SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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[x] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required) For the fiscal year ended June
30, 1994.
or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required) For the transition period from
___________ to ___________
Commission file number: 1-8989
THE BEAR STEARNS COMPANIES INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3286161
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(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) No.)
245 Park Avenue, New York, New York 10167
(212) 272-2000
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(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock, par value $1.00 per New York Stock Exchange
share
Adjustable Rate Cumulative New York Stock Exchange
Preferred Stock, Series A
Depositary Shares, each representing a New York Stock Exchange
one-eighth interest in a share of
7.88% Cumulative Preferred Stock,
Series B
Depositary Shares, each representing a New York Stock Exchange
one-eighth interest in a share of
7.60% Cumulative Preferred Stock,
Series C
Depositary Shares, each representing New York Stock Exchange
a one-eighth interest in a share of
8% Cumulative Preferred Stock,
Series D (not presently outstanding)
9-1/8% Senior Notes Due 1998 New York Stock Exchange
9-3/8% Senior Notes Due 2001 New York Stock Exchange
5-1/2% MRK Common-Linked Higher Income American Stock Exchange
Participation Securities Due 1997
Amex Hong Kong 30 Index Call Warrants American Stock Exchange
Expiring June 10, 1996
Amex Hong Kong 30 Index Put Warrants American Stock Exchange
Expiring June 10, 1996
Japan Index Call Warrants Expiring American Stock Exchange
July 29, 1997
Japan Index Put Warrants Expiring American Stock Exchange
July 29, 1997
Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of Class)
(Cover Page continued on next page)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [x] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
At September 1, 1994, the aggregate market value of the voting stock held
by non-affiliates of the registrant was approximately $1,976,701,000. For
purposes of this information, the outstanding shares of Common Stock owned
by directors and executive officers of the registrant were deemed to be
shares of Common Stock held by affiliates.
On September 1, 1994, the registrant had outstanding 112,153,225 shares of
Common Stock, par value $1.00 per share, which is the registrant's only
class of common stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Parts II and IV of this Form 10-K incorporate information by reference from
certain portions of the registrant's 1994 Annual Report to Stockholders.
The information required to be furnished pursuant to Part III of this Form
10-K will be set forth in, and incorporated by reference from, the
registrant's definitive proxy statement for the annual meeting of
stockholders to be held October 24, 1994, which definitive proxy statement
will be filed by the registrant with the Securities and Exchange Commission
not later than 120 days after the end of the fiscal year ended June 30,
1994.
PART I
Item 1. Business.
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(a) General Development of the Business
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The Bear Stearns Companies Inc. (the "Company") was
incorporated under the laws of the State of Delaware on August 21,
1985. The Company is a holding company that, through its subsid-
iaries, principally Bear, Stearns & Co. Inc. ("Bear Stearns") and
Bear, Stearns Securities Corp. ("BSSC"), is a leading United States
investment banking, securities trading and brokerage firm serving
United States and foreign corporations, governments and institutional
and individual investors. BSSC, a wholly-owned subsidiary of Bear
Stearns, provides all professional and correspondent clearing services
as well as the clearance and settlement of the Company's proprietary
and customer transactions. The Company succeeded to the business of
Bear, Stearns & Co., a New York limited partnership (the "Partner-
ship"), on October 29, 1985. As used in this Report, the "Company"
refers, unless the context requires otherwise, to The Bear Stearns
Companies Inc. and its subsidiaries and also includes the prior busi-
ness activities of the Partnership.
(b) Financial Information About Industry Segments
---------------------------------------------
The Company's business activities are highly integrated and
constitute a single industry segment. Other businesses or classes of
similar products or services in which the Company was engaged during
each of the three years in the period ended June 30, 1994 represented
less than 10% of consolidated revenues, operating profit and assets.
Financial information regarding the Company's foreign operations for
those same periods is set forth under the Notes to the Consolidated
Financial Statements (Footnote 13 "Segment and Geographic Area Data")
in the registrant's 1994 Annual Report to Stockholders (the "Annual
Report"), which is incorporated herein by reference to Exhibit No.
(13) of this report.
(c) Narrative Description of Business
---------------------------------
The Company is a holding company that, through its
subsidiaries, principally Bear Stearns and BSSC, is a leading United
States investment banking, securities trading and brokerage firm
serving United States and foreign corporations, governments and
institutional and individual investors. The business of the Company
includes market-making and trading in corporate,
NYFS04...:\25\22625\0110\7120\10K91994.N1D
United States government and agency, mortgage-related, asset-backed
and municipal securities and trading in options, futures, foreign
currencies, interest rate swaps and other derivative products;
securities and commodities arbitrage; securities, options and
commodities brokerage for domestic and international institutional and
individual clients; underwriting and distribution of securities,
arranging for the private placement of securities, assisting in
mergers and acquisitions and restructuring and providing other
financial advisory services, including advising on, and participating
in principal investments in, leveraged acquisitions; providing
securities clearance services; specialist activities in securities on
the floors of the New York Stock Exchange, Inc. ("NYSE"); customer
financing activities; securities lending activities; fiduciary
services; and providing other services, including real estate
brokerage, investment management and advisory activities, and
securities research.
The Company's operations are conducted from its principal
offices in New York City, from domestic regional offices in Atlanta,
Boston, Chicago, Dallas, Los Angeles and San Francisco from
representative offices in Beijing, Geneva, Hong Kong and Shanghai,
through international subsidiaries in Buenos Aires, Frankfurt, Hong
Kong, London, Paris, Sao Paulo and Tokyo, and through joint ventures
with other firms in Karachi, Madrid and Paris. The Company's foreign
offices provide services and engage in investment activities involving
foreign clients and international transactions. The Company's trust
company subsidiary, Custodial Trust Company, operates from offices in
Princeton, New Jersey.
Bear Stearns and BSSC are broker-dealers registered with the
Securities and Exchange Commission (the "SEC"), are members of the
NYSE and all other principal United States securities and commodities
exchanges and are members of the National Association of Securities
Dealers, Inc. ("NASD") and the National Futures Association ("NFA").
Bear Stearns is also a "primary dealer" in United States government
securities designated by the Federal Reserve Bank of New York.
As of June 30, 1994, the Company had 7,321 employees.
Securities Trading Activities
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General. The Company makes inter-dealer markets and trades
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as principal in corporate debt and equity securities, United States
and non-United States government and agency securities, mortgages and
mortgage-backed securities, other asset-
backed securities, municipal and other tax-exempt securities, interest
rate swaps and other derivative products. Bear Stearns is one of the
largest dealers in the United States in fixed income securities,
including securities of the United States government and its agencies,
mortgage-backed securities and corporate and tax-exempt securities.
Inventories of such fixed income securities and over-the-counter
equities are carried to facilitate sales to customers and other
dealers.
United States Government and Agency Obligations. The
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Company is recognized by the Federal Reserve Bank of New York as a
primary dealer in United States government, government guaranteed and
agency obligations and similar instruments. The Company participates
in the auction of, and maintains proprietary positions in, United
States Treasury bills, notes and bonds. The Company also participates
as a selling group member as underwriter in the distribution of
various United States Government agency and sponsored corporation
securities and maintains proprietary positions in such securities. In
connection with these activities, the Company enters into transactions
in options, futures and forward contracts to hedge its proprietary
positions. As a primary dealer, Bear Stearns makes weekly reports of
its inventory positions and market transactions in United States
government securities to the Federal Reserve Bank of New York and buys
and sells government securities directly with the Federal Reserve Bank
of New York as part of the Bank's open market activities. The
Company's daily trading inventory in United States government,
government guaranteed and agency obligations is financed principally
through the use of repurchase agreements. In addition, the Company
serves as an intermediary between borrowers and lenders of short-term
funds through the use of repurchase and reverse repurchase agreements.
Corporate Fixed Income Securities. The Company acts as a
---------------------------------
dealer in corporate fixed income securities, including preferred
stocks, in the United States and in London. It buys and sells such
securities for its own account in principal transactions with institu-
tional and individual customers as well as other dealers. As part of
this business, the Company participates in the trading and sales of
high yield, non-investment-grade securities, the securities of
companies that are the subject of pending bankruptcy proceedings and
bank loans. In addition, the Company conducts trading activities in
Eurodollar securities (primarily debt securities) in London, and makes
markets in New York and London in foreign securities and non-dollar
issues. The Company offers hedging and arbitrage services utilizing
financial futures and other instruments to domestic and foreign
institutional and individual customers and quantitative,
strategic and credit research services relating to fixed income
securities to its domestic and international clients.
Mortgage-Related Securities and Products. The Company makes
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markets in and trades Government National Mortgage Association
("GNMA") securities, Federal Home Loan Mortgage Corporation ("FHLMC")
Participation Certificates, Federal National Mortgage Association
("FNMA") mortgage-backed securities, Resolution Trust Corporation
("RTC") mortgage pass-through certificates, Small Business
Administration loans, loans guaranteed by the Farmers Home Loan
Administration, Federal Housing Authority insured multi-family loans,
real estate mortgage investment conduit ("REMIC") and non-REMIC
collateralized mortgage obligations, including residual interests, and
other derivative mortgage-backed securities and products, such as
mortgage servicing and interest rate swaps. The Company also trades
real estate mortgage loans originated by unaffiliated mortgage
lenders, both on a securitized and non-securitized basis. The Company
acts as underwriter and placement agent with respect to transactions
in all manner of rated and non-rated mortgage-related securities
issued by affiliated and unaffiliated parties and enters into
significant commitments, such as forward contracts, standby
arrangements and futures contracts, in respect of GNMA, FNMA, FHLMC
and RTC securities and other rated and non-rated mortgage-related
securities. Certain rated and non-rated mortgage-related securities
are considered to be liquid while others, as well as non-securitized
mortgage loans, are considered to be less readily marketable. The
market for mortgage-related securities continues to evolve rapidly,
presenting both opportunities and risks.
The Company trades GNMA, FNMA and FHLMC "to be announced"
securities, which are securities having a stated coupon and original
term to maturity although the issuer and/or the specific pool of
mortgage loans are not known at the time of the transactions. The
Company buys and sells such securities for its own account in
transactions with institutional and individual investors, as well as
with other dealers. Under the Company's trading agreements, the
Company generally has the right to request margin from its counter-
party.
Through a special purpose subsidiary, the Company acts as a
private secondary market mortgage conduit for non-conforming fixed and
adjustable rate residential mortgage loans. This subsidiary purchases
residential mortgage loans meeting approved criteria and resells these
loans to institutional investors in the form of non-securitized
mortgage loans or participation certificates or in securitized form.
In connection with such activities, the Company enters into commit-
ments to purchase and
sell such loans and securities. A staff of mortgage underwriters ana-
lyzes and performs procedures to verify the authenticity and in-
vestment quality of non-securitized mortgage loans in connection with
their purchase for the account of the Company. From time to time,
loans secured by commercial properties may be purchased for resale.
The Company, through another subsidiary, has established a
full-purpose mortgage banking company for the purchase, sale and
servicing of conventional, as well as FHA/VA fixed rate and adjustable
rate mortgage loans which are primarily first liens secured by
residential properties. Generally, whole portfolios of loans of
various levels of quality are purchased from financial institutions
and other secondary mortgage market sellers. Prior to bidding on a
portfolio of loans an analysis of the portfolio is performed by
experienced mortgage loan underwriters. Upon acquisition of a loan
portfolio, the loans are classified as investment-grade and non-
investment-grade. Collection efforts are the primary focus of the
non-investment-grade segment of the loan portfolio. A collection
department employs a staff of work-out specialists and loan counselors
to assist borrowers with their payments. If collection efforts are
unsuccessful, a foreclosure department will commence and monitor the
foreclosure process until the property securing the loan has been
foreclosed, or otherwise acquired, or the borrower brings the loan
current. The portfolio may include real estate which had been
foreclosed or was in the process of foreclosure at the time of
acquisition. The REO department is responsible for real property
which has been foreclosed including maintaining the property and
marketing it through regional real-estate brokers. The investment-
grade loans are sold to other institutional investors either in secu-
ritized or non-securitized form.
In addition, special purpose subsidiaries issue REMIC and
non-REMIC collateralized mortgage obligations directly or through one
or more trusts they have established.
The Company maintains international mortgage-related
operations through a joint venture with Credit Lyonnaise in France.
The Company, through Bear Stearns Spanish Securitization Corp.,
entered into an agreement with a consortium of Spanish banks to
promote asset securitization in Spain.
Asset-Backed Securities. The Company acts as underwriter
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and placement agent with respect to investment-grade and lower rated
asset-backed securities issued by unaffiliated third parties. Such
asset-backed securities include securities backed by consumer
automobile receivables (originated by captive finance
subsidiaries of automobile manufacturers as well as those originated
by commercial banks and finance companies), credit card receivables,
home equity lines of credit or second mortgages, timeshare receivables
and computer leases. The Company also makes markets in and trades
such asset-backed securities. The market for asset-backed securities
is relatively recent. While there are ready markets for the
investment-grade asset-backed securities described above, other types
may lack liquidity.
Municipal Securities and Related Products. The Company is a
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major dealer in tax-exempt and taxable municipal securities, including
general obligation and revenue bonds, leases, notes, and variable rate
obligations issued by states, counties, cities and state and local
governmental authorities. The Company is active as a managing under-
writer of negotiated and competitive new issues. It makes markets in
a broad range of long-term and short-term municipal securities, both
to facilitate trades with institutional clients and to realize trading
gains for the Company. For a fee, the Company provides liquidity to
the variable rate demand bond market as agent for issuers. The
Company periodically uses municipal futures to hedge its cash market
bond inventory. In addition, the Company maintains a municipal arbi-
trage portfolio for its own account, consisting of municipal futures
and cash bond positions. The Company's underwriting, trading and
sales activities are supported by a municipal credit research group.
Arbitrage. The Company engages for its own account in both
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"classic" and "risk" arbitrage of securities. In classic arbitrage
the Company seeks to profit from temporary discrepancies that occur
between the prices at which a security is traded in two or more
markets, or between the price of a convertible security and the
underlying security or between securities that are or will be
exchangeable at a later date or contracts that will be settled in cash
at a later date. The Company's risk arbitrage activities involve
purchasing securities at discounts from the value that will be
realized if certain proposed or anticipated transactions, such as
mergers, recapitalizations and tender or exchange offers, are
consummated.
Commodities Arbitrage. The Company trades for its own
---------------------
account in commodity futures, forward contracts and physical commodi-
ties, primarily crude oil, heating oil and refined products. These
trading activities primarily seek to take advantage of discrepancies
between the cash ("spot") and futures markets.
Block Trading. The Company effects transactions in large
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blocks of securities, usually with institutional investors
and generally involving blocks of 50,000 or more shares of listed
stocks. Such transactions are handled on an agency basis to the
extent possible, but the Company may take a long or short position as
principal to the extent that a purchaser or seller is not immediately
available.
