,074
Other sovereign governments 1,768,151 656,699
State and municipal 185,403 149,697
Corporate equity and convertible debt 8,414,418 8,492,570
Corporate debt 6,214,685 4,739,512
Derivative financial instruments 2,039,119 1,855,617
Mortgages and other mortgage-backed securities 1,909,198 1,796,322
Other 204,277 273,643
----------- -----------
$33,159,010 $26,222,134
=========== ===========
Financial instruments sold, but not yet purchased:
US government and agency $ 7,924,749 $ 5,502,459
Other sovereign governments 432,921 964,808
Corporate equity and convertible debt 3,810,537 4,482,426
Corporate debt 1,038,383 877,576
Derivative financial instruments 2,847,135 2,088,621
Other 2,445 691
------------ -----------
$ 16,056,170 $13,916,581
============ ===========
</TABLE>
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. COMMITMENTS AND CONTINGENCIES
At December 31, 1996, the Company was contingently liable for unsecured
letters of credit of approximately $2.2 billion and letters of credit of
approximately $352.4 million secured by financial instruments. These
letters of credit are principally used as deposits for securities borrowed
and to satisfy margin deposits at option and commodity exchanges.
In the normal course of business, the Company has been named as a defendant
in several lawsuits which involve claims for substantial amounts. Although
the ultimate outcome of these suits cannot be ascertained at this time, it
is the opinion of management, after consultation with counsel, that the
resolution of such suits will not have a material adverse effect on the
results of operations or the financial condition of the Company.
4. NET CAPITAL REQUIREMENTS
The Company's principal operating subsidiary, Bear, Stearns & Co. Inc.
("Bear Stearns") and Bear Stearns' wholly owned subsidiary, Bear, Stearns
Securities Corp. ("BSSC"), are registered broker-dealers and accordingly,
are subject to Securities and Exchange Commission Rule 15c3-1 (the "Net
Capital Rule") and the capital rules of the New York Stock Exchange, Inc.
("NYSE") and other principal exchanges of which Bear Stearns and BSSC are
members. Bear Stearns and BSSC have consistently operated in excess of the
minimum net capital requirements imposed by the capital rules. Included in
the computation of net capital of Bear Stearns is net capital of BSSC in
excess of 5% of aggregate debit items arising from customer transactions,
as defined. At December 31, 1996, Bear Stearns' net capital, as defined, of
$ 1.20 billion exceeded the minimum requirement by $ 1.17 billion.
Bear Stearns International Limited ("BSIL") and certain other wholly owned,
London-based subsidiaries, are subject to regulatory capital requirements
of the Securities and Futures Authority. BSIL and the other subsidiaries
have consistently operated in excess of these requirements.
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. EARNINGS PER SHARE
Earnings per share is computed by dividing net income applicable to Common
and Common Equivalent Shares by the weighted average number of Common and
Common Equivalent Shares outstanding during each period presented. Common
Equivalent Shares include the assumed distribution of shares of Common
Stock issuable under certain of the Company's deferred compensation
arrangements, with appropriate adjustments made to net income for expense
accruals related thereto. Additionally, shares of Common Stock issued or
issuable under various employee benefit plans are included as Common
Equivalent Shares.
6. CASH FLOW INFORMATION
Cash payments for interest approximated interest expense for the six-months
ended December 31, 1996 and December 31, 1995. Income taxes paid totaled
$218.4 million and $118.3 million for the six-months ended December 31,
1996 and December 31, 1995, respectively.
7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company, in its capacity as a dealer in over-the-counter derivative
financial instruments and in connection with its proprietary market-making
and trading activities, enters into transactions in a variety of cash and
derivative financial instruments in order to reduce its exposure to market,
currency, and interest rate risk. SFAS No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments,"
defines a derivative as a future, forward, swap, or option contract, or
other financial instruments with similar characteristics such as caps,
floors, and collars. Generally these financial instruments represent future
commitments to exchange interest payment streams or currencies or to
purchase or to sell other financial instruments at specific terms at
specified future dates. Option contracts provide the holder with the right,
but not the obligation, to purchase or sell a financial instrument at a
specific price before or on an established date. These financial
instruments may have market and/or credit risk in excess of amounts
recorded in the Consolidated Statements of Financial Condition.
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (continued)
In order to measure derivative activity, notional or contract amounts are
frequently utilized. Notional/contract amounts, which are not included on
the consolidated statements of financial condition, are used to calculate
contractual cash flows to be exchanged and are generally not actually paid
or received, with the exception of currency swaps, foreign exchange
forwards, and exercised options. The notional/contract amounts of financial
instruments that give rise to off-balance sheet market risk are indicative
only of the extent of involvement in the particular class of financial
instrument and are not necessarily an indication of overall market risk.
The following table represents the notional/contract amounts of the
Company's outstanding derivative financial instruments at December 31, 1996
and June 30, 1996:
<TABLE>
December 31, June 30,
In billions 1996 1996
------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest Rate:
Swap agreements, including options, swaptions,
caps, collars, and floors $164.8 $175.2
Futures contracts 24.4 60.5
Options held 2.0 3.0
Options written .7 3.1
Foreign Exchange:
Futures contracts 2.4 2.3
Forward contracts 11.2 7.9
Options held 5.0 3.2
Options written 5.4 3.3
Mortgage-Backed Securities:
Forward Contracts 35.1 23.0
Equity:
Swap agreements 4.9 3.8
Futures contracts 1.1 .5
Options held .4 1.1
Options written .5 1.3
</TABLE>
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (continued)
The derivative instruments used in the Company's trading and dealer
activities, are marked to market daily with the resulting gains or losses
recorded in the Consolidated Statements of Financial Condition and the
related income or loss reflected in revenues derived from principal
transactions.
The fair values of derivative financial instruments held or issued for
trading purposes as of December 31, 1996 and June 30, 1996 were as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
---------------------- ----------------------- .
In millions Assets Liabilities Assets Liabilities
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Swap agreements $902 $1,213 $678 $846
Futures and forward
contracts 299 219 280 307
Options held 849 897
Options written 1,440 968
</TABLE>
The average monthly fair values of the derivative financial instruments for
the six-months ended December 31, 1996 and the fiscal year ended June 30,
1996 were as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
-------------------- ---------------------- .
In millions Assets Liabilities Assets Liabilities
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Swap agreements $652 $897 $611 $698
Futures and forward
contracts 236 237 286 275
Options held 889 704
Options written 1,194 795
</TABLE>
The notional/contract amounts of these instruments do not represent the
Company's potential risk of loss due to counterparty nonperformance. Credit
risk arises from the potential inability of counterparties to perform in
accordance with the terms of the contract. The Company's exposure to credit
risk associated with counterparty nonperformance is limited to the
replacement cost, net of collateral held, ("net replacement cost") of
over-the-counter contracts in a gain position, which are recognized in the
Company's Consolidated Statements of Financial Condition. Exchange-traded
financial instruments, such as futures and options, generally do not give
rise to significant counterparty exposure due to margin requirements of the
individual exchanges. Options written generally do not give rise to
counterparty credit risk since they obligate the Company (not its
counterparty) to perform. The Company's net replacement cost of derivatives
in a gain position at December 31, 1996, was approximately $474.7 million.
8. SUBSEQUENT EVENT
On January 29, 1997, the Board of Directors declared a 5% stock dividend on
the Company's Common Stock to shareholders of record at February 14, 1997,
to be distributed February 28, 1997. Per share amounts and weighted average
shares outstanding for all periods included in the consolidated financial
statements are presented after giving retroactive effect to the stock
dividend.
<PAGE>
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company's principal business activities, investment banking, securities
trading and brokerage, are, by their nature, highly competitive and subject to
various risks, particularly volatile trading markets and fluctuations in the
volume of market activity. Consequently, the Company's net income and revenues
in the past have been, and are likely to continue to be, subject to wide
fluctuations, reflecting the impact of many factors including, securities market
conditions, the level and volatility of interest rates, competitive conditions,
and the size and timing of transactions. Moreover the results of operations for
a particular interim period may not be indicative of results to be expected for
an entire fiscal year.
For a description of the Company's business, including its trading in cash
instruments and derivative products, its underwriting and trading policies, and
their respective risks, and the Company's risk management policies and
procedures, see the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996.
Three-Months Ended December 31, 1996
Compared to December 31, 1995 .
The December 1996 quarter was generally characterized by strong fixed income and
equity markets and a favorable underwriting environment. Net income in the 1996
quarter was $176.5 million, an increase of 67.9% from the $105.2 million in the
comparable prior year quarter. Revenues, net of interest expense ("net
revenues"), increased 36.7% to $940.1 million from $687.7 million in the 1995
quarter. The increase was attributable to increases in all revenue categories,
particularly principal transactions. Earnings per share were $1.21 for the 1996
quarter versus $0.69 for the comparable 1995 quarter. The earnings per share
amounts have been adjusted for all stock dividends.
Commission revenues increased 12.5% in the 1996 quarter to $183.6 million from
$163.2 million in the comparable 1995 quarter. This increase was attributable to
increased revenues from the firm's institutional equities and private client
services as well as increased securities clearance revenues.
Revenues from principal transactions increased 64.6% in the 1996 quarter to
$429.2 million from $260.8 million in the comparable 1995 quarter, reflecting
increases in revenues derived from the Company's fixed income activities,
principally in the mortgage-backed securities, asset-backed securities and
corporate bond areas. These increases were principally due to active fixed
income market conditions and increased customer order flow.
<PAGE>
The Company's principal transaction revenues by reporting categories, including
derivatives, are as follows:
Three-Months Ended Three-Months Ended
December 31, 1996 December 31, 1995
------------------ ------------------
Fixed Income $287,021 $140,014
Equity 84,221 89,187
Foreign Exchange & Other
Derivative Financial
Instruments 57,997 31,639
---------- ---------
$429,239 $260,840
========== =========
Investment banking revenues increased 21.8% to $183.1 million in the 1996
quarter from $150.4 million in the comparable 1995 quarter. This increase
reflected an increase in underwriting revenue partially offset by a decrease in
merger and acquisition and advisory fees. The increase in underwriting revenue
was principally due to increased levels of high yield and equity new issue
volume as compared to the 1995 quarter.
Net interest and dividends (revenues from interest and net dividends, less
interest expense) increased 23.5% to $129.2 million in the 1996 quarter from
$104.7 million in the comparable 1995 quarter. This increase was attributable to
higher levels of customer activities reflecting the continued expansion of the
clearance business. Average margin debt increased to $30.3 billion in the 1996
quarter from $19.8 billion in the comparable 1995 quarter. Average free credit
balances increased to $7.4 billion in the 1996 quarter from $6.2 billion in the
comparable 1995 quarter.
Employee compensation and benefits increased 32.2% to $456.8 million in the 1996
quarter from $345.4 million in the comparable 1995 quarter. The increase was
attributable to higher incentive and discretionary bonus accruals associated
with the increased earnings in the 1996 quarter. Employee compensation and
benefits, as a percentage of net revenues, decreased to 48.59% in the 1996
quarter from 50.23% in the comparable 1995 quarter.
All other expenses increased 19.5% to $192.8 million in the 1996 quarter from
$161.4 million in the comparable 1995 quarter. Floor brokerage, exchange and
clearance fees increased 11.9% in the 1996 quarter from the comparable 1995
quarter reflecting the increase in the volume of securities transactions
processed. Increased depreciation costs reflected computer equipment upgrades.
The remaining increases in advertising and market development costs and other
operating expenses were associated with increased volume of business throughout
the Company.
The Company's effective tax rate decreased to 39.3% in the 1996 quarter compared
to 41.9% in the comparable 1995 quarter due to a higher level of tax preference
items in the 1996 quarter.
<PAGE>
Six-Months Ended December 31, 1996
Compared to December 31, 1995 .
Net income for the six-months ended December 31, 1996 was $285.0 million, an
increase of 43.2% from $199.0 million for the comparable 1995 period.
Revenues, net of interest expense ("net revenues"), increased 24.8% to $1.6
billion in the 1996 period from $1.3 billion in the 1995 period. The increase
was attributable to increases in all revenue categories, particularly principal
transactions and investment banking. Earnings per share were $1.92 for the 1996
period versus $1.29 for the comparable 1995 period. The earnings per share
amounts have been adjusted for all stock dividends.
Commission revenues increased 8.4% in the 1996 period to $345.2 million from
$318.4 million in the comparable 1995 period. This increase was attributable to
increased revenues from the firm's institutional equities and private client
services as well as increased securities clearance revenues.
Revenues from principal transactions increased 36.4% in the 1996 period to
$724.1 million from $530.8 million in the comparable 1995 period, reflecting
increases in revenues derived from the Company's fixed income activities,
principally in the mortgage-backed securities, asset-backed securities and
corporate bond areas. These increases were principally due to active fixed
income market conditions and increased customer order flow.
The Company's principal transaction revenues by reporting categories, including
derivatives, are as follows:
Six-Months Ended Six-Months Ended
December 31, 1996 December 31, 1995
----------------- -----------------
Fixed Income $474,367 $276,340
Equity 156,490 191,181
Foreign Exchange & Other
Derivative Financial
Instruments 93,274 63,234
-------- --------
$724,131 $530,755
======== ========
Investment banking revenues increased 22.7% to $291.8 million in the 1996 period
from $237.8 million in the comparable 1995 period. This increase reflected an
increase in underwriting revenue partially offset by a decrease in merger and
acquisition and advisory fees.
<PAGE>
Net interest and dividends (revenues from interest and net dividends, less
interest expense) increased 20.0% to $242.0 million in the 1996 period from
$201.6 million in the comparable 1995 period. This increase was attributable to
higher levels of customer activities reflecting the continued expansion of the
clearance business. Average margin debt increased to $27.8 billion in the 1996
period from $19.2 billion in the comparable 1995 period. Average free credit
balances increased to $7.6 billion in the 1996 period from $6.0 billion in the
comparable 1995 period.
Employee compensation and benefits increased 22.8% to $801.2 million in the 1996
period from $652.4 million in the comparable 1995 period. The increase was
attributable to higher incentive and discretionary bonus accruals associated
with the increased earnings in the 1996 period. Employee compensation and
benefits, as a percentage of net revenues, decreased to 49.19% in the 1996
period from 49.99% in the comparable 1995 period.
All other expenses increased 13.7% to $358.5 million in the 1996 period from
$315.4 million in the comparable 1995 period. Floor brokerage, exchange and
clearance fees increased 9.1% in the 1996 period from the comparable 1995 period
reflecting the increase in the volume of securities transactions processed. The
remaining increase in other operating expenses was related to higher levels of
depreciation costs reflecting computer equipment upgrades, increased advertising
and market development costs related to the increase in underwritings and
communications costs related to increased headcount. These increases were
partially offset by a decrease in data processing costs.
The Company's effective tax rate decreased to 39.3% in the 1996 period compared
to 41.0% in the comparable 1995 period due to a higher level of tax preference
items in the 1996 period.
Liquidity and Capital Resources
Financial Leverage
The Company maintains a highly liquid balance sheet with a majority of the
Company's assets consisting of marketable securities inventories, which are
marked to market daily, and collateralized receivables arising from
customer-related and proprietary securities transactions. Collateralized
receivables consist of resale agreements secured predominantly by US government
and agency securities, and customer margin loans and securities borrowed which
are typically secured by marketable corporate debt and equity securities. The
Company's total assets and financial leverage can fluctuate significantly
depending largely upon economic and market conditions, volume of activity,
customer demand, and underwriting commitments.
The Company's total assets at December 31, 1996 increased to $105.4 billion from
$92.1 billion at June 30, 1996. The increase is primarily attributable to the
growth in financial instruments owned, at fair value and securities borrowed.
<PAGE>
The Company's ability to support fluctuations in total assets is a function of
its ability to obtain short-term secured and unsecured funding and its access to
sources of long-term capital in the form of long-term borrowings and equity,
which together form its capital base. The Company continuously monitors the
adequacy of its capital base which is a function of asset quality and liquidity.
Highly liquid assets such as US government and agency securities typically are
funded by the use of repurchase agreements and securities lending arrangements
which require very low levels of margin. In contrast, assets of lower quality or
liquidity require higher levels of overcollateralization, or margin, and
consequently increased levels of capital, in order to obtain secured financing.
