<PAGE>
Filed Pursuant to Rule 424(b)(2)
Registration Nos. 333-66861; 333-66861-04
PROSPECTUS SUPPLEMENT
(To Prospectus Dated December 2, 1998)
12,000,000 SHARES
BEAR STEARNS CAPITAL TRUST II
7 1/2% TRUST ISSUED PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
THE BEAR STEARNS COMPANIES INC.
---------------
/ / The Preferred Securities will be redeemed on the earlier of December 15,
2028 (the maturity date of the underlying Debentures) or the date the
Company redeems or prepays the Debentures. The Company may redeem the
Debentures at their principal amount plus accrued interest beginning
December 15, 2003.
/ / Distributions will be payable at an annual rate of 7 1/2%.
/ / The Trust will make distributions on the Preferred Securities on January
15, April 15, July 15 and October 15 of each year beginning January 15,
1999.
/ / The Trust has the right to defer distributions on the Preferred Securities
for up to 20 consecutive quarterly periods.
/ / The Preferred Securities will be represented by one or more global
certificates registered in the name of Cede & Co., the nominee of The
Depositary Trust Company ("DTC"). Except in the limited circumstances
described under the heading "Description of Preferred Securities-- Global
Preferred Securities," you will not receive definitive certificates for the
Preferred Securities.
/ / The Preferred Securities have been approved for listing (subject to
issuance) on the New York Stock Exchange under the trading symbol "BSC PrY."
Trading of the Preferred Securities on the New York Stock Exchange is
expected to begin within 30 days after the initial delivery of the Preferred
Securities.
INVESTMENT IN THE PREFERRED SECURITIES INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE S-7 OF THIS PROSPECTUS SUPPLEMENT AND PAGE 5 OF THE
ACCOMPANYING PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON
THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS
PUBLIC DISCOUNTS TO TRUST
<S> <C> <C> <C>
Per Preferred Security............................... $25.00 (1) $25.00
Total................................................ $300,000,000 (1) $300,000,000
</TABLE>
(1) Because the proceeds of the sale of the Preferred Securities will be
invested in the Debentures, the Company has agreed, in the Underwriting
Agreement, to pay to the Underwriters, as Underwriters' compensation for
their arranging the investment therein of such proceeds, $0.7875 per
Preferred Security (or $9,450,000 in the aggregate). See "Underwriting."
Affiliates of the Company, including Bear, Stearns & Co. Inc., may use this
Prospectus Supplement and the accompanying Prospectus in connection with offers
and sales of the Preferred Securities in the secondary market. These affiliates
may act as principal or agent in those transactions. Secondary market sales will
be made at prices related to market prices at the time of sale.
The Underwriters are offering the Preferred Securities subject to receipt
and acceptance by them and subject to their right to reject all or a part of any
order. The Underwriters expect that the Preferred Securities will be ready for
delivery in book-entry form only through the book-entry facilities of DTC in New
York, New York, on or about December 16, 1998 against payment in immediately
available funds.
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
<PAGE>
SALOMON SMITH BARNEY
December 9, 1998
<PAGE>
CERTAIN DEFINITIONS
Unless otherwise stated in this Prospectus Supplement:
- the "Company" refers to The Bear Stearns Companies Inc. and its
subsidiaries;
- "Bear Stearns" refers to Bear, Stearns & Co. Inc.;
- "BSSC" refers to Bear, Stearns Securities Corp.;
- "BSIL" refers to Bear, Stearns International Limited;
- the "Trust" refers to Bear Stearns Capital Trust II; and
- "Preferred Securities" refers to the Trust's 7 1/2% Trust Issued Preferred
Securities offered by this Prospectus Supplement.
Other capitalized terms that are used but not defined in this Prospectus
Supplement have the meanings given to them in the accompanying Prospectus.
Bear Stearns, BSSC, BSIL and the Trust are subsidiaries of the Company.
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS INCLUDE AND
INCORPORATE BY REFERENCE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE
SECURITIES LAWS. ALL STATEMENTS REGARDING THE COMPANY'S AND THE TRUST'S EXPECTED
FINANCIAL POSITION, BUSINESS AND FINANCING PLANS ARE FORWARD-LOOKING STATEMENTS.
FORWARD-LOOKING STATEMENTS ALSO INCLUDE REPRESENTATIONS OF OUR EXPECTATIONS OR
BELIEFS CONCERNING FUTURE EVENTS THAT INVOLVE RISKS AND UNCERTAINTIES, INCLUDING
THOSE ASSOCIATED WITH THE EFFECT OF INTERNATIONAL, NATIONAL AND REGIONAL
ECONOMIC CONDITIONS AND THE PERFORMANCE OF BEAR STEARN'S AND BSSC'S PRODUCTS
WITHIN THE PREVAILING ECONOMIC ENVIRONMENT. ALTHOUGH WE BELIEVE THAT THE
EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, SUCH
EXPECTATIONS MAY PROVE TO BE INCORRECT. CAUTIONARY STATEMENTS DESCRIBING
IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM SUCH
EXPECTATIONS ARE DISCLOSED IN THIS PROSPECTUS SUPPLEMENT, IN CONJUNCTION WITH
THE FORWARD-LOOKING STATEMENTS INCLUDED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. ALL SUBSEQUENT WRITTEN
AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO US OR PERSONS ACTING ON OUR
BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY SUCH CAUTIONARY STATEMENTS.
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS
SUPPLEMENT. IT DOES NOT CONTAIN ALL OF THE INFORMATION YOU NEED TO CONSIDER IN
MAKING YOUR INVESTMENT DECISION. TO UNDERSTAND ALL OF THE TERMS OF THE OFFERING
OF THE PREFERRED SECURITIES, YOU SHOULD READ THIS ENTIRE PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS CAREFULLY.
THE COMPANY
The Bear Stearns Companies Inc. is a holding company that, through its
principal subsidiaries, Bear Stearns, BSSC and BSIL, is a leading United States
investment banking, securities trading and brokerage firm serving corporations,
governments and institutional and individual investors worldwide. The Company's
business includes:
- market-making and trading in corporate, United States government,
government-agency, mortgage-related, asset-backed and municipal
securities;
- trading in equity and debt corporate securities, options, futures, foreign
currencies, interest-rate swaps and other derivative products;
- securities and commodities arbitrage;
- securities, options and commodities brokerage;
- underwriting and distributing securities;
- providing securities clearance services;
- financing customer activities;
- securities lending;
- arranging for the private placement of securities;
- advising clients in mergers, acquisitions, restructurings and leveraged
transactions;
- providing other financial advisory services;
- making principal investments in leveraged acquisitions;
- acting as specialist on the floor of the New York Stock Exchange;
- providing fiduciary and other services, such as real estate brokerage,
investment management and investment advisory; and
- financial market and securities research.
The principal executive office of the Company and the Trust is located at
245 Park Avenue, New York, New York 10167; the telephone number of the Company
and the Trust is (212) 272-2000. The Company's Internet address is
http://www.bearstearns.com.
THE TRUST
The Trust is a statutory business trust created under Delaware law. As a
Delaware business trust, the Trust will be subject to (i) an amended and
restated trust agreement (the "Trust Agreement") executed by the Company, as
Depositor, the Delaware Trustee, the Property Trustee and three Administrators
and (ii) a certificate of trust filed with the Delaware Secretary of State. The
Trust Agreement will be qualified as an indenture under the Trust Indenture Act
of 1939, as amended (the "TIA"). The Trust will only have the following
purposes:
- issuing and selling its Common Securities and Preferred Securities (the
"Trust Securities");
S-3
<PAGE>
- using the proceeds from such sale to acquire the Debentures issued by the
Company; and
- engaging in other activities necessary or incidental to the above purposes
(for example, registering the transfer of Trust Securities).
Accordingly, the Debentures will be the only assets of the Trust, and
payments received from the Debentures will be the only revenue of the Trust.
OVERVIEW OF DEBENTURES, PREFERRED SECURITIES AND GUARANTEE
The Preferred Securities being offered in this Prospectus Supplement
represent preferred undivided beneficial interests in the assets of the Trust.
The Company will be the owner of the Common Securities that represent common
undivided beneficial interests in the assets of the Trust. As a holder of
Preferred Securities, you will be entitled to a preference over the Common
Securities of the Trust in certain circumstances with respect to (i) cash
Distributions and (ii) amounts payable on redemption or liquidation.
The Trust will invest all of the proceeds of the sale of the Preferred
Securities and the Common Securities in the Company's 7 1/2% Junior Subordinated
Deferrable Interest Debentures (the "Debentures"). See "Description of
Debentures." The Debentures will:
- be unsecured and subordinated and junior in right of payment to all Senior
Debt of the Company, including debt incurred after the date you purchase
Preferred Securities;
- have an aggregate principal amount equal to the aggregate stated
Liquidation Amount of the Preferred Securities and the Common Securities;
- bear interest at a rate of 7 1/2% per annum; and
- mature on December 15, 2028 unless redeemed or prepaid earlier.
The Company will guarantee the payment of Distributions and payments on
liquidation of the Trust or on redemption of the Preferred Securities. See
"Description of Guarantees" in the accompanying Prospectus. The Company's
obligations under the Guarantee will be unsecured and junior in right of payment
to all Senior Debt of the Company. Taken together, the Company's obligations
under the Debentures, the Indenture, the Trust Agreement and the Guarantee will
provide a full, irrevocable and unconditional guarantee of payments of
Distributions and other amounts due on the Preferred Securities. See
"Relationship Among Debentures, Preferred Securities and Guarantees-- Full and
Unconditional Guarantee" in the accompanying Prospectus.
THE OFFERING
<TABLE>
<CAPTION>
Securities Offered........... 12,000,000 shares of 7 1/2% Trust Issued Preferred
Securities (Liquidation Amount $25 per Preferred Security)
guaranteed to the extent set forth herein by the Company.
See "Description of Guarantees" in the accompanying
Prospectus.
<S> <C>
Offering Price............... $25 per Preferred Security.
Distributions................ As a holder of Preferred Securities, you will be entitled to
receive preferential cumulative cash Distributions arising
from the payment of interest on the Debentures at the annual
rate of 7 1/2%. See "Description of Preferred
Securities--Distributions."
Distribution Dates........... January 15, April 15, July 15 and October 15 of each year,
commencing January 15, 1999.
</TABLE>
S-4
<PAGE>
<TABLE>
<S> <C>
Extension Periods............ The Company has the right to defer the payment of interest
periodically on the Debentures. No Extension Period will be
more than 20 consecutive quarterly periods or extend beyond
the maturity of the Debentures. If the Company elects to
defer the payment of interest on the Debentures,
Distributions on the Preferred Securities would be deferred
during any such Extension Period. "See Description of
Debentures--Option to Defer Interest Payments" and "Certain
Federal Income Tax Consequences-- Interest, Original Issue
Discount, Premium and Market Discount."
Ranking...................... The Preferred Securities will rank equally, and payments on
the Preferred Securities will be made proportionately (based
on Liquidation Amounts), with the Common Securities except
as described under "Description of Preferred Securities--
Subordination of Common Securities."
The Debentures will rank equally with any other subordinated
debentures issued by the Company with substantially similar
subordination terms. The Debentures will be unsecured and
subordinate and junior in right of payment to all Senior
Debt of the Company.
Senior Debt includes all existing and future indebtedness of
the Company, unless the terms of such indebtedness provide
that such obligations are not superior in right of payment
to the Debentures or to other indebtedness which ranks
equally with, or is subordinated to, the Debentures. See
"Description of Debentures." At September 25, 1998, the
Company had outstanding (on an unconsolidated basis)
approximately $28.6 billion of debt, including approximately
$27.2 billion of Senior Debt, none of which is secured, and
subsidiaries of the Company had outstanding (on an
unconsolidated basis) approximately $125.5 billion of debt
and other obligations (including $52.0 billion related to
securities sold under repurchase agreements, $44.6 billion
related to payables to customers, $21.9 billion related to
financial instruments sold, but not yet purchased and $7.0
billion of other liabilities, including $2.8 billion of
debt).
The Guarantee generally will rank equally with any other
guarantees issued by the Company with respect to any
preferred securities issued by other trusts established by
the Company. However, the Company will not be able to make
payments under the Guarantee if a payment restriction event
occurs with respect to the debentures issued to Bear Stearns
Capital Trust I. See "Description of
Debentures--Restrictions on Certain Payments." The Guarantee
will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all
Senior Debt of the Company in the same manner as the
Debentures. The Company has also agreed separately to
guarantee the obligations of the Trust with respect to the
Common Securities. See "Description of Guarantees" in the
accompanying Prospectus.
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
Redemption................... The Preferred Securities are subject to mandatory redemption
- when the Debentures are repaid at maturity;
- when the Company elects to prepay all (but not a part) of
the Debentures if a Special Event occurs and is continuing;
- when the Company elects to redeem the Debentures at any
time beginning on December 15, 2003;
in each case at the applicable redemption or prepayment
price. See "Description of Preferred Securities--Redemption
or Exchange."
Rating....................... The Preferred Securities are rated "BBB" by Standard &
Poor's Ratings Services and "a3" by Moody's Investors
Services, Inc. A security rating is not a recommendation to
buy, sell or hold securities and may be revised or withdrawn
at any time by the assigning rating organization.
ERISA Considerations......... If you are an employee benefit plan subject to Part 4 of
Title I of ERISA or Section 4975 of the Internal Revenue
Code, you should not purchase Preferred Securities unless
you qualify for a prohibited transaction exemption. See
"ERISA Considerations" in the accompanying Prospectus.
Absence of Market for the
Preferred Securities....... The Preferred Securities will be a new issue of securities
for which there currently is no market. The Preferred
Securities have been approved for listing (subject to
issuance) on the New York Stock Exchange. Trading of the
Preferred Securities on the New York Stock Exchange is
expected to begin within 30 days after the initial delivery
of the Preferred Securities. The Company does not know the
extent to which investor interest in the Preferred
Securities will lead to the development of a trading market
or how liquid that market will be.
Use of Proceeds.............. The proceeds to the Trust from the sale of the Preferred
Securities will be invested by the Trust in the Debentures.
The Company intends to use the net proceeds from the sale of
the Debentures for general corporate purposes. See "Use of
Proceeds."
</TABLE>
For additional information regarding the Preferred Securities, see
"Description of Preferred Securities," "Description of Debentures," "Description
of Guarantee" and "Certain Federal Income Tax Consequences."
RISK FACTORS
Prospective investors should carefully consider the matters set forth under
"Risk Factors" beginning on page S-7 of this Prospectus Supplement and page 5 of
the accompanying Prospectus.
S-6
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN ADDITION TO THE
RISK FACTORS DESCRIBED IN THE ACCOMPANYING PROSPECTUS BEFORE DECIDING TO INVEST
IN THE PREFERRED SECURITIES.
RANKING OF OBLIGATIONS UNDER THE GUARANTEE AND THE DEBENTURES
The Company's obligations under the Guarantee and the Debentures will be
unsecured and subordinate and junior in right of payment to all Senior Debt of
the Company. At September 25, 1998, the Company had outstanding (on an
unconsolidated basis) approximately $28.6 billion of debt, including
approximately $27.2 billion of Senior Debt, none of which is secured, and
subsidiaries of the Company had outstanding (on an unconsolidated basis)
approximately $125.5 billion of debt and other obligations (including $52.0
billion related to securities sold under repurchase agreements, $44.6 billion
related to payables to customers, $21.9 billion related to financial instruments
sold, but not yet purchased and $7.0 billion of other liabilities, including
$2.8 billion of debt). The Indenture, the Guarantee and the Trust Agreement do
not limit the amount of additional secured or unsecured debt, including Senior
Debt, that the Company may incur. See "Description of Guarantee" and
"Description of Debentures--Subordination." Because the Company is a holding
company, the Company's right to participate in any distribution of assets of any
subsidiary, when such subsidiary is liquidated or reorganized, is subject to the
prior claims of creditors of the subsidiary. Accordingly, the Debentures will be
effectively subordinated to all existing and future liabilities of the Company's
subsidiaries, and holders of Debentures should look only to the assets of the
Company for payments on the Debentures. See "Prospectus Supplement Summary--The
Company."
The ability of the Trust to pay amounts on the Preferred Securities is
solely dependent upon the Company making payments on the Debentures as and when
required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES; PRICE CONSEQUENCES
The Company will have the right under the Indenture to periodically defer
payment of interest for an Extension Period of up to 20 consecutive interest
payment periods. The Extension Period may not extend beyond the maturity of the
Debentures. As a consequence of any such deferral, your Distributions on the
Preferred Securities will be deferred (and the amount of Distributions to which
you are entitled will accumulate additional Distributions at the rate of 7 1/2%
per annum, compounded quarterly, but not exceeding the interest rate then
accruing on the Debentures) from the relevant payment date for such
Distributions during any such Extension Period.
During any Extension Period, the Company will not and will not permit any
subsidiary of the Company to:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of the
Company's capital stock;
- make any payment of principal, any premium or interest on or repay,
repurchase or redeem any debt securities of the Company (including other
series of Debentures) that rank equally with or junior in interest to the
Debentures; or
- make any guarantee payments on any guarantee by the Company of the debt
securities of any subsidiary if such guarantee ranks equally with or
junior in interest to the Debentures.
The Company will be permitted to make:
- dividends or distributions in capital stock of the Company;
S-7
<PAGE>
- any declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of capital stock under any such
plan in the future, or the redemption or repurchase of any such rights
pursuant to such plan;
- payments under (i) the Guarantee and any other guarantee with respect to a
series of related preferred securities and (ii) any guarantee for the
benefit of holders of the capital securities of Bear Stearns Capital Trust
I;
- purchases of common stock related to the issuance of common stock or
rights under any of the Company's benefit plans for its directors,
officers or employees; and
- payments of interest under a loan agreement with Bear Stearns Finance LLC.
Before any such Extension Period terminates, the Company may further extend
such Extension Period if such extension does not cause such Extension Period to
exceed 20 consecutive quarterly periods or to extend beyond the maturity of the
Debentures. When any Extension Period terminates and all then accrued and unpaid
interest on the Debentures (together with interest on such deferred interest at
the annual rate of 7 1/2%, compounded quarterly, as permitted by applicable law)
have been paid, the Company may begin a new Extension Period subject to the
above requirements. There is no limitation on the number of times that the
Company may elect to begin an Extension Period. See "Description of
Debentures--Option to Defer Interest Payments" and "Description of Preferred
Securities--Distributions."
If an Extension Period occurs, as a holder of Preferred Securities you will,
regardless of your regular method of accounting, continue to accrue income for
United States federal income tax purposes (in the form of original issue
discount) in respect of your proportionate share of the Debentures held by the
Trust. As a result, you will be required to include such income in gross income
for United States federal income tax purposes in advance of the receipt of cash.
You will not receive the cash related to such income from the Trust if you sell
your Preferred Securities before the record date for the payment of
Distributions. See "Certain Federal Income Tax Consequences--Interest, Original
Issue Discount, Premium and Market Discount" and "--Sale or Redemption of
Preferred Securities."
Because the Indenture limits the Company's ability to pay any dividends or
distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of its capital stock during an Extension Period, it is
unlikely that the Company will elect to defer interest payments. In the event
that the Company elects to exercise such right, the market price of the
Preferred Securities is likely to be adversely affected. If you sell Preferred
Securities during an Extension Period, you might not receive the same return on
your investment as holders who continue to hold their Preferred Securities. In
addition, due to the Company's right to defer interest payments, the market
price of the Preferred Securities (which represent preferred undivided
beneficial interests in the assets of the Trust) may be more volatile than the
market prices of other securities that are not subject to such deferrals.
SPECIAL EVENT PREPAYMENT
If a Special Event regarding the Debentures occurs and is continuing, the
Company may prepay all (but not a part) of the Debentures at any time within 90
days of the date of such Special Event at the prepayment price. Such a
prepayment of Debentures would cause a mandatory redemption of the Preferred
Securities. See "Description of Preferred Securities--Redemption or Exchange."
The Internal Revenue Service (the "IRS") has recently challenged another
company's deduction for interest paid on a debt instrument similar in some
respects to the Debentures and issued to an entity similar to the Trust. The
Company and the Trust do not believe that this challenge will affect the
Company's ability to deduct interest payments on the Debentures. However,
further developments favoring the IRS's challenge, or other unrelated
developments, could cause a Tax Event. In addition, laws and regulations have
been proposed in the past which, if adopted, could also cause a Tax Event.
S-8
<PAGE>
A "Special Event" means an Investment Company Event or a Tax Event.
An "Investment Company Event" means the receipt by the Trust of an opinion
of counsel to the effect that, as a result of a change in the laws (or any
regulations) or in official administrative or judicial interpretation or
application of such laws (or regulations), there is more than an insubstantial
risk that the Trust is or will be required to be registered under the Investment
Company Act of 1940, as amended (the "Investment Company Act") on or after the
date of the issuance of the Preferred Securities.
A "Tax Event" means the receipt by the Trust of an opinion of counsel to the
effect that, as a result of a change in the laws (or any regulations) or in
official administrative or judicial interpretation or application of such laws
(or regulations), there is more than an insubstantial risk that (i) the Trust
is, or will be within 90 days, subject to United States federal income tax with
respect to income received or accrued on the Debentures, (ii) all or a part of
the interest payable by the Company on the Debentures is not, or within 90 days
will not be, deductible by the Company for United States federal income tax
purposes, or (iii) the Trust is, or will be within 90 days, subject to more than
a minimal amount of taxes, duties or governmental charges.
EXCHANGE OF PREFERRED SECURITIES FOR DEBENTURES
The Company will be able to dissolve the Trust at any time and distribute
(after satisfaction of liabilities to creditors as required by applicable law)
Debentures to you as a holder of Preferred Securities in liquidation of the
Trust. See "Description of Preferred Securities--Liquidation Distribution on
Dissolution."
Under current United States federal income tax law and its interpretations
and assuming (as expected) that the Trust is treated as a grantor trust, a
distribution by the Trust of the Debentures pursuant to a liquidation of the
Trust will not be a taxable event to the Trust or to you as a holder of
Preferred Securities and will result in your receiving directly your
proportionate share of the Debentures (previously held indirectly through the
Trust). If, however, the liquidation of the Trust were to occur because the
Trust is subject to United States federal income tax with respect to income
accrued or received on the Debentures as a result of the occurrence of a Tax
Event or otherwise, the distribution of Debentures to you, as a holder of
Preferred Securities, by the Trust would be a taxable event to the Trust and
each holder, and you as a holder of Preferred Securities would recognize gain or
loss as if you had exchanged your Preferred Securities for the Debentures you
received when the Trust was liquidated. See "Certain Federal Income Tax
Consequences--Receipt of Debentures Upon Liquidation of the Trust."
Because you may receive Debentures on dissolution of the Trust and because
Distributions are otherwise limited to payments on the Debentures, you are also
making an investment decision relating to the Debentures when you invest in the
Preferred Securities. You should carefully review all the information regarding
the Debentures contained in this Prospectus Supplement and the accompanying
Prospectus. See "Description of Debentures" and "Description of Preferred
Securities."
LIMITED VOTING RIGHTS
As a holder of Preferred Securities, you will generally have limited voting
rights relating only to the modification of the Preferred Securities and the
exercise of the Trust's rights as holder of Debentures. You will have limited
authority to vote to remove or replace the Trustees. The Company (as holder of
the Common Securities), the Property Trustee and the Delaware Trustee may amend
the Trust Agreement without your consent to ensure that the Trust will be
classified for United States federal income tax purposes as a grantor trust even
if doing so adversely affects your interests. See "Description of Preferred
Securities--Voting Rights; Amendment of each Trust Agreement" and "Description
of Preferred Securities--Removal of Trustees" in the accompanying Prospectus.
S-9
<PAGE>
ABSENCE OF PUBLIC MARKET
The Preferred Securities will be a new issue of securities with no
established trading market. The Preferred Securities have been approved for
listing (subject to issuance) on the New York Stock Exchange. However, the
Company does not know the extent to which investor interest in the Preferred
Securities will lead to the development of a trading market or how liquid that
market will be. If no active public market develops, the market price and
liquidity of the Preferred Securities may be adversely affected.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The ratio of earnings to fixed charges and to combined fixed charges and
preferred stock dividends for each of the periods indicated are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL YEAR ENDED JUNE
------------------------------------ 30,
SEPTEMBER 25, SEPTEMBER 26, ------------------------
1998 1997 1998 1997
----------------- ----------------- ----- -----
<S> <C> <C> <C> <C>
(UNAUDITED)
Ratio of earnings to fixed charges......................... 1.1 1.3 1.3 1.4
Ratio of earnings to combined fixed charges and preferred
stock dividends.......................................... 1.1 1.3 1.3 1.4
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Ratio of earnings to fixed charges......................... 1.4 1.2 1.6
Ratio of earnings to combined fixed charges and preferred
stock dividends.......................................... 1.4 1.2 1.6
</TABLE>
These ratios were calculated by dividing (i) earnings before taxes and fixed
charges by fixed charges and (ii) earnings before taxes and fixed charges by the
sum of fixed charges and preferred stock dividends. Fixed charges for these
purposes consist of all interest expense and certain other immaterial expenses.
Preferred stock dividends represent the pre-tax earnings necessary to cover the
dividends on the Company's preferred stock assuming such earnings are taxed at
the Company's consolidated effective tax rate.
USE OF PROCEEDS
All of the proceeds from the sale of Preferred Securities will be invested
by the Trust in the Debentures. The net proceeds from the sale of the Debentures
will be used by the Company for general corporate purposes. Specific allocations
of the proceeds to such purposes have not been determined. The net proceeds may
be used to reduce outstanding indebtedness of the Company. Based upon the
anticipated future funding requirements of the Company and its subsidiaries, the
Company expects that it will periodically engage in additional equity or debt
financings.
S-10
<PAGE>
CAPITALIZATION
The consolidated capitalization of the Company and its subsidiaries as of
September 25, 1998 and as adjusted to give effect to the offering of the
Preferred Securities is as follows. It is important that you read the following
information along with the consolidated financial statements and notes thereto
of the Company and its subsidiaries incorporated by reference in the
accompanying Prospectus. See "Where You Can Find More Information" in the
accompanying Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 25, 1998
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
<S> <C> <C>
(UNAUDITED, IN
THOUSANDS)
Short-Term Borrowings:
Bank Borrowings.......................................................... $2,569,394 $2,569,394
Commercial Paper......................................................... 6,496,102 6,496,102
Medium-Term Notes........................................................ 5,360,386 5,360,386
---------- -----------
Total Short-Term Borrowings.......................................... $14,425,882 1$4,425,882
---------- -----------
---------- -----------
Long-Term Borrowings:
Floating Rate Notes due 1999 to 2005..................................... $1,747,048 $1,747,048
Fixed Rate Senior Notes due 1999 to 2007; interest rates ranging from
5.75% to 9.375%........................................................ 5,319,627 5,319,627
Medium-Term Notes and Other.............................................. 6,665,494 6,665,494
---------- -----------
Total Long-Term Borrowings........................................... 13,732,169 13,732,169
---------- -----------
Preferred Stock issued by subsidiary....................................... 150,000 150,000
Guaranteed Preferred Beneficial Interests in Company Subordinated Debt
Securities............................................................... 200,000(1) 500,000(2)
Stockholders' Equity:
Preferred stock, $1.00 par value, 10,000,000 shares authorized
Adjustable Rate Cumulative Preferred Stock, Series A--$50 liquidation
preference; 3,000,000 shares issued.................................... 150,000 150,000
Cumulative Preferred Stock, Series E--$200 liquidation preference;
1,250,000 shares issued and outstanding................................ 250,000 250,000
Cumulative Preferred Stock, Series F--$200 liquidation preference;
1,000,000 shares issued and outstanding................................ 200,000 200,000
Cumulative Preferred Stock, Series G--$200 liquidation preference;
1,000,000 shares issued and outstanding................................ 200,000 200,000
Common Stock, $1.00 par value; 200,000,000 shares authorized: 167,784,941
shares issued............................................................ 167,785 167,785
Paid-in Capital............................................................ 1,965,728 1,965,728
Retained Earnings.......................................................... 1,627,401 1,627,401
Capital Accumulation Plan.................................................. 987,212 987,212
Treasury Stock:
Adjustable Rate Cumulative Preferred Stock, Series A--2,520,750 shares... (103,421) (103,421)
Common Stock--54,529,441 shares.......................................... (1,114,959) (1,114,959)
Note Receivable from ESOP Trust............................................ (7,114) (7,114)
---------- -----------
Total Stockholders' Equity........................................... 4,322,632 4,322,632
---------- -----------
Total Long-Term Borrowings, Preferred Stock Issued by Subsidiary,
Guaranteed Preferred Beneficial Interests in Company Subordinated Debt
Securities and Stockholders' Equity...................................... $18,404,801 1$8,704,801
---------- -----------
---------- -----------
</TABLE>
- --------------------------
(1) The "Guaranteed Preferred Beneficial Interests in Company Subordinated Debt
Securities" reflects the capital securities of Bear Stearns Capital Trust I.
