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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One) FORM 10-K/A
(Amendment No. 1)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended November 30, 2007.
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______ to _______
Commission file number: 1-8989
The Bear Stearns Companies Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3286161
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation of Organization)
383 Madison Avenue, New York, NY 10179
(Address of principal executive offices) (Zip Code)
(212) 272-2000
(Registrant's telephone number, including area code)
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 share New York Stock Exchange
Depositary Shares, each representing a one-fourth interest in a share of 6.15% Cumulative New York Stock Exchange
Preferred Stock, Series E
Depositary Shares, each representing a one-fourth interest in a share of 5.72% Cumulative New York Stock Exchange
Preferred Stock, Series F
Depositary Shares, each representing a one-fourth interest in a share of 5.49% Cumulative New York Stock Exchange
Preferred Stock, Series G
BearLinx(SM) Alerian MLP Select Index ETN New York Stock Exchange
Euro Floating Rate Global Notes Due July 2012 New York Stock Exchange
Principal Protected Sector Selector Notes Linked to a Basket of U.S. Sector Exchange Traded Funds American Stock Exchange
Due February 2008
Principal Protected Notes Linked to the S&P 500 Index Due October 2008 American Stock Exchange
Principal Protected Notes Linked to the Nasdaq-100 Index Due December 2009 American Stock Exchange
Principal Protected Notes Linked to the S&P 500 Index Due November 2009 American Stock Exchange
Principal Protected Notes Linked to the Dow Jones Industrial Average Due March 2011 American Stock Exchange
Medium-Term Notes, Linked to a Basket of Three International Equity Indices Due August 2010 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [X] No [ ]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [ ] No [X]
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]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. Large
accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined
in Rule12b-2 of the Exchange Act). Yes [ ] No [X]
At May 31, 2007, the aggregate market value of the voting and non-voting
common equity held by non-affiliates of the registrant was approximately $16.6
billion. 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 February 20, 2008, the registrant had 145,633,335 outstanding shares of
common stock, par value $1.00 per share, which is the registrant's only class of
common stock.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
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EXPLANATORY NOTE
As previously announced on March 16, 2008, The Bear Stearns Companies Inc.
(the "Company," "we," "our," and "us") entered into an agreement and plan of
merger with JPMorgan Chase & Co. ("JPMorgan"). On March 24, 2008, the Company
and JPMorgan entered into amendment No. 1 to the agreement and plan of merger
(as amended, the "Merger Agreement"). The Merger Agreement provides that, upon
the terms and subject to the conditions set forth in the Merger Agreement, a
wholly-owned subsidiary of JPMorgan will merge with and into the Company with
the Company continuing as the surviving corporation and as a wholly-owned
subsidiary of JPMorgan. The Merger Agreement is subject to the approval of our
common stockholders and other closing conditions.
The purpose of this Annual Report on Form 10-K/A is to amend Part III,
Items 10 through 14 of our Annual Report on Form 10-K for the fiscal year ended
November 30, 2007, which was filed with the Securities and Exchange Commission
(the "SEC") on January 29, 2008 (the "2007 10-K"), to include information
previously omitted from the 2007 10-K in reliance on General Instruction G to
Form 10-K, which provides that registrants may incorporate by reference certain
information from a definitive proxy statement filed with the SEC within 120 days
after the end of the fiscal year, which involves the election of directors. As a
result of the proposed merger, the Company's definitive proxy statement will not
be filed before March 29, 2008 (i.e., within 120 days after the end of the
Company's 2007 fiscal year) pursuant to Regulation 14A. The reference on the
cover of the Annual Report on Form 10-K to the incorporation by reference of the
registrant's definitive proxy statement into Part III of the Annual Report is
hereby deleted.
In addition, as required by Rule 12b-15 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), new certifications by our principal
executive officer and principal financial officer are filed as exhibits to this
Annual Report on Form 10-K/A under Item 15 of Part IV hereof.
For purposes of this Annual Report on Form 10-K/A, and in accordance with
Rule 12b-15 under the Exchange Act, Items 10 through 14 and 15(a)(3) of our 2007
10-K have been amended and restated in their entirety. Except as stated herein,
this Form 10-K/A does not reflect events occurring after the filing of the Form
10-K on January 29, 2008 and no attempt has been made in this Annual Report on
Form 10-K/A to modify or update other disclosures as presented in the 2007 10-K.
