SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 31, 1998
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to ______________
Commission File Number 1-8989
The Bear Stearns Companies Inc.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3286161
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
245 Park Avenue, New York, New York 10167
(Address of principal executive offices) (Zip Code)
(212)272-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of February 11, 1999, the latest practicable date, there were 111,361,528
shares of Common Stock, $1 par value, outstanding.
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition at December31,
1998 (Unaudited) and June 30, 1998
Consolidated Statements of Income (Unaudited) for the
three-and six-month periods ended December 31, 1998 and
December 31, 1997
Consolidated Statements of Cash Flows (Unaudited) for the
six-month periods ended December 31, 1998 and December 31,
1997
Notes to Consolidated Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signature
<PAGE>
THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Assets
December 31, June 30,
1998 1998
--------------- ---------------
(Unaudited)
(In thousands)
Cash and cash equivalents $ 1,664,077 $ 1,073,821
Cash and securities deposited with
clearing organizations or
segregated in compliance with
federal regulations 3,589,615 2,282,729
Securities purchased under agreements
to resell 33,060,960 29,846,716
Receivable for securities provided as
collateral 2,118,696 2,041,546
Securities borrowed 54,592,219 56,844,009
Receivables:
Customers 11,420,908 14,228,678
Brokers, dealers and others 1,812,166 1,337,146
Interest and dividends 393,302 467,456
Financial instruments owned, at
fair value 41,067,854 44,619,672
Property, equipment and leasehold
improvements, net of accumulated
depreciation and amortization 474,477 448,044
Other assets 936,225 1,306,078
--------------- ----------------
Total Assets $ 151,130,499 $ 154,495,895
=============== ================
See Notes to Consolidated Financial Statements.
<PAGE>
THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Liabilities and Stockholders' Equity
December 31, June 30,
1998 1998
--------------- ----------------
(Unaudited)
(In thousands, except share data)
Short-term borrowings $ 10,020,298 $ 14,613,565
Securities sold under agreements
to repurchase 50,005,971 45,346,472
Obligation to return securities received as
collateral 2,726,408 5,257,279
Payables:
Customers 46,844,515 42,119,042
Brokers, dealers and others 4,079,584 5,055,988
Interest and dividends 660,827 636,021
Financial instruments sold, but not
yet purchased, at fair value 16,410,663 21,070,596
Accrued employee compensation and benefits 627,814 1,217,337
Other liabilities and accrued expenses 894,300 1,242,110
--------------- ----------------
132,270,380 136,558,410
--------------- ----------------
Commitments and contingencies
--------------- ----------------
Long-term borrowings 13,843,516 13,295,952
--------------- ----------------
Guaranteed Preferred Beneficial Interests in Company
Subordinated Debt Securities 500,000 200,000
Preferred stock issued by subsidiary 150,000 150,000
--------------- ----------------
Stockholders' Equity
Preferred Stock 800,000 800,000
Common Stock, $1.00 par value;
200,000,000 shares authorized;
167,784,941 shares issued at
December 31, 1998 and June 30, 1998 167,785 167,785
Paid-in capital 1,964,391 1,963,788
Retained earnings 1,736,663 1,590,574
Capital Accumulation Plan 987,212 833,427
Treasury stock, at cost
Adjustable Rate Cumulative Preferred
Stock, Series A - 2,520,750 shares
at December 31, 1998 and June 30, 1998 (103,421) (103,421)
Common Stock - 56,150,592 shares and
50,191,531 shares at December 31, 1998 and
June 30, 1998, respectively (1,186,027) (953,506)
Note receivable from ESOP Trust (7,114)
--------------- ---------------
Total Stockholders' Equity 4,366,603 4,291,533
--------------- ---------------
Total Liabilities and Stockholders' Equity $ 151,130,499 $ 154,495,895
=============== ================
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
---------------------------------- --------------------------------
December 31, December 31, December 31, December 31,
1998 1997 1998 1997
--------------- ---------------- -------------- --------------
(In thousands, except share data)
<S> <C> <C> <C> <C>
Revenues
Commissions $ 254,676 $ 230,496 $ 495,476 $ 443,940
Principal transactions 419,002 390,512 616,051 782,026
Investment banking 163,664 278,884 285,440 498,212
Interest and dividends 1,138,680 1,081,298 2,286,519 2,045,869
Other income 26,705 11,877 42,845 36,025
--------------- ---------------- -------------- --------------
Total Revenues 2,002,727 1,993,067 3,726,331 3,806,072
Interest expense 981,935 919,304 1,964,638 1,736,219
--------------- ---------------- -------------- --------------
Revenues, net of interest expense 1,020,792 1,073,763 1,761,693 2,069,853
--------------- ---------------- -------------- --------------
Non-interest expenses
Employee compensation and benefits 552,344 535,793 958,225 1,034,990
Floor brokerage, exchange
and clearance fees 41,375 43,522 83,439 83,107
Communications 36,362 28,824 69,457 56,957
Depreciation and amortization 32,758 27,427 65,152 53,444
Occupancy 25,923 25,387 51,811 48,933
Advertising and market development 23,854 20,057 46,892 36,011
Data processing and equipment 15,293 12,460 26,278 24,694
Other expenses 85,405 120,688 159,652 204,974
--------------- ---------------- -------------- --------------
Total non-interest expenses 813,314 814,158 1,460,906 1,543,110
--------------- ---------------- -------------- --------------
Income before provision for
income taxes 207,478 259,605 300,787 526,743
Provision for income taxes 71,558 99,383 100,764 204,903
--------------- ---------------- -------------- --------------
Net income $ 135,920 $ 160,222 $ 200,023 $ 321,840
=============== ================ ============== ==============
Net income applicable to
common shares $ 126,142 $ 154,299 $ 180,150 $ 309,991
=============== ================ ============== ==============
Earnings per share (1) $ 0.84 $ 1.06 $ 1.22 $ 2.11
=============== ================ ============== ==============
Weighted average common and
common equivalent shares
outstanding (1) 158,355,696 159,928,530 158,985,526 160,395,121
=============== ================ ============== ==============
Cash dividends declared
per common share (1) $ .14 $ .14 $ 0.29 $ 0.29
=============== ================ ============== ==============
(1) Adjusted for the 5% stock dividend declared on January 20, 1999.
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
THE BEAR STEARNS COMPANIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months Ended
-------------------- --------------
December 31, December 31,
1998 1997
---------------- --------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 200,023 $ 321,840
Adjustments to reconcile net income to cash used in operating activities:
Depreciation and amortization 65,152 53,444
Deferred income taxes 6,682 (58,468)
Other 36,759 56,738
(Increases) decreases in operating receivables:
Cash and securities deposited with clearing organizations or
segregated in compliance with federal regulations (1,306,886) (1,358,076)
Securities purchased under agreements to resell (3,214,244) (5,656,550)
Securities borrowed 2,251,790 (2,110,431)
Receivables:
Customers 2,807,770 (4,111,308)
Brokers, dealers and others (475,020) (230,966)
Financial instruments owned 943,797 (2,380,947)
Other assets 412,993 (14,591)
Increases (decreases) in operating payables:
Securities sold under agreements to repurchase 4,659,499 6,812,256
Payables:
Customers 4,725,473 5,742,192
Brokers, dealers and others (979,434) (1,454,246)
Financial instruments sold, but not yet purchased (4,659,933) 1,665,284
Accrued employee compensation and benefits (613,523) (184,391)
Other liabilities and accrued expenses (323,248) 286,743
-------------- ----------------
Cash provided by (used in) operating activities 4,537,650 (2,621,477)
---------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (payments on) proceeds from short-term borrowings (4,593,267) 106,297
Net proceeds from issuance of long-term borrowings 1,936,990 3,433,171
Net proceeds from issuance of subsidiary securities 290,550
Capital Accumulation Plan 153,785 51,010
Tax benefit of Common Stock distributions 603 7,552
Note repayment from ESOP Trust 7,114 6,587
Payments for:
Retirement of Senior Notes (1,398,805) (660,299)
Treasury stock purchases (229,491) (71,165)
Cash dividends paid (53,691) (47,160)
---------------- --------------
Cash (used in) provided by financing activities (3,886,212) 2,825,993
---------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, equipment and leasehold
improvements (91,585) (108,498)
Purchases of investment securities and other assets (19,870) (80,807)
Proceeds from sales of investment securities and other assets 50,273 5,402
---------------- --------------
Cash used in investing activities (61,182) (183,903)
---------------- --------------
Net increase in cash and cash equivalents 590,256 20,613
Cash and cash equivalents, beginning of period 1,073,821 1,249,132
---------------- --------------
Cash and cash equivalents, end of period $ 1,664,077 $ 1,269,745
================ ==============
See Notes to Consolidated Financial Statements.
The adoption of SFAS 125, which requires balance sheet recognition of collateral
related to certain secured financing transactions, is a non-cash activity and
did not impact the consolidated statements of cash flow.
</TABLE>
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of The Bear Stearns Companies Inc. and its subsidiaries (the
"Company"). All material intercompany transactions and balances have been
eliminated. Share data for all periods included in the consolidated
financial statements are presented after giving retroactive effect to the 5%
stock dividend declared by the Company in January 1999. The consolidated
financial statements reflect all adjustments which, in the opinion of
management, are normal and recurring and are necessary for a fair statement
of the results for the interim periods presented. The consolidated financial
statements are prepared in conformity with generally accepted accounting
principles which require management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates. The
nature of the Company's business is such that the results of any interim
period may not be indicative of the results to be expected for an entire
fiscal year.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments owned and financial instruments sold, but not yet
purchased consist of the Company's proprietary trading and investment
accounts, at fair value, as follows:
December 31, June 30,
In thousands 1998 1998
- ------------------------------------------------------------------------------
Financial instruments owned:
US government and agency $ 6,346,417 $ 9,388,387
Other sovereign governments 3,529,946 2,955,515
Corporate equity and convertible debt 12,197,495 12,255,749
Corporate debt 3,314,348 4,938,541
Derivative financial instruments 3,414,111 3,545,236
Mortgages and other mortgage-backed securities 11,540,446 10,582,090
Other 725,091 954,154
------- -------
$41,067,854 $44,619,672
=========== ===========
Financial instruments sold, but not yet purchased:
US government and agency $ 5,198,303 $ 6,327,074
Other sovereign governments 914,197 3,107,789
Corporate equity 3,655,416 4,336,280
Corporate debt 1,162,579 1,398,025
Derivative financial instruments 5,475,435 5,835,491
Other 4,733 65,937
----- ------
$16,410,663 $21,070,596
============ ===========
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. COMMITMENTS AND CONTINGENCIES
At December 31, 1998, the Company was contingently liable for unsecured
letters of credit of approximately $1.9 billion and letters of credit of
approximately $24.2 million secured by financial instruments, which are
principally used as collateral for securities borrowed and to satisfy margin
requirements at option and commodity exchanges.
In the normal course of business, the Company has been named as a defendant
in several lawsuits which involve claims for substantial amounts. Although
the ultimate outcome of these suits cannot be ascertained at this time, it
is the opinion of management, after consultation with counsel, that the
resolution of such suits will not have a material adverse effect on the
results of operations or the financial condition of the Company.
4. NET CAPITAL REQUIREMENTS
The Company's principal operating subsidiary, Bear, Stearns & Co. Inc.
("Bear Stearns") and Bear Stearns' wholly owned subsidiary, Bear, Stearns
Securities Corp. ("BSSC"), are registered broker-dealers and, accordingly,
are subject to Securities and Exchange Commission Rule 15c3-1 (the "Net
Capital Rule") and the capital rules of the New York Stock Exchange, Inc.
("NYSE") and other principal exchanges of which Bear Stearns and BSSC are
members. Included in the computation of net capital of Bear Stearns is net
capital of BSSC in excess of 5% of aggregate debit items arising from
customer transactions, as defined. At December 31, 1998, Bear Stearns' net
capital, as defined, of $1.99 billion exceeded the minimum requirement by
$1.95 billion.
Bear, Stearns International Limited ("BSIL") and another wholly owned London
based subsidiary are subject to regulatory capital requirements of the
Securities and Futures Authority. At December 31, 1998, BSIL exceeded
the minimum capital required by $655 million.
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. EARNINGS PER SHARE
Earnings per share is computed by dividing net income applicable to common
shares by the weighted average number of common shares outstanding during
each period presented. Common shares include the assumed distribution of
shares of common stock issuable under various employee benefit plans
including certain of the Company's deferred compensation arrangements, with
appropriate adjustments made to net income for expenses related thereto.
6. CASH FLOW INFORMATION
Cash payments for interest approximated interest expense for the six-months
ended December 31, 1998 and December 31, 1997. Income taxes paid totaled
$43.3 million and $227.1 million for the six-months ended December 31, 1998
and December 31, 1997, respectively.
7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company, in its capacity as a dealer in over-the-counter derivative
financial instruments and in connection with its proprietary market-making
and trading activities, enters into transactions in a variety of cash and
derivative financial instruments for trading purposes and in order to reduce
its exposure to market risk, which includes interest rate, exchange rate,
equity price and commodity price risk. Statement of Financial Accounting
Standards ("SFAS") No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments," defines a derivative
as a future, forward, swap, or option contract, or other financial
instruments with similar characteristics such as caps, floors and collars.
Generally these financial instruments represent future commitments to
exchange interest payment streams or currencies or to purchase or sell other
financial instruments at specific terms at specified future dates. Option
contracts provide the holder with the right, but not the obligation, to
purchase or sell a financial instrument at a specific price before or on an
established date. These financial instruments may have market and/or credit
risk in excess of amounts recorded in the Consolidated Statements of
Financial Condition.
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (continued)
In order to measure derivative activity, notional or contract amounts are
frequently utilized. Notional/contract amounts, which are not included on
the balance sheet, are used to calculate contractual cash flows to be
exchanged and are generally not actually paid or received, with the
exception of currency swaps and foreign exchange forwards and
mortgage-backed securities forwards. The notional/contract amounts of
financial instruments that give rise to off-balance-sheet market risk are
indicative only of the extent of involvement in the particular class of
financial instrument and are not necessarily an indication of overall market
risk.
The following table represents the notional/contract amounts of the
Company's outstanding derivative financial instruments at December 31, 1998
and June 30, 1998:
December 31, June 30,
In billions 1998 1998
---------------------------------------------------------------------------
Interest Rate:
Swap agreements, including options,
swaptions, caps, collars, and floors $325.8 $277.5
Futures contracts 44.8 49.8
Options held 10.9 4.0
Options written 7.0 1.6
Foreign Exchange:
Futures contracts 10.5 20.8
Forward contracts 15.5 29.6
Options held 4.0 9.9
Options written 4.7 7.7
Mortgage-Backed Securities:
Forward Contracts 67.2 70.2
Equity:
Swap agreements 11.6 11.6
Futures contracts 4.3 1.1
Options held 7.7 5.3
Options written 6.6 4.6
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (continued)
The derivative instruments used in the Company's trading and dealer
activities are recorded at fair value on a daily basis with the resulting
unrealized gains or losses recorded in the Consolidated Statements of
Financial Condition and the related income or loss reflected in revenues
derived from principal transactions.
The fair values of derivative financial instruments held or issued for
trading purposes at December 31, 1998 and June 30, 1998 were as follows:
December 31, June 30,
1998 1998
-------------------------------------------------
In millions Assets Liabilities Assets Liabilities
Swap agreements $2,498 $2,105 $1,872 $2,100
Futures and forward
contracts 171 213 450 551
Options held 767 1,279
Options written 3,262 3,189
The average monthly fair values of the derivative financial instruments for
the six-months ended December 31, 1998 and the fiscal year ended June 30,
1998 were as follows:
December 31, June 30,
1998 1998
-----------------------------------------------
In millions Assets Liabilities Assets Liabilities
Swap agreements $2,288 $2,383 $1,154 $1,494
Futures and forward
contracts 353 438 318 329
Options held 1,031 2,207
Options written 3,022 3,709
The notional/contract amounts of these instruments do not represent the
Company's potential risk of loss due to counterparty nonperformance. Credit risk
arises from the potential inability of counterparties to perform in accordance
with the terms of the contract. The Company's exposure to credit risk associated
with counterparty nonperformance is limited to the net replacement cost of
over-the-counter contracts in a gain position which are recognized in the
Company's Consolidated Statements of Financial Condition. Exchange-traded
financial instruments, such as futures and options, generally do not give rise
to significant counterparty exposure due to the margin requirements of the
individual exchanges. Generally, options written do not give rise to
counterparty credit risk since they obligate the Company (not its
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (continued)
counterparty) to perform. The Company has controls in place to monitor
credit exposures by limiting transactions with specific counterparties and
assessing the creditworthiness of counterparties. The Company also seeks to
control credit risk by following an established credit approval process,
monitoring credit limits, and requiring collateral where appropriate.
The following table summarizes the credit quality of the Company's
trading-related derivatives by showing counterparty credit ratings for the
replacement cost of contracts in a gain position, net of $1.7 billion and
$832.4 million of collateral, respectively, at December 31, 1998 and June
30, 1998:
December 31, June 30,
In millions 1998 1998
--------------------------------------------------
RATING (1) NET REPLACEMENT COST
AAA $294.6 $187.7
AA 549.6 607.9
A 291.6 371.0
BBB 85.0 68.1
BB and Lower 49.9 70.8
Non-rated 5.4 27.2
(1) Rating Agency Equivalent
8. PREFERRED SECURITIES ISSUED BY SUBSIDIARY
In December 1998, Bear Stearns Capital Trust II (the "Trust"), a wholly
owned subsidiary of the Company, issued $300 million (12,000,000 shares) of
fixed rate securities with a liquidation value of $25 per security (the
"Preferred Securities"). Holders of the Preferred Securities are entitled to
receive quarterly preferential cash distributions at an annual rate of 7.5%
through December 15, 2028. The issuance proceeds of the Preferred Securities
were used to purchase junior subordinated deferrable interest debentures
from The Bear Stearns Companies Inc. (the "Subordinated Debentures"). The
Subordinated Debentures have terms that correspond to the terms of the
Preferred Securities and are the sole assets of the Trust. The Preferred
Securities will mature on December 15, 2028. The Company, at its option,
may redeem the Preferred Securities at their principal amount plus
<PAGE>
THE BEAR STEARNS COMPANIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
accrued distributions beginning December 15, 2003. The Company used the net
proceeds from the sale of the Subordinated Debentures for general corporate
purposes.
9. SUBSEQUENT EVENT
On January 20, 1999, the Board of Directors declared a 5% stock dividend on
the Company's Common Stock to stockholders of record February 12, 1999, to
be distributed February 26, 1999. Per share amounts and weighted average
shares outstanding for all periods included in the consolidated financial
statements are presented after giving retroactive effect to the stock
dividend.
<PAGE>
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements contained in this discussion are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are subject to risks and uncertainties, which could
cause actual results to differ materially from those discussed in the
forward-looking statements.
The Company's principal business activities, investment banking, securities
trading and brokerage, are, by their nature, highly competitive and subject to
various risks, in particular volatile trading markets and fluctuations in the
volume of market activity. Consequently, the Company's net income and revenues
in the past have been, and are likely to continue to be, subject to wide
fluctuations, reflecting the impact of many factors including securities market
conditions, the level and volatility of interest rates, competitive conditions,
liquidity of global markets, international and regional political events,
regulatory developments and the size and timing of transactions.
For a description of the Company's business, including its trading in cash
instruments and derivative products, its underwriting and trading policies, and
their respective risks, and the Company's risk management policies and
procedures, see the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1998.
Business Environment
The business environment during the Company's second fiscal quarter ended
December 31, 1998 was characterized by rising domestic equity markets and qrowth
in both New York Stock Exchange ("NYSE") and NASDAQ trading volume. Equity
markets were positively impacted by strong investor interest in internet and
technology stocks. In addition, underwriting and merger and acquisition
activities experienced steady growth during the period.
In the fixed income markets, credit spreads tightened significantly during the
1998 quarter, which led to improved conditions in both the primary and secondary
markets, which was reflected in the Company's results in the mortgage-backed,
asset-backed and government securities business units.
<PAGE>
Results of Operations
Three-Months Ended December 31, 1998 Compared to December 31, 1997
Net income in the 1998 quarter was $135.9 million, a decrease of 15.2% from
the $160.2 million in the comparable prior year quarter. Revenues, net of
interest expense ("net revenues"), decreased 4.9% to $1.0 billion in the
1998 quarter from $1.1 billion in the comparable 1997 quarter. The decrease
was primarily attributable to decreased investment banking revenues
partially offset by increased principal transactions and commission
revenues. Earnings per share were $0.84 for the 1998 quarter versus $1.06
for the comparable 1997 quarter. The earnings per share amounts have been
adjusted for the 5% stock dividend declared by the Company in January 1999.