Bear Stearns Capital Trust I is a wholly-owned subsidiary of the Company and
holds debentures as its sole asset.
(2) The "Guaranteed Preferred Beneficial Interests in Company Subordinated Debt
Securities" reflects the capital securities of Bear Stearns Capital Trust I
(see Note (1)) and the Preferred Securities of the Trust. The Trust is a
wholly-owned subsidiary of the Company and will hold the Debentures as its
sole asset.
S-11
<PAGE>
DESCRIPTION OF PREFERRED SECURITIES
The Preferred Securities will be issued by the Trust and will represent
preferred undivided beneficial interests in its assets. As a holder of Preferred
Securities, you will be entitled to a preference in certain circumstances with
respect to Distributions and amounts payable on redemption or liquidation over
the Common Securities of the Trust, as well as other benefits as described in
the Trust Agreement. The Trust Agreement is qualified under the TIA. This is a
summary and is not complete. This summary does not describe certain exceptions
and qualifications contained in the Trust Agreement or the Preferred Securities.
You should read the Trust Agreement, a form of which is filed as an exhibit to
the Registration Statement on Form S-3 (File No. 333-66861) (the "Registration
Statement"). The Trust is a legally separate entity, and the assets of the Trust
are not available to satisfy the obligations of any other statutory business
trust whose Common Securities are owned by the Company.
GENERAL
The Preferred Securities will be limited to $300,000,000 aggregate
Liquidation Amount at any time outstanding. The Preferred Securities of the
Trust will rank equally, and payments will be made on the Preferred Securities
proportionately (based on Liquidation Amounts) with the Common Securities except
as described under "--Subordination of Common Securities." Legal title to the
Debentures will be held by the Property Trustee in trust for the benefit of the
holders of the Preferred Securities and Common Securities. The Guarantee
executed by the Company for the benefit of the holders of the Trust Securities
will be a subordinated guarantee of the Trust Securities. The Guarantee will not
guarantee the payment of Distributions or amounts payable on redemption or
liquidation of such Trust Securities unless the Trust has the funds to make such
payments. See "Description of Guarantee."
DISTRIBUTIONS
Distributions on the Preferred Securities will:
- be cumulative;
- accumulate from December 16, 1998;
- be payable at the annual rate of 7 1/2% of the Liquidation Amount; and
- be payable in arrears on January 15, April 15, July 15 and October 15 of
each year (each such date, a "Distribution Date"), beginning on January
15, 1999 to holders of record as of the January 1, April 1, July 1 and
October 1 (each such date, a "Record Date") before such Distribution Date.
If the date on which Distributions are payable is not a business day,
payment of such Distributions will be made on the next business day. You will
not receive any interest or payment for the delay. Distributions will be
computed using a 360-day year of twelve 30-day months.
The Company has the right under the Indenture, pursuant to which it will
issue the Debentures, to defer the payment of interest periodically on the
Debentures for an Extension Period of up to 20 consecutive interest payment
periods, so long as no Debenture Event of Default has occurred and is
continuing. The Extension Period may not extend beyond the maturity of the
Debentures. Because of such deferral, Distributions on the Preferred Securities
would be deferred (but would continue to accumulate additional Distributions at
the rates described above) by the Trust during any such Extension Period.
The revenue of the Trust available for distribution to holders of the
Preferred Securities will be limited to payments under the Debentures in which
the Trust will have invested the proceeds from the issuance and sale of the
Trust Securities. See "Description of Debentures--General." If the Company does
not make interest payments on the Debentures, the Property Trustee will not have
funds available
S-12
<PAGE>
to pay Distributions on the Preferred Securities. The Company will guarantee the
payment of Distributions provided that the Trust has legally available funds for
the payment of such Distributions and sufficient cash to make such payment, on
the basis described under "Description of Guarantee."
Distributions on the Preferred Securities will be payable to holders as they
appear on the securities register of the Trust on the relevant Record Dates.
Subject to any applicable laws and regulations and the provisions of the Trust
Agreement, each such payment will be made as described under "Book-Entry
Issuance" in the accompanying Prospectus.
REDEMPTION OR EXCHANGE
MANDATORY REDEMPTION
When all or a part of the Debentures is repaid or redeemed, the proceeds
from the repayment or redemption will be applied by the Property Trustee to
redeem a Like Amount of the Trust Securities, with at least 30 days but not more
than 60 days notice, at a redemption price equal to the Liquidation Amount of
such Trust Securities plus accumulated but unpaid Distributions to the
redemption date. See "Description of Debentures--Redemption; Optional Redemption
and Prepayment Upon Special Events." If only a part of the Debentures are to be
repaid or redeemed on a redemption date, then the proceeds from such repayment
or redemption will be allocated to the redemption proportionately (based on
Liquidation Amounts) among the Trust Securities.
The Company may redeem (i) all or a part of the Debentures beginning on
December 15, 2003 or (ii) all but not a part of the Debentures when a Special
Event occurs.
If the Company does not prepay the Debentures before their maturity and the
Trust is not dissolved early, the Preferred Securities will remain outstanding
until the repayment of the Debentures at their maturity.
DISTRIBUTION OF DEBENTURES
The Company may dissolve the Trust at any time and (after satisfaction of
liabilities to creditors as provided by applicable law) cause the Debentures to
be distributed to the holders of the Preferred Securities and Common Securities
in exchange for such Trust Securities on the liquidation of the Trust.
After the liquidation date is fixed for any distribution of the Debentures
(i) the Preferred Securities will no longer be considered outstanding, (ii)
certificates representing a Like Amount of Debentures will be issued to you, or
in the case of Global Debentures, to DTC or its nominee, as a holder of the
Preferred Securities, (iii) the Company will use reasonable efforts to have the
Debentures designated on or with any securities exchange, interdealer quotation
system or self-regulatory organization as the Preferred Securities are then
listed, (iv) any Preferred Securities certificates that are not surrendered will
be considered to represent a Like Amount of Debentures and (v) your rights will
end (except the right to receive Debentures).
The Company and the Trust cannot make any guarantees about the market prices
for the Preferred Securities or the Debentures that may be distributed in
exchange for Preferred Securities if the Trust were to be dissolved and
liquidated. Accordingly, the Preferred Securities that you may purchase, or the
Debentures that you may receive on dissolution and liquidation of the Trust, may
trade at a lower price than you paid to purchase the Preferred Securities.
SPECIAL EVENT REDEMPTION
If a Special Event regarding the Preferred Securities and Common Securities
occurs and is continuing, the Company may prepay all (but not a part) of the
Debentures and thus cause a mandatory redemption of all (but not a part) of the
Preferred Securities and Common Securities at the
S-13
<PAGE>
redemption price within 90 days following the occurrence of such Special Event.
If a Special Event regarding the Preferred Securities and Common Securities has
occurred and is continuing and the Company does not elect to prepay the
Debentures and thus cause a mandatory redemption of the Preferred Securities and
Common Securities or to terminate the Trust and cause the Debentures to be
distributed to holders of the Preferred Securities and Common Securities in
exchange for the Trust Securities on liquidation of the Trust as described
above, the Preferred Securities will remain outstanding. See "Risk
Factors--Special Event Prepayment."
"Like Amount" means (i) with respect to a redemption of the Trust
Securities, Trust Securities having a Liquidation Amount equal to the principal
amount of Debentures to be contemporaneously redeemed or prepaid in accordance
with the Indenture, the proceeds of which will be used to pay the redemption
price of the Trust Securities, and (ii) with respect to a distribution of
Debentures to holders of the Trust Securities in connection with a dissolution
or liquidation of the Trust, Debentures having a principal amount equal to the
Liquidation Amount of the Trust Securities of the holder to whom such Debentures
would be distributed.
"Liquidation Amount" means $25 per Preferred Security.
REDEMPTION PROCEDURES
Preferred Securities redeemed on each redemption date will be redeemed at
the redemption price using the proceeds from the simultaneous redemption of
Debentures. Redemptions of the Preferred Securities will be made and the
redemption price will be payable on each redemption date only if the Trust has
funds available for the payment of such redemption price. See "--Subordination
of Common Securities."
If the Property Trustee gives a notice of redemption regarding the Preferred
Securities, then, by 10:00 a.m., New York City time, on the redemption date, the
Company will deposit funds with the Property Trustee sufficient to pay the
redemption price. If the Company has made this deposit, then, by 12:00 noon, New
York City time on the redemption date, to the extent funds are available, the
Property Trustee will irrevocably deposit with the Depositary funds sufficient
to pay the applicable redemption price and will give the Depositary irrevocable
instructions and authority to pay the redemption price to you as a holder of
such Preferred Securities. See "Book-Entry Issuance" in the accompanying
Prospectus. If the Preferred Securities are no longer in book-entry form, the
Property Trustee, to the extent funds are available, will irrevocably deposit
with the paying agent for the Preferred Securities funds sufficient to pay the
applicable redemption price and will give such paying agent irrevocable
instructions and authority to pay the redemption price to you when you surrender
your certificates evidencing the Preferred Securities. However, Distributions
payable on or before the redemption date for any Preferred Securities called for
redemption will be payable to you on the relevant record dates for the related
Distribution Dates. If notice of redemption was given and funds deposited as
required, then on the date of such deposit, all your rights as a holder of such
redeemed Preferred Securities will end, except your right to receive the
redemption price and any unpaid Distribution, but without interest, and such
Preferred Securities will no longer be outstanding. If any redemption date is
not a business day, then payment of the redemption price will be made on the
next business day (without any interest or other payment for such delay), except
that, if such business day is in the next calendar year, payment of such
redemption price will be made on the business day before. If payment of the
redemption price is improperly withheld or refused and not paid either by the
Trust or by the Company (under the Guarantee), Distributions on such Preferred
Securities will continue to accrue (at the then applicable rate) from the
original redemption date to the date such redemption price is actually paid. In
this case, the actual payment date will be the redemption date for purposes of
calculating the redemption price.
S-14
<PAGE>
Subject to applicable laws (including United States federal securities
laws), the Company or its subsidiaries may periodically purchase outstanding
Preferred Securities by tender in the open market or by private agreement.
Payment of the redemption price on the Preferred Securities will be made to
the applicable holders as they appear on the securities register for the
Preferred Securities on the record date established by the Administrators that
will be at least 30 days before the relevant redemption date.
If only a part of the outstanding Preferred Securities and Common Securities
are to be redeemed on a redemption date, then the Liquidation Amount of such
Preferred Securities and Common Securities to be redeemed will be allocated
proportionately (based on Liquidation Amounts) among the Preferred Securities
and the Common Securities. The particular Preferred Securities to be redeemed
will be selected on a proportionate basis (based on Liquidation Amounts) at
least 30 days but no more than 60 days before the redemption date by the
Property Trustee from the outstanding Preferred Securities by such method as the
Property Trustee deems fair and appropriate. The Property Trustee will promptly
notify the securities registrar, in writing, of the Preferred Securities
selected for redemption and, in the case of any Preferred Securities selected
for partial redemption, the Liquidation Amount to be redeemed. For all purposes
of the Trust Agreement, unless the context otherwise requires, all provisions
relating to the redemption of Preferred Securities will relate to the portion of
the Liquidation Amount of Preferred Securities that has been or is to be
redeemed.
Notice of any redemption will be mailed by the Property Trustee at least 30
days but not more than 60 days before the redemption date to each holder of
Trust Securities to be redeemed at its registered address.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the redemption price of, the Preferred
Securities and Common Securities will be made proportionately (based on
Liquidation Amounts) of such Preferred Securities and Common Securities.
However, if any Event of Default under the Trust Agreement resulting from a
Debenture Event of Default has occurred and is continuing on any Distribution
Date or redemption date, (a) the Trust will not pay any Distribution or
redemption price regarding the Common Securities or make any other payment for
redemption, liquidation or other acquisition of such Common Securities unless
the Trust has (i) made full cash payment of all accumulated and unpaid
Distributions on all outstanding Preferred Securities for all Distribution
periods ending on or before such Distribution Date, or (ii) in the case of
payment of the redemption price, made or provided for the full amount of such
redemption price on all of the outstanding Preferred Securities then called for
redemption, and (b) all funds available to the Property Trustee will be applied
first to the full cash payment of all due and payable Distributions or
redemption price regarding Preferred Securities.
If any Event of Default under the Trust Agreement resulting from a Debenture
Event of Default occurs, the Company (as holder of the Common Securities) will
waive any right to act with respect to any such Event of Default until the
effect of all such Events of Default with respect to the Preferred Securities
has been eliminated. Until all Events of Default under the Trust Agreement with
respect to the Preferred Securities have been so eliminated, the Property
Trustee will act only on behalf of the holders of the Preferred Securities and
not on behalf of the Company (as holder of the Common Securities), and only the
holders of the Preferred Securities will have the right to direct the Property
Trustee to act on their behalf.
S-15
<PAGE>
LIQUIDATION DISTRIBUTION ON DISSOLUTION
Under the Trust Agreement, the Trust will automatically dissolve when its
term expires and will dissolve if any of the following occurs:
- certain events of bankruptcy, dissolution or liquidation of the Company
(as holder of the Common Securities);
- written direction to the Property Trustee by the Company to dissolve the
Trust and distribute (after satisfaction of liabilities to creditors as
provided by applicable law) the Debentures to holders of the Trust
Securities;
- redemption of all of the Preferred Securities as described under
"--Redemption or Exchange-- Mandatory Redemption"; or
- the entry of an order for the dissolution of the Trust by a court of
competent jurisdiction.
If an early dissolution occurs because of the first, second or fourth points
above or the Trust's term expires, the Trust will be liquidated by the Trustees
as quickly as the Trustees determine to be possible by distributing (after
satisfaction of liabilities to creditors as provided by applicable law) to the
holders of Trust Securities a Like Amount of the Debentures. If such
distribution is determined by the Property Trustee not to be practical, such
holders will be entitled to receive out of the assets of the Trust available for
distribution to holders (after satisfaction of liabilities to creditors as
provided by applicable law) an amount equal to the Liquidation Amount plus
accrued and unpaid Distributions on the Preferred Securities to the date of
payment (such amount being the "Liquidation Distribution"). If only a part of
such Liquidation Distribution can be paid because the Trust has insufficient
assets available to pay the full Liquidation Distribution, then the amounts
payable by the Trust on its Trust Securities will be paid on a proportionate
basis (based on Liquidation Amounts). The Company (as holder of the Common
Securities) will be entitled to receive Liquidation Distributions on any such
liquidation proportionately with you as a holder of Preferred Securities, except
that if a Debenture Event of Default has occurred and is continuing, the
Preferred Securities will have a priority over the Common Securities.
EVENTS OF DEFAULT; NOTICE
An "Event of Default" will occur under the Trust Agreement if any of the
following events occurs:
- a Debenture Event of Default under the Indenture (see "Description of
Debentures--Debenture Events of Default" in the accompanying Prospectus);
or
- failure for 30 days by the Trust to pay any Distribution when due; or
- failure by the Trust to pay any redemption price of any Trust Security
when due; or
- failure by the Trustees to observe or perform in any material respect any
other covenants or warranties in the Trust Agreement for 90 days after
written notice to the defaulting Trustee(s) by the holders of at least 25%
of the Liquidation Amount of the outstanding Preferred Securities; or
- certain events of bankruptcy or insolvency of the Property Trustee and the
failure by the Company to appoint a successor Property Trustee within 60
days.
Within five business days after the Property Trustee obtains actual
knowledge of any Event of Default occurring, the Property Trustee will send
notice of such Event of Default to the holders of the Trust Securities, the
Administrators and the Company, unless such Event of Default has been cured or
waived. The Company and the Administrators are required to file an annual
certificate with the
S-16
<PAGE>
Property Trustee stating whether they are in compliance with all the applicable
conditions and covenants under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the
Preferred Securities will have a preference over the Common Securities as
described above. See "--Subordination of Common Securities" and "--Liquidation
Distribution on Dissolution." An Event of Default does not entitle the holders
of Preferred Securities to accelerate their maturity.
EXPENSES
The Company has agreed to pay:
- all debts and obligations (other than those relating to the Preferred
Securities) of the Trust;
- all costs and expenses of the Trust (including organizational costs and
expenses, Trustees' fees and operational costs); and
- all costs and expenses of the offering of the Preferred Securities,
including all taxes (other than United States federal withholding taxes)
on the Trust.
These obligations will benefit, and are enforceable by, any creditor of the
Trust. Any creditor may enforce these obligations of the Company directly
against the Company. The Company has irrevocably waived any right or remedy to
require any such creditor to take action against the Trust first. The Company
has also agreed to execute additional agreements which are necessary or
desirable to give full effect to these undertakings.
ADDITIONAL TERMS OF THE PREFERRED SECURITIES
For information regarding "Removal of Trustees"; "Co-Trustees and Separate
Property Trustee"; "Merger or Consolidation of Trustees"; "Consolidations,
Mergers, Sale of Assets or Other Transactions"; "Voting Rights; Amendment of
Each Trust Agreement"; "Global Preferred Securities"; "Payment and Paying
Agency"; "Securities Registrar and Transfer Agent"; "Information Concerning the
Property Trustee and the Delaware Trustee"; and "Miscellaneous," see the
subsections with these headings under "Description of Preferred Securities" in
the accompanying Prospectus.
DESCRIPTION OF DEBENTURES
The Company will issue the Debentures under an Indenture between the Company
and The Chase Manhattan Bank, as trustee (the "Debenture Trustee"). This is a
summary and is not complete. This summary does not describe certain exceptions
and qualifications contained in the Indenture or the Debentures. You should read
the Indenture, which is filed as an exhibit to the Registration Statement. The
Indenture is qualified under the TIA.
GENERAL
The Debentures will be issued as a separate series under the Indenture with
terms corresponding to the terms of the Preferred Securities. Concurrently with
the issuance and sale of the Preferred Securities, the Trust will invest the
proceeds of such sale and the sale of the Trust's Common Securities to the
Company in the Debentures. The Debentures will be in the principal amount equal
to the aggregate stated Liquidation Amount of the Preferred Securities and the
Trust's Common Securities.
The Debentures will be unsecured and subordinate and junior in right of
payment to all Senior Debt of the Company as provided in the Indenture. See
"--Subordination." Because the Company is a holding company, the Company's right
to participate in any distribution of assets of any subsidiary, including Bear
Stearns, BSSC and BSIL, when such subsidiary is liquidated or reorganized is
subject to the prior claims of creditors of the subsidiary. Accordingly, the
Debentures will be effectively
S-17
<PAGE>
subordinated to all existing and future liabilities of the Company's
subsidiaries and the Trust. The holders of Debentures should look only to the
assets of the Company for payments on the Debentures.
The Indenture does not limit the incurrence of additional debt by the
Company, which debt could be Senior Debt. At September 25, 1998, the Company had
outstanding (on an unconsolidated basis) approximately $28.6 billion of debt,
including approximately $27.2 billion of Senior Debt, none of which is secured,
and subsidiaries of the Company had outstanding (on an unconsolidated basis)
approximately $125.5 billion of debt and other obligations (including $52.0
billion related to securities sold under repurchase agreements, $44.6 billion
related to payables to customers, $21.9 billion related to financial instruments
sold, but not yet purchased and $7.0 billion of other liabilities, including
$2.8 billion of debt). See "--Subordination" and "Risk Factors--Ranking of
Obligations under the Guarantee and the Debentures."
The Debentures will rank equally in right of payment with any other
debentures that may be issued and sold to other trusts established by the
Company, and will be unsecured and subordinate and junior in right of payment to
the extent and in the manner set forth in the Indenture to all Senior Debt.
INTEREST RATE
Interest on the Debentures will be paid January 15, April 15, July 15 and
October 15, and upon maturity, redemption or repurchase. If any payment date
falls on a day which is not a business day, then payment will be made on the
next business day and no additional interest will be paid.
The record dates for the Debentures will be January 1, April 1, July 1 and
October 1 of each year, beginning on January 1, 1999. Interest payments will be
the amount of interest accrued to, but excluding, each January 15, April 15,
July 15 and October 15. Interest will be computed using a 360-day year of twelve
30-day months. Interest will be payable to the person in whose name each
Debenture is registered, subject to certain exceptions, at the close of business
on the business day before the date interest is payable.
The Debentures will bear interest at the annual rate of 7 1/2% of their
principal amount. Interest includes quarterly interest payments, interest on
quarterly interest payments not paid on the applicable interest payment date and
Additional Sums, as applicable. "Additional Sums" means such additional amounts
as may be necessary in order that the amount of Distributions then due and
payable by the Trust on the Trust Securities shall not be reduced as a result of
any additional taxes, duties and other governmental charges imposed upon the
Trust as the result of a Special Event. Until the Trust is liquidated, each
Debenture will be held in the name of the Property Trustee in trust for the
benefit of the holders of the Trust Securities.
Any accrued interest that is not paid on the applicable interest payment
date will bear additional interest, to the extent permitted by law, at the rate
per annum of 7 1/2%.
DENOMINATIONS, REGISTRATION AND TRANSFER
The Debentures will be issuable only in registered form without coupons.
Debentures will be exchangeable for other Debentures, in authorized
denominations.
Debentures may be presented for exchange, and may be presented for
registration of transfer (with the form of transfer endorsed, or a duly executed
satisfactory written instrument of transfer), at the office of the appropriate
securities registrar or at the office of any transfer agent designated by the
Company for such purpose. There will be no service charge for any exchange or
registration of transfer, although payment of certain taxes and other
governmental charges as described in the Indenture may be required. The Company
will appoint the Debenture Trustee as securities registrar under the Indenture.
If the Company designates any transfer agents (in addition to the securities
registrar) with
S-18
<PAGE>
respect to the Debentures, the Company at any time may rescind that designation
or approve a change in the location where such transfer agent acts, provided
that the Company maintains a transfer agent in each place of payment. The
Company may designate additional transfer agents with respect to the Debentures
at any time.
If a redemption occurs, neither the Company nor the Debenture Trustee will
be required to (i) exchange or register the transfer of Debentures during a
period beginning at the opening of business 15 days before the mailing of a
notice of redemption of Debentures and ending at the close of business on the
day of such mailing or (ii) exchange or transfer any Debentures so selected for
redemption, except any portion of Debentures not being redeemed in a partial
redemption.
OPTION TO DEFER INTEREST PAYMENTS
The Company will have the right to periodically defer payment of interest
for an Extension Period of up to 20 consecutive quarterly periods. No Extension
Period may extend beyond the maturity of the Debentures.
At the end of an Extension Period, the Company must pay all interest then
accrued and unpaid (together with interest on such deferred interest at the
annual rate of 7 1/2%, compounded quarterly, to the extent permitted by
applicable law). During an Extension Period, interest will continue to accrue
and holders of Debentures (and holders of outstanding Preferred Securities) will
be required to accrue interest income (in the form of original issue discount)
for United States federal income tax purposes. See "Certain Federal Income Tax
Consequences--Interest, Original Issue Discount, Premium and Market Discount."
During any Extension Period, the Company and its subsidiaries may not make
certain payments. See "--Restrictions on Certain Payments." The Company may
further extend an Extension Period, so long as such extension does not cause
such Extension Period to exceed 20 consecutive quarterly periods or to extend
beyond the maturity of the Debentures. Upon the termination of any Extension
Period and the payment of all amounts then due on any interest payment date, the
Company may elect to begin a new Extension Period. Interest shall be due and
payable only at the end of an Extension Period.
The Company must give the Property Trustee and the Debenture Trustee notice
of its election of any Extension Period (or an extension of an Extension Period)
at least five business days before the earlier of:
- the date Distributions on the Trust Securities would have been payable
except for the election to begin or extend such Extension Period; or
- the date the Property Trustee is required to give notice to any applicable
self-regulatory organization or to holders of Trust Securities of the
record date or the date such Distributions are payable, but in any event
not less than five business days prior to such record date.
The Property Trustee shall give notice of the Company's election to begin or
extend a new Extension Period to the holders of Preferred Securities. There is
no limit on the number of times that the Company may elect to begin an Extension
Period.
REDEMPTION; OPTIONAL REDEMPTION AND PREPAYMENT UPON SPECIAL EVENTS
Debentures will not be subject to any sinking fund.
Debentures will be redeemable, in whole or in part, at the option of the
Company at any time on or after December 15, 2003, at an optional redemption
price equal to the outstanding principal amount of Debentures plus accrued
interest on the Debentures to the redemption date.
S-19
<PAGE>
If a Special Event regarding the Trust occurs and is continuing, the Company
has the option to prepay all (but not a part) of the Debentures at any time
within 90 days of the date of such Special Event, subject to the provisions of
the Indenture and whether or not the Debentures are then otherwise redeemable or
prepayable at the option of the Company. The prepayment price for any Debentures
so prepaid will be equal to the outstanding principal amount of Debentures plus
accrued interest on the Debentures to the prepayment date.
Notice of any redemption or prepayment will be mailed at least 30 days but
not more than 60 days before the redemption or prepayment date to each holder of
Debentures to be redeemed or prepaid at its registered address. Unless the
Company defaults in payment of the redemption or prepayment price and any
interest accrued to the redemption or prepayment date, interest will stop
accruing on such Debentures (or the part called for redemption) as of the
redemption or prepayment date.
If the Trust is required to pay any additional taxes, duties or other
governmental charges as a result of a Special Event, the Company will also pay
any Additional Sums on the Debentures.
RESTRICTIONS ON CERTAIN PAYMENTS
The Company will covenant that it will not and will not permit any
subsidiary of the Company to:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of the
Company's capital stock;
- make any payment of principal, any premium or interest on or repay,
repurchase or redeem any debt securities of the Company (including other
series of Debentures) that rank equally with or junior in interest to the
Debentures; or
- make any guarantee payments on any guarantee by the Company of the debt
securities of any subsidiary if such guarantee ranks equally with or
junior in interest to the Debentures;
whenever any of the following payment restriction events occur:
- the Company has actual knowledge of the occurrence of any event (i) that
with the giving of notice or the lapse of time or both would constitute a
Debenture Event of Default under the Indenture and (ii) that the Company
has not taken reasonable steps to cure;
- if such Debentures are held by the Trust and the Company has defaulted on
the payment of any obligations under the Guarantee; or
- the Company has given notice of its election of an Extension Period as
provided in the Indenture and has not rescinded such notice, or such
Extension Period, or any extension thereof, is continuing.