Accordingly, this Form 10-K/A should be read in conjunction with our filings
with the SEC subsequent to the filing of the Form 10-K.
TABLE OF CONTENTS
Page
Item No. No.
PART III
Item 10. Directors, Executive Officers and Corporate Governance...... 1.
Item 11. Executive Compensation...................................... 6.
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters............... 19.
Item 13. Certain Relationships and Related Transactions, and
Director Independence.................................... 22.
Item 14. Principal Accountant Fees and Services...................... 24.
PART IV
Item 15. Exhibits, Financial Statement Schedules..................... 26.
Signatures
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
DIRECTORS
The following individuals currently serve on the Company's Board of
Directors (the "Board") for a term of one year and until their successors are
duly elected and take office.
Henry S. Bienen, age 68, has been President of Northwestern University for
the past 13 years. Mr. Bienen has served as a director of the Company since 2004
and is a member of the Audit and Qualified Legal Compliance Committees. Mr.
Bienen is not on the board of directors of any other public companies.
James E. Cayne, age 74, has been Chairman of the Board for more than the
past five years. Mr. Cayne has served as a director of the Company since 1985.
From 1993 until January 2008, Mr. Cayne was Chief Executive Officer of the
Company and Bear, Stearns & Co. Inc. ("Bear Stearns"). Mr. Cayne is not on the
board of directors of any other public company.
Carl D. Glickman, age 81, has been a private investor for more than the
past five years. Mr. Glickman has served as a director of the Company since 1985
and is a member of the Audit and Qualified Legal Compliance Committees and is
the Chairman of the Compensation Committee. He is also the Lead Director and
Chairman of the Executive Committee of the Lexington Realty Trust.
Michael Goldstein, age 66, was the Chairman and Chief Executive Officer of
Toys "R" Us, Inc. until his retirement in June 2001. From June 2001 through May
2006, Mr. Goldstein was the Chairman of Toys "R" Us, Inc. Children's Fund. Mr.
Goldstein has served as a director of the Company since 2007 and is a member of
the Audit and Qualified Legal and Compliance Committees. Mr. Goldstein is on the
boards of the following additional public companies: 4Kids Entertainment, Inc.;
Martha Stewart Living Omnimedia, Inc.; Medco Health Solutions, Inc.; and Pacific
Sunwear of California, Inc.
Alan C. Greenberg, age 80, has been Chairman of the Executive Committee of
the Company for more than the past five years. Mr. Greenberg has served as a
director of the Company since 1985. Mr. Greenberg is on the board of one other
public company - Viacom Inc.
Donald J. Harrington, age 62, has been the President of St. John's
University for more than the past five years. Mr. Harrington has served as a
director of the Company since 1993 and is a member of the Compensation
Committee. Mr. Harrington is not on the board of directors of any other public
companies.
Frank T. Nickell, age 60, has been President and Chief Executive Officer
of Kelso & Company, a privately held merchant banking firm, for more than the
past five years. Mr. Nickell has been Chairman of Kelso & Company since June
2006. Mr. Nickell has served as a director of the Company since 1993 and is a
member of the Compensation, Corporate Governance and Nominating, and Finance and
Risk Committees. Mr. Nickell is not on the board of directors of any other
public company.
Paul A. Novelly, age 64, has been Chairman of the Board and Chief
Executive Officer of Apex Oil Company, Inc., a privately held company engaged in
wholesale marketing, storage and distribution of petroleum products, for more
than the past five years. Mr. Novelly has served as a director of the Company
since 2002 and is a member of the Audit, Corporate Governance and Nominating,
and Qualified Legal Compliance Committees and is the Chairman of the Finance and
Risk Committee. Mr. Novelly is also on the boards of the following additional
public companies: Boss Holdings, Inc. and Future Fuel Corp.
Frederic V. Salerno, age 64, was the Vice Chairman and Chief Financial
Officer of Verizon Communications Inc. (formerly Bell Atlantic Corporation)
until his retirement in September 2002. Prior to June 2000, Mr. Salerno was the
Senior Executive Vice President and Chief Financial Officer/Strategy and