Commission revenues increased 10.5% in the 1998 quarter to $254.7 million from
$230.5 million in the comparable 1997 quarter. This increase primarily reflects
increases in both institutional and private client services activities which
benefited from a 24.9% increase in NYSE volume in the 1998 quarter compared
to the 1997 quarter.
The Company's principal transaction revenues by reporting categories, including
derivatives, are as follows:
Three-Months Ended Three-Months Ended
December 31, 1998 December 31, 1997
Fixed Income $ 223,582 $ 226,903
Equity 139,170 108,297
Foreign Exchange & Other
Derivative Financial
Instruments 56,250 55,312
------ ------
$ 419,002 $ 390,512
========= =========
Revenues from principal transactions increased 7.3% in the 1998 quarter which
was principally attributable to an increase in equity based revenues, such as
those derived from the arbitrage, over-the-counter and international equity
business areas. Revenues derived from fixed income reflected increases in both
the mortgage-backed and government securities business units as a result of
tightening of credit spreads and increased customer activity.
Investment banking revenues decreased 41.3% to $163.7 million in the 1998
quarter from $278.9 million in the comparable 1997 quarter. This decrease
reflected a decrease in
<PAGE>
merger and acquisition fees as well as a decrease in underwriting revenues.
Market conditions worldwide served to dampen the Company's underwriting
activities and merger and acquisition activity during the 1998 quarter. The
decrease in underwriting revenues was principally due to decreased levels of
equity and high yield new issue volume, partially offset by an increase in
investment-grade corporate debt new issue volume as compared to the 1997
quarter.
Net interest and dividends (revenues from interest and net dividends, less
interest expense) decreased 3.2% to $156.7 million in the 1998 quarter from
$162.0 million in the comparable 1997 quarter. This decrease was primarily
attributable to lower levels of customer margin debt. Average margin debt
balances decreased to $38.4 billion in the 1998 quarter from $44.3 billion in
the comparable 1997 quarter reflecting reduced activity from the Company's prime
brokerage customers. Average customer shorts increased to $61.8 billion in the
1998 quarter from $56.5 billion in the comparable 1997 quarter. Average free
credit balances increased to $12.5 billion in the 1998 quarter from $11.0
billion in the comparable 1997 quarter.
Employee compensation and benefits increased 3.1% to $552.3 million in the 1998
quarter from $535.8 million in the comparable 1997 quarter. This increase was
attributable to an increase in salesmen's compensation resulting from increased
commission revenues and an increase in headcount from the 1997 quarter. Employee
compensation and benefits, as a percentage of net revenues, increased to 54.1%
in the 1998 quarter from 49.9% in the comparable 1997 quarter.
All other expenses decreased 6.2% to $261.0 million in the 1998 quarter from
$278.4 million in the comparable 1997 quarter. Legal expense decreased by $19.9
million in the 1998 quarter from the comparable 1997 quarter due to the accrual
for the NASDAQ antitrust settlement in the 1997 quarter. Expenses associated
with the Capital Accumulation Plan for Senior Managing Directors (the "CAP
Plan") decreased by $15.0 million from the comparable 1997 quarter reflecting
lower pre-tax earnings in the 1998 quarter. Communications, depreciation and
data processing expenses increased by approximately $15.7 million as a result of
both increased usage and the upgrading of existing communication and computer
systems.
The Company's effective tax rate decreased to 34.5% in the 1998 quarter compared
to 38.3% in the comparable 1997 quarter due lower levels of earnings and a
higher level of tax preference items in the 1998 quarter.
Six-Months Ended December 31, 1998
Compared to December 31, 1997
Net income for the six-months ended December 31, 1998 was $200.0 million, a
decrease of 37.9% from $321.8 million for the comparable 1997 period. Net
revenues decreased 14.9% to $1.8 billion in the 1998 period from $2.1 billion in
the 1997 period. The decrease was primarily attributable to decreased investment
banking and principal transactions revenues partially offset by increased
commission revenues. Earnings per
<PAGE>
share were $1.22 for the 1998 period versus $2.11 for the comparable 1997
period. The earnings per share amounts have been adjusted for the 5% stock
dividend declared by the Company in January 1999.
Commission revenues increased 11.6% in the 1998 period to $495.5 million from
$443.9 million in the comparable 1997 period. This increase was primarily
attributable to increased revenues from the firm's institutional equities and
securities clearance services which reflects the 29.4% increase in NYSE volume
in the 1998 period when compared to the 1997 period.
The Company's principal transaction revenues by reporting categories, including
derivatives, are as follows:
Six-Months Ended Six-Months Ended
December 31, 1998 December 31, 1997
Fixed Income $ 296,136 $ 441,125
Equity 212,790 201,196
Foreign Exchange & Other
Derivative Financial
Instruments 107,125 139,705
------- -------
$616,051 $782,026
======== ========
Revenues from principal transactions decreased 21.2% in the 1998 period to
$616.1 million from $782.0 million in the comparable 1997 period. This decrease
primarily reflects decreased revenues derived from the Company's fixed income
and derivative activities. Revenues from both of these activities decreased due
to the volatility experienced in the equity and fixed income markets and by the
widening of credit spreads during the first quarter of 1998. These conditions
led to the declines in revenues derived from several business units such as high
yield, emerging markets and corporate bonds.
Investment banking revenues decreased 42.7% to $285.4 million in the 1998 period
from $498.2 million in the comparable 1997 period. This decrease reflected a
decrease in merger and acquisition fees and advisory fees as well as a decrease
in underwriting revenues. The decrease in underwriting revenues was principally
due to decreased levels of equity and high yield new issue volume partially
offset by increased levels of corporate debt volume as compared to the 1997
period.
Net interest and dividends remained relatively constant with a slight
increase of 3.9% to $321.9 million in the 1998 period from $309.7 million
in the comparable 1997 period. The increase was primarily attributable to
increased levels of customer activity. Average customer margin debt
declined to $41.5 billion in the 1998 period from $43.5 billion in the
comparable 1997 period, while average customer shorts increased to $63.0
billion from $55.3 billion.
<PAGE>
Average free credit balances increased to $12.8 billion in the 1998 period from
$10.2 billion in the comparable 1997 period.
Employee compensation and benefits decreased 7.4% to $958.2 million in the 1998
period from $1,035.0 million in the comparable 1997 period. The decrease in
employee compensation and benefits was primarily attributable to a decrease in
incentive and discretionary bonus accruals. Employee compensation and benefits,
as a percentage of net revenues, increased to 54.4% in the 1998 period from
50.0% in the comparable 1997 period.
All other expenses decreased 1.1% to $502.7 million in the 1998 period from
$508.1 million in the comparable 1997 period. CAP Plan expense decreased by
$27.0 million in the 1998 period from the comparable 1997 period reflecting
the reduced level of earnings. Legal expense decreased by $19.7 million in
the 1998 period from the comparable 1997 period which reflected the accrual
of the NASDAQ antitrust settlement. These decreases were partially offset
by increases in communications expense and depreciation expense.
Communications expense increased by $12.5 million in the 1998 period from
the comparable 1997 period, reflecting an increase in information services
and the installation of higher capacity telecommunication networks.
Depreciation expense increased by $11.7 million in the 1998 period from the
comparable 1997 period due to computer equipment upgrades throughout the
Company.
The Company's effective tax rate decreased to 33.5% in the 1998 period compared
to 38.9% in the comparable 1997 period due lower levels of earnings and a higher
level of tax preference items in the 1998 period.
Liquidity and Capital Resources
Financial Leverage
The Company maintains a highly liquid balance sheet with a majority of the
Company's assets consisting of marketable securities inventories, which are
marked to market daily, and collateralized receivables arising from
customer-related and proprietary securities transactions. Collateralized
receivables consist of resale agreements secured predominantly by U.S.
government and agency securities, customer margin loans and securities borrowed
which are typically secured by marketable corporate debt and equity securities.
The Company's total assets and financial leverage can fluctuate significantly
depending largely upon economic and market conditions, volume of activity,
customer demand, and underwriting commitments.
The Company's total assets at December 31, 1998 decreased to $151.1 billion from
$154.5 billion at June 30, 1998. The decrease is primarily attributable to
decreases in
<PAGE>
financial instruments owned, customer receivables and securities borrowed,
partially offset by an increase in securities purchased under agreements to
resell.
The Company's ability to support fluctuations in total assets is a function of
its ability to obtain short-term secured and unsecured funding and its access to
sources of long-term capital in the form of long-term borrowings and equity,
which together form its capital base. The Company continuously monitors the
adequacy of its capital base which is a function of asset quality and liquidity.
Highly liquid assets, such as U.S. government and agency securities, typically
are funded by the use of repurchase agreements and securities lending
arrangements which require low levels of margin. In contrast, assets of lower
quality or liquidity require higher levels of overcollateralization, or margin,
in order to obtain secured financing and consequently increased levels of
capital. Accordingly, the mix of assets being held by the Company significantly
influences the amount of leverage the Company can employ and the adequacy of its
capital base.
Funding Strategy
The Company's general funding strategy provides for the diversification of its
short-term funding sources in order to maximize liquidity. Sources of short-term
funding consist principally of collateralized borrowings, including repurchase
transactions and securities lending arrangements, customer free credit balances,
unsecured commercial paper, medium-term notes and bank borrowings generally
having maturities from overnight to one year.
Repurchase transactions, whereby securities are sold with a commitment for
repurchase by the Company at a future date, represent the dominant component of
secured short-term funding.
In addition to short-term funding sources, the Company utilizes long-term senior
debt, including medium-term notes, as a longer term source of unsecured
financing. During the six months ended December 31, 1998, the Company issued
$1.9 billion in long-term debt which, net of retirements, served to increase
long-term debt to $13.8 billion at December 31, 1998 from $13.3 billion at June
30, 1998.
The Company maintains an alternative funding strategy focused on the liquidity
and self-funding ability of the underlying assets. The objective of the strategy
is to maintain sufficient sources of alternative funding to enable the Company
to fund debt obligations without issuing any new unsecured debt, including
commercial paper. The most significant source of alternative funding is the
Company's ability to hypothecate or pledge its unencumbered assets as collateral
for short-term funding.
As part of the Company's alternative funding strategy, the Company regularly
monitors and analyzes the size, composition, and liquidity characteristics of
the assets being financed and evaluates its liquidity needs in light of current
market conditions and available funding alternatives. Through this analysis, the
Company can continuously
<PAGE>
evaluate the adequacy of its equity base and the schedule of maturing term-debt
supporting its present asset levels. The Company can then seek to adjust its
maturity schedule, in light of market conditions and funding alternatives.
As part of the Company's alternative funding strategy, the Company maintains a
committed revolving-credit facility (the "facility") totaling $2.875 billion
which permits borrowing on a secured basis by Bear Stearns, BSSC and certain
affiliates. The facility provides that up to $1.4375 billion of the total
facility may be borrowed by the Company on an unsecured basis. Secured
borrowings can be collateralized by both investment-grade and
non-investment-grade financial instruments. In addition, this agreement provides
for defined margin levels on a wide range of eligible financial instruments that
may be pledged under the secured portion of the facility. The facility
terminates in October 1999 with all loans outstanding at that date payable no
later than October 2000.
Capital Resources
The Company conducts a substantial portion of its operating activities
within its regulated broker-dealer subsidiaries, Bear Stearns, BSSC, BSIL and
Bear Stearns International Trading Limited ("BSIT"). In connection therewith, a
substantial portion of the Company's long-term borrowings and equity have been
used to fund investments in, and advances to, Bear Stearns, BSSC, BSIL and BSIT.
The Company regularly monitors the nature and significance of those assets or
activities conducted outside the broker-dealer subsidiaries and attempts to fund
such assets with either capital or borrowings having maturities consistent with
the nature and the liquidity of the assets being financed.
In December 1998, Bear Stearns Capital Trust II (the "Trust"), a wholly owned
subsidiary of the Company, issued $300 million of fixed rate securities (the
"Preferred Securities"). See Note 8 to the Consolidated Financial Statements for
a more complete description of the Preferred Securities issued.
During the six-months ended December 31, 1998, the Company repurchased 5,994,620
shares of Common Stock in connection with the CAP Plan at a cost of
approximately $232.9 million. Included in the shares purchased during this
period were 3,763,083 shares with a cost of $153.8 million, which were credited
to participants' deferred compensation accounts with respect to deferrals made
during fiscal 1998. The Company intends, subject to market conditions, to
continue to purchase, in future periods, a sufficient number of shares of Common
Stock in the open market to enable the Company to issue shares in respect of all
compensation deferred and any additional amounts allocated to participants under
the CAP Plan. Repurchases of Common Stock under the CAP Plan are not made
pursuant to the Company's Stock Repurchase Plan (the "Repurchase Plan")
authorized by the Board of Directors and are not included in calculating the
maximum aggregate number of shares of Common Stock that the Company may
repurchase under the Repurchase Plan. As of February 11, 1999, there have been
no purchases under the Repurchase Plan.
<PAGE>
Cash Flows
Cash and cash equivalents decreased by $246.4 million during the six-months
ended December 31, 1998 to $827.4 million. Cash provided by operating activities
during the six-months ended December 31, 1998 was $3.7 billion, mainly
representing increases in customer payables, securities sold under agreements to
repurchase, and a decrease in customer receivables, partially offset by a
decrease in financial instruments sold, but not yet purchased and an increase in
securities purchased under agreements to resell. Financing activities used cash
of $3.9 billion, primarily due to net repayments of short term borrowings,
partially offset by net proceeds from issuances of long term borrowings.
Regulated Subsidiaries
As registered broker-dealers, Bear Stearns and BSSC are subject to the net
capital requirements of the Securities Exchange Act of 1934, the New York Stock
Exchange, and the Commodity Futures Trading Commission, which are designed to
measure the general financial soundness and liquidity of broker-dealers. BSIL
and BSIT, London-based broker-dealer subsidiaries, are subject to the regulatory
capital requirements of the Securities and Futures Authority, a self-regulatory
organization established pursuant to the United Kingdom Financial Services Act
of 1986. Additionally, Bear Stearns Bank Plc ("BSB") is subject to the
regulatory capital requirements of the Central Bank of Ireland. At December 31,
1998 Bear Stearns, BSSC, BSIL, BSIT, and BSB were in compliance with such
regulatory capital requirements.
Merchant Banking and Non-Investment-Grade Debt Securities
As part of the Company's merchant banking activities, it participates from time
to time in principal investments in leveraged acquisitions. As part of these
activities, the Company originates, structures and invests in merger,
acquisition, restructuring, and leveraged capital transactions, including
leveraged buyouts. The Company's principal investments in these transactions are
generally made in the form of equity investments or subordinated loans, and have
not required significant levels of capital investment. At December 31, 1998, the
Company's aggregate investments in leveraged transactions and its exposure
related to any one transaction were not material to the Company's consolidated
financial position.
As part of the Company's fixed-income securities activities, the Company
participates in the trading and sale of high yield, non-investment-grade debt
securities, non-investment-grade mortgage loans and the securities of companies
that are the subject of pending bankruptcy proceedings (collectively "high yield
securities"). Non-investment-grade mortgage loans are principally secured by
residential properties and include both non-performing loans and real estate
owned. At December 31, 1998, the Company held high yield instruments of $1.7
billion in assets and $0.2 billion in liabilities, as compared to $1.8 billion
in assets and $0.3 billion in liabilities as of June 30, 1998.
<PAGE>
These investments generally involve greater risk than investment-grade debt
securities due to credit considerations, liquidity of secondary trading markets
and vulnerability to general economic conditions.
The level of the Company's high yield securities inventories, and the impact of
such activities upon the Company's results of operations, can fluctuate from
period to period as a result of customer demands and economic and market
considerations. Bear Stearns' Risk Committee continuously monitors exposure to
market and credit risk with respect to high yield securities inventories and
establishes limits with respect to overall market exposure and concentrations of
risk by both individual issuer and industry group.
Year 2000 Issue
The Year 2000 issue is the result of legacy computer programs being written
using two digits rather than four digits to define the applicable year and
therefore, without consideration of the impact of the upcoming change in the
century. Such programs may not be able to accurately process dates ending in the
year 2000 and thereafter. The Company determined that it needed to modify or
replace portions of its software and hardware so that its computer systems would
properly utilize dates beyond December 31, 1999.
Over three years ago, the Company established a task force to review and develop
an action plan to address the Year 2000 issue. The Company's action plan
addresses both information technology and non-information technology system
compliance issues. Since then, the ongoing assessment and monitoring phase has
continued and includes assessment of the degree of compliance of its significant
vendors, facility operators, custodial banks and fiduciary agents to determine
the extent to which the Company is vulnerable to those third parties' failure to
remediate their own Year 2000 issues. The Company has contacted all significant
external vendors in an effort to confirm their readiness for the Year 2000 and
plans to test compatibility with such converted systems. The Company also
participates actively in industry-wide tests.
The Company has and will continue to utilize both internal and external
resources to reprogram, or replace, and test the software and hardware for Year
2000 modifications. To date, the amounts incurred related to the assessment of,
and efforts in connection with, the Year 2000 and the development of a
remediation plan have approximated $31.3 million. The Company's total projected
Year 2000 project cost, including the estimated costs and time associated with
the impact of third party Year 2000 issues, are based on currently available
information. The total remaining Year 2000 project cost is estimated at
approximately $28.7 million, which will be funded through operating cash flows
and primarily expensed as incurred.
The Company presently believes that the activities that it is undertaking in the
Year 2000 project should satisfactorily resolve Year 2000 compliance exposures
within its own systems worldwide. The Company has substantially completed the
reprogramming and
<PAGE>
replacement phase of the project. Testing has commenced and will proceed through
calendar 1999. However, if such modifications and conversions are not
operationally effective on a timely basis, the Year 2000 issue could have a
material impact on the operations of the Company. Additionally, there can be no
assurance that the systems of other companies on which the Company's systems
rely will be timely converted, or that a failure to convert by another company,
or a conversion that is incompatible with the Company's systems, would not have
a material adverse effect on the Company. While the Company does not have a
specific, formal contingency plan, the Company's action plan is designed to
safeguard the interests of the Company and its customers. The Company believes
that this action plan significantly reduces the risk of a Year 2000 issue
serious enough to cause a business disruption. With regard to Year 2000
compliance of other external entities, the Company is monitoring developments
closely. Should it appear that a major utility, such as a stock exchange, would
not be ready, the Company will work with other firms in the industry to plan an
appropriate course of action.
Effects of Statements of Financial Accounting Standards
In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information," which redefines how operating segments are
determined and requires disclosure of certain financial and descriptive
information about a company's operating segments. This statement is effective
for fiscal years beginning after December 15, 1997. The Company expects to adopt
this standard when required in fiscal year 1999 and is currently determining the
potential impact on the Company's financial statement disclosure.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Financial
Instruments and Hedging Activities." SFAS 133 establishes standards for
accounting and reporting of derivative financial instruments embedded in other
contracts, and hedging activities. SFAS 133 is effective for fiscal quarters of
fiscal years beginning after June 15, 1999. The Company expects to adopt this
standard when required in fiscal year 2000 and is currently determining the
potential impact on the Company's accounting for such activities.
<PAGE>
Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------- -----------
The Company's principal business activities by their nature engender significant
market and credit risks. Managing these risks is critical to the success and
stability of the Company. As a result, comprehensive risk management policies
and procedures have been established to identify, control and monitor each of
these major risks. Additionally, the Company's diverse portfolio of business
activities helps to reduce the impact that volatility in any particular market
may have on its net revenues. In addition to market risk, the Company is also
subject to credit risk, operating risk and funding risk.
Market risk generally represents the risk of loss that may result from the
potential change in the value of a financial instrument as a result of
fluctuations in interest and currency exchange rates and in equity and commodity
prices. Market risk is inherent to both derivative and non-derivative financial
instruments, and accordingly, the scope of the Company's market risk management
procedures extends beyond derivatives to include all market risk sensitive
financial instruments. The Company's exposure to market risk is directly related
to its role as a financial intermediary in customer-related transactions and to
its proprietary trading and arbitrage activities. For a discussion of the
Company's primary market risk exposures, which includes interest rate risk,
foreign exchange rate risk, and equity price risk, and a discussion of how those
exposures are managed see the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1998.