Options and Indexes. The Company maintains substantial
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proprietary trading and investment positions in a wide range of
derivative securities, including listed and over-the-counter equity
options, stock index futures and options and index swaps in domestic
and foreign markets. The Company also executes client transactions in
both listed and unlisted options and often is required to act as
principal to facilitate these transactions.
Foreign Exchange. The Company engages in various foreign
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exchange activities, including proprietary trading in major currencies
(spot and forward), minor currencies, listed and over-the-counter
foreign currency options, and foreign currency futures. A full range
of currency options strategies are structured to meet specific client
risk management objectives.
Derivatives. The Company specializes in individually
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negotiated over-the-counter derivative contracts involving interest
rates, currencies, equities, and mortgages. The products include
interest rate swaps, caps and floors, currency swaps, equity swaps,
equity options and mortgage swaps. The group also works on structured
derivative products which combine derivatives with both privately and
publicly placed debt or equity issuances. The Company's over-the-
counter derivatives business meets clients' needs in a number of
areas, including corporate finance and capital markets.
Over-the-Counter Equity Securities. The Company makes
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markets, buying and selling as a principal, in common stocks,
preferred stocks, warrants and other securities traded on the NASD's
Automated Quotation System or otherwise in the over-the-counter
market. Principal transactions with customers are effected at a net
price equal to the current inter-dealer price, plus or minus a mark-up
or mark-down.
Emerging Markets. The Company is recognized as one of the
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dominant emerging markets efforts in the worldwide financial
community. The Company provides a full range of brokerage services,
including equity and fixed income trading and sales, capital markets
and research and a wide range of investment banking services. As part
of these activities, the Company manages and participates in public
offerings and arranges the private placement of debt and equity
securities directly with
institutional investors. The markets currently covered by the Company
include all of Latin America, East Asia (China, Hong Kong and Taiwan),
Thailand, Malaysia, Indonesia, the Philippines, Korea, India, Pakistan
and Southern Europe.
Specialist Activities. The Company is a participant in
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specialist units on the NYSE, performing specialist functions in 72
NYSE-listed stocks. These market-making operations are conducted
through joint ventures with other independent exchange members and
member organizations pursuant to joint account agreements. The
market-making function of the specialist involves risk during periods
of market fluctuation, since specialists generally are obligated to
take positions in their issues that are against the direction of the
market in order to minimize short-term imbalances in the auction
market.
Brokerage Activities
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A major portion of the Company's revenues is derived from
customer commissions on brokerage transactions in equity and debt
securities. The Company is one of the leading firms in the U.S. in
providing brokerage services to institutional investors. The
Company's brokerage clients include both U.S. and foreign
institutional investors, such as investment advisors, mutual funds,
commercial banks, pension and profit sharing funds and insurance
companies, and high net worth individuals. A significant portion of
the Company's commission business is for institutional clients, often
in block trades requiring special marketing and trading expertise, as
well as from transactions originated by the correspondent firms for
which the Company provides securities clearance services. The largest
portion of the Company's commission revenue is derived from brokerage
transactions in listed securities.
Institutional. A substantial portion of the Company's
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commission business involves the execution of transactions in
corporate securities for domestic and foreign institutional investors.
The primary source of revenue from equity activities is negotiated
commission revenue, earned for providing customers with liquidity,
trading expertise, trade processing capability and investment advice,
the last of which includes, for example, investment strategies and
economic forecasts, as well as industry and company analysis and
investment recommendations.
Individual Investors. The Company's individual investor
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sales force concentrates on servicing individuals with high
net worth who engage in securities transactions of a size sufficient
to benefit from the Company's execution capabilities.
Option and Index Products. The Company provides a full
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range of equity and index option related execution services to
institutional and individual investor clients. The Company utilizes
sophisticated research and computer modeling to assist in the
formulation of option and index trading strategies and recommendations
to clients.
Commodities. The Company provides transaction services for
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customers in the purchase and sale of commodity futures contracts,
including stock index, interest rate, currency, agricultural and
precious metals futures and options on commodity futures contracts and
physical commodities. Commodity futures trading is subject to
extensive regulation by the Commodity Futures Trading Commission
("CFTC") pursuant to the Commodity Exchange Act and the Commodity
Futures Trading Commission Act of 1974 in the United States.
Additionally, commodity futures activities in the United Kingdom are
subject to regulation by the Securities and Futures Authority (the
"SFA").
Substantially all transactions in commodity futures
contracts are on margin, subject to individual exchange regulations.
Commodity transactions may expose the Company to risk in the event
margin requirements are not sufficient to fully cover losses to which
market participants may be exposed during a trading day. The Company
is a clearing member of the Chicago Board of Trade, the Chicago
Mercantile Exchange, the Commodity Exchange, Inc. and other principal
commodity exchanges in the United States and is a member of the
International Petroleum Exchange (the "IPE"), Futures and Option
Exchange (the "FOX") and London International Financial Futures
Exchange (the "LIFFE") in the United Kingdom and the Marche a Terme
International de France ("MATIF") in France.
International. Two of the Company's London subsidiaries,
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Bear, Stearns International Limited ("BSIL") and Bear Stearns U.K.
Limited ("BSUK") are securities broker-dealers and jointly provide
several classes of services, such as principal transactions, agency
transactions, underwriting and investment banking activities. BSIL
and BSUK are both members of the SFA and BSIL is a member of the IPE,
the LIFFE, the International Securities Market Association (the
"ISMA") and the London Commodities Exchange (the "LCE"). Another
London subsidiary, Bear Stearns International Trading ("BSIT") is a
market maker in various non-dollar denominated equity securities
and engages in index and derivative arbitrage. BSIT is a member of
the London Stock Exchange and SEAQ International.
The Company's Paris subsidiaries are Bear Stearns S.A.
("BSSA") and Bear Stearns Finance S.A. ("BSFSA"). BSSA sells equity
securities to institutional customers. BSFSA is a regulated French
broker-dealer and a member of the MATIF.
Bear Stearns Bank GmbH ("BSB") is a licensed German bank,
dealing in institutional equity sales and trading. BSB is a member of
the Frankfurt Stock Exchange. Bear Stearns (Japan) Ltd. ("BSJL") is a
broker-dealer registered with the Ministry of Finance (the "MOF") in
Japan. BSJL sells equity and fixed income securities to Japanese
institutional customers. Bear Stearns Hong Kong Ltd. ("BSHK") is a
member of the Chicago Board of Trade ("CBOT") and the Securities and
Futures Commission ("SFC"). Bear Stearns Asia Ltd. ("BSAL") sells
equity and fixed income securities to Hong Kong institutional and
retail customers and also provides investment banking services to
institutional clients.
Investment Banking
------------------
The Company is a major investment banking firm offering a
full range of capital formation and advisory services for a broad
range of corporate, government and other clients. The Company manages
and participates in public offerings and arranges the private
placement of debt and equity securities directly with institutional
investors. As part of these activities, the Company participates in
the public offering of high yield, non-investment-grade securities.
The Company provides advisory services to clients on a wide range of
financial matters and assists in the execution of mergers and
acquisitions, leveraged buyouts, divestitures, asset-based financings
and corporate reorganizations and recapitalizations. In addition, the
Company manages and participates in underwritings outside the United
States of Eurodollar obligations of corporate issuers. The Company
has expanded its capabilities for raising capital through Latin
American and Asian private and public sector issuers in the
international fixed income and equity markets.
The Company also is a major underwriter of corporate and
municipal securities, particularly as a manager or co-manager. The
Company is a leading underwriter of mortgage-backed securities, and
underwrites and offers on a principal basis a variety of mortgage-
related securities, including whole loans,
pass-through certificates and collateralized mortgage obligations.
The Company arranges and participates in public offerings
and private placements of debt and equity securities of public and
private sector issuers of emerging market countries ("EMCs"). The
Company also trades such securities, both as principal and as agent,
for its customers, in Europe, Latin America, the Far East and the
United States.
As part of its investment banking activities, the Company
from time to time participates in principal investments in leveraged
acquisitions. As part of these activities, the Company originates,
structures and invests in merger, acquisition, restructuring and
leveraged capital transactions, including leveraged buyouts. The
Company's investments are generally in the form of equity securities
(either common stock or preferred stock). Equity securities purchased
in these transactions generally are held for appreciation and are not
readily marketable. While the Company believes that the current
carrying value of these investments is at least equal to their
eventual realizable value, it is not possible to determine whether or
when the Company will realize the value of these investments.
Real Estate. The Company is engaged in a variety of real
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estate activities on a nationwide basis. It acts as a financial
advisor to both debtors and creditors of financially troubled and/or
bankrupt real estate companies. A wholly-owned subsidiary of the
Company acts as a co-general partner in a limited partnership formed
to allow U.S. pension funds to purchase multifamily properties
nationwide. Another wholly-owned subsidiary of the Company is a
licensed real estate broker and engages in the sale of investment-
grade commercial real estate and arranges debt and equity placements
for both existing and proposed projects.
International. The Company sells and trades a wide variety
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of dollar and non-dollar denominated securities to institutional
investors throughout the world. In addition, the Company has assumed
a substantial role in the private placement of United States
securities in the United Kingdom. The Company also provides a range
of investment banking, corporate advisory and merger and acquisition
services outside the United States.
Securities Clearance Activities
-------------------------------
The Company provides a full range of securities clearance
services to clients. Correspondent clearing clients are fully
disclosed correspondents who are members of the NYSE and the NASD
engaged in the retail or institutional brokerage business.
Additionally, the Company is extensively involved in the clearing of
transactions for professional/specialist clients consisting of market
makers, specialists, arbitrageurs, hedge funds, money managers and
other professional traders.
In addition to commissions and service charges derived from
the Company's securities clearance activities, the Company derives
substantial interest revenue from its securities clearance activities.
The Company extends credit directly to customers of the correspondent
broker to enable such customers to conduct securities transactions on
margin, with the securities firms guaranteeing the accounts of their
clients. The Company also extends margin credit directly to its
correspondent firms, to the extent that such firms hold securities
positions for their own account. Because the Company must rely on the
guaranties and general credit of its correspondent firms, the Company
may be exposed to significant risks of loss if any of its correspon-
dents is unable to meet its financial commitments in the event of a
significant change in the value of the securities held as collateral.
The correspondent clearing business for risk arbitrageurs, hedge
funds, specialists, market makers and other professional traders can
require substantial commitment of the Company's capital and involves
varying degrees of risk. The Company has developed computerized
control systems to monitor and analyze risk on a daily basis.
In addition to executing trades, the Company also provides
other services to its correspondents, including recordkeeping,
streamlined trading reports, accounting functions, back office
services, stock loan facilities, reorganization services and custody
of securities. The Company's prime broker system provides
consolidated reporting and securities processing for professional
clients who execute trades at more than one securities firm. The
responsibilities arising out of the Company's clearing relationships
are allocated pursuant to agreements with its correspondents. To the
extent that the correspondent broker has resources available, this
allocation of responsibilities protects the Company against claims by
customers of correspondent brokers where the responsibility for the
function giving rise to a claim has been allocated to the correspon-
dent broker. If the correspondent is unable to meet its obligation to
its customers,
however, dissatisfied customers may attempt to seek recovery from the
Company.
The Company views its correspondent clearing accounts in the
context of developing broader relationships. In addition to
performing administrative, operational and settlement functions, the
Company also advises correspondents on communications systems, and
makes available a variety of nonbrokerage products and services at
favorable prices that reflect the Company's purchasing power as a
leading firm in the industry.
Interest
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The Company derives net interest income from customer margin
loans and securities lending activities.
Customer Financing. Customers' securities transactions are
------------------
effected on either a cash or margin basis. In margin transactions,
the Company extends credit, subject to various regulatory and internal
requirements, to the customer, collateralized by securities and cash
in the customer's account, for a portion of the purchase price, and
receives income from interest charged on these extensions of credit.
Interest rates charged to customers for such margin financing are
based upon the federal funds rate or brokers call rate. In permitting
customers to purchase on margin, the Company takes the risk of a mar-
ket decline that would reduce the value of its collateral below the
amount of a customer's indebtedness before the collateral could be
sold. The amount of the Company's interest revenue is affected by the
volume of customer borrowing and by prevailing interest rates.
Securities Lending Activities. In connection with both its
-----------------------------
trading and brokerage activities, the Company borrows securities to
cover short sales and to complete transactions in which customers have
failed to deliver securities by the required settlement date, and
lends securities to other brokers and dealers for similar purposes.
The borrower of securities is required to deposit cash or other col-
lateral, or to post a letter of credit, with the lender and generally
receives a rebate (based on the amount of cash deposited) or pays a
fee calculated to yield a negotiated rate of return to the lender.
Stock borrow and stock loan transactions are generally executed
pursuant to written agreements with counterparties which require that
the securities borrowed and loaned be marked to market on a daily
basis and that excess collateral be refunded or that additional
collateral be furnished in the event of changes in the market value of
the
securities. Margin adjustments are usually made on a daily basis
through the facilities of various clearing houses.
Other Activities
----------------
Asset Management. The Company's asset management division
----------------
manages investment portfolios on behalf of retirement plans, insurance
companies, corporations, foundations, endowments and high net worth
individuals. The Company's asset management division currently
manages over $6.0 billion of equity and fixed income investments for
its institutional and individual clientele.
Securities Research. To provide customers with current
-------------------
information and opinions on investments and securities markets, the
Company provides analysis of approximately 600 companies and evaluates
the trends and outlooks in 35 separate industries and the impact of
changes in legislation, regulation and accounting standards on
companies and their businesses. A fixed income research unit
contained within the Company's Financial Analytics and Structured
Transactions Group provides financial engineering and securitization
capabilities, investment research fixed income portfolio management
and analytical systems and trading technology on mortgage-related and
fixed income securities. This unit also performs original research on
valuation techniques and provides consulting services. A high grade
fixed income research unit, consisting of approximately 15 analysts
and researchers, provides similar services in respect of high grade
fixed income securities and a high yield fixed income research unit,
consisting of approximately 15 analysts and researchers, provides sim-
ilar services in respect of high yield fixed income securities. The
Company derives revenues for its research activities principally from
securities transactions in its agency or dealer capacity, from its
consulting services and from offering portions of its research for a
fee.
Insurance. The Company acts as agent for several life
---------
insurance companies and sells deferred annuities and life insurance.
Revenues derived from the sale of such insurance products have not
been significant.