Accordingly, the mix of assets being held by the Company significantly
influences the amount of leverage the Company can employ and the adequacy of its
capital base.
Funding Strategy
The Company's general funding strategy provides for the diversification of its
short-term funding sources in order to maximize liquidity. Sources of short-term
funding consist principally of collateralized borrowings, including repurchase
transactions and securities lending arrangements, customer free credit balances,
unsecured commercial paper, medium-term notes and bank borrowings generally
having maturities from overnight to one year.
Repurchase transactions, whereby securities are sold with a commitment for
repurchase by the Company at a future date, represent the dominant component of
secured short-term funding.
The Company continued to increase the utilization of its medium-term note
financing in order to extend maturities of its debt and achieve additional
diversification of its funding sources. In addition to short-term funding
sources, the Company utilizes long-term senior debt, including medium-term
notes, as a longer term source of unsecured financing.
The Company maintains an alternative funding strategy focused on the liquidity
and self-funding ability of the underlying assets. The objective of the strategy
is to maintain sufficient sources of alternative funding to enable the Company
to fund debt obligations maturing within one year without issuing any new
unsecured debt, including commercial paper. The most significant source of
alternative funding is the Company's ability to hypothecate or pledge its
unencumbered assets as collateral for short-term funding.
As part of the Company's alternative funding strategy, the Company regularly
monitors and analyzes the size, composition, and liquidity characteristics of
the assets being financed and evaluates its liquidity needs in light of current
market conditions and available funding alternatives. Through this analysis, the
Company can continuously evaluate the adequacy of its equity base and the
schedule of maturing term-debt supporting its present asset levels. The Company
can then seek to adjust its maturity schedule, in light of market conditions and
funding alternatives.
<PAGE>
As part of the Company's alternative funding strategy, the Company maintains a
committed revolving-credit facility (the "facility") totaling $2.0 billion which
permits borrowing on a secured basis by Bear, Stearns & Co. Inc. ("Bear
Stearns"), Bear, Stearns Securities Corp. ("BSSC") and certain affiliates. The
facility provides that up to $1.0 billion of the total facility may be borrowed
by the Company on an unsecured basis. Secured borrowings can be collateralized
by both investment-grade and non-investment-grade financial instruments. In
addition, this agreement provides for defined margin levels on a wide range of
eligible financial instruments that may be pledged under the secured portion of
the facility. The facility terminates in October 1997. There were no borrowings
outstanding under the facility at December 31, 1996.
Capital Resources
The Company conducts a substantial portion of all of its operating activities
within its regulated broker-dealer subsidiaries, Bear Stearns, BSSC, Bear,
Stearns International Limited ("BSIL") and Bear Stearns International Trading
Limited ("BSIT"). In connection therewith, a substantial portion of the
Company's long-term borrowings and equity have been used to fund investments in,
and advances to, Bear Stearns, BSSC, BSIL and BSIT.
The Company regularly monitors the nature and significance of those assets or
activities conducted outside the broker-dealer subsidiaries and attempts to fund
such assets with either capital or borrowings having maturities consistent with
the nature and the liquidity of the assets being financed.
In January 1997, Bear Stearns Capital Trust I, a wholly owned subsidiary of the
Company, issued $200 million of Fixed/Adjustable Rate Capital Securities (the
"Capital Securities"). The Capital Securities have a liquidation value of $1,000
per capital security with rights to semi-annual preferential cumulative cash
distributions at an annual rate of 7% through January 2002. Thereafter, the rate
will be variable based on the three-month London Interbank Offered Rate
("LIBOR"), plus a margin of 1.75%. Proceeds from the issuance of the Capital
Securities were used to purchase Subordinated Debentures, from the Company which
will mature on January 15, 2027. The interest rate on the Subordinated
Debentures will be the same as the rate on the Capital Securities. The proceeds
were then used by the Company for general corporate purposes.
<PAGE>
During the six-months ended December 31, 1996 the Company repurchased 3,816,296
shares of Common Stock in connection with the Capital Accumulation Plan for
Senior Managing Directors (the "Plan") at a cost of approximately $93.4 million.
The Company intends, subject to market conditions, to continue to purchase in
future periods a sufficient number of shares of Common Stock in the open market
to enable the Company to issue shares in respect of all compensation deferred
and any additional amounts allocated to participants under the Plan. Repurchases
of Common Stock pursuant to the Plan are not made pursuant to the Company's
Stock Repurchase Plan (the "Repurchase Plan") authorized by the Board of
Directors. As of February 11, 1996, there have been no purchases under the
Repurchase Plan.
Cash Flows
Cash and cash equivalents increased by $ 704.2 million during the six-months
ended December 31, 1996 to $832.1 million. Total cash and cash equivalents
decreased by $567.5 million during the six-months ended December 31, 1995 to
$133.0 million. Cash used in operating activities during the six-months ended
December 31, 1996 was $2.2 billion, mainly representing increases in financial
instruments owned and securities purchased under agreements to resell partially
offset by increases in customer payables and securities sold under agreements
to repurchase. Financing activities provided cash of $3.0 billion, primarily
derived from short- and long-term borrowings proceeds.
Regulated Subsidiaries
As registered broker-dealers, Bear Stearns and BSSC are subject to the net
capital requirements of the Securities and Exchange Commission, the New York
Stock Exchange, Inc. and the Commodity Futures Trading Commission, which are
designed to measure the general financial soundness and liquidity of
broker-dealers. Bear Stearns and BSSC have consistently operated in excess of
the minimum net capital requirements imposed by these agencies.
Additionally, BSIL and BSIT, London-based broker-dealer subsidiaries, are
subject to the regulatory capital requirements of the Securities and Futures
Authority, a self-regulatory organization established pursuant to the United
Kingdom Financial Services Act of 1986. BSIL and BSIT have consistently operated
in compliance with these capital requirements.
Merchant Banking and Non-Investment-Grade Debt Securities
As part of the Company's merchant banking activities, it participates from time
to time in principal investments in leveraged acquisitions. As part of these
activities, the Company originates, structures and invests in merger,
acquisition, restructuring, and leveraged capital transactions, including
leveraged buyouts. The Company's principal investments in these transactions are
generally made in the form of equity investments or subordinated loans, and have
not required significant levels of capital investment. At December 31, 1996 the
Company's aggregate investments in leveraged transactions and its exposure
related to any one transaction was not material.
As part of the Company's fixed-income securities activities, the Company
participates in the trading and sale of high yield securities,
non-investment-grade debt securities, non-investment-grade mortgage loans and
the securities of companies that are the subject of pending bankruptcy
proceedings (collectively "high yield securities"). Non-investment-grade
mortgage loans are principally secured by residential properties and include
both non-performing loans and real estate owned. As of December 31, 1996, the
Company held high yield securities of $1.2 billion in long inventory and $100
million in short inventory.
These investments generally involve greater risk than investment-grade debt
securities due to credit considerations, liquidity of secondary trading markets
and vulnerability to general economic conditions.
The level of the Company's high yield securities inventories, and the impact of
such activities upon the Company's results of operations, can fluctuate from
period to period as a result of customer demands and economic and market
considerations. Bear Stearns' Risk Committee continuously monitors exposure to
market and credit risk with respect to high yield securities inventories and
establishes limits with respect to overall market exposure and concentrations of
risk by both individual issuer and industry groups.
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
In re Daisy Systems Corporation, Debtor
As previously reported in the Company's 1996 Form 10-K, Bear Stearns is a
defendant in a litigation pending in the United States District Court, for the
Northern District of California.
The Court has set a trial date of November 24, 1997.
In-Store Advertising Securities Litigation
As previously reported in the Company's 1996 Form 10-K, Bear Stearns was a
defendant in a litigation pending in the United States District Court for the
Southern District of New York.
The settlement of that action received final court approval on December 18,
1996.
Henryk de Kwiatkowski v. Bear, Stearns & Co. Inc. et al.
As previously reported in the Company's 1996 Form 10-K, Bear Stearns is a
defendant in a litigation pending in the United States District Court for the
Southern District of New York.
On December 16, 1996, Bear Stearns moved to dismiss the Amended Complaint.
In re Lady Luck Gaming Corporation Securities Litigation:
As previously reported in the Company's 1996 Form 10-K, Bear Stearns is a
defendant in a litigation pending in the United States District Court for the
District of Nevada.
On December 13, 1996, Defendants moved to dismiss the Second Amended Class
Action Complaint.
Primavera Familienstiftung v. David J. Askin, et al.
As previously reported in the Company's 1996 Form 10-K, Bear, Stearns is a
defendant in a litigation pending in the United States District Court for the
Southern District Of New York.
<PAGE>
Askin Capital Management L.P. (ACM), David J. Askin and Geoffrey S.
Bradshaw-Mack (the "Askin Defendants") violated Sections 10 (b) and 20 (a) of
the Securities and Exchange Act of 1934 and Rule 10b-5 promulgated thereunder
committed and committed common law fraud. On November 8, 1996, plaintiff filed a
Third Amended Class Action Complaint, repleading its claim that the Askin
Defendants committed federal securities law violations and common law fraud and
that the Broker-Dealer Defendants aided and abetted the Askin Defendants'
alleged fraud. On December 20, 1996, all defendants moved to dismiss the
complaint.
ABF Capital Management, et al. v. Askin Capital Management, L.P., et al.
As previously reported in the Company's 1996 Form 10-K, Bear Stearns is a
defendant in a litigation pending in the United States District Court for the
Southern District of New York.
On January 22, 1997, the Court dismissed the claims against the
Broker-Dealer Defendants for aiding and abetting ACM's alleged breach of
fiduciary duty, for unjust enrichment and for RICO violations, but denied the
motion to dismiss the claims against the Broker-Dealer Defendants for aiding and
abetting ACM's alleged fraud.
Harrison J. Goldin as Trustee for the Bankruptcy Estates of Granite Partners,
L.P., Granite Corp., and Quartz Hedge Fund v. Bear, Stearns & Co. Inc. and Bear,
Stearns Capital Markets Inc.
As previously reported in the Company's 1996 Form 10-K, Bear Stearns and
Bear Stearns Capital Markets were defendants in a litigation pending in the
United States Bankruptcy Court for the Southern District of New York.
On December 2, 1996, Bear Stearns' motion to withdraw the reference of this
case to the Bankruptcy Court was granted. The case now is pending in the United
States District Court for the Southern District of New York.
County of Orange, et ano. v. Bear, Stearns, et al.
On December 5, 1996, the County of Orange, California (the "County") and
John Moorlach, the County's Treasurer-Tax Collector, commenced an adversary
proceeding in the United States Bankruptcy Court for the Central District of
California (the "Bankruptcy Court") against twenty-six defendants, including
Bear, Stearns & Co., Inc. and Bear, Stearns Securities Corp. (collectively,
"Bear Stearns"). The action arises in connection with a bankruptcy petition the
County filed in the Bankruptcy Court on December 6, 1994. On May 17, 1996, the
Bankruptcy Court confirmed a plan pursuant to which the County emerged from
bankruptcy.
<PAGE>
The complaint alleges, among other things, that numerous reverse repurchase
transactions entered into between Orange County (through its former
Treasurer-Tax Collector, Robert Citron) and the twenty-six defendants were ultra
vires, or beyond the authority granted by the constitution and laws of
California to the Treasurer-Tax Collector. The complaint also alleges that the
defendants owed a duty to inform the County that the transactions were
unsuitable and to refrain from entering into the transactions. The County seeks
damages in unspecified amounts, an order that any claims asserted against the
County in its bankruptcy case by any of the defendants should be disallowed and
that any securities still held by any of the defendants pursuant to the
challenged transactions should be turned over the County.
The parties in this action, have entered into a stipulation staying the
proceeding. Bear, Stearns denies all allegations of wrongdoing asserted against
it in this litigation, intends to defend these claims vigorously, and believes
that it has substantial defenses to these claims.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of the Company held on October 28, 1996 (the "Annual
Meeting"), the stockholders of the Company approved the Company's Fiscal 1997
Performance Goals under, and an amendment to, the Management Compensation Plan
(the "Performance Goals and Amendment"), and amendments to the Capital
Accumulation Plan for Senior Managing Directors (the "CAP Plan Amendments") and
the Performance Compensation Plan. In addition, at the Annual Meeting the
stockholders of the Company elected thirty-nine directors to serve until the
next Annual Meeting of Stockholders or until successors are duly elected and
qualified.
The affirmative vote of a majority of the shares of Common Stock represented at
the Annual Meeting and entitled to vote on each matter was required to approve
the Performance Goals and Amendment, the CAP Plan Amendments and the Performance
Compensation Plan, while the affirmative vote of a plurality of the votes cast
by holders of shares of Common Stock was required to elect the directors.
With respect to the approval of the Performance Goals and Amendment, the CAP
Plan Amendments and the Performance Compensation Plan, set forth below is
information on the results of the votes cast at the Annual Meeting.
Broker
For Against Abstained Non-Votes
--------- ----------- --------- ---------
Performance Goals
and Amendment 73,030,069 5,975,924 591,403 21,909,620
CAP Plan Amendments 99,096,835 1,740,855 669,326 0
Performance Compensation Plan 73,488,303 5,515,732 593,360 21,909,621
<PAGE>
<TABLE>
With respect to the election of directors, set forth below is information with
respect to the nominees elected as directors of the Company at the Annual
Meeting and the votes cast and\or withheld with respect to each such nominee.
<CAPTION>
Nominees For Withheld
--------------------------------- ----------------- -------------------
<S> <C> <C>
E. Garrett Bewkes III 100,151,711 1,355,305
Denis A. Bovin 100,135,042 1,371,974
James E. Cayne 100,118,650 1,388,366
Peter Cherasia 100,138,396 1,368,620
Ralph R. Cioffi 100,130,466 1,376,550
Barry S. Cohen 100,137,949 1,369,067
Wendy L. deMonchaux 100,127,752 1,379,264
Grace J. Fippinger * 100,218,863 1,288,153
Bruce E. Geismar 100,138,127 1,368,889
Carl D. Glickman 100,090,255 1,416,761
Thomas R. Green 100,228,251 1,278,765
Alan C. Greenberg 100,145,438 1,361,578
Donald J. Harrington 100,145,757 1,361,259
Richard Harriton 100,203,482 1,303,534
Daniel L. Keating 99,914,110 1,592,906
John W. Kluge 99,883,039 1,623,977
Mark E. Lehman 100,148,350 1,358,666
David A. Liebowitz 100,134,901 1,372,115
Bruce M. Lisman 100,135,575 1,371,441
Roland N. Livney 100,133,542 1,373,474
Michael Minikes 100,138,010 1,369,006
William J. Montgoris 100,144,940 1,362,076
Donald R. Mullen Jr. 100,137,210 1,369,806
Frank T. Nickell 100,227,474 1,279,542
Craig M. Overlander 100,137,934 1,369,082
Stephen E. Raphael 100,134,387 1,372,629
E. John Rosenwald Jr. 99,910,575 1,596,441
Lewis A. Sachs 99,978,574 1,528,442
Richard Sachs 100,121,463 1,385,553
Frederic V. Salerno 100,219,043 1,287,973
Alan D. Schwartz 99,913,058 1,593,958
David M. Solomon 100,123,406 1,383,610
Warren J. Spector 100,139,639 1,367,377
Robert M. Steinberg 100,135,809 1,371,207
Michael L. Tarnopol 100,144,251 1,362,765
Vincent Tese 100,133,652 1,373,364
Michael J. Urfirer 100,129,211 1,377,805
Fred Wilpon 99,901,178 1,605,838
Uzi Zucker 100,208,658 1,298,358
* - Subsequent to the election of the directors, Grace J. Fippinger died.
</TABLE>
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10)(a)(6) Capital Accumulation Plan for Senior Managing Directors, as
amended and restated as of January 22, 1997, certain provisions
of which are subject to the approval of the Stockholders at the
1997 Annual Meeting
(11) Statement Re Computation of Per Share Earnings
(12) Statement Re Computation of Ratio of Earnings to Fixed Charges
(27) Financial Data Schedule
(b) Reports on Form 8-K
During the quarter, the Company filed the following Current Report on Form
8-K.
(i) A Current Report on Form 8-K dated October 16, 1996, pertaining to the
Company's results of operations for the three-months ended September 27,
1996.