Value at Risk
The estimation of potential losses that could arise from changes in market
conditions is typically accomplished through the use of statistical models which
seek to predict risk of loss based on historical price and volatility patterns.
The output of such statistical models are commonly referred to as value at risk.
Value at risk is used to describe a probabilistic approach to measuring the
exposure to market risk. This approach utilizes statistical concepts to estimate
the probability of the value of a financial instrument rising above or falling
below a specified amount. The calculation utilizes the standard deviation of
historical changes in value (i.e. volatility) of the market risk sensitive
financial instruments to estimate the amount of change in the current value that
could occur at a specified probability level.
Measuring market risk using statistical risk management models has recently
become the main focus of risk management efforts by many companies whose
earnings are significantly exposed to changes in the fair value of financial
instruments. The Company believes that statistical models alone do not provide a
reliable method of monitoring and controlling risk. While value at risk models
are relatively sophisticated, the quantitative risk information generated is
limited by the parameters established in creating the related models. The
financial instruments being evaluated may have features which may trigger a
potential loss in excess of the amounts previously disclosed if the changes in
market rates or prices exceed
<PAGE>
the confidence level of the model used. Therefore, such models do not substitute
for the experience or judgment of senior management and traders, who have
extensive knowledge of the markets and adjust positions and revise strategies as
they deem necessary. The Company uses these models only as a supplement to other
risk management tools.
For purposes of Securities and Exchange Commission disclosure requirements, the
Company has performed an entity-wide value at risk analysis of virtually all of
the Company's financial assets and liabilities, including all reported financial
instruments owned and sold, repurchase and resale agreements, and funding assets
and liabilities. The value at risk related to non-trading financial instruments
has been included in this analysis and not reported separately because the
amounts were not material. The calculation is based on a methodology which uses
a one-day interval and a 95% confidence level. Interest rate and foreign
exchange rate risk use a "Monte Carlo" value at risk approach. Monte Carlo
simulation involves the generation of price movements in a portfolio using a
random number generator. The generation of random numbers is based on the
statistical properties of the securities in the portfolio. For interest rates,
each country's yield curve has five factors which describe possible curve
movements. These were generated from principal component analysis. In addition,
volatility and spread risk factors were used, where appropriate. Inter-country
correlations were also used. Equity price risk was measured using a combination
of historical and Monte Carlo value at risk approaches. Equity derivatives were
treated as correlated with various indexes, of which the Company used
approximately forty. Parameter estimates, such as volatilities and correlations,
were based on daily tests through December 31, 1998. The total value at risk
presented below is less than the sum of the individual components (i.e. Interest
Rate Risk, Foreign Exchange Rate Risk, Equity Risk) due to the benefit of
diversification among the risks.
This table illustrates the value at risk for each component of market risk as
of:
December 31, June 30,
in millions 1998 1998
- ----------- ----- -----
MARKET RISK
Interest $ 9.4 $ 11.1
Currency 1.7 0.9
Equity 14.0 8.9
Diversification benefit (8.2) (6.6)
------ ------
Total $ 16.9 $ 14.3
====== ======
As previously discussed, the Company utilizes a wide variety of market risk
management methods, including: limits for each trading activity; marking all
positions to market on a daily basis; daily profit and loss statements; position
reports; aged inventory position reports; and independent verification of
inventory pricing. Additionally, management of each trading department reports
positions, profits and losses, and trading strategies to the Risk Committee on a
weekly basis. The Company believes that these procedures, which stress timely
communication between trading department management and senior management, are
the most important elements of the risk management process.
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
A.I.A. Holding, S.A., et al. v. Lehman Brothers, Inc., et al.
As previously reported in the Company's 1998 Form 10-K, Bear Stearns is a
defendant in litigation pending in the United States District Court for the
Southern District of New York.
On January 28, 1999, the court dismissed with prejudice all counterclaims
asserted by Lehman Brothers and Bear Stearns against certain of the plaintiffs,
other than the counterclaim seeking contribution from plaintiff Monhem
Nassereddine, which was dismissed with leave to replead.
Alpha Group Consultants, et al. v. Weintraub, et al./In re Weintraub
Entertainment Group Litigation.
As previously reported in the Company's 1998 Form 10-K, Bear Stearns is a
defendant in a class action litigation pending in the United States District
Court for the Southern District of California.
On November 12 and 18, 1998, the court denied Bear Stearns' motion for judgment
notwithstanding the verdict or, in the alternative, for a new trial.
On October 5, 1998, counsel for the class filed a motion on behalf of absent
class members for summary judgment on all claims asserted in the complaint in
this action. The court has not yet issued a ruling on this motion.
A.R. Baron & Company, Inc.
As previously reported in the Company's 1998 Form 10-K and Form 10-Q for
the quarter ended September 25, 1998 (the "First Quarter 1999 Form 10-Q"),
Bear Stearns is a defendant in litigation pending in the United States
District Court for the Southern District of New York.
On December 1, 1998, defendants filed an answer to the complaint in which they
denied liability and asserted affirmative defenses.
<PAGE>
In re Blech Securities Litigation.
As previously reported in the Company's 1998 Form 10-K, Bear Stearns is a
defendant in litigation pending in the United States District Court for the
Southern District of New York.
On October 1, 1998, plaintiffs moved for class certification. The court has not
yet issued a ruling on plaintiffs' motion.
Crescent Porter Hale Foundation, et al. v. Bob K. Pryt, et al.
On October 19, 1998, an action was commenced in the Superior Court of the State
of California, San Francisco County, by limited partners of BKP Partners, L.P.
("BKP"), an investment fund that allegedly engaged in a fraudulent scheme
involving unsuitable and excessively risky investments. Named as defendants are
BKP, an individual who allegedly acted as the general partner of BKP, BKP
Capital Management LLC, Bear, Stearns & Co. Inc., Bear, Stearns Securities Corp.
("BSSC"), Deloitte & Touche and a certified public accountant who reviewed
certain of BKP's financial statements. The complaint alleges, among other
things, that the Bear Stearns defendants committed common law fraud, negligent
misrepresentation and civil conspiracy, breached a fiduciary duty and the
covenant of good faith and fair dealing, and aided and abetted a breach of
fiduciary duty and a breach of the covenant of good faith and fair dealing, in
connection with BSSC acting as BKP's prime broker, engaging in securities
transactions with or on behalf of BKP, and making margin loans to BKP.
Compensatory damages in excess of $100 million are sought.
On January 8, 1999, the court granted defendants' motion to compel the
plaintiffs to arbitrate the claims asserted in this action.
Bear Stearns denies all allegations of wrongdoing asserted against it in this
litigation, intends to defend against these claims vigorously, and believes that
it has substantial defenses to these claims.
In re Daisy Systems Corporation, Debtor.
As previously reported in the Company's 1998 Form 10-K, Bear Stearns is a
defendant in litigation pending in the United States District Court for the
Northern District of California.
On or around December 2, 1998, plaintiffs accepted remittitur, and on December
3, 1998, judgment was entered against Bear Stearns in the amount of $36,073,196
plus costs of $138,826.63. On December 29, 1998, Bear Stearns filed a notice of
appeal.
<PAGE>
In re Donna Karan International Inc. Securities Litigation.
As previously reported in the Company's 1998 Form 10-K and the First
Quarter 1999 Form 10-Q, Bear Stearns is a defendant in litigation pending
in the United States District Court for the Southern District of New York.
On December 10, 1998, the United States Court of Appeals for the Second Circuit
dismissed the appeal in this action pursuant to agreement of the parties.
Bernard H. Glatzer v. Bear, Stearns & Co. Inc.
As previously reported in the Company's 1998 Form 10-K, Bear Stearns is a
defendant in litigation pending in the United States District Court for the
Southern District of New York.
On October 28, 1998, the parties reached an agreement to settle this action.
Goldberger v. Bear, Stearns & Co. Inc., et al.
On December 8, 1998, a purported class action was commenced in the United States
District Court for the Southern District of New York on behalf of all persons
who purchased securities through certain retail brokerage firms for which BSSC
provided clearing services and financing during the period from July 1, 1991
through the present. Named as defendants are Bear, Stearns & Co. Inc., BSSC and
an officer of BSSC. The complaint alleges, among other things, that the
defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 (the "Exchange Act") and Rule 10b-5 promulgated thereunder and committed
breach of contract, common law fraud and negligent misrepresentation in
connection with providing clearing services and financing for the brokerage
firms named in the complaint. Compensatory and punitive damages in unspecified
amounts are sought.
Bear Stearns denies all allegations of wrongdoing asserted against it in this
litigation, intends to defend against these claims vigorously, and believes that
it has substantial defenses to these claims.
In re Granite Partners, L.P., Granite Corporation and Quartz Hedge Fund
As previously reported in the Company's 1998 Form 10-K and First Quarter 1999
Form 10-Q, Bear Stearns is a defendant in litigation pending in the United
States District Court for the Southern District of New York.
<PAGE>
On January 26, 1999, plaintiffs in the Bambou Action moved to consolidate the
action with the Primavera, ABF Capital, Montpellier and Johnston actions for
pre-trial purposes.
On December 22, 1998, defendants moved to dismiss the second amended complaint
filed by the Litigation Advisory Board in the Granite Partners Action except for
claims alleging breach of contract in connection with improper margin calls and
liquidations.
Henryk de Kwiatkowski v. Bear, Stearns & Co. Inc., et al.
As previously reported in the Company's 1998 Form 10-K and First Quarter 1999
Form 10-Q, Bear Stearns is a defendant in litigation pending in the United
States District Court for the Southern District of New York.
On November 5, 1998, defendants filed an answer to the second amended complaint
in which they denied liability and asserted affirmative defenses.
Bear Stearns denies all allegations of wrongdoing asserted against it in this
litigation, intends to defend against these claims vigorously, and believes that
it has substantial defenses to these claims.
In re Lady Luck Gaming Corporation Securities Litigation.
As previously reported in the Company's 1998 Form 10-K, Bear Stearns is a
defendant in litigation pending in the United States District Court for the
District of Nevada.
On November 4, 1998, the court granted defendants' motion to dismiss plaintiffs'
third amended complaint with respect to three of the alleged misrepresentations
and omissions on which plaintiffs' claims are based, and denied the motion with
respect to the remaining allegations in the complaint. On November 15, 1998,
plaintiffs filed a fourth amended complaint alleging claims under Sections 11,
12(2) and 15 of the Securities Act of 1933 on behalf of the same purported class
and against the same defendants as in the third amended complaint. Compensatory
damages in an unspecified amount are sought.
On January 15, 1999, defendants moved to strike certain of the allegations in
the fourth amended complaint on the ground that these allegations were dismissed
by the Court's November 4, 1998 order. The court has not yet issued a ruling on
this motion.
On February 5, 1999, defendants filed an answer to the complaint in which they
denied liability and asserted affirmative defenses.
<PAGE>
NASDAQ Antitrust Litigation
As previously reported in the Company's 1998 Form 10-K and First Quarter 1999
Form 10-Q, over 30 market makers, including Bear Stearns, are defendants in
litigation pending in the United States District Court for the Southern District
of New York.
On November 9, 1998, the court in the NASDAQ class action litigation granted
final approval of the proposed settlement between plaintiffs and all defendants.
Greenberg v. Bear, Stearns & Co. Inc., et al.
On January 19, 1999, a purported class action was commenced in the United States
District Court for the Southern District of New York on behalf of all persons
who purchased ML Direct, Inc. common stock or warrants through Sterling Foster &
Co., Inc. between September 4, 1996 and December 31, 1996. Named as defendants
are Bear, Stearns & Co. Inc. and BSSC. The complaint alleges, among other
things, that the defendants violated Sections 10(b) and 20(a) of the Exchange
Act and Rule 10b-5 promulgated thereunder and committed common law fraud in
connection with providing clearing services to Sterling Foster with respect to
certain transactions by customers of Sterling Foster in ML Direct common stock
and warrants. Compensatory damages of $50 million and punitive damages of
approximately $100 million are sought.
Bear Stearns denies all allegations of wrongdoing asserted against it in this
litigation, intends to defend against these claims vigorously, and believes that
it has substantial defenses to these claims.
The Company also is involved from time to time in investigations and proceedings
by governmental and self-regulatory agencies.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of the Company held on October 29, 1998 (the "Annual
Meeting"), the stockholders of the Company approved an amendment to the Capital
Accumulation Plan for Senior Managing Directors (the "CAP Plan Amendment") and
amendments to the Performance Compensation Plan (the "Performance Compensation
Plan Amendments"). In addition, at the Annual Meeting the stockholders of the
Company elected nine directors to serve until the next Annual Meeting of
Stockholders or until successors are duly elected and qualified.
The affirmative vote of a majority of the shares of Common Stock represented at
the Annual Meeting and entitled to vote on each matter was required to approve
the CAP Plan Amendment and the Performance Compensation Plan Amendments, while
the affirmative vote of a plurality of the votes cast by holders of shares of
Common Stock was required to elect the directors.
With respect to the approval of the CAP Plan Amendment and the Performance
Compensation Plan Amendments, set forth below is information on the results of
the votes cast at the Annual Meeting.
Broker
For Against Abstained Non-Votes
CAP Plan Amendment 71,926,536 2,477,808 516,123 21,710,017
Performance Compensation
Plan 68,950,038 5,490,600 479,829 21,710,017
With respect to the election of directors, set forth below is information with
respect to the nominees elected as directors of the Company at the Annual
Meeting and the votes cast and/or withheld with respect to each such nominee.
Nominees For Withheld
------------------------------------------------ -------------
James E. Cayne 95,726,578 903,906
Carl D. Glickman 95,595,609 1,034,875
Alan C. Greenberg 95,675,549 954,935
Donald J. Harrington 95,718,811 911,673
William L. Mack 95,207,379 1,423,105
Frank T. Nickell 95,735,340 895,144
Frederic V. Salerno 95,714,903 915,581
Vincent Tese 95,653,038 977,446
Fred Wilpon 95,722,593 907,891
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10)(a)(4) Capital Accumulation Plan for Senior Managing
Directors, as amended and restated as of October 29,
1998
(10)(a)(5) Performance Compensation Plan, as amended and restated as
of October 29, 1998
(11) Statement Re Computation of Per Share Earnings
(12) Statement Re Computation of Ratio of Earnings to Fixed Charges
(27) Financial Data Schedule
(b) Reports on Form 8-K
During the quarter, the Company filed the following Current
Reports on Form 8-K.
(i) A Current Report on Form 8-K dated October 14,
1998 and filed on October 19, 1998, pertaining
to the Company's results of operations for
the three-months ended September 25, 1998.
(ii)A Current Report on Form 8-K dated October 30,
1998 and filed on November 13, 1998, pertaining
to the declaration of quarterly cash dividends.
(iii) A Current Report on Form 8-K dated December 9,
1998 and filed on December 11, 1998, pertaining
to the filing of an underwriting agreement and
an opinion of Weil, Gotshal & Manges LLP as
to certain certain federal income tax
consequences in connection with the offering
of Trust Issued Preferred Securities.
(iv)A Current Report on Form 8-K dated December 16,
1998 and filed on December 17, 1998, pertaining
to the filing of various documents in
connection with the offering of Trust Issued
Preferred Securities.
(v) A Current Report on Form 8-K dated and filed on
December 21, 1998, pertaining to the filing of
an exhibit to be incorporated by reference
into the Registration Statement on Form S-3
(Registration No. 333-61437) as an exhibit to
such Registration Statement.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Bear Stearns Companies Inc.
(Registrant)
Date: February 12, 1999 By: /s/MARSHALL J LEVINSON
---------------------------
Marshall J Levinson
Controller and Assistant Secretary
(Principal Accounting Officer)
<PAGE>
THE BEAR STEARNS COMPANIES INC.
FORM 10-Q
Exhibit Index
Exhibit No. Description Page
(10) (a) (4) Capital Accumulation Plan for Senior Managing Directors, as
amended and restated as of October 29, 1998 35
(10) (a) (5) Performance Compensation Plan, as amended and restated as
of October 29, 1998 71
(11) Statement Re Computation of Per Share Earnings 76
(12) Statement Re Computation of Earnings to Fixed Charges 77
(27) Financial Data Schedule 78
Exhibit 10 (a) (4)
THE BEAR STEARNS COMPANIES INC.
CAPITAL ACCUMULATION PLAN FOR
SENIOR MANAGING DIRECTORS
(Amended and Restated as of October 29, 1998)
SECTION 1
Purpose
The purpose of the Plan is to promote the interests of the
Company and its stockholders by providing long-term incentives to certain key
executives of the Company and Bear Stearns who contribute significantly to the
long-term performance and growth of the Company.
SECTION 2
Definitions
2.1 Terms Defined. When used herein, the following terms
shall have the following meanings:
"Account" means a Capital Accumulation Account or a Cash
Balance Account, as the context may require.
"Accredited Investor" means an "accredited investor" as
defined in Rule 501 under the Securities Act, or any successor rule or
regulation.
"Additional Deferral Amount" has the meaning assigned to such
term in Section 4.1.
"Additional Plan Election" has the meaning assigned to such
term in Section 4.1.
"Adjusted Book Value Per Share" means the amount determined as
of the end of any Fiscal Year by dividing Adjusted Common Stockholders' Equity
by the sum of (a) the number of shares of Common Stock outstanding on such date,
(b) the number of CAP Units credited to the Capital Accumulation Accounts of all
Participants as of such date and the number of Earnings Units credited to the
Earnings Unit Accounts of all participants in the PUP Plan as of such date, (c)
the number of CAP Units to be credited to all such Accounts as a result of
making any adjustment to such Accounts required by Sections 5.1 and 5.10 in
respect of all Fiscal Years ending on or prior to the date of determination and
the number of Earnings Units credited to the Earnings Unit Accounts of all
participants in the PUP Plan as a result of making any adjustment to such
accounts required by Section 4.2 of the PUP Plan in respect of all Fiscal Years
ending on or prior to the date of such determination, and (d) the number of
shares of Common Stock purchased by the Company for purposes other than for the
Plan and the PUP Plan during all Fiscal Years ending on or prior to the date of
such determination, less (e) the number of shares of Common Stock issued by the
Company (whether from Treasury shares or otherwise) other than pursuant to the
Plan or the PUP Plan during all Fiscal Years ending on or prior to the date of
such determination.
"Adjusted Common Stockholders' Equity" means, for the first
Fiscal Year of any Deferral Period, Consolidated Common Stockholders' Equity as
of the last day of the preceding Fiscal Year and for Fiscal Years following the
first Fiscal Year of such Deferral Period, means Adjusted Common Stockholders'
Equity determined for the prior Fiscal Year of such Deferral Period, plus all
increases (or less any decreases) in retained earnings of the Company and its
subsidiaries attributable to net income (or loss), determined on a consolidated
basis, minus all amounts accrued in respect of cash dividends declared with
respect to any capital stock of the Company during such Fiscal Year.
"Adjusted Earnings Per Share" means, for any Fiscal Year, (a)
the Company's consolidated net income or loss for such Fiscal Year, less the
amount of the Preferred Stock Dividend Requirement for such Fiscal Year, plus
the product obtained by multiplying the product of the Net Earnings Adjustment
multiplied by the Average Cost Per Share for such Fiscal Year by the fraction
which is 1 minus the Marginal Tax Rate, divided by (b) the sum of (i) the number
of shares of Common Stock outstanding during such Fiscal Year, computed on a
weighted average basis based on the number of days outstanding during such
Fiscal Year, (ii) the aggregate number of CAP Units credited to the Accounts of
all Participants computed on a weighted average basis based on the number of
days outstanding during such Fiscal Year but not including in such computation
the day that CAP Units are credited, increased or decreased pursuant to Section
5.1, 5.3 or 5.10 of the Plan, and (iii) the aggregate number of Earnings Units
credited to the Earnings Unit Accounts of all participants in the PUP Plan
computed on a weighted average basis based on the number of days outstanding
during such Fiscal Year but not including in such computation the day that
Earnings Units are credited, increased or decreased pursuant to Section 4.2 or
4.5 of the PUP Plan.
"Adjusted Preferred Stock Dividend Requirement" means, for any
Fiscal Year, the quotient obtained by dividing (i) the aggregate amount of all
dividends actually declared by the Company on, or, if no such dividends are
actually declared, required to be declared by the Company in accordance with the
terms of, any Preferred Stock, in such Fiscal Year, by (ii) the fraction which
is one minus the Marginal Tax Rate for such Fiscal Year.
"Advisory Committee" means a committee of five Participants,
of which two shall be appointed by the President of the Company, two by the
President's Advisory Council of Bear Stearns and one by the Management and
Compensation Committee.