The Company will be permitted to make:
- dividends or distributions in capital stock of the Company;
- any declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of capital stock under any such
plan in the future, or the redemption or repurchase of any such rights
pursuant to such plan;
- payments under (i) the Guarantee and any other guarantee with respect to a
series of related preferred securities and (ii) any guarantee for the
benefit of holders of the capital securities of Bear Stearns Capital Trust
I;
- purchases of common stock related to the issuance of common stock under
any of the Company's benefit plans for its directors, officers or
employees; and
- payments of interest under a loan agreement with Bear Stearns Finance LLC.
S-20
<PAGE>
However, the Company will not be able to make payments under the Guarantee
if a payment restriction event occurs with respect to the debentures issued to
Bear Stearns Capital Trust I under the indenture, dated as of January 29, 1997,
between the Company and The Chase Manhattan Bank, as periodically supplemented.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Debenture Event of Default relating to the failure to pay interest or
principal on the Debentures has occurred and is continuing, as a holder of
Preferred Securities, you may institute a suit directly against the Company to
enforce payment of the principal or interest on such Debentures having a
principal amount equal to the Liquidation Amount of your Preferred Securities.
The Company may not amend the Indenture to remove your right to bring such suit
without the prior written consent of the holders of all of the outstanding
Preferred Securities. If the right to bring such suit is removed, the Trust may
become subject to the reporting obligations of the Securities Exchange Act of
1934, as amended. The Company will have the right under the Indenture to set-off
any payment made to you as a holder of Preferred Securities in connection with a
suit directly against the Company or under the Guarantee against its obligation
to make any payment under the Indenture.
You will not be able to directly exercise any remedies other than those
described in the preceding paragraph available to the Trust as holder of the
Debentures unless there has been an Event of Default under the Trust Agreement.
See "Description of Preferred Securities--Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture permits the Company to consolidate or merge with another
person or to sell or convey all or substantially all its assets to any person
if:
- either (i) the Company is the successor person or (ii) the successor
person is organized under the laws of the United States or any state or
the District of Columbia, and such successor person expressly assumes the
Company's obligations on the Debentures and under the Indenture;
- immediately after the consolidation, merger, sale or conveyance, no
default in the performance of any covenant or condition under the
Indenture has occurred; and
- in the case of the Debentures, such consolidation, merger, sale or
conveyance is permitted and does not cause a breach or violation under the
Trust Agreement and Guarantee.
The general provisions of the Indenture do not afford the Trust as holder of
the Debentures protection in the event of a transaction involving the Company
that may adversely affect holders of the Debentures.
SUBORDINATION
In the Indenture, the Company will covenant and agree that any Debentures
will be subordinate and junior in right of payment to all Senior Debt as
provided in the Indenture. When any payment or distribution of assets of the
Company is made due to any insolvency or bankruptcy event of the Company, the
holders of Senior Debt will first be entitled to receive payment in full of
principal of, any premium and any interest on such Senior Debt before any
payment of principal or interest on the Debentures.
If the maturity of any Debentures is accelerated, the holders of all
outstanding Senior Debt will first be entitled to receive payment in full of all
amounts due on such Senior Debt, including any amounts due on acceleration,
before the holders of Debentures will be entitled to receive or retain any
payment regarding principal of or premium or interest on the Debentures. The
holders of Senior Debt
S-21
<PAGE>
shall not be entitled to receive payment of any such amounts to the extent that
such holders would be required by the Senior Debt's subordination provisions to
pay such amounts over to the obligees on trade accounts payable or other
liabilities arising in the ordinary course of the Company's business.
No payments on account of principal, any premium, interest or Additional
Sums on the Debentures may be made if a default in any payment with respect to
Senior Debt has occurred and is continuing or an event of default with respect
to any Senior Debt resulting in its acceleration has occurred and is continuing,
or if any judicial proceeding is pending with respect to any such default.
"Debt" means with respect to any person, whether recourse is to all or a
portion of the assets of such person and whether or not contingent:
- every obligation of such person for money borrowed;
- every obligation of such person evidenced by bonds, debentures, notes or
other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses;
- every reimbursement obligation of such person with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account
of such person;
- every obligation of such person issued or assumed as the deferred purchase
price of property or services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business);
- every capital lease obligation of such person;
- every obligation of such person for claims regarding derivative products
such as interest and foreign exchange rate contracts, commodity contracts
and similar arrangements; and
- every obligation of the type referred to above of another person and all
dividends of another person the payment of which, in either case, such
person has guaranteed or is responsible or liable for, directly or
indirectly, as obligor or otherwise.
"Senior Debt" means the principal of, any premium and any interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not such
claim for post-petition interest is allowed in such proceeding), on Debt,
whether incurred on or before the date of the Indenture or thereafter incurred,
unless, in the instrument creating or evidencing the same or pursuant to which
the same is outstanding, it is provided that such obligations are not superior
in right of payment to the Debentures or to other Debt which ranks equally with,
or subordinated to, the Debentures.
Senior Debt will not include:
- any Debt of the Company which, when incurred and without respect to any
election under Section 1111(b) of the United States Bankruptcy Code of
1978, as amended, was without recourse to the Company;
- any Debt of the Company to any of its subsidiaries;
- Debt to any employee of the Company;
- Debt which by its terms is subordinated to trade accounts payable or
accrued liabilities arising in the ordinary course of business to the
extent that payments made to the Debt holders by the Debenture holders as
a result of the subordination provisions of the Indenture would be greater
than such payments otherwise would have been as a result of any obligation
of such Debt holders to pay amounts to the obligees on such trade accounts
payable or accrued liabilities
S-22
<PAGE>
arising in the ordinary course of business as a result of subordination
provisions to which such Debt is subject; and
- any other debt securities issued pursuant to the Indenture and the
indenture, dated as of January 29, 1997, between the Company and The Chase
Manhattan Bank, as periodically supplemented.
Except as described in the next sentence, the Debentures will rank equally
with, and will not be superior in right of payment to, the obligations of the
Company under the Loan Agreement, dated as of March 24, 1994, between the
Company and Bear Stearns Finance LLC in the aggregate principal amount of
$189,875,000. However, the Company will be permitted to make payments of
interest on this loan during an Extension Period.
The Indenture places no limitation on the amount of Senior Debt that the
Company may incur. The Company expects to periodically incur additional
indebtedness and other obligations constituting Senior Debt.
RIGHTS OF HOLDERS OF PREFERRED SECURITIES
As a holder of the Preferred Securities, you will have the rights, in
connection with modifications to the Indenture or when Debenture Events of
Default occur, as described under "--Modification of Indenture," "--Debenture
Events of Default" and "--Enforcement of Certain Rights by Holders of Preferred
Securities."
The Company will covenant, as to the Debentures:
- to maintain directly or indirectly 100% ownership of the Common Securities
of the Trust, provided that certain successors which are permitted
pursuant to the Indenture may succeed to the Company's ownership of the
Common Securities;
- not to voluntarily dissolve, wind up or liquidate the Trust, except (a) in
connection with a distribution of the Debentures to you as a holder of the
Preferred Securities in exchange for such Preferred Securities on
liquidation of the Trust, or (b) in connection with certain mergers,
consolidations or amalgamations permitted by the Trust Agreement; and
- to use its reasonable efforts, consistent with the terms and provisions of
the Trust Agreement, to cause the Trust to remain classified as a grantor
trust and not as an association taxable as a corporation for United States
federal income tax purposes.
TRUST EXPENSES
Pursuant to the Indenture, the Company has agreed to pay all debts and other
obligations (other than with respect to the Preferred Securities) and all costs
and expenses of the Trust (including costs and expenses relating to the Trust's
organization, the fees and expenses of the Trustees and the costs and expenses
relating to the Trust's operation) and the offering of the Preferred Securities
and to pay any and all taxes (including any taxes owed by the Trust if it is
determined that the Trust is not a grantor trust for United States federal
income tax purposes) and all related costs and expenses (other than United
States federal withholding taxes) to which the Trust might become subject.
ADDITIONAL TERMS OF THE DEBENTURES
For information regarding "Global Debentures"; "Payment and Paying Agents";
"Modification of Indenture"; "Debenture Events of Default"; "Satisfaction and
Discharge"; "Governing Law"; and "Information Concerning the Debenture Trustee,"
see the subsections with those headings under "Description of Debentures" in the
accompanying Prospectus.
DESCRIPTION OF GUARANTEE
For information regarding the Guarantee, see "Description of Guarantees" in
the accompanying Prospectus.
S-23
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the principal United States federal
income tax consequences of the purchase, ownership and disposition of the
Preferred Securities. This summary is based on the United States federal income
tax laws, regulations and rulings and decisions now in effect, all of which are
subject to change, possibly on a retroactive basis. Except where otherwise
stated, this summary deals with Preferred Securities held as a capital asset by
a U.S. Holder who purchases the securities upon their initial issuance. This
summary does not address the tax consequences applicable to investors that may
be subject to special tax rules such as banks, thrifts, real estate investment
trusts, regulated investment companies, insurance companies, dealers in
securities or currencies, tax-exempt investors or persons that will hold the
Preferred Securities as a position in a "straddle," as part of a "synthetic
security" or "hedge," as part of a "conversion transaction" or other integrated
investment, or as other than a capital asset. This summary also does not address
the tax consequences to persons that have a functional currency other than the
U.S. dollar or the tax consequences to shareholders, partners or beneficiaries
of a holder of Preferred Securities. Further, it does not include any
description of any alternative minimum or estate and gift tax consequences or
the tax laws of any state or local government or of any foreign government that
may be applicable to the Preferred Securities.
As used in this section, a "U.S. Holder" is a Preferred Securities holder
that is a citizen or resident of the United States, a corporation, partnership
or other entity (other than a trust) created or organized in or under the laws
of the United States or any state or political subdivision thereof, an estate if
its income is subject to United States federal income taxation regardless of
source or a trust if a court within the United States is generally able to
exercise primary supervision over its administration and one or more United
States persons have the authority to control all of its substantial decisions. A
"Non-U.S. Holder" is a Preferred Securities holder other than a U.S. Holder.
AS A PROSPECTIVE INVESTOR, YOU ARE ADVISED TO CONSULT WITH YOUR OWN TAX
ADVISOR IN LIGHT OF YOUR OWN PARTICULAR CIRCUMSTANCES AS TO THE FEDERAL TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF PREFERRED SECURITIES,
AS WELL AS THE EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
CLASSIFICATION OF THE TRUST
Upon the issuance of the Preferred Securities, Weil, Gotshal & Manges LLP
will issue its opinion (the "Tax Opinion") to the effect that, under then
current law and assuming full compliance with the terms of the Trust Agreement
(and certain other documents), and based on certain facts and assumptions
contained in the Tax Opinion, the Trust will be classified, for United States
federal income tax purposes, as a grantor trust and not as an association
taxable as a corporation. As a result, as a holder of Preferred Securities, you
will be treated as owning a preferred undivided beneficial interest in the
Debentures and will be required to include in your gross income the items of
income realized with respect to your allocable share of those Debentures
(whether or not distributed). You should be aware that the Tax Opinion does not
address any other issue and is not binding on the IRS or the courts.
CHARACTERIZATION OF THE DEBENTURES
The Company and the Trust will agree to treat the Debentures as debt for
United States federal income tax purposes. By accepting the Preferred
Securities, you agree to treat the Debentures as debt and to treat the Preferred
Securities as evidence of an indirect beneficial ownership interest in the
Debentures.
S-24
<PAGE>
INTEREST, ORIGINAL ISSUE DISCOUNT, PREMIUM AND MARKET DISCOUNT
Unless the Debentures are issued with original issue discount ("OID"),
stated interest paid or payable before the Company exercises its right to defer
interest payments will be taxable to a U.S. Holder as ordinary interest income.
Generally, the U.S. Holder will be taxed when the interest is received or
accrued, in accordance with the holder's regular method of accounting for United
States federal income tax purposes. The Debentures will be treated as issued
with OID if the stated interest is not "qualified stated interest." Interest is
not qualified stated interest unless it is unconditionally payable in cash or in
property (other than debt instruments of the issuer) at least annually at a
single fixed rate. Interest is considered to be unconditionally payable only if
reasonable legal remedies exist to compel timely payment or the debt instrument
otherwise provides terms and conditions that make the likelihood of late payment
(other than late payment that occurs within a reasonable grace period) or
non-payment a "remote contingency."
The Company has the right, at any time and from time to time during the term
of the Debentures, to defer payments of interest by extending the interest
payment period for a period not exceeding 20 consecutive quarterly periods. No
Extension Period may extend beyond the maturity of the Debentures. Unless the
likelihood of exercise of such right to defer is remote, the Debentures would be
issued with OID. During any such Extension Period, the Company and its
subsidiaries may not make certain payments. See "Description of
Debentures--Option to Defer Interest Payments" and "--Restrictions on Certain
Payments." The Company currently believes that the adverse impact that the
imposition of such restrictions would have on the Company and on the value of
its equity securities makes the likelihood of its exercising its right to defer
payments of interest on the Debentures remote. Accordingly, the Company believes
that the stated interest on the Debentures should be considered unconditionally
payable for purposes of the Internal Revenue Code and that the Debentures should
not be considered to have been issued with OID.
If the Company does exercise its right to defer payments of interest on the
Debentures, the Debentures will be considered to be retired and reissued for
their adjusted issue price at such time, and the Debentures thereafter will be
considered to have been issued with OID. In such case, all the interest payments
thereafter payable will be treated as OID. If the payments were treated as OID
(either because the Company exercises the right to defer interest payments or
because the likelihood of exercise of such right was not remote at the time of
issuance), as a holder of Preferred Securities, you must include that discount
in income on an economic accrual basis which may occur before the receipt of
cash attributable to the interest, regardless of your method of tax accounting.
If you sell Preferred Securities before the record date for payment of
Distributions on such Preferred Securities following an Extension Period, you
will be required to include OID in gross income but will not receive any cash
related thereto from the Trust. The amount of OID that accrues in any
semi-annual period will approximately equal the amount of the interest that
accrues in that semi-annual period at the stated interest rate. If the interest
payment period is extended, you will accrue OID approximately equal to the
amount of the interest payment due at the end of the extended interest payment
period on an economic accrual basis over the length of the extended interest
period.
As a holder of Preferred Securities, you will not be entitled to a
dividends-received deduction with respect to any income earned on the Preferred
Securities.
If you hold Preferred Securities and did not purchase the Preferred
Securities when originally issued, you may be considered to have acquired your
preferred undivided beneficial interests in the Debentures with market discount
or acquisition premium, as such phrases are defined for United States federal
income tax purposes. In this case, you are advised to consult your tax advisors
regarding the income tax consequences of the acquisition, ownership and
disposition of Preferred Securities.
S-25
<PAGE>
RECEIPT OF DEBENTURES UPON LIQUIDATION OF THE TRUST
As described under "Description of Preferred Securities--Redemption or
Exchange--Distribution of Debentures," Debentures may be distributed to you in
exchange for Preferred Securities and in liquidation of the Trust. Under current
law, such a distribution would be treated as a non-taxable event to you and your
aggregate tax basis in the Debentures would be equal to your aggregate tax basis
in the Preferred Securities. Your holding period for United States federal
income tax purposes in the Debentures so received in liquidation of the Trust
would include the period for which the Preferred Securities were held by you.
If, however, the liquidation of the Trust were to occur because the Trust is
subject to United States federal income tax with respect to income accrued or
received on the Debentures, the distribution of Debentures to you as a holder of
Preferred Securities by the Trust would be a taxable event to the Trust and you
would recognize gain or loss as if you had sold your Preferred Securities in
exchange for the Debentures received upon the liquidation of the Trust. As a
holder of Preferred Securities, your basis in the Debentures received would be
their fair market value at the time of the distribution and a new holding period
would begin when you receive the Debentures. You will be taxed on interest or
OID in respect of Debentures received from the Trust (whether or not such
distribution is taxable) in the manner described under "--Interest, Original
Issue Discount, Premium and Market Discount."
SALE OR REDEMPTION OF PREFERRED SECURITIES
If you sell Preferred Securities (including a redemption for cash), you will
recognize gain or loss equal to the difference between the amount realized on
the sale (other than amounts attributable to accrued but unpaid interest which
has not yet been included in income, which will be treated as ordinary income)
and your adjusted tax basis in the securities sold or redeemed. Your adjusted
tax basis in the Preferred Securities generally will be your initial purchase
price increased by any OID previously includible in your gross income to the
date of disposition and decreased by payments received on the Preferred
Securities (other than payments of qualified stated interest). Any such gain or
loss generally will be long-term capital gain or loss if the Preferred
Securities were held for more than one year.
The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying
Debentures. If you use the accrual method of accounting for tax purposes (and if
you are a cash method holder, if the Debentures are deemed to have been issued
with OID) and you sell your Preferred Securities between record dates for
payments of distributions on such Preferred Securities, you will be required to
include accrued but unpaid interest on the Debentures through the date of
disposition in income as ordinary income (for example, interest or possibly
OID), and to add such amount to your adjusted tax basis in your Preferred
Securities sold. To the extent the selling price (which may not fully reflect
the value of accrued but unpaid interest) is less than your adjusted tax basis
(which will include all OID and accrued but unpaid interest), you will recognize
a capital loss. Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for United States federal income tax purposes.
NON-U.S. HOLDERS
Payments to a Non-U.S. Holder will generally not be subject to United States
federal withholding tax, if the holder:
- does not own (directly or indirectly, actually or constructively) 10% or
more of the total combined voting power of all classes of stock of the
Company entitled to vote;
- is not a controlled foreign corporation that is related to the Company
through stock ownership; and
- is not a bank receiving interest described in section 881(c)(3)(A) of the
Internal Revenue Code.
S-26
<PAGE>
To qualify for this exemption from withholding, the last United States payer
in the chain of payment before payment to a Non-U.S. Holder (the "withholding
agent") must have received in the year in which a payment occurs, or in either
of the two preceding calendar years, a statement that is signed by the holder of
the Preferred Securities under penalties of perjury, certifying that such holder
is not a U.S. Holder, and provides the name and address of the holder.
The statement may be made on an IRS Form W-8 or a substantially similar
form, and the holder must inform the withholding agent of any change in the
information on the statement within 30 days of such change. If the Preferred
Securities are held through a securities clearing organization or certain other
financial institutions, the organization or institution may provide a signed
statement to the withholding agent along with a copy of the IRS Form W-8 or the
substitute form provided by the holder.
A Non-U.S. Holder will generally not be subject to United States federal
withholding or income tax on any income from or gain realized upon the sale or
other disposition of the Preferred Securities. However, if a Non-U.S. Holder
holds the Preferred Securities in connection with a trade or business conducted
in the United States, such Non-U.S. Holder may be subject to income tax and
possibly branch profits tax on all income and gains recognized. In addition,
special rules may apply to (i) a Non-U.S. Holder who is a nonresident alien
individual and holds the Preferred Securities as a capital asset and is present
in the United States for 183 days or more and (ii) certain former citizens and
residents of the United States.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The Trust will report the interest income that it receives or the OID which
accrues during the year on the Debentures, and any gross proceeds it receives
from the retirement or redemption of the Debentures, annually to the holders of
record of the Preferred Securities and the IRS. The Trust currently intends to
deliver such reports to holders of record before January 31 following each
calendar year on a Form 1099. It is anticipated that persons who hold Preferred
Securities as nominees for beneficial holders will report the required tax
information to beneficial holders on Form 1099.
Payments made on, and proceeds from the sale of, the Preferred Securities
may be subject to a "backup" withholding tax of 31% unless you comply with
certain identification requirements or demonstrate that you qualify for an
exemption from backup withholding. Any withheld amounts will be allowed as a
credit against your federal income tax liability if the required information is
provided to the IRS.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON YOUR PARTICULAR
SITUATION. YOU SHOULD CONSULT YOUR TAX ADVISOR WITH RESPECT TO THE TAX
CONSEQUENCES TO YOU OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
S-27
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement") among the Company, the Trust and the Underwriters
named below (the "Underwriters"), the Trust has agreed to sell to each of the
Underwriters, and each of the Underwriters has severally agreed to purchase from
the Trust, the respective number of Preferred Securities having a total
Liquidation Amount set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
PREFERRED
UNDERWRITER SECURITIES
- -------------------------------------------------------------------------------- ------------
<S> <C>
Bear, Stearns & Co. Inc. ....................................................... 1,411,200
Lehman Brothers Inc. ........................................................... 1,410,800
Merrill Lynch, Pierce, Fenner & Smith Incorporated.............................. 1,410,800
Morgan Stanley & Co. Incorporated............................................... 1,410,800
PaineWebber Incorporated........................................................ 1,410,800
Prudential Securities Incorporated.............................................. 1,410,800
Salomon Smith Barney Inc. ...................................................... 1,410,800
ABN AMRO Incorporated........................................................... 108,000
A.G. Edwards & Sons, Inc. ...................................................... 108,000
BT Alex. Brown Incorporated..................................................... 108,000
CIBC Oppenheimer Corp. ......................................................... 108,000
Donaldson, Lufkin & Jenrette Securities Corporation............................. 108,000
EVEREN Securities, Inc. ........................................................ 108,000
First Chicago Capital Markets, Inc. ............................................ 108,000
Fleet Securities, Inc. ......................................................... 108,000
Furman Selz LLC................................................................. 108,000
Goldman, Sachs & Co. ........................................................... 108,000
NationsBanc Montgomery Securities LLC........................................... 108,000
SG Cowen Securities Corporation................................................. 108,000
Warburg Dillon Read LLC......................................................... 108,000
Advest, Inc. ................................................................... 30,000
J.C. Bradford & Co. ............................................................ 30,000
Blaylock & Partners, L.P. ...................................................... 30,000
Craigie Incorporated ........................................................... 30,000
Crowell, Weedon & Co. .......................................................... 30,000
Dain Rauscher Incorporated...................................................... 30,000
Fahnestock & Co. Inc. .......................................................... 30,000
Fidelity Capital Markets
A Division of National Financial Services Corporation......................... 30,000
Fifth Third/The Ohio Company.................................................... 30,000
First Albany Corporation ....................................................... 30,000
First of Michigan Corporation................................................... 30,000
Interstate/Johnson Lane Corporation............................................. 30,000
Legg Mason Wood Walker, Incorporated............................................ 30,000
Muriel Siebert & Co., Inc. ..................................................... 30,000
McDonald & Company Securities, Inc. ............................................ 30,000
Morgan Keegan & Company, Inc. .................................................. 30,000
Olde Discount Corporation ...................................................... 30,000
Piper Jaffray Inc. ............................................................. 30,000
The Robinson-Humphrey Company, LLC ............................................. 30,000
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
PREFERRED
UNDERWRITER SECURITIES
- -------------------------------------------------------------------------------- ------------
<S> <C>
Stephens Inc. .................................................................. 30,000
TD Securities (USA) Inc. ....................................................... 30,000
Tucker Anthony Incorporated..................................................... 30,000
Utendahl Capital Partners, L.P. ................................................ 30,000
Wheat First Securities, Inc. ................................................... 30,000
------------
Total................................................................... 12,000,000
------------
------------
</TABLE>
The Trust has been advised by the Underwriters that the Underwriters propose
initially to offer the Preferred Securities to the public at the public offering
price set forth on the cover page of this Prospectus Supplement and to certain
dealers at such price less a concession not in excess of $0.50 per Preferred
Security. The Underwriters may allow, and such dealers may re-allow, a
concession to certain other dealers not in excess of $0.40 per Preferred
Security. After the initial public offering, the public offering price and such
concessions may be changed from time to time. The Underwriting Agreement
provides that the Company will pay as Underwriters' compensation the following
amounts:
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS
---------------------
<S> <C>
Per Preferred Security................................................. $0.7875
Total.................................................................. $9,450,000
</TABLE>
The expenses of the offering of the Preferred Securities are estimated to be
approximately $300,000.
The Underwriting Agreement provides that the Company and the Trust will
indemnify the Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended, or contribute to payments the
Underwriters may be required to make in respect thereof.
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all of the Preferred Securities if any are purchased.
Bear Stearns, a wholly-owned subsidiary of the Company, has committed to
purchase from the Trust 11.76% of the aggregate number of the Preferred
Securities being underwritten by the Underwriters, on the same basis as the
other Underwriters. To the extent that part or all of the Preferred Securities
so purchased by Bear Stearns are not resold by it at the initial offering price,
the funds derived from this offering by the Company and its subsidiaries on a
consolidated basis may be reduced, since the Company and its subsidiaries will
not derive any additional funds from Preferred Securities purchased by Bear
Stearns and not resold. Bear Stearns intends to resell any Preferred Securities
that it is unable to resell from time to time, at prevailing market prices,
subject to applicable prospectus delivery requirements.
Certain of the Underwriters and their affiliates engage from time to time in
general financing and banking transactions with, and serve as financial advisors
to, the Company and its affiliates.
Because Bear Stearns is a wholly-owned subsidiary of the Company, each
distribution of Preferred Securities will conform to the requirements set forth
in Rules 2720 and 2810 of the NASD Conduct Rules.
In order to facilitate the offering, certain persons participating in the
offering may engage in transactions that stabilize, maintain or otherwise affect
the price of the Preferred Securities during and after the offering.
Specifically, the Underwriters may over-allot or otherwise create a short
position in the Preferred Securities for their own account by selling more
Preferred Securities than have been sold
S-29
<PAGE>
to them by the Trust. The Underwriters may elect to cover any such short
position by purchasing Preferred Securities in the open market. In addition,
such persons may stabilize or maintain the price of the Preferred Securities by
bidding for or purchasing Preferred Securities in the open market and may impose
penalty bids, under which selling concessions allowed to syndicate members or
other broker-dealers participating in the offering are reclaimed if Preferred
Securities previously distributed in the offering are repurchased in connection
with stabilization transactions or otherwise. The effect of these transactions
may be to stabilize or maintain the market price of the Preferred Securities at
a level above that which might otherwise prevail in the open market. The
imposition of a penalty bid may also affect the price of the Preferred
Securities to the extent that it discourages resales of Preferred Securities. No
representation is made as to the magnitude or effect of any such stabilization
or other transactions. Such transactions, if commenced, may be discontinued at
any time.
The Preferred Securities are a new issue of securities with no established
trading market. The Preferred Securities have been approved for listing (subject
to issuance) on the New York Stock Exchange. Trading of the Preferred Securities
on the New York Stock Exchange is expected to begin within 30 days after the
initial delivery of the Preferred Securities. In order to meet one of the
requirements for listing the Preferred Securities on the New York Stock
Exchange, the Underwriters have agreed to sell the Preferred Securities to a
minimum of 400 beneficial owners. Bear Stearns, as representative of the
Underwriters (the "Representative"), has advised the Company that it intends to
make a market in the Preferred Securities before trading begins on the New York
Stock Exchange. However, the Representative is not obligated make a market and
may stop market making at any time without notice. There can be no guarantee
about the liquidity of the trading market for the Preferred Securities.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Preferred
Securities, the enforceability of the Trust Agreement and the formation of the
Trust will be passed upon by Richards, Layton & Finger, P.A., special Delaware
counsel to the Company and the Trust. The validity of the Guarantee and the
Debentures will be passed upon for the Company by Cadwalader, Wickersham & Taft,
New York, New York. Certain legal matters will be passed upon for the
Underwriters by Kramer Levin Naftalis & Frankel LLP, New York, New York.