Custodial Trust Company. The Company offers a range of
-----------------------
fiduciary services and securities clearance services through a wholly-
owned subsidiary of the Company, Custodial Trust Company ("CTC"). CTC
provides the Company with banking powers, such as access to the
securities and funds wire services of the Federal Reserve. CTC offers
fiduciary, custody and agency services for
institutional accounts; clearing government securities for insti-
tutions and dealers; processing mortgage and asset-related products,
including derivatives and CMO products; and commercial lending. At
June 30, 1994, CTC held over $25 billion of assets for institutional
clients including pension funds, mutual funds, endowment funds,
religious organizations and insurance companies.
Fiduciary Services. The Company assists pension and welfare
------------------
funds, other institutional investors and individual clients with high
net worth in overseeing their investment-related affairs.
Administration and Operations
-----------------------------
Administrative and operations personnel are responsible for
the processing of securities transactions; the receipt, identification
and delivery of funds and securities; internal financial control;
accounting functions; office services; custody of customers'
securities; and the handling of margin accounts of the Company and its
correspondents. The processing, settlement of and accounting for
orders from the Company's customers, correspondents and
correspondents' customers is handled by a staff of approximately 3,230
employees, located in separate operations offices in New York City and
in each of the Company's regional offices.
The Company executes its own and its correspondents'
transactions on all United States exchanges and in the over-the-
counter market. The Company clears all of its domestic and foreign
transactions (delivery of securities sold, receipt of securities
purchased and transfer of related funds) through its own facilities
and through memberships in various clearing corporations, except for
certain government, government agency and mortgage-related securities
transactions, which are cleared through unaffiliated commercial banks,
and certain other government and government agency securities
transactions, which are cleared through Custodial Trust Company.
There is considerable fluctuation during any year and from
year to year in the volume of transactions the Company must process,
clear and settle. Operations personnel monitor day-to-day operations
to determine compliance with applicable laws, rules and regulations.
The Company records transactions and posts its books on a daily basis.
Failure to keep current and accurate books and records can render the
Company liable to disciplinary action by governmental and self-
regulatory organizations.
The Company maintains its own data processing facilities,
which have been expanded significantly in recent years.
The Company believes that its internal controls and
safeguards are adequate, although fraud and misconduct by customers
and employees and the possibility of theft of securities are risks
inherent in the securities industry. As required by the NYSE and
certain other authorities, the Company carries a broker's blanket bond
covering loss or theft of securities as well as forgery of checks and
drafts and embezzlement and misplacement of securities. This bond
provides fidelity coverage and coverage for loss or theft of
securities, fraudulent trading and forgery of securities of
$200,000,000, subject to a deductible of $2,500,000 per occurrence.
Competition
-----------
The Company encounters intense competition in all aspects of
the securities business and competes directly with other securities
firms, both domestic and foreign, a significant number of which have
substantially greater capital and other resources and some of which
offer a wider range of financial services than the Company. In
addition to competition from firms currently in the securities
business, in recent years the Company has experienced increasing
competition from other sources, such as commercial banks and insurance
companies offering financial services, and from other investment
alternatives. The Company believes that the principal factors
affecting competition in the securities industry are the quality and
ability of professional personnel and relative prices of services and
products offered.
Regulation and Other Factors Affecting the Company and the Securities
---------------------------------------------------------------------
Industry
--------
The securities industry in the United States is subject to
extensive regulation under both federal and state laws. The SEC is
the federal agency responsible for the administration of the federal
securities laws. Bear Stearns is registered as a broker-dealer and
investment adviser with the SEC and is registered as a broker-dealer
in all 50 states and the District of Columbia. Much of the regulation
of broker-dealers has been delegated to self-regulatory organizations,
principally the NASD, the Municipal Securities Rulemaking Board and
national securities exchanges such as the NYSE, which has been
designated by the SEC as the primary regulator of certain of the
Company's subsidiaries, including Bear Stearns and BSSC. These self-
regulatory
organizations adopt rules (which are subject to approval by the SEC)
that govern the industry and conduct periodic examinations of the Com-
pany's operations. Securities firms are also subject to regulation by
state securities administrators in those states in which they conduct
business.
Broker-dealers are subject to regulations which cover all
aspects of the securities business, including sales methods, trade
practices among broker-dealers, use and safekeeping of customers'
funds and securities, capital structure of securities firms,
recordkeeping and the conduct of directors, officers and employees.
The regulations to which investment advisers are subject cover
recordkeeping, fee arrangements, disclosure to clients and the conduct
of directors, officers and employees. Additional legislation, changes
in rules promulgated by the SEC and self-regulatory organizations or
changes in the interpretation or enforcement of existing laws and
rules may directly affect the mode of operation and profitability of
broker-dealers or investment advisers. The SEC, self-regulatory
organizations and state securities commissions may conduct
administrative proceedings which can result in censure, fines, the
issuance of cease-and-desist orders or the suspension or expulsion of
a broker-dealer or an investment adviser, its officers or employees.
The principal purpose of regulation and discipline of broker-dealers
or investment advisers is the protection of customers and the
securities markets, rather than protection of creditors and stock-
holders of broker-dealers and investment advisers. Occasionally, the
Company's subsidiaries have been subject to routine investigations and
proceedings, and sanctions have been imposed for infractions of
various regulations relating to activities as a broker-dealer, none of
which, to date, has had a material adverse effect on the Company or
its business.
The Market Reform Act of 1990 was adopted to strengthen
regulatory oversight of the securities markets, improve financial
market participants, and improve the safety and efficiency of market
mechanisms by creating a system of information and oversight over the
parents and other affiliates of broker-dealers. The SEC has adopted
the Risk Assessment Reporting Requirements for Brokers and Dealers
(the "Risk Assessment Rules") to implement the provisions of the
Market Reform Act of 1990. The Risk Assessment Rules require that
broker-dealers develop an organizational chart, maintain risk
management procedures or standards for monitoring and controlling the
risks resulting from activities of material associated persons and
maintain and preserve records and other information and file quarterly
reports concerning the risk management procedures and financial and
securities activities of the broker-dealers' holding companies,
affiliates or subsidiaries that are reasonably likely to have a
material impact on the financial and operational condition of the
broker-dealer.
The Insider Trading and Securities Fraud Enforcement Act of
1988 augments enforcement of the securities laws through a variety of
measures designed to provide greater deterrence, detection and
punishment of insider trading violations. Among other things, the law
expands the scope of civil penalties to controlling persons who fail
to take adequate steps to prevent insider trading; initiates a bounty
program giving the SEC discretion to reward informants who provide
assistance to the agency; and requires broker-dealers and investment
advisors to establish and enforce written policies and procedures
reasonably designed to prevent the misuse of inside information.
The Government Securities Act of 1986 (the "Government
Securities Act") established a comprehensive and coordinated pattern
for the regulation of brokers, dealers and financial institutions
trading in government securities, including Bear Stearns. Under the
Government Securities Act, Bear Stearns is subject to Department of
Treasury regulations regarding, among other things, capital adequacy,
custody of securities, custody and use of government securities and
transfers and control of government securities subject to repurchase
transactions.
The commodities industry in the United States is subject to
regulation under the Commodity Exchange Act, as amended. The CFTC is
the federal agency charged with the administration of the Commodity
Exchange Act and the regulations thereunder. Bear Stearns and BSSC
are registered with the CFTC as futures commission merchants and are
subject to regulation as such by the CFTC and various domestic boards
of trade and other commodity exchanges. Bear Stearns' and BSSC's
commodity futures business is also regulated by the NFA, a not-for-
profit membership corporation which has been designated a registered
futures association by the CFTC.
As registered broker-dealers and member firms of the NYSE,
Bear Stearns and BSSC are subject to the Net Capital Rule (Rule 15c3-1
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), which also has been adopted through incorporation by reference
in NYSE Rule 325. The Net Capital Rule, which specifies minimum net
capital requirements for registered brokers and dealers, is designed
to measure the general financial integrity and liquidity of a broker-
dealer and requires that at least a minimum part of its assets be kept
in relatively liquid form.
On May 6, 1991 the SEC amended the provisions of the Net
Capital Rule by providing (i) that a broker-dealer notify the SEC and
certain other parties, in writing, two business days prior to making
withdrawals of equity capital directly or indirectly to benefit
certain related persons if those withdrawals would exceed, in any 30
day period, 30% of the broker-dealer's excess net capital, (ii) that a
broker-dealer notify the SEC within two business days after any
withdrawal, advance or loan directly or indirectly to benefit certain
related persons if such withdrawal, advance or loan would exceed, in
any 30 day period, 20% of the broker-dealer's excess net capital (iii)
that withdrawing equity capital from a broker-dealer be prohibited if
the effect of the withdrawal would cause the broker-dealer's net cap-
ital to be less than 25% of its deductions required by the net capital
rule as to its readily marketable securities, unless the broker-dealer
has the prior consent of the SEC, and (iv) that the SEC may, by order,
prohibit withdrawals of capital from a broker-dealer for a period of
up to 20 business days, if the withdrawals would be in an amount
greater than 30% of the broker-dealer's excess net capital and the SEC
believes such withdrawals would be detrimental to the financial
integrity of the firm or would unduly jeopardize the broker-dealer's
ability to pay its customer claims or other liabilities. The effect
of the foregoing amendments may be to limit the ability of Bear
Stearns and BSSC to pay dividends and make other distributions to the
Company.
Bear Stearns and BSSC are also subject to the net capital
requirements of the CFTC and various commodity exchanges, which
generally require that Bear Stearns and BSSC maintain a minimum net
capital equal to the greater of the alternative net capital
requirement provided for under the Exchange Act or 4% of the funds
required to be segregated under the Commodity Exchange Act and the
regulations promulgated thereunder.
Compliance with the Net Capital Rule could limit those
operations of Bear Stearns and/or BSSC that require the intensive use
of capital, such as underwriting and trading activities and financing
customer account balances, and also could restrict the Company's
ability to withdraw capital from Bear Stearns or BSSC, which in turn
could limit the Company's ability to pay dividends, pay interest or
repay debt and redeem or purchase shares of its outstanding capital
stock. Additional information regarding net capital requirements is
set forth in the Notes to Consolidated Financial Statements under the
caption "Regulatory Requirements" in the Annual Report, which is
incorporated herein by reference to Exhibit No. (13) of this report.
Bear Stearns and BSSC are members of the Securities Investor
Protection Corporation ("SIPC"), which provides, in the event of the
liquidation of a broker-dealer, protection for customers' accounts
held by the firm of up to $500,000 for each customer, subject to a
limitation of $100,000 for claims for cash balances. In addition, the
Company has purchased $9,500,000 of additional coverage from a private
insurer for securities positions for each of the Company's customers.
The activities of the Company's bank and trust company
subsidiary, Custodial Trust Company, are regulated by the New Jersey
Department of Banking and the Federal Deposit Insurance Corporation
("FDIC"). FDIC regulations applicable to Custodial Trust Company
limit the extent to which Custodial Trust Company and Bear Stearns may
have common officers and directors and may share physical facilities,
and require certain disclosures in connection with joint advertising
or promotional activities by Bear Stearns and Custodial Trust Company.
Such regulations also restrict certain activities of Custodial Trust
Company in connection with the securities business of Bear Stearns and
provide that employees of Bear Stearns who are also employees of
Custodial Trust Company, if any, may not conduct any securities ac-
tivities that involve customer contact on behalf of Bear Stearns on
the premises of Custodial Trust Company. Federal legislation limits
expansion of the scope of the activities of Custodial Trust Company,
the annual rate of increase of its assets, the cross-marketing of cer-
tain services with affiliates, and the use of overdrafts at Federal
Reserve banks on behalf of affiliates.
The subsidiaries and employees of the Company engaged in the
insurance business are subject to regulation and supervision by
insurance authorities in the states in which they conduct their
business.
The Company does a substantial volume of business in the
international fixed income and equity markets through BSIL and makes
markets in certain non-dollar denominated securities and engages in
index and derivative arbitrage through BSIT. BSIL and BSIT are
subject to the United Kingdom Financial Services Act 1986, which
governs all aspects of United Kingdom investment business, including
regulatory capital, sales and trading practices, use and safekeeping
of customer funds and securities, recordkeeping, margin practices and
procedures, registration standards for individuals, periodic reporting
and settlement procedures. BSIL, BSIT and BSUK are subject to
supervision by the SFA, which was formed on April 1, 1991 as the
result of a merger between The Securities Association Limited ("TSA"),
which previously regulated the equity, Eurobond, fixed income,
investment banking and asset management activities of BSIL, and The
Association of Futures Brokers and Dealers Limited (the "AFBD"), which
regulated its commodities business. BSIL, BSIT and BSUK currently are
regulated in accordance with the rules of the SFA, BSIL is a member of
the IPE and the LIFFE, the ISMA and the LCE and BSIT is a member of
the London Stock Exchange and SEAQ International.
The Company, like other securities firms, is directly
affected by national and international economic and political
conditions, broad trends in business and finance, legislation and
regulation affecting the national and international financial and
business communities, currency values, the level and volatility of
interest rates and substantial fluctuations in volume and price levels
in the securities and commodities markets. These and other factors
can affect the amount of new issue and merger, acquisition and
restructuring activities, the level of participation in, and the types
of financing and investment related to such activities, the volume and
price levels of securities and commodities transactions, the stability
and liquidity of securities and commodities markets and the ability of
issuers, other securities firms and counterparties to perform their
obligations generally. Decreases in the amount of new issue or
merger, acquisition and restructuring activities or the level of
participation in financing and investment related to such activities
generally result in lower revenues from investment banking and, to a
lesser extent, principal transactions. Reduced volume of securities
and commodities transactions and reduced market liquidity generally
result in lower revenues from principal transactions and commissions.
Lower price levels of securities may result in reduced volume of
transactions, and may also result in losses from declines in the
market value of securities held in trading and underwriting positions.
In periods of reduced sales and trading or investment banking
activity, profitability may be adversely affected because certain
expenses remain relatively fixed. Sudden sharp declines in market
values of securities and the failure of issuers and counterparties to
perform their obligations can result in illiquid markets. In such
markets, the Company may not be able to sell securities and may have
difficulty in hedging its securities positions. Such market condi-
tions, if prolonged, may also lower the Company's revenues from
investment banking and principal transactions.
The Company's securities trading, arbitrage, market-making,
specialist, leveraged buyout and underwriting activities are conducted
by the Company as principal and subject the Company's capital to
significant risks. Such risks include market, credit (including
counterparty) and liquidity risks. In
addition, the Company's securities trading, market-making, leveraged
buyout and underwriting activities may involve economic, political,
currency, interest rate and other risks, any of which could result in
an adverse change in the market price of relevant securities and
commodities. The Company's participation in specialist activities on
securities exchanges may require it to purchase securities in a
declining market or sell in a rising market in order to comply with
exchange requirements.
Item 2. Properties.
----------
The Company's executive offices and principal administrative
offices occupy approximately 689,000 square feet of space at 245 Park
Avenue, New York, New York under leases expiring through 2002.