"Affiliate" means (a) Bear Stearns, (b) any other subsidiary
of the Company and (c) any other corporation or other entity which is
controlled, directly or indirectly, by, or under common control with, the
Company and which the Board Committee designates as an "Affiliate" for purposes
of the Plan.
"Aggregate Imputed Cost" means, with respect to any Fiscal
Year, the sum of (a) the aggregate of the Cost of Carry for such Fiscal Year for
all Participants in the Plan plus (b) the Capital Reduction Charge for such
Fiscal Year plus (c) the product of (i) the sum of the Net Earnings Adjustments
for such Fiscal Year for all Participants in the Plan multiplied by (ii) the
Average Cost Per Share for such Fiscal Year, minus (d) the Dividend Savings for
such Fiscal Year.
"Appropriate Committee" means the Management and Compensation
Committee or, in the case of Participants who are Reporting Persons, the Board
Committee.
"Associate" of a Person means (a) any corporation or
organization of which such Person is an officer or partner or is, directly or
indirectly, the Beneficial Owner of 10% or more of any class of equity
securities, (b) any trust or other estate in which such Person has a substantial
beneficial interest or as to which such Person serves as trustee or in a similar
fiduciary capacity and (c) any relative or spouse of such Person, or any
relative of such spouse, who has the same home as such Person or who is a
director or officer of such Person or any of its parents or subsidiaries.
"Available Shares" means, with respect to any Fiscal Year or
portion thereof, the sum of (a) the number of shares of Common Stock purchased
by the Company in the open market or in private transactions or otherwise during
such period that have not been previously allocated under the Plan and
designated by the Board Committee at the time of purchase as having been
purchased for issuance under the Plan with respect to the Fiscal Year or portion
thereof specified by the Board Committee and (b) shares of Common Stock
purchased prior to such period that were designated as Available Shares but were
not allocated under the Plan which the Company makes available to the Plan
subsequent to the period in which such shares were purchased and the Board
Committee thereafter designates as Available Shares for issuance under the Plan
with respect to the Fiscal Year or portion thereof specified by the Board
Committee.
"Average Cost Per Share" means with respect to any period the
weighted average of the sum of (a) the average price paid (including
commissions) by the Company in respect of Available Shares purchased by the
Company during such period and (b) in respect of Available Shares purchased by
the Company prior to such period that the Company makes available to the Plan
and that are accepted by the Board Committee, the Fair Market Value as of the
last trading day of such period.
"Average Federal Funds Rate" means, with respect to any Fiscal
Year, the percentage (expressed as a decimal fraction) obtained by taking the
sum of the Federal Funds Rates for each day during the Fiscal Year and dividing
such amount by the number of days in such Fiscal Year.
"Base Year" means the first Fiscal Year of a Required Deferral
Period
"Bear Stearns" means Bear, Stearns & Co. Inc., a Delaware
corporation, and its successors and assigns.
"Beneficial Owner" has the meaning ascribed thereto in Rule
13d-3 under the Exchange Act, except that, in any case, a Person shall be deemed
the Beneficial Owner of any securities owned, directly or indirectly, by the
Affiliates and Associates of such Person.
"Beneficiary" of a Participant means the beneficiary or
beneficiaries designated by such Participant in accordance with Section 10 to
receive the amount, if any, payable hereunder upon the death of such
Participant.
"Board Committee" means the Compensation Committee of the
Board of Directors or another committee of the Board of Directors designated by
the Board of Directors to perform the functions of the Board Committee
hereunder. To the extent required by Rule 16b-3, the Board Committee shall be
composed solely of directors who are not Participants in the Plan and are in
other respects "Non-Employee Directors" within the meaning of Rule 16b-3.
"Board of Directors" means the Board of Directors of the
Company.
"Book Value Adjustment" has the meaning assigned to such term
in Section 5.5.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or permitted
by law to be closed.
"CAP Units" means the units, each such unit corresponding to
one share of Common Stock, credited to a Participant's Capital Accumulation
Account pursuant to Section 5. All calculations and determinations of the number
of CAP Units hereunder shall be made in whole and fractional units, with such
fractional units rounded to the nearest one-thousandth of a unit.
"Capital Accumulation Account" has the meaning assigned to
such term in Section 5.1.
"Capital Reduction Charge" means (a) for Fiscal Years 1991 and
1992, zero; (b) for Fiscal Year 1993, the product of (i) the excess of (A) the
amount determined by multiplying the Aggregate Imputed Cost of the Plan for
Fiscal Year 1992 by the fraction which is one minus the Marginal Tax Rate for
Fiscal Year 1992, over (B) the aggregate amount of all cash dividends that would
have been paid by the Company during Fiscal Year 1992 on the aggregate number of
shares of Common Stock purchased by the Company and taken into account for
purposes of the Plan in respect of Fiscal Year 1991, if all such shares had
remained outstanding, and (ii) the Average Federal Funds Rate for Fiscal Year
1993; and (c) for each Fiscal Year thereafter, the product of (x) the sum of (A)
the amount determined by multiplying the Aggregate Imputed Cost of the Plan for
the Fiscal Year preceding the year for which the determination is being made by
the fraction which is one minus the Marginal Tax Rate for such preceding Fiscal
Year (the "Tax-Effected Aggregate Imputed Cost" for such Fiscal Year), plus (B)
the aggregate Tax-Effected Aggregate Imputed Cost of the Plan for all preceding
Fiscal Years, other than the Fiscal Year immediately preceding the year for
which the determination is being made, plus (C) the sum of the respective
amounts obtained by multiplying the Capital Reduction Charge for each preceding
Fiscal Year by the fraction which is one minus the Marginal Tax Rate for the
corresponding Fiscal Year, less (D) the aggregate amount of all cash dividends
that would have been paid by the Company on the aggregate number of shares of
Common Stock purchased by the Company for purposes of the Plan and taken into
account pursuant to Section 5.1, 5.3 or 5.10(a) prior to the end of the Fiscal
Year preceding the year for which the determination is being made, measured from
the date the corresponding CAP Units were first credited to such Accounts, if
all such shares had remained outstanding and (y) the Average Federal Funds Rate
for such Fiscal Year.
"Cash Balance" means the amount from time to time credited to
a Participant's Cash Balance Account.
"Cash Balance Account" has the meaning assigned to such term
in Section 5.2.
"Change in Control" means (a) a majority of the Board of
Directors ceases to consist of Continuing Directors; (b) any Person becomes the
Beneficial Owner of 50% or more of the outstanding voting power of the Company
unless such acquisition is approved by a majority of the Continuing Directors;
(c) the stockholders of the Company approve an agreement to merge or consolidate
into any other entity, unless such merger or consolidation is approved by a
majority of the Continuing Directors; or (d) the stockholders of the Company
approve an agreement to dispose of all or substantially all of the assets of the
Company, unless such disposition is approved by a majority of the Continuing
Directors.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute or statutes.
"Committee" means each of the Advisory Committee, the Board
Committee and the Management and Compensation Committee.
"Common Stock" means the common stock, par value $1.00 per
share, of the Company.
"Company" means The Bear Stearns Companies Inc., a Delaware
corporation, and its successors and assigns.
"Consolidated Common Stockholders' Equity" means, as of any
date of determination, the consolidated stockholders' equity of the Company and
its subsidiaries applicable to Common Stock.
"Continuing Director" means any member of the Board of
Directors who is a member on the Effective Date or who is elected to the Board
of Directors after the Effective Date upon the recommendation or with the
approval of a majority of the Continuing Directors at the time of such
recommendation or approval.
"Cost of Carry" means, with respect to a Participant, the sum
of (a) the amount obtained by multiplying the Deferred Tax Benefit for each Plan
Year by the Average Federal Funds Rate in the Fiscal Year for which the
determination is being made, and (b) the amounts obtained by compounding the
amounts so obtained for each preceding Fiscal Year for which a Cost of Carry was
calculated less the tax benefits associated with the amounts so determined,
calculated on the basis of the Marginal Tax Rate in each such Fiscal Year, on an
annual basis, at the Average Federal Funds Rate in effect during each succeeding
Fiscal Year; and, with respect to the Plan as a whole, means the aggregate Cost
of Carry of all Participants in any Fiscal Year.
"Deferral Period" means the period of five Fiscal Years
commencing on the first day of the Fiscal Year following the Plan Year for which
a Participant's compensation being deferred pursuant to this Plan was payable,
or such greater or lesser number of whole Fiscal Years as the Appropriate
Committee may approve pursuant to Section 4.1, 4.3, 4.5 or 4.6. Notwithstanding
the foregoing, the Deferral Period applicable to compensation being deferred for
a particular Plan Year for any Participant who will attain age 56 prior to the
last day of any such Plan Year and who elects in any Plan Election to be
governed by this sentence in the manner specified by the Company shall be, (i)
in the case of Participants who attain the age of 56 in such Plan Year, four
Fiscal Years, (ii) in the case of Participants who attain the age of 57 in such
Plan Year, either three or four Fiscal Years, (iii) in the case of Participants
who attain the age of 58 in such Plan Year, either two, three or four Fiscal
Years, or (iv) in the case of Participants who attain the age of 59 or older in
such Plan Year, either one, two, three or four Fiscal Years, in each such case
as the Participant may so elect for each such Plan Year.
"Deferral Year" means any Fiscal Year during a Deferral Period.
"Deferred Tax Benefit" means, for each Plan Year of a
Participant, the sum of (a) the amounts obtained by multiplying such
Participant's Total Deferral Amount, if any, for such Plan Year by the Marginal
Tax Rate for such Plan Year and (b) the respective amounts obtained by
multiplying the dollar amount of all Net Earnings Adjustments made with respect
to the subaccount of such Participant's Capital Accumulation Account
corresponding to such Plan Year by the respective Marginal Tax Rates for each
Deferral Year for which such adjustments are made. The Deferred Tax Benefit
shall be computed and recorded separately for each Plan Year.
"Disability" means the complete and permanent inability of an
individual to perform his duties due to his physical or mental incapacity, all
as determined by the Appropriate Committee upon the basis of such evidence,
including independent medical reports and data, as the Appropriate Committee
deems necessary or appropriate.
"Dividend Savings" means (a) for Fiscal Year 1991, zero; (b)
for Fiscal Year 1992, the sum of (i) the amount obtained by multiplying (A) the
aggregate number of CAP Units credited to the Capital Accumulation Accounts of
all Participants pursuant to Section 5.1 in respect of Fiscal Year 1991 by (B)
the weighted average per share amount of all cash dividends paid by the Company
on its Common Stock in such Fiscal Year (such weighted average amount to be
determined by multiplying the amount of each such dividend by the number of days
in the Fiscal Year on and after the date on which such dividend is paid, adding
all the amounts so obtained and dividing the total by the number of days in such
Fiscal Year) and by multiplying the product so obtained by (C) the Average
Federal Funds Rate for such Fiscal Year, and (ii) the amounts (the "Partial Year
Dividend Savings") obtained by multiplying (x) for each fiscal quarter in such
Fiscal Year, the aggregate number of CAP Units credited to the Capital
Accumulation Accounts of all Participants pursuant to Section 5.3 during such
Fiscal Year by (y) the respective weighted average per share amounts of all cash
dividends paid by the Company on its Common Stock in fiscal quarters of such
Fiscal Year beginning after the date on which such CAP Units were so credited
(each such weighted average amount to be determined in the manner described in
the preceding clause (b)(i)(B)), and by multiplying the product so obtained by
(z) the Average Federal Funds Rate for such Fiscal Year; and (c) for Fiscal Year
1993 and each succeeding Fiscal Year of the Plan, means the amount obtained by
first (i) multiplying the sum of (A) all CAP Units credited to the Capital
Accumulation Accounts of all Participants pursuant to Section 5.1 in respect of
all preceding Fiscal Years of the Plan and all CAP Units credited to such
Accounts pursuant to Section 5.10(a) in respect of Net Earnings Adjustments, if
any, for such Fiscal Years by (B) the weighted average per share amount of all
cash dividends paid by the Company on its Common Stock in the Fiscal Year for
which the determination is being made (determined in the manner described in the
preceding clause (b)(i)(B)), (ii) calculating the amount of cash dividends that
would have been paid by the Company in all preceding Fiscal Years on the
aggregate number of shares of Common Stock purchased by the Company and taken
into account for purposes of this Plan pursuant to Section 5.1, 5.3 or 5.10(a),
measured from the date on which the corresponding CAP Units were credited to
Participants' Accounts, if all such shares had remained outstanding and (iii)
multiplying the respective Dividend Savings determined as provided herein for
each preceding Fiscal Year by the fraction which is one minus the Marginal Tax
Rate for the corresponding preceding Fiscal Year, and then multiplying the sum
of the amounts so determined in clauses (i), (ii) and (iii) by the Average
Federal Funds Rate for such Fiscal Year, and finally adding to such sum the
Partial Year Dividend Savings for such Fiscal Year determined in the manner
provided in the preceding clause (b)(ii).
"Earnings Adjustment" has the meaning assigned to such term
in Section 5.4(a).
"Earnings Unit Account" has the meaning specified in the PUP
Plan.
"Earnings Units" has the meaning specified in the PUP Plan.
"Effective Date" means September 6, 1990.
"Effective Tax Rate" means, for any Fiscal Year, the fraction
the numerator of which is the consolidated tax expense of the Company and its
subsidiaries for such Fiscal Year and the denominator of which is the
consolidated income or loss before income taxes of the Company and its
subsidiaries for such Fiscal Year. For this purpose, consolidated income or loss
of the Company and its subsidiaries shall be calculated by including
extraordinary items and the income or loss of discontinued operations, and
income tax expense shall be calculated by including the income tax expense
attributable to such extraordinary items or discontinued operations.
"Elective Plan Year" has the meaning assigned to such term in
Section 4.3.
"Eligible Employee" means any individual who is employed by
Bear Stearns as a Senior Managing Director and is an Accredited Investor.
"Enrollment Period" in respect of a Plan Year means the period
commencing with the first day of the fiscal quarter immediately preceding such
Plan Year and ending on December 31 of such Plan Year, or such shorter period
contained therein designated by the Board Committee, provided that, unless
otherwise determined by the Board Committee, the Enrollment Period with respect
to an individual who becomes an Eligible Employee after December 31 of a Plan
Year shall be the period commencing on the date such individual becomes an
Eligible Employee and ending on the earliest of (a) the 30th day thereafter, (b)
March 31 of the Plan Year in the case of an individual who was an employee prior
to becoming an Eligible Employee or (c) the end of the Plan Year. Without
limiting the generality of the foregoing, the Board Committee may designate one
Enrollment Period for individuals who are Eligible Employees on the first day of
a Base Year and one or more Enrollment Periods for individuals who become
Eligible Employees after the first day of a Base Year; provided, however, with
respect to participants in The Bear Stearns Companies Inc. Management
Compensation Plan in no event shall any Enrollment Period in respect of any Plan
Year extend more than 90 days into such Plan Year so as to allow a Participant
to make an election to increase or decrease the deferral amount or Deferral
Period relating to such Plan Year.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor statute or statutes.
"Executive Committee" means the Executive Committee of the
Board of Directors.
"Fair Market Value" of a share of Common Stock as of any date
means the closing sales price of a share of Common Stock on the composite tape
for New York Stock Exchange listed securities on such date or, if the Common
Stock is not quoted on the composite tape or is not listed on the New York Stock
Exchange, on the principal United States securities exchange registered under
the Exchange Act on which the Common Stock is listed or, if the Common Stock is
not listed on any such exchange, on the National Association of Securities
Dealers, Inc. Automated Quotation National Market System ("NASDAQ-NMS") or, if
the Common Stock is not quoted on NASDAQ-NMS, the average closing bid quotation
of a share on the National Association of Securities Dealers, Inc. Automated
Quotation System or any similar system then in use or, if the Common Stock is
not listed or quoted, the fair value thereof as of such date as determined by
the Appropriate Committee.
"Federal Funds Rate" means, for any day which is a Business
Day, the rate for U.S. dollar funds settled through the Federal Reserve System
or other immediately available U.S. dollar funds, as quoted by an independent
broker of such funds selected by the Company, for the last transaction completed
prior to 9:30 A.M. (Eastern time) on the Business Day on which such rate is
determined, rounded up or down on a daily alternating basis to the nearest whole
multiple of one-eighth of one percent, and for any day which is not a Business
Day means such rate as determined for the next preceding day which was a
Business Day.
"Fiscal Year" means the fiscal year of the Company commencing
on July 1 and ending on June 30. "Fiscal Year 1991" shall mean the Fiscal Year
ending on June 30, 1991; "Fiscal Year 1992" shall mean the Fiscal Year ending on
June 30, 1992; and "Fiscal Year 1993" shall mean the Fiscal Year ending on June
30, 1993. If the Company shall change its Fiscal Year after the Effective Date
so as to end on a date other than June 30 ("Year-end Date") then, if such new
Year-end Date falls after June 30 and on or prior to December 31, the Fiscal
Year in which such change occurs shall be deemed to consist, for purposes of
this Plan, of the period of not more than 18 months beginning on the July 1
following the last Fiscal Year preceding such change and ending such new
Year-end Date or, if such new Year-end Date falls on or after January 1 and
prior to June 30, the Fiscal Year in which such change occurs shall be deemed to
consist, for purposes of this Plan, of the period of less than 12 months
beginning on the first day of the Fiscal Year in which such change occurs and
ending on such new Year-end Date.
"Full Year Units" has the meaning assigned to such term in
Section 5.4.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect from time to time.
"Historical Book Value" means, with respect to a CAP Unit
credited to a Participant's Account pursuant to Section 5.1 or 5.10(a), an
amount determined by dividing (a) Consolidated Common Stockholders' Equity as of
the end of the Fiscal Year for which such CAP Unit was credited by (b) the sum
of (i) the aggregate number of shares of Common Stock outstanding on the last
day of such Fiscal Year, (ii) the aggregate number of CAP Units credited to the
Capital Accumulation Accounts of all Participants as of the end of such Fiscal
Year, and, with respect to a CAP Unit credited to a Participant's Account
pursuant to Section 5.3, an amount determined by dividing (x)(i) Consolidated
Common Stockholders' Equity, as of the last day of the Fiscal quarter for which
such CAP Unit was credited, and (iii) the aggregate number of Earnings Units
credited to the Earnings Unit Accounts of all Participants in the PUP Plan as of
the end of such Fiscal Year, less (ii) all increases (or plus any decreases) in
retained earnings of the Company and its subsidiaries attributable to net income
(or loss), determined on a consolidated basis for all fiscal quarters of the
Fiscal Year prior to and including the fiscal quarter during which such CAP Unit
was credited, plus (iii) the amount determined by multiplying (A) a fraction,
the numerator of which is the number of fiscal quarters in the Fiscal Year prior
to and including the fiscal quarter during which such CAP Unit was credited, and
the denominator of which is 4, by (B) the increase (or decrease) in retained
earnings of the Company and its subsidiaries, attributable to net income (or
loss), determined on a consolidated basis for the Fiscal Year during which such
CAP Unit was credited, less (iv) the amount determined by multiplying (C) a
fraction, the numerator of which is the number of fiscal quarters in the Fiscal
Year prior to and including the fiscal quarter during which such CAP Unit was
credited, and the denominator of which is 4, by (D) the total amount accrued in
respect of cash dividends with respect to any capital stock of the Company for
the Fiscal Year during which such CAP Unit was credited, plus (v) the total
amount accrued in respect of cash dividends with respect to any capital stock of
the Company for all fiscal quarters of the Fiscal Year prior to and including
the fiscal quarter during which such CAP Unit was credited by (y) the sum of (i)
the aggregate number of shares of Common Stock outstanding on the last day of
such fiscal quarter, (ii) the aggregate number of CAP Units credited to the
Capital Accumulation Accounts of all Participants as of the end of such date and
(iii) the aggregate number of Earnings Units credited to the Earnings Unit
Accounts of all Participants in the PUP Plan as of the end of such Fiscal Year.