Cadwalader, Wickersham & Taft and Kramer Levin Naftalis & Frankel LLP will rely
on the opinion of Richards, Layton & Finger, P.A. as to matters of Delaware law.
Certain matters relating to United States federal income tax considerations
described in this Prospectus Supplement will be passed upon for the Company by
Weil, Gotshal & Manges LLP, New York, New York.
EXPERTS
The consolidated financial statements and the related financial statement
schedules incorporated in this Prospectus Supplement by reference from the
Company's 1998 Annual Report on Form 10-K have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports, which are incorporated
herein by reference, and have been so incorporated in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
S-30
<PAGE>
PROSPECTUS
THE BEAR STEARNS COMPANIES INC.
BY THIS PROSPECTUS, THE COMPANY MAY OFFER--
JUNIOR SUBORDINATED DEFERRABLE INTEREST
DEBENTURES
PREFERRED STOCK
BEAR STEARNS CAPITAL TRUST II
BEAR STEARNS CAPITAL TRUST III
BEAR STEARNS CAPITAL TRUST IV
BEAR STEARNS CAPITAL TRUST V
BY THIS PROSPECTUS, THE TRUSTS MAY OFFER--
TRUST ISSUED PREFERRED SECURITIES
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
THE BEAR STEARNS COMPANIES INC.
------------------------------------------------------------
The Company and the Trusts will provide the specific terms
of these securities in supplements to this Prospectus. You
should read this Prospectus and the supplements carefully
before you invest.
----------------------------------------------------------
INVESTMENT IN THE SECURITIES BEING OFFERED INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is December 2, 1998.
<PAGE>
YOU SHOULD ONLY RELY ON THE INFORMATION INCORPORATED BY REFERENCE OR
PROVIDED IN THIS PROSPECTUS OR ANY SUPPLEMENT TO THIS PROSPECTUS. THE COMPANY
AND THE TRUSTS HAVE NOT AUTHORIZED ANYONE ELSE TO PROVIDE YOU WITH DIFFERENT
INFORMATION. THESE SECURITIES ARE NOT BEING OFFERED IN ANY STATE WHERE THE OFFER
IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS
OR ANY SUPPLEMENT TO THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE
DATE ON THE FRONT OF THOSE DOCUMENTS.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Where You Can Find More Information.................................................... 2
Certain Definitions.................................................................... 4
Forward-Looking Statements............................................................. 4
Risk Factors........................................................................... 5
The Company............................................................................ 8
The Trusts............................................................................. 9
Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.............. 10
Use of Proceeds........................................................................ 10
About This Prospectus.................................................................. 11
Overview of Debentures, Preferred Securities and Guarantees............................ 11
Description of Debentures.............................................................. 12
Description of Preferred Securities.................................................... 23
Description of Guarantees.............................................................. 35
Relationship Among Debentures, Preferred Securities and Guarantees..................... 37
Description of Preferred Stock......................................................... 40
Description of Depositary Shares....................................................... 42
Book-Entry Issuance.................................................................... 46
ERISA Considerations................................................................... 48
Plan of Distribution................................................................... 50
Legal Matters.......................................................................... 51
Experts................................................................................ 51
</TABLE>
The principal executive office of the Company and each Trust is located at
245 Park Avenue, New York, New York 10167; the telephone number of the Company
and each Trust is (212) 272-2000. The Company's Internet address is
http://www.bearstearns.com.
WHERE YOU CAN FIND MORE INFORMATION
The Bear Stearns Companies Inc. files annual, quarterly and special reports,
proxy statements and other information required by the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), with the Securities and Exchange
Commission (the "SEC"). You may read and copy any document the Company files at
the SEC's public reference rooms located at 450 Fifth Street, N.W., Washington,
D.C. 20549, at Seven World Trade Center, 13th Floor, New York, New York 10048
and at Northwest Atrium Center, 5000 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. The Company's SEC filings are also
available to the public from the SEC's web site at http://www.sec.gov. Copies of
these reports, proxy statements and other information can also be inspected at
the offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
The Company and the Trusts have filed with the SEC a registration statement
on Form S-3 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Debentures, Preferred
Securities and Guarantees and the Preferred Stock. This
2
<PAGE>
Prospectus, which constitutes a part of that Registration Statement, does not
contain all the information contained in that Registration Statement and its
exhibits. For further information with respect to the Company and the Trusts and
the Debentures, Preferred Securities and Guarantees and the Preferred Stock, you
should consult the Registration Statement and its exhibits. Statements contained
in this Prospectus concerning the provisions of any documents are necessarily
summaries of those documents, and each statement is qualified in its entirety by
reference to the copy of the document filed with the SEC. The Registration
Statement and any of its amendments, including exhibits filed as a part of the
Registration Statement or an amendment to the Registration Statement, are
available for inspection and copying through the entities listed above.
The SEC allows the Company and the Trusts to "incorporate by reference" the
information that we file with them, which means that we can disclose important
information to you by referring you to the other information we have filed with
the SEC. The information that we incorporate by reference is considered to be
part of this Prospectus, and information that we file later with the SEC will
automatically update and supersede this information.
The following documents filed by The Bear Stearns Companies Inc. with the
SEC pursuant to Section 13 of the Exchange Act (File No. 1-8989) and any future
filings under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act made before
the termination of the offering are incorporated by reference:
(i) the Annual Report on Form 10-K (including the portions of the Company's
Annual Report to Stockholders and Proxy Statement incorporated by
reference therein) for the fiscal year ended June 30, 1998;
(ii) the Quarterly Report on Form 10-Q for the quarter ended September 25,
1998; and
(iii) the Current Reports on Form 8-K dated July 21, 1998, August 26, 1998,
October 14, 1998 and October 30, 1998.
The Company and the Trusts will provide to you without charge, a copy of any
or all documents incorporated by reference into this Prospectus except the
exhibits to such documents (unless such exhibits are specifically incorporated
by reference in such documents). You may request copies by writing or
telephoning the Company at Corporate Communications Department, The Bear Stearns
Companies Inc., 245 Park Avenue, New York, New York 10167; telephone number
(212) 272-2000.
3
<PAGE>
CERTAIN DEFINITIONS
Unless otherwise stated in this Prospectus:
- the "Company" refers to The Bear Stearns Companies Inc. and its
subsidiaries;
- "Bear Stearns" refers to Bear, Stearns & Co. Inc.;
- "BSSC" refers to Bear, Stearns Securities Corp.;
- "BSIL" refers to Bear, Stearns International Limited; and
- the "Trusts" refer to Bear Stearns Capital Trust II, Bear Stearns Capital
Trust III, Bear Stearns Capital Trust IV and Bear Stearns Capital Trust V,
collectively.
Bear Stearns, BSSC and the Trusts are subsidiaries of the Company.
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES AND INCORPORATES BY REFERENCE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE SECURITIES LAWS. ALL STATEMENTS REGARDING
THE COMPANY'S AND THE TRUSTS' EXPECTED FINANCIAL POSITION, BUSINESS AND
FINANCING PLANS ARE FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS ALSO
INCLUDE REPRESENTATIONS OF OUR EXPECTATIONS OR BELIEFS CONCERNING FUTURE EVENTS
THAT INVOLVE RISKS AND UNCERTAINTIES, INCLUDING THOSE ASSOCIATED WITH THE EFFECT
OF INTERNATIONAL, NATIONAL AND REGIONAL ECONOMIC CONDITIONS AND THE PERFORMANCE
OF BEAR STEARN'S AND BSSC'S PRODUCTS WITHIN THE PREVAILING ECONOMIC ENVIRONMENT.
ALTHOUGH WE BELIEVE THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING
STATEMENTS ARE REASONABLE, SUCH EXPECTATIONS MAY PROVE TO BE INCORRECT.
CAUTIONARY STATEMENTS DESCRIBING IMPORTANT FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM SUCH EXPECTATIONS ARE DISCLOSED IN THIS
PROSPECTUS, IN CONJUNCTION WITH THE FORWARD-LOOKING STATEMENTS INCLUDED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS. ALL SUBSEQUENT WRITTEN AND ORAL
FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO US OR PERSONS ACTING ON OUR BEHALF
ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY SUCH CAUTIONARY STATEMENTS.
4
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AND OTHER INFORMATION IN
THIS PROSPECTUS AND THE APPLICABLE PROSPECTUS SUPPLEMENT BEFORE DECIDING TO
INVEST IN THE SECURITIES BEING OFFERED.
RANKING OF OBLIGATIONS UNDER THE GUARANTEES AND THE DEBENTURES
The Company's obligations under the Guarantees and the Debentures will be
unsecured and subordinate and junior in right of payment to all Senior Debt of
the Company. At September 25, 1998, the Company had outstanding (on an
unconsolidated basis) approximately $28.6 billion of debt, including
approximately $27.2 billion of Senior Debt, none of which is secured, and
subsidiaries of the Company had outstanding (on an unconsolidated basis)
approximately $125.5 billion of debt and other obligations (including $52.0
billion related to securities sold under repurchase agreements, $44.6 billion
related to payables to customers, $21.9 billion related to financial instruments
sold, but not yet purchased and $7.0 billion of other liabilities, including
$2.8 billion of debt). The Indenture, the Guarantees and the Trust Agreements do
not limit the amount of additional secured or unsecured debt, including Senior
Debt, that the Company may incur. See "Description of Guarantees" and
"Description of Debentures--Subordination." Because the Company is a holding
company, the Company's right to participate in any distribution of assets of any
subsidiary, when such subsidiary is liquidated or reorganized, is subject to the
prior claims of creditors of the subsidiary. Accordingly, the Debentures will be
effectively subordinated to all existing and future liabilities of the Company's
subsidiaries, and holders of Debentures should look only to the assets of the
Company for payments on the Debentures. See "The Company."
The ability of any Trust to pay amounts on its Preferred Securities is
solely dependent upon the Company making payments on the Debentures as and when
required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; PRICE CONSEQUENCES
If the applicable Prospectus Supplement provides, the Company will have the
right under the Indenture to periodically defer payment of interest for an
Extension Period of up to the number of consecutive interest payment periods
specified in the applicable Prospectus Supplement. The interest payment
deferment will be subject to the terms, conditions and any covenants specified
in the applicable Prospectus Supplement. The Extension Period may not extend
beyond the maturity of such series of Debentures, as provided in the applicable
Prospectus Supplement. Certain United States federal income tax consequences and
other applicable considerations to any such Debentures will be described in the
applicable Prospectus Supplement. See "Description of Debentures--Option to
Defer Interest Payments" and "Description of Preferred
Securities--Distributions."
The Indenture will also limit the Company's ability to pay any dividends or
distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of its capital stock during an Extension Period. In the
event that the Company elects to exercise such right, the market price of the
Preferred Securities is likely to be adversely affected. If you sell Preferred
Securities during an Extension Period, you might not receive the same return on
your investment as holders who continue to hold their Preferred Securities. In
addition, due to the Company's right to defer interest payments, the market
price of the Preferred Securities (which represent preferred undivided
beneficial interests in the assets of a Trust) may be more volatile than the
market prices of other securities that are not subject to such deferrals.
SPECIAL EVENT PREPAYMENT
If a Special Event regarding a series of Debentures occurs and is
continuing, the Company may prepay all (but not a part) of such series of
Debentures at any time within 90 days of the date of such Special Event at the
prepayment price described in the applicable Prospectus Supplement. Such a
5
<PAGE>
prepayment of Debentures would cause a mandatory redemption of the Preferred
Securities. See "Description of Preferred Securities--Redemption or Exchange."
A "Special Event" means an Investment Company Event or a Tax Event.
An "Investment Company Event" means the receipt by a Trust of an opinion of
counsel to the effect that, as a result of a change in the laws (or any
regulations) or in official administrative or judicial interpretation or
application of such laws (or regulations), there is more than an insubstantial
risk that such Trust is or will be required to be registered under the
Investment Company Act of 1940, as amended (the "Investment Company Act") on or
after the date of the issuance of the Preferred Securities of such Trust.
A "Tax Event" means the receipt by a Trust of an opinion of counsel to the
effect that, as a result of a change in the laws (or any regulations) or in
official administrative or judicial interpretation or application of such laws
(or regulations), there is more than an insubstantial risk that (i) such Trust
is, or will be within 90 days, subject to United States federal income tax with
respect to income received or accrued on the corresponding series of Debentures,
(ii) all or a part of the interest payable by the Company on such series of
Debentures is not, or within 90 days will not be, deductible by the Company for
United States federal income tax purposes, or (iii) such Trust is, or will be
within 90 days, subject to more than a minimal amount of taxes, duties or
governmental charges.
EXCHANGE OF PREFERRED SECURITIES FOR DEBENTURES
The Company will be able to dissolve the Trusts at any time and distribute
(after satisfaction of liabilities to creditors as required by applicable law)
Debentures to you as a holder of Preferred Securities in liquidation of such
Trusts. See "Description of Preferred Securities--Liquidation Distribution on
Dissolution."
Because you may receive Debentures on dissolution of a Trust and because
Distributions are otherwise limited to payments on the Debentures, you are also
making an investment decision relating to the Debentures when you invest in the
Preferred Securities. You should carefully review all the information regarding
the Debentures contained in this Prospectus and the applicable Prospectus
Supplement. See "Description of Debentures" and "Description of Preferred
Securities."
PRICES FOR PREFERRED SECURITIES OR DEBENTURES
The Company and the Trusts cannot make any guarantees about the market
prices for the Preferred Securities or the Debentures that may be exchanged for
Preferred Securities if a Trust were to be dissolved and liquidated. You should
be aware if you invest that the Preferred Securities or the Debentures may trade
at a lower price than you paid to purchase the Preferred Securities.
RIGHTS UNDER THE GUARANTEES
The Chase Manhattan Bank will act as the Guarantee Trustee and will hold the
Guarantees for your benefit. The Chase Manhattan Bank will also act as Debenture
Trustee for the Debentures and as Property Trustee under the Trust Agreements
and its affiliate Chase Manhattan Bank Delaware will act as Delaware Trustee
under the Trust Agreements. Unless the applicable Prospectus Supplement states
differently, each Guarantee will guarantee to you as a holder of Preferred
Securities the following payments if they are not paid by the applicable Trust:
- any accumulated and unpaid Distributions that must be paid on such
Preferred Securities, to the extent such Trust has funds available at such
time;
- the Redemption Price, with respect to any Preferred Securities called for
redemption, to the extent such Trust has funds available at such time; and
6
<PAGE>
- if a voluntary or involuntary dissolution of such Trust occurs, and a
distribution of Debentures to the holders of such Preferred Securities is
not made, an amount equal to the lesser of either (i) the Liquidation
Distribution or (ii) the aggregate of the Liquidation Amount and all
accumulated and unpaid Distributions on the Preferred Securities to the
date of payment, to the extent the Trust has funds available for that
purpose.
The holders of at least a majority of the Liquidation Amount of the
Preferred Securities have the right to direct the time, method and place of a
proceeding for any remedy available to the Guarantee Trustee or to direct the
exercise of any trust or power conferred upon the Guarantee Trustee under the
Guarantees. As a holder of Preferred Securities, you may institute legal
proceedings directly against the Company to enforce your rights under such
Guarantees without first bringing legal proceedings against the applicable
Trust, the Guarantee Trustee, or any other person or entity. If the Company does
not make interest or principal payments on a series of Debentures purchased by a
Trust, that Trust will not be able to pay any distributions on its Preferred
Securities because it will not have the funds to do so. If such a default
occurs, you would not be able to rely on the Guarantees for payment of these
amounts. Instead, if a Debenture Event of Default relating to the failure to pay
interest or principal on a series of Debentures has occurred and is continuing,
you may institute a suit directly against the Company to enforce payment of the
principal or interest on such Debentures having a principal amount equal to the
Liquidation Amount of your Preferred Securities. Notwithstanding any payments
made to you by the Company in connection with such suit, the Company will remain
obligated to pay the principal of and interest on the Debentures, and the
Company will have the right to set-off any payment made to such holder of
Preferred Securities by the Company in connection with a suit directly against
the Company or under the related Guarantee. You will not be able to directly
exercise any other remedies available to the Trusts as the holders of the
Debentures unless there has been an Event of Default under the applicable Trust
Agreement. See "Description of Debentures--Enforcement of Certain Rights by
Holders of Preferred Securities" and "--Debenture Events of Default" and
"Description of Guarantees." Each Trust Agreement provides that by receiving and
accepting Preferred Securities, you agree to the provisions of the Guarantees
and the Indenture.
LIMITED VOTING RIGHTS
As a holder of Preferred Securities, you will generally have limited voting
rights relating only to the modification of the Preferred Securities and the
exercise of the applicable Trust's rights as holder of Debentures. You will have
limited authority to vote to remove or replace the Trustees. The Company (as
holder of the Common Securities), the Property Trustee and the Delaware Trustee
may amend each Trust Agreement without your consent to ensure that each Trust
will be classified for United States federal income tax purposes as a grantor
trust even if doing so adversely affects your interests. See "Description of
Preferred Securities--Voting Rights; Amendment of each Trust Agreement" and
"Description of Preferred Securities--Removal of Trustees."
ABSENCE OF PUBLIC MARKET
The Preferred Securities, the Preferred Stock and the Depositary Receipts
will be new issues of securities with no established trading market. Any
election by the Company to file an application for listing of the Preferred
Securities, the Preferred Stock or the Depositary Receipts on any exchange or
quotation system will be specified in the applicable Prospectus Supplement.
However, the Company does not know the extent to which investor interest in the
Preferred Securities, the Preferred Stock or the Depositary Receipts will lead
to the development of a trading market or how liquid that market will be even if
the Preferred Securities, the Preferred Stock or the Depositary Receipts are
listed on an exchange or quotation system. If no active public market develops,
the market price and liquidity of the Preferred Securities, the Preferred Stock
or the Depositary Receipts may be adversely affected.
7
<PAGE>
THE COMPANY
The Bear Stearns Companies Inc. is a holding company that, through its
principal subsidiaries, Bear Stearns, BSSC and BSIL, is a leading United States
investment banking, securities trading and brokerage firm serving corporations,
governments, institutional and individual investors worldwide. The Company's
business includes:
- market-making and trading in corporate, United States government,
government-agency, mortgage-related, asset-backed and municipal
securities;
- trading in equity and debt corporate securities, options, futures, foreign
currencies, interest-rate swaps and other derivative products;
- securities and commodities arbitrage;
- securities, options and commodities brokerage;
- underwriting and distributing securities;
- providing securities clearance services;
- financing customer activities;
- securities lending;
- arranging for the private placement of securities;
- advising clients in mergers, acquisitions, restructurings and leveraged
transactions;
- providing other financial advisory services;
- making principal investments in leveraged acquisitions;
- acting as specialist on the floor of the New York Stock Exchange;
- providing fiduciary and other services, such as real estate brokerage,
investment management and investment advisory; and
- financial market and securities research.
The Company conducts its business from its principal offices in New York
City; from domestic regional offices in Atlanta, Boston, Chicago, Dallas, Los
Angeles and San Francisco; from representative offices in Beijing, Lugano and
Shanghai; through international subsidiaries in Buenos Aires, Dublin, Hong Kong,
London, Paris, Sao Paulo, Singapore and Tokyo; and through joint ventures with
other firms in Belgium, Madrid and the Philippines. The Company's foreign
offices provide services and engage in investment activities involving foreign
clients and international transactions. The Company provides trust-company
services through its subsidiary, Custodial Trust Company, located in Princeton,
New Jersey.
Bear Stearns and BSSC are broker-dealers registered with the SEC. They are
also members of the New York Stock Exchange, all other principal United States
securities and commodities exchanges, the National Association of Securities
Dealers, Inc. and the National Futures Association. Bear Stearns is a "primary
dealer" in United States government securities, as designated by the Federal
Reserve Bank of New York. BSIL is a securities broker dealer based in London.
BSIL is regulated by the Financial Services Authority in the United Kingdom and
is a member of the London International Financial Futures Exchange, the London
Securities & Derivatives Exchange, the International Petroleum Exchange and the
London Commodity Exchange.
8
<PAGE>
THE TRUSTS
Each Trust is a statutory business trust created under Delaware law. As a
Delaware business trust, each Trust will be subject to (i) a trust agreement
executed by the Company, as Depositor, a Delaware Trustee, a Property Trustee
and three Administrators and (ii) a certificate of trust filed with the Delaware
Secretary of State. The trust agreement of each Trust will be amended and
restated in its entirety (as amended and restated, a "Trust Agreement") before
the issuance of any Preferred Securities. Each Trust Agreement will be
substantially in the form filed as an exhibit to the Registration Statement.
Each Trust Agreement will be qualified as an indenture under the Trust Indenture
Act of 1939, as amended (the "TIA"). Each Trust will only have the following
purposes:
- issuing and selling its Common Securities and Preferred Securities (the
"Trust Securities");
- using the proceeds from such sale to acquire a series of Debentures issued
by the Company; and
- engaging in other activities necessary or incidental to the above purposes
(for example, registering the transfer of Trust Securities).
Accordingly, the Debentures will be the only assets of each Trust, and
payments received from the Debentures will be the only revenue of each Trust.
All of the Common Securities of each Trust will be owned by the Company. The
Company will acquire Common Securities with an aggregate Liquidation Amount of
at least 3% of each Trust's total capital.
Each Trust has a term of approximately 55 years unless the applicable
Prospectus Supplement states differently, but may terminate earlier as the Trust
Agreement provides. Each Trust's business and affairs will be conducted by its
trustees, which are appointed by the Company. Each of the Trusts will have the
following Trustees and Administrators:
- Property Trustee: The Chase Manhattan Bank, which will act as sole trustee
under each Trust Agreement for purposes of compliance with the TIA;
- Delaware Trustee: Chase Manhattan Bank Delaware;
- Administrators: three individual trustees who are employees or officers of
or affiliated with the Company.
The Chase Manhattan Bank will also act as trustee under the Guarantees and
the Indenture governing the Debentures. See "Description of Guarantees" and
"Description of Debentures." The Company (as the holder of the Common
Securities) can appoint, remove or replace the Property Trustee and/or the
Delaware Trustee. Also, if any event of default under a Trust Agreement has
occurred and is continuing, then the holders of a majority of the Liquidation
Amount of the related Preferred Securities will also be able to appoint, remove
or replace the Property Trustee and/or the Delaware Trustee. As a holder of
Preferred Securities, you will not be able to appoint, remove or replace the
Administrators because the Company (as holder of the Common Securities) has that
power exclusively. The duties and obligations of each Trustee are governed by
the applicable Trust Agreement. The Company will pay all ongoing fees and
expenses of each Trust, including those related to the offering of the Preferred
Securities.
9
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RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The ratio of earnings to fixed charges and to combined fixed charges and
preferred stock dividends for each of the periods indicated are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED JUNE 30,
SEPTEMBER 25, SEPTEMBER 26, --------------------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
------------- ------------- ------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<CAPTION>
(IN THOUSANDS, EXCEPT FOR RATIO)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings before taxes
on income............ $ 93,309 $ 267,138 $ 1,063,492 $ 1,013,690 $ 834,926 $ 388,082 $ 642,799
Added fixed charges:
Interest............. 982,703 816,915 3,638,513 2,551,364 1,981,171 1,678,515 1,023,866
Interest factor in
rents.............. 7,706 7,231 30,130 26,516 25,672 24,594 21,772
------------- ------------- ------------ ------------ ------------ ------------ ------------
Total fixed charges.... 990,409 824,146 3,668,643 2,577,880 2,006,843 1,703,109 1,045,638
------------- ------------- ------------ ------------ ------------ ------------ ------------
Earnings before fixed
charges and taxes on
income............... $ 1,083,718 $ 1,091,284 $ 4,732,135 $ 3,591,570 $ 2,841,769 $ 2,091,191 $ 1,688,437
------------- ------------- ------------ ------------ ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------ ------------ ------------
Preferred Stock
dividends............ $ 9,778 $ 5,925 $ 31,970 $ 23,890 $ 24,493 $ 25,137 $ 24,667
Ratio of income before
provision for income
taxes to net
income*.............. 146% 165% 161% 165% 170% 161% 166%
Preferred dividend
factor on pre-tax
basis................ 14,233 9,793 51,481 39,484 41,680 40,543 40,975
------------- ------------- ------------ ------------ ------------ ------------ ------------
Total combined fixed
charges and preferred
stock dividends...... $ 1,004,642 $ 833,939 $ 3,720,124 $ 2,617,364 $ 2,048,523 $ 1,743,652 $ 1,086,613
------------- ------------- ------------ ------------ ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------ ------------ ------------
Ratio of earnings to
combined fixed
charges and preferred
stock dividends...... 1.1 1.3 1.3 1.4 1.4 1.2 1.6
------------- ------------- ------------ ------------ ------------ ------------ ------------
------------- ------------- ------------ ------------ ------------ ------------ ------------
</TABLE>
- ------------------------
* Represents income before provision for income taxes divided by net income,
which adjusts dividends on outstanding series of preferred stock of the
Company to a pre-tax basis.
USE OF PROCEEDS
The Company intends to use the net proceeds from the sale of the securities
for general corporate purposes, which may include additions to working capital,
the repayment of indebtedness and investment in, or extensions of credit to,
subsidiaries. The applicable Prospectus Supplement will describe any different
use of proceeds.
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ABOUT THIS PROSPECTUS
This Prospectus is a part of the Registration Statement we filed with the
SEC utilizing the "shelf" registration process. Under this shelf registration
process, we may sell any combination of the securities described in this
Prospectus in one or more offerings up to a total dollar amount of $750,000,000.
This Prospectus provides you with a general description of the securities we may
offer. Each time we sell securities, we will provide a Prospectus Supplement
that will contain the specific information about the terms of that offering. The
Prospectus Supplement may also add, update or change information contained in
this Prospectus. You should read both this Prospectus and any Prospectus
Supplement, together with the additional information described under the heading
"Where You Can Find More Information." It is important for you to consider all
of this information in making your investment decision. This Prospectus may not
be used to consummate sales of Debentures, Preferred Securities or Preferred
Stock unless accompanied by a Prospectus Supplement containing information about
the terms of that offering.
OVERVIEW OF DEBENTURES, PREFERRED SECURITIES
AND GUARANTEES
The Bear Stearns Companies Inc. may periodically offer its Junior
Subordinated Deferrable Interest Debentures (the "Debentures") in one or more
series or issuances. The Debentures will be unsecured and junior in right of
payment to the Company's Senior Debt. If provided in an applicable Prospectus
Supplement, the Company may defer payments of interest on any series of
Debentures by extending the interest payment period at various times for an
"Extension Period" of up to the number of consecutive interest payment periods
specified in the applicable Prospectus Supplement (but not beyond the maturity
of such series as provided in the applicable Prospectus Supplement). If payments
of interest are deferred, then the Company generally is not permitted to declare
or pay any dividends, distributions or other payments on, or repay, repurchase,
redeem or otherwise acquire, the Company's capital stock or debt securities that
rank equally with or junior to such series of Debentures. See "Risk
Factors--Ranking of Obligations under the Guarantees and the Debentures,"
"Description of Debentures--Option to Defer Interest Payments," "--Restrictions
on Certain Payments" and "--Subordination."
Each of the Trusts may periodically offer Preferred Securities that
represent preferred undivided beneficial interests in the assets of such Trust.