The Company also leases approximately 268,000 square feet
office space at One MetroTech Center, Brooklyn, New York pursuant to a
lease expiring in 2004 for its securities processing and clearance
operations. Additionally, the Company leases approximately 13,000,
43,000 and 140,000 square feet of space at three locations in New York
City under leases expiring in 1997, 2001 and 2004, respectively. The
Company's regional offices in Atlanta, Boston, Chicago, Dallas, Los
Angeles, and San Francisco and its nine foreign offices occupy an
aggregate of approximately 280,000 and 70,000 additional square feet,
respectively, under leases that expire at various dates through the
year 2016.
The Company owns approximately 65 acres of land in Whippany,
New Jersey, including four buildings comprising an aggregate of
approximately 300,000 square feet of space. The Company is currently
using the existing facilities on the property to house its data
processing facility and other operational functions and, because the
property includes land in excess of that required, it has received
approval for two additional buildings which it may develop for itself
or consider selling the development rights and land to others.
Item 3. Legal Proceedings.
-----------------
The Company and Bear Stearns are parties to the legal
proceedings discussed below, which have arisen in the normal course of
business. In view of the inherent difficulty of predicting the
outcome of litigation and other legal proceedings, the Company cannot
state what the eventual outcome of these pending proceedings will be.
It is the opinion of management,
after consultation with independent counsel, that the legal
proceedings referred to below will not, individually or in the
aggregate, have a material adverse effect on the Company's financial
position.
Alpha Group Consultants, et al. v. Weintraub, et al./In re
------------------------------- ----------------- -----
Weintraub Entertainment Group Litigation. On January 31, 1991, Alpha
----------------------------------------
Group Consultants Ltd. and the Allan D. Simon & Stefani R. Simon
Living Trust commenced an action in the United States District Court
for the Southern District of California. On April 24, 1991, an
Amended Complaint was filed. On August 29, 1991 a Second Amended
Complaint was filed, and on December 23, 1991 a Third Amended
Complaint was filed. The action is brought individually and on behalf
of a purported class of purchasers of $81 million aggregate amount of
debentures and warrants of Weintraub Entertainment Group ("WEG")
during the period January 23, 1987 through October 1, 1990. Named as
defendants are WEG (WEG is a debtor in bankruptcy, and is thus named
as a defendant only to the extent permitted under federal bankruptcy
law), certain officers and directors of WEG, including Jerry
Weintraub, Kenneth Kleinberg and Dennis Pope (the "Individual
Defendants") and Bear Stearns, the placement agent in WEG's 1987
private placement of WEG debentures and warrants.
The Third Amended Complaint alleges that at the time of the
offering and thereafter, the defendants made false and misleading
statements concerning WEG's financial condition, the experience of
certain WEG officers, the intended use of proceeds from the sale of
the WEG securities, the prospects for a public market for WEG securi-
ties, WEG's business plans, and certain terms of WEG's contracts with
distributors. The Third Amended Complaint asserts violations of
Sections 12(2) and 15 of the Securities Act of 1933, as amended (the
"Securities Act"), Sections 10(b) and 20 of the Exchange Act and Rule
10b-5 promulgated thereunder, the Racketeer Influenced and Corrupt
Organizations Act ("RICO"), California state statutes, and the common
law fiduciary duties allegedly owed by the defendants to the
plaintiffs. The action seeks unspecified compensatory and punitive
damages, treble damages under RICO, attorneys fees and expenses.
On August 23, 1991, the court entered an order dismissing
with prejudice all of plaintiffs' claims under the Securities Act and
the Exchange Act. On April 2, 1992, the court entered an order
granting plaintiffs' motion to reinstate plaintiffs' claims under the
Securities Act and the Exchange Act, and denying defendants' motions
to dismiss plaintiffs' Third Amended Complaint. The court's April 2,
1992 order also allowed
ALCO Group Trust Fund to intervene as a plaintiff. On February 4,
1993, the court entered an order allowing the Pension Reserves
Investment Trust Fund of the Commonwealth of Massachusetts to
intervene as a plaintiff.
On May 10, 1993, the court entered a final judgment and
order (the "Settlement Order") approving a settlement among plaintiffs
and the Individual Defendants and barring Bear Stearns from seeking
contribution, indemnity, or reimbursement from the Individual
Defendants. The Settlement Order also provided that Bear Stearns'
liability, if plaintiffs succeed in establishing liability on the part
of Bear Stearns, would be limited to Bear Stearns' proportional share
of the total damages awarded. On September 15, 1993, the court
entered an order granting class certification.
On April 22, 1994, the court denied summary judgment motions
filed by plaintiffs, and granted summary judgment in favor of Bear
Stearns on all claims. A final judgment has been entered. Plaintiffs
have filed an appeal.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this litigation, intends to defend these claims
vigorously, and believes that it has substantial defenses to these
claims.
In re Daisy Systems Corporation, Debtor. On May 30, 1991,
----------------------------------------
the Chapter 11 Trustee for Daisy Systems Corporation ("Daisy"), a
debtor in bankruptcy, and Daisy/Cadnetix, Inc. ("DCI") filed a
complaint in the United States District Court, Northern District of
California, on behalf of Daisy and DCI against Bear Stearns and six
former directors of Cadnetix, Inc. ("Cadnetix") and/or a Cadnetix
subsidiary. A First Amended Complaint was filed on March 20, 1992,
and a Second Amended Complaint (the "Complaint") filed and served on
July 24, 1992.
Bear Stearns was retained by Daisy in May 1988 to provide
investment banking services to Daisy with respect to the potential
merger of Daisy with Cadnetix. The Complaint alleges that Bear
Stearns was negligent in performing its due diligence with respect to
the merger, and in advising Daisy that it was "highly confident" that
financing could be obtained to fund the merger. The Complaint asserts
that Bear Stearns, among other things, breached fiduciary duties to
Daisy, committed professional malpractice in its efforts on Daisy's
behalf, and made negligent representations upon which Daisy relied,
breached a covenant of good faith and fair dealing implied in its
contracts with Daisy, and should have its unsecured claim in the Daisy
bankruptcy proceeding equitably subrogated to the claims of all other
claimants in the bankruptcy. The plaintiff seeks monetary damages and
exemplary damages in an unspecified amount, as well as costs and
expenses.
On August 17, 1992, Bear Stearns moved to dismiss the
Complaint. The other defendants in the action also moved to dismiss
the Complaint.
On February 3, 1993, the court dismissed plaintiffs' breach
of fiduciary duty and equitable subrogation counts, but denied the
remainder of the Bear Stearns' motion to dismiss. On May 13, 1993,
Bear Stearns answered the Complaint, denying liability and asserting
affirmative defenses. On August 12, 1994, the court granted summary
judgment dismissing all remaining claims against Bear Stearns.
Plaintiff has filed a motion for rehearing.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this litigation, intends to defend these claims
vigorously, and believes that it has substantial defenses to these
claims.
In-Store Advertising Securities Litigation. Beginning on
------------------------------------------
September 3, 1990, a total of fifteen litigations involving a July 19,
1990 initial public offering by In-Store Advertising, Inc. ("ISA")
were commenced in the United States District Court for the Southern
District of New York. A Consolidated Class Action Complaint was filed
by all of the plaintiffs in these actions on January 14, 1991. The
Consolidated Class Action Complaint named as defendants ISA, several
individual officers and directors of ISA; four venture capital firms
(the "Venture Capital Defendants"); and Alex. Brown & Sons
Incorporated ("Alex. Brown") and the Company. Alex. Brown and the
Company were named individually and as representatives of a purported
class of underwriters.
On August 27, 1991, plaintiffs filed an Amended Consolidated
Class Action Complaint, naming the same defendants as plaintiffs'
Consolidated Class Action Complaint. On October 15, 1991, all
defendants filed answers denying liability and asserting affirmative
defenses.
On April 16, 1993, ISA announced that it had delayed filing
its annual report due on March 31, 1993 for its 1992 fiscal year, in
order to resolve questions related to financial documents for its 1990
fiscal year. ISA also announced at that time that John E. Capps had
resigned as ISA's Chief Financial
Officer. On June 11, 1993, ISA reported that during the third and
fourth quarters of 1989 and the first and second quarters of 1990 --
the four quarters immediately preceding ISA's initial public offering
-- ISA had recognized revenue before it was earned, resulting in
material overstatement of revenues and earnings for those quarters.
On July 8, 1993, ISA filed for protection under Chapter 11 of the
Bankruptcy Code.
Following these developments, on July 16, 1993, plaintiffs
filed a Second Amended Consolidated Class Action Complaint (the
"Second Amended Complaint"). The Second Amended Complaint names as
defendants Robert E. Polansky, ISA's former chairman, president and
chief executive officer, and John E. Capps, ISA's former chief finan-
cial officer, secretary and treasurer (Polansky and Capps are together
referred to as the "Management Defendants"); five other present or
past officers and directors of ISA (collectively, the "Director
Defendants"); the previously named Venture Capital Defendants; Alex.
Brown and the Company, individually and as representatives of a
purported class of underwriters (collectively, the "Underwriter
Defendants"); and ISA's outside auditor, KPMG Peat Marwick. ISA was
not named as a defendant in the Second Amended Complaint, and has been
discharged from any liability in this litigation under a plan of
reorganization approved by the Bankruptcy Court on August 8, 1993.
The Second Amended Complaint alleges claims on behalf of
plaintiffs individually and a purported class consisting of all
persons who purchased ISA common stock from July 19, 1990, the date of
ISA's initial public offering, through and including November 8, 1990.
The Second Amended Complaint also alleges claims on behalf of a
purported subclass consisting of all persons who purchased ISA common
stock in ISA's initial public offering (the "Subclass"). The Second
Amended Complaint alleges that defendants made false and misleading
statements concerning ISA's past operating results and prospects for
future revenues and profits.
Count I of the Second Amended Complaint asserts violations
of Section 11 of the Securities Act against all defendants other than
the Venture Capital Defendants, and asserts violations of Section 15
of the Securities Act against all defendants other than the
Underwriter Defendants and KPMG Peat Marwick. Count II, alleged by
the Subclass, asserts violations of Section 12(2) of the Securities
Act against the Management Defendants and the Underwriter Defendants,
and asserts violations of Section 15 of the Securities Act against the
Director Defendants and the Venture Capital Defendants. Count III
asserts violations of
Section 10(b) of the Securities Exchange Act and Rule 10b-5
promulgated thereunder against all defendants, and asserts violations
of Section 20 of the Exchange Act against the Director Defendants and
the Venture Capital Defendants. Count IV asserts common law fraud and
deceit claims against all defendants. Count V asserts negligent
misrepresentation claims against all defendants. Plaintiffs seek
compensatory damages, rescissory damages where applicable, punitive
damages, interest and costs, including attorneys' and experts' fees.
On September 29, 1993, the Underwriter Defendants, including
the Company, filed an answer to the Second Amended Consolidated
Complaint denying all substantive allegations, asserting affirmative
defenses and asserting a cross-claim against KPMG Peat Marwick. On
December 30, 1993, plaintiff's federal law claims against defendant
KPMG Peat Marwick were dismissed as time barred, but the court
retained jurisdiction over plaintiff's state law claims against KPMG
Peat Marwick. On June 15, 1994 KPMG Peat Marwick moved to dismiss or
sever plaintiffs' state law claims and the cross-claims asserted
against KPMG Peat Marwick by the Underwriter Defendants, including the
Company and the Venture Capital Defendants.
On September 5, 1990, David Ackerman, suing derivatively on
behalf of ISA, commenced an action in the United States District Court
for the Southern District of New York, naming as defendants the
Director Defendants, Alex. Brown, KPMG Peat Marwick, the Company and
"John Doe". That complaint alleges that defendants made false and
misleading statements concerning ISA's business prospects, and that
when ISA revealed that its second quarter earnings and revenues in its
fiscal year 1990 were below those publicly forecast and that its near
term prospects would also fail to meet prior forecasts, ISA's stock
price declined and class action lawsuits were filed, resulting in
damage to ISA's reputation and business, and requiring ISA to incur
substantial legal fees and expenses. Claims are asserted under
Section 10(b) of the Exchange Act and Rule 10b-5 and state common law.
On November 30, 1990, ISA moved to dismiss this complaint
due to plaintiff's failure to make a pre-litigation demand on ISA's
board of directors. All other defendants, including Bear Stearns,
joined this motion to dismiss by letter. The motion is currently
pending.
Discovery is proceeding in these actions.
Bear Stearns denies all allegations of wrongdoing asserted
against it in these litigations, intends to defend these
claims vigorously, and believes that it has substantial defenses to
these claims.
Jenny Craig, Inc. Litigation. On June 5, 1992, Charles S.
----------------------------
Steinberg commenced an action in the United States District Court for
the Southern District of California. The action is brought
individually and on behalf of a purported class consisting of persons
who purchased the common stock of Jenny Craig, Inc. ("JCI") between
October 29, 1991 through May 27, 1992, other than the defendants. The
action names as defendants Sidney H. Craig, Genevieve Craig, Jenny
Craig International, Inc., Ronald E. Gerevas, W. James Mallen, Marvin
Sears, Michael E. Tennenbaum, Jeffrey T. Chambers, Bear Stearns,
Morgan Stanley & Co. Inc., T.A. Associates, New York Life Insurance
Co., Bank of New York and Security Pacific National Bank. Each of the
individuals named as defendants are officers and/or directors of JCI,
and Mr. Tennenbaum is also a director of the Company, a Senior
Managing Director of Bear Stearns and a director of JCI. Three
similar purported class actions entitled Neal v. Craig, et al., Jacobs
---- ------------- ------
v. Craig, et al. and Petty v. Craig, et al. were also commenced in
------------- ----- -------------
the same court in June 1992 against the same defendants. The
Steinberg, Neal, Jacobs and Petty actions are collectively referred to
--------- ---- ------ -----
as the "Complaints."
The Complaints arise out of an initial public offering on
October 29, 1991 of 5,750,000 shares of common stock of JCI, in which
Bear Stearns and Morgan Stanley & Co. Inc. acted as co-lead
underwriters. Of the shares offered, 3,500,000 shares were sold by
JCI and, after giving effect to the exercise of an over-allotment
option, 2,250,000 shares were sold by certain selling stockholders,
including 66,150 shares sold by Bear Stearns, 33,300 shares sold by
Michael Tennenbaum and approximately 10,700 shares sold by other
employees of Bear Stearns. The Complaints allege that defendants made
false and misleading statements concerning JCI's business prospects.
The Complaints allege violations of Sections 11, 12(2) and 15 of the
Securities Act, Sections 10(b) and 20 of the Exchange Act and Rule
10b-5 promulgated thereunder. The Complaints seek damages in
unspecified amounts, as well as equitable and injunctive relief,
together with costs and expenses of the actions.