"Income Per Share" for any Fiscal Year means the consolidated
income or loss before income taxes of the Company and its subsidiaries, adjusted
as hereinafter provided, divided by the sum of (a) the number of shares of
Common Stock outstanding during such Fiscal Year, computed on a weighted average
basis based on the number of days outstanding during such Fiscal Year, (b) the
number of CAP Units credited to the Capital Accumulation Accounts of all
Participants computed on a weighted average basis based on the number of days
outstanding during such Fiscal Year but not including in such computation the
day that CAP Units are credited, increased or decreased pursuant to Section 5.1,
5.3 or 5.10 of the Plan and (c) the aggregate number of Earnings Units credited
to the Earnings Unit Accounts of all Participants in the PUP Plan computed on a
weighted average basis based on the number of days outstanding during such
Fiscal Year but not including in such computation the day that Earnings Units
are credited, increased or decreased pursuant to Section 4.2 or 4.5 of the PUP
Plan. For purposes of this Plan, consolidated income or loss before income taxes
of the Company and its subsidiaries (i) shall be determined prior to any charge
or credit to income required in such Fiscal Year by reason of Net Earnings
Adjustments pursuant to Section 5.10(a), (ii) shall include the amounts of any
pre-tax earnings or loss attributable to discontinued operations or
extraordinary items and (iii) shall be reduced by the Adjusted Preferred Stock
Dividend Requirement during such Fiscal Year, and may be decreased, but not
increased, by such amount determined by the Board Committee in its sole
discretion as appropriate to carry out the purposes of the Plan.
"Initial Plan Election" has the meaning assigned to such term
in Section 4.1.
"Investment Letter" means a letter, in a form to be approved
by the Appropriate Committee, by which a Participant represents that he is an
accredited Investor and that he is acquiring his interest in the Plan and any
shares of Common Stock that may be acquired hereunder for investment and without
a view to any distribution thereof.
"Management and Compensation Committee" means the Management
and Compensation Committee of the Company or another committee of the Company or
the Board of Directors designated by the Board of Directors to perform the
functions of the Management and Compensation Committee hereunder.
"Marginal Tax Rate" means the maximum combined marginal rate
of tax expressed as a fraction to which the Company is subject for the
applicable Fiscal Year, including Federal, New York State and New York City
income taxes (including any minimum or alternative tax), net of any tax benefit
resulting from the deductibility of state and local taxes for federal income tax
purposes.
"Net Earnings Adjustment" has the meaning assigned to such
term in Section 5.10(a).
"Part Year Units" has the meaning assigned to such term in
Section 5.4(a).
"Participant" means any Eligible Employee who has validly
elected to participate in the Plan pursuant to Section 4.l.
"Person" means an individual, a corporation, a partnership, an
association, a joint stock company, a trust, any unincorporated organization or
a government or a political subdivision thereof.
"Personal Leave of Absence" means the absence from the Company
by a Participant, with the consent of the Company, for an extended period of
time without salary under circumstances in which a return to full-time
employment by the Participant is contemplated.
"Plan" means The Bear Stearns Companies Inc. Capital
Accumulation Plan for Senior Managing Directors as set forth herein and as
amended and restated from time to time.
"Plan Election" means the election to defer compensation made
by a participant pursuant to Section 4.
"Plan Year" means Fiscal Year 1991, Fiscal Year 1992, Fiscal
Year 1993 and any other Fiscal Year with respect to which the Board Committee
makes the determination provided for in Section 3.1.
"Preferred Stock" means any capital stock of the Company that
has a right to dividends or distributions in liquidation (or both) prior to the
holders of the Common Stock.
"Preferred Stock Dividend Requirement" means, for any Fiscal
Year, the amount of all dividends actually declared by the Company on, or
required to be declared by the Company in accordance with the terms of, any
Preferred Stock, in such Fiscal Year.
"Pre-Plan Earnings Per Share" means, for any Fiscal Year, (a)
the sum of (i) the Company's consolidated net income or loss for such Fiscal
Year less (ii) the amount of the Preferred Stock Dividend Requirement for such
Fiscal Year, plus (iii) the amount obtained by multiplying the Aggregate Imputed
Costs of the Plan deducted in the calculation of consolidated net income or loss
for such Fiscal Year by the fraction which is one minus the Marginal Tax Rate
for such Fiscal Year, divided by (b) the sum of (x) the number of shares of
Common Stock outstanding during such Fiscal Year, computed on a weighted average
basis based on the number of days outstanding during such Fiscal Year, (y) the
aggregate number of CAP Units credited to the Accounts of all Participants
computed on a weighted average basis based on the number of days outstanding
during such Fiscal Year but not including in such computation the day that CAP
Units are credited, increased or decreased pursuant to Section 5.1, 5.3 or 5.10
of the Plan, and (z) the aggregate number of Earnings Units credited to the
Earnings Unit Accounts of all participants in the PUP Plan computed on a
weighted average basis based on the number of days outstanding during such
Fiscal Year but not including in such computation the day that Earnings Units
are credited, increased or decreased pursuant to Section 4.2 or 4.5 of the PUP
Plan.
"PUP Plan" means The Bear Stearns Companies Inc. Performance
Unit Plan for Senior Managing Directors, as the same shall be amended,
supplemented or modified from time to time.
"Quarter End Date" has the meaning assigned to such term in
Section 5.3.
"Registration Statement" has the meaning assigned to such term
in Section 6.7.
"Reporting Person" means a director or officer of the
Company who is subject to the reporting requirements of Section 16(a) of
the Exchange Act.
"Required Deferral Amount" means, for any Plan Year, the
following percentages of that portion of a Participant's current compensation
for such Plan Year (prior to giving effect to any effective election hereunder
to defer receipt of a portion of such amount but after giving effect to any
effective election to defer compensation under any other plan sponsored by the
Company or any Affiliate) which exceeds $200,000 (or the then prevailing annual
base salary for Senior Managing Directors of Bear Stearns for such Plan Year):
25% of the first $ 300,000
30% of the next $ 500,000
40% of the next $1,000,000
50% of compensation exceeding $2,000,000
Notwithstanding the foregoing, (a) the Required Deferral Amount for any
Participant who will attain age 55 prior to the last day of any Plan Year and
who elects in his Plan Election to be governed by this sentence in the manner
specified by the Appropriate Committee shall be 25% of such compensation of such
Participant for each Plan Year in which he attains age 55 or older and (b) no
Participant shall be required or entitled to defer any portion of his
compensation for any Plan Year for which he was entitled to receive payment
prior to the date of his Plan Election. The Required Deferral Amount in his
initial Plan Year for any Participant who first becomes an Eligible Employee
after the first day of any Plan Year shall be determined by multiplying each of
the foregoing amounts in this paragraph by a fraction, the numerator of which is
the number of whole months remaining in the Plan Year following his date of
employment and the denominator of which is 12.
"Required Deferral Period" has the meaning assigned to such
term in Section 3.1.
"Rule 16b-3" means Rule 16b-3 of the Securities and Exchange
Commission promulgated under the Exchange Act, as the same may be modified or
amended from time to time, and any successor rule.
"Securities Act" means the Securities Act of 1933, as amended
from time to time, or any successor statute or statutes.
"Special Plan Election" has the meaning assigned to such term
in Section 4.6.
"Termination Date" means the last day of any Deferral Period.
"Total CAP Units" means the aggregate number of CAP Units,
adjusted through any date of determination thereof, theretofore credited to a
Participant's Capital Accumulation Account.
"Total Deferral Amount" for any Participant means, for each
Plan Year, the sum of the Required Deferral Amount and the Additional Deferral
Amount.
2.2 Accounting Terms. Whenever any accounting term is used
herein, or the character or amount of any asset or liability or item of income
or expense is required to be determined, or any consolidation or other
accounting computation is required to be made, for the purposes of this Plan,
such accounting term shall have the meaning assigned to such term or such
determination or computation shall be made (as the case may be), to the extent
applicable and except as otherwise specified herein, in accordance with GAAP.
SECTION 3
Eligibility
3.1 Not later than 90 days after the commencement of any
Fiscal Year, the Board Committee shall determine whether Eligible Employees who
are not then Participants shall be entitled to defer a portion of their
compensation for such Fiscal Year and the two Fiscal Years next succeeding such
Fiscal Year (such three Fiscal Years being referred to collectively as a
"Required Deferral Period"); provided, however, that in the case of the Required
Deferral Period of which the Base Year is the Fiscal Year ending June 30, 1992,
such determination may be made not later than October 30, 1991.
3.2 Each individual who is an Eligible Employee at any time
during the Enrollment Period in respect of a Plan Year and is not then a
Participant shall be eligible to participate in the Plan by deferring
compensation as provided in Section 4.1; provided, however, that an Eligible
Employee who does not elect to participate in the Plan during the Enrollment
Period for the first Plan Year in which he is an Eligible Employee shall not be
entitled to participate in the Plan in respect of subsequent Plan Years unless
such participation is approved by the Appropriate Committee not later than the
last day of the Enrollment Period for such Plan Year; and provided, further,
that no individual shall be eligible to participate in the Plan unless such
individual agrees to execute such documents or agrees to such restrictions,
including but not limited to the execution of an Investment Letter, as the
Appropriate Committee in its sole discretion may require.
SECTION 4
Deferrals of Compensation
4.1 Plan Election. Each Eligible Employee who satisfies the
eligibility requirements of Section 3.2 during a Plan Year may, during the
applicable Enrollment Period, execute and file with the Appropriate Committee a
Plan Election (an "Initial Plan Election"), in the form provided by the Company,
(a) electing to defer (i) the Required Deferral Amount of his current
compensation for each of the three Fiscal Years in the Required Deferral Period
and (ii) subject to the approval of the Appropriate Committee, any amount of his
current compensation in excess of the Required Deferral Amount for his Base Year
(the "Additional Deferral Amount") and (b) electing, subject to the approval of
the Appropriate Committee, a Deferral Period (in whole Fiscal Years) in respect
of the Required Deferral Amount and any Additional Deferral Amount for such Base
Year of more than Five Fiscal Years. During the Enrollment Period occurring
during the second and third Fiscal Years of a Required Deferral Period (or if
there is no Enrollment Period for such Fiscal Year, the period commencing on the
anniversary of the first day of the most recent preceding Enrollment Period and
ending on the anniversary of the last day of such Enrollment Period), a
Participant may execute and file with the Appropriate Committee an additional
Plan Election (an "Additional Plan Election"), in the form provided by the
Company electing, if applicable, a shorter Deferral Period or, subject to the
approval of the Appropriate Committee, an Additional Deferral Amount for such
Fiscal Year or a Deferral Period in respect of the Required Deferral Amount and
any Additional Deferral Amount for such Fiscal Year of more than five Fiscal
Years. The Appropriate Committee may approve any election of an Additional
Deferral Amount and any election of a Deferral Period in excess of five Fiscal
Years, or may deny any such request, in its sole discretion. If the Appropriate
Committee shall deny any election of any Additional Deferral Amount, then the
Additional Plan Election shall be deemed to relate only to the Participant's
Required Deferral Amount for the Fiscal Year involved and, if the Appropriate
Committee shall deny any election of a Deferral Period in excess of five Fiscal
Years, then the Deferral Period applicable to the Required Deferral Amount and
any Additional Deferral Amount for the Fiscal Year involved shall be five Fiscal
Years.
4.2 Effect of Initial Plan Election. An Initial Plan Election
filed during the Enrollment Period in respect of a Plan Year in accordance with
Section 4.1 shall constitute an election (a) to become a Participant in this
Plan with respect to such Fiscal Year and the two succeeding Fiscal Years, (b)
to defer for Deferral Period receipt of the Required Deferral Amount and the
Additional Deferral Amount (if any) approved by the Appropriate Committee for
such Fiscal Year and (c) to defer receipt of the Required Deferral Amount for
the second and third Fiscal Years of the Required Deferral Period beginning with
such Fiscal Year for the Deferral Period or such other period as may be approved
by the Appropriate Committee pursuant to Section 4.1, unless, in the case of
such second and third Fiscal Years, such Participant is excluded from
participation in respect of subsequent Fiscal Years of a Required Deferral
Period upon approval of the Appropriate Committee pursuant to Section 4.5(a).
4.3 Elective Deferrals. For each Plan Year occurring after the
third Fiscal Year of a Participant's Required Deferral Period as to which such
Participant has not theretofore had the opportunity to elect to defer
compensation (each such Plan Year being referred to as an "Elective Plan Year"),
such Participant may, subject as provided below, during the Enrollment Period in
respect of any Plan Year during which the Board Committee has determined
pursuant to Section 3.1 to allow any Eligible Employees to defer compensation
for such Elective Plan Year, execute and file with the Appropriate Committee an
Additional Plan Election electing to defer for the applicable Deferral Period
the Required Deferral Amount of his current compensation for such Elective Plan
Year. Thereafter, during the Enrollment Period occurring during each such
Elective Plan Year (or if there is no Enrollment Period for such Fiscal Year,
the period commencing on the anniversary of the first day of the most recent
preceding Enrollment Period and ending on the anniversary of the last day of
such Enrollment Period) a Participant may execute and file an Additional Plan
Election, electing, subject to the approval of the Appropriate Committee, an
Additional Deferral Amount for such Elective Plan Year and a Deferral Period (in
whole Fiscal Years) in respect of the Required Deferral Amount and any
Additional Deferral Amount for such Elective Plan Year of more than five Fiscal
Years or, if applicable, a shorter Deferral Period. The Appropriate Committee
may approve any election under this Section 4.3 to defer an Additional Deferral
Amount and any election of a Deferral Period in excess of five Fiscal Years, or
may deny any such request, in its sole discretion. If the Appropriate Committee
shall deny any election of an Additional Deferral Amount, then the additional
Plan Election shall be deemed to relate only to the Participant's Required
Deferral Amount for the Elective Plan Year involved and, if the Appropriate
Committee shall deny any election of a Deferral Period in excess of five Fiscal
Years, then the Deferral Period applicable to the Required Deferral Amount and
any Additional Deferral Amount for the Elective Plan Year involved shall be five
Fiscal Years. If at any time there is more than one Elective Plan Year as to any
Participant, then the Appropriate Committee shall determine whether or not the
additional Plan Election which may be submitted in respect of such Elective Plan
Years by such Participant shall relate to one or more than one of such Elective
Plan Years. If the Appropriate Committee determines that such Plan Election
shall relate to more than one Elective Plan Year, then the additional Plan
Election to be filed by such Participant shall constitute an election to defer
the Required Deferral Amount of his current compensation for each of such
Elective Plan Years. Notwithstanding the foregoing, however, if an Eligible
Employee does not elect to defer at least the Required Deferral Amount in
respect of any Elective Plan Year, such Eligible Employee shall be ineligible to
submit an additional Plan Election in respect of any succeeding Elective Plan
Year unless the Appropriate Committee, in its sole discretion, shall determine
(including, without limitation, by reason of hardship as contemplated by Section
4.5(a)) that such Eligible Employee shall once again be eligible to elect to
defer compensation under this Section 4.3. In the event that the Appropriate
Committee shall make the determination contemplated by the preceding sentence in
respect of any Elective Plan Year for which the Enrollment Period has already
expired, then the Appropriate Committee, may, in its discretion, establish a
supplementary enrollment period for the Eligible Employee involved, in which
case such supplementary enrollment period shall be deemed the Enrollment Period
for such Eligible Employee for purposes of this Plan in respect of the Elective
Plan Year involved.
4.4 Election Irrevocable. The election to defer compensation
pursuant to a Plan Election or Additional Plan Election, once made for the
first, second and third Fiscal Years of a Required Deferral Period or for any
Elective Plan Year, shall be irrevocable and shall not be subject to
cancellation by the Participant or, except as expressly provided herein, by the
Appropriate Committee or the Company. Without limiting the generality of the
foregoing, such an election for the first, second and third Fiscal Years of a
Required Deferral Period or for any Elective Plan Year shall not be subject to
cancellation by a Participant by reason of termination of his employment with
the Company or an Affiliate.
4.5 Hardship Exceptions.
(a) A Participant may request to be excluded from
participating in the Plan in respect of any Plan Year other than his Base Year
by filing with the Appropriate Committee during the Enrollment Period occurring
during such Fiscal Year (or if there is no Enrollment Period for such Fiscal
Year, the period commencing on the anniversary of the first day of the most
recent preceding Enrollment Period and ending on the anniversary of the last day
of such Enrollment Period) a written request for non-participation, which
request shall set forth the circumstances that have arisen since the Enrollment
Period in respect of such Plan Year that would make continued participation in
the Plan an unanticipated financial hardship for such Participant. The
Appropriate Committee, in its sole discretion, shall determine whether or not to
grant any such request. A Participant who requests and is granted such an
exclusion shall not be eligible to participate in the Plan in respect of the
Plan Year for which such request is granted, but shall continue to participate
in the Plan in respect of any other Plan Years for which an election has
previously been made hereunder and shall be eligible to participate in the Plan
for future Plan Years.
(b) A Participant may request a reduction in any Deferral
Period by one or more Fiscal Years at any time by filing with the Appropriate
Committee a written request setting forth the circumstances that have arisen
since the Enrollment Period for the related Plan Year that would make the
failure to reduce the Deferral Period an unanticipated financial hardship for
such Participant. The Appropriate Committee, in its sole discretion, shall
determine whether or not to grant any such request and, if so, the number of
whole Fiscal Years by which the Deferral Period shall be so reduced.
4.6 Special Elections. The Appropriate Committee shall have
the right in its sole discretion to permit a Participant to execute and file
with the Appropriate Committee, at such times and on such terms and conditions
as the Appropriate Committee shall determine, a Plan Election (a "Special Plan
Election") in form provided by the Company, electing to extend the Deferral
Period previously selected with respect to any Required Deferral Amount and/or
Additional Deferral Amount for such periods and in such proportions as shall be
determined by the Appropriate Committee, provided that the Deferral Period being
extended shall terminate no earlier than the end of the Fiscal Year following
the Fiscal Year in which the Special Plan Election is made, except that any
election with respect to the Deferral Period ending on June 30, 1997 shall be
made on or before December 31, 1996. The Earnings Adjustment with respect to
each Plan Year in any such additional Deferral Period shall be calculated in
accordance with Section 5.4(e).
SECTION 5
Capital Accumulation Accounts;
Cash Balance Accounts
5.1 Annual Credits to Capital Accumulation Accounts. For each
Plan Year, the Company shall credit to each Participant, as of the last day of
such Plan Year, by means of a bookkeeping entry established and maintained by
the Company for each such Participant (a "Capital Accumulation Account"), a
number of CAP Units equal to the quotient obtained by dividing the Total
Deferral Amount for such Plan Year by the Average Cost Per Share of the
Available Shares for such Plan Year. The Available Shares for this purpose shall
be the total number of Available Shares for such Plan Year less a number of
shares equal to any CAP Units credited to Participants in respect of any fiscal
quarter during such Plan Year pursuant to Section 5.3 and less a number of
shares equal to the number of CAP Units to be credited to Participants as a Net
Earnings Adjustment pursuant to Section 5.10(a) for such Plan Year.
Notwithstanding the foregoing, if the aggregate number of CAP Units that
otherwise would be credited to the Capital Accumulation Accounts of all
Participants pursuant to the first sentence of this Section 5.1 would exceed the
number of Available Shares, then the aggregate number of CAP Units to be
credited to the Capital Accumulation Accounts of all Participants shall be
limited to the number of Available Shares and such aggregate number of CAP Units
shall be allocated on a pro rata basis, based on the respective Total Deferral
Amounts of each Participant in respect of such Plan Year. The Company shall
record CAP Units credited in respect of each Plan Year in a separate subaccount
of each Participant's Capital Accumulation Account and any credits or
adjustments hereunder to such CAP Units shall be made separately with respect to
the CAP Units credited to each such subaccount.
5.2 Cash Balance Account. If the number of CAP Units which the
Company is able to credit to Participants in respect of any Plan Year is limited
by the third sentence of Section 5.1, then the Company shall also credit to each
Participant an amount equal to (a) the Total Deferral Amount for such Plan Year
for such Participant, less (b) the product of (i) the number of CAP Units
credited to such Participant in respect of such Plan Year and (ii) the Average
Cost per Share of the Available Shares taken into account in such determination.
Such amounts shall be credited as of the last day of such Plan Year by means of
a bookkeeping entry established and maintained by the Company for each
Participant (a "Cash Balance Account"). The Company shall record Cash Balances
credited in respect of each Plan Year in a separate subaccount of each
Participant's Cash Balance Account and any credits or adjustments hereunder to
such Cash Balances shall be made separately with respect to each such
subaccount.