The Company will be the owner of the Common Securities that represent common
undivided beneficial interests in the assets of such Trust. As a holder of
Preferred Securities you will be entitled to a preference over the Common
Securities of such Trust in certain circumstances with respect to (i) cash
distributions ("Distributions") that accumulate from the date of original
issuance and are payable periodically as specified in the applicable Prospectus
Supplement and (ii) amounts payable on redemption or liquidation.
At the same time a Trust issues and sells Preferred Securities, such Trust
will invest the proceeds of the sale of the Preferred Securities and the Common
Securities in Debentures. The Debentures will have terms that correspond to the
terms of that Trust's related Preferred Securities. See "Description of
Preferred Securities--Distributions." The Debentures will be the only assets of
each Trust, and payments received from the Debentures will be the only revenue
of each Trust.
The Company will guarantee the payment of Distributions and payments on
liquidation of a Trust or on redemption of Preferred Securities. See
"Description of Guarantees." The Company's obligations under each Guarantee will
be unsecured and junior in right of payment to all Senior Debt of the Company.
Taken together, the Company's obligations under each series of Debentures, the
Indenture, the related Trust Agreement and the related Guarantee will provide a
full, irrevocable and unconditional guarantee of payments of Distributions and
other amounts due on the related Preferred Securities. See "Relationship Among
Debentures, Preferred Securities and Guarantees--Full and Unconditional
Guarantee."
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<PAGE>
DESCRIPTION OF DEBENTURES
The Company will issue the Debentures under an Indenture between the Company
and The Chase Manhattan Bank, as trustee (the "Debenture Trustee"). This is a
summary and is not complete. This summary does not describe certain exceptions
and qualifications contained in the Indenture or the Debentures. You should read
the Indenture, which is filed as an exhibit to the Registration Statement. The
Indenture is qualified under the Trust Indenture Act of 1939, as amended.
GENERAL
The Debentures may be issued in one or more series of Debentures under the
Indenture with terms corresponding to the terms of a series of related Preferred
Securities. In that event, concurrently with the issuance and sale of each
Trust's Preferred Securities, such Trust will invest the proceeds of such sale
and the sale to the Company of the Common Securities of such Trust in such
series of Debentures. Each series of Debentures will be in the principal amount
equal to the aggregate stated Liquidation Amount of the related Preferred
Securities and the Common Securities of such Trust.
Each series of Debentures will be unsecured and subordinate and junior in
right of payment to all Senior Debt of the Company as provided in the Indenture.
See "--Subordination." Because the Company is a holding company, the Company's
right to participate in any distribution of assets of any subsidiary, including
Bear Stearns, BSSC and BSIL, when such subsidiary is liquidated or reorganized
is subject to the prior claims of creditors of the subsidiary. Accordingly, the
Debentures will be effectively subordinated to all existing and future
liabilities of the Company's subsidiaries and the applicable Trusts, as holders
of Debentures should look only to the assets of the Company for payments on the
Debentures. The Indenture does not limit the incurrence of additional debt by
the Company, which debt could be Senior Debt. At September 25, 1998, the Company
had outstanding (on an unconsolidated basis) approximately $28.6 billion of
debt, including approximately $27.2 billion of Senior Debt, none of which is
secured, and subsidiaries of the Company had outstanding (on an unconsolidated
basis) approximately $125.5 billion of debt and other obligations (including
$52.0 billion related to securities sold under repurchase agreements, $44.6
billion related to payables to customers, $21.9 billion related to financial
instruments sold, but not yet purchased and $7.0 billion of other liabilities,
including $2.8 billion of debt). See "--Subordination" and "Risk
Factors--Ranking of Obligations under the Guarantees and the Debentures."
The Debentures may be issued in one or more series pursuant to a
supplemental indenture to the Indenture or a resolution of the Company's Board
of Directors.
The applicable Prospectus Supplement will describe some or all of the
following terms of the Debentures:
- the title;
- any limit on the aggregate principal amount;
- maturity date on which principal is payable or the method of determining
it;
- interest rate(s);
- interest payment dates;
- rights to defer or extend an interest payment date;
- record dates for each corresponding interest payment date;
- the place of payment where (i) principal, premium, and interest are
payable, (ii) Debentures may be presented for registration of transfer or
exchange and (iii) notices and demands to the Company may be made;
- terms and conditions of optional redemption;
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<PAGE>
- terms and conditions of mandatory redemption;
- issuable denominations;
- currency(ies) in which the principal, any premium and any interest are
payable or the Debentures will be denominated;
- additions, modifications or deletions to the events of default or
covenants of the Company in the Indenture;
- portion (if less than all) of the principal amount payable upon
acceleration or maturity;
- additions or changes to the Indenture necessary to permit or facilitate
the issuance of Debentures in bearer form;
- index(ices) and applicable calculations used to determine the amount of
principal, premium or interest payments;
- terms and conditions for issuance of a temporary Global Security
representing all such Debentures and the exchange of a temporary Global
Security for definitive Debentures;
- whether issuance will be in the form of one or more Global Securities and
the depositary for Global Securities;
- appointment of any paying agent(s);
- terms and conditions of any optional or mandatory conversion or exchange
of Debentures into the Company's capital stock or Preferred Securities;
- form of Trust Agreements and Guarantees; and
- any other terms not inconsistent with the Indenture.
Debentures may be sold at a substantial discount below their stated
principal amount and may bear no interest or below market rate interest. Certain
United States federal income tax consequences and special considerations
applicable to any Debentures will be described in the applicable Prospectus
Supplement.
If (i) the purchase price of any of the Debentures is payable in one or more
foreign currencies or currency units, (ii) any Debentures are denominated in one
or more foreign currencies or currency units or (iii) the principal, any premium
or any interest on any Debentures is payable in one or more foreign currencies
or currency units, then the restrictions, elections, certain United States
federal income tax consequences, specific terms and other information with
respect to such series of Debentures and such foreign currency or currency units
will be set forth in the applicable Prospectus Supplement.
If any index is used to determine the amount of payments of principal, any
premium or any interest on any series of Debentures, special United States
federal income tax, accounting and other applicable considerations will be
described in the applicable Prospectus Supplement.
DENOMINATIONS, REGISTRATION AND TRANSFER
Debentures will be issuable only in registered form without coupons, unless
the applicable Prospectus Supplement states differently. Debentures of any
series will be exchangeable for other Debentures of the same issue and series,
in authorized denominations, with the same aggregate principal amount, original
issue date and maturity and bearing the same interest rate.
Debentures may be presented for exchange, and may be presented for
registration of transfer (with the form of transfer endorsed, or a duly executed
satisfactory written instrument of transfer), at the
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<PAGE>
office of the appropriate securities registrar or at the office of any transfer
agent designated by the Company for such purpose and referred to in the
applicable Prospectus Supplement. There will be no service charge for any
exchange or registration of transfer, although payment of certain taxes and
other governmental charges as described in the Indenture may be required. The
Company will appoint the Debenture Trustee as securities registrar under the
Indenture. If the Company designates any transfer agents (in addition to the
securities registrar) with respect to any series of Debentures in the applicable
Prospectus Supplement, the Company may rescind that designation or approve a
change in the location where such transfer agent acts at any time, provided that
the Company maintains a transfer agent in each place of payment for such series.
The Company may designate additional transfer agents with respect to any series
of Debentures at any time.
If a redemption occurs, neither the Company nor the Debenture Trustee will
be required to (i) exchange or register the transfer of Debentures of any series
during a period beginning at the opening of business 15 days before the mailing
of a notice of redemption of Debentures of that series and ending at the close
of business on the day of such mailing or (ii) exchange or transfer any
Debentures so selected for redemption, except any portion of Debentures not
being redeemed in a partial redemption.
GLOBAL DEBENTURES
Unless the applicable Prospectus Supplement states differently, all or a
part of each series of Debentures may be issued in the form of one or more
Global Debentures that will be deposited with, or on behalf of, a depositary
(the "Depositary") identified in the applicable Prospectus Supplement. Global
Debentures will be issued only in fully registered form, but may be in either
temporary or permanent form. Unless and until it is exchanged for certificated
Debentures, a Global Debenture may be transferred only as a whole. Transfers of
Global Debentures are permitted between the following entities:
- by the Depositary for such Global Debenture to a nominee of such
Depositary;
- by a nominee of such Depositary to such Depositary or another nominee of
such Depositary; or
- by the Depositary or any nominee to a successor Depositary or any nominee
of such successor.
While each Prospectus Supplement will describe the terms of the depositary
arrangement with respect to each series of Debentures, the Company expects the
following terms will apply to each of the depositary arrangements.
The Depositary or its nominee will credit on its book-entry registration and
transfer system the respective principal amounts of the individual Debentures
that are represented by the corresponding Global Debenture issued and deposited
with them to the accounts of persons who have accounts ("Participants") with
such Depositary. The depositary accounts may include the accounts of Morgan
Guaranty Trust Company of New York, Brussels office, as operator of the
Euroclear System ("Euroclear"), and Cedel Bank, societe anonyme ("Cedel"). The
dealers, underwriters or agents or the Company (if the Company offers and sells
such Debentures directly) will designate these accounts for the respective
Debentures.
The ownership of the beneficial interests in a Global Debenture will be
limited to Participants or persons that may hold interests through Participants,
including Euroclear and Cedel and their participants. Actual ownership of
beneficial interests in each Global Debenture will only be shown on, and the
transfer of ownership will be completed through, records of the applicable
Depositary or its nominee (for interests of Participants), and the records of
Participants (for interests of persons who hold through Participants). However,
because the laws of some states require that certain purchasers of securities
take physical delivery of such securities in definitive form, rather than
through a Global
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<PAGE>
Debenture, such restrictions may impair the ability to transfer beneficial
interests in a Global Debenture.
For all purposes under the Indenture and as long as either the Depositary or
its nominee is the registered owner of the corresponding Global Debenture, such
Depositary or such nominee will be considered the sole holder and owner of the
Debentures represented by such Global Debenture.
Except as provided below, owners of beneficial interests in a Global
Debenture:
- will not be entitled to have any of the individual Debentures of the
series represented by the corresponding Global Debenture registered in
their names;
- will not receive physical delivery of any such Debentures of such series
in definitive form; and
- will not be considered the holders or owners of such Debentures under the
Indenture.
Payments of principal, any premium and any interest on individual Debentures
represented by a Global Debenture registered in the name of a Depositary or its
nominee will be made to the Depositary or its nominee, as the case may be. None
of the Company, the Debenture Trustee, any paying agent or the securities
registrar for such Debentures will be responsible or liable for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in the Global Debenture representing such Debentures. They also will
not be responsible for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
When it receives any payment of principal, any premium or any interest
regarding a permanent Global Debenture representing any Debentures, the Company
expects the Depositary or its nominee to immediately credit each Participant's
account with payments in amounts proportionate to its respective beneficial
interest in the principal amount of such Global Debenture for such Debentures.
Each Participant's beneficial interest will be shown on the records of such
Depositary or its nominee. The Company also expects that payments by
Participants to owners of beneficial interests in each Global Debenture will be
governed by standing instructions and customary practices as now apply with
securities held for customer accounts in bearer form or registered in "street
name." These Participants will be responsible for such payments.
If a Depositary for a series of Debentures is at any time unwilling, unable
or ineligible to continue as depositary, and the Company does not appoint a
successor depositary within 90 days, the Company will issue individual
Debentures of such series in exchange for the Global Debenture representing such
series of Debentures, unless the applicable Prospectus Supplement states
differently. The Company may at any time and in its sole discretion, subject to
any limitations described in the applicable Prospectus Supplement, determine not
to have any Debentures of such series represented by one or more Global
Debentures. In such case, the Company will issue certificated Debentures of such
series in exchange for the Global Debenture as described in the applicable
Prospectus Supplement.
An owner of a beneficial interest in a Global Debenture may be permitted to
receive individually certificated Debentures of a series in exchange for the
beneficial interests in the Global Debenture on terms that are acceptable to
each of the Company, the Debenture Trustee and the Depositary and subject to any
limitations in the applicable Prospectus Supplement. In such case, the owner of
a beneficial interest in a Global Debenture will be entitled to physical
delivery of certificated Debentures of the same series that is equal in its
aggregate principal amount to the owner's beneficial interest in the
corresponding Global Debenture. The Company will register such Debenture in the
owner's name in the denominations specified for such series in the applicable
Prospectus Supplement.
PAYMENT AND PAYING AGENTS
Payment of principal, any premium and any interest on Debentures will be
made at the office of the Debenture Trustee in the City of New York or at the
office of such paying agent(s) as the Company
15
<PAGE>
may periodically designate, unless the applicable Prospectus Supplement states
differently. However, at the option of the Company, payment of any interest may
be made (i) except in the case of Global Debentures, by check mailed to the
address in the securities register of the person entitled to such payment or
(ii) by transfer to an account specified in the securities register maintained
by the person entitled to such payment, provided that proper transfer
instructions have been received by the preceding record date. Unless the
applicable Prospectus Supplement states differently, payment of any interest on
Debentures will be made to the person in whose name such Debentures are
registered at the close of business on the record date for such interest, except
in the case of defaulted interest. The Company may at any time designate
additional paying agents or rescind the designation of any paying agent;
however, the Company will at all times be required to maintain a paying agent in
each place of payment for each series of Debentures.
Any moneys deposited with the Debenture Trustee or any paying agent or then
held by the Company in trust for the payment of principal, any premium or any
interest on any Debenture and remaining unclaimed for two years after such
payment has become due and payable shall, at the request of the Company, be
repaid to the Company. After that time, the holder of such Debenture will be a
general unsecured creditor of the Company and may only look to the Company for
payment of such moneys.
OPTION TO DEFER INTEREST PAYMENTS
If provided in the applicable Prospectus Supplement, the Company will have
the right to periodically defer payment of interest for an Extension Period of
up to the number of consecutive interest payment periods specified in the
applicable Prospectus Supplement. The interest payment deferment will be subject
to the terms, conditions and any covenants specified in the applicable
Prospectus Supplement. The Extension Period may not extend beyond the maturity
of such series of Debentures as provided in the applicable Prospectus
Supplement. Certain United States federal income tax consequences and other
applicable considerations to any such Debentures will be described in the
applicable Prospectus Supplement.
REDEMPTION AND PREPAYMENT
Debentures will not be subject to any sinking fund, unless the applicable
Prospectus Supplement states differently.
The Company may redeem all (at any time) or a part (at particular times) of
the Debentures of any series, unless the applicable Prospectus Supplement states
differently. If the Debentures of any series are redeemable beginning on a
specified date or upon the satisfaction of additional conditions, the applicable
Prospectus Supplement will specify such date or describe such conditions. The
redemption price for any Debenture so redeemed will equal any accrued and unpaid
interest to the redemption date, plus 100% of the outstanding principal amount,
unless the applicable Prospectus Supplement states differently.
Unless the applicable Prospectus Supplement states differently, if a Special
Event regarding a Trust occurs and is continuing, the Company has the option to
prepay all (but not a part) of the corresponding series of Debentures at any
time within 90 days of the date of such Special Event, subject to the provisions
of the Indenture and whether or not such Debentures are then otherwise
redeemable at the option of the Company. The prepayment price for any Debentures
will be described in the applicable Prospectus Supplement. For so long as the
applicable Trust is the holder of all the outstanding Debentures of such series,
the proceeds of any such prepayment will be used by such Trust to redeem the
corresponding Trust Securities in accordance with their terms.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of Debentures to be redeemed
at its registered address. Unless the
16
<PAGE>
Company defaults in payment of the redemption price and any interest accrued to
the redemption date, interest will stop accruing on such Debentures (or the part
called for redemption) as of the redemption date.
RESTRICTIONS ON CERTAIN PAYMENTS
The Company will covenant that it will not and will not permit any
subsidiary of the Company to:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of the
Company's capital stock;
- make any payment of principal, any premium or interest on or repay,
repurchase or redeem any debt securities of the Company (including other
series of Debentures) that rank equally with or junior in interest to the
Debentures; or
- make any guarantee payments on any guarantee by the Company of the debt
securities of any subsidiary if such guarantee ranks equally with or
junior in interest to the Debentures;
whenever any of the following payment restriction events occur:
- the Company has actual knowledge of the occurrence of any event (i) that
with the giving of notice or the lapse of time or both would constitute a
Debenture Event of Default under the Indenture with respect to the
Debentures of such series and (ii) that the Company has not taken
reasonable steps to cure;
- if such Debentures are held by a Trust of a series of related Preferred
Securities and the Company has defaulted on the payment of any obligations
under the Guarantee relating to such related Preferred Securities; or
- the Company has given notice of its election of an Extension Period as
provided in the Indenture with respect to the Debentures of such series
and has not rescinded such notice, or such Extension Period, or any
extension thereof, is continuing.
The Company will be permitted to make:
- dividends or distributions in capital stock of the Company;
- any declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of capital stock under any such
plan in the future, or the redemption or repurchase of any such rights
pursuant to such plan;
- payments under (i) any Guarantee with respect to the series of related
Preferred Securities and (ii) any guarantee for the benefit of holders of
the capital securities of Bear Stearns Capital Trust I;
- purchases of common stock related to the issuance of common stock under
any of the Company's benefit plans for its directors, officers or
employees; and
- payments of interest under a loan agreement with Bear Stearns Finance LLC.
However, the Company will not be able to make payments under any Guarantee
if a payment restriction event occurs with respect to the debentures issued to
Bear Stearns Capital Trust I under the indenture, dated as of January 29, 1997,
between the Company and The Chase Manhattan Bank, as periodically supplemented.
MODIFICATION OF INDENTURE
The Company and the Debenture Trustee may modify the Indenture without the
consent of the applicable Trusts as holders of any series of Debentures to cure
ambiguities, defects or inconsistencies
17
<PAGE>
(so long as the interests of such Trusts or, in the case of Debentures, the
holders of the related Preferred Securities are not materially adversely
affected) and qualify, or maintain the qualification of, the Indenture under the
TIA, among other things. The Indenture permits the Company and the Debenture
Trustee to modify the Indenture in a manner that materially adversely affects
the rights of the applicable Trusts as holders of a series of Debentures so long
as the holders of at least a majority in principal amount of such series of
Debentures consents.
The consent of all affected holders of a series of Debentures is required
to, among other things: (i) change the maturity of such series of Debentures;
(ii) reduce the principal amount of, or reduce the rate or extend the time of
payment of interest on, such series of Debentures; or (iii) modify the
provisions regarding subordination of the Debentures in a manner that adversely
affects the rights of holders of such series of Debentures. The consent of all
holders of a series of Debentures is required to reduce the percentage of
principal amount of Debentures of such series, the holders of which are required
to consent to any such modification of the Indenture.
In the case of Debentures, so long as any related Preferred Securities
remain outstanding, unless the principal and any premium of the Debentures and
all accrued and unpaid interest on such Debentures have been paid in full: (i)
no modification may be made that materially adversely affects you as a holder of
such Preferred Securities, and no termination of the Indenture may occur, and no
waiver of any Debenture Event of Default or compliance with any covenant under
the Indenture with respect to such Debentures may be effective, without the
prior consent of the holders of at least a majority of the Liquidation Amount of
all outstanding related Preferred Securities affected; and (ii) no modification
may impair your rights as a holder of Preferred Securities to institute suit
directly against the Company when certain Debenture Events of Default occur,
without the prior consent of the holders of all related Preferred Securities
then outstanding.
The Company and the Debenture Trustee may execute any supplemental indenture
to create any new series of Debentures without the consent of any Trust as a
holder of Debentures.
DEBENTURE EVENTS OF DEFAULT
A "Debenture Event of Default" will occur under the Indenture if any of the
following events occurs:
- failure for 30 days by the Company to pay any interest when due (subject
to the deferral of any due date in the case of an Extension Period); or
- failure by the Company to pay any principal when due at maturity, upon
redemption, by declaration or otherwise; or
- failure by the Company to observe or perform in any material respect
certain covenants contained in the Debentures or the Indenture for 90 days
after written notice to the Company from the Debenture Trustee or the
holders of at least 25% in principal amount of such series of Debentures;
or
- certain events of bankruptcy, insolvency or reorganization of the Company.
The holders of a majority of the outstanding principal amount of Debentures
of each series affected have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee. The
Debenture Trustee or the holders of at least 25% of the outstanding principal
amount of Debentures of each series affected may declare the principal due and
payable immediately when a Debenture Event of Default occurs. If the Debenture
Trustee or holders of at least 25% of the outstanding principal amount of
Debentures fail to make such declaration, the holders of at least 25% of the
Liquidation Amount of the related Preferred Securities will have such right. If
the Debenture Event of Default has been cured, the holders of a majority of the
18
<PAGE>
outstanding principal amount of Debentures of each series affected may annul
such declaration. If the holders of such Debentures fail to annul such
declaration and waive such default, the holders of a majority of the Liquidation
Amount of the related Preferred Securities affected will have such right.
The holders of a majority of the outstanding principal amount of each series
of the Debentures affected, and the holders of a majority of the Liquidation
Amount of the corresponding Preferred Securities, may, on behalf of the holders
of all the Debentures of such series or the corresponding Preferred Securities
(as applicable), waive any default, except a default in the payment of principal
or interest or a default regarding a covenant or provision which under the
Indenture cannot be modified or amended without the consent of the holder of
each outstanding Debenture. The Company is required to file an annual
certificate with the Debenture Trustee stating whether the Company is in
compliance with all the applicable conditions and covenants under the Indenture.
If a Debenture Event of Default occurs and is continuing as to a series of
Debentures, then the Property Trustee may declare the principal and any interest
on such Debentures to be immediately due and payable and to enforce its other
rights as a creditor with respect to such Debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Debenture Event of Default relating to the failure to pay interest or
principal on a series of Debentures has occurred and is continuing, as a holder
of related Preferred Securities, you may institute a suit directly against the
Company to enforce payment of the principal or interest on such Debentures
having a principal amount equal to the Liquidation Amount of your related
Preferred Securities. The Company may not amend the Indenture to remove your
right to bring such suit without the prior written consent of the holders of all
of the outstanding Preferred Securities. If the right to bring such suit is
removed, the applicable Trust may become subject to the reporting obligations of
the Exchange Act. The Company will have the right under the Indenture to set-off
any payment made to you as a holder of Preferred Securities in connection with a
suit directly against the Company or under the related Guarantee against its
obligation to make any payment under the Indenture.
You will not be able to directly exercise any remedies other than those
described in the preceding paragraph available to the applicable Trust as
holders of the Debentures unless there has been an Event of Default under the
Trust Agreement. See "Description of Preferred Securities--Events of Default;
Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture permits the Company to consolidate or merge with another
person or to sell or convey all or substantially all its assets to any person
if:
- either (i) the Company is the successor person or (ii) the successor
person is organized under the laws of the United States or any state or
the District of Columbia, and such successor person expressly assumes the
Company's obligations on the Debentures and under the Indenture;
- immediately after the consolidation, merger, sale or conveyance, no
default in the performance of any covenant or condition under the
Indenture has occurred; and
- in the case of Debentures, such consolidation, merger, sale or conveyance
is permitted and does not cause a breach or violation under the related
Trust Agreement and Guarantee.
The general provisions of the Indenture do not afford the applicable Trusts
as holders of the Debentures protection in the event of a transaction involving
the Company that may adversely affect holders of the Debentures.
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SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect when:
- all outstanding Debentures of a series are delivered to the Debenture
Trustee for cancellation or
- all outstanding Debentures are due and payable or will become due and
payable or will be called for redemption within one year, and the Company
deposits with the Debenture Trustee funds in trust in an amount sufficient
to pay at maturity or upon redemption all of such outstanding Debentures,
including principal and any interest to the date of maturity or redemption
(as applicable) and the Company has paid all other amounts payable under
the Indenture.
The following rights will survive such satisfaction and discharge:
- remaining rights of registration of transfer, conversion, substitution and
exchange and the Company's optional redemption right,
- rights of holders to receive principal and interest and other amounts
deposited with the Debenture Trustee and
- the rights, obligations and immunities of the Debenture Trustee under the
Indenture.
CONVERSION OR EXCHANGE
If and to the extent indicated in the applicable Prospectus Supplement, the
Debentures of any series may be convertible into capital stock of the Company.
The specific terms of such conversion will be described in the applicable
Prospectus Supplement. Such conversion may be either mandatory or optional. The
conversion price will be stated in the applicable Prospectus Supplement.
SUBORDINATION
In the Indenture, the Company will covenant and agree that any Debentures
will be subordinate and junior in right of payment to all Senior Debt as
provided in the Indenture. When any payment or distribution of assets of the
Company is made due to any insolvency event of the Company, the holders of
Senior Debt will first be entitled to receive payment in full of principal, any
premium and any interest on such Senior Debt before any payment of principal or
interest on the Debentures.
If the maturity of any Debentures is accelerated, the holders of all
outstanding Senior Debt will first be entitled to receive payment in full of all
amounts due on such Senior Debt before the holders of Debentures will be
entitled to receive or retain any payment regarding principal or interest on the
Debentures.
No payments on account of principal, any premium or any interest on the
Debentures may be made if a default in any payment with respect to Senior Debt
has occurred and is continuing or an event of default with respect to any Senior
Debt resulting in its acceleration has occurred and is continuing, or if any
judicial proceeding is pending with respect to any such default.
"Debt" means with respect to any person, whether recourse is to all or a
portion of the assets of such person and whether or not contingent:
- every obligation of such person for money borrowed;
- every obligation of such person evidenced by bonds, debentures, notes or
other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses;
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- every reimbursement obligation of such person with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account
of such person;
- every obligation of such person issued or assumed as the deferred purchase
price of property or services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business);
- every capital lease obligation of such person;
- every obligation of such person for claims regarding derivative products
such as interest and foreign exchange rate contracts, commodity contracts
and similar arrangements; and
- every obligation of the type referred to in clauses (i) through (vi) of
another person and all dividends of another person the payment of which,
in either case, such person has guaranteed or is responsible or liable
for, directly or indirectly, as obligor or otherwise.
"Senior Debt" means the principal of, any premium and any interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not such
claim for post-petition interest is allowed in such proceeding), on Debt,
whether incurred on or before the date of the Indenture or thereafter incurred,
unless, in the instrument creating or evidencing the same or pursuant to which
the same is outstanding, it is provided that such obligations are not superior
in right of payment to the Debentures or to other Debt which ranks equally with,
or subordinated to, the Debentures.
Senior Debt will not include:
- any Debt of the Company which, when incurred and without respect to any
election under Section 1111(b) of the United States Bankruptcy Code of
1978, as amended, was without recourse to the Company,
- any Debt of the Company to any of its subsidiaries,
- Debt to any employee of the Company,
- Debt which by its terms is subordinated to trade accounts payable or
accrued liabilities arising in the ordinary course of business to the
extent that payments made to the Debt holders by the Debenture holders as
a result of the subordination provisions of the Indenture would be greater
than such payments otherwise would have been as a result of any obligation
of such Debt holders to pay amounts to the obligees on such trade accounts
payable or accrued liabilities arising in the ordinary course of business
as a result of subordination provisions to which such Debt is subject, and
- any other debt securities issued pursuant to the Indenture and the
indenture, dated as of January 29, 1997, between the Company and The Chase
Manhattan Bank, as periodically supplemented.
Except as described in the next sentence, the Debentures will rank equally
with, and will not be superior in right of payment to, the obligations of the
Company under the Loan Agreement, dated as of March 24, 1994, between the
Company and Bear Stearns Finance LLC in the aggregate principal amount of
$189,875,000. However, the Company will be permitted to make payments of
interest on this loan during an Extension Period.