On or about October 5, 1992, the plaintiffs filed a First
Amended and Consolidated Class Action Complaint (the "Amended
Complaint") that named Jenny Craig, Inc. as a defendant instead of
Jenny Craig International, Inc., and that asserted no new claims
against Bear Stearns, Morgan Stanley and Mr. Tennenbaum. On or about
October 5, 1992 plaintiffs also filed a motion for class
certification. On or about November 4, 1992,
all defendants filed motions to dismiss the Amended Complaint and an
opposition to plaintiffs' motion for class certification. By Order
dated December 19, 1992 and filed on December 22, 1992, the Court
granted in part and denied in part the defendants' motions to dismiss.
With respect to motions filed on behalf of Bear Stearns and Morgan
Stanley and Mr. Tennenbaum, the Court dismissed without prejudice
plaintiffs' claims under Section 15 of the Securities Act and Section
20 of the Securities Exchange Act and all claims to the extent they
seek to hold the Underwriters liable for any of JCI's post-offering
statements. The Court also granted plaintiff's motion for class
certification.
On March 5, 1993, plaintiffs filed a Second Amended and
Consolidated Class Action Complaint (the "Second Amended Complaint"),
which realleges the same claims against Bear Stearns, Morgan Stanley
and Mr. Tennenbaum that were previously alleged, including the claims
that were previously dismissed without prejudice. On April 5, 1993,
all defendants moved to dismiss the Second Amended Complaint. By
Order dated August 2, 1993, the Court dismissed, with prejudice,
plaintiffs' claims under Section 12 of the Securities Act against all
defendants against whom those claims were asserted, plaintiffs' claims
against Bear Stearns, Morgan Stanley and Mr. Tennenbaum under Section
15 of the Securities Act and Section 20 of the Securities Exchange Act
and plaintiffs' claims against the underwriters for JCI's post-
offering statements (except that the allegations concerning a Bear
Stearns' analyst report were dismissed without prejudice).
On September 8, 1993, all defendants filed answers denying
liability and asserting affirmative defenses with respect to the
remaining claims in the case.
On June 24, 1994, New York Life Insurance Company. Security
Pacific National Bank, TA Associates and The Bank of New York moved to
dismiss the secondary liability claims asserted in the action under
Section 10(b) of the Securities Exchange Act. Bear Stearns and Morgan
Stanley have joined in that motion.
Discovery is proceeding.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this litigation, intends to defend these claims
vigorously, and believes that it has substantial defenses to these
claims.
Robbins et al. v. The Gitano Group, Inc. et al. On February
-----------------------------------------------
27, 1991, Steven Robbins and Howard C. Lapensohn commenced an action
in the United States District Court for the
Southern District of New York. The action was brought individually
and on behalf of a purported class consisting of all persons who
purchased common stock of The Gitano Group, Inc. ("Gitano") between
March 7, 1990 and February 25, 1991 other than the defendants and
persons related or affiliated with them. The action was also brought
on behalf of a purported subclass consisting of persons who purchased
Gitano common stock in a June 12, 1990 public offering. The action
arises out of a June 12, 1990 initial public offering of Gitano common
stock, for which Bear Stearns and Goldman, Sachs & Co. acted as co-
lead underwriters. The Complaint named as defendants Gitano, eight of
its directors and officers, Bear Stearns and Goldman, Sachs & Co.
A First Amended Complaint was filed on April 19, 1991, and a
Second Amended Complaint was filed on May 3, 1991. The Second Amended
Complaint alleged that the offering materials pursuant to which the
public offering referred to above as well as other public statements
made by Gitano was made contained false and misleading statements
concerning Gitano's operating results, financial condition and
business prospects. The Second Amended Complaint alleged violations
against all defendants, including Bear Stearns, of Sections 11 and
12(2) of the Securities Act and Section 10(b) of the Securities
Exchange Act and Rule 10b-5 promulgated thereunder. The Second
Amended Complaint also alleged violations by individual defendants of
Section 15 of the Securities Act and Section 20 of the Securities
Exchange Act. The Second Amended Complaint sought damages in
unspecified amounts, as well as equitable relief, together with the
costs and expenses of the action.
On June 19, 1991, all defendants filed motions to dismiss
the Second Amended Complaint. On April 1, 1992, plaintiffs, with
leave of the Court, filed a Third Amended and Supplemental Complaint,
which, although not substantially different from the Second Amended
Complaint, redefined the purported class upon whose behalf the action
was brought to include purchasers of Gitano common stock through March
16, 1992, and limited the factual and legal claims asserted against
Bear Stearns and Goldman, Sachs & Co., Inc. under Section 10(b) of the
Exchange Act and Rule 10b-5 to matters arising out of the June 12,
1990 public offering. On April 24, 1992, defendants moved to dismiss
the Third Amended and Supplemental Complaint. On September 23, 1992
the court denied all pending motions to dismiss but held that
plaintiffs' allegations of misleading predictions concerning Gitano's
prospects and failure to disclose facts alleged to be important to
purchasers of Gitano stock were insufficiently pleaded. The court
directed the parties to proceed with limited discovery as to the
remaining allegations, which concerned the
allegedly misleading use of the gross profit method of calculating
inventory and a consequential alleged inflation of gross profits and
earnings, following which defendants would be permitted to renew their
motions to dismiss.
During the course of the action, four of the individual
defendants, all members of the family that held a controlling interest
in Gitano, commenced personal bankruptcy proceedings, and therefore
became protected against further proceedings in the litigation by the
automatic stay provided in the Bankruptcy Code.
On October 4, 1993, the parties entered into a Memorandum of
Understanding that outlined the terms of a settlement of the action
and a similar class action against Gitano (but not Bear Stearns or
Goldman Sachs) that is pending in the United States District Court for
the Eastern District of New York. The settlement was subject to,
among other conditions, confirmatory discovery, the drafting and
execution of formal settlement documents and, ultimately, a formal
order and judgment of the Court approving the settlement after notice
to the Class and a hearing as to the fairness of the settlement. The
proposed settlement would not involve any material expenditure by Bear
Stearns.
Following the October 4, 1993 execution of the Memorandum of
Understanding, plaintiffs filed a Fourth Amended and Supplemental
Complaint, which, among other things, enlarged the Class to include
purchasers of Gitano's common stock through April 5, 1993, but
continued to limit the claims asserted against Bear Stearns and
Goldman, Sachs & Co. to matters arising out of the June 12, 1990
public offering. The Memorandum of Understanding provided that if the
settlement was not consummated, the Fourth Amended and Supplemental
Complaint was to be withdrawn, and that the operative pleadings would
be those filed prior to the Fourth Amended and Supplemental Complaint.
On January 24, 1994, Gitano announced that it would seek a
sale of its business and that it was unlikely that such a sale would
realize amounts in excess of the debt owed to Gitano's secured
lenders. Gitano's lenders also notified Gitano that they would not
consent to Gitano's issuance of notes and warrants which constituted a
portion of the settlement consideration that was to be received by the
Class. As a result of these developments, it was not possible for the
settlement to proceed as contemplated.
Plaintiffs' counsel then commenced additional actions in the
United States District Court for the Southern District of
New York against Gitano and various persons and entities associated
with it (but not Bear Stearns or Goldman Sachs). Among those who are
named as defendants in one or more of these additional actions are
various of Gitano's directors, its lenders, its outside auditors and
the large customer that had announced its intention to cease doing
business with Gitano. The actions allege that Gitano's statements of
its financial condition for the fiscal years 1990, 1991 and 1992 were
false and misleading and that Gitano's outside auditors wrongfully
certified these financial statements; and that Gitano, between April
5, 1993 and January 24, 1994, misrepresented its financial condition
and present and future business prospects and failed to disclose the
prosect of its large customer refusing to continue to do business with
it and the risk of bankruptcy.
Thereafter, the parties to the proposed settlement contained
in the October 1993 Memorandum of Understanding, together with some
but not all of the parties who had been named in the actions commenced
in 1994, agreed upon the terms of a revised settlement and executed a
formal stipulation of settlement. The settlement is subject to
various conditions, including court approval. Neither Gitano's
outside auditors nor the large customer is a party to this proposed
settlement. The settlement does not involve any material expenditure
by Bear Stearns.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this litigation, and believes that it has substantial
defenses to these claims.
Thanksgiving Tower Partners et al. v. Anros Thanksgiving
---------------------------------- ------------------
Partners. On February 8, 1989, Thanksgiving Tower Partners ("TTP")
--------
and two limited partnerships that are general partners of TTP
commenced an action against Anros Thanksgiving Partners ("Anros") in
the United States District Court for the Northern District of Texas.
Bear Stearns Real Estate Group Inc. ("Real Estate Group"), an
affiliate of the Company, was during the relevant time period the
managing general partner of one of the two limited partnerships
referred to above (the interest of Real Estate Group as managing
general partner of this limited partnership was transferred on
September 21, 1988 to another affiliate of the Company). The
complaint seeks a declaratory judgment declaring that plaintiffs acted
properly in drawing on a $5,000,000 letter of credit after Anros
breached contractual obligations in connection with the purchase of an
office building in Dallas, Texas. These contractual obligations arose
out of a June 18, 1988 agreement between the two partners in TTP
referred to above and Anros, providing that Anros would contribute
approxi
mately $50,000,000 in capital for the down payment on the office
building and various other closing costs, and would be admitted as a
third partner in TTP upon satisfaction of these and other conditions.
On March 8, 1989, Anros filed a third party complaint
against plaintiffs and Real Estate Group, alleging that plaintiffs and
Real Estate Group breached various agreements with Anros, interfered
with its business relations, engaged in intentional and negligent
misrepresentation, and breached fiduciary duties owed to Anros. Anros
seeks as yet undetermined damages alleged to exceed $200,000,000,
punitive damages of $50,000,000, specific enforcement of certain
contractual obligations, and declaratory relief.
On March 28, 1989, plaintiffs and Real Estate Group filed an
answer to the third party complaint denying liability and asserting
affirmative defenses. Anros' primary counsel subsequently withdrew
from representation of Anros, and, after Anros failed to comply with
court-ordered deadlines regarding retention of counsel and discovery,
the court dismissed all of Anros' claims. Anros appealed the
dismissal of its claims to the United States Court of Appeals for the
Fifth Circuit, which reversed the dismissal on February 5, 1993 and
remanded the action for a hearing to consider lesser sanctions and for
trial. The district court has not yet considered the sanctions issue
that was remanded by the Fifth Circuit.
On March 30, 1994, the court granted summary judgment in
favor of Real Estate Group, and on May 13, 1994, the court issued an
opinion explaining its decision. The court also awarded Real Estate
Group costs and attorneys' fees, in an amount not yet decided. On
August 18, 1994, the court denied a motion for reconsideration.
Plaintiffs have filed an appeal.
Real Estate Group denies all allegations of wrongdoing
asserted against it in this litigation, intends to defend these claims
vigorously, and believes that it has substantial defenses to these
claims.
U.S. Refining and Marketing Company, Inc. v. Hudson-Ram,
--------------------------------------------------- -----------
L.P., et al. On October 21, 1990, U.S. Refining and Marketing
------------
Company, Inc. ("U.S. Refining"), the general partner of U.S. Refining,
L.P. (the "Refining Partnership") commenced an action in the District
Court of Dallas County, Texas. The defendants in this action include
Hudson-Ram, L.P. ("Hudson-Ram"), a limited partner of the Refining
Partnership, the general partners of Hudson-Ram, and the limited
partners of Hudson-Ram, including
Bear Stearns and Michael Tennenbaum, a Director of the Company. The
action is brought against Bear Stearns and Mr. Tennenbaum directly
rather than in their capacities as limited partners. Other defendants
in the action include the general partner of Hudson-Ram, the general
partner of the general partner of Hudson-Ram, and various individuals
and companies allegedly liable for actions taken on their own behalf
or who are liable for the action of the general partner of Hudson-Ram.
The complaint in this action alleges common law claims and
state statutory violations against all defendants, including fraud,
breach of fiduciary duty and tortious interference in connection with
the acquisition and proposed renovation by the Refining Partnership of
an Oklahoma oil refinery. The complaint alleges, among other things,
that the defendants made fraudulent representations to gain an
increased ownership percentage in the Refining Partnership, failed to
use their best efforts to obtain outside financing for the renovation
as they had committed themselves to do, fraudulently represented that
they would provide the financing themselves if they could not secure
financing from other sources, and failed to pay required management
fees or provide reasonable working capital to the Refining
Partnership. The plaintiff seeks injunctive relief, damages of at
least $85 million, consisting of actual damages of $17 million, treble
damages of $51 million or in the alternative injunctive relief and
actual damages of $17 million and punitive damages of at least $17
million, and costs and attorneys' fees of at least $600,000.
On January 17, 1991, Hudson-Ram filed a counterclaim against
the plaintiff alleging, among other things, fraud, breach of fiduciary
duty and deceptive trade practices. The counterclaim seeks damages in
an unspecified amount.
On February 7, 1992, Bear Stearns answered the complaint,
denying all wrongdoing and asserting affirmative defenses. At the
same time, Bear Stearns also filed a counterclaim against U.S.
Refining and certain of its officers and directors. Mr. Tennenbaum, a
resident of California, moved to dismiss the action on the ground that
he is not subject to jurisdiction in Texas. On October 5, 1992, Mr.
Tennenbaum's motion was denied. On October 26, 1992, Mr. Tennenbaum
filed an answer denying all wrongdoing and asserting affirmative
defenses, subject to Mr. Tennenbaum's continuing objection to
jurisdiction. Court-ordered mediation took place on July 17, 1991 and
on two later occasions while the action was pending in Texas state
court, and was unsuccessful on each occasion. Discovery in the action
was proceeding until March 16, 1993 when the action was abated when
the Texas court learned that Hudson-Ram had filed for bankruptcy
protection in the Central District of California. Subsequent to the
abatement, both U.S. Refining and the Refining Partnership were placed
into bankruptcy in that same district. On March 19, 1993, the
litigation was removed to the United States Bankruptcy Court for the
Northern District of Texas, and on June 11, 1993 was transferred to
the Bankruptcy Court in the United States District Court for the
Central District of California.
On November 24, 1993 the Court dismissed the bankruptcy
petitions of Hudson-Ram and the Refining Partnership, but subsequently
reinstated the bankruptcy petition of the Refining Partnership. On
June 17, 1994, the Bankruptcy Court ordered mediation, which was
unsuccessful. The litigation is still pending as an adversary
proceeding in Bankruptcy Court.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this litigation, intends to defend these claims
vigorously, and believes that it has substantial defenses to these
claims.