(ii) A Current Report on Form 8-K dated October 29, 1996, pertaining to the
declaration of dividends and the appointment of Samuel L. Molinaro Jr. as
Chief Financial Officer.
(iii) A Current Report on Form 8-K dated November 12, 1996, pertaining to
information in the 1996 Proxy Statement.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Bear Stearns Companies Inc.
(Registrant)
Date: February 14, 1997 By: /s/ Samuel L. Molinaro Jr.
Samuel L. Molinaro Jr.
Senior Vice President - Finance
and Chief Financial Officer
<PAGE>
THE BEAR STEARNS COMPANIES INC.
FORM 10-Q
Exhibit Index
Exhibit No. Description
- ----------- -----------
(10) (a) (6) Capital Accumulation Plan for Senior Managing
Directors, as amended and restated as of
January 22, 1997, certain provisions of which are
subject to the approval of the Stockholders at
the 1997 Annual Meeting
(11) Statement Re Computation of
Per Share Earnings
(12) Statement Re Computation of
Earnings to Fixed Charges
(27) Financial Data Schedule
Exhibit (10) (a) (6)
THE BEAR STEARNS COMPANIES INC.
CAPITAL ACCUMULATION PLAN FOR
SENIOR MANAGING DIRECTORS
(Restated as of January 22, 1997)*
SECTION 1
Purpose
The purpose of the Plan is to promote the interests of the
Company and its stockholders by providing long-term incentives to
certain key executives of the Company and Bear Stearns who contribute
significantly to the long-term performance and growth of the Company.
SECTION 2
Definitions
2.1 Terms Defined. When used herein, the following terms
shall have the following meanings:
"Account" means a Capital Accumulation Account or a Cash
Balance Account, as the context may require.
"Accredited Investor" means an "accredited investor" as
defined in Rule 501 under the Securities Act, or any successor rule
or regulation.
"Additional Deferral Amount" has the meaning assigned to
such term in Section 4.1.
"Additional Plan Election" has the meaning assigned to such
term in Section 4.1.
"Adjusted Book Value Per Share" means the amount determined
as of the end of any Fiscal Year by dividing Adjusted Common
Stockholders' Equity by the sum of (a) the number of shares of Common
Stock outstanding on such date, (b) the number of CAP Units credited
to the Capital Accumulation Accounts of all Participants as of such
date and the number of Earnings Units credited to the Earnings Unit
Accounts of all participants in the PUP Plan as of such date, (c) the
number of CAP Units to be credited to all such Accounts as a result
of making any adjustment to such Accounts required by Sections 5.1
and 5.10 in respect of all Fiscal Years ending on or prior to the
date of determination and the number of Earnings Units credited to
the Earnings Unit Accounts of all participants in the PUP Plan as a
result of making any adjustment to such accounts required by Section
4.2 of the PUP Plan in respect of all Fiscal Years ending on or prior
to the date of such determination, and (d) the number of shares of
Common Stock purchased by the Company for purposes other than for the
Plan and the PUP Plan during all Fiscal Years ending on or prior to
the date of such determination, less (e) the number of shares of
Common Stock issued by the Company (whether from Treasury shares or
otherwise) other than pursuant to the Plan or the PUP Plan during all
Fiscal Years ending on or prior to the date of such determination.
"Adjusted Common Stockholders' Equity" means, for the first
Fiscal Year of any Deferral Period, Consolidated Common Stockholders'
Equity as of the last day of the preceding Fiscal Year and for Fiscal
Years following the first Fiscal Year of such Deferral Period, means
Adjusted Common Stockholders' Equity determined for the prior Fiscal
Year of such Deferral Period, plus all increases (or less any
decreases) in retained earnings of the Company and its subsidiaries
attributable to net income (or loss), determined on a consolidated
basis, minus all amounts accrued in respect of cash dividends
declared with respect to any capital stock of the Company during such
Fiscal Year.
"Adjusted Earnings Per Share" means, for any Fiscal Year,
(a) the Company's consolidated net income or loss for such Fiscal
Year, less the amount of the Preferred Stock Dividend Requirement for
such Fiscal Year, plus the product obtained by multiplying the
product of the Net Earnings Adjustment multiplied by the Average Cost
Per Share for such Fiscal Year by the fraction which is 1 minus the
Marginal Tax Rate, divided by (b) the sum of (i) the number of shares
of Common Stock outstanding during such Fiscal Year, computed on a
weighted average basis based on the number of days outstanding during
such Fiscal Year, (ii) the aggregate number of CAP Units credited to
the Accounts of all Participants computed on a weighted average basis
based on the number of days outstanding during such Fiscal Year but
not including in such computation the day that CAP Units are
credited, increased or decreased pursuant to Section 5.1, 5.3 or 5.10
of the Plan, and (iii) the aggregate number of Earnings Units
credited to the Earnings Unit Accounts of all participants in the PUP
Plan computed on a weighted average basis based on the number of days
outstanding during such Fiscal Year but not including in such
computation the day that Earnings Units are credited, increased or
decreased pursuant to Section 4.2 or 4.5 of the PUP Plan.
"Adjusted Preferred Stock Dividend Requirement" means, for
any Fiscal Year, the quotient obtained by dividing (i) the aggregate
amount of all dividends actually declared by the Company on, or, if
no such dividends are actually declared, required to be declared by
the Company in accordance with the terms of, any Preferred Stock, in
such Fiscal Year, by (ii) the fraction which is one minus the
Marginal Tax Rate for such Fiscal Year.
"Advisory Committee" means a committee of five Participants,
of which two shall be appointed by the President of the Company, two
by the President's Advisory Council of Bear Stearns and one by the
Management and Compensation Committee.
"Affiliate" means (a) Bear Stearns, (b) any other subsidiary
of the Company and (c) any other corporation or other entity which is
controlled, directly or indirectly, by, or under common control with,
the Company and which the Board Committee designates as an
"Affiliate" for purposes of the Plan.
"Aggregate Imputed Cost" means, with respect to any Fiscal
Year, the sum of (a) the aggregate of the Cost of Carry for such
Fiscal Year for all Participants in the Plan plus (b) the Capital
Reduction Charge for such Fiscal Year plus (c) the product of (i) the
sum of the Net Earnings Adjustments for such Fiscal Year for all
Participants in the Plan multiplied by (ii) the Average Cost Per
Share for such Fiscal Year, minus (d) the Dividend Savings for such
Fiscal Year.
"Appropriate Committee" means the Management and
Compensation Committee or, in the case of Participants who are
Reporting Persons, the Board Committee.
"Associate" of a Person means (a)-any corporation or
organization of which such Person is an officer or partner or is,
directly or indirectly, the Beneficial Owner of 10% or more of any
class of equity securities, (b) any trust or other estate in which
such Person has a substantial beneficial interest or as to which such
Person serves as trustee or in a similar fiduciary capacity and (c)
any relative or spouse of such Person, or any relative of such
spouse, who has the same home as such Person or who is a director or
officer of such Person or any of its parents or subsidiaries.
"Available Shares" means, with respect to any Fiscal Year or
portion thereof, the sum of (a) the number of shares of Common Stock
purchased by the Company in the open market or in private
transactions or otherwise during such period and designated by the
Board Committee at the time of purchase as having been purchased for
issuance under the Plan or the PUP Plan that have not been previously
allocated under either plan and (b) shares of Common Stock purchased
prior to such period that were designated as Available Shares but
were not allocated under either the Plan or the PUP Plan which the
Company makes available to the Plan subsequent to the period in which
such shares were purchased and the Board Committee thereafter
designates as Available Shares for issuance under the Plan or the PUP
Plan.
"Average Cost Per Share" means with respect to any period
the weighted average of the sum of (a) the average price paid
(including commissions) by the Company in respect of Available Shares
purchased by the Company during such period and (b) in respect of
Available Shares purchased by the Company prior to such period that
the Company makes available to the Plan and that are accepted by the
Board Committee, the Fair Market Value as of the last trading day of
such period.
"Average Federal Funds Rate" means, with respect to any
Fiscal Year, the percentage (expressed as a decimal fraction)
obtained by taking the sum of the Federal Funds Rates for each day
during the Fiscal Year and dividing such amount by the number of days
in such Fiscal Year.
"Base Year" means the first Fiscal Year of a Required
Deferral Period.
"Bear Stearns" means Bear, Stearns & Co. Inc., a Delaware
corporation, and its successors and assigns.
"Beneficial Owner" has the meaning ascribed thereto in Rule
13d-3 under the Exchange Act, except that, in any case, a Person
shall be deemed the Beneficial Owner of any securities owned,
directly or indirectly, by the Affiliates and Associates of such
Person.
"Beneficiary" of a Participant means the beneficiary or
beneficiaries designated by such Participant in accordance with
Section 10 to receive the amount, if any, payable hereunder upon the
death of such Participant.
"Board Committee" means the Compensation Committee of the
Board of Directors or another committee of the Board of Directors
designated by the Board of Directors to perform the functions of the
Board Committee hereunder. To the extent required by Rule 16b-3, the
Board Committee shall be composed solely of directors who are not
Participants in the Plan and are in other respects "Non-Employee
Directors" within the meaning of Rule 16b-3.
"Board of Directors" means the Board of Directors of the
Company.
"Book Value Adjustment" has the meaning assigned to such
term in Section 5.5.
"Business Day" means any day other than a Saturday, Sunday
or other day on which commercial banks in New York City are
authorized or permitted by law to be closed.
"CAP Units" means the units, each such unit corresponding to
one share of Common Stock, credited to a Participant's Capital
Accumulation Account pursuant to Section 5. All calculations and
determinations of the number of CAP Units hereunder shall be made in
whole and fractional units, with such fractional units rounded to the
nearest one-thousandth of a unit.
"Capital Accumulation Account" has the meaning assigned to
such term in Section 5.1.
"Capital Reduction Charge" means (a) for Fiscal Years 1991
and 1992, zero; (b) for Fiscal Year 1993, the product of (i) the
excess of (A) the amount determined by multiplying the Aggregate
Imputed Cost of the Plan for Fiscal Year 1992 by the fraction which
is one minus the Marginal Tax Rate for Fiscal Year 1992, over (B) the
aggregate amount of all cash dividends that would have been paid by
the Company during Fiscal Year 1992 on the aggregate number of shares
of Common Stock purchased by the Company and taken into account for
purposes of the Plan in respect of Fiscal Year 1991, if all such
shares had remained outstanding, and (ii) the Average Federal Funds
Rate for Fiscal Year 1993; and (c) for each Fiscal Year thereafter,
the product of (x) the sum of (A) the amount determined by
multiplying the Aggregate Imputed Cost of the Plan for the Fiscal
Year preceding the year for which the determination is being made by
the fraction which is one minus the Marginal Tax Rate for such
preceding Fiscal Year (the "Tax-Effected Aggregate Imputed Cost" for
such Fiscal Year), plus (B) the aggregate Tax-Effected Aggregate
Imputed Cost of the Plan for all preceding Fiscal Years, other than
the Fiscal Year immediately preceding the year for which the
determination is being made, plus (C) the sum of the respective
amounts obtained by multiplying the Capital Reduction Charge for each
preceding Fiscal Year by the fraction which is one minus the Marginal
Tax Rate for the corresponding Fiscal Year, less (D) the aggregate
amount of all cash dividends that would have been paid by the Company
on the aggregate number of shares of Common Stock purchased by the
Company for purposes of the Plan and taken into account pursuant to
Section 5.1, 5.3 or 5.10(a) prior to the end of the Fiscal Year
preceding the year for which the determination is being made,
measured from the date the corresponding CAP Units were first
credited to such Accounts, if all such shares had remained
outstanding and (y) the Average Federal Funds Rate for such Fiscal
Year.
"Cash Balance" means the amount from time to time credited
to a Participant's Cash Balance Account.
"Cash Balance Account" has the meaning assigned to such term
in Section 5.2.
"Change in Control" means (a) a majority of the Board of
Directors ceases to consist of Continuing Directors; (b) any Person
becomes the Beneficial Owner of 50% or more of the outstanding voting
power of the Company unless such acquisition is approved by a
majority of the Continuing Directors; (c) the stockholders of the
Company approve an agreement to merge or consolidate into any other
entity, unless such merger or consolidation is approved by a majority
of the Continuing Directors; or (d) the stockholders of the Company
approve an agreement to dispose of all or substantially all of the
assets of the Company, unless such disposition is approved by a
majority of the Continuing Directors.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute or statutes.
"Committee" means each of the Advisory Committee, the Board
Committee and the Management and Compensation Committee.
"Common Stock" means the common stock, par value $1.00 per
share, of the Company.
"Company" means The Bear Stearns Companies Inc., a Delaware
corporation, and its successors and assigns.
"Consolidated Common Stockholders' Equity" means, as of any
date of determination, the consolidated stockholders' equity of the
Company and its subsidiaries applicable to Common Stock.
"Continuing Director" means any member of the Board of
Directors who is a member on the Effective Date or who is elected to
the Board of Directors after the Effective Date upon the
recommendation or with the approval of a majority of the Continuing
Directors at the time of such recommendation or approval.
"Cost of Carry" means, with respect to a Participant, the
sum of (a) the amount obtained by multiplying the Deferred Tax
Benefit for each Plan Year by the Average Federal Funds Rate in the
Fiscal Year for which the determination is being made, and (b) the
amounts obtained by compounding the amounts so obtained for each
preceding Fiscal Year for which a Cost of Carry was calculated less
the tax benefits associated with the amounts so determined,
calculated on the basis of the Marginal Tax Rate in each such Fiscal
Year, on an annual basis, at the Average Federal Funds Rate in effect
during each succeeding Fiscal Year; and, with respect to the Plan as
a whole, means the aggregate Cost of Carry of all Participants in any
Fiscal Year.
"Deferral Period" means the period of five Fiscal Years
commencing on the first day of the Fiscal Year following the Plan
Year for which a Participant's compensation being deferred pursuant
to this Plan was payable, or such greater or lesser number of whole
Fiscal Years as the Appropriate Committee may approve pursuant to
Section 4.1, 4.3, 4.5 or 4.6. Notwithstanding the foregoing, the
Deferral Period applicable to compensation being deferred for a
particular Plan Year for any Participant who will attain age 56 prior
to the last day of any such Plan Year and who elects in any Plan
Election to be governed by this sentence in the manner specified by
the Company shall be, (i) in the case of Participants who attain the
age of 56 in such Plan Year, four Fiscal Years, (ii) in the case of
Participants who attain the age of 57 in such Plan Year, either three
or four Fiscal Years, (iii) in the case of Participants who attain
the age of 58 in such Plan Year, either two, three or four Fiscal
Years, or (iv) in the case of Participants who attain the age of 59
or older in such Plan Year, either one, two, three or four Fiscal
Years, in each such case as the Participant may so elect for each
such Plan Year.
"Deferral Year" means any Fiscal Year during a Deferral
Period.
"Deferred Tax Benefit" means, for each Plan Year of a
Participant, the sum of (a) the amounts obtained by multiplying such
Participant's Total Deferral Amount, if any, for such Plan Year by
the Marginal Tax Rate for such Plan Year and (b) the respective
amounts obtained by multiplying the dollar amount of all Net Earnings
Adjustments made with respect to the subaccount of such Participant's
Capital Accumulation Account corresponding to such Plan Year by the
respective Marginal Tax Rates for each Deferral Year for which such
adjustments are made. The Deferred Tax Benefit shall be computed and
recorded separately for each Plan Year.
"Disability" means the complete and permanent inability of
an individual to perform his duties due to his physical or mental
incapacity, all as determined by the Appropriate Committee upon the
basis of such evidence, including independent medical reports and
data, as the Appropriate Committee deems necessary or appropriate.