5.3 Quarterly Credits in Respect of Cash Balances. If there
shall exist a Cash Balance in the Cash Balance Account of any Participant on the
last day of any fiscal quarter of the Company, including the last day of a Plan
Year (a "Quarter End Date"), the Company shall credit the Capital Accumulation
Account of each such Participant, as of such Quarter End Date, with a number of
additional CAP Units determined by dividing such Cash Balance by the Average
Cost Per Share of the Available Shares acquired by the Company and designated by
the Board Committee as being allocated to such period. If the aggregate number
of CAP Units required to be credited to the Capital Accumulation Accounts of all
such Participants pursuant to the preceding sentence would exceed the number of
Available Shares, then the aggregate number of CAP Units to be credited shall be
limited to the number of Available Shares and such CAP Units shall be allocated
on a pro rata basis, based on the respective Cash Balances of each Participant.
In connection with any crediting of CAP Units pursuant to this Section 5.3, the
Cash Balance of each such Participant shall be reduced by debiting to his Cash
Balance Account an amount equal to the product of the number of CAP Units
credited to his Capital Accumulation Account and the Average Cost Per Share of
the Available Shares acquired by the Company during the annual or quarterly
period specified by the Board Committee.
5.4 Earnings Adjustments. For purposes of calculating the Net
Earnings Adjustment with respect to any Deferral Year pursuant to Section 5.10,
the Earnings Adjustment shall be calculated with respect to such Deferral Year,
after making any credits to the Capital Accumulation Accounts of the
Participants in respect of the fourth fiscal quarter of such Deferral Year
pursuant to Section 5.3, as follows:
(a) first, the Company shall determine a dollar amount of
interest to be credited to each Participant who had a positive Cash Balance at
any time during the Deferral Year by multiplying the daily weighted average
amount of each such Participant's Cash Balance (such weighted average to be
determined by adding the amounts of the Participant's Cash Balance on each day
during such Deferral Year and dividing the total so obtained by the number of
days in such Deferral Year) by a percentage equal to the daily average of the
highest rates of interest paid by Bear Stearns to its employees from time to
time during such Deferral Year on free credit balances;
(b) the Company next shall determine a dollar amount to be
credited or debited to each Participant in respect of CAP Units credited to such
Participant's Capital Accumulation Account as of the first day of the Deferral
Year and at all times throughout such Deferral Year ("Full Year Units") by
multiplying such number of Full Year Units by the Income Per Share for the
Deferral Year; provided, however, that the amount to be credited or debited
pursuant to this clause (b) to a Participant whose employment with the Company
and its Affiliates was terminated during such Deferral Year shall be the amount
determined as aforesaid multiplied by a fraction, the numerator of which shall
be the number of whole months in such Deferral Year prior to the month in which
his employment terminated and the denominator of which shall be 12;
(c) the Company then shall determine a dollar amount to be
credited to each Participant in respect of CAP Units credited or debited to his
Capital Accumulation Account as of any date subsequent to the first day of the
Deferral Year ("Part Year Units") by multiplying such number of Part Year Units
by the Income Per Share for the Deferral Year and multiplying the product so
obtained by a fraction, the numerator of which shall be the number of whole
months in such Deferral Year during which such Part Year Units were so credited
(less, in the case of a Participant whose employment by the Company and its
Affiliates is terminated in such Deferral Year, the number of whole months
following the effective date of such termination, plus one) and the denominator
of which shall be 12 (if a Participant's Capital Accumulation Account has been
credited with Part Year Units which initially were credited to such Account as
of different dates during the Deferral Year, then the calculation required by
this clause (c) shall be made separately for each such group of Part Year
Units);
(d) the Company then shall calculate a dollar amount to be
charged to each Participant who has any Additional Deferral Amount by
determining the Cost of Carry for such Participant with respect to each Plan
Year for which he has any such Additional Deferral Amount and multiplying each
such amount by a fraction, the numerator of which shall be the Participant's
Additional Deferral Amount for such Plan Year and the denominator of which shall
be his Total Deferral Amount for such Plan Year; provided that the charge
computed pursuant to this subparagraph (d) resulting from an Additional Deferral
Amount in Plan Year 1993 or Plan Year 1994 shall be taken into account only with
respect to a Participant who has elected to defer such Additional Deferral
Amount for more than five Fiscal Years and then only with respect to Deferral
Years after the fifth Deferral Year;
(e) the Company then shall calculate a dollar amount to be
charged to each Participant who elected to defer any Required Deferral Amount in
respect of any Plan Year for more than five Fiscal Years by determining the Cost
of Carry for such Participant with respect to each such Plan Year and
multiplying each such amount by a fraction, the numerator of which shall be the
Participant's Required Deferral Amount for such Plan Year and the denominator of
which shall be his Total Deferral Amount for such Plan Year; provided that the
charge computed pursuant to this subparagraph (e) shall be taken into account
only with respect to Deferral Years after the fifth Deferral Year;
(f) the Company shall then calculate an amount to be charged
to each Participant whose employment with the Company and its Affiliates has
terminated equal to the Cost of Carry for such Participant for such Deferral
Year or, if his employment terminated in such Deferral Year, for the portion
thereof beginning with the month in which his employment terminated; and
(g) finally, (i) if the sum (or net amount) of the amounts
determined for a Participant in subparagraphs (a), (b) and (c) above is a
positive number and such sum (or net amount) exceeds the aggregate of the
charges, if any, determined for such Participant pursuant to subparagraphs (d),
(e) and (f) above, then the Earnings Adjustment shall equal such sum (or net
amount), as determined for purposes of this Section 5.4, or (ii) if the net
amount of the amounts determined for a Participant in subparagraphs (a), (b) and
(c) less the aggregate of the charges, if any, determined pursuant to
subparagraphs (d), (e) and (f) is a negative number (an "Earnings Charge") and
such Participant has a positive Cash Balance, then (A) such Cash Balance first
shall be reduced by an amount equal to such Earnings Charge (provided that no
such reduction shall be made to the extent the Earnings Charge relates to a
negative result from sub-paragraph (b) or (c)) and (B) if, after reducing such
Cash Balance to zero, any amount determined in accordance with the preceding
clause (ii)(A) remains unapplied, or if such Participant has no Cash Balance,
then the Earnings Adjustment shall be zero.
5.5 Book Value Adjustment. For purposes of calculating the Net
Earnings Adjustment with respect to any Deferral Year pursuant to Section 5.10,
the Book Value Adjustment shall equal the sum of (1) the amount maintained in
the Book Value Adjustment Carry Forward Account pursuant to Section 5.10(a), if
any, and (2) the product of (a) the total number of CAP Units credited to the
Capital Accumulation Account of each Participant as of the last day of such
Deferral Year but without including any CAP Units credited on such date pursuant
to Sections 5.1, 5.3 and 5.10 multiplied by (b) the difference between Adjusted
Book Value Per Share as of the last day of the Deferral Year and Adjusted Book
Value Per Share as of the last day of the preceding Deferral Year.
5.6 Overall Cost Limitation. Notwithstanding the provisions of
Section 5.10, if the operation of the Plan (without giving effect to this
Section 5.6) would result in Adjusted Earnings Per Share for any Fiscal Year
being less than 98.5% of Pre-Plan Earnings Per Share for such Fiscal Year, then,
after making the other credits and adjustments required by Section 5.3, (a) the
Net Earnings Adjustments required by Section 5.10(a) first shall be reduced or
eliminated, and (b) if necessary after eliminating all such Net Earnings
Adjustments, the Cash Balance Accounts of all Participants shall be reduced or
eliminated so that to the extent possible, after giving effect to all such
reductions and eliminations, Adjusted Earnings Per Share for such Fiscal Year
will be 98.5% of Pre-Plan Earnings Per Share.
5.7 Antidilution Adjustments. In the event of a stock split or
if the Company makes any distribution (other than a cash dividend) with respect
to Common Stock after the date CAP Units initially are credited to a
Participant's Capital Accumulation Account in accordance with this Section 5,
the number of CAP Units held in each Participant's Capital Accumulation Account
shall be equitably adjusted (as determined by the Appropriate Committee in its
sole discretion) to reflect such event. If there shall be any other change in
the number or kind of outstanding shares of Common Stock as a result of a
recapitalization, combination of shares, merger, consolidation or otherwise, the
number of CAP Units credited to each Participant's Capital Accumulation Account
shall be equitably adjusted (as determined by the Appropriate Committee in its
sole discretion) to reflect such event.
5.8 Apportionment of Credits. Whenever CAP Units are credited
to a Participant's Capital Accumulation Account pursuant to Section 5.3 or 5.10
in respect of any Deferral Year, they shall be apportioned among the CAP Units
originally credited to such Account in respect of each Plan Year on a pro rata
basis, based on the respective number of the CAP Units originally credited in
respect of each such Plan Year, and such additional CAP Units shall have the
same Termination Date as the original CAP Units to which they are so
apportioned.
5.9 Amounts Vested. A Participant shall be fully vested at all
times in the CAP Units credited to his Capital Accumulation Account and in the
Cash Balance credited to his Cash Balance Account; provided, however, that the
establishment and maintenance of, or credits to, such Capital Accumulation
Account and Cash Balance Account shall not vest in any Participant or his
Beneficiary any right, title or interest in or to any specific asset of the
Company.
5.10 Net Earnings Adjustments.
(a) After making any credits to the Capital Accumulation
Accounts of the Participants in respect of the fourth fiscal quarter of such
Deferral Year pursuant to Section 5.3, each Participant's Account shall be
adjusted, effective as of the last day of such Deferral Year, as provided in
this Section 5.10(a). The Company shall credit the Capital Accumulation Account
of each Participant with an additional number of CAP Units (a "Net Earnings
Adjustment") equal to the quotient of (i) the difference between the Earnings
Adjustment calculated in accordance with Section 5.4 and the Book Value
Adjustment calculated in accordance with Section 5.5 for such Deferral Year,
divided by (ii) the Average Cost Per Share of the Available Shares acquired by
the Company and designated by the Board Committee as being allocated to such
period. Notwithstanding the foregoing, however, if (i) the Earnings Adjustment
is a negative number or (ii) the Book Value Adjustment exceeds the Earnings
Adjustment then no CAP Units shall be credited to the Accounts of any
Participants and the amounts of each of such Book Value Adjustment and Earnings
Adjustment shall be disregarded and shall not be taken into account for purposes
of the Plan in any subsequent Deferral Year.
If the aggregate number of CAP Units required to be credited
to the Accounts of all Participants pursuant to this Section 5.10(a) shall
exceed the number of Available Shares in respect of such Plan Year, then the
Company shall credit to each Participant only that number of CAP Units as shall
equal the number of Available Shares, on a pro rata basis, based on the number
of CAP Units which each Participant otherwise would have been entitled to be
credited. In such event, the Company shall also carry forward to subsequent
Deferral Years the respective amounts obtained by multiplying each of the
Earnings Adjustment and the Book Value Adjustment applicable for each
Participant by the fraction which is one minus the quotient obtained by dividing
(a) the number of Available Shares by (b) the aggregate number of CAP Units
required to be credited pursuant to this Section 5.10(a). Such respective amount
shall be credited (or debited) by means of separate bookkeeping entries
established and maintained by the Company to the Cash Balance Account in respect
of the Earnings Adjustment and a "Book Value Adjustment Carryforward Account" in
respect of the applicable Book Value Adjustment of each Participant. The amounts
credited to the Cash Balance Account in respect of the Earnings Adjustment shall
equal the product of (a) the applicable amount carried forward in respect of
Earnings Adjustment and (b) the Average Cost Per Share for the Plan Year
involved.
(b) Notwithstanding anything in the Plan to the contrary, for
purposes of determining Historical Book Value Per Share and Adjusted Book Value
Per Share, the Net Earnings Adjustments credited to each Participants' Capital
Accumulation Account pursuant to Section 5.10(a) shall be disregarded and in
lieu thereof the Earnings Adjustments provided for in Section 5.4 and the Book
Value Adjustments provided for in Section 5.5 shall be deemed made without
giving effect to Section 5.10(a). In addition, for purposes of calculating the
Earnings Adjustment and the Book Value Adjustment (except as required by Section
5.2 any amounts credited to a Book Value Adjustment Carryforward Account in a
prior Deferral Year shall be deemed made as a Book Value Adjustment in the year
so credited and not carried forward to subsequent Deferral Years.
5.11 Certification of the Board Committee. As a condition to
the right of any Participant to receive any shares payable in respect of CAP
Units credited to such Participant's Capital Accumulation Account or cash in
respect of such Participant's Cash Account, in respect of fractional CAP Units
credited to such Participant's Capital Accumulation Account or payable pursuant
to Section 6.6, prior to the time CAP Units or cash is credited to the
appropriate Accounts of such Participant or a Participant receives cash pursuant
to Section 6.6, the Board Committee shall be required to certify, by resolution
of the Board Committee or other appropriate action, that the amounts to which
such Participant is entitled have been accurately determined in accordance with
the provisions of the Plan.
SECTION 6
Payment of Benefits
6.1 Distributions. As soon as practicable following each
Termination Date, each Participant shall be entitled to receive from the
Company, in respect of the Total Deferral Amount for the related Plan Year, a
number of shares of Common Stock equal to the Total CAP Units credited to his
Capital Accumulation Account in respect of such Plan Year and an amount in cash
equal to his Cash Balance, if any, in respect of such Plan Year, each determined
as of such Termination Date.
6.2 Accelerated Distributions. Notwithstanding the provisions
of Section 6.1 and in lieu of any distribution on a Termination Date selected by
a Participant, a Participant may receive a distribution prior to a Termination
Date as follows:
(a) If a Participant shall die during any Fiscal Year prior to
the end of all of his Deferral Periods, the Participant's estate (or his
Beneficiary) shall be entitled to receive from the Company, as soon as
practicable after the end of the Fiscal Year in which such Participant's death
occurs, a number of shares of Common Stock equal to the Total CAP Units credited
to his Capital Accumulation Account, as adjusted pursuant to Sections 5.6 and
5.10 as of the end of the Fiscal Year in which such Participant's death occurs,
and an amount in cash equal to his Cash Balance, if any, as of the end of the
Fiscal Year in which such Participant's death occurs.
(b) If a Participant's employment with the Company and its
Affiliates shall be terminated for any reason prior to the end of all of his
Deferral Periods (other than by reason of death), or if such Participant shall
suffer a Disability or shall become a Managing Director Emeritus of Bear
Stearns, then such Participant (or his Beneficiary) shall, unless otherwise
determined by the Appropriate Committee as hereinafter provided, continue to be
bound by, and to be subject to, all the terms and provisions of this Plan,
except that (i) in lieu of making any calculations pursuant to subparagraphs
(ii) and (iii) of Section 5.4 in respect of the portion of the Deferral Year
beginning with the month in which his employment terminates and for any
subsequent Deferral Year prior to any Termination Date, the Company shall credit
to the Cash Balance Account of such Participant, on an annual basis as of the
last day of each Fiscal Year, a dollar amount equal to the cash dividends
declared by the Company, in the fiscal quarter of the Company following the
fiscal quarter in which his employment terminated or in any subsequent fiscal
quarter ending on or prior to a Termination Date, on that number of shares of
Common Stock corresponding to the number of CAP Units credited to his Capital
Accumulation Account (A) as of the last day of the month before his employment
terminates in respect of the Fiscal Year in which his employment terminated and
(B) as of the first day of the Fiscal Year after which his employment terminated
in respect of all subsequent Fiscal Years, and (ii) notwithstanding the
provisions of Section 5.5, the Book Value Adjustment for any Fiscal Year
following the Fiscal Year in which his employment terminated shall be zero. For
purposes of calculating the Book Value Adjustment for the Fiscal Year in which
the employment of a Participant is terminated, the denominator of the fraction
referred to in Section 5.5 of the Plan shall be (in lieu of the Adjusted Book
Value Per Share on the last day of the Deferral Year for which the adjustment is
being made) the Adjusted Book Value Per Share calculated by including in the
definition of Adjusted Common Stockholder Equity (in lieu of all increases (or
decreases) in retained earnings attributable to net income (or loss) minus all
amounts accrued in respect of cash dividends declared with respect to any
capital stock of the Company) the amount determined by multiplying (A) the
increase (or decrease) in retained earnings in such Fiscal Year attributable to
net income (or loss) minus all amounts accrued in respect of cash dividends
declared with respect to any capital stock of the Company by (B) a fraction, the
numerator of which is the number of months in the Fiscal Year prior to but not
including the month in which his employment terminates, and the denominator of
which is 12.
Notwithstanding the foregoing:
(i) the Appropriate Committee shall have the right in
its sole discretion (A) to treat a Participant who has suffered a
Disability or who has become a Managing Director Emeritus of Bear
Stearns as a Participant (1) in all respects under this Plan, (2) to
whom the provisions of Section 5.4 but not the provisions of Section
4.1 shall apply or (3) whose employment with the Company and its
Affiliates has terminated and to whom the foregoing provisions of this
paragraph (b) shall apply, and (B) at any time or from time to time, to
change any such treatment with respect to any such Participant to any
other such treatment;
(ii) the Appropriate Committee shall have the right
in its sole discretion to accelerate any Termination Date with respect
to any Plan Year of a Participant whose employment with the Company and
its Affiliates terminates to the last day of the Fiscal Year in which
such employment terminates or to the last day of any subsequent Fiscal
Year, in which case the date so determined by the Appropriate Committee
with respect to each such Plan Year shall be the Participant's
Termination Date for all purposes of this Plan with respect to each
such Plan Year. The Appropriate Committee shall give notice of any such
determination to the Participant at least ten days prior to the
earliest of such accelerated Termination Dates. In addition, if a
Participant whose employment with the Company has terminated shall
request the Appropriate Committee to accelerate the Termination Date
with respect to any Plan Year of such Participant to the last day of
the Fiscal Year immediately preceding the Fiscal Year in which such
Participant's employment terminates, the Appropriate Committee may in
its sole discretion so accelerate the Termination Date with respect to
any such Plan Year of such Participant. If the Appropriate Committee
takes such action, such Participant's distribution from the Plan for
any Plan Year the Termination Date of which is so accelerated shall be
based on the Total CAP Units and his Cash Balance at the end of such
prior Fiscal Year for each such Plan Year, without giving effect to any
adjustments otherwise required to be made during the Fiscal Year in
which his employment terminates, including, without limitation, for Net
Earnings Adjustments, dividends on the Common Stock, or interest, and
the distributions called for in Section 6.1 of the Plan shall be made
as soon as practicable after such action is taken by the Appropriate
Committee;
(iii) Notwithstanding clause (ii) above, the
Appropriate Committee shall have the right in its sole discretion to
determine that, regardless of the Termination Date with respect to any
other Plan Year or Plan Years, the Termination Date with respect to the
Plan Year in which the employment of the Participant with the Company
and its Affiliates terminates, and the Plan Year immediately preceding
such Plan Year if such employment terminates prior to the date on which
the Capital Accumulation Account of such Participant is credited
pursuant to Section 5.1 hereof with respect to such immediately
preceding Plan Year, shall be the last day of the Fiscal Year
immediately preceding the Plan Year in which such employment terminates
or, if applicable, the prior Plan Year; and
(iv) the Appropriate Committee may permit a
Participant whose employment with the Company and its Affiliates
terminates more than five years after the last day of his first Plan
Year and who has elected a Deferral Period of more than five Fiscal
Years for any Plan Year to participate in the Plan with respect to any
such Plan Year for one or more Fiscal Years (but not beyond his
Termination Date as determined in accordance with his applicable Plan
Election) on substantially the same terms as other Participants whose
employment has not terminated, in which case the Capital Accumulation
Account of such Participant shall continue to be adjusted in the manner
provided in Section 5.10 for other Participants except that
subparagraph (f) of Section 5.4 shall apply to such a Participant, and
the Termination Date with respect to each such Plan Year shall be the
last day of such Fiscal Year as shall be determined by the Appropriate
Committee.
(c) If a Participant shall take a Personal Leave of Absence
prior to the end of all his Deferral Periods, the Appropriate Committee shall
have the right in its sole discretion to require the Participant to become
subject to the provisions of paragraph (b) above (to the same extent as a
Participant whose employment had terminated) during the period of such Personal
Leave of Absence, except that in the event the Participant resumes full-time
employment after the first day of a Fiscal Year, all calculations under this
Plan with respect to such Fiscal Year shall be made by treating the Participant
in the same manner as a full-time employee for the number of full months of such
employment during such Fiscal Year and as a Participant whose employment had
been terminated for the balance of such Fiscal Year. If the Appropriate
Committee shall not take such action the Participant shall continue to be
treated under this Plan on the same basis as a Participant who is not on a
Personal Leave of Absence.