Rufus Winsor v. Home Owners Federal Savings and Loan
------------ ------------------------------------
Association, et al. On November 2, 1989, Rufus Winsor commenced an
------------------
action in the United States District Court for the District of
Massachusetts naming as defendants Home Owners Federal Savings and
Loan Association ("Home Owners"), ten present or former officers
and/or directors of Home Owners, Peat, Marwick, Mitchell & Co. ("Peat
Marwick") and Bear Stearns. The action was brought individually and
on behalf of a purported class of all persons who purchased common or
preferred shares of Home Owners during the period November 5, 1986
through November 1, 1989. On or about April 19, 1990, a Consolidated
Amended Class Action Complaint (the "First Amended Complaint") was
filed that named three additional plaintiffs and dropped Peat Marwick
as a defendant. On or about June 7, 1991, a Second Consolidated
Amended Complaint (the "Second Amended Complaint") was filed that
named Rufus Winsor and five other individuals as plaintiffs, and named
thirteen present or former officers and/or directors of Home Owners,
as well as Bear Stearns, as defendants.
With respect to Bear Stearns, plaintiffs allege that
defendants made false and misleading statements in materials
disseminated by Home Owners, including the prospectus, pursuant to
which a November 5, 1986 public offering of 1,400,000 shares of Home
Owners' $6.125 Cumulative Preferred Stock, Series A, was made. With
respect to the individuals who are named defendants, plaintiffs allege
that Home Owners issued false and misleading statements regarding the
income, assets and financial condition of Home Owners throughout the
alleged class period. Bear Stearns
served as the managing underwriter of this public offering. The
Amended Complaint asserts claims against all defendants under Section
11 of the Securities Act and Section 10(b) of the Securities Exchange
Act and Rule 10b-5 promulgated thereunder, as well as common law
fraud, negligent misrepresentation and negligence. The Second Amended
Complaint also asserts claims against the individual defendants under
Section 15 of the Securities Act and Section 20 of the Exchange Act.
The Second Amended Complaint seeks rescission and/or damages in an
unspecified amount.
On October 3, 1990, all defendants moved to dismiss the
First Amended Complaint. On October 24, 1990, the parties stipulated
to the voluntary dismissal with prejudice of plaintiffs' claims under
Sections 11 and 15 of the Securities Act. On February 1, 1991, the
court denied the defendants' motions to dismiss plaintiffs' other
claims. On July 8, 1991, subsequent to the filing of the Second
Amended Complaint, the parties stipulated to the voluntary dismissal
with prejudice of plaintiffs' claims under Sections 11 and 15 of the
Securities Act. On July 8 and 10, 1991, Bear Stearns and the
individual defendants, respectively, moved to dismiss the Second
Amended Complaint. On November 21, 1991, the Court denied these
motions. On June 11, 1992, the court ruled in response to a motion
for class certification by plaintiffs that Bear Stearns will be deemed
a defendant only with respect to claims by purchasers of Home Owners'
preferred shares between November 5, 1986 and February 27, 1987.
On July 30, 1992, Bear Stearns filed a third party claim
against Peat Marwick seeking damages and contribution under Section
10(b) of the Securities Exchange Act and Rule 10b-5 and Massachusetts
law. On December 21, 1992 Bear Stearns amended its third party
complaint in response to a motion to dismiss the third party complaint
by Peat Marwick. On February 16, 1993 Peat Marwick moved to dismiss
Bear Stearns' amended third party complaint, and on May 3, 1993 the
court denied Peat Marwick's motion.
Discovery is proceeding.
Plaintiffs and present and former directors and officers of
Home Owners have been engaged in settlement negotiations, and a draft
settlement agreement is reportedly being prepared.
Bear Stearns denies all allegations of wrongdoing asserted
against it in this litigation, intends to defend these claims
vigorously, and believes that it has substantial defenses to these
claims.
The Company or a subsidiary of the Company also has been
named as a defendant in numerous other civil actions arising out of
its activities as a broker and dealer in securities, as an
underwriter, as an investment banker, as an employer or arising out of
alleged employee misconduct. Several of these actions allege damages
in large or indeterminate amounts, and some of these actions are class
actions. With respect to claims involving the Partnership, Bear
Stearns has assumed from the Partnership, and has agreed to indemnify
the Partnership against, the Partnership's liability, if any, arising
out of all legal proceedings to which the Partnership is or was named
as a party. In view of the number and diversity of all of the claims
referred to in this paragraph and above, the number of jurisdictions
in which these claims are pending and the inherent difficulty of
predicting the outcome of these claims, the Company cannot state what
the eventual outcome of these claims will be. The Company is con-
testing the allegations in these lawsuits, and believes that there are
meritorious defenses in these lawsuits.
The Company is also involved from time to time in
investigations and proceedings by governmental and self-regulatory
agencies.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
None.
Executive Officers of the Company
---------------------------------
The following table sets forth certain information
concerning executive officers of the Company as of September 15, 1994.
AGE AS OF
SEPTEMBER 15, PRINCIPAL OCCUPATION
NAME 1994 AND DIRECTORSHIPS HELD
---- -------------- ----------------------
Alan C. Greenberg 67 Chairman of the Board of the
Company and Bear Stearns and
Chairman of the Executive
Committee of the Company's Board
of Directors (the "Executive
Committee")
James E. Cayne 60 President and Chief Executive
Officer of the Company and Bear
Stearns, member of the Executive
Committee and Chairman of the
Management and Compensation
Committee of the Company's Board
of Directors (the "Management and
Compensation Committee")
Vincent J. Mattone 49 Executive Vice President of the
Company and Bear Stearns and
member of the Executive Committee
Alan D. Schwartz 44 Executive Vice President of the
Company and Bear Stearns and
member of the Executive Committee
and the Management and
Compensation Committee
John C. Sites, Jr. 42 Executive Vice President of the
Company and Bear Stearns and
member of the Executive Committee
and the Management and
Compensation Committee
Warren J. Spector 36 Executive Vice President of the
Company and Bear Stearns and
member of the Executive Committee
and the Management and
Compensation Committee
Michael L. Tarnopol 58 Executive Vice President of the
Company and Bear Stearns and
member of the Executive Committee
Michael Minikes 51 Treasurer of the Company and Bear
Stearns
AGE AS OF
SEPTEMBER 15, PRINCIPAL OCCUPATION
NAME 1994 AND DIRECTORSHIPS HELD
---- -------------- ----------------------
William J. Montgoris 47 Chief Operating Officer and Chief
Financial Officer of the Company
and Bear Stearns and member of the
Management and Compensation
Committee
Robert M. Steinberg 49 Senior Managing Director of Bear
Stearns and member of the
Management and Compensation
Committee
Kenneth L. Edlow 53 Secretary of the Company and Bear
Stearns
Michael J. Abatemarco 47 Controller of the Company and Bear
Stearns
Samuel L. Molinaro, Jr. 36 Senior Vice President - Finance of
the Company and Bear Stearns
Frederick B. Casey 55 Assistant Treasurer of the Company
and Bear Stearns
Except as indicated below, each of the executive officers of
the Company has been a Senior Managing Director of Bear Stearns for
more than the past five years.
Mr. Greenberg has been Chairman of the Board of the Company
for more than the past five years. Mr. Greenberg was Chief Executive
Officer of the Company and Bear Stearns from the Company's inception
until July 1993.
Mr. Cayne has been President of the Company for more than
the past five years. In July 1993, Mr. Cayne was elected as Chief
Executive Officer of the Company and Bear Stearns.
Mr. Mattone has been an Executive Vice President of the
Company and a member of Bear Stearns' Government Bond Department,
Mortgage Department and Corporate Bond Department for more than the
past five years. Mr. Mattone is a member of the group that is
responsible for all fixed income activities of Bear Stearns.
Mr. Schwartz has been involved in the management of Bear
Stearns' Investment Banking Division for more than the past five years
and is Chairman of its Investment Banking Policy Committee. Mr.
Schwartz became an Executive Vice President of the Company in
September 1989.
Mr. Sites has been an Executive Vice President of the
Company and has directed the Mortgage Department of Bear Stearns for
more than the past five years. Mr. Sites is a member of the group
that is responsible for all fixed income activities of Bear Stearns.
Mr. Spector has been involved in the management of Bear
Stearns' Mortgage Department for more than the past five years.
Mr. Spector became an Executive Vice President of the Company in
November 1992. Mr. Spector is a member of the group that is
responsible for all fixed income activities of Bear Stearns. In
addition, Mr. Spector is responsible for the Derivatives Department of
Bear Stearns.
Mr. Tarnopol has been Executive Vice President of the
Company and has been involved in the management of Bear Stearns'
Investment Banking Division for more than the past five years. Mr.
Tarnopol is Chairman of the Investment Banking Division of Bear
Stearns and a member of its Investment Banking Policy Committee.
Mr. Minikes has been Treasurer of the Company and Bear
Stearns for more than the past five years.
Mr. Montgoris has been Chief Operating Officer of the
Company and Bear Stearns since August 1993. Mr. Montgoris has been
Chief Financial Officer of the Company and Bear Stearns for more than
the past five years.
Mr. Steinberg has directed Bear Stearns' Risk Arbitrage
Department for more than the past five years. Mr. Steinberg has been
Chairman of the Institutional Credit Committee of Bear Stearns since
October 1992.
Mr. Edlow has been Secretary of the Company and of Bear
Stearns and a member of the Company's Administration Department for
more than the past five years.
Mr. Abatemarco has been Controller of the Company and Bear
Stearns for more than the past five years.
Mr. Molinaro has been Senior Vice President-Finance of the
Company and Bear Stearns since September 8, 1993 and a Senior Managing
Director of Bear Stearns since September 14, 1993. Mr. Molinaro
served as Assistant Controller of Bear Stearns from July 10, 1989 to
September 7, 1993 and prior thereto was a member of Bear Stearns'
Accounting Department. Mr. Molinaro was a Managing Director of Bear
Stearns from September 4, 1990 to
September 13, 1993 and prior thereto was an Associate Director of Bear
Stearns.
Mr. Casey has been Assistant Treasurer of the Company and of
Bear Stearns for more than the past five years.
Officers serve at the discretion of the Board of Directors.
PART II
Item 5. Market for Registrant's Common Equity and
-----------------------------------------
Related Stockholder Matters.
---------------------------
The information required to be furnished pursuant to this
item is set forth under the caption "Price Range of Common Stock and
Dividends" in the Annual Report, which is incorporated herein by
reference to Exhibit No. (13) of this report.
Item 6. Selected Financial Data.
-----------------------
The information required to be furnished pursuant to this
item is set forth under the caption "Selected Financial Data" in the
Annual Report, which is incorporated herein by reference to Exhibit
No. (13) of this report.
Item 7. Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operation.
--------------------------------------------
The information required to be furnished pursuant to this
item is set forth under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the
Annual Report, which is incorporated herein by reference to Exhibit
No. (13) of this report.
Item 8. Financial Statements and Supplementary Data.
-------------------------------------------
The information required to be furnished pursuant to this
item is contained in the Consolidated Financial Statements and the
Notes to Consolidated Financial Statements in the Annual Report. Such
information and the Independent Auditors' Report in the Annual Report
are incorporated herein by reference to Exhibit No. (13) of this
report.
Item 9. Changes in and Disagreements with Accountants on
------------------------------------------------
Accounting and Financial Disclosure.
-----------------------------------
None.
PART III
Item 10. Directors and Executive Officers of the
---------------------------------------
Registrant.
----------
The information required to be furnished pursuant to this
item with respect to Directors of the Company will be set forth under
the caption "Election of Directors" in the registrant's proxy
statement (the "Proxy Statement") to be furnished to stockholders in
connection with the solicitation of proxies by the Company's Board of
Directors for use at the 1994 Annual Meeting of Stockholders to be
held on October 24, 1994, and is incorporated herein by reference, and
the information with respect to Executive Officers is set forth,
pursuant to General Instruction G of Form 10-K, under Part I of this
Report.
Item 11. Executive Compensation.
----------------------
The information required to be furnished pursuant to this
item will be set forth under the caption "Executive Compensation" of
the Proxy Statement, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners
-----------------------------------------------
and Management.
--------------
The information required to be furnished pursuant to this
item will be set forth under the captions "Voting Securities" and
"Security Ownership of Management" of the Proxy Statement, and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
----------------------------------------------
The information required to be furnished pursuant to this
item will be set forth under the caption "Certain Relationships and
Related Party Transactions" of the Proxy Statement, and is
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
--------------------------------------------
Reports on Form 8-K.
-------------------
(a) List of Financial Statements, Financial Statement
Schedules and Exhibits:
Financial Statements:
--------------------
The financial statements required to be filed hereunder are
listed on page F-1 hereof.
Financial Statement Schedules:
-----------------------------
The financial statement schedules required to be filed
hereunder are listed on page F-1 hereof.
Executive Compensation Plans and Arrangements:
---------------------------------------------
1985 Stock Option Plan, as amended (filed as Exhibit (10)(a)(1)
to the registrant's registration statement on Form S-1 (File
No. 33-15948)).
Employee Convertible Debenture Purchase Plan (filed as Exhibit A
to the registrant's proxy statement furnished to stockholders in
connection with the solicitation of proxies for the registrant's
Annual Meeting of Stockholders held on September 21, 1987).
1989 Deferred Compensation Plan for Executive Officers (filed as
Exhibit B to the registrant's proxy statement furnished to
stockholders in connection with the solicitation of proxies for
the registrant's Annual Meeting of Stockholders held on October
29, 1990).
Management Compensation Plan, as amended and restated as of July
1, 1994, certain provisions of which are subject to the approval
of the Stockholders at the 1994 Annual Meeting (filed herewith).
Capital Accumulation Plan for Senior Managing Directors, as
amended and restated as of July 1, 1993 (the "CAP Plan") (filed
as Exhibit B to the registrant's proxy statement
furnished to stockholders in connection with the solicitation of
proxies for the registrant's Annual Meeting of Stockholders held
on October 25, 1993).
Amendment to the CAP Plan, adopted April 14, 1994, certain
provisions of which are subject to the approval of Stockholders
at the 1994 Annual Meeting (filed herewith).
Amendment to the CAP Plan, adopted September 1, 1994, certain
provisions of which are subject to the approval of the
Stockholders at the 1994 Annual Meeting (filed herewith).
Performance Unit Plan for Senior Managing Directors (the "PUP
Plan") (filed as Exhibit C to the registrant's proxy statement
furnished to stockholders in connection with the solicitation of
proxies for the registrant's Annual Meeting of Stockholders held
on October 25, 1993).
Amendment to the PUP Plan, adopted September 1, 1994 (filed
herewith).
Exhibits:
--------
(3)(a)(1) Restated Certificate of Incorporation of the
registrant, filed September 11, 1985 (incor-
porated by reference to Exhibit No. (4)(a)(1) to
the registrant's registration statement on Form
S-8 (File No. 33-49979)).