"Dividend Savings" means (a) for Fiscal Year 1991, zero; (b)
for Fiscal Year 1992, the sum of (i) the amount obtained by
multiplying (A) the aggregate number of CAP Units credited to the
Capital Accumulation Accounts of all Participants pursuant to Section
5.1 in respect of Fiscal Year 1991 by (B) the weighted average per
share amount of all cash dividends paid by the Company on its Common
Stock in such Fiscal Year (such weighted average amount to be
determined by multiplying the amount of each such dividend by the
number of days in the Fiscal Year on and after the date on which such
dividend is paid, adding all the amounts so obtained and dividing the
total by the number of days in such Fiscal Year) and by multiplying
the product so obtained by (C) the Average Federal Funds Rate for
such Fiscal Year, and (ii) the amounts (the "Partial Year Dividend
Savings") obtained by multiplying (x) for each fiscal quarter in such
Fiscal Year, the aggregate number of CAP Units credited to the
Capital Accumulation Accounts of all Participants pursuant to Section
5.3 during such Fiscal Year by (y) the respective weighted average
per share amounts of all cash dividends paid by the Company on its
Common Stock in fiscal quarters of such Fiscal Year beginning after
the date on which such CAP Units were so credited (each such weighted
average amount to be determined in the manner described in the
preceding clause (b)(i)(B)), and by multiplying the product so
obtained by (z) the Average Federal Funds Rate for such Fiscal Year;
and (c) for Fiscal Year 1993 and each succeeding Fiscal Year of the
Plan, means the amount obtained by first (i) multiplying the sum of
(A) all CAP Units credited to the Capital Accumulation Accounts of
all Participants pursuant to Section 5.1 in respect of all preceding
Fiscal Years of the Plan and all CAP Units credited to such Accounts
pursuant to Section 5.10(a) in respect of Net Earnings Adjustments,
if any, for such Fiscal Years by (B) the weighted average per share
amount of all cash dividends paid by the Company on its Common Stock
in the Fiscal Year for which the determination is being made
(determined in the manner described in the preceding clause
(b)(i)(B)), (ii) calculating the amount of cash dividends that would
have been paid by the Company in all preceding Fiscal Years on the
aggregate number of shares of Common Stock purchased by the Company
and taken into account for purposes of this Plan pursuant to Section
5.1, 5.3 or 5.10(a), measured from the date on which the
corresponding CAP Units were credited to Participants' Accounts, if
all such shares had remained outstanding and (iii) multiplying the
respective Dividend Savings determined as provided herein for each
preceding Fiscal Year by the fraction which is one minus the Marginal
Tax Rate for the corresponding preceding Fiscal Year, and then
multiplying the sum of the amounts so determined in clauses (i), (ii)
and (iii) by the Average Federal Funds Rate for such Fiscal Year, and
finally adding to such sum the Partial Year Dividend Savings for such
Fiscal Year determined in the manner provided in the preceding clause
(b)(ii).
"Earnings Adjustment" has the meaning assigned to such term
in Section 5.4(a).
"Earnings Unit Account" has the meaning specified in the PUP
Plan.
"Earnings Units" has the meaning specified in the PUP Plan.
"Effective Date" means September 6, 1990.
"Effective Tax Rate" means, for any Fiscal Year, the
fraction the numerator of which is the consolidated tax expense of
the Company and its subsidiaries for such Fiscal Year and the
denominator of which is the consolidated income or loss before income
taxes of the Company and its subsidiaries for such Fiscal Year. For
this purpose, consolidated income or loss of the Company and its
subsidiaries shall be calculated by including extraordinary items and
the income or loss of discontinued operations, and income tax expense
shall be calculated by including the income tax expense attributable
to such extraordinary items or discontinued operations.
"Elective Plan Year" has the meaning assigned to such term
in Section 4.3.
"Eligible Employee" means any individual who is employed by
Bear Stearns as a Senior Managing Director and is an Accredited
Investor.
"Enrollment Period" in respect of a Plan Year means the
period commencing with the first day of the fiscal quarter
immediately preceding such Plan Year and ending on December 31 of
such Plan Year, or such shorter period contained therein designated
by the Board Committee, provided that, unless otherwise determined by
the Board Committee, the Enrollment Period with respect to an
individual who becomes an Eligible Employee after December 31 of a
Plan Year shall be the period commencing on the date such individual
becomes an Eligible Employee and ending on the earliest of (a) the
30th day thereafter, (b) March 31 of the Plan Year in the case of an
individual who was an employee prior to becoming an Eligible Employee
or (c) the end of the Plan Year. Without limiting the generality of
the foregoing, the Board Committee may designate one Enrollment
Period for individuals who are Eligible Employees on the first day of
a Base Year and one or more Enrollment Periods for individuals who
become Eligible Employees after the first day of a Base Year;
provided, however, with respect to participants in The Bear Stearns
Companies Inc. Management Compensation Plan in no event shall any
Enrollment Period in respect of any Plan Year extend more than 90
days into such Plan Year so as to allow a Participant to make an
election to increase or decrease the deferral amount or Deferral
Period relating to such Plan Year.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor statute or statutes.
"Executive Committee" means the Executive Committee of the
Board of Directors.
"Fair Market Value" of a share of Common Stock as of any
date means the closing sales price of a share of Common Stock on the
composite tape for New York Stock Exchange listed securities on such
date or, if the Common Stock is not quoted on the composite tape or
is not listed on the New York Stock Exchange, on the principal United
States securities exchange registered under the Exchange Act on which
the Common Stock is listed or, if the Common Stock is not listed on
any such exchange, on the National Association of Securities Dealers,
Inc. Automated Quotation National Market System ("NASDAQ-NMS") or, if
the Common Stock is not quoted on NASDAQ-NMS, the average closing bid
quotation of a share on the National Association of Securities
Dealers, Inc. Automated Quotation System or any similar system then
in use or, if the Common Stock is not listed or quoted, the fair
value thereof as of such date as determined by the Appropriate
Committee.
"Federal Funds Rate" means, for any day which is a Business
Day, the rate for U.S. dollar funds settled through the Federal
Reserve System or other immediately available U.S. dollar funds, as
quoted by an independent broker of such funds selected by the
Company, for the last transaction completed prior to 9:30 A.M.
(Eastern time) on the Business Day on which such rate is determined,
rounded up or down on a daily alternating basis to the nearest whole
multiple of one-eighth of one percent, and for any day which is not a
Business Day means such rate as determined for the next preceding day
which was a Business Day.
"Fiscal Year" means the fiscal year of the Company
commencing on July 1 and ending on June 30. "Fiscal Year 1991" shall
mean the Fiscal Year ending on June 30, 1991; "Fiscal Year 1992"
shall mean the Fiscal Year ending on June 30, 1992; and "Fiscal Year
1993" shall mean the Fiscal Year ending on June 30, 1993. If the
Company shall change its Fiscal Year after the Effective Date so as
to end on a date other than June 30 ("Year-end Date") then, if such
new Year-end Date falls after June 30 and on or prior to December 31,
the Fiscal Year in which such change occurs shall be deemed to
consist, for purposes of this Plan, of the period of not more than 18
months beginning on the July 1 following the last Fiscal Year
preceding such change and ending on such new Year-end Date or, if
such new Year-end Date falls on or after January 1 and prior to June
30, the Fiscal Year in which such change occurs shall be deemed to
consist, for purposes of this Plan, of the period of less than 12
months beginning on the first day of the Fiscal Year in which such
change occurs and ending on such new Year-end Date.
"Full Year Units" has the meaning assigned to such term in
Section 5.4.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect from time to time.
"Historical Book Value" means, with respect to a CAP Unit
credited to a Participant's Account pursuant to Section 5.1 or
5.10(a), an amount determined by dividing (a) Consolidated Common
Stockholders' Equity as of the end of the Fiscal Year for which such
CAP Unit was credited by (b) the sum of (i) the aggregate number of
shares of Common Stock outstanding on the last day of such Fiscal
Year, (ii) the aggregate number of CAP Units credited to the Capital
Accumulation Accounts of all Participants as of the end of such
Fiscal Year, and, with respect to a CAP Unit credited to a
Participant's Account pursuant to Section 5.3, an amount determined
by dividing (x)(i) Consolidated Common Stockholders' Equity, as of
the last day of the Fiscal quarter for which such CAP Unit was
credited, and (iii) the aggregate number of Earnings Units credited
to the Earnings Unit Accounts of all Participants in the PUP Plan as
of the end of such Fiscal Year, less (ii) all increases (or plus any
decreases) in retained earnings of the Company and its subsidiaries
attributable to net income (or loss), determined on a consolidated
basis for all fiscal quarters of the Fiscal Year prior to and
including the fiscal quarter during which such CAP Unit was credited,
plus (iii) the amount determined by multiplying (A) a fraction, the
numerator of which is the number of fiscal quarters in the Fiscal
Year prior to and including the fiscal quarter during which such CAP
Unit was credited, and the denominator of which is 4, by (B) the
increase (or decrease) in retained earnings of the Company and its
subsidiaries, attributable to net income (or loss), determined on a
consolidated basis for the Fiscal Year during which such CAP Unit was
credited, less (iv) the amount determined by multiplying (C) a
fraction, the numerator of which is the number of fiscal quarters in
the Fiscal Year prior to and including the fiscal quarter during
which such CAP Unit was credited, and the denominator of which is 4,
by (D) the total amount accrued in respect of cash dividends with
respect to any capital stock of the Company for the Fiscal Year
during which such CAP Unit was credited, plus (v) the total amount
accrued in respect of cash dividends with respect to any capital
stock of the Company for all fiscal quarters of the Fiscal Year prior
to and including the fiscal quarter during which such CAP Unit was
credited by (y) the sum of (i) the aggregate number of shares of
Common Stock outstanding on the last day of such fiscal quarter, (ii)
the aggregate number of CAP Units credited to the Capital
Accumulation Accounts of all Participants as of the end of such date
and (iii) the aggregate number of Earnings Units credited to the
Earnings Unit Accounts of all Participants in the PUP Plan as of the
end of such Fiscal Year.
"Income Per Share" for any Fiscal Year means the
consolidated income or loss before income taxes of the Company and
its subsidiaries, adjusted as hereinafter provided, divided by the
sum of (a) the number of shares of Common Stock outstanding during
such Fiscal Year, computed on a weighted average basis based on the
number of days outstanding during such Fiscal Year, (b) the number of
CAP Units credited to the Capital Accumulation Accounts of all
Participants computed on a weighted average basis based on the number
of days outstanding during such Fiscal Year but not including in such
computation the day that CAP Units are credited, increased or
decreased pursuant to Section 5.1, 5.3 or 5.10 of the Plan and (c)
the aggregate number of Earnings Units credited to the Earnings Unit
Accounts of all Participants in the PUP Plan computed on a weighted
average basis based on the number of days outstanding during such
Fiscal Year but not including in such computation the day that
Earnings Units are credited, increased or decreased pursuant to
Section 4.2 or 4.5 of the PUP Plan. For purposes of this Plan,
consolidated income or loss before income taxes of the Company and
its subsidiaries (i) shall be determined prior to any charge or
credit to income required in such Fiscal Year by reason of Net
Earnings Adjustments pursuant to Section 5.10(a), (ii) shall include
the amounts of any pre-tax earnings or loss attributable to
discontinued operations or extraordinary items and (iii) shall be
reduced by the Adjusted Preferred Stock Dividend Requirement during
such Fiscal Year, and may be decreased, but not increased, by such
amount determined by the Board Committee in its sole discretion as
appropriate to carry out the purposes of the Plan.
"Initial Plan Election" has the meaning assigned to such
term in Section 4.1.
"Investment Letter" means a letter, in a form to be approved
by the Appropriate Committee, by which a Participant represents that
he is an accredited Investor and that he is acquiring his interest in
the Plan and any shares of Common Stock that may be acquired
hereunder for investment and without a view to any distribution
thereof.
"Management and Compensation Committee" means the Management
and Compensation Committee of the Board of Directors or another
committee of the Board of Directors designated by the Board of
Directors to perform the functions of the Management and Compensation
Committee hereunder.
"Marginal Tax Rate" means the maximum combined marginal rate
of tax expressed as a fraction to which the Company is subject for
the applicable Fiscal Year, including Federal, New York State and New
York City income taxes (including any minimum or alternative tax),
net of any tax benefit resulting from the deductibility of state and
local taxes for federal income tax purposes.
"Net Earnings Adjustment" has the meaning assigned to such
term in Section 5.10(a).
"Part Year Units" has the meaning assigned to such term in
Section 5.4(a).
"Participant" means any Eligible Employee who has validly
elected to participate in the Plan pursuant to Section 4.1.
"Person" means an individual, a corporation, a partnership,
an association, a joint stock company, a trust, any unincorporated
organization or a government or a political subdivision thereof.
"Personal Leave of Absence" means the absence from the
Company by a Participant, with the consent of the Company, for an
extended period of time without salary under circumstances in which a
return to full-time employment by the Participant is contemplated.
"Plan" means The Bear Stearns Companies Inc. Capital
Accumulation Plan for Senior Managing Directors as set forth herein
and as amended and restated from time to time.
"Plan Election" means the election to defer compensation
made by a participant pursuant to Section 4.
"Plan Year" means Fiscal Year 1991, Fiscal Year 1992, Fiscal
Year 1993 and any other Fiscal Year with respect to which the Board
Committee makes the determination provided for in Section 3.1.
"Preferred Stock" means any capital stock of the Company
that has a right to dividends or distributions in liquidation (or
both) prior to the holders of the Common Stock.
"Preferred Stock Dividend Requirement" means, for any Fiscal
Year, the amount of all dividends actually declared by the Company
on, or required to be declared by the Company in accordance with the
terms of, any Preferred Stock, in such Fiscal Year.
"Pre-Plan Earnings Per Share" means, for any Fiscal Year,
(a) the sum of (i) the Company's consolidated net income or loss for
such Fiscal Year less (ii) the amount of the Preferred Stock Dividend
Requirement for such Fiscal Year, plus (iii) the amount obtained by
multiplying the Aggregate Imputed Costs of the Plan deducted in the
calculation of consolidated net income or loss for such Fiscal Year
by the fraction which is one minus the Marginal Tax Rate for such
Fiscal Year, divided by (b) the sum of (x) the number of shares of
Common Stock outstanding during such Fiscal Year, computed on a
weighted average basis based on the number of days outstanding during
such Fiscal Year, (y) the aggregate number of CAP Units credited to
the Accounts of all Participants computed on a weighted average basis
based on the number of days outstanding during such Fiscal Year but
not including in such computation the day that CAP Units are
credited, increased or decreased pursuant to Section 5.1,5.3 or 5.10
of the Plan, and (z) the aggregate number of Earnings Units credited
to the Earnings Unit Accounts of all participants in the PUP Plan
computed on a weighted average basis based on the number of days
outstanding during such Fiscal Year but not including in such
computation the day that Earnings Units are credited, increased or
decreased pursuant to Section 4.2 or 4.5 of the PUP Plan.
"PUP Plan" means The Bear Stearns Companies Inc. Performance
Unit Plan for Senior Managing Directors, as the same shall be
amended, supplemented or modified from time to time.
"Quarter End Date" has the meaning assigned to such term in
Section 5.3.
"Registration Statement" has the meaning assigned to such
term in Section 6.7.
"Reporting Person" means a director or officer of the
Company who is subject to the reporting requirements of Section 16(a)
of the Exchange Act.
"Required Deferral Amount" means, for any Plan Year, the
following percentages of that portion of a Participant's current
compensation for such Plan Year (prior to giving effect to any
effective election hereunder to defer receipt of a portion of such
amount but after giving effect to any effective election to defer
compensation under any other plan sponsored by the Company or any
Affiliate) which exceeds $200,000 (or the then prevailing annual base
salary for Senior Managing Directors of Bear Stearns for such Plan
Year):
25% of the first $ 300,000
30% of the next $ 500,000
40% of the next $1,000,000
50% of compensation exceeding $2,000,000
Notwithstanding the foregoing, (a) the Required Deferral Amount for
any Participant who will attain age 55 prior to the last day of any
Plan Year and who elects in his Plan Election to be governed by this
sentence in the manner specified by the Appropriate Committee shall
be 25% of such compensation of such Participant for each Plan Year in
which he attains age 55 or older and (b) no Participant shall be
required or entitled to defer any portion of his compensation for any
Plan Year for which he was entitled to receive payment prior to the
date of his Plan Election. The Required Deferral Amount in his
initial Plan Year for any Participant who first becomes an Eligible
Employee after the first day of any Plan Year shall be determined by
multiplying each of the foregoing amounts in this paragraph by a
fraction, the numerator of which is the number of whole months
remaining in the Plan Year following his date of employment and the
denominator of which is 12.