The Indenture places no limitation on the amount of Senior Debt that the
Company may incur. The Company expects to periodically incur additional
indebtedness and other obligations constituting Senior Debt.
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The Indenture provides that the foregoing subordination provisions may be
changed before issuance with respect to the Debentures to be issued. Any such
change would be described in the applicable Prospectus Supplement.
RIGHTS OF HOLDERS OF PREFERRED SECURITIES
As a holder of the related Preferred Securities for a series of Debentures,
you will have the rights, in connection with modifications to the Indenture or
when Debenture Events of Default occur, as described under "--Modification of
Indenture", "--Debenture Events of Default" and "--Enforcement of Certain Rights
by Holders of Preferred Securities," unless the applicable Prospectus Supplement
states differently.
The Company will covenant, as to each series of Debentures:
- to maintain directly or indirectly 100% ownership of the Common Securities
of the Trust to which such Debentures have been issued, provided that
certain successors which are permitted pursuant to the Indenture may
succeed to the Company's ownership of the Common Securities,
- not to voluntarily dissolve, wind up or liquidate any Trust, except (a) in
connection with a distribution of Debentures to you as a holder of the
Preferred Securities in exchange for such Preferred Securities on
liquidation of such Trust, or (b) in connection with certain mergers,
consolidations or amalgamations permitted by the related Trust Agreement,
and
- to use its reasonable efforts, consistent with the terms and provisions of
the related Trust Agreement, to cause such Trust to remain classified as a
grantor trust and not as an association taxable as a corporation for
United States federal income tax purposes.
TRUST EXPENSES
Pursuant to the Indenture, the Company has agreed to pay all debts and other
obligations (other than with respect to the Preferred Securities) and all costs
and expenses of each Trust (including costs and expenses relating to the
organization of each Trust, the fees and expenses of the Trustees and the costs
and expenses relating to the operation of each Trust) and the offering of the
Preferred Securities and to pay any and all taxes (including any taxes owed by a
Trust if it is determined that such Trust is not a grantor trust for United
States federal income tax purposes) and all related costs and expenses (other
than United States federal withholding taxes) to which each Trust might become
subject.
GOVERNING LAW
The Indenture is and the Debentures will be governed by and construed in
accordance with the laws of the State of New York.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee will have all the duties and responsibilities
specified with respect to an indenture trustee under the TIA. Subject to the
provisions of the TIA, the Debenture Trustee is not under any obligation to
exercise any of the powers vested in it by the Indenture at the request of any
holder of Debentures, unless it is offered reasonable indemnity by such holder
against the costs, expenses and liabilities which might be incurred. The
Debenture Trustee is not required to expend or risk its own funds or otherwise
incur personal financial liability in the performance of its duties if the
Debenture Trustee reasonably believes that repayment or adequate indemnity is
not reasonably assured to it.
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DESCRIPTION OF PREFERRED SECURITIES
The Preferred Securities will represent preferred undivided beneficial
interests in the assets of a Trust, and as a holder of Preferred Securities, you
will be entitled to a preference in certain circumstances with respect to
Distributions and amounts payable on redemption or liquidation over the Common
Securities of such Trust, as well as other benefits as described in the
corresponding Trust Agreement. This is a summary and is not complete. This
summary does not describe certain exceptions and qualifications contained in the
Trust Agreements or the Preferred Securities. You should read the applicable
Trust Agreement, a form of which is filed as an exhibit to the Registration
Statement. Each of the Trusts is a legally separate entity, and the assets of
one Trust are not available to satisfy the obligations of another Trust or other
statutory business trust whose Common Securities are owned by the Company.
GENERAL
The Preferred Securities of a Trust will rank equally, and payments will be
made on the Preferred Securities proportionately (based on Liquidation Amounts)
with the Common Securities of that Trust except as described under
"--Subordination of Common Securities." Legal title to the Debentures will be
held by the Property Trustee in trust for the benefit of the holders of the
related Preferred Securities and Common Securities. Each Guarantee executed by
the Company for the benefit of the holders of a Trust's Trust Securities will be
a subordinated guarantee of the related Trust Securities. A Guarantee will not
guarantee the payment of Distributions or amounts payable on redemption or
liquidation of such Trust Securities unless the related Trust has the funds to
make such payments. See "Description of Guarantees."
DISTRIBUTIONS
Distributions on the Preferred Securities will:
- be cumulative;
- accumulate from the date of original issuance; and
- be payable on the dates specified in the applicable Prospectus Supplement.
If the date on which Distributions are payable on the Preferred Securities
is not a Business Day, payment of such Distributions will be made on the next
Business Day (without any interest or other payment for such delay), except
that, if such Business Day is in the next calendar year, payment of such
Distribution will be made on the Business Day before (each date on which
Distributions are payable, a "Distribution Date"). A "Business Day" means any
day other than a Saturday, Sunday or legal holiday, or a day on which banking
institutions in The City of New York are authorized or required by law or
regulation to remain closed or a day on which the corporate trust office of the
Property Trustee or the Debenture Trustee is closed.
Each Trust's Preferred Securities represent preferred undivided beneficial
interests in the assets of the applicable Trust, and the Distributions on each
Preferred Security will be payable at the rate specified in the applicable
Prospectus Supplement. The amount of Distributions payable for any period will
be computed on the basis of a 360-day year of twelve 30-day months unless
otherwise specified in the applicable Prospectus Supplement. Distributions will
accumulate additional Distributions at the rate per annum if and as specified in
the applicable Prospectus Supplement. The term "Distributions" includes any such
additional Distributions unless otherwise stated.
If provided in the applicable Prospectus Supplement, the Company has the
right under the Indenture, pursuant to which it will issue the Debentures, to
defer the payment of interest periodically on any series of Debentures for an
Extension Period of up to the number of consecutive interest
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payment periods specified in the applicable Prospectus Supplement, so long as no
Debenture Event of Default has occurred and is continuing. The Extension Period
may not extend beyond the maturity of the Debentures. Because of such deferral,
Distributions on the related Preferred Securities would be deferred (but would
continue to accumulate additional Distributions at the rate per annum set forth
in the applicable Prospectus Supplement) by the applicable Trust during any such
Extension Period.
During such Extension Period, the Company will not, and will not permit any
of its subsidiaries to:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of the
Company's capital stock,
- make any payment of principal, any premium or any interest on, or repay,
repurchase or redeem any debt securities of, the Company that rank equally
with or junior in interest to the Debentures or
- make any guarantee payments on any guarantee by the Company of debt
securities of any subsidiary if such guarantee ranks equally with or
junior in interest to the Debentures.
The Company may make:
- dividends or distributions in capital stock of the Company,
- any declaration of a dividend in connection with the implementation of a
stockholders' rights plan, the issuance of any capital stock of the
Company under such plan, or the redemption or repurchase of any such
rights pursuant to such plan,
- payments under (i) any Guarantee with respect to such Preferred
Securities, and (ii) any guarantee for the benefit of holders of the
capital securities of Bear Stearns Capital Trust I.
- purchases of common stock related to the issuance of common stock or
rights under any of the Company's benefit plans for its directors,
officers or employees and
- payments of interest under a loan agreement with Bear Stearns Finance LLC.
The revenue of each Trust available for distribution to holders of its
Preferred Securities will be limited to payments under the Debentures in which
each Trust will invest the proceeds from the issuance and sale of its Trust
Securities. See "Description of Debentures--General." If the Company does not
make interest payments on such Debentures, the Property Trustee will not have
funds available to pay Distributions on the related Preferred Securities. The
Company will guarantee the payment of Distributions provided that a Trust has
legally available funds for the payment of such Distributions and sufficient
cash to make such payments on the basis described under "Description of
Guarantees."
Distributions on the Preferred Securities will be payable to its holders as
they appear on the securities register of such Trust on the relevant record
dates, which will be approximately two weeks before the relevant Distribution
Date. Unless the applicable Prospectus Supplement states differently, subject to
any applicable laws and regulations and the provisions of the applicable Trust
Agreement, each such payment will be made as described under "Book-Entry
Issuance."
REDEMPTION OR EXCHANGE
MANDATORY REDEMPTION
When all or a part of the Debentures is repaid or redeemed, the proceeds
from the repayment or redemption will be applied by the Property Trustee to
redeem a Like Amount of the Trust Securities, with at least 30 days but not more
than 60 days notice, at a redemption price (the "Redemption Price") equal to the
Liquidation Amount of such Trust Securities plus accumulated but unpaid
Distributions to the date of redemption (the "Redemption Date") and the related
amount of any premium paid by the
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Company on the concurrent redemption of such Debentures. See "Description of
Debentures-- Redemption." If only a part of any series of Debentures are to be
repaid or redeemed on a Redemption Date, then the proceeds from such repayment
or redemption will be allocated to the redemption proportionately (based on
Liquidation Amounts) among the Trust Securities. The amount of any premium paid
by the Company on the redemption of all or any part of any series of any
Debentures to be repaid or redeemed on a Redemption Date will be allocated to
the redemption proportionately (based on Liquidation Amounts) among the Trust
Securities.
The Company may redeem any series of Debentures (i) beginning on a date
specified in the applicable Prospectus Supplement (all at any time or a part
periodically), or (ii) when a Special Event occurs (all at any time but not a
part).
DISTRIBUTION OF DEBENTURES
The Company may dissolve any Trust at any time and (after satisfaction of
liabilities to creditors as provided by applicable law) cause the Debentures to
be distributed to the holders of the related Preferred Securities and Common
Securities in exchange for such Trust Securities on the liquidation of such
Trust.
After the liquidation date fixed for any distribution of Debentures for any
series of Preferred Securities (i) such series of Preferred Securities will no
longer be deemed outstanding, (ii) certificates representing a Like Amount of
Debentures will be issued to you as a holder of such series of Preferred
Securities, (iii) the Company will use reasonable efforts to have the Debentures
designated on or with any interdealer quotation system or self-regulatory
organization as the related Preferred Securities are then listed, (iv) any
Preferred Securities certificates that are not surrendered will be deemed to
represent a Like Amount of Debentures and (v) your rights will end (except the
right to receive Debentures).
The Company and the Trusts cannot make any guarantees about the market
prices for the Preferred Securities or the Debentures that may be distributed in
exchange for Preferred Securities if a Trust were to be dissolved and
liquidated. Accordingly, the Preferred Securities that you may purchase, or the
Debentures that you may receive on dissolution and liquidation of a Trust, may
trade at a lower price than you paid to purchase the Preferred Securities.
SPECIAL EVENT REDEMPTION
If a Special Event regarding a series of Preferred Securities and Common
Securities occurs and is continuing, the Company may prepay all (but not a part)
of the Debentures and thus cause a mandatory redemption of all (but not a part)
of such Preferred Securities and Common Securities at the Redemption Price
within 90 days following the occurrence of such Special Event. If a Special
Event regarding a series of Preferred Securities and Common Securities has
occurred and is continuing and the Company does not elect to prepay the
Debentures and thus cause a mandatory redemption of such Preferred Securities
and Common Securities or to terminate the related Trust and cause the Debentures
to be distributed to holders of such Preferred Securities and Common Securities
in exchange for such Trust Securities on liquidation of the Trust as described
above, such Preferred Securities will remain outstanding. See "Risk
Factors--Special Event Prepayment."
"Like Amount" means (i) with respect to a redemption of any series of Trust
Securities, Trust Securities of such series having a Liquidation Amount equal to
the principal amount of Debentures to be contemporaneously redeemed in
accordance with the Indenture, the proceeds of which will be used to pay the
Redemption Price of such Trust Securities, and (ii) with respect to a
distribution of Debentures to holders of any series of Trust Securities in
connection with a dissolution or liquidation of the related Trust, Debentures
having a principal amount equal to the Liquidation Amount of the Trust
Securities of the holder to whom such Debentures would be distributed.
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"Liquidation Amount" means the stated amount per Trust Security as set forth
in the applicable Prospectus Supplement.
REDEMPTION PROCEDURES
Preferred Securities redeemed on each Redemption Date will be redeemed at
the Redemption Price using the proceeds from the simultaneous redemption of
Debentures. Redemptions of the Preferred Securities will be made and the
Redemption Price will be payable on each Redemption Date only if the related
Trust has funds available for the payment of such Redemption Price. See
"--Subordination of Common Securities."
If the Property Trustee gives a notice of redemption regarding any Preferred
Securities, then, by 10:00 a.m., New York City time, on the Redemption Date, the
Company will deposit funds with the Property Trustee sufficient to pay the
Redemption Price. If the Company has made this deposit, then, by 12:00 noon, New
York City time on the Redemption Date, to the extent funds are available, the
Property Trustee will irrevocably deposit with the Depositary funds sufficient
to pay the applicable Redemption Price and will give the Depositary irrevocable
instructions and authority to pay the Redemption Price to you as a holder of
such Preferred Securities. See "Book-Entry Issuance." If such Preferred
Securities are no longer in book-entry form, the Property Trustee, to the extent
funds are available, will irrevocably deposit with the paying agent for such
Preferred Securities funds sufficient to pay the applicable Redemption Price and
will give such paying agent irrevocable instructions and authority to pay the
Redemption Price to you when you surrender your certificates evidencing such
Preferred Securities. However, Distributions payable on or before the Redemption
Date for any Preferred Securities called for redemption will be payable to you
on the relevant record dates for the related Distribution Dates. If notice of
redemption was given and funds deposited as required, then on the date of such
deposit, all your rights as a holder of such redeemed Preferred Securities will
end, except your right to receive the Redemption Price and any unpaid
Distribution, but without interest, and such Preferred Securities will no longer
be outstanding. If any redemption date is not a Business Day, then payment of
the Redemption Price will be made on the next Business Day (without any interest
or other payment for such delay), except that, if such Business Day is in the
next calendar year, payment of such Redemption Price will be made on the
Business Day before. If payment of the Redemption Price is improperly withheld
or refused and not paid either by the applicable Trust or by the Company (under
the relevant Guarantee as described under "Description of Guarantees"),
Distributions on such Preferred Securities will continue to accrue (at the then
applicable rate) from the original Redemption Date to the date such Redemption
Price is actually paid. In this case, the actual payment date will be the
redemption date for purposes of calculating the Redemption Price.
Subject to applicable laws (including United States federal securities
laws), the Company or its subsidiaries may periodically purchase outstanding
Preferred Securities by tender in the open market or by private agreement.
Payment of the Redemption Price on the Preferred Securities will be made to
the applicable holders as they appear on the securities register for such
Preferred Securities on the record date established by the Administrators that
will be at least 30 days but no more than 60 days before the relevant Redemption
Date.
If only a part of the outstanding Preferred Securities and Common Securities
issued by a Trust are to be redeemed on a Redemption Date, then the Liquidation
Amount of such Preferred Securities and Common Securities to be redeemed will be
allocated proportionately (based on Liquidation Amounts) among the Preferred
Securities and the Common Securities. The particular Preferred Securities to be
redeemed will be selected on a proportionate basis (based on Liquidation
Amounts) at least 30 days but no more than 60 days before the Redemption Date by
the Property Trustee from the outstanding Preferred Securities by such method as
the Property Trustee deems fair and appropriate and which may
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provide for the selection for redemption of portions of the Liquidation Amount
of Preferred Securities in such minimum amounts as specified in the applicable
Prospectus Supplement. The Property Trustee will promptly notify the securities
registrar, in writing, of the Preferred Securities selected for redemption and,
in the case of any Preferred Securities selected for partial redemption, the
Liquidation Amount to be redeemed. For all purposes of each Trust Agreement,
unless the context otherwise requires, all provisions relating to the redemption
of Preferred Securities will relate to the portion of the Liquidation Amount of
Preferred Securities that has been or is to be redeemed.
Notice of any redemption will be mailed by the Property Trustee at least 30
days but not more than 60 days before the Redemption Date to each holder of
Trust Securities to be redeemed at its registered address.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, each Trust's
Preferred Securities and Common Securities will be made proportionately (based
on Liquidation Amounts) of such Preferred Securities and Common Securities.
However, if any Event of Default under the applicable Trust Agreement resulting
from a Debenture Event of Default has occurred and is continuing on any
Distribution Date or Redemption Date, (a) the Trust will not pay any
Distribution or Redemption Price regarding its Common Securities or make any
other payment for redemption, liquidation or other acquisition of such Common
Securities unless the Trust has (i) made full cash payment of all accumulated
and unpaid Distributions on all outstanding Preferred Securities for all
Distribution periods ending on or before such Distribution Date, or (ii) in the
case of payment of the Redemption Price, made or provided for the full amount of
such Redemption Price on all of the outstanding Preferred Securities then called
for redemption, and (b) all funds available to the Property Trustee will be
applied first to the full cash payment of all due and payable Distributions or
Redemption Price regarding Preferred Securities.
If any Event of Default under the applicable Trust Agreement resulting from
a Debenture Event of Default occurs, the Company (as holder of such Trust's
Common Securities) will waive any right to act with respect to any such Event of
Default until the effect of all such Events of Default with respect to such
Preferred Securities has been eliminated. Until all Events of Default under the
applicable Trust Agreement with respect to the Preferred Securities have been so
eliminated, the Property Trustee will act only on behalf of the holders of such
Preferred Securities and not on behalf of the Company (as holder of the Trust's
Common Securities), and only the holders of such Preferred Securities will have
the right to direct the Property Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION ON DISSOLUTION
Under each Trust Agreement, each Trust will automatically dissolve when its
term expires and will dissolve if any of the following occurs:
- certain events of bankruptcy, dissolution or liquidation of the Company
(as holder of the Common Securities);
- written direction to the Property Trustee by the Company to dissolve such
Trust and distribute (after satisfaction of liabilities to creditors as
provided by applicable law) Debentures to holders of Trust Securities;
- redemption of all of the Trust's Preferred Securities as described under
"--Redemption or Exchange--Mandatory Redemption"; or
- the entry of an order for the dissolution of the Trust by a court of
competent jurisdiction.
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If an early dissolution occurs because of the first, second or fourth points
above or a Trust's term expires, such Trust will be liquidated by the Trustees
as quickly as the Trustees determine to be possible by distributing (after
satisfaction of liabilities to creditors as provided by applicable law) to the
holders of such Trust Securities a Like Amount of the Debentures. If such
distribution is determined by the Property Trustee not to be practical, such
holders will be entitled to receive out of the assets of such Trust available
for distribution to holders (after satisfaction of liabilities to creditors as
provided by applicable law) an amount equal to the Liquidation Amount plus
accrued and unpaid Distributions on the Preferred Securities to the date of
payment (such amount being the "Liquidation Distribution"). If only a part of
such Liquidation Distribution can be paid because such Trust has insufficient
assets available to pay the full Liquidation Distribution, then the amounts
payable by such Trust on its Trust Securities will be paid on a proportionate
basis (based on Liquidation Amounts). The Company (as holder of the Common
Securities) will be entitled to receive Liquidation Distributions on any such
liquidation proportionately with you as a holder of Preferred Securities, except
that if a Debenture Event of Default has occurred and is continuing, the
Preferred Securities will have a priority over the Common Securities.
EVENTS OF DEFAULT; NOTICE
An "Event of Default" will occur under each Trust Agreement if any of the
following events occurs:
- a Debenture Event of Default under the Indenture (see "Description of
Debentures--Debenture Events of Default"); or
- failure for 30 days by the Trust to pay any Distribution when due; or
- failure by the Trust to pay any Redemption Price of any Trust Security
when due; or
- failure by the Trustees to observe or perform in any material respect any
other covenants or warranties in such Trust Agreement for 90 days after
written notice to the defaulting Trustee(s) by the holders of at least 25%
of the Liquidation Amount of the outstanding Preferred Securities of the
applicable Trust; or
- certain events of bankruptcy or insolvency of the Property Trustee and the
failure by the Company to appoint a successor Property Trustee within 60
days.
Within five Business Days after the Property Trustee obtains actual
knowledge of any Event of Default occurring, the Property Trustee will send
notice of such Event of Default to the holders of such Trust's Trust Securities,
the Administrators and the Company, unless such Event of Default has been cured
or waived. The Company and the Administrators are required to file an annual
certificate with the Property Trustee stating whether they are in compliance
with all the applicable conditions and covenants under each Trust Agreement.
If a Debenture Event of Default has occurred and is continuing the Preferred
Securities will have a preference over the Common Securities as described above.
See "--Subordination of Common Securities" and "--Liquidation Distribution on
Dissolution." An Event of Default does not entitle the holders of Preferred
Securities to accelerate its maturity.
REMOVAL OF TRUSTEES
Unless a Debenture Event of Default has occurred and is continuing, any
Trustee may be removed at any time by the Company (as holder of the Common
Securities). If a Debenture Event of Default has occurred and is continuing, the
Property Trustee and the Delaware Trustee may be removed by the holders of a
majority of the Liquidation Amount of the outstanding Preferred Securities. As a
holder of the Preferred Securities, you do not have the right to vote to
appoint, remove or replace the
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Administrators; these voting rights are exclusive to the Company (as the holder
of the Common Securities). No resignation or removal of a Trustee and no
appointment of a successor trustee will be effective until the successor trustee
accepts such appointment in accordance with the provisions of the applicable
Trust Agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless a Debenture Event of Default has occurred and is continuing, the
Company (as the holder of the Common Securities) and the Administrators may
periodically appoint one or more persons approved by the Property Trustee to act
either as a co-trustee, jointly with the Property Trustee, or as separate
trustee in order to meet the legal requirements of the TIA or of any
jurisdiction in which any part of the property and assets held by the Property
Trustee under the applicable Trust Agreement may be located. In either case,
such trustee will have the powers designated in the instrument of appointment,
and such trustee will be vested in such capacity any property, title, right or
power necessary or desirable, subject to the provisions of the applicable Trust
Agreement. If the Company does not join in such appointment or a Debenture Event
of Default has occurred and is continuing, the Property Trustee alone will have
power to make such appointment.
MERGER OR CONSOLIDATION OF TRUSTEES
Any surviving person of a merger, conversion or consolidation of the
Property Trustee or the Delaware Trustee or any successor person to all or
substantially all the corporate trust business of such Trustee will be the
successor of such Trustee under each Trust Agreement, provided such person is
otherwise qualified and eligible.
CONSOLIDATIONS, MERGERS, SALE OF ASSETS OR OTHER TRANSACTIONS
If the Company (as holder of a majority of the Common Securities) requests
(but without the consent of the holders of Preferred Securities, the Property
Trustee or the Delaware Trustee), a Trust may consolidate or merge with another
trust or transfer or lease substantially all its properties and assets to
another trust if:
- the successor trust either (a) expressly assumes all of the obligations of
such Trust with respect to the Preferred Securities or (b) substitutes for
the Preferred Securities other securities having substantially the same
terms as the Preferred Securities (the "Successor Securities") that rank
the same as the Preferred Securities in priority regarding distributions
and payments on liquidation, redemption and otherwise;
- the Company expressly appoints a trustee of such successor trust
possessing the same powers and duties as the Property Trustee as the
holder of the Debentures;
- such merger, consolidation, transfer or lease does not cause the Preferred
Securities (or Successor Securities) to be downgraded by any nationally
recognized statistical rating organization;
- such merger, consolidation, transfer or lease does not materially
adversely affect your rights, preferences and privileges as a holder of
the Preferred Securities (or Successor Securities);
- the successor trust has a purpose substantially identical to that of such
Trust;
- before such merger, consolidation, transfer or lease, the Company has
received an opinion from independent counsel to the Trust to the effect
that (a) such merger, consolidation, transfer or lease does not materially
adversely affect your rights, preferences and privileges as a holder of
the Preferred Securities (or Successor Securities), and (b) following such
merger, consolidation,
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transfer or lease, neither the Trust nor such successor trust will be
required to register as an investment company under the Investment Company
Act; and
- the Company (or any permitted successor depositor) owns all of the common
securities of such successor trust and guarantees the obligations of such
successor trust under the Preferred Securities (or Successor Securities)
at least to the extent provided by the Guarantee.
Unless the consent of holders of 100% of the Liquidation Amount of the
Preferred Securities is obtained, a Trust may not effect such merger,
consolidation, transfer or lease if it would cause such Trust or the successor
trust to be classified as something other than a grantor trust for United States
federal income tax purposes or result in the recognition of taxable gain or loss
to the holders.
VOTING RIGHTS; AMENDMENT OF EACH TRUST AGREEMENT
As a holder of Preferred Securities, you will have no voting rights, except
as provided in this Prospectus or the applicable Prospectus Supplement or as
required by law or the applicable Trust Agreement. See "Description of
Guarantees--Modification or Amendment of the Guarantees."
The Company (as holder of the Common Securities), the Property Trustee and
the Delaware Trustee may amend each Trust Agreement periodically without your
consent to:
- cure any ambiguity;
- correct or supplement any provision that is inconsistent with any other
provision;
- make any other provisions which are not inconsistent with the other
provisions of such Trust Agreement; or
- modify, eliminate or add to any provisions that are necessary to ensure
that such Trust (i) will always be classified as a grantor trust for
United States federal income tax purposes; or (ii) will not be required to
register as an "investment company" under the Investment Company Act.
However, none of the amendments described in the first, second or third
points above can have a material adverse effect on the interests of any holder
of Preferred Securities or Common Securities. Such amendments will become
effective when notice of the amendments is given to the holders of Trust
Securities. Each Trust Agreement may be amended by the Trustees and the Company
(as holder of the Common Securities) with (i) the consent of holders
representing at least a majority (based on Liquidation Amounts) of the
outstanding Trust Securities, and (ii) receipt by the Trustees of an opinion of
counsel to the effect that such amendment or the exercise of any power granted
to the Trustees in accordance with such amendment will not affect the Trust's
status as a grantor trust for United States federal income tax purposes or the
Trust's exemption from status as an "investment company" under the Investment
Company Act. The consent of each holder of Trust Securities will be required to
amend a Trust Agreement to:
- change the amount or timing of any Distribution on the Trust Securities or
otherwise adversely affect the amount of any Distribution required to be
made regarding the Trust Securities on a specified date; or
- restrict the right of a holder of Trust Securities to institute suit for
the enforcement of any such payment beginning on such date.
The Property Trustee shall determine the validity of requests or votes in
the event of a dispute among the holders of Trust Securities and the
Administrators or the Trustees.
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If any Debentures are held by the Property Trustee, the Property Trustee
will not:
- direct the time, method or place of conducting any proceeding for any
remedy available to the Debenture Trustee, or execute any trust or power
conferred on the Debenture Trustee regarding such Debentures,
- waive any past default that is waivable under the Indenture,
- exercise any right to rescind or annul a declaration that the principal of
all the Debentures will be due and payable or
- consent to any amendment, modification or termination of the Indenture or
such Debentures, where such consent will be required, without, in each
case, obtaining the prior approval of the holders of a majority of the
Liquidation Amount of all outstanding Preferred Securities.
If a consent under the Indenture would require the consent of each holder of
Debentures affected, no such consent will be given by the Property Trustee
without the prior consent of each holder of the Preferred Securities. The
Property Trustee will not revoke any action previously authorized or approved by
a vote of the holders of the Preferred Securities except by a subsequent vote of
the holders of the Preferred Securities. The Property Trustee will notify you as
a holder of Preferred Securities of any notice of default with respect to the
Debentures. In addition to obtaining the approvals of the holders of the
Preferred Securities described above, before taking any of the actions described
above, the Property Trustee will obtain (at the Company's expense) an opinion of
counsel to the effect that such action would not cause the Trust to be
classified as something other than a grantor trust for United States federal
income tax purposes.