(d) In addition, in the event of hardship, actual or
prospective change in tax laws, or any other unforeseen or unintended
circumstance or event (including, without limitation, if the tax laws of any
foreign jurisdiction do not provide for tax consequences to Participants or the
Company that are comparable to those provided under United States tax laws), or
if desirable to preserve the deductibility for federal income taxes of
compensation paid or payable by the Company to any Participant, the Appropriate
Committee, in its sole discretion, may accelerate any Termination Date of any
Participant to the last day of any Fiscal Year, in which case the accelerated
date determined by the Appropriate Committee shall be the Termination Date for
all purposes of this Plan.
6.3 Change in Control and Parachute Limitation.
Notwithstanding the provisions of Sections 6.1 and 6.2, within sixty (60) days
of the occurrence of a Change in Control, each Participant shall be entitled to
receive from the Company that number of shares of Common Stock which is equal to
the Total CAP Units credited to his Capital Accumulation Account as of the date
of such Change in Control and an amount in cash equal to his Cash Balance, if
any, as of such date; provided, however, no amount shall be immediately
distributable or payable under the Plan if and to the extent that the
Appropriate Committee determines that such distribution or payment (taken
together with any other payment received or to be received by the Participant
from the Company or any of its Affiliates in connection with a Change in
Control) would constitute an "excess parachute payment" under section 280G of
the Code, which would cause such amount to be subject to an excise tax to the
recipient or to be nondeductible to the Company or any of its Affiliates, or
would subject a Reporting Person to liability under Section 16(b) of the
Exchange Act or any rule or regulation thereunder by reason of transactions or
events occurring on or prior to the occurrence of the Change in Control. Payment
of amounts not distributed by reason of this Section 6.3 shall be made as soon
as practicable, consistent with this Section 6.3.
6.4 Additional Distributions in Certain Cases. In addition to
the amounts provided by Section 6.1, 6.2 or 6.3, if (a) upon making any
distribution to any Participant, the Company determines that the Company or Bear
Stearns would realize a tax benefit calculated at its Marginal Tax Rate in the
year of such distribution (without giving effect to any carryovers or carrybacks
of losses, credits or deductions from any prior or succeeding Fiscal Year) in
excess of the amount of Deferred Tax Benefit in respect of its liability to such
Participant on account of such distribution, and (b) such Participant's Cash
Balance Account or the number of CAP Units credited to his Capital Accumulation
Account had been reduced in a prior Fiscal Year as a result of the application
of subparagraphs (d) or (e) of Section 5.4 or Section 5.6, then at the time of
the distribution pursuant to this Section 6 the Company also shall pay to such
Participant, in cash, an additional amount equal to the lesser of (i) the amount
by which the actual tax benefit to be received by the Company or Bear Stearns
exceeds such Deferred Tax Benefit and (ii) the amount by which such
Participant's Cash Balance Account or Capital Accumulation Account was so
reduced. Notwithstanding the foregoing, a Participant shall not be entitled to
any payment from the Company pursuant to this Section 6.4 in respect of any
reduction in his Cash Balance Account or in the number of CAP Units credited to
his Capital Accumulation Account for any period commencing with the first day of
the month following the month in which his employment by the Company and its
Affiliates was terminated.
6.5 Special Provisions for Reporting Persons. If required by
Rule 16b-3, shares of Common Stock distributed to Participants who are Reporting
Persons shall bear an appropriate legend to the effect that such shares of
Common Stock may not be transferred for a period of six (6) months after they
are credited to the Account of such Participant.
6.6 Form of Payments. Except as otherwise provided herein, all
distributions in respect of CAP Units to be made to a Participant (or his
Beneficiary) under the Plan shall be made in whole shares of Common Stock.
Payment in respect of any fractional CAP Unit shall be made in cash based upon
the Fair Market Value of a share of Common Stock on the second Business Day
preceding the payment date. Shares of Common Stock distributed hereunder may be
treasury shares, shares of authorized but unissued Common Stock, or a
combination thereof, and shall be fully paid and nonassessable. If shares of
Common Stock are distributed pursuant to Sections 6.1, 6.2(a) or 6.2(b) to any
Participant after the record date for any cash dividend occurring after the
Termination Date with respect to which such shares are distributed or, in the
cases of Sections 6.2(a) or 6.2(b), after the end of the Fiscal Year in which
the death or Disability of a Participant occurs, then such Participant (or his
estate or Beneficiary) shall be entitled to receive from the Company an amount
of cash equal to the cash dividends per share payable to holders of record on
such record date multiplied by the number of shares of Common Stock so
distributed to such Participant after such record date.
6.7 Registration and Listing of Common Stock. Prior to the
date on which any shares of Common Stock are required to be issued to any
Participant under this Plan without taking into account any acceleration of such
distribution date pursuant to the provisions of Section 6.2 of the Plan, the
Company shall file a registration statement (a "Registration Statement") on Form
S-3 and/or Form S-8 (or any successor form then in effect) under the Securities
Act, with respect to all shares of Common Stock which the Company then estimates
are distributable under the Plan; provided, however, that the Company need not
file a Registration Statement hereunder if, prior to such date, the Company
receives a written opinion of counsel to the effect that such shares of Common
Stock may be sold, transferred or otherwise disposed of under the Securities Act
without registration thereunder. The Company shall use its best efforts to have
any such Registration Statement declared effective as soon as reasonably
practicable after filing and shall use reasonable efforts to keep each such
Registration Statement continuously in effect until all shares of Common Stock
to which such Registration Statement relates have been so issued, and for a
two-year period thereafter. From time to time the Company also shall amend such
Registration Statement to cover any additional shares of Common Stock which
become distributable under the Plan and otherwise would not be covered by such
Registration Statement. In the event that Participants would be precluded from
selling any shares of Common Stock distributable hereunder unless such shares
were registered or qualified under the securities or "blue sky" laws of any
state (or otherwise received the approval of any state governmental or
regulatory authority), then the Company shall use its best efforts to cause such
shares of Common Stock to be duly registered or qualified (or to receive such
approval) as may be required. If the shares of Common Stock distributable
hereunder satisfy the criteria for listing on any exchange on which the Common
Stock is then listed, then (unless such shares of Common Stock already are
listed on such exchange) the Company shall apply for and use its best efforts to
obtain a listing of all such shares of Common Stock on such exchange. All costs
and expenses incurred by the Company in connection with the satisfaction of its
obligations under this Section 6.7 shall be borne by the Company. The Company
shall immediately notify each Participant in the event that a Registration
Statement which has been filed and remains effective contains an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading. Upon
receipt of such notice, no Participant shall sell or agree to sell any shares of
Common Stock pursuant to such Registration Statement unless and until the
Company has notified each Participant that such Registration Statement no longer
contains such misstatement or omission. In the event that shares of Common Stock
are issued to Participants hereunder other than pursuant to a Registration
Statement, then, unless the Company shall have obtained the opinion of counsel
referred to above, each certificate representing such shares shall bear a legend
substantially to the following effect:
The securities represented by this Certificate have not been
registered under the Securities Act of 1933, as amended, or applicable state
securities laws, and may not be sold, assigned, transferred, pledged or
otherwise disposed of except in compliance with the requirements of such Act.
By submitting a Plan Election, Each Participant shall be
deemed to have agreed to the foregoing provisions of this Section 6.7.
6.8 Reservation of Shares. The Company, as soon as practicable
after the end of each Fiscal Year prior to the termination of this Plan, shall
reserve such number of shares of Common Stock (which may be authorized but
unissued shares or treasury shares) as shall be required so that the total of
all shares reserved hereunder, including shares reserved pursuant to this
Section 6.8 in preceding Fiscal Years, shall be equal to the number of shares of
Common Stock which the Company would be obligated to issue to all Participants
in accordance with the terms of the Plan if the Plan were to be terminated at
such time.
SECTION 7
Source of Payments
Notwithstanding any other provision of this Plan, the Company
shall not be required to establish a special or separate fund or otherwise
segregate any assets to assure any payments hereunder. If the Company shall make
any investment to aid it in meeting its obligations hereunder, a Participant and
his Beneficiary shall have no right, title or interest whatsoever in or to any
such investments. Nothing contained in this Plan, and no action taken pursuant
to its provisions, including without limitation the acquisition of any shares of
Common Stock by the Company, shall create or be construed to create a trust of
any kind between the Company and any Participant or Beneficiary. To the extent
that any Participant or Beneficiary acquires a right to receive payments from
the Company hereunder, such right shall be no greater than the right of a
general unsecured creditor of the Company.
SECTION 8
Administration of the Plan
8.1 Authority of Committee. The Plan shall be administered by
the Appropriate Committees, which shall have full power and authority as set
forth herein to interpret, to construe and to administer the Plan and to review
claims for benefits under the Plan. Each Appropriate Committee's interpretations
and constructions of the Plan and actions thereunder, including but not limited
to the determination of the amounts to be credited to any Capital Accumulation
Account or Cash Balance Account, shall be binding and conclusive on all persons
and for all purposes.
8.2 Duties of Committee. The Appropriate Committees shall
cause the Company to establish and maintain records of the Plan, of each Capital
Accumulation Account and Cash Balance Account and of each subaccount thereof
established for any Participant hereunder. Either of the Appropriate Committees
may engage such certified public accountants, who may be accountants for the
Company, as it shall require or may deem advisable for purposes of the Plan, may
arrange for the engagement of such legal counsel, who may be counsel for the
Company, and may make use of such agents and clerical or other personnel as it
shall require or may deem advisable for purposes of the Plan. Each such
Committee may rely upon the written opinion of the accountants and counsel
engaged by it. Subject to any limitations imposed by applicable law (including
Rule 16b-3), either Appropriate Committee may delegate to any agent or to any
subcommittee or member of such Committee its authority to perform any act
hereunder, including, without limitation, those matters involving the exercise
of discretion, provided that such delegation of authority shall be subject to
revocation at any time at the discretion of such Committee.
8.3 Purchase of Common Stock. The Company intends to purchase
shares of Common Stock in the open market or in private transactions or
otherwise during the term of the Plan for issuance to Participants in accordance
with the terms hereof. Shares of Common Stock shall be purchased for purposes of
the Plan and for purposes of the PUP Plan on a combined or joint basis without
identifying shares so purchased as having been purchased for this Plan or the
PUP Plan. Notwithstanding the foregoing, the Company will specifically designate
all such shares at the time they are purchased as having been purchased for the
purpose of making determinations under this Plan and the PUP Plan; provided,
however, that any shares so purchased shall be the sole property of the Company
and no Participant or Beneficiary shall have any right, title or interest
whatsoever in or to any such shares. All shares of Common Stock purchased by the
Company on or after July 1, 1992 and designated by the Company as having been
purchased for the CAP Plan shall be considered, notwithstanding such
designation, to have been purchased for purposes of both this Plan and the PUP
Plan. The acquisition of Common Stock as described above will be subject to the
sole discretion of the Board Committee, which shall determine the time and price
at which and the manner in which such shares are to be acquired, subject to
applicable law. In making any such determination, the Board Committee may, but
shall in no event be obligated to, consider the recommendations of the Advisory
Committee.
8.4 Plan Expenses. The Company shall pay the fees and expenses
of accountants, counsel, agents and other personnel and all other costs of
administration of the Plan.
8.5 Indemnification. To the maximum extent permitted by
applicable law, no member of any Committee shall be personally liable by reason
of any contract or other instrument executed by him or on his behalf in his
capacity as a member of such Committee or for any mistake of judgment made in
good faith, and the Company shall indemnify and hold harmless, directly from its
own assets (including the proceeds of any insurance policy the premiums of which
are paid from the Company's own assets), each member of each Committee and each
other director, officer, employee or agent of the Company to whom any duty or
power relating to the administration or interpretation of the Plan or to the
management or control of the assets of the Plan may be delegated or allocated,
against any cost or expense (including fees, disbursements and other charges of
legal counsel) or liability (including any sum paid in settlement of a claim
with the approval of the Company) arising out of any act or omission to act in
connection with the Plan, unless arising out of such person's own fraud, willful
misconduct or bad faith. The foregoing shall not be deemed to limit the
Company's obligation to indemnify any member of any Committee under the
Company's Restated Certificate of Incorporation or Bylaws, or under any other
agreement between the Company and such member.
8.6 Maximum Number of Shares.
(a) The aggregate number of CAP Units that may be credited to
Participants' Capital Accumulation Accounts under the Plan for any Plan Year
shall not exceed the equivalent number of shares of Common Stock equal to the
sum of 15% of the outstanding shares of Common Stock as of the last day of such
Plan Year (the "Base Shares") and the number, if any, by which the sum of the
Base Shares in all prior Fiscal Years beginning on or after July 1, 1993 exceeds
the number of shares credited to Participants' Capital Accumulation Accounts
under this Plan in all such prior Fiscal Years. For purposes of determining the
number of shares of Common Stock outstanding as of the last day of any Plan
Year, such number shall be calculated as the sum of (i) the number of shares of
Common Stock outstanding at such year end, (ii) the number of shares underlying
CAP Units credited to Participants' Capital Accumulation Accounts as of such
date and Earnings Units credited to Participants' Earnings Unit Accounts under
the PUP Plan as of such date and (iii) the number of shares underlying CAP Units
to be credited to all such Accounts as a result of making any adjustment to such
Accounts required by Sections 5.1 and 5.10 in respect of all Fiscal Years ending
on or prior to the date of determination and the number of Earnings Units
credited to the Earnings Unit Accounts of all Participants in the PUP Plan as a
result of making any adjustment to such Accounts required by Section 4.2 of the
PUP Plan in respect of all Fiscal Years ending on or prior to the date of such
determination.
(b) If there shall be any change in the Common Stock of the
Company, through merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, spinoff, split up, dividend in kind or other change in
the corporate structure or distribution to the stockholders, appropriate
adjustments may be made by the Board Committee (or if the Company is not the
surviving corporation in any such transaction, the board of directors of the
surviving corporation) in the aggregate number and kind of shares subject to the
Plan, and the number and kind of shares which may be issued under the Plan.
Appropriate adjustments may also be made by the Board Committee in the terms of
any awards under the Plan to reflect such changes and to modify any other terms
of outstanding awards on an equitable basis as the Board Committee in its
discretion determines.
8.7 Forward Repurchases of Common Stock.
The Company shall have the right, upon authorization of the
Board Committee, to enter into forward contracts for the repurchase from one or
more Participants of any or all shares of Common Stock representing CAP Units
previously credited to the Capital Accumulation Accounts of such Participants
with respect to any Plan Year and distributed on or after the relevant
Termination Date of the Deferral Period ending in the then current Fiscal Year,
having such terms and conditions as shall be determined by the Board Committee,
for a purchase price per share equal to the average of the closing prices of the
Common Stock as reported on the New York Stock Exchange Consolidated Tape for
each day of trading in the Common Stock during the period from the effective
date of the contract to the date of repurchase, provided that a contract may not
be entered into more than twelve (12) months prior to the expiration of the
applicable Deferral Period and will terminate, and be null and void, unless the
Company satisfies performance goals established by the Board Committee in
writing, by resolution of the Board Committee or other appropriate action, not
later than ninety (90) days after the commencement of the Fiscal Year to which
the performance goals relate, and certified by the Board Committee in writing as
having been satisfied prior to the relevant Termination Date. The formula for
calculating the performance goals shall be based upon one or more of the
following criteria, individually or in combination, adjusted in such manner as
the Board Committee shall determine, for a period of not less than nine (9)
months of the applicable Fiscal Year: (a) pre-tax or after-tax return on equity;
(b) earnings per share; (c) pre-tax or after-tax net income; (d) business unit
or departmental pre-tax or after-tax income; (e) book value per share; (f)
market price per share; (g) relative performance to peer group companies; (h)
expense management; and (i) total return to stockholders.
SECTION 9
Amendment and Termination
The Plan shall terminate when all distributions required to be
made hereunder have been made following the last Termination Date. The Plan may
be amended, suspended or earlier terminated, in whole or in part as to a
particular Plan Year, and at any time and from time to time, by the Board
Committee, but except as provided below no such action shall retroactively
impair or otherwise adversely affect the rights of any person to benefits under
the Plan which have accrued prior to the date of such action. Except as provided
in the following sentence, if the Plan is terminated prior to the end of any
Fiscal Year, (i) Participants' Plan Elections in respect of the Plan Year in
which such termination occurs and any subsequent Plan Year shall be canceled,
(ii) the Company shall credit the Capital Accumulation Accounts of all
Participants (other than those whose employment with the Company and its
Affiliates had terminated prior to the date the Plan terminates, except a
Participant referred to in subparagraph (iii) of Section 6.2(b)) in the manner
provided in Section 5.10 in respect of the portion of the Company's Fiscal Year
ended on the date of such termination, and (iii) as soon as practicable
following the end of the Fiscal Year in which such termination occurs, the
Company shall deliver to each Participant the number of shares of Common Stock
corresponding to the number of CAP Units credited to his Capital Accumulation
Account and an amount in cash equal to his Cash Balance which the Participant
otherwise would be entitled to receive pursuant to Section 6 as of the
designated Termination Date in respect of the Plan Year or Plan Years involved.
Notwithstanding the foregoing, if the Company shall determine that the Plan
should be terminated immediately, either in its entirety or in part in respect
of any Plan Year, no adjustments or credits shall be made to the Capital
Accumulation Accounts of the Participants pursuant to Section 5 in respect of
the Fiscal Year in which such termination occurs and each Participant shall be
entitled to receive from the Company, as soon as practicable following the date
of such termination, shares of Common Stock and/or amounts in cash determined in
accordance with Section 6 hereof as if the Termination Date in respect of the
Plan Year or Plan Years involved were the last day of the Fiscal Year preceding
the Fiscal Year in which such termination occurs.
In such event, however, the Capital Accumulation Account of
each Participant who is an employee of the Company and/or its Affiliates (or who
is a Participant who has suffered a Disability or who has become a Managing
Director Emeritus of Bear Stearns and whom the Appropriate Committee shall have
determined to treat in the manner specified in clause (1) or (2) of subparagraph
(i) of Section 6.2(b)) on the date of such termination shall be adjusted in
respect of the Fiscal Year in which such termination occurs as follows: Each
such Account shall be credited with a Net Earnings Adjustment for the Fiscal
Year in which such termination occurs except that, for purposes of computing
such Net Earnings Adjustment, Income Per Share for purposes of calculating the
Earnings Adjustment shall be computed for each terminated Plan Year based only
on the consolidated income or loss before taxes of the Company and its
subsidiaries accrued from the beginning of such Fiscal Year through and
including the end of the month in which such termination occurred, and the Book
Value Adjustment for the Fiscal Year in which such termination occurs shall be
calculated on the basis of the shares distributed pursuant to the preceding
sentence in respect of each terminated Plan Year, provided that for purposes of
computing such Book Value Adjustment, the definition of Adjusted Common
Stockholders' Equity used in the computation of Adjusted Book Value Per Share
shall be modified by deleting the adjustments to Adjusted Common Stockholders'
Equity specified therein and substituting in lieu thereof the following: "plus
all increases (or less any decreases) in retained earnings of the Company and
its subsidiaries attributable to net income (or loss), determined on a
consolidated basis, minus all amounts accrued in respect of cash dividends
declared with respect to any capital stock of the Company during such Fiscal
Year, for the period from the beginning of such Fiscal Year through and
including the month in which such termination occurred." If the Plan is not
terminated in its entirety but one or more Plan Years are terminated, then any
amounts credited to Participants' Accounts pursuant to the preceding sentence
shall continue to be subject to the provisions of the Plan for the balance of
the original Deferral Period with respect to the terminated Plan Year or Plan
Years, as if such Plan Year or Plan Years had not been terminated. If the Plan
is terminated in its entirety, then as soon as may be practicable thereafter,
the Company shall deliver to each Participant (in addition to amounts
distributable pursuant to the fourth sentence of this paragraph) a number of
shares of Common Stock equal to the number of CAP Units credited to each such
Participant's Account pursuant to the second preceding sentence, provided that
if the aggregate number of such CAP Units exceeds the number of Available Shares
for such Fiscal Year as of the date of determination, then the Company shall
deliver to each such Participant only that number of shares of Common Stock as
shall equal the number of Available Shares on a pro rata basis, based on the
number of shares which each Participant otherwise would have been entitled to
receive, and shall distribute to each Participant an amount in cash equal to the
number of additional shares of Common Stock that would have been distributed to
such Participant but for the limitation contained in this sentence, multiplied
by the Average Cost Per Share of the Available Shares in respect of such Fiscal
Year.
SECTION 10
Designation of Beneficiaries
10.1 General. Each Participant may file with the Appropriate
Committee a written designation of one or more persons as the Beneficiary who
shall be entitled to receive the amount, if any, which the Participant is
entitled to receive under the Plan upon his death. A Participant, from time to
time, may revoke or change his Beneficiary designation without the consent of
any prior Beneficiary by filing a new such designation with the Appropriate
Committee. The most recent such designation received by the Appropriate
Committee shall be controlling; provided, however, that no designation, or
change of revocation thereof, shall be effective unless received by the
Appropriate Committee prior to the Participant's death, and in no event shall
any such designation be effective as of a date prior to such receipt.
10.2 Lack of Designated Beneficiary. If no such Beneficiary
designation is in effect at the time of a Participant's death, or if no
designated Beneficiary survives the Participant, or if such designation
conflicts with law, the Participant's estate shall be deemed to have been
designated as his Beneficiary and shall receive the payment of the amount, if
any, payable under the Plan upon his death. If the Appropriate Committee is in
doubt as to the right of any person to receive such amount, the Committee may
cause the Company to retain such amount, without liability for any interest
thereon, until the rights thereto are determined, or the Appropriate Committee
may pay and deliver such amount into any court of appropriate jurisdiction, and
such payment shall be a complete discharge of the liability of the Plan and the
Company therefor.
SECTION 11
General Provisions
11.1 Successors. The Plan shall be binding upon and inure to
the benefit of the Company, its successors and assigns, and each Participant and
his Beneficiary.
11.2 No Continued Employment. Neither the Plan nor any action
taken thereunder shall be construed as giving to a Participant the right to be
retained in the employ of the Company or any of its Affiliates or as affecting
the right of the Company or any of its Affiliates to dismiss any Participant.
11.3 Withholding. As a condition to receiving any distribution
or payment of amounts hereunder, the Company may require the Participant to make
a cash payment to the Company or, in its sole discretion, upon the request of a
Participant, may withhold from any amount or amounts payable under the Plan, in
either case, in an amount equal to all federal, state, city or other taxes as
may be required to be withheld in respect of such payments pursuant to any law
or governmental regulation or ruling.
11.4 Non-alienation of Benefits. No right to any amount
payable at any time under the Plan may be assigned, transferred, pledged or
encumbered, either voluntarily or by operation of law, except as expressly
provided herein or as may otherwise be required by law. If, by reason of any
attempted assignment, transfer, pledge or encumbrance, or any bankruptcy or
other event happening at any time, any amount payable under the Plan would be
made subject to the debts or liabilities of the Participant or his Beneficiary
or would otherwise not be enjoyed by him, then the Appropriate Committee, if it
so elects, may terminate such person's interest in any such payment and direct
that the same be held and applied to or for the benefit of the Participant, his
Beneficiary or any other person or persons deemed to be the natural objects of
his bounty, taking into account the expressed wishes of the Participant (or, in
the event of his death, his Beneficiary).
11.5 Incompetency. If the Appropriate Committee shall find
that any person to whom any amount is or was distributable or payable hereunder
is unable to care for his affairs because of illness or accident, or has died,
then the Appropriate Committee, if it so elects, may direct that any payment due
him or his estate (unless a prior claim therefor has been made by a duly
appointed legal representative) or any part thereof be paid or applied for the
benefit of such person or to or for the benefit of his spouse, children or other
dependents, an institution maintaining or having custody of such person, any
guardian or any other person deemed by such Appropriate Committee to be a proper
recipient on behalf of such person otherwise entitled to payment, or any of
them, in such manner and proportion as such Appropriate Committee may deem
proper. Any such payment shall be in complete discharge of the liability
therefor of the Company, the Plan, the Committee or any member, officer or
employee thereof.
11.6 Offsets. To the extent permitted by law, the Company or
any of its Affiliates shall have the absolute right to withhold any shares of
Common Stock or any amounts otherwise required to be distributed or paid to any
Participant or Beneficiary under the terms of the Plan, to the extent of any
amount owed or which in the sole judgment of the Appropriate Committee may in
the future be owed for any reason by such Participant, in the case of a payment
to such Participant, or to the extent of any amount owed or which in the sole
judgment of the Appropriate Committee may in the future be owed for any reason
by the Participant or such Beneficiary, in the case of payment to a Beneficiary,
to the Company or any of its Affiliates, and to set off and apply the amounts so
withheld to payment of any such amount ultimately determined by the Appropriate
Committee, in its sole discretion, to be owed to the Company or any of its
Affiliates, whether or not such amounts shall then be immediately due and
payable and in such order or priority as among such amounts owed as the
Appropriate Committee, in its sole discretion, shall determine. In determining
the amount of a permitted offset under this Section 11.6, any shares of Common
Stock required to be distributed to a Participant or a Beneficiary shall be
valued at the Fair Market Value of such Shares on the date of offset.
11.7 Notices, etc. All elections, designations, requests,
notices, instructions and other communications from a Participant, Beneficiary
or other person to any Appropriate Committee required or permitted under the
Plan shall be in such form as is prescribed from time to time by the Appropriate
Committee, shall be mailed by first-class mail or delivered to such location as
shall be specified by the Appropriate Committee, and shall be deemed to have
been given and delivered only upon actual receipt thereof at such location.
11.8 Other Benefits. The benefits, if any, payable
under the Plan shall be in addition to any other benefits provided for
Participants.
11.9 Interpretation, etc. The captions of the sections and
paragraphs of this Plan have been inserted solely as a matter of convenience and
in no way define or limit the scope or intent of any provisions of the Plan.
References to sections herein are to the specified sections of this Plan unless
another reference is specifically stated. The masculine pronoun wherever used
herein shall include the feminine pronoun, and a singular number shall be deemed
to include the plural unless a different meaning is plainly required by the
context.
11.10 Laws; Severability. The Plan shall be governed by, and
construed in accordance with, the laws of the State of New York, except to the
extent preempted by the Employee Retirement Income Security Act of 1974, as
amended. If any provision of the Plan shall be held by a court of competent
jurisdiction to be invalid or unenforceable, the remaining provisions shall
continue to be effective.
11.11 Effective Date; Board Committee and Stockholder
Approval. This Plan shall be subject to the approval by a vote of the
stockholders of the Company at the 1993 Annual Meeting, and such stockholder
approval shall be a condition to the right of a Participant to receive any
benefits hereunder other than CAP Units and cash credited to Participants'
Accounts prior to such approval.
Exhibit 10 (a) (5)
THE BEAR STEARNS COMPANIES INC.
PERFORMANCE COMPENSATION PLAN
(Amended and Restated as of October 29, 1998)
Section 1. Purpose. The purposes of The Bear
Stearns Companies Inc. Performance Compensation Plan, as amended and
restated (the "Plan") are (i) to compensate certain Senior Managing Directors
of The Bear Stearns Companies Inc. and its subsidiaries (the "Company") on an
individual basis for significant contributions to the Company and (ii) to
stimulate the efforts of such persons by giving them a direct interest in the
performance of the Company.
Section 2. Term. The Plan shall be effective as of July 1,
1998 (the "Effective Date"), and shall be applicable for the five (5) full
fiscal years of the Company ending June 30, 2003, unless earlier terminated by
the Company pursuant to Section 9.
Section 3. Coverage. For purposes of the Plan, the term
"Participant" shall include for each fiscal year each Senior Managing Director
so designated by the Compensation Committee within 90 days following the first
day of such fiscal year.
Section 4. Base Salary.
4.1. Each Participant shall receive a salary of $200,000 per
annum ("Base Salary"). The Base Salary of the Participants may be increased from
time to time by the Compensation Committee of the Board (the "Compensation
Committee") by amendment of the Plan pursuant to Section 9.
4.2. Notwithstanding the provisions of Section 4.1 above, in
the event a Participant is not a Senior Managing Director for an entire fiscal
year, his Base Salary for such fiscal year shall be computed by multiplying such
Base Salary as computed under Section 4.1 by a fraction, the numerator of which
is the number of days in such fiscal year during which such Participant was a
Senior Managing Director and the denominator of which is the number of days in
the fiscal year. Any Base Salary shall be in addition to any base salary payable
with respect to periods during the fiscal year in which a Participant was not a
Senior Managing Director.
Section 5. Annual Bonus Pools.
5.1. For each fiscal year of the Company, each Participant
shall be entitled to receive an award of a bonus (the "Bonus"), payable from one
or more annual bonus funds (the "Annual Bonus Pools") in an amount not to exceed
the amount provided for in Section 6. A Bonus under the Plan shall be the sole
bonus payable with respect to a fiscal year to each Participant ("Full Year
Participant") who was a Senior Managing Director on the date that proportionate
shares of the Annual Bonus Pools for such fiscal year were determined by the
Compensation Committee and who remains a Senior Managing Director at all times
thereafter during such fiscal year. For each fiscal year, each Participant who
was not a Full Year Participant shall be entitled to such a Bonus, if any, for
the portion of such fiscal year not covered by the Plan, determined in
accordance with the procedures applicable to employees who are not Senior
Managing Directors, in addition to the Bonus, if any, payable pursuant to the
Plan.
5.2. For each fiscal year, the formula for calculating the
Annual Bonus Pools shall be determined by the Compensation Committee in writing,
by resolution of the Compensation Committee or other appropriate action, not
later than 90 days after the commencement of such fiscal year. Such formula
shall be based upon one or more of the following criteria, individually or in
combination, adjusted in such manner as the Compensation Committee shall
determine: (a) pre-tax or after-tax return on equity; (b) earnings per share;
(c) pre-tax or after-tax net income; (d) business unit or departmental pre-tax
or after-tax income; (e) book value per share; (f) market price per share; (g)
relative performance to peer group companies; (h) expense management; and (i)
total return to stockholders.
5.3. As a condition to the right of a Participant to receive
any Bonus under this Plan, the Compensation Committee shall first be required to
certify in writing, by resolution of the Compensation Committee or other
appropriate action, that the Bonus has been accurately determined in accordance
with the provisions of this Plan.
5.4. The Compensation Committee shall have the right to reduce
the Bonus of any Participant in its sole discretion at any time and for any
reason prior to the certification of the Bonus otherwise payable to such
Participant pursuant to Section 5.3 hereof.
5.5. The maximum amount allocable by the Compensation
Committee to the Annual Bonus Pool related to Participants who are members of
the Executive Committee in the aggregate for any fiscal year shall not exceed
$150,000,000. The maximum amount allocable to any individual Participant who is
not a member of the Executive Committee shall not exceed $15,000,000.
Section 6. Allocations.
6.1. Prior to the commencement of each fiscal year, or not
later than 90 days after the commencement of each fiscal year, the Compensation
Committee shall determine in writing, by resolution of the Compensation
Committee or other appropriate action, each Participant's proportionate share of
the Annual Bonus Pools for such fiscal year, which shall not exceed in respect
of any Participant who is a member of the Executive Committee 30% of the amount
of such Annual Bonus Pool.
6.2. Notwithstanding anything in Section 6.1 to the contrary,
any Participant who ceases to be a Senior Managing Director for any reason prior
to the end of such fiscal year shall be entitled to a Bonus computed as follows:
A Bonus first shall be computed as if such Participant had been a Senior
Managing Director for the full fiscal year, and such Bonus then shall be
multiplied by a fraction the numerator of which shall be the number of days in
the fiscal year through the date the Participant ceased to be a Senior Managing
Director and the denominator of which shall be the number of days in the fiscal
year; provided, however, that if the application of the preceding clause would
cause the total Bonuses payable under the Plan to exceed the Annual Bonus Pools,
the Bonuses payable to each Participant shall be reduced pro rata, so that the
total of all Bonuses shall equal the Annual Bonus Pools. If a Participant ceases
to be a Senior Managing Director after the end of the fiscal year in respect of
which such Bonus is payable, the amounts thereof nonetheless shall be payable to
him or his estate, as the case may be.
6.3. Except as hereinafter provided, Bonuses for a fiscal year
shall be payable as soon as practicable following the certification thereof by
the Compensation Committee for such fiscal year. In its discretion, the
Compensation Committee may authorize, prior to the final determination of
Participants' Bonuses for such fiscal year, payments on account of Bonuses
payable hereunder to one or more Participants entitled to such Bonuses, (a)
during the last month of such fiscal year, in an amount not exceeding 95% of the
aggregate amount that would be payable to such Participant or Participants
hereunder as determined by the Controller or Chief Accounting Officer of the
Company (so long as he is not a Participant) on the basis of his good faith
estimate, (b) during the last ten calendar days of such fiscal year or after the
end of such fiscal year, in an amount not to exceed 98% of the aggregate amount
that would be payable to such Participant or Participants hereunder as
determined by the Controller or Chief Accounting Officer of the Company (so long
as he is not a Participant) on the basis of his good faith estimate, and (c) at
any time during such fiscal year or after the end of such fiscal year to a
Participant who ceases to be a Senior Managing Director for any reason prior to
the end of such fiscal year. Within the limitations set forth in the preceding
sentence, the Compensation Committee may authorize one or more such "on account"
payments, but the aggregate amount of any such on account payments shall not
exceed the aggregate amount permitted to be paid pursuant to the Plan with
respect to the same fiscal year. In connection with any such "on account"
payments, the Compensation Committee shall require an undertaking or other
assurance by or on behalf of the Participant receiving such payment to repay the
Company the amount, if any, by which such "on account" payment exceeds the
actual amount determined to be due to such person under the Plan in respect of
such fiscal year. Any "on account" payments received prior to the end of a
fiscal year shall be discounted to reasonably reflect the time value of money
from the date of payment to the date 30 days after the end of the fiscal year.
6.4. The Compensation Committee may determine that payment of
a portion of the Bonuses shall be deferred, the periods of such deferrals and
any interest, not to exceed a reasonable rate, to be paid in respect of deferred
payments. The Compensation Committee may also define such other conditions of
payments of Bonuses as it may deem desirable in carrying out the purposes of the
Plan.
6.5. In any fiscal year, any balance in the Annual Bonus Pools
for any reason, including the limitation contained in Section 6.1, the
forfeiture of a Bonus under Section 6.2, the reduction of a Bonus under Section
5.4, or otherwise, shall not be distributed to other Participants and shall not
be carried forward or be available for distribution as Bonuses under the Plan in
a future year or years.
Section 7. Administration and Interpretation. The Plan shall
be administered by the Compensation Committee, which shall have the sole
authority to interpret and to make rules and regulations for the administration
of the Plan. The Compensation Committee may correct any defect or supply any
omission or reconcile any inconsistency in the Plan in the manner and to the
extent the Compensation Committee deems necessary or desirable to carry it into
effect. Any decision of the Compensation Committee in the interpretation and
administration of the Plan, as described herein, shall lie within its sole and
absolute discretion and shall be final, conclusive and binding on all parties
concerned. No member of the Compensation Committee and no officer of the Company
shall be liable for anything done or omitted to be done by him or her, by any
other member of the Compensation Committee or by any officer of the Company in
connection with the performance of duties under the Plan, except for his or her
own willful misconduct or as expressly provided by statute. The Compensation
Committee may request advice or assistance or employ such persons (including,
without limitation, legal counsel and accountants) as it deems necessary for the
proper administration of the Plan.
Section 8. Administrative Expenses. Any expense incurred in
the administration of the Plan shall be borne by the Company out of its general
funds and not charged against the Annual Bonus Pools, except insofar as such
expenses shall be taken into account in determining the components of the Annual
Bonus Pools hereunder.
Section 9. Amendment or Termination. The Compensation
Committee of the Company may from time to time amend the Plan in any respect or
terminate the Plan in whole or in part, provided that no such action shall
retroactively impair or otherwise adversely affect the rights of any Participant
to benefits under the Plan which have accrued prior to the date of such action.
Section 10. No Assignment. The rights hereunder, including
without limitation rights to receive a Base Salary or Bonus, shall not be sold,
assigned, transferred, encumbered or hypothecated by an employee of the Company
(except by testamentary disposition or intestate succession), and, during the
lifetime of any recipient, any payment of Base Salary or a Bonus shall be
payable only to such recipient.
Section 11. The Company. For purposes of this Plan, the
"Company" shall include the successors and assigns of the Company, and this Plan
shall be binding on any corporation or other person with which the Company is
merged or consolidated, or which acquires substantially all of the assets of the
Company, or which otherwise succeeds to its business.
Section 12. Stockholder Approval. This Plan shall be subject
to approval by the affirmative vote of a majority of the shares cast in a
separate vote of the stockholders of the Company at the 1998 Annual Meeting of
Stockholders, and such stockholder approval shall be a condition to the right of
a Participant to receive any Bonus hereunder.
<TABLE>
EXHIBIT 11
THE BEAR STEARNS COMPANIES INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<CAPTION>
Three-Months Ended Six-Months Ended
--------------------------------------- ------------------------------------
December 31, December 31, December 31, December 31,
1998 1997 1998 1997
--------------------------------------- ------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Weighted average common
and common equivalent
shares outstanding: (1)
Average Common Stock
outstanding 118,196 123,413 118,833 123,882
Average Common Stock
equivalents:
Common Stock issuable
under employee
benefit plans 497 489 490 486
Common Stock issuable
assuming conversion
of CAP Units 39,663 36,027 39,663 36,027
------------------ ------------------ ------------------ --------------
Total weighted average
common and common
equivalent shares
outstanding 158,356 159,929 158,986 160,395
================== ================== ================== ==============
Net income
$ 135,920 $ 160,222 $ 200,023 $ 321,840
Preferred Stock dividend
requirements (9,778) (5,923) (19,873) (11,849)
Income adjustment
(net of tax) applicable
to deferred compensation
arrangements 6,777 15,223 13,555 28,755
------------------ ------------------ ------------------ --------------
Adjusted net income $ 132,919 $ 169,522 $ 193,705 $ 338,746
================== ================== ================== ==============
Earnings per share (1) $ 0.84 $ 1.06 $ 1.22 $ 2.11
================== ================== ================== ==============
(1) Adjusted for the 5% stock dividend declared on January 20, 1999.
</TABLE>
<TABLE>
THE BEAR STEARNS COMPANIES INC.
STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12
(In thousands, except for ratio)
<CAPTION>
(Unaudited) (Unaudited)
Six Months Six Months Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended Ended Ended Ended Ended
December 31, 1998 December 31, 1997 June 30, 1998 June 30, 1997 June 30, 1996 June 30, 1995 June 30, 1994
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings before taxes
on income $ 300,787 $ 526,743 $ 1,063,492 $ 1,013,690 $ 834,926 $ 388,082 $ 642,799
------- ------- --------- --------- ------- ------- -------
Add: Fixed Charges
Interest 1,964,638 1,736,219 3,638,513 2,551,364 1,981,171 1,678,515 1,023,866
Interest factor
in rents 15,336 14,790 30,130 26,516 25,672 24,594 21,772
------ ------ ------ ------ ------ ------ ------
Total fixed charges 1,979,974 1,751,009 3,668,643 2,577,880 2,006,843 1,703,109 1,045,638
Earnings before fixed
charges and taxes on
income $2,280,761 $ 2,277,752 $ 4,732,135 $ 3,591,570 $2,841,769 $ 2,091,191 $ 1,688,437
========= ========= ========= ========= ========= ========= =========
Ratio of earnings to
fixed charges 1.2 1.3 1.3 1.4 1.4 1.2 1.6
=== === === === === === ===
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited Consolidated Statement of Financial Condition at December 31,
1998 and the unaudited Consolidated Statement of Income for the six-months
ended December 31, 1998, which are contained in the body of the
accompanying Form 10-Q and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 1,664,077
<RECEIVABLES> 13,233,074
<SECURITIES-RESALE> 33,060,960
<SECURITIES-BORROWED> 54,592,219
<INSTRUMENTS-OWNED> 41,067,854
<PP&E> 474,477
<TOTAL-ASSETS> 151,130,499
<SHORT-TERM> 10,020,298
<PAYABLES> 50,924,099
<REPOS-SOLD> 50,005,971
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 16,410,663
<LONG-TERM> 13,843,516
0
800,000
<COMMON> 167,785
<OTHER-SE> 3,398,818
<TOTAL-LIABILITY-AND-EQUITY> 151,130,499
<TRADING-REVENUE> 616,051
<INTEREST-DIVIDENDS> 2,286,519
<COMMISSIONS> 495,476
<INVESTMENT-BANKING-REVENUES> 285,440
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 1,964,638
<COMPENSATION> 958,225
<INCOME-PRETAX> 300,787
<INCOME-PRE-EXTRAORDINARY> 300,787
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 200,023
<EPS-PRIMARY> 1.22
<EPS-DILUTED> 1.22
</TABLE>