"Required Deferral Period" has the meaning assigned to such
term in Section 3.1.
"Rule 16b-3" means Rule 16b-3 of the Securities and Exchange
Commission promulgated under the Exchange Act, as the same may be
modified or amended from time to time, and any successor rule.
"Securities Act" means the Securities Act of 1933, as
amended from time to time, or any successor statute or statutes.
"Special Plan Election" has the meaning assigned to such
term in Section 4.6.
"Termination Date" means the last day of any Deferral Period.
"Total CAP Units" means the aggregate number of CAP Units,
adjusted through any date of determination thereof, theretofore
credited to a Participant's Capital Accumulation Account.
"Total Deferral Amount" for any Participant means, for each
Plan Year, the sum of the Required Deferral Amount and the Additional
Deferral Amount.
2.2 Accounting Terms. Whenever any accounting term is used
herein, or the character or amount of any asset or liability or item
of income or expense is required to be determined, or any
consolidation or other accounting computation is required to be made,
for the purposes of this Plan, such accounting term shall have the
meaning assigned to such term or such determination or computation
shall be made (as the case may be), to the extent applicable and
except as otherwise specified herein, in accordance with GAAP.
SECTION 3
Eligibility
3.1 Not later than 90 days after the commencement of any
Fiscal Year, the Board Committee shall determine whether Eligible
Employees who are not then Participants shall be entitled to defer a
portion of their compensation for such Fiscal Year and the two Fiscal
Years next succeeding such Fiscal Year (such three Fiscal Years being
referred to collectively as a "Required Deferral Period"); provided,
however, that in the case of the Required Deferral Period of which
the Base Year is the Fiscal Year ending June 30, 1992, such
determination may be made not later than October 30, 1991.
3.2 Each individual who is an Eligible Employee at any time
during the Enrollment Period in respect of a Plan Year and is not
then a Participant shall be eligible to participate in the Plan by
deferring compensation as provided in Section 4.1; provided, however,
that an Eligible Employee who does not elect to participate in the
Plan during the Enrollment Period for the first Plan Year in which he
is an Eligible Employee shall not be entitled to participate in the
Plan in respect of subsequent Plan Years unless such participation is
approved by the Appropriate Committee not later than the last day of
the Enrollment Period for such Plan Year; and provided, further, that
no individual shall be eligible to participate in the Plan unless
such individual agrees to execute such documents or agrees to such
restrictions, including but not limited to the execution of an
Investment Letter, as the Appropriate Committee in its sole
discretion may require.
SECTION 4
Deferrals of Compensation
4.1 Plan Election. Each Eligible Employee who satisfies
the eligibility requirements of Section 3.2 during a Plan Year may,
during the applicable Enrollment Period, execute and file with the
Appropriate Committee a Plan Election (an "Initial Plan Election"),
in the form provided by the Company, (a) electing to defer (i) the
Required Deferral Amount of his current compensation for each of the
three Fiscal Years in the Required Deferral Period and (ii) subject
to the approval of the Appropriate Committee, any amount of his
current compensation in excess of the Required Deferral Amount for
his Base Year (the "Additional Deferral Amount") and (b) electing,
subject to the approval of the Appropriate Committee, a Deferral
Period (in whole Fiscal Years) in respect of the Required Deferral
Amount and any Additional Deferral Amount for such Base Year of more
than Five Fiscal Years. During the Enrollment Period occurring
during the second and third Fiscal Years of a Required Deferral
Period (or if there is no Enrollment Period for such Fiscal Year, the
period commencing on the anniversary of the first day of the most
recent preceding Enrollment Period and ending on the anniversary of
the last day of such Enrollment Period), a Participant may execute
and file with the Appropriate Committee an additional Plan Election
(an "Additional Plan Election"), in the form provided by the Company
electing, if applicable, a shorter Deferral Period or, subject to the
approval of the Appropriate Committee, an Additional Deferral Amount
for such Fiscal Year or a Deferral Period in respect of the Required
Deferral Amount and any Additional Deferral Amount for such Fiscal
Year of more than five Fiscal Years. The Appropriate Committee may
approve any election of an Additional Deferral Amount and any
election of a Deferral Period in excess of five Fiscal Years, or may
deny any such request, in its sole discretion. If the Appropriate
Committee shall deny any election of any Additional Deferral Amount,
then the Additional Plan Election shall be deemed to relate only to
the Participant's Required Deferral Amount for the Fiscal Year
involved and, if the Appropriate Committee shall deny any election of
a Deferral Period in excess of five Fiscal Years, then the Deferral
Period applicable to the Required Deferral Amount and any Additional
Deferral Amount for the Fiscal Year involved shall be five Fiscal
Years.
4.2 Effect of Initial Plan Election. An Initial Plan
Election filed during the Enrollment Period in respect of a Plan Year
in accordance with Section 4.1 shall constitute an election (a) to
become a Participant in this Plan with respect to such Fiscal Year
and the two succeeding Fiscal Years, (b) to defer for Deferral Period
receipt of the Required Deferral Amount and the Additional Deferral
Amount (if any) approved by the Appropriate Committee for such Fiscal
Year and (c) to defer receipt of the Required Deferral Amount for the
second and third Fiscal Years of the Required Deferral Period
beginning with such Fiscal Year for the Deferral Period or such other
period as may be approved by the Appropriate Committee pursuant to
Section 4.1, unless, in the case of such second and third Fiscal
Years, such Participant is excluded from participation in respect of
subsequent Fiscal Years of a Required Deferral Period upon approval
of the Appropriate Committee pursuant to Section 4.5(a).
4.3 Elective Deferrals. For each Plan Year occurring after
the third Fiscal Year of a Participant's Required Deferral Period as
to which such Participant has not theretofore had the opportunity to
elect to defer compensation (each such Plan Year being referred to as
an "Elective Plan Year"), such Participant may, subject as provided
below, during the Enrollment Period in respect of any Plan Year
during which the Board Committee has determined pursuant to Section
3.1 to allow any Eligible Employees to defer compensation for such
Elective Plan Year, execute and file with the Appropriate Committee
an Additional Plan Election electing to defer for the applicable
Deferral Period the Required Deferral Amount of his current
compensation for such Elective Plan Year. Thereafter, during the
Enrollment Period occurring during each such Elective Plan Year (or
if there is no Enrollment Period for such Fiscal Year, the period
commencing on the anniversary of the first day of the most recent
preceding Enrollment Period and ending on the anniversary of the last
day of such Enrollment Period) a Participant may execute and file an
Additional Plan Election, electing, subject to the approval of the
Appropriate Committee, an Additional Deferral Amount for such
Elective Plan Year and a Deferral Period (in whole Fiscal Years) in
respect of the Required Deferral Amount and any Additional Deferral
Amount for such Elective Plan Year of more than five Fiscal Years or,
if applicable, a shorter Deferral Period. The Appropriate Committee
may approve any election under this Section 4.3 to defer an
Additional Deferral Amount and any election of a Deferral Period in
excess of five Fiscal Years, or may deny any such request, in its
sole discretion. If the Appropriate Committee shall deny any
election of an Additional Deferral Amount, then the additional Plan
Election shall be deemed to relate only to the Participant's Required
Deferral Amount for the Elective Plan Year involved and, if the
Appropriate Committee shall deny any election of a Deferral Period in
excess of five Fiscal Years, then the Deferral Period applicable to
the Required Deferral Amount and any Additional Deferral Amount for
the Elective Plan Year involved shall be five Fiscal Years. If at
any time there is more than one Elective Plan Year as to any
Participant, then the Appropriate Committee shall determine whether
or not the additional Plan Election which may be submitted in respect
of such Elective Plan Years by such Participant shall relate to one
or more than one of such Elective Plan Years. If the Appropriate
Committee determines that such Plan Election shall relate to more
than one Elective Plan Year, then the additional Plan Election to be
filed by such Participant shall constitute an election to defer the
Required Deferral Amount of his current compensation for each of such
Elective Plan Years. Notwithstanding the foregoing, however, if an
Eligible Employee does not elect to defer at least the Required
Deferral Amount in respect of any Elective Plan Year, such Eligible
Employee shall be ineligible to submit an additional Plan Election in
respect of any succeeding Elective Plan Year unless the Appropriate
Committee, in its sole discretion, shall determine (including,
without limitation, by reason of hardship as contemplated by Section
4.5(a)) that such Eligible Employee shall once again be eligible to
elect to defer compensation under this Section 4.3. In the event
that the Appropriate Committee shall make the determination
contemplated by the preceding sentence in respect of any Elective
Plan Year for which the Enrollment Period has already expired, then
the Appropriate Committee, may, in its discretion, establish a
supplementary enrollment period for the Eligible Employee involved,
in which case such supplementary enrollment period shall be deemed
the Enrollment Period for such Eligible Employee for purposes of this
Plan in respect of the Elective Plan Year involved.
4.4 Election Irrevocable. The election to defer
compensation pursuant to a Plan Election or Additional Plan Election,
once made for the first, second and third Fiscal Years of a Required
Deferral Period or for any Elective Plan Year, shall be irrevocable
and shall not be subject to cancellation by the Participant or,
except as expressly provided herein, by the Appropriate Committee or
the Company. Without limiting the generality of the foregoing, such
an election for the first, second and third Fiscal Years of a
Required Deferral Period or for any Elective Plan Year shall not be
subject to cancellation by a Participant by reason of termination of
his employment with the Company or an Affiliate.
4.5 Hardship Exceptions.
(a) A Participant may request to be excluded from
participating in the Plan in respect of any Plan Year other
than his Base Year by filing with the Appropriate Committee
during the Enrollment Period occurring during such Fiscal
Year (or if there is no Enrollment Period for such Fiscal
Year, the period commencing on the anniversary of the first
day of the most recent preceding Enrollment Period and
ending on the anniversary of the last day of such Enrollment
Period) a written request for non-participation, which
request shall set forth the circumstances that have arisen
since the Enrollment Period in respect of such Plan Year
that would make continued participation in the Plan an
unanticipated financial hardship for such Participant. The
Appropriate Committee, in its sole discretion, shall
determine whether or not to grant any such request. A
Participant who requests and is granted such an exclusion
shall not be eligible to participate in the Plan in respect
of the Plan Year for which such request is granted, but
shall continue to participate in the Plan in respect of any
other Plan Years for which an election has previously been
made hereunder and shall be eligible to participate in the
Plan for future Plan Years.
(b) A Participant may request a reduction in any
Deferral Period by one or more Fiscal Years at any time by
filing with the Appropriate Committee a written request
setting forth the circumstances that have arisen since the
Enrollment Period for the related Plan Year that would make
the failure to reduce the Deferral Period an unanticipated
financial hardship for such Participant. The Appropriate
Committee, in its sole discretion, shall determine whether
or not to grant any such request and, if so, the number of
whole Fiscal Years by which the Deferral Period shall be so
reduced.
4.6 Special Elections. The Appropriate Committee shall
have the right in its sole discretion to permit a Participant to
execute and file with the Appropriate Committee, at such times and on
such terms and conditions as the Appropriate Committee shall
determine, a Plan Election (a "Special Plan Election") in form
provided by the Company, electing to extend the Deferral Period
previously selected with respect to any Required Deferral Amount
and/or Additional Deferral Amount for such periods and in such
proportions as shall be determined by the Appropriate Committee,
provided that the Deferral Period being extended shall terminate no
earlier than the end of the Fiscal Year following the Fiscal Year in
which the Special Plan Election is made, except that any election
with respect to the Deferral Period ending on June 30, 1997 shall be
made on or before December 31, 1996. The Earnings Adjustment with
respect to each Plan Year in any such additional Deferral Period
shall be calculated in accordance with Section 5.4(e).
SECTION 5
Capital Accumulation Accounts;
Cash Balance Accounts
5.1 Annual Credits to Capital Accumulation Accounts. For
each Plan Year, the Company shall credit to each Participant, as of
the last day of such Plan Year, by means of a bookkeeping entry
established and maintained by the Company for each such Participant
(a "Capital Accumulation Account"), a number of CAP Units equal to
the quotient obtained by dividing the Total Deferral Amount for such
Plan Year by the Average Cost Per Share of the Available Shares for
such Plan Year. The Available Shares for this purpose shall be the
total number of Available Shares for such Plan Year less a number of
shares equal to any CAP Units credited to Participants in respect of
any fiscal quarter during such Plan Year pursuant to Section 5.3 and
less a number of shares equal to the number of CAP Units to be
credited to Participants as an Net Earnings Adjustment pursuant to
Section 5.10(a) for such Plan Year. Notwithstanding the foregoing,
if the aggregate number of CAP Units that otherwise would be credited
to the Capital Accumulation Accounts of all Participants pursuant to
the first sentence of this Section 5.1 would exceed the number of
Available Shares, then the aggregate number of CAP Units to be
credited to the Capital Accumulation Accounts of all Participants
shall be limited to the number of Available Shares and such aggregate
number of CAP Units shall be allocated on a pro rata basis, based on
the respective Total Deferral Amounts of each Participant in respect
of such Plan Year. The Company shall record CAP Units credited in
respect of each Plan Year in a separate subaccount of each
Participant's Capital Accumulation Account and any credits or
adjustments hereunder to such CAP Units shall be made separately with
respect to the CAP Units credited to each such subaccount.
5.2 Cash Balance Account. If the number of CAP Units which
the Company is able to credit to Participants in respect of any Plan
Year is limited by the third sentence of Section 5.1, then the
Company shall also credit to each Participant an amount equal to (a)
the Total Deferral Amount for such Plan Year for such Participant,
less (b) the product of (i) the number of CAP Units credited to such
Participant in respect of such Plan Year and (ii) the Average Cost
per Share of the Available Shares taken into account in such
determination. Such amounts shall be credited as of the last day of
such Plan Year by means of a bookkeeping entry established and
maintained by the Company for each Participant (a "Cash Balance
Account"). The Company shall record Cash Balances credited in
respect of each Plan Year in a separate subaccount of each
Participant's Cash Balance Account and any credits or adjustments
hereunder to such Cash Balances shall be made separately with respect
to each such subaccount.
5.3 Quarterly Credits in Respect of Cash Balances. If
there shall exist a Cash Balance in the Cash Balance Account of any
Participant on the last day of any fiscal quarter of the Company (a
"Quarter End Date"), the Company shall credit the Capital
Accumulation Account of each such Participant, as of such Quarter End
Date, with a number of additional CAP Units determined by dividing
such Cash Balance by the Average Cost Per Share of the Available
Shares acquired by the Company during such fiscal quarter. If the
aggregate number of CAP Units required to be credited to the Capital
Accumulation Accounts of all such Participants pursuant to the
preceding sentence would exceed the number of Available Shares, then
the aggregate number of CAP Units to be credited shall be limited to
the number of Available Shares and such CAP Units shall be allocated
on a pro rata basis, based on the respective Cash Balances of each
Participant. In connection with any crediting of CAP Units pursuant
to this Section 5.3, the Cash Balance of each such Participant shall
be reduced by debiting to his Cash Balance Account an amount equal to
the product of the number of CAP Units credited to his Capital
Accumulation Account and the Average Cost Per Share of the Available
Shares acquired by the Company during the fiscal quarter involved.