(3)(a)(2) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed October 29, 1985 (incorporated by reference
to Exhibit No. (4)(a)(2) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(3) Certificate of Stock Designation to the Restated
Certificate of Incorporation of the registrant,
filed October 29, 1985 (incorporated by reference
to Exhibit No. (4)(a)(3) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(4) Certificate of Change of Address of Registered
Agent to the Restated Certificate of Incor-
poration of the registrant, filed February 14,
1986 (incorporated by reference to Exhibit
No. (4)(a)(4) to the registrant's registration
statement on Form S-8 (File No. 33-49979)).
(3)(a)(5) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed September 18, 1986 (incorporated by refer-
ence to Exhibit No. (4)(a)(5) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(6) Certificate of Stock Designation to the Restated
Certificate of Incorporation of the registrant,
filed February 19, 1987 (incorporated by refer-
ence to Exhibit No. (4)(a)(6) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(7) Certificate of Correction to the Restated Cer-
tificate of Incorporation of the registrant,
filed February 25, 1987 (incorporated by refer-
ence to Exhibit No. (4)(a)(7) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(8) Certificate of Change of Address of Registered
Agent to the Restated Certificate of Incorpora-
tion of the registrant, filed October 27, 1988
(incorporated by reference to Exhibit No.
(4)(a)(8) to the registrant's registration
statement on Form S-8 (File No. 33-49979)).
(3)(a)(9) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed November 6, 1989 (incorporated by reference
to Exhibit No. (4)(a)(9) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(10) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed November 7, 1990 (incorporated by reference
to Exhibit No. (4)(a)(10) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(11) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed November 10, 1992 (incorporated by refer-
ence to Exhibit No. (4)(a)(11) to the regis-
trant's registration statement on Form S-8 (File
No. 33-49979)).
(3)(a)(12) Certificate of Stock Designation to the Restated
Certificate of Incorporation of the registrant,
filed March 23, 1993 (incorporated by reference
to Exhibit No. (4)(a)(12) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(13) Certificate of Stock Designation to the Restated
Certificate of Incorporation of the registrant,
filed July 22, 1993 (incorporated by reference to
Exhibit No. (4)(a)(13) to the registrant's regis-
tration statement on Form S-8 (File No.
33-49979)).
(3)(a)(14) Form of Certificate of Stock Designations to the
Restated Certificate of Incorporation of the
registrant (incorporated by reference to Exhibit
No. 4.4 to the registrant's registration
statement on Form 8-A filed on February 23,
1994).
(3)(b) Amended and Restated By-laws of the registrant
(incorporated by reference to Exhibit No. (3)(b)
to registrant's Annual Report on Form 10-K for
its fiscal year ended June 30, 1991 and Exhibit
No. (3)(b) to the registrant's Quarterly Report
on Form 10-Q for the quarterly period ended
December 31, 1992).
(4)(a) Indenture, dated as of April 13, 1989, between
the registrant and Citibank, N.A., as trustee
(incorporated by reference to the identically
numbered exhibit to the registrant's registration
statement on Form S-3 (File No. 33-27713)).
(4)(b) Indenture, dated as of May 31, 1991, between the
registrant and Manufacturers Hanover Trust
Company, as trustee (incorporated by reference to
exhibit No. (4)(a) to registrant's registration
statement on Form S-3 (File No. 33-40933)).
(4)(c) Except as set forth in (4)(a) and 4(b) above, the
instruments defining the rights of holders of
long-term debt securities of the registrant and
its subsidiaries are omitted pursuant to Section
(b)(4)(iii) of Item 601 of Regulation S-K.
Registrant hereby agrees to furnish copies of
these instruments to the SEC upon request.
(4)(d) Form of Deposit Agreement (incorporated by
reference to Exhibit (4)(d) to the registrant's
registration statement on Form S-3 (File No.
33-59140)).
(10)(a)(1) 1985 Stock Option Plan, as amended (incorporated
by reference to the identically numbered exhibit
to the registrant's registration statement on
Form S-1 (File No. 33-15948)).
(10)(a)(2) Employee Convertible Debenture Purchase Plan
(incorporated by reference to Exhibit A to the
registrant's proxy statement furnished to stock-
holders in connection with the solicitation of
proxies for the registrant's Annual Meeting of
Stockholders held on September 21, 1987).
(10)(a)(3) 1989 Deferred Compensation Plan for Executive
Officers (incorporated by reference to Exhibit B
to the registrant's proxy statement furnished to
stockholders in connection with the solicitation
of proxies for the registrant's Annual Meeting of
Stockholders held on October 29, 1990).
(10)(a)(4) Management Compensation Plan, as amended and
restated as of July 1, 1994, certain provisions
of which are subject to the approval of the
Stockholders at the 1994 Annual Meeting.
(10)(a)(5) Capital Accumulation Plan for Senior Managing
Directors, as amended and restated as of July 1,
1993 (the "CAP Plan") (incorporated by reference
to Exhibit B to the registrant's proxy statement
furnished to stockholders in connection with the
solicitation of proxies for the registrant's
Annual Meeting of Stockholders held on October
25, 1993).
(10)(a)(6) Amendment to the CAP Plan, adopted April 14,
1994, certain provisions of which are subject to
the approval of the Stockholders at the 1994
Annual Meeting.
(10)(a)(7) Amendment to the CAP Plan, adopted September 1,
1994, certain provisions of which are subject to
the approval of the Stockholders at the 1994
Annual Meeting.
(10)(a)(8) Performance Unit Plan for Senior Managing
Directors (the "PUP Plan") (incorporated by
reference to Exhibit C to the registrant's proxy
statement furnished to stockholders in connection
with the solicitation of proxies for the
registrant's Annual Meeting of Stockholders held
on October 25, 1993).
(10)(a)(9) Amendment to the PUP Plan, adopted September 1,
1994.
(10)(b)(1) Lease, dated as of November 1, 1991, between
Forest City Jay Street Associates and The Bear
Stearns Companies Inc. with respect to the
premises located at One Metrotech Center,
Brooklyn, New York (incorporated by reference to
Exhibit (10)(b)(1) to the registrant's Annual
Report on Form 10-K for its fiscal year ended
June 30, 1992).
(10)(b)(2) Lease, dated as of March 6, 1987, among Olympia &
York 245 Lease Company, 245 Park Avenue Company
and The Bear Stearns Companies Inc. (incorporated
by reference to Exhibit (10)(c)(2) to the
registrant's registration statement on Form S-1
(File No. 33-15948)).
(10)(b)(3) Lease, dated as of August 26, 1994, between Tenth
City Associates and The Bear Stearns Companies
Inc.
(11) Statement re: computation of per share earnings.
(12) Statement re: computation of ratio of earnings to
fixed charges.
(13) 1994 Annual Report to Stockholders (only those
portions expressly incorporated by reference
herein shall be deemed filed with the
Commission).
(21) Subsidiaries of the registrant.
(23) Consent of Deloitte & Touche LLP.
(27) Financial Data Schedule.
(b) Reports on Form 8-K. The Company filed the
-------------------
following Current Report on Form 8-K during the
last quarter of the period covering this report:
(i) A Current Report on Form 8-K dated
April 12, 1994, pertaining to the
registrant's results of operations
for the three months and nine
months ended March 25, 1994.
(ii) A Current Report on Form 8-K dated
April 14, 1994, pertaining to the
declaration of dividends.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 26th day of September, 1994.
THE BEAR STEARNS COMPANIES INC.
-------------------------------
(Registrant)
By: /s/ William J. Montgoris
------------------------
William J. Montgoris
Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities indicated on the
26th day of September, 1994.
NAME TITLE
---- -----
/s/ Alan C. Greenberg Chairman of the Board;
---------------------------------
Alan C. Greenberg Director
/s/ James E. Cayne President and Chief
---------------------------------
James E. Cayne Executive Officer;
Director
/s/ William J. Montgoris Chief Operating
---------------------------------
William J. Montgoris Officer and Chief Financial
Officer (Principal
Financial Officer);
Director
/s/ Michael L. Tarnopol Executive Vice
---------------------------------
Michael L. Tarnopol President; Director
NAME TITLE
---- -----
Executive Vice
---------------------------------
Vincent J. Mattone President; Director
/s/ John C. Sites, Jr. Executive Vice
---------------------------------
John C. Sites, Jr. President; Director
/s/ Alan D. Schwartz Executive Vice
---------------------------------
Alan D. Schwartz President; Director
/s/ Warren J. Spector Executive Vice
---------------------------------
Warren J. Spector President; Director
/s/ Michael Minikes Treasurer; Director
---------------------------------
Michael Minikes
/s/ E. Garrett Bewkes, III Director
---------------------------------
E. Garrett Bewkes, III
/s/ Denis A. Bovin Director
---------------------------------
Denis A. Bovin
/s/ Peter Cherasia Director
---------------------------------
Peter Cherasia
/s/ Michael R. Dabney Director
---------------------------------
Michael R. Dabney
/s/ Kevin J. Finnerty Director
---------------------------------
Kevin J. Finnerty
NAME TITLE
---- -----
Director
---------------------------------
Grace J. Fippinger
/s/ Carl D. Glickman Director
---------------------------------
Carl D. Glickman
/s/ Thomas R. Green Director
---------------------------------
Thomas R. Green
Director
---------------------------------
Rev. Donald J. Harrington, C.M.
/s/ Richard Harriton Director
---------------------------------
Richard Harriton
Director
---------------------------------
Nancy E. Havens-Hasty
/s/ Jonathan Ilany Director
---------------------------------
Jonathan Ilany
/s/ Daniel L. Keating Director
---------------------------------
Daniel L. Keating
Director
---------------------------------
John W. Kluge
/s/ David A. Liebowitz Director
---------------------------------
David A. Liebowitz
NAME TITLE
---- -----
/s/ Bruce M. Lisman Director
---------------------------------
Bruce M. Lisman
/s/ Matthew J. Mancuso Director
---------------------------------
Matthew J. Mancuso
/s/ Donald R. Mullen, Jr. Director
---------------------------------
Donald R. Mullen, Jr.
/s/ Frank T. Nickell Director
---------------------------------
Frank T. Nickell
/s/ R. Blaine Roberts Director
---------------------------------
R. Blaine Roberts
/s/ E. John Rosenwald, Jr. Director
---------------------------------
E. John Rosenwald, Jr.
Director
---------------------------------
Frederic V. Salerno
/s/ Robert M. Steinberg Director
---------------------------------
Robert M. Steinberg
/s/ Fred Wilpon Director
---------------------------------
Fred Wilpon
/s/ Uzi Zucker Director
---------------------------------
Uzi Zucker
NAME TITLE
---- -----
/s/ Michael J. Abatemarco Controller
---------------------------------
Michael J. Abatemarco
/s/ Samuel L. Molinaro, Jr. Senior Vice President
---------------------------------
Samuel L. Molinaro, Jr. Finance (Principal
Accounting Officer)
THE BEAR STEARNS COMPANIES INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
ITEMS 14 (a) (1) and 14 (a) (2)
Financial Statements Page Reference
--------------------
Annual
Form 10-K Report *
--------- --------
Independent Auditors' Report 54
The Bear Stearns Companies Inc.
-------------------------------
(i) Consolidated Statements of Income-
fiscal years ended
June 30, 1994, 1993 and 1992 35
(ii) Consolidated Statements of Financial
Condition at June 30, 1994 and 1993 36
(iii) Consolidated Statements of Cash Flows-
fiscal years ended
June 30, 1994, 1993 and 1992 37
(iv) Consolidated Statements of Changes in
Stockholders' Equity - fiscal years ended
June 30, 1992, 1993 and 1994 38-39
(v) Notes to Consolidated Financial Statements 40-53
Financial Statement Schedules
-----------------------------
Independent Auditors' Report F-2
III Condensed financial information of
registrant F-3-F-6
VIII Valuation and qualifying accounts F-7
IX Short-term borrowings F-8
* Incorporated by reference from the indicated
pages of the 1994 Annual Report to Stockholders.
All other schedules are omitted because they are
not applicable or the requested information is
included in the consolidated financial statements
or notes thereto.
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders of
The Bear Stearns Companies Inc.:
We have audited the consolidated financial statements of The Bear
Stearns Companies Inc. and Subsidiaries as of June 30, 1994 and 1993,
and for each of the three years in the period ended June 30, 1994, and
have issued our report thereon dated August 15, 1994; such
consolidated financial statements and report are included in your
Annual Report to Stockholders and are incorporated herein by
reference. Our audits also included the financial statement schedules
of The Bear Stearns Companies Inc. and Subsidiaries, listed in Item
14. These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion
based on our audits. In our opinion, such financial statement
schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
DELOITTE & TOUCHE LLP
New York, New York
August 15, 1994
SCHEDULE III
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE BEAR STEARNS COMPANIES INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF INCOME
(In thousands)
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
June 30, 1994 June 30, 1993 June 30, 1992
------------- ------------- -------------
Revenues
Interest
Coupon $ 8,851 $ 15,176 $ 5,456
Intercompany 361,824 179,213 193,161
Other 49,056 34,528 39,850
-------- ------- -------
419,731 228,917 238,467
-------- ------- -------
Expenses
Interest 415,794 215,303 213,888
Other 48,108 40,149 37,042
-------- ------- -------
463,902 255,452 250,930
-------- ------- -------
Loss before benefit from
income taxes and equity
in earnings of subsidiaries (44,171) (26,535) (12,463)
Benefit from income taxes (15,320) (11,473) (5,388)
-------- ------- -------
Loss before equity in
earnings of subsidiaries (28,851) (15,062) (7,075)
Equity in earnings of
subsidiaries 415,816 377,509 301,653
-------- ------- -------
Net income $ 386,965 $ 362,447 $ 294,578
======== ======= =======
See Notes to Condensed Financial Information.