Any required approval of holders of Preferred Securities may be given at a
meeting of holders of Preferred Securities called for such purpose or pursuant
to written consent. The Property Trustee will cause a notice of any meeting at
which holders of Preferred Securities are entitled to vote to be given to each
holder of record of Preferred Securities in the manner set forth in each Trust
Agreement.
No vote or consent by you as a holder of Preferred Securities will be
required for a Trust to redeem and cancel its Preferred Securities in accordance
with the applicable Trust Agreement.
Any of the Preferred Securities that are owned by the Company, the Trustees
or any affiliate of the Company or any Trustees, will be treated as if they were
not outstanding for purposes of the votes or consents described above.
GLOBAL PREFERRED SECURITIES
All or a part of the Preferred Securities of a series may be issued in the
form of one or more Global Preferred Securities that are to be deposited with
the Depositary or its nominee, unless the applicable Prospectus Supplement
states differently. For each of the series of Preferred Securities, the
Depositary will be DTC, unless the applicable Prospectus Supplement states
differently. Global Preferred Securities will be issued only in fully registered
form but may be in either temporary or permanent form. Unless and until it is
exchanged for the individual Preferred Securities each Global Preferred Security
will be transferred only as a whole. Transfers of Global Preferred Securities
are permitted between the following entities:
- by the Depositary for such Global Preferred Security to a nominee of such
Depositary;
- by a nominee of such Depositary to such Depositary or another nominee of
such Depositary; or
- by the Depositary or any nominee to a successor Depositary or any nominee
of such successor.
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While each Prospectus Supplement will describe the depositary arrangements
with respect to each series of Preferred Securities, the Company expects the
following terms will apply to all of the depositary arrangements.
The Depositary or its nominee will credit on its book-entry registration and
transfer system, the respective Liquidation Amounts of the individual Preferred
Securities represented by the corresponding Global Preferred Securities issued
and deposited with them to the accounts of Participants, which may include
Euroclear and Cedel. The dealers, underwriters or agents or the Company (if the
Company offers and sells such Preferred Securities directly) will designate
these accounts for the respective Preferred Securities.
The ownership of beneficial interests in a Global Preferred Security is
limited to the Participants or persons that may hold interests through
Participants, including Euroclear and Cedel and their participants. Actual
ownership of beneficial interests in each Global Preferred Security will only be
shown on, and the transfer of ownership will be completed through, records of
the applicable Depositary or its nominee (for interests of Participants) and the
records of Participants (for interests of persons who hold through
Participants). However, because the laws of some states require certain
purchasers of securities to take physical delivery of such securities in
definitive form, rather than through a Global Preferred Security, such
restrictions may impair the ability to transfer beneficial interests in a Global
Preferred Security.
For all purposes under each Trust Agreement and as long as either the
Depositary or its nominee is the registered owner of the corresponding Global
Preferred Security, such Depositary or such nominee will be considered the sole
owner or holder of the Preferred Securities represented by such Global Preferred
Security.
Except as provided below, owners of beneficial interests in a Global
Preferred Security:
- will not be entitled to have any of the individual Preferred Securities
represented by the corresponding Global Preferred Security registered in
their names;
- will not receive physical delivery of any such Preferred Securities of
such series in a definitive form; and
- will not be considered the owners or holders of such Preferred Securities
under the Trust Agreement.
Payments of principal, any premium and any interest on individual Preferred
Securities represented by a Global Preferred Security registered in the name of
a Depositary or its nominee will be made to the Depositary or its nominee, as
the case may be. None of the Company, the Property Trustee, any paying agent or
the securities registrar for such Preferred Securities will be responsible or
liable for any aspect of the records relating to or payments made on account of
beneficial ownership interests in the Global Preferred Security representing
such Preferred Securities. They also will not be responsible for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
When it receives any payment of Liquidation Amount, Redemption Price,
premium or Distributions regarding a permanent Global Preferred Security
representing any of Preferred Securities, the Company expects the Depositary or
its nominee to immediately credit each Participant's account with payments in
amounts proportionate to its respective beneficial interest in the Global
Preferred Security. Each Participant's beneficial interest will be shown on the
records of such Depositary or its nominee.
The Company also expects that payments by Participants to owners of
beneficial interests in such Global Preferred Security will be governed by the
standing instructions and customary practices as now apply to securities held
for customer accounts in bearer form or registered in "street name." These
Participants will be responsible for such payments.
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If a Depositary for a series of Preferred Securities is at any time
unwilling, unable or ineligible to continue as depositary and a successor
depositary is not appointed by a Trust within 90 days, such Trust will issue
individual Preferred Securities of such series in exchange for the Global
Preferred Security representing such series of Preferred Securities, unless the
applicable Prospectus Supplement states differently. A Trust may at any time and
in its sole discretion, subject to any limitations described in the applicable
Prospectus Supplement, determine not to have any Preferred Securities of such
series represented by one or more Global Preferred Securities. In such case,
such Trust will issue certificated Preferred Securities of such series in
exchange for the Global Preferred Security.
An owner of beneficial interest in a Global Preferred Security may be
permitted to receive individual certificated Preferred Securities of a series in
exchange for the beneficial interests in the Global Preferred Securities, on
terms acceptable to each Trust, the Property Trustee and the Depositary and
subject to any limitations in the applicable Prospectus Supplement. In such
case, the owner of a beneficial interest in a Global Preferred Security will be
entitled to physical delivery of certificated Preferred Securities of the series
that is equal in its aggregate Liquidation Amount to the owner's beneficial
interest in the corresponding Global Preferred Security. The applicable Trust
will register such Preferred Securities in the owner's name in the denominations
specified for such series in the applicable Prospectus Supplement.
PAYMENT AND PAYING AGENCY
Payments on the Preferred Securities will be made to the Depositary, which
will credit the relevant accounts at the Depositary on the applicable
Distribution Dates, or if any Trust's Preferred Securities are not held by the
Depositary, such payments will be made by check mailed to the address appearing
on the register of the holder entitled to such payment. The paying agent will
initially be the Property Trustee and any co-paying agent chosen by the Property
Trustee and acceptable to the Administrators and the Company, unless the
applicable Prospectus Supplement states differently. The paying agent will be
permitted to resign as paying agent with 30 days' written notice to the Property
Trustee and the Company. If the paying agent resigns or its authority to act is
revoked, the Administrators will appoint a successor (which will be a bank or
trust company acceptable to the Administrators and the Company) to act as paying
agent.
SECURITIES REGISTRAR AND TRANSFER AGENT
The Property Trustee will initially act as securities registrar and transfer
agent for the Preferred Securities, unless the applicable Prospectus Supplement
states differently.
There will be no service charge for any registration of transfer or exchange
of Preferred Securities, although payment of certain taxes and other
governmental charges may be required. The securities registrar will not be
required to (i) register the transfer or exchange of any Preferred Securities
during a period beginning at the opening of business 15 days before the mailing
of a notice of redemption of Preferred Securities and ending at the close of
business the day of such mailing or (ii) transfer or exchange any Preferred
Securities so selected for redemption, except any portion of any Preferred
Securities not being redeemed in a partial redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE AND THE DELAWARE TRUSTEE
The Property Trustee will have all the duties and responsibilities specified
in the applicable Trust Agreement. After the occurrence and continuation of an
Event of Default, the Property Trustee must exercise the same degree of care and
skill as a prudent person would exercise or use under the circumstances in the
conduct of his or her own affairs. Subject to this provision, the Property
Trustee is not under any obligation to exercise any of the rights or powers
vested in it by the applicable Trust Agreement at the request of any holder of
Trust Securities unless it is offered reasonable indemnity
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against the costs, expenses and liabilities which might be incurred. If no Event
of Default has occurred and is continuing and the Property Trustee is required
to decide between alternative courses of action, construe ambiguous or
inconsistent provisions in the applicable Trust Agreement or is unsure of the
application of any provision of the applicable Trust Agreement, and the matter
is not one on which you as a holder of Preferred Securities are entitled to vote
under such Trust Agreement, then the Property Trustee will take such action as
is directed by the Company and if not so directed, may take such action as it
deems advisable and in the best interests of the holders of the Trust Securities
and will have no liability except for its own bad faith, negligence or willful
misconduct.
The Delaware Trustee will not have any of the duties and responsibilities of
the Administrators or the Property Trustee under the applicable Trust Agreement.
The Delaware Trustee will not be liable for the payment of any Trust's debt or
expenses and will not be liable for any Trust's breach of its obligations,
except for breaches due to the Delaware Trustee's own gross negligence or
willful misconduct.
MISCELLANEOUS
The Administrators and the Property Trustee will conduct the affairs of the
Trusts in a manner (a) so that (i) no Trust will be deemed to be an "investment
company" required to be registered under the Investment Company Act or (ii)
classified as something other than a grantor trust for United States federal
income tax purposes and (b) so that the Debentures will be treated as
indebtedness of the Company for United States federal income tax purposes. The
Administrators, the Property Trustee and the Company (as holder of the Common
Securities) will take any action they determine in their discretion to be
necessary or desirable to accomplish the objectives described above that is not
inconsistent with applicable law, the certificate of trust or the applicable
Trust Agreement, and does not materially adversely affect your interests as a
holder of the related Preferred Securities. Each of the Company, the
Administrators and the Trustees may engage in other businesses, whether or not
similar to the business of the applicable Trust and the holders of Trust
Securities will have no right to participate in such businesses.
You have no preemptive or similar rights as a holder of Preferred
Securities.
No Trust may borrow money or issue debt or pledge any of its assets.
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DESCRIPTION OF GUARANTEES
The Company will execute and deliver the Guarantees at various times for
your benefit as a holder of Preferred Securities. This is a summary and is not
complete. This summary does not describe certain exceptions and qualifications
contained in the Guarantees. You should read the Guarantees, a form of which is
filed as an exhibit to the Registration Statement. Each Guarantee will be
qualified as an indenture under the TIA. Unless the applicable Prospectus
Supplement states differently, The Chase Manhattan Bank will act as independent
indenture trustee for TIA purposes under each Guarantee (the "Guarantee
Trustee"). Each Guarantee will be held by the Guarantee Trustee for your benefit
as a holder of the Preferred Securities of the applicable Trust.
GENERAL
Unless the applicable Prospectus Supplement states differently, under each
Guarantee, the Company irrevocably agrees to pay in full, and on a subordinated
and junior basis, the following payments regarding the Preferred Securities (the
"Guarantee Payments") if they are not paid by the applicable Trust:
- any accumulated and unpaid Distributions required to be paid on such
Preferred Securities, to the extent such Trust has funds available at such
time;
- the Redemption Price, with respect to any Preferred Securities called for
redemption, to the extent such Trust has funds available at such time;
and,
- if a voluntary or involuntary dissolution, winding up or liquidation of
such Trust occurs, and a distribution of Debentures to you as a holder of
such Preferred Securities is not made, an amount equal to the lesser of
either (i) the Liquidation Distribution or (ii) the aggregate of the
Liquidation Amount and all accumulated and unpaid Distributions on the
Preferred Securities to the date of payment, to the extent such Trust has
funds available for that purpose.
Both the Company's and each Trust's payments to the holders of the
applicable Trust Securities of the amounts required under the Guarantees will
satisfy the obligations to make the Guarantee Payments.
Each Guarantee will be an irrevocable guarantee on a subordinated basis of
the related Trust's obligations under the Trust Securities, but will apply only
to the extent that such Trust has funds sufficient to make such payments and
does not guarantee collection.
If the Company does not make interest or principal payments on the
Debentures purchased by such Trust, that Trust will not be able to pay any
distributions on its Preferred Securities because it will not have the funds to
do so. Each Guarantee will rank subordinate and junior in right of payment to
all of the Company's Senior Debt. See "--Status of the Guarantees." Because the
Company is a holding company, its right to participate in any distribution of
assets of any subsidiary, on such subsidiary's liquidation or reorganization or
otherwise, is subject to the prior claims of such subsidiary's creditors.
Accordingly, the Company's obligations under the Guarantees will be effectively
subordinated to all existing and future liabilities of its subsidiaries. Holders
of Preferred Securities should look only to the assets of the Company for
payments under the Guarantees.
Except as otherwise provided in the applicable Prospectus Supplement, the
Guarantees do not limit the amount of other secured or unsecured debt of the
Company, including Senior Debt, whether under the Indenture, any other existing
indenture, or any other indenture that the Company may enter into in the future
or otherwise.
The Company has, through the execution of the applicable Guarantee, Trust
Agreement, series of Debentures and the Indenture, fully, irrevocably and
unconditionally guaranteed all of each Trust's obligations under the Preferred
Securities. No single document standing alone or operating in
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conjunction with fewer than all of the other documents constitutes such
guarantee. It is only through the combined operation of these documents that the
full, irrevocable and unconditional guarantee of each Trust's obligations under
the Preferred Securities is provided. See "Relationship Among Debentures,
Preferred Securities and Guarantees."
STATUS OF THE GUARANTEES
Each Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior Debt of the
Company in the same manner as the Debentures. The Guarantees do not place any
limitation on the amount of additional Senior Debt that the Company may incur.
The Company expects to periodically incur additional indebtedness constituting
Senior Debt.
Each Guarantee will rank equally with all other Guarantees to be issued by
the Company and will be held for your benefit as a holder of the related
Preferred Securities. Each Guarantee will constitute a guarantee of payment and
not of collection, and will permit the guaranteed party to bring legal
proceedings directly against the guarantor to enforce its rights under the
Guarantee without first instituting a legal proceeding against any other person
or entity. No Guarantee will be discharged except by payment of the Guarantee
Payments in full (to the extent not paid by the Trust), when the Debentures are
distributed to you as a holder of the Preferred Securities or when the
applicable Trust dissolves and full payment of amounts payable under the
applicable Trust Agreement is made.
MODIFICATION OR AMENDMENT OF THE GUARANTEES
If any changes materially adversely affects your rights as a holder of the
related Preferred Securities, no Guarantee may be amended without the prior
approval of the holders of at least a majority of the Liquidation Amount of such
outstanding Preferred Securities. The manner of obtaining any such approval is
set forth under the section entitled "Description of Preferred
Securities--Voting Rights; Amendment of Each Trust Agreement."
ASSIGNMENT
All guarantees and agreements contained in each Guarantee will bind the
successors, assigns, receivers, trustees and representatives of the Company and
will inure to the benefit of the holders of the related Preferred Securities
then outstanding. The Company must obtain the prior approval of the holders of
at least a majority of the Liquidation Amount of the Preferred Securities in
order to assign its rights or obligations under the applicable Guarantee.
However, this requirement does not apply if the assignment is in connection with
a merger or consolidation of, or the sale of assets by or to, the Company.
EVENTS OF DEFAULT
An event of default under each Guarantee will occur if the Company fails to
perform any of its payment or other obligations under such Guarantee. When such
a default occurs, the holders of at least a majority of the Liquidation Amount
of the related Preferred Securities have the right to direct the time, method
and place of a proceeding for any remedy that is available to the Guarantee
Trustee or to direct the exercise of any trust or power conferred on the
Guarantee Trustee under such Guarantee.
As a holder of Preferred Securities, you may institute legal proceedings
directly against the Company to enforce its rights under such Guarantee without
first bringing legal proceedings against the applicable Trust, the Guarantee
Trustee, or any other person or entity.
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As guarantor, the Company is required to file an annual certificate with the
Guarantee Trustee stating whether the Company is in compliance with all
applicable conditions and covenants under the Guarantees.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee will have all the duties and responsibilities
specified in the applicable Guarantee. After the occurrence and continuation of
a Guarantee default, the Guarantee Trustee must exercise the same degree of care
and skill as a prudent person would exercise or use in the conduct of his or her
own affairs. Subject to this provision, the Guarantee Trustee is not under any
obligation to exercise any of the powers vested in it by any Guarantee at the
request of the holder of any Preferred Securities unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might be
incurred.
TERMINATION OF THE GUARANTEES
Each Guarantee will terminate and be of no further force and effect if any
of the following occurs:
- full payment of the Redemption Price of the related Preferred Securities;
- full payment of the amounts payable on dissolution of the related Trust;
or
- the distribution of Debentures to the holders of Preferred Securities.
However, if at any time you as a holder of the related Preferred Securities
must pay back any sums paid under such Preferred Securities or such Guarantee,
each such Guarantee will continue to be effective or will be reinstated.
GOVERNING LAW
Each Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
RELATIONSHIP AMONG DEBENTURES, PREFERRED SECURITIES AND GUARANTEES
FULL AND UNCONDITIONAL GUARANTEE
The Company irrevocably guarantees the amounts due on the Preferred
Securities, including Distribution payments, as described under "Description of
Guarantees" but only to the extent the related Trust has funds available for
such payments. The documents of each series of Debentures, the Indenture, the
related Trust Agreement and the related Guarantee, together create this full,
irrevocable and unconditional guarantee of all Distribution payments and other
amounts due on the related Preferred Securities on behalf of the Company. All of
the documents are required to enforce a full, irrevocable and unconditional
guarantee against the Company. It is only the combined operation of these
documents that provides for a full, irrevocable and unconditional guarantee of
each Trust's obligations under the related Preferred Securities.
If the Company does not make payments on any series of Debentures, then the
corresponding Trust will not pay Distributions or other amounts due on the
related Preferred Securities. The Guarantees only cover payment of Distributions
to the extent that the related Trust has sufficient funds to pay such
Distributions.
If a Trust does not have sufficient funds to pay, you as a holder of a
series of Preferred Securities may institute a legal proceeding directly against
the Company in order to enforce payment. The Company's obligations under each
Guarantee are subordinate and junior in right of payment to all of the Company's
Senior Debt.
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SUFFICIENCY OF PAYMENTS
The Company's payment of the interest and other payments when due on each
series of Debentures will be sufficient to cover a Trust's Distributions and
other payments due on the related Preferred Securities. There are four primary
reasons why payments on the Debentures will cover the payments due on the
related Preferred Securities:
- the aggregate principal amount of each series of Debentures will equal the
sum of the aggregate stated Liquidation Amount of the related Preferred
Securities and related Common Securities;
- both the interest rate and the interest and other payment dates on each
series of Debentures will match the Distribution rate and Distribution and
other payment dates for the related Preferred Securities;
- the Company will pay for all and any costs, expenses and liabilities of
such Trust, except the Trust's obligations to holders of its Preferred
Securities; and
- each Trust Agreement provides that the Trust will not engage in any
activity that is inconsistent with the limited purposes of such Trust.
Except as set forth in the Indenture, the Company may set-off any payment
that it is otherwise required to make under the Indenture with payments it has
made or is making under the related Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF PREFERRED SECURITIES
As a holder of a Preferred Security, you may bring a legal proceeding
directly against the Company to enforce your rights under the related Guarantee.
In order to do so, you do not need to first institute a legal proceeding against
any of the Guarantee Trustee, the related Trust or any other person or entity.
A default or event of default under any of the Company's Senior Debt does
not constitute a default or Debenture Event of Default under the Indenture.
However, if there are any payment defaults under the Company's Senior Debt or it
is accelerated, no payments may be made relating to the Debentures until either
such Senior Debt has been paid in full or any payment default under the Senior
Debt has been cured or waived. Failure to make required payments on any series
of Debentures would constitute a Debenture Event of Default under the Indenture.
LIMITED PURPOSE OF TRUSTS
Each Trust's Preferred Securities creates a preferred undivided beneficial
interest in the assets of such Trust, and each Trust exists for the sole purpose
of issuing its Trust Securities and investing the proceeds of such Trust
Securities in Debentures. A principal difference between your rights as a holder
of a Preferred Security and those of the applicable Trust as a holder of a
Debenture is that the holder of a Debenture may receive the principal amount of
and interest accrued on Debentures held from the Company, while the holder of
Preferred Securities may only receive Distributions from such Trust (or from the
Company under the applicable Guarantee) to the extent such Trust has sufficient
funds available to pay such Distributions.
RIGHTS ON DISSOLUTION
If a voluntary or involuntary dissolution that involves the liquidation of
Debentures of any Trust occurs, you as a holder of the related Preferred
Securities will be entitled to receive out of the assets of such Trust (after
satisfaction of liabilities to creditors as provided by applicable law) the
Liquidation Distribution in cash. See "Description of Preferred
Securities--Liquidation Distribution on Dissolution."
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If a voluntary or involuntary liquidation or bankruptcy of the Company
occurs, the Property Trustee (as holder of the Debentures) would become a
subordinated creditor of the Company and would be subordinated in right of
payment to all Senior Debt. However, the Property Trustee would be entitled to
receive payment in full of principal and interest, before any of the Company's
stockholders receive payments or distributions. The Company is the guarantor
under each Guarantee and has agreed to pay for all costs, expenses and
liabilities of each Trust (other than the Trust's obligations to the holders of
its Preferred Securities). As a result, in the event of the Company's
liquidation or bankruptcy, the positions of a holder of such Preferred
Securities and a holder of such Debentures relative to the Company's other
creditors and stockholders are expected to be substantially the same.
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DESCRIPTION OF PREFERRED STOCK
The general terms of the Company's Preferred Stock, par value $1.00 per
share (the "Preferred Stock"), are described in the Company's Certificate of
Incorporation, and the specific terms of each series of Preferred Stock will be
described in the applicable Prospectus Supplement and Certificate of
Designation. This is a summary and is not complete. This summary describes the
dividend, liquidation, redemption and voting rights applicable to all Preferred
Stock. This summary does not include certain exceptions and qualifications
contained in the Certificate of Incorporation and Certificates of Designation.
You should read the Certificate of Incorporation and the applicable Certificate
of Designation, which are either filed as exhibits to or will be incorporated by
reference in the Registration Statement. You should also read the applicable
Prospectus Supplement for information relating to a particular series of
Preferred Stock.
GENERAL
The Company is authorized to issue 10,000,000 shares of Preferred Stock. The
Preferred Stock may be issued in one or more series. The Certificate of
Incorporation and the Board of Directors' resolutions providing for such
issuance describe the designations, voting powers, preferences and relative,
participating, optional or other special rights, and corresponding
qualifications, limitations or restrictions.
The Company may issue Depositary Shares which will represent fractional
interests in shares of Preferred Stock. For a description of such Depositary
Shares in the event Depositary Shares are issued, see "Description of Depositary
Shares."
The actual dividend, liquidation, redemption and voting rights of the
Preferred Stock as described in the applicable Prospectus Supplement may be
different from the general description in this summary. You should refer to the
Prospectus Supplement relating to the particular series of Preferred Stock for
specific terms, such as:
- the designation, stated value and liquidation preference;
- the number of shares offered;
- the initial public offering price for the particular series;
- the dividend rate(s) (or method of calculation), the date(s) from which
dividends shall accrue, and whether such dividends shall be cumulative or
noncumulative (and, if cumulative, the date accumulation begins);
- any redemption or sinking fund provisions;
- the amount of payments on liquidation, dissolution or winding-up of the
Company;
- the terms for exchanging Preferred Stock for other securities of the
Company;
- any additional voting rights;
- any information regarding reissuance or sale of shares which have been
redeemed, purchased or otherwise reacquired, or surrendered to the Company
on conversion or exchange;
- any conditions or restrictions on the Company on dividends or other
distributions on, or acquiring the Company's Common Stock or other capital
stock of the Company that ranks junior to (regarding dividends and
treatment upon liquidation) the Preferred Stock;
- any conditions or restrictions on the Company (or any subsidiary) on
incurring debt or issuing capital stock that ranks equally with or senior
to (regarding dividends and treatment upon liquidation) the Preferred
Stock; and
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- any additional dividend, liquidation, redemption, sinking or retirement
fund or other rights, preferences, privileges, limitations or restrictions
of such Preferred Stock.
The Preferred Stock will be fully paid and nonassessable when it is issued.
Unless otherwise specified in the applicable Prospectus Supplement, your
Preferred Stock will rank equally in all respects to the outstanding shares of
Preferred Stock. As of November 16, 1998, there were outstanding 3,729,250
shares of the Company's Preferred Stock. The Preferred Stock will have no
preemptive rights to subscribe for any additional securities that may be issued
by the Company.
DIVIDENDS
Unless the applicable Prospectus Supplement states differently, you will be
entitled to receive dividends on the Preferred Stock before any may be declared
or paid on the Common Stock (or on any other junior capital stock of the Company
junior to the Preferred Stock regarding payment of dividends, liquidation or
other preferences ("junior capital stock"). Dividends will be paid on each
January 15, April 15, July 15 and October 15, at the rates specified in the
applicable Prospectus Supplement. Such rates may be fixed or variable or both.
Any formula used to determine the variable rate will be described in the
applicable Prospectus Supplement. The record date, as fixed by the Board of
Directors, will be at least 15 days but no more than 60 days before a dividend
payment date. Unless the applicable Prospectus Supplement states differently,
dividends will be paid in cash.
The applicable Prospectus Supplement will specify whether dividends are
cumulative or noncumulative. If the Board of Directors does not declare a
dividend for a particular dividend payment date and dividends are noncumulative,
then you will not receive a dividend for that period. If dividends on a
particular series are not paid in full (or declared in full with the payment
amount set apart), then such dividends will not be declared and paid unless
dividends are declared and paid proportionately on all other series of
outstanding Preferred Stock (including any accrued dividends or dividends in
arrears).
Any conditions or restrictions on the Company on dividends or other
distributions on, or purchasing, redeeming or otherwise acquiring Common Stock
(or any other junior capital stock) will be stated in the applicable Prospectus
Supplement.
LIQUIDATION RIGHTS
If the Company is voluntarily or involuntarily liquidated, dissolved or
wound-up, as a holder of Preferred Stock, you will be entitled to receive the
amount specified in the applicable Prospectus Supplement, together with all
accrued and unpaid dividends, before any distribution of the Company's assets
will be made to the holders of Common Stock (or any other junior capital stock).
After such distribution, you will not be entitled to any additional
distribution. If there are not enough assets to pay all holders of a series of
Preferred Stock in full, then such assets will be distributed proportionately
among the holders.
Neither the consolidation, merger or other business combination of the
Company with another entity nor the transfer of all or any part of the Company's
property, assets or business will be considered a liquidation, dissolution or
winding up of the Company.
REDEMPTION
As stated in the applicable Prospectus Supplement, the Company may redeem
all or a part of any series of Preferred Stock at its option or when specified
events occur. If the Company plans to redeem only a part of a series, those
shares will be selected by lot or treated proportionately, as determined by
resolution of the Board of Directors.
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The Company must publish notice of any redemption in a newspaper at least 20
but no more than 50 days before the redemption date. The Company will also mail
a similar notice within that same time period. The Board of Directors may fix a
record date at least 20 but no more than 50 days before the redemption date.
Before the redemption date, the Company will deposit money for the
redemption payment with a bank or trust company. On the redemption date, all
dividends on the series of Preferred Stock called for redemption will stop
accruing and all your rights will end (except your right to receive the
redemption price without interest). Any funds which remain unclaimed by the
holders for six years after the redemption date will become the property of the
Company. After that time, you will be a general unsecured creditor of the
Company and may only look to the Company for payment of such funds.
CONVERSION RIGHTS
No series of Preferred Stock will be convertible into Common Stock.
VOTING RIGHTS
Unless the applicable Prospectus Supplement states that the Board of
Directors has determined differently, or as required by law, you can vote only
if dividends on your series of Preferred Stock (or any other capital stock
ranking equally with that series) have been in arrears for six calendar quarters
(whether consecutive or not). In that case, you will be entitled to vote for the
election of two of the Company's directors at the annual meetings of
stockholders until all accumulated dividends have been fully paid or set apart
for payment. You will vote with all other holders of other series of Preferred
Stock that are in the same situation as a separate class. Each holder will have
one vote for each share held. Directors elected in this manner will hold office
for so long as these holders are entitled to this voting right.