5.4 Earnings Adjustments. For purposes of calculating the
Net Earnings Adjustment with respect to any Deferral Year pursuant to
Section 5.10, the Earnings Adjustment shall be calculated with
respect to such Deferral Year, after making any credits to the
Capital Accumulation Accounts of the Participants in respect of the
fourth fiscal quarter of such Deferral Year pursuant to Section 5.3,
as follows:
(a) first, the Company shall determine a dollar
amount of interest to be credited to each Participant who
had a positive Cash Balance at any time during the Deferral
Year by multiplying the daily weighted average amount of
each such Participant's Cash Balance (such weighted average
to be determined by adding the amounts of the Participant's
Cash Balance on each day during such Deferral Year and
dividing the total so obtained by the number of days in such
Deferral Year) by a percentage equal to the daily average of
the highest rates of interest paid by Bear Stearns to its
employees from time to time during such Deferral Year on
free credit balances;
(b) the Company next shall determine a dollar
amount to be credited or debited to each Participant in
respect of CAP Units credited to such Participant's Capital
Accumulation Account as of the first day of the Deferral
Year and at all times throughout such Deferral Year ("Full
Year Units") by multiplying such number of Full Year Units
by the Income Per Share for the Deferral Year; provided,
however, that the amount to be credited or debited pursuant
to this clause (b) to a Participant whose employment with
the Company and its Affiliates was terminated during such
Deferral Year shall be the amount determined as aforesaid
multiplied by a fraction, the numerator of which shall be
the number of whole months in such Deferral Year prior to
the month in which his employment terminated and the
denominator of which shall be 12;
(c) the Company then shall determine a dollar
amount to be credited to each Participant in respect of CAP
Units credited or debited to his Capital Accumulation
Account as of any date subsequent to the first day of the
Deferral Year ("Part Year Units") by multiplying such number
of Part Year Units by the Income Per Share for the Deferral
Year and multiplying the product so obtained by a fraction,
the numerator of which shall be the number of whole months
in such Deferral Year during which such Part Year Units were
so credited (less, in the case of a Participant whose
employment by the Company and its Affiliates is terminated
in such Deferral Year, the number of whole months following
the effective date of such termination, plus one) and the
denominator of which shall be 12 (if a Participant's Capital
Accumulation Account has been credited with Part Year Units
which initially were credited to such Account as of
different dates during the Deferral Year, then the
calculation required by this clause (c) shall be made
separately for each such group of Part Year Units);
(d) the Company then shall calculate a dollar
amount to be charged to each Participant who has any
Additional Deferral Amount by determining the Cost of Carry
for such Participant with respect to each Plan Year for
which he has any such Additional Deferral Amount and
multiplying each such amount by a fraction, the numerator of
which shall be the Participant's Additional Deferral Amount
for such Plan Year and the denominator of which shall be his
Total Deferral Amount for such Plan Year; provided that the
charge computed pursuant to this subparagraph (d) resulting
from an Additional Deferral Amount in Plan Year 1993 or Plan
Year 1994 shall be taken into account only with respect to a
Participant who has elected to defer such Additional
Deferral Amount for more than five Fiscal Years and then
only with respect to Deferral Years after the fifth Deferral
Year;
(e) the Company then shall calculate a dollar
amount to be charged to each Participant who elected to
defer any Required Deferral Amount in respect of any Plan
Year for more than five Fiscal Years by determining the Cost
of Carry for such Participant with respect to each such Plan
Year and multiplying each such amount by a fraction, the
numerator of which shall be the Participant's Required
Deferral Amount for such Plan Year and the denominator of
which shall be his Total Deferral Amount for such Plan Year;
provided that the charge computed pursuant to this
subparagraph (e) shall be taken into account only with
respect to Deferral Years after the fifth Deferral Year;
(f) the Company shall then calculate an amount to
be charged to each Participant whose employment with the
Company and its Affiliates has terminated equal to the Cost
of Carry for such Participant for such Deferral Year or, if
his employment terminated in such Deferral Year, for the
portion thereof beginning with the month in which his
employment terminated; and
(g) finally, (i) if the sum (or net amount) of the
amounts determined for a Participant in subparagraphs (a),
(b) and (c) above is a positive number and such sum (or net
amount) exceeds the aggregate of the charges, if any,
determined for such Participant pursuant to subparagraphs
(d), (e) and (f) above, then the Earnings Adjustment shall
equal a number of additional CAP Units determined by
dividing the amount of such excess by the Average Cost Per
Share of the Available Shares, as determined for purposes of
this Section 5.4, or (ii) if the net amount of the amounts
determined for a Participant in subparagraphs (a), (b) and
(c) less the aggregate of the charges, if any, determined
pursuant to subparagraphs (d), (e) and (f) is a negative
number (an "Earnings Charge") and such Participant has a
positive Cash Balance, then (A) such Cash Balance first
shall be reduced by an amount equal to such Earnings Charge
(provided that no such reduction shall be made to the extent
the Earnings Charge relates to a negative result from
sub-paragraph (b) or (c)) and (B) if, after reducing such
Cash Balance to zero, any amount determined in accordance
with the preceding clause (ii)(A) remains unapplied, or if
such Participant has no Cash Balance, then the Earnings
Adjustment shall be zero.
5.5 Book Value Adjustment. For purposes of calculating the
Net Earnings Adjustment with respect to any Deferral Year pursuant to
Section 5.10, the term Book Value Adjustment shall equal the sum of
(1) the product of (a) the total number of CAP Units credited to the
Capital Accumulation Account of each Participant as of the last day
of such Deferral Year but without including any CAP Units credited on
such date pursuant to Sections 5.1, 5.3 and 5.10 and (b) one minus a
fraction, the numerator of which shall be (i) in the first Fiscal
Year for which an Earnings Adjustment is made with respect to any CAP
Units, the Historical Book Value of such CAP Units, and (ii) in each
succeeding Fiscal Year, the Adjusted Book Value Per Share of such CAP
Units as of the first day of the Deferral Year involved, and the
denominator of which in each case shall be the Adjusted Book Value
Per Share on the last day of the Deferral Year for which the
adjustment is being made and (2) the amount maintained in the Book
Value Adjustment Carry Forward Account pursuant to Section 5.10(a).
5.6 Overall Cost Limitation. Notwithstanding the
provisions of Section 5.10, if the operation of the Plan (without
giving effect to this Section 5.6) would result in Adjusted Earnings
Per Share for any Fiscal Year being less than 98.5% of Pre-Plan
Earnings Per Share for such Fiscal Year, then, after making the other
credits and adjustments required by Section 5.3, (a) the Net Earnings
Adjustments required by Section-5.10(a) first shall be reduced or
eliminated, and (b) if necessary after eliminating all such Net
Earnings Adjustments, the Cash Balance Accounts of all Participants
shall be reduced or eliminated so that to the extent possible, after
giving effect to all such reductions and eliminations, Adjusted
Earnings Per Share for such Fiscal Year will be 98.5% of Pre-Plan
Earnings Per Share.
5.7 Antidilution Adjustments. In the event of a stock
split or if the Company makes any distribution (other than a cash
dividend) with respect to Common Stock after the date CAP Units
initially are credited to a Participant's Capital Accumulation
Account in accordance with this Section 5, the number of CAP Units
held in each Participant's Capital Accumulation Account shall be
equitably adjusted (as determined by the Appropriate Committee in its
sole discretion) to reflect such event. If there shall be any other
change in the number or kind of outstanding shares of Common Stock as
a result of a recapitalization, combination of shares, merger,
consolidation or otherwise, the number of CAP Units credited to each
Participant's Capital Accumulation Account shall be equitably
adjusted (as determined by the Appropriate Committee in its sole
discretion) to reflect such event.
5.8 Apportionment of Credits. Whenever CAP Units are
credited to a Participant's Capital Accumulation Account pursuant to
Section 5.3 or 5.10 in respect of any Deferral Year, they shall be
apportioned among the CAP Units originally credited to such Account
in respect of each Plan Year on a pro rata basis, based on the
respective number of the CAP Units originally credited in respect of
each such Plan Year, and such additional CAP Units shall have the
same Termination Date as the original CAP Units to which they are so
apportioned.
5.9 Amounts Vested. A Participant shall be fully vested at
all times in the CAP Units credited to his Capital Accumulation
Account and in the Cash Balance credited to his Cash Balance Account;
provided, however, that the establishment and maintenance of, or
credits to, such Capital Accumulation Account and Cash Balance
Account shall not vest in any Participant or his Beneficiary any
right, title or interest in or to any specific asset of the Company.
5.10 Net Earnings Adjustments.
(a) After making any credits to the Capital
Accumulation Accounts of the Participants in respect of the
fourth fiscal quarter of such Deferral Year pursuant to
Section 5.3, each Participant's Accounts shall be adjusted,
effective as of the last day of such Deferral Year, as
provided in this Section 5.10(a). The Company shall credit
the Capital Accumulation Account of each Participant with an
additional number of CAP Units (a "Net Earnings Adjustment")
equal to the difference between the Earnings Adjustment
calculated in accordance with Section 5.4 and the Book Value
Adjustment calculated in accordance with Section 5.5 for
such Deferral Year. Notwithstanding the foregoing, however,
if (i) the Earnings Adjustment is a negative number or (ii)
the Book Value Adjustment exceeds the Earnings Adjustment
then no CAP Units shall be credited to the Accounts of any
Participants and the amounts of each of such Book Value
Adjustment and Earnings Adjustment shall be disregarded and
shall not be taken into account for purposes of the Plan in
any subsequent Deferral Year.
If the aggregate number of CAP Units required to be
credited to the Accounts of all Participants pursuant to
this Section 5.10(a) shall exceed the number of Available
Shares in respect of such Plan Year, then the Company shall
credit to each Participant only that number of CAP Units as
shall equal the number of Available Shares, on a pro rata
basis, based on the number of CAP Units which each
Participant otherwise would have been entitled to be
credited. In such event, the Company shall also carry
forward to subsequent Deferral Years the respective amounts
obtained by multiplying each of the Earnings Adjustment and
the Book Value Adjustment applicable for each Participant by
the fraction which is one minus the quotient obtained by
dividing (a) the number of Available Shares by (b) the
aggregate number of CAP Units required to be credited
pursuant to this Section 5.10(a). Such respective amount
shall be credited (or debited) by means of separate
bookkeeping entries established and maintained by the
Company to the Cash Balance Account in respect of the
Earnings Adjustment and a "Book Value Adjustment
Carryforward Account" in respect of the applicable Book
Value Adjustment of each Participant. The amounts credited
to the Cash Balance Account in respect of the Earnings
Adjustment shall equal the product of (a) the applicable
amount carried forward in respect of Earnings Adjustment and
(b) the Average Cost Per Share for the Plan Year involved.
(b) Notwithstanding anything in the Plan to the
contrary, for purposes of determining Historical Book Value
Per Share and Adjusted Book Value Per Share, the Net
Earnings Adjustments credited to each Participants' Capital
Accumulation Account pursuant to Section 5.10(a) shall be
disregarded and in lieu thereof the Earnings Adjustments
provided for in Section 5.4 and the Book Value Adjustments
provided for in Section 5.5 shall be deemed made without
giving effect to Section 5.10(a). In addition, for purposes
of calculating the Earnings Adjustment and the Book Value
Adjustment (except as required by Section 5.2 any amounts
credited to a Book Value Adjustment Carryforward Account in
a prior Deferral Year shall be deemed made as a Book Value
Adjustment in the year so credited and not carried forward
to subsequent Deferral Years.
5.11 Certification of the Board Committee. As a condition
to the right of any Participant to receive any shares payable in
respect of CAP Units credited to such Participant's Capital
Accumulation Account or cash in respect of such Participant's Cash
Account, in respect of fractional CAP Units credited to such
Participant's Capital Accumulation Account or payable pursuant to
Section 6.6, prior to the time CAP Units or cash is credited to the
appropriate Accounts of such Participant or a Participant receives
cash pursuant to Section 6.6, the Board Committee shall be required
to certify, by resolution of the Board Committee or other appropriate
action, that the amounts to which such Participant is entitled have
been accurately determined in accordance with the provisions of the
Plan.
SECTION 6
Payment of Benefits
6.1 Distributions. As soon as practicable following each
Termination Date, each Participant shall be entitled to receive from
the Company, in respect of the Total Deferral Amount for the related
Plan Year, a number of shares of Common Stock equal to the Total CAP
Units credited to his Capital Accumulation Account in respect of such
Plan Year and an amount in cash equal to his Cash Balance, if any, in
respect of such Plan Year, each determined as of such Termination
Date.
6.2 Accelerated Distributions. Notwithstanding the
provisions of Section 6.1 and in lieu of any distribution on a
Termination Date selected by a Participant, a Participant may receive
a distribution prior to a Termination Date as follows:
(a) If a Participant shall die during any Fiscal
Year prior to the end of all of his Deferral Periods, the
Participant's estate (or his Beneficiary) shall be entitled
to receive from the Company, as soon as practicable after
the end of the Fiscal Year in which such Participant's death
occurs, a number of shares of Common Stock equal to the
Total CAP Units credited to his Capital Accumulation
Account, as adjusted pursuant to Sections 5.6 and 5.10 as of
the end of the Fiscal Year in which such Participant's death
occurs, and an amount in cash equal to his Cash Balance, if
any, as of the end of the Fiscal Year in which such
Participant's death occurs.
(b) If a Participant's employment with the Company
and its Affiliates shall be terminated for any reason prior
to the end of all of his Deferral Periods (other than by
reason of death), or if such Participant shall suffer a
Disability or shall become a Managing Director Emeritus of
Bear Stearns, then such Participant (or his Beneficiary)
shall, unless otherwise determined by the Appropriate
Committee as hereinafter provided, continue to be bound by,
and to be subject to, all the terms and provisions of this
Plan, except that (i) in lieu of making any calculations
pursuant to subparagraphs (ii) and (iii) of Section 5.4 in
respect of the portion of the Deferral Year beginning with
the month in which his employment terminates and for any
subsequent Deferral Year prior to any Termination Date, the
Company shall credit to the Cash Balance Account of such
Participant, on an annual basis as of the last day of each
Fiscal Year, a dollar amount equal to the cash dividends
declared by the Company, in the fiscal quarter of the
Company following the fiscal quarter in which his employment
terminated or in any subsequent fiscal quarter ending on or
prior to a Termination Date, on that number of shares of
Common Stock corresponding to the number of CAP Units
credited to his Capital Accumulation Account (A) as of the
last day of the month before his employment terminates in
respect of the Fiscal Year in which his employment
terminated and (B) as of the first day of the Fiscal Year
after which his employment terminated in respect of all
subsequent Fiscal Years, and (ii) notwithstanding the
provisions of Section 5.5, the Book Value Adjustment for any
Fiscal Year following the Fiscal Year in which his
employment terminated shall be zero. For purposes of
calculating the Book Value Adjustment for the Fiscal Year in
which the employment of a Participant is terminated, the
denominator of the fraction referred to in Section 5.5 of
the Plan shall be (in lieu of the Adjusted Book Value Per
Share on the last day of the Deferral Year for which the
adjustment is being made) the Adjusted Book Value Per Share
calculated by including in the definition of Adjusted Common
Stockholder Equity (in lieu of all increases (or decreases)
in retained earnings attributable to net income (or loss)
minus all amounts accrued in respect of cash dividends
declared with respect to any capital stock of the Company)
the amount determined by multiplying (A) the increase (or
decrease) in retained earnings in such Fiscal Year
attributable to net income (or loss) minus all amounts
accrued in respect of cash dividends declared with respect
to any capital stock of the Company by (B) a fraction, the
numerator of which is the number of months in the Fiscal
Year prior to but not including the month in which his
employment terminates, and the denominator of which is 12.
Notwithstanding the foregoing:
(i) the Appropriate Committee shall have
the right in its sole discretion to treat a
Participant whose employment has terminated but who
has become a Special Associate Director of Bear
Stearns as if his employment had not terminated, in
which case the foregoing provisions of this
paragraph (c) shall not apply to such Participant
and he shall be treated in all respects as a
Participant hereunder; (A) to treat a Participant
who has suffered a Disability or who has become a
Managing Director Emeritus of Bear Stearns, as a
Participant (1) in all respects under this Plan,
(2) to whom the provisions of Section 5.4 but not
the provisions of Section 4.1 shall apply, or (3)
whose employment with the Company and its
Affiliates has terminated and to whom the foregoing
provisions of this paragraph (b) shall apply, and
(B) at any time or from time to time, to change any
such treatment with respect to any such Participant
to any such treatment
(ii) the Appropriate Committee shall have
the right in its sole discretion to accelerate any
Termination Date with respect to any Plan Year of a
Participant whose employment with the Company and
its Affiliates terminates to the last day of the
Fiscal Year in which such employment terminates or
to the last day of any subsequent Fiscal Year, in
which case the date so determined by the
Appropriate Committee with respect to each such
Plan Year shall be the Participant's Termination
Date for all purposes of this Plan with respect to
each such Plan Year. The Appropriate Committee
shall give notice of any such determination to the
Participant at least ten days prior to the earliest
of such accelerated Termination Dates. In
addition, if a Participant whose employment with
the Company has terminated shall request the
Appropriate Committee to accelerate the Termination
Date with respect to any Plan Year of such
Participant to the last day of the Fiscal Year
immediately preceding the Fiscal Year in which such
Participant's employment terminates, the
Appropriate Committee may in its sole discretion so
accelerate the Termination Date with respect to any
such Plan Year of such Participant. If the
Appropriate Committee takes such action, such
Participant's distribution from the Plan for any
Plan Year the Termination Date of which is so
accelerated shall be based on the Total CAP Units
and his Cash Balance at the end of such prior
Fiscal Year for each such Plan Year, without giving
effect to any adjustments otherwise required to be
made during the Fiscal Year in which his employment
terminates, including, without limitation, for Net
Earnings Adjustments, dividends on the Common
Stock, or interest, and the distributions called
for in Section 6.1 of the Plan shall be made as
soon as practicable after such action is taken by
the Appropriate Committee;
(iii) Notwithstanding clause (ii) above,
the Appropriate Committee shall have the right in
its sole discretion to determine that, regardless
of the Termination Date with respect to any other
Plan Year or Plan Years, the Termination Date with
respect to the Plan Year in which the employment of
the Participant with the Company and its Affiliates
terminates, and the Plan Year immediately preceding
such Plan Year if such employment terminates prior
to the date on which the Capital Accumulation
Account of such Participant is credited pursuant to
Section 5.1 hereof with respect to such immediately
preceding Plan Year, shall be the last day of the
Fiscal Year immediately preceding the Plan Year in
which such employment terminates or, if applicable,
the prior Plan Year; and
(iv) the Appropriate Committee may permit
a Participant whose employment with the Company and
its Affiliates terminates more than five years
after the last day of his first Plan Year and who
has elected a Deferral Period of more than five
Fiscal Years for any Plan Year to participate in
the Plan with respect to any such Plan Year for one
or more Fiscal Years (but not beyond his
Termination Date as determined in accordance with
his applicable Plan Election) on substantially the
same terms as other Participants whose employment
has not terminated, in which case the Capital
Accumulation Account of such Participant shall
continue to be adjusted in the manner provided in
Section 5.10 for other Participants except that
subparagraph (f) of Section 5.4 shall apply to such
a Participant, and the Termination Date with
respect to each such Plan Year shall be the last
day of such Fiscal Year as shall be determined by
the Appropriate Committee.
(c) If a Participant shall take a Personal Leave
of Absence prior to the end of all his Deferral Periods, the
Appropriate Committee shall have the right in its sole
discretion to require the Participant to become subject to
the provisions of paragraph (b) above (to the same extent as
a Participant whose employment had terminated) during the
period of such Personal Leave of Absence, except that in the
event the Participant resumes full-time employment after the
first day of a Fiscal Year, all calculations under this Plan
with respect to such Fiscal Year shall be made by treating
the Participant in the same manner as a full-time employee
for the number of full months of such employment during such
Fiscal Year and as a Participant whose employment had been
terminated for the balance of such Fiscal Year. If the
Appropriate Committee shall not take such action the
Participant shall continue to be treated under this Plan on
the same basis as a Participant who is not on a Personal
Leave of Absence.
(d) In addition, in the event of hardship, actual
or prospective change in tax laws, or any other unforeseen
or unintended circumstance or event (including, without
limitation, if the tax laws of any foreign jurisdiction do
not provide for tax consequences to Participants or the
Company that are comparable to those provided under United
States tax laws), or if desirable to preserve the
deductibility for federal income taxes of compensation paid
or payable by the Company to any Participant, the
Appropriate Committee, in its sole discretion, may
accelerate any Termination Date of any Participant to the
last day of any Fiscal Year, in which case the accelerated
date determined by the Appropriate Committee shall be the
Termination Date for all purposes of this Plan.
6.3 Change in Control and Parachute Limitation.
Notwithstanding the provisions of Sections 6.1 and 6.2, within sixty
(60) days of the occurrence of a Change in Control, each Participant
shall be entitled to receive from the Company that number of shares
of Common Stock which is equal to the Total CAP Units credited to his
Capital Accumulation Account as of the date of such Change in Control
and an amount in cash equal to his Cash Balance, if any, as of such
date; provided, however, no amount shall be immediately distributable
or payable under the Plan if and to the extent that the Appropriate
Committee determines that such distribution or payment (taken
together with any other payment received or to be received by the
Participant from the Company or any of its Affiliates in connection
with a Change in Control) would constitute an "excess parachute
payment" under section 280G of the Code, which would cause such
amount to be subject to an excise tax to the recipient or to be
nondeductible to the Company or any of its Affiliates, or would
subject a Reporting Person to liability under Section 16(b) of the
Exchange Act or any rule or regulation thereunder by reason of
transactions or events occurring on or prior to the occurrence of the
Change in Control. Payment of amounts not distributed by reason of
this Section 6.3 shall be made as soon as practicable, consistent
with this Section 6.3.
6.4 Additional Distributions in Certain Cases. In addition
to the amounts provided by Section 6.1, 6.2 or 6.3, if (a) upon
making any distribution to any Participant, the Company determines
that the Company or Bear Stearns would realize a tax benefit
calculated at its Marginal Tax Rate in the year of such distribution
(without giving effect to any carryovers or carrybacks of losses,
credits or deductions from any prior or succeeding Fiscal Year) in
excess of the amount of Deferred Tax Benefit in respect of its
liability to such Participant on account of such distribution, and
(b) such Participant's Cash Balance Account or the number of CAP
Units credited to his Capital Accumulation Account had been reduced
in a prior Fiscal Year as a result of the application of
subparagraphs (d) or (e) of Section 5.4 or Section 5.6, then at the
time of the distribution pursuant to this Section 6 the Company also
shall pay to such Participant, in cash, an additional amount equal to
the lesser of (i) the amount by which the actual tax benefit to be
received by the Company or Bear Stearns exceeds such Deferred Tax
Benefit and (ii) the amount by which such Participant's Cash Balance
Account or Capital Accumulation Account was so reduced.
Notwithstanding the foregoing, a Participant shall not be entitled to
any payment from the Company pursuant to this Section 6.4 in respect
of any reduction in his Cash Balance Account or in the number of CAP
Units credited to his Capital Accumulation Account for any period
commencing with the first day of the month following the month in
which his employment by the Company and its Affiliates was terminated.
6.5 Special Provisions for Reporting Persons. If required
by Rule 16b-3, shares of Common Stock distributed to Participants who
are Reporting Persons shall bear an appropriate legend to the effect
that such shares of Common Stock may not be transferred for a period
of six (6) months after they are credited to the Account of such
Participant".
6.6 Form of Payments. Except as otherwise provided herein,
all distributions in respect of CAP Units to be made to a Participant
(or his Beneficiary) under the Plan shall be made in whole shares of
Common Stock. Payment in respect of any fractional CAP Unit shall be
made in cash based upon the Fair Market Value of a share of Common
Stock on the second Business Day preceding the payment date. Shares
of Common Stock distributed hereunder may be treasury shares, shares
of authorized but unissued Common Stock, or a combination thereof,
and shall be fully paid and nonassessable. If shares of Common Stock
are distributed pursuant to Sections 6.1, 6.2(a) or 6.2(b) to any
Participant after the record date for any cash dividend occurring
after the Termination Date with respect to which such shares are
distributed or, in the cases of Sections 6.2(a) or 6.2(b), after the
end of the Fiscal Year in which the death or Disability of a
Participant occurs, then such Participant (or his estate or
Beneficiary) shall be entitled to receive from the Company an amount
of cash equal to the cash dividends per share payable to holders of
record on such record date multiplied by the number of shares of
Common Stock so distributed to such Participant after such record
date.
6.7 Registration and Listing of Common Stock. Prior to the
date on which any shares of Common Stock are required to be issued to
any Participant under this Plan without taking into account any
acceleration of such distribution date pursuant to the provisions of
Section 6.2 of the Plan, the Company shall file a registration
statement (a "Registration Statement") on Form S-3 and/or Form S-8
(or any successor form then in effect) under the Securities Act, with
respect to all shares of Common Stock which the Company then
estimates are distributable under the Plan; provided, however, that
the Company need not file a Registration Statement hereunder if,
prior to such date, the Company receives a written opinion of counsel
to the effect that such shares of Common Stock may be sold,
transferred or otherwise disposed of under the Securities Act without
registration thereunder. The Company shall use its best efforts to
have any such Registration Statement declared effective as soon as
reasonably practicable after filing and shall use reasonable efforts
to keep each such Registration Statement continuously in effect until
all shares of Common Stock to which such Registration Statement
relates have been so issued, and for a two-year period thereafter.
From time to time the Company also shall amend such Registration
Statement to cover any additional shares of Common Stock which become
distributable under the Plan and otherwise would not be covered by
such Registration Statement. In the event that Participants would be
precluded from selling any shares of Common Stock distributable
hereunder unless such shares were registered or qualified under the
securities or "blue sky" laws of any state (or otherwise received the
approval of any state governmental or regulatory authority), then the
Company shall use its best efforts to cause such shares of Common
Stock to be duly registered or qualified (or to receive such
approval) as may be required. If the shares of Common Stock
distributable hereunder satisfy the criteria for listing on any
exchange on which the Common Stock is then listed, then (unless such
shares of Common Stock already are listed on such exchange) the
Company shall apply for and use its best efforts to obtain a listing
of all such shares of Common Stock on such exchange. All costs and
expenses incurred by the Company in connection with the satisfaction
of its obligations under this Section 6.7 shall be borne by the
Company. The Company shall immediately notify each Participant in
the event that a Registration Statement which has been filed and
remains effective contains an untrue statement of a material fact or
omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. Upon
receipt of such notice, no Participant shall sell or agree to sell
any shares of Common Stock pursuant to such Registration Statement
unless and until the Company has notified each Participant that such
Registration Statement no longer contains such misstatement or
omission. In the event that shares of Common Stock are issued to
Participants hereunder other than pursuant to a Registration
Statement, then, unless the Company shall have obtained the opinion
of counsel referred to above, each certificate representing such
shares shall bear a legend substantially to the following effect:
The securities represented by this Certificate have not been
registered under the Securities Act of 1933, as amended, or
applicable state securities laws, and may not be sold,
assigned, transferred, pledged or otherwise disposed of
except in compliance with the requirements of such Act.
By submitting a Plan Election, Each Participant shall be
deemed to have agreed to the foregoing provisions of this Section 6.7.
6.8 Reservation of Shares. The Company, as soon as
practicable after the end of each Fiscal Year prior to the
termination of this Plan, shall reserve such number of shares of
Common Stock (which may be authorized but unissued shares or treasury
shares) as shall be required so that the total of all shares reserved
hereunder, including shares reserved pursuant to this Section 6.8 in
preceding Fiscal Years, shall be equal to the number of shares of
Common Stock which the Company would be obligated to issue to all
Participants in accordance with the terms of the Plan if the Plan
were to be terminated at such time.
SECTION 7
Source of Payments
Notwithstanding any other provision of this Plan, the
Company shall not be required to establish a special or separate fund
or otherwise segregate any assets to assure any payments hereunder.
If the Company shall make any investment to aid it in meeting its
obligations hereunder, a Participant and his Beneficiary shall have
no right, title or interest whatsoever in or to any such
investments. Nothing contained in this Plan, and no action taken
pursuant to its provisions, including without limitation the
acquisition of any shares of Common Stock by the Company, shall
create or be construed to create a trust of any kind between the
Company and any Participant or Beneficiary. To the extent that any
Participant or Beneficiary acquires a right to receive payments from
the Company hereunder, such right shall be no greater than the right
of a general unsecured creditor of the Company.
SECTION-8
Administration of the Plan
8.1 Authority of Committee. The Plan shall be administered
by the Appropriate Committees, which shall have full power and
authority as set forth herein to interpret, to construe and to
administer the Plan and to review claims for benefits under the
Plan. Each Appropriate Committee's interpretations and constructions
of the Plan and actions thereunder, including but not limited to the
determination of the amounts to be credited to any Capital
Accumulation Account or Cash Balance Account, shall be binding and
conclusive on all persons and for all purposes.
8.2 Duties of Committee. The Appropriate Committees shall
cause the Company to establish and maintain records of the Plan, of
each Capital Accumulation Account and Cash Balance Account and of
each subaccount thereof established for any Participant hereunder.
Either of the Appropriate Committees may engage such certified public
accountants, who may be accountants for the Company, as it shall
require or may deem advisable for purposes of the Plan, may arrange
for the engagement of such legal counsel, who may be counsel for the
Company, and may make use of such agents and clerical or other
personnel as it shall require or may deem advisable for purposes of
the Plan. Each such Committee may rely upon the written opinion of
the accountants and counsel engaged by it. Subject to any
limitations imposed by applicable law (including Rule 16b-3), either
Appropriate Committee may delegate to any agent or to any
subcommittee or member of such Committee its authority to perform any
act hereunder, including, without limitation, those matters involving
the exercise of discretion, provided that such delegation of
authority shall be subject to revocation at any time at the
discretion of such Committee.
8.3 Purchase of Common Stock. The Company intends to
purchase shares of Common Stock in the open market or in private
transactions or otherwise during the term of the Plan for issuance to
Participants in accordance with the terms hereof. Shares of Common
Stock shall be purchased for purposes of the Plan and for purposes of
the PUP Plan on a combined or joint basis without identifying shares
so purchased as having been purchased for this Plan or the PUP Plan.
Notwithstanding the foregoing, the Company will specifically
designate all such shares at the time they are purchased as having
been purchased for the purpose of making determinations under this
Plan and the PUP Plan; provided, however, that any shares so
purchased shall be the sole property of the Company and no
Participant or Beneficiary shall have any right, title or interest
whatsoever in or to any such shares. All shares of Common Stock
purchased by the Company on or after July 1, 1992 and designated by
the Company as having been purchased for the CAP Plan shall be
considered, notwithstanding such designation, to have been purchased
for purposes of both this Plan and the PUP Plan. The acquisition of
Common Stock as described above will be subject to the sole
discretion of the Board Committee, which shall determine the time and
price at which and the manner in which such shares are to be
acquired, subject to applicable law. In making any such
determination, the Board Committee may, but shall in no event be
obligated to, consider the recommendations of the Advisory Committee.
8.4 Plan Expenses. The Company shall pay the fees and
expenses of accountants, counsel, agents and other personnel and all
other costs of administration of the Plan.
8.5 Indemnification. To the maximum extent permitted by
applicable law, no member of any Committee shall be personally liable
by reason of any contract or other instrument executed by him or on
his behalf in his capacity as a member of such Committee or for any
mistake of judgment made in good faith, and the Company shall
indemnify and hold harmless, directly from its own assets (including
the proceeds of any insurance policy the premiums of which are paid
from the Company's own assets), each member of each Committee and
each other director, officer, employee or agent of the Company to
whom any duty or power relating to the administration or
interpretation of the Plan or to the management or control of the
assets of the Plan may be delegated or allocated, against any cost or
expense (including fees, disbursements and other charges of legal
counsel) or liability (including any sum paid in settlement of a
claim with the approval of the Company) arising out of any act or
omission to act in connection with the Plan, unless arising out of
such person's own fraud, willful misconduct or bad faith. The
foregoing shall not be deemed to limit the Company's obligation to
indemnify any member of any Committee under the Company's Restated
Certificate of Incorporation or Bylaws, or under any other agreement
between the Company and such member.
8.6 Maximum Number of Shares.
(a) The aggregate number of CAP Units that may be
credited to Participants' Capital Accumulation Accounts
under the Plan for any Plan Year shall not exceed the
equivalent number of shares of Common Stock equal to the sum
of 15% of the outstanding shares of Common Stock as of the
last day of such Plan Year (the "Base Shares") and the
number, if any, by which the sum of the Base Shares in all
prior Fiscal Years beginning on or after July 1, 1993
exceeds the number of shares credited to Participants'
Capital Accumulation Accounts under this Plan in all such
prior Fiscal Years. For purposes of determining the number
of shares of Common Stock outstanding as of the last day of
any Plan Year, such number shall be calculated as the sum of
(i) the number of shares of Common Stock outstanding at such
year end, (ii) the number of shares underlying CAP Units
credited to Participants' Capital Accumulation Accounts as
of such date and Earnings Units credited to Participants'
Earnings Unit Accounts under the PUP Plan as of such date
and (iii) the number of shares underlying CAP Units to be
credited to all such Accounts as a result of making any
adjustment to such Accounts required by Sections 5.1 and
5.10 in respect of all Fiscal Years ending on or prior to
the date of determination and the number of Earnings Units
credited to the Earnings Unit Accounts of all Participants
in the PUP Plan as a result of making any adjustment to such
Accounts required by Section 4.2 of the PUP Plan in respect
of all Fiscal Years ending on or prior to the date of such
determination.
(b) If there shall be any change in the Common
Stock of the Company, through merger, consolidation,
reorganization, recapitalization, stock dividend, stock
split, spinoff, split up, dividend in kind or other change
in the corporate structure or distribution to the
stockholders, appropriate adjustments may be made by the
Board Committee (or if the Company is not the surviving
corporation in any such transaction, the board of directors
of the surviving corporation) in the aggregate number and
kind of shares subject to the Plan, and the number and kind
of shares which may be issued under the Plan. Appropriate
adjustments may also be made by the Board Committee in the
terms of any awards under the Plan to reflect such changes
and to modify any other terms of outstanding awards on an
equitable basis as the Board Committee in its discretion
determines.
SECTION 9
Amendment and Termination
The Plan shall terminate when all distributions required to
be made hereunder have been made following the last Termination
Date. The Plan may be amended, suspended or earlier terminated, in
whole or in part as to a particular Plan Year, and at any time and
from time to time, by the Board Committee, but except as provided
below no such action shall retroactively impair or otherwise
adversely affect the rights of any person to benefits under the Plan
which have accrued prior to the date of such action. Except as
provided in the following sentence, if the Plan is terminated prior
to the end of any Fiscal Year, (i) Participants' Plan Elections in
respect of the Plan Year in which such termination occurs and any
subsequent Plan Year shall be canceled, (ii) the Company shall credit
the Capital Accumulation Accounts of all Participants (other than
those whose employment with the Company and its Affiliates had
terminated prior to the date the Plan terminates, except a
Participant referred to in subparagraph (iii) of Section 6.2(b)) in
the manner provided in Section 5.10 in respect of the portion of the
Company's Fiscal Year ended on the date of such termination, and
(iii) as soon as practicable following the end of the Fiscal Year in
which such termination occurs, the Company shall deliver to each
Participant the number of shares of Common Stock corresponding to the
number of CAP Units credited to his Capital Accumulation Account and
an amount in cash equal to his Cash Balance which the Participant
otherwise would be entitled to receive pursuant to Section 6 as of
the designated Termination Date in respect of the Plan Year or Plan
Years involved. Notwithstanding the foregoing, if the Company shall
determine that the Plan should be terminated immediately, either in
its entirety or in part in respect of any Plan Year, no adjustments
or credits shall be made to the Capital Accumulation Accounts of the
Participants pursuant to Section 5 in respect of the Fiscal Year in
which such termination occurs and each Participant shall be entitled
to receive from the Company, as soon as practicable following the
date of such termination, shares of Common Stock and/or amounts in
cash determined in accordance with Section 6 hereof as if the
Termination Date in respect of the Plan Year or Plan Years involved
were the last day of the Fiscal Year preceding the Fiscal Year in
which such termination occurs.
In such event, however, the Capital Accumulation Account of
each Participant who is an employee of the Company and/or its
Affiliates (or who is a Participant who has suffered a Disability or
who has become a Managing Director Emeritus of Bear Stearns and whom
the Appropriate Committee shall have determined to treat in the
manner specified in clause (1) or (2) of subparagraph (i) of Section
6.2(b)) on the date of such termination shall be adjusted in respect
of the Fiscal Year in which such termination occurs as follows: Each
such Account shall be credited with an Net Earnings Adjustment for
the Fiscal Year in which such termination occurs except that, for
purposes of computing such Net Earnings Adjustment, Income Per Share
for purposes of calculating the Earnings Adjustment shall be computed
for each terminated Plan Year based only on the consolidated income
or loss before taxes of the Company and its subsidiaries accrued from
the beginning of such Fiscal Year through and including the end of
the month in which such termination occurred, and the Book Value
Adjustment for the Fiscal Year in which such termination occurs shall
be calculated on the basis of the shares distributed pursuant to the
preceding sentence in respect of each terminated Plan Year, provided
that for purposes of computing such Book Value Adjustment, the
definition of Adjusted Common Stockholders' Equity used in the
computation of Adjusted Book Value Per Share shall be modified by
deleting the adjustments to Adjusted Common Stockholders' Equity
specified therein and substituting in lieu thereof the following:
"plus all increases (or less any decreases) in retained earnings of
the Company and its subsidiaries attributable to net income (or
loss), determined on a consolidated basis, minus all amounts accrued
in respect of cash dividends declared with respect to any capital
stock of the Company during such Fiscal Year, for the period from the
beginning of such Fiscal Year through and including the month in
which such termination occurred." If the Plan is not terminated in
its entirety but one or more Plan Years are terminated, then any
amounts credited to Participants' Accounts pursuant to the preceding
sentence shall continue to be subject to the provisions of the Plan
for the balance of the original Deferral Period with respect to the
terminated Plan Year or Plan Years, as if such Plan Year or Plan
Years had not been terminated. If the Plan is terminated in its
entirety, then as soon as may be practicable thereafter, the Company
shall deliver to each Participant (in addition to amounts
distributable pursuant to the fourth sentence of this paragraph) a
number of shares of Common Stock equal to the number of CAP Units
credited to each such Participant's Account pursuant to the second
preceding sentence, provided that if the aggregate number of such CAP
Units exceeds the number of Available Shares for such Fiscal Year as
of the date of determination, then the Company shall deliver to each
such Participant only that number of shares of Common Stock as shall
equal the number of Available Shares on a pro rata basis, based on
the number of shares which each Participant otherwise would have been
entitled to receive, and shall distribute to each Participant an
amount in cash equal to the number of additional shares of Common
Stock that would have been distributed to such Participant but for
the limitation contained in this sentence, multiplied by the Average
Cost Per Share of the Available Shares in respect of such Fiscal Year.
SECTION 10
Designation of Beneficiaries
10.1 General. Each Participant may file with the
Appropriate Committee a written designation of one or more persons as
the Beneficiary who shall be entitled to receive the amount, if any,
which the Participant is entitled to receive under the Plan upon his
death. A Participant, from time to time, may revoke or change his
Beneficiary designation without the consent of any prior Beneficiary
by filing a new such designation with the Appropriate Committee. The
most recent such designation received by the Appropriate Committee
shall be controlling; provided, however, that no designation, or
change of revocation thereof, shall be effective unless received by
the Appropriate Committee prior to the Participant's death, and in no
event shall any such designation be effective as of a date prior to
such receipt.
10.2 Lack of Designated Beneficiary. If no such
Beneficiary designation is in effect at the time of a Participant's
death, or if no designated Beneficiary survives the Participant, or
if such designation conflicts with law, the Participant's estate
shall be deemed to have been designated as his Beneficiary and shall
receive the payment of the amount, if any, payable under the Plan
upon his death. If the Appropriate Committee is in doubt as to the
right of any person to receive such amount, the Committee may cause
the Company to retain such amount, without liability for any interest
thereon, until the rights thereto are determined, or the Appropriate
Committee may pay and deliver such amount into any court of
appropriate jurisdiction, and such payment shall be a complete
discharge of the liability of the Plan and the Company therefor.
SECTION 11
General Provisions
11.1 Successors. The Plan shall be binding upon and inure
to the benefit of the Company, its successors and assigns, and each
Participant and his Beneficiary.
11.2 No Continued Employment. Neither the Plan nor any
action taken thereunder shall be construed as giving to a Participant
the right to be retained in the employ of the Company or any of its
Affiliates or as affecting the right of the Company or any of its
Affiliates to dismiss any Participant.
11.3 Withholding. As a condition to receiving any
distribution or payment of amounts hereunder, the Company may require
the Participant to make a cash payment to the Company or, in its sole
discretion, upon the request of a Participant, may withhold from any
amount or amounts payable under the Plan, in either case, in an
amount equal to all federal, state, city or other taxes as may be
required to be withheld in respect of such payments pursuant to any
law or governmental regulation or ruling.
11.4 Non-alienation of Benefits. No right to any amount
payable at any time under the Plan may be assigned, transferred,
pledged or encumbered, either voluntarily or by operation of law,
except as expressly provided herein or as may otherwise be required
by law. If, by reason of any attempted assignment, transfer, pledge
or encumbrance, or any bankruptcy or other event happening at any
time, any amount payable under the Plan would be made subject to the
debts or liabilities of the Participant or his Beneficiary or would
otherwise not be enjoyed by him, then the Appropriate Committee, if
it so elects, may terminate such person's interest in any such
payment and direct that the same be held and applied to or for the
benefit of the Participant, his Beneficiary or any other person or
persons deemed to be the natural objects of his bounty, taking into
account the expressed wishes of the Participant (or, in the event of
his death, his Beneficiary).
11.5 Incompetency. If the Appropriate Committee shall find
that any person to whom any amount is or was distributable or payable
hereunder is unable to care for his affairs because of illness or
accident, or has died, then the Appropriate Committee, if it so
elects, may direct that any payment due him or his estate (unless a
prior claim therefor has been made by a duly appointed legal
representative) or any part thereof be paid or applied for the
benefit of such person or to or for the benefit of his spouse,
children or other dependents, an institution maintaining or having
custody of such person, any guardian or any other person deemed by
such Appropriate Committee to be a proper recipient on behalf of such
person otherwise entitled to payment, or any of them, in such manner
and proportion as such Appropriate Committee may deem proper. Any
such payment shall be in complete discharge of the liability therefor
of the Company, the Plan, the Committee or any member, officer or
employee thereof.
11.6 Offsets. To the extent permitted by law, the Company
or any of its Affiliates shall have the absolute right to withhold
any shares of Common Stock or any amounts otherwise required to be
distributed or paid to any Participant or Beneficiary under the terms
of the Plan, to the extent of any amount owed or which in the sole
judgment of the Appropriate Committee may in the future be owed for
any reason by such Participant, in the case of a payment to such
Participant, or to the extent of any amount owed or which in the sole
judgment of the Appropriate Committee may in the future be owed for
any reason by the Participant or such Beneficiary, in the case of
payment to a Beneficiary, to the Company or any of its Affiliates,
and to set off and apply the amounts so withheld to payment of any
such amount ultimately determined by the Appropriate Committee, in
its sole discretion, to be owed to the Company or any of its
Affiliates, whether or not such amounts shall then be immediately due
and payable and in such order or priority as among such amounts owed
as the Appropriate Committee, in its sole discretion, shall
determine. In determining the amount of a permitted offset under
this Section 11.6, any shares of Common Stock required to be
distributed to a Participant or a Beneficiary shall be valued at the
Fair Market Value of such Shares on the date of offset.
11.7 Notices, etc. All elections, designations, requests,
notices, instructions and other communications from a Participant,
Beneficiary or other person to any Appropriate Committee required or
permitted under the Plan shall be in such form as is prescribed from
time to time by the Appropriate Committee, shall be mailed by
first-class mail or delivered to such location as shall be specified
by the Appropriate Committee, and shall be deemed to have been given
and delivered only upon actual receipt thereof at such location.
11.8 Other Benefits. The benefits, if any, payable under
the Plan shall be in addition to any other benefits provided for
Participants.
11.9 Interpretation, etc. The captions of the sections and
paragraphs of this Plan have been inserted solely as a matter of
convenience and in no way define or limit the scope or intent of any
provisions of the Plan. References to sections herein are to the
specified sections of this Plan unless another reference is
specifically stated. The masculine pronoun wherever used herein
shall include the feminine pronoun, and a singular number shall be
deemed to include the plural unless a different meaning is plainly
required by the context.
11.10 Laws; Severability. The Plan shall be governed by,
and construed in accordance with, the laws of the State of New York,
except to the extent preempted by the Employee Retirement Income
Security Act of 1974, as amended. If any provision of the Plan shall
be held by a court of competent jurisdiction to be invalid or
unenforceable, the remaining provisions shall continue to be
effective.
11.11 Effective Date; Board Committee and Stockholder
Approval. This Plan shall be subject to the approval by a vote of
the stockholders of the Company at the 1993 Annual Meeting, and such
stockholder approval shall be a condition to the right of a
Participant to receive any benefits hereunder other than CAP Units
and cash credited to Participants' Accounts prior to such approval.
- -------- * Material amendments adopted since October 28, 1996 are subject to
stockholder approval at the 1997 Annual Meeting.
<TABLE>
Exhibit 11
THE BEAR STEARNS COMPANIES INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
----------- ------------ ------------ ------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Weighted average common
and common equivalent
shares outstanding:
Average Common Stock
outstanding 121,780 130,889 122,835 131,543
Average Common Stock
equivalents:
Common Stock issuable
under employee
benefit plans 435 429 426 426
Common Stock issuable
assuming conversion
of CAP Units 26,566 18,892 26,566 18,892
--------- --------- --------- ---------
Total weighted average
common and common
equivalent shares
outstanding 148,781 150,210 149,827 150,861
========= ========= ========= =========
Net income $176,512 $105,156 $284,961 $199,002
Preferred Stock dividend
requirements (5,939) (6,200) (11,970) (12,410)
Income adjustment
(net of tax) applicable
to deferred compensation
arrangements 9,185 4,625 14,683 8,159
-------- --------- --------- ---------
Adjusted net income 179,758 103,581 287,674 194,751
========= ========= ========= =========
Earnings per share $ 1.21 $ 0.69 $ 1.92 $ 1.29
========= ========= ========= =========
</TABLE>
<TABLE>
EXHIBIT 12
THE BEAR STEARNS COMPANIES INC.
STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In thousands, except for ratio)
<CAPTION>
(Unaudited) (Unaudited)
Six Months Six Months Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended Ended Ended Ended Ended
December 31, December 31, June 30, 1996 June 30, 1995 June 30, 1994 June 30, 1993 June 30, 1992
------------ ------------- ------------- ------------- ------------- ------------- -------------
1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings before taxes
on income $ 469,072 $ 337,291 $ 834,926 $ 388,082 $ 642,799 $ 614,398 $ 507,625
----------- ---------- ---------- ---------- ---------- ---------- ----------
Add: Fixed Charges
Interest 1,163,865 959,348 1,981,171 1,678,515 1,023,866 710,086 834,859
Interest factor
in rents 13,144 12,853 25,672 24,594 21,772 20,084 20,874
----------- ---------- ---------- ---------- ---------- ---------- ----------
Total fixed charges 1,177,009 972,201 2,006,843 1,703,109 1,045,638 730,170 855,733
----------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings before
fixed charges and
taxes on income $1,646,081 $1,309,492 $2,841,769 $2,091,191 $1,688,437 $1,344,568 $1,363,358
========== ========== ========== ========== ========== ========== ==========
Ratio of earnings to
fixed charges 1.4 1.3 1.4 1.2 1.6 1.8 1.6
========== ========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited Consolidated Statement of Financial Condition at December 31, 1996 and
the unaudited Consolidated Statement of Income for the six-months ended December
31, 1996, which are contained in the body of the accompanying Form 10-Q and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1996
<CASH> 832,067
<RECEIVABLES> 10,191,191
<SECURITIES-RESALE> 27,061,787
<SECURITIES-BORROWED> 31,213,945
<INSTRUMENTS-OWNED> 33,159,010
<PP&E> 342,948
<TOTAL-ASSETS> 105,396,150
<SHORT-TERM> 12,620,911
<PAYABLES> 26,408,072
<REPOS-SOLD> 39,680,817
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 16,056,170
<LONG-TERM> 6,429,221
0
437,500
<COMMON> 159,804
<OTHER-SE> 2,291,185
<TOTAL-LIABILITY-AND-EQUITY> 105,396,150
<TRADING-REVENUE> 724,131
<INTEREST-DIVIDENDS> 1,405,867
<COMMISSIONS> 345,154
<INVESTMENT-BANKING-REVENUES> 291,832
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 1,163,865
<COMPENSATION> 801,197
<INCOME-PRETAX> 469,072
<INCOME-PRE-EXTRAORDINARY> 469,072
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 284,961
<EPS-PRIMARY> 1.92
<EPS-DILUTED> 1.92
</TABLE>