SCHEDULE III
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE BEAR STEARNS COMPANIES INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
June 30, June 30,
1994 1993
---------- ----------
ASSETS
Cash $ 861 $ 690
Receivables from subsidiaries 10,805,511 7,695,121
Investments in subsidiaries, at equity 2,238,258 1,850,540
Property, equipment and leasehold improvements,
net of accumulated depreciation and amortization
of $170,020 in 1994 and $170,591 in 1993 224,103 206,614
Other assets 240,961 154,674
---------- ---------
Total Assets $13,509,694 $9,907,639
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $ 7,576,097 $5,991,415
Payables to subsidiaries 222,084 104,128
Other liabilities 136,851 153,443
---------- ---------
7,935,032 6,248,986
---------- ---------
Long-term borrowings 3,408,096 1,882,123
---------- ---------
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value; 10,000,000 shares
authorized:
Adjustable Rate Cumulative Preferred Stock,
Series A; $50 liquidation preference; 3,000,000
shares issued 150,000 150,000
Cumulative Preferred Stock, Series B; $200
liquidation preference; 937,500 shares
issued and outstanding 187,500 187,500
Cumulative Preferred Stock, Series C; $200
liquidation preference; 500,000 shares
issued and outstanding 100,000
Common stock, $1.00 par value; 200,000,000 shares
authorized; 144,965,094 shares and 131,507,178
shares issued in 1994 and 1993, respectively 144,965 131,507
Paid-in capital 1,447,066 1,225,557
Retained earnings 388,685 328,414
Capital Accumulation Plan 275,415 138,331
Treasury stock, at cost -
Adjustable Rate Cumulative Preferred
Stock, Series A; 2,118,550 shares in 1994
and 1993 (85,507) (85,507)
Common stock; 31,525,939 shares in 1994 and
22,203,018 shares in 1993 (410,882) (263,755)
Note receivable from ESOP Trust (30,676) (35,517)
---------- ---------
Total Stockholders' Equity 2,166,566 1,776,530
---------- ---------
Total Liabilities and Stockholders' Equity $13,509,694 $9,907,639
========== =========
See Notes to Condensed Financial Information.
SCHEDULE III
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE BEAR STEARNS COMPANIES INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
June 30, 1994 June 30, 1993 June 30, 1992
------------- ------------- -------------
Cash flows from operating
activities:
Net income $ 386,965 $ 362,447 $ 294,578
Adjustments to reconcile net
income to cash used in
operating activities:
Equity in earnings of
subsidiaries, net of dividends
received (344,529) (302,317) (231,708)
Other 48,783 44,409 32,643
(Increases) decreases in assets:
Receivables from subsidiaries (3,110,390) (3,323,849) (1,275,597)
Investments in subsidiaries,
net (40,231) (10,240) (10,428)
Other assets (105,226) (95,698) 547
Increases (decreases) in liabilities:
Payables to subsidiaries 117,956 93,484 4,380
Other liabilities (13,896) 51,666 30,027
---------- ---------- ----------
Cash used in operating
activities (3,060,568) (3,180,098) (1,155,558)
---------- ---------- ----------
Cash flows from financing activities:
Net proceeds from issuance of
Cumulative Preferred Stock 96,689 181,307
Net proceeds from short-term
borrowings 1,584,682 2,175,100 973,522
Issuance of long-term borrowings 1,795,979 840,347 357,425
Capital Accumulation Plan 137,084 138,331 114,089
Other common stock transactions 3,733 2,577
Note repayment from ESOP Trust 4,841 4,483
Payments for:
Retirement of Senior Notes (273,000)
Treasury stock purchases (147,763) (140,504) (116,997)
Note receivable from ESOP Trust (40,000)
Cash dividends paid (90,769) (66,425) (68,305)
---------- ---------- ----------
Cash provided by financing
activities 3,111,476 3,135,216 1,219,734
---------- ---------- ----------
Cash flows from investing activities:
Purchases of property, equipment and
leasehold improvements (65,473) (50,429) (67,498)
Purchases of investment securities
and other assets (17,192) (11,030)
Proceeds from sale of investment
securities and other assets 31,928 105,989 687
---------- ---------- ----------
Cash provided by (used in)
investing activities (50,737) 44,530 (66,811)
---------- ---------- ----------
Net increase (decrease) in cash 171 (352) (2,635)
Cash, beginning of year 690 1,042 3,677
---------- --------- ----------
Cash, end of year $ 861 $ 690 $ 1,042
========== ========= ==========
See Notes to Condensed Financial Information.
SCHEDULE III
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE BEAR STEARNS COMPANIES INC.
(PARENT COMPANY ONLY)
NOTES TO CONDENSED FINANCIAL INFORMATION
(In thousands)
1. GENERAL
The condensed financial information of the Company (Parent
Company Only) should be read in conjunction with the consolidated
financial statements of The Bear Stearns Companies Inc. and the
notes thereto incorporated by reference in this report.
2. DIVIDENDS RECEIVED FROM SUBSIDIARIES
The Company received from its consolidated subsidiaries cash
dividends of $71,270, $75,192, and $69,945 for the fiscal years
ended June 30, 1994, 1993 and 1992, respectively.
3. STATEMENT OF CASH FLOWS
Income taxes paid (consolidated) totaled $276,565, $223,550 and
$210,134 in the fiscal years ended June 30, 1994, 1993 and 1992,
respectively. Cash payments for interest approximated interest
expense for the fiscal years ended June 30, 1994, 1993 and 1992,
respectively. Non-cash financing activities totaled $1,947,
$2,846 and $7,599 for the fiscal years ended June 30, 1994, 1993
and 1992, respectively.
SCHEDULE VIII
THE BEAR STEARNS COMPANIES INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
(In thousands)
Charged to
Balance at Costs and Balance at
Description Beginning of Period Expenses Deductions End of Period
----------- ------------------- ---------- ---------- -------------
Allowance for Doubtful
Accounts:
Year ended June 30,
1994 $35,479 $12,871 $ (6,297) $42,053
Year ended June 30,
1993 36,727 1,059 (2,307) 35,479
Year ended June 30,
1992 45,823 1,716 (10,812) 36,727
SCHEDULE IX
THE BEAR STEARNS COMPANIES INC.
SHORT-TERM BORROWINGS
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
(Dollars in thousands)
Maximum Average
Weighted month-end month-end Weighted
Category average amount amount average
of aggregate interest outstanding outstanding interest
short-term Balance at rate at end during during rate during
borrowings (1) end of period of period the period the period the period (2)
-------------- ------------- ----------- ------------ ------------ --------------
Bank loans-
June 30, 1994 $ 294,214 6.20% $ 2,868,691 $ 1,372,245 3.61%
Bank loans-
June 30, 1993 127,479 4.69% 1,630,019 383,298 3.70%
Bank loans-
June 30, 1992 60,019 7.00% 1,005,043 190,072 4.80%
Medium-Term Notes-
June 30, 1994 3,892,191 4.43% 3,892,191 3,107,130 3.65%
Medium-Term Notes-
June 30, 1993 1,587,255 3.54% 1,587,255 1,062,730 3.77%
Medium-Term Notes-
June 30, 1992 585,500 4.36% 647,900 521,325 5.15%
Commercial paper-
June 30, 1994 3,689,000 4.39% 4,496,000 4,275,000 3.46%
Commercial paper-
June 30, 1993 4,404,160 3.27% 4,404,160 3,387,155 3.43%
Commercial paper-
June 30, 1992 3,170,815 3.87% 3,414,449 2,969,793 4.76%
Securities sold
under agreements
to repurchase-
June 30, 1994 26,863,122 3.22% 39,789,202 30,166,372 3.20%
Securities sold
under agreements
to repurchase-
June 30, 1993 22,058,354 2.98% 30,080,950 25,333,785 2.98%
Securities sold
under agreements
to repurchase-
June 30, 1992 19,317,964 3.75% 31,139,621 25,677,266 4.65%
<FN>
(1) The general terms of each category of aggregate short-term borrowings are contained in the Notes to
Consolidated Financial Statements appearing under the captions "Summary of Significant Accounting
Policies" and "Short-Term Financing" of the Annual Report incorporated elsewhere herein by reference.
(2) The weighted average interest rate during the period was computed based upon the average amounts
outstanding daily.
EXHIBIT INDEX
-------------
Exhibit No. Exhibit
----------- -------
(3)(a)(1) Restated Certificate of Incorporation of the
registrant, filed September 11, 1985 (incor-
porated by reference to Exhibit No. (4)(a)(1) to
the registrant's registration statement on Form
S-8 (File No. 33-49979)).
(3)(a)(2) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed October 29, 1985 (incorporated by reference
to Exhibit No. (4)(a)(2) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(3) Certificate of Stock Designation to the Restated
Certificate of Incorporation of the registrant,
filed October 29, 1985 (incorporated by reference
to Exhibit No. (4)(a)(3) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(4) Certificate of Change of Address of Registered
Agent to the Restated Certificate of Incor-
poration of the registrant, filed February 14,
1986 (incorporated by reference to Exhibit
No. (4)(a)(4) to the registrant's registration
statement on Form S-8 (File No. 33-49979)).
(3)(a)(5) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed September 18, 1986 (incorporated by refer-
ence to Exhibit No. (4)(a)(5) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(6) Certificate of Stock Designation to the Restated
Certificate of Incorporation of the registrant,
filed February 19, 1987 (incorporated by refer-
ence to Exhibit No. (4)(a)(6) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
Exhibit No. Exhibit
----------- -------
(3)(a)(7) Certificate of Correction to the Restated Cer-
tificate of Incorporation of the registrant,
filed February 25, 1987 (incorporated by refer-
ence to Exhibit No. (4)(a)(7) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(8) Certificate of Change of Address of Registered
Agent to the Restated Certificate of Incorpora-
tion of the registrant, filed October 27, 1988
(incorporated by reference to Exhibit No.
(4)(a)(8) to the registrant's registration
statement on Form S-8 (File No. 33-49979)).
(3)(a)(9) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed November 6, 1989 (incorporated by reference
to Exhibit No. (4)(a)(9) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(10) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed November 7, 1990 (incorporated by reference
to Exhibit No. (4)(a)(10) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(11) Certificate of Amendment to the Restated Cer-
tificate of Incorporation of the registrant,
filed November 10, 1992 (incorporated by refer-
ence to Exhibit No. (4)(a)(11) to the regis-
trant's registration statement on Form S-8 (File
No. 33-49979)).
(3)(a)(12) Certificate of Stock Designation to the Restated
Certificate of Incorporation of the registrant,
filed March 23, 1993 (incorporated by reference
to Exhibit No. (4)(a)(12) to the registrant's
registration statement on Form S-8 (File No.
33-49979)).
(3)(a)(13) Certificate of Stock Designation to the Restated
Certificate of Incorporation of the registrant,
filed July 22, 1993 (incorporated by reference to
Exhibit No. (4)(a)(13) to the registrant's regis-
tration statement on Form S-8 (File No.
33-49979)).
Exhibit No. Exhibit
----------- -------
(3)(a)(14) Form of Certificate of Stock Designations to the
Restated Certificate of Incorporation of the
registrant (incorporated by reference to Exhibit
No. 4.4 to the registrant's registration
statement on Form 8-A filed on February 23,
1994).
(3)(b) Amended and Restated By-laws of the registrant
(incorporated by reference to Exhibit No. (3)(b)
to registrant's Annual Report on Form 10-K for
its fiscal year ended June 30, 1991 and Exhibit
No. (3)(b) to the registrant's Quarterly Report
on Form 10-Q for the quarterly period ended
December 31, 1992).
(4)(a) Indenture, dated as of April 13, 1989, between
the registrant and Citibank, N.A., as trustee
(incorporated by reference to the identically
numbered exhibit to the registrant's registration
statement on Form S-3 (File No. 33-27713)).
(4)(b) Indenture, dated as of May 31, 1991, between the
registrant and Manufacturers Hanover Trust
Company, as trustee (incorporated by reference to
exhibit No. (4)(a) to registrant's registration
statement on Form S-3 (File No. 33-40933)).
(4)(c) Except as set forth in (4)(a) and 4(b) above, the
instruments defining the rights of holders of
long-term debt securities of the registrant and
its subsidiaries are omitted pursuant to Section
(b)(4)(iii) of Item 601 of Regulation S-K.
Registrant hereby agrees to furnish copies of
these instruments to the SEC upon request.
(4)(d) Form of Deposit Agreement (incorporated by
reference to Exhibit (4)(d) to the registrant's
registration statement on Form S-3 (File No.
33-59140)).
(10)(a)(1) 1985 Stock Option Plan, as amended (incorporated
by reference to the identically numbered exhibit
to the registrant's registration statement on
Form S-1 (File No. 33-15948)).
(10)(a)(2) Employee Convertible Debenture Purchase Plan
(incorporated by reference to Exhibit A to the
registrant's proxy statement furnished to stock-
holders in connection with the solicitation of
proxies for the registrant's Annual Meeting of
Stockholders held on September 21, 1987).
Exhibit No. Exhibit
----------- -------
(10)(a)(3) 1989 Deferred Compensation Plan for Executive
Officers (incorporated by reference to Exhibit B
to the registrant's proxy statement furnished to
stockholders in connection with the solicitation
of proxies for the registrant's Annual Meeting of
Stockholders held on October 29, 1990).
(10)(a)(4) Management Compensation Plan, as amended and
restated as of July 1, 1994, certain provisions
of which are subject to the approval of the
Stockholders at the 1994 Annual Meeting.
(10)(a)(5) Capital Accumulation Plan for Senior Managing
Directors, as amended and restated as of July 1,
1993 (the "CAP Plan") (incorporated by reference
to Exhibit B to the registrant's proxy statement
furnished to stockholders in connection with the
solicitation of proxies for the registrant's
Annual Meeting of Stockholders held on October
25, 1993).
(10)(a)(6) Amendment to the CAP Plan, adopted April 14,
1994, certain provisions of which are subject to
the approval of the Stockholders at the 1994
Annual Meeting.
(10)(a)(7) Amendment to the CAP Plan, adopted September 1,
1994, certain provisions of which are subject to
the approval of the Stockholders at the 1994
Annual Meeting.
(10)(a)(8) Performance Unit Plan for Senior Managing
Directors (the "PUP Plan") (incorporated by
reference to Exhibit C to the registrant's proxy
statement furnished to stockholders in connection
with the solicitation of proxies for the
registrant's Annual Meeting of Stockholders held
on October 25, 1993).
(10)(a)(9) Amendment to the PUP Plan, adopted September 1,
1994.
(10)(b)(1) Lease, dated as of November 1, 1991, between
Forest City Jay Street Associates and The Bear
Stearns Companies Inc. with respect to the
premises located at One Metrotech Center,
Brooklyn, New York (incorporated by reference to
Exhibit (10)(b)(1) to the registrant's Annual
Report on Form 10-K for its fiscal year ended
June 30, 1992).
Exhibit No. Exhibit
----------- -------
(10)(b)(2) Lease, dated as of March 6, 1987, among Olympia &
York 245 Lease Company, 245 Park Avenue Company
and The Bear Stearns Companies Inc. (incorporated
by reference to Exhibit (10)(c)(2) to the
registrant's registration statement on Form S-1
(File No. 33-15948)).
(10)(b)(3) Lease, dated August 26, 1994, between Tenth
Avenue Associates and The Bear Stearns Companies
Inc.
(11) Statement re: computation of per share earnings.
(12) Statement re: computation of ratio of earnings to
fixed charges.
(13) 1994 Annual Report to Stockholders (only those
portions expressly incorporated by reference
herein shall be deemed filed with the
Commission).
(21) Subsidiaries of the registrant.
(23) Consent of Deloitte & Touche LLP.
(27) Financial Data Schedule.