So long as any series of Preferred Stock remains outstanding, the Company
will need the consent of the holders of at least two-thirds of the shares of
that series (voting separately as a class with all other series of Preferred
Stock with like voting rights) to:
- issue or increase the authorized amount of any class or series of stock
ranking senior to that series regarding dividends or liquidation; or
- amend or repeal the provisions of the Certificate of Incorporation or the
Certificate of Designation (whether by merger, consolidation or
otherwise), in a way that materially adversely affects any power,
preference or special right of that series.
Any increase in the amount of the authorized Common or Preferred Stock or
the creation and issuance of Common Stock or any other series of Preferred Stock
ranking equally with or junior to a series of Preferred Stock will not be
considered to materially adversely affect the powers, preferences or special
rights of the shares of that series.
Unless the applicable Prospectus Supplement states differently, the transfer
agent, dividend disbursing agent and registrar for each series of Preferred
Stock will be ChaseMellon Shareholder Services L.L.C.
DESCRIPTION OF DEPOSITARY SHARES
The Depositary Shares will represent fractional interests in shares of
Preferred Stock. As a holder of Depositary Shares, you will be entitled to a
proportionate share of all the rights and preferences of a holder of Preferred
Stock (for example, dividend, voting, redemption and liquidation rights). Your
proportionate rights and preferences will be subject to the applicable Deposit
Agreement. This is a
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summary and is not complete. This summary does not describe certain exceptions
and qualifications contained in the Deposit Agreement. You should read the
Deposit Agreement, a form of which is filed as an exhibit to the Registration
Statement.
GENERAL
The Depositary will issue Depositary Receipts to evidence Depositary Shares.
Each Depositary Receipt will represent a fractional interest (to be specified in
the applicable Prospectus Supplement) in a share of a particular series of
Preferred Stock.
The Depositary Shares will be deposited under a Deposit Agreement among the
Company, a bank or trust company selected by the Company as the Depositary and
the holders of the Depositary Receipts. The Depositary must be a bank or trust
company having its principal office in the United States and having a combined
capital and surplus of at least $50,000,000. The name and address of the
Depositary will be specified in the applicable Prospectus Supplement.
Before the definitive engraved Depositary Receipts are available, the
Depositary may issue temporary Depositary Receipts substantially identical to
the definitive Depositary Receipts. Definitive Depositary Receipts will be
prepared within a reasonable time and will be exchanged for the temporary
Depositary Receipts at the Company's expense.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Depositary will distribute to the holders of Depositary Receipts all
cash dividends or other cash distributions on the fractional shares of Preferred
Stock. These cash dividends and other cash distributions will be distributed
proportionately (based on holdings of the Depositary Shares on the applicable
record date). The Depositary will not distribute amounts less than one cent. The
Depositary will hold any such balances of fractional cents, without liability
for interest on these balances. The Depositary will distribute these balances
with the next sum received for distribution to holders of Depositary Receipts
then outstanding.
If the Company distributes property other than cash, the Depositary will
distribute the property as close to proportionately as possible (based on
holdings of the Depositary Shares on the applicable record date). If the
Depositary determines that it is not feasible to make such a distribution, the
Depositary may (with the approval of the Company) sell the property and
distribute the net proceeds of such sale or use some other fair and practical
method to make the distribution.
Each Deposit Agreement will also explain how holders of Depositary Shares
can participate in any subscription or similar rights offered by the Company to
holders of the Preferred Stock deposited under such Deposit Agreement.
REDEMPTION OF DEPOSITARY SHARES
When all or a part of the shares of corresponding Preferred Stock are
redeemed, the Depositary will redeem the Depositary Shares with the proceeds
received from the redemption of the Preferred Stock. Whenever the Company
redeems shares of Preferred Stock held by a Depositary, the Depositary will
redeem a number of Depositary Shares representing the number of shares of
Preferred Stock redeemed by the Company. The Depositary Shares will be redeemed
on the same redemption date as the corresponding Preferred Stock. The Depositary
will mail any notice of redemption at least 20 days but not more than 50 days
before the redemption date. The redemption price per Depositary Share will be
equal to the applicable fraction of the redemption price per share of the
Preferred Stock. If only a part of the Depositary Shares are to be redeemed, the
Depositary may select by lot or redeem a proportionate amount of all Depositary
Shares.
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Beginning on the redemption date, the Depositary Shares called for
redemption will no longer be considered outstanding. All rights of the holders
of such Depositary Shares will cease, except for the right to receive the moneys
payable or rights to which the holders were otherwise entitled on such
redemption.
VOTING RIGHTS
As soon as practical after the Depositary receives notice of any meeting at
which the holders of shares of Preferred Stock may vote, the Depositary will
mail the information contained in that notice of meeting (and any accompanying
proxy materials) to the holders of the Depositary Shares on the record date for
such meeting. Each such holder will be able to instruct the Depositary on how to
exercise the voting rights of the corresponding Preferred Stock. The Depositary
will endeavor to vote the Preferred Stock in accordance with such holder's
instructions. The Company will agree to take all action the Depositary considers
necessary to enable it to do so. The Depositary will abstain from voting shares
of Preferred Stock for which it has not received specific instructions from the
holders of the applicable Depositary Shares.
WITHDRAWAL OF STOCK
An owner of Depositary Shares which have not been called for redemption and
who surrenders the Depositary Receipts at the Depositary's principal office will
be entitled to whole shares of Preferred Stock and all money and any other
property represented by those Depositary Shares. Fractional shares of Preferred
Stock will not be delivered. If the Depositary Receipts surrendered by the
holder are greater than the number of whole shares of Preferred Stock to be
withdrawn, the Depositary will also deliver to such holder a new Depositary
Receipt for the fractional shares. If you withdraw Preferred Stock in this way,
you will not be able to deposit them under a Deposit Agreement or to exchange
them for Depositary Shares. The Company expects that a public trading market
will exist only for Depositary Shares and not for the corresponding Preferred
Stock.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The Company and the Depositary may agree to change the form of Depositary
Receipt or any provision of a Deposit Agreement. However, any amendment that
materially adversely alters the rights of the existing holders of Depositary
Shares requires the approval by the holders of at least a majority of the
Depositary Shares then outstanding under that Deposit Agreement. Each Deposit
Agreement will provide that each holder of Depositary Shares who continues to
hold those Depositary Shares when an amendment becomes effective will be
considered to have consented to the amendment and will be bound by the
amendment. Except to comply with any mandatory provisions of law or as otherwise
provided in the related Deposit Agreement, no amendment may impair the right of
any holder of any Depositary Shares to surrender the Depositary Receipt to the
Depositary together with instructions to deliver to such holder the whole shares
of Preferred Stock represented by the surrendered Depositary Shares and all
money and any other property represented by such Depositary Shares. A Deposit
Agreement may be terminated by the Company or the Depositary only if:
- all outstanding Depositary Shares issued under the Deposit Agreement have
been redeemed; or
- in connection with the liquidation, dissolution or winding-up of the
Company, there has been a final distribution of the corresponding
Preferred Stock, and the Depositary has distributed the amount it received
to the holders of those Depositary Shares.
CHARGES OF THE DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. The Company
will pay charges of any Depositary in
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connection with the initial deposit of Preferred Stock and the initial issuance
of the applicable Depositary Shares and any redemption of such Preferred Stock.
Holders of Depositary Shares will pay any other taxes and charges incurred for
their accounts as provided in the applicable Deposit Agreement.
MISCELLANEOUS
Each Depositary will send to the holders of Depositary Shares all reports
and communications it receives from the Company that the Company is required to
furnish to the holders of the Preferred Stock. Each Depositary will also make
available for inspection by the holders of those Depositary Shares, at the
principal office of such Depositary and at such other places as it considers
advisable, all reports and communications received from the Company that are
received by such Depositary as the holder of Preferred Stock.
The Depositary and the Company assume liability under a Deposit Agreement to
holders of the Depositary Shares only for negligence or willful misconduct.
Neither any Depositary nor the Company will be liable if it is prevented or
delayed by law or any circumstance beyond its control in performing its
obligations under a Deposit Agreement. The obligations of the Company and any
Depositary under a Deposit Agreement will be limited to good faith performance
of their duties. Neither the Depositary nor the Company will be obligated to
prosecute or defend any legal proceeding regarding any Depositary Shares or
Preferred Stock unless satisfactory indemnity is provided. The Company and any
Depositary may rely on written advice of counsel or accountants, on information
provided by persons presenting Preferred Stock for deposit, holders of
Depositary Shares or other persons believed in good faith to be competent to
give such information. The Depositary and the Company may also rely on documents
they believe are genuine and signed or presented by the proper party or
party(ies).
Owners of the Depositary Shares will be treated as if they were owners of
the Preferred Stock for United States federal income tax purposes.
RESIGNATION AND REMOVAL OF DEPOSITARY
A Depositary may resign at any time by delivering a notice of resignation to
the Company. The Company may remove any Depositary at any time. Any such
resignation or removal will be effective when a Company-appointed successor
accepts the appointment. The successor Depositary must be appointed within 60
days after delivery of the notice of resignation or removal. The successor
Depositary must be a bank or trust company having its principal office in the
United States and having a combined capital and surplus of at least $50,000,000.
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BOOK-ENTRY ISSUANCE
Unless otherwise indicated in the applicable Prospectus Supplement, the
Preferred Securities and the Debentures will be issued only in book-entry form.
This means that the Company and the Trusts will not issue certificates to you.
Instead, ownership of the Preferred Securities and the Debentures will be
represented by one or more global certificates that will be registered in the
name of The Depository Trust Corporation, New York, New York ("DTC"), the
securities depositary, or its nominee, Cede & Co. This form will be referred to
as "book-entry only."
One or more fully registered global certificates will be issued for the
Preferred Securities and the Debentures, representing in the aggregate, the
total number of such Trust's Preferred Securities or aggregate principal balance
of Debentures, respectively. These global certificates will be deposited with
the Property Trustee as custodian for DTC.
Any series of Preferred Stock (and the Depositary Shares relating to such
series) may be issued in either certificate or book-entry form, as specified in
the applicable Prospectus Supplement. Ownership of Preferred Stock or Depositary
Shares issued in book-entry form will be represented by one or more global stock
certificates or a global Depositary Receipt registered in the name of DTC, or
its nominee, Cede & Co.
Purchases of Preferred Securities, Debentures, Preferred Stock or Depositary
Shares within the DTC system must be made by or through Participants, including
Euroclear and Cedel, which will receive a credit for the Preferred Securities,
Debentures, Preferred Stock or Depositary Shares on DTC's records. The ownership
interest of the actual purchaser of Preferred Securities, Debentures, Preferred
Stock or Depositary Shares and any transfers of those interests, are in turn
recorded separately on the Participants' records acting on behalf of the actual
owners of the Preferred Securities, Debentures, Preferred Stock or Depositary
Shares. Under book-entry only, none of the Company, the Trusts or DTC will issue
certificates or written confirmations to individual beneficial holders of their
purchases, except if the use of the book-entry system for the Preferred
Securities, Debentures, Preferred Stock or Depositary Shares is discontinued.
TRANSFERS
Transfers between Participants are completed through the DTC system and are
settled in same-day funds. Transfers between participants in Euroclear and Cedel
will be effected in the ordinary way in accordance with their respective rules
and operating procedures.
CROSS-MARKET TRANSFERS
With respect to cross-market transfers between DTC Participants and
Euroclear or Cedel participants, such transfers will be effected in DTC in
accordance with DTC's rules on behalf of Euroclear or Cedel by its respective
depositary. These cross-market transactions will require the delivery of
instructions to Euroclear or Cedel by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of Euroclear and Cedel. If the transaction meets the respective
system's settlement requirements, Euroclear or Cedel, as applicable, will
deliver instructions to its respective depositary to take action to effect final
settlement on its behalf by delivering or receiving interests in the Preferred
Securities, Debentures, Preferred Stock or Depositary Shares in DTC. Only then
will Euroclear or Cedel make or receive payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. Both Euroclear and
Cedel participants may not deliver instructions directly to the depositaries for
Euroclear or Cedel.
Because of time zone differences involved in cross-market transfers, the
securities account of a Euroclear or Cedel participant purchasing an interest in
a Preferred Security, Debenture, Preferred Stock or Depositary Share from a DTC
Participant will be credited during the securities settlement processing day
(which must be a business day for Euroclear or Cedel) immediately following the
DTC
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settlement date, and any such crediting will be reported to the relevant
Euroclear or Cedel participant. Any cash received in Euroclear or Cedel as a
result of sales of interests in a Preferred Security, Debenture, Preferred Stock
or Depositary Share by or through a Euroclear or Cedel participant to a DTC
Participant will be received with value on the DTC settlement date, but will
only be available in the relevant Euroclear or Cedel cash account as of the
business day for Euroclear or Cedel following the DTC settlement date.
RECORD-KEEPING AND NOTICE
DTC will have no knowledge of the actual owners of the beneficial interests
of the Preferred Securities, Debentures, Preferred Stock or Depositary Shares.
Instead, DTC's records reflect only the identity of the Participants to whose
accounts such Preferred Securities, Debentures, Preferred Stock or Depositary
Shares are credited, which may not be the owners of beneficial interests in the
global securities. The Participants will in turn keep account of their holdings
on behalf of their customers.
Conveyance of notices and other communications by DTC to Participants, by
and among Participants, and by Participants to the owners of beneficial
interests, and the voting rights of Participants and owners of beneficial
interests will be governed by arrangements among them, subject to any statutory
or regulatory requirements.
Redemption notices will be sent to Cede & Co. as the registered holder of
the Preferred Securities, Debentures, Preferred Stock or Depositary Shares. If
less than all of a Trust's Preferred Securities or Debentures or less than all
of the Preferred Stock or Depositary Shares are being redeemed, DTC's current
practice is to determine by lot the amount of the interest of each Participant
to be redeemed.
VOTING RIGHTS
Although voting with respect to the Preferred Securities, Debentures,
Preferred Stock or Depositary Shares is limited to the holders of record of the
Preferred Securities, Debentures, Preferred Stock or Depositary Shares, in those
instances in which a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to the Preferred Securities, Debentures, Preferred
Stock or Depositary Shares. It is DTC's current practice to mail an omnibus
proxy to the relevant Trustee as soon as possible after the specified record
date. This omnibus proxy assigns Cede & Co.'s consenting or voting rights to
those Participants to whose accounts such Preferred Securities or Debentures are
credited on the record date.
DISTRIBUTION PAYMENTS
Distribution payments on the Preferred Securities, Debentures, Preferred
Stock or Depositary Shares will be made by the relevant Trustee to DTC. When any
payment of principal or interest is received, it is DTC's current practice to
credit the respective Participant's account on the payment date according to
their respective holdings of beneficial interests in the global securities as
shown on DTC's records. Payments by Participants to owners of beneficial
interests in the global securities, and voting by Participants, will be governed
by the customary practices between the Participants and owners of beneficial
interests for customer accounts registered in "street name." However, these
payments will be the responsibility of the Participants (not of DTC), the
relevant Trustee, the applicable Trust or the Company. Payment to DTC of
Distributions is the responsibility of the relevant Trustee; payment to DTC of
cash dividends and other distributions is the responsibility of the Company.
Disbursement of such payments to the Participants is the responsibility of DTC,
while disbursements of such payments to the owners of the beneficial interests
is the responsibility of the Participants.
The Company will wire principal and interest payments to DTC's nominee. The
Company and the Trustee will treat DTC's nominee as the owner of the global
securities for all purposes. Accordingly,
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neither the Company nor the Trustee is directly responsible or liable for
amounts due on the securities to owners of the beneficial interests in the
global securities.
DTC SERVICES
DTC has provided the Company with the following information:
- DTC is a limited purpose trust company organized under the New York
Banking Law;
- a "banking organization" within the meaning of the New York Banking Law;
- a member of the Federal Reserve System;
- a "clearing corporation" within the meaning of the New York Uniform
Commercial Code; and
- a "clearing agency" registered pursuant to the provisions of Section 17A
of the Exchange Act.
DTC holds securities that its Participants deposit with DTC. Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC also facilitates the
settlement among these Participants of securities transactions, such as
transfers and pledges, in deposited securities through electronic computerized
book-entry changes in Participants' accounts, thereby eliminating the need for
physical movement of securities certificates.
DTC's book-entry system is also available for use by other organizations
such as securities brokers and dealers, banks and trust companies that work
through a Participant, either directly or indirectly ("Indirect Participants").
The rules applicable to DTC and its Participants are on file with the SEC.
DTC is owned by a number of its Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National Association
of Securities Dealers, Inc.
DISCONTINUANCE OF DTC SERVICES
DTC may discontinue providing services as securities depositary with respect
to any of the Preferred Securities, Debentures, Preferred Stock or Depositary
Shares at any time by giving reasonable notice to the relevant Trustee and the
Company. Preferred Securities and Debentures represented by a global security
will be exchangeable for Preferred Security or Debenture certificates with the
same terms in authorized denominations only if:
- DTC notifies the Company that it is unwilling or unable to continue as
depositary or if DTC ceases to be a clearing agency registered under
applicable law and a successor depositary is not appointed by the Company
within 90 days; or
- the Company instructs the Trustee, at its option, that the global security
is now exchangeable.
In addition, after a Debenture Event of Default, the holders of a majority
of the Liquidation Amount of Preferred Securities or aggregate principal amount
of Debentures may determine to discontinue the system of book-entry transfers
through DTC. In such case, definitive certificates for such Preferred Securities
or Debentures will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Trusts and the Company believe to be
accurate, but the Trusts and the Company assume no responsibility for the
accuracy of such information. Neither the Trusts nor the Company has any
responsibility for the performance by DTC or its Participants of their
respective obligations as described above or under the rules and procedures
governing their respective operations.
ERISA CONSIDERATIONS
With the possible exception of any class of Preferred Securities which is
listed on a securities exchange or interdealer quotation system, if Benefit Plan
Investors (defined as (i) employee benefit plans under Section 3(3) of ERISA
(whether or not subject to ERISA), (ii) "plans" as defined in
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Section 4975(e) of the Internal Revenue Code or (iii) entities deemed to hold
plan assets of either of such plans under Department of Labor regulation 29
C.F.R. Section2510.3-101 ("Plan Assets Regulation") or applicable law), in the
aggregate, acquire 25% or more of the value of any class of Trust Securities
(excluding any Trust Securities owned by the Property Trustee, Delaware Trustee,
Company, Administrators or any of their affiliates), a portion of the assets
owned by any Trust would likely be treated as if they were "plan assets" of any
such Benefit Plan Investors which are subject to Part 4 of Title I of ERISA or
Section 4975 of the Internal Revenue Code (collectively, "ERISA Plans"). The
acquisition of Trust Securities by Benefit Plan Investors will not be monitored,
and there can be no assurance that Benefit Plan Investors will not at any time
own less than 25% of the value of a class of Trust Securities.
If a class of Preferred Securities is listed on a securities exchange or
interdealer quotation system, it is expected that such class of Preferred
Securities will be freely transferable, widely-held and registered in a timely
fashion under Sections 12(b) or 12(g) of the Exchange Act, so that such
securities will constitute "publicly offered securities" within the meaning of
the Plan Assets Regulation. Accordingly, the acquisition of such Preferred
Securities by Benefit Plan Investors should not result in the assets owned by
any Trust being treated as "plan assets" of such purchasers. The Common
Securities will be held by the Company.
If the assets of any Trust were treated as plan assets, the fiduciary
standards in ERISA and the prohibited transaction provisions of ERISA and
Section 4975 of the Internal Revenue Code (which generally prohibit most direct
or indirect transactions between ERISA Plans and persons who are "parties in
interest" or "disqualified persons" with respect to such plans) would likely
apply to the assets owned by and the operations of such Trust. Under such
circumstances, the Property Trustee, Delaware Trustee and Administrators would
likely be treated as "parties in interest" and "disqualified persons" subject to
the prohibited transaction provisions and could be construed as fiduciaries for
purposes of ERISA with respect to each ERISA Plan owning Preferred Securities.
In addition, the loan between such Trust and the Company, as evidenced by the
Debentures, might constitute a non-exempt prohibited transaction unless the
Company is not a party in interest or a disqualified person with respect to any
ERISA Plan which owns a Trust Security. By virtue of the activities of the
Company and its subsidiaries, the Company is a party in interest and
disqualified person with respect to many ERISA Plans from time to time. Because
of this fact, the acquisition or ownership of Preferred Securities by any ERISA
Plan as to which the Company is a party in interest or disqualified person might
also constitute a prohibited transaction in the absence of a prohibited
transaction exemption, whether or not assets of any Trust are treated as plan
assets.
No ERISA Plan should acquire Preferred Securities unless it qualifies for a
prohibited transaction exemption. Prohibited transaction exemptions that may
apply are transactions negotiated: (i) by "qualified professional asset
managers"; (ii) with insurance company pooled separate accounts; (iii) by bank
collective trust funds; (iv) by insurance company accounts; and (v) by certain
qualified "in-house asset managers". The acquisition of Preferred Securities by
an ERISA Plan shall constitute a representation and warranty by such ERISA Plan
and its fiduciary responsible for such acquisition that such security is being
acquired and held pursuant to an applicable prohibited transaction exemption
and, accordingly, that the acquisition and holding of the securities will not
constitute a non-exempt prohibited transaction under Section 406 of ERISA or
Section 4975 of the Internal Revenue Code.
This discussion of ERISA Plans and other Benefit Plan Investors is general
and does not cover every situation. Any Benefit Plan Investor considering a
purchase of Preferred Securities should consult with its counsel regarding the
potential consequences of such purchase. In particular, ERISA Plans should
consider the potential consequences if the assets of the Trust were treated as
"plan assets" and the availability and extent of exemptive relief under
applicable prohibited transaction exemptions.
49
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PLAN OF DISTRIBUTION
The Company and the Trusts may sell the offered securities (a) through
agents; (b) through underwriters; (c) through dealers; (d) directly to one or
more purchasers; or (e) through a combination of any of these methods of sale.
BY AGENTS
Offers to purchase securities may be solicited by agents designated by the
Company. The agents will agree to use their reasonable best efforts to solicit
purchases for the period of their appointment, unless the applicable Prospectus
Supplement states differently.
BY UNDERWRITERS
If underwriters are used in the sale, the offered securities will be
acquired by the underwriters for their own account. The underwriters may resell
the securities in one or more transactions, including negotiated transactions,
at a fixed public offering price or at varying prices determined by the
underwriters at the time of sale. The obligations of the underwriters to
purchase the securities will be subject to certain conditions. The underwriters
will be obligated to purchase all the securities of the series offered if any of
the securities are purchased. Any initial public offering price and any
discounts or concessions allowed or re-allowed or paid to dealers may be
changed.
BY DEALERS
If a dealer is used to sell the securities, the offered securities will be
acquired by the dealer as principal. The dealer may then resell such securities
to the public at varying prices to be determined by the dealer at the time of
resale.
DIRECT SALES
Offered securities may also be sold directly by the Company or the
applicable Trust. In this case, no other underwriters, agents or dealers would
be involved.
GENERAL INFORMATION
Underwriters, dealers and agents that participate in the distribution of the
offered securities may be underwriters as defined in the Securities Act, and any
discounts or commissions received by them from the Company or the applicable
Trust and any profit on the resale of the offered securities by them may be
treated as underwriting discounts and commissions under the Securities Act. Any
underwriters or agents will be identified and their compensation will be
described in the applicable Prospectus Supplement.
The Company or the Trusts may have agreements with the underwriters, dealers
or agents to indemnify them against certain civil liabilities, including
liabilities under the Securities Act, or to contribute with respect to payments
which the underwriters, dealers or agents may be required to make.
The Company or the applicable Trust may authorize agents, underwriters or
dealers to solicit offers by certain institutions to purchase securities
pursuant to delayed delivery contracts providing for payment and delivery on a
specified date in the future. The commission indicated in the applicable
Prospectus Supplement will be paid to underwriters, dealers and agents
soliciting purchases of securities under such delayed delivery contracts
accepted by the Company or the applicable Trust.
Underwriters, dealers and agents may be customers of, engage in transactions
with, or perform services for, the Company or its subsidiaries in the ordinary
course of business.
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LEGAL MATTERS
Unless otherwise indicated in the applicable Prospectus Supplement, certain
legal matters will be passed on for the Company by Cadwalader, Wickersham &
Taft, New York, New York, counsel to the Company and for the Trusts by Richards,
Layton & Finger, P.A., Wilmington, Delaware, special Delaware counsel to the
Trusts and the Company. The validity of the Debentures, Guarantees and/or
Preferred Stock will be passed on for the underwriters by Kramer Levin Naftalis
& Frankel LLP, New York, New York. Cadwalader, Wickersham & Taft and Kramer
Levin Naftalis & Frankel LLP will rely on the opinion of Richards, Layton &
Finger, P.A. as to matters of Delaware law.
EXPERTS
The consolidated financial statements and the related financial statement
schedules incorporated in this Prospectus by reference from the Company's 1998
Annual Report on Form 10-K have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports, which are incorporated herein
by reference, and have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
51
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION OR TO MAKE ANY REPRESENTATION TO YOU THAT IS NOT CONTAINED IN THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED. YOU SHOULD NOT UNDER ANY CIRCUMSTANCES ASSUME THAT THE INFORMATION IN
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS CORRECT ON ANY DATE AFTER THEIR
RESPECTIVE DATES.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
PROSPECTUS SUPPLEMENT
Certain Definitions............................................. S-2
Forward-Looking Statements...................................... S-2
Prospectus Supplement Summary................................... S-3
Risk Factors.................................................... S-7
Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends..................................................... S-10
Use of Proceeds................................................. S-10
Capitalization.................................................. S-11
Description of Preferred Securities............................. S-12
Description of Debentures....................................... S-17
Description of Guarantee........................................ S-23
Certain Federal Income Tax Consequences......................... S-24
Underwriting.................................................... S-28
Legal Matters................................................... S-30
Experts......................................................... S-30
<CAPTION>
PROSPECTUS
<S> <C>
Where You Can Find More Information............................. 2
Certain Definitions............................................. 4
Forward-Looking Statements...................................... 4
Risk Factors.................................................... 5
The Company..................................................... 8
The Trusts...................................................... 9
Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends..................................................... 10
Use of Proceeds................................................. 10
About this Prospectus........................................... 11
Overview of Debentures, Preferred Securities and Guarantees..... 11
Description of Debentures....................................... 12
Description of Preferred Securities............................. 23
Description of Guarantees....................................... 35
Relationship Among Debentures, Preferred Securities and
Guarantees.................................................... 37
Description of Preferred Stock.................................. 40
Description of Depositary Shares................................ 42
Book-Entry Issuance............................................. 46
ERISA Considerations............................................ 48
Plan of Distribution............................................ 50
Legal Matters................................................... 51
Experts......................................................... 51
</TABLE>
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UNTIL JANUARY 3, 1999 ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS. THIS IS IN ADDITION TO DEALERS'
OBLIGATION TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
12,000,000 SHARES
BEAR STEARNS
CAPITAL TRUST II
7 1/2% TRUST ISSUED
PREFERRED SECURITIES
(LIQUIDATION AMOUNT
$25 PER PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN
BY
THE BEAR STEARNS
COMPANIES INC.
-------------------------------
PROSPECTUS SUPPLEMENT
-------------------------------
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SALOMON SMITH BARNEY
DECEMBER 9, 1998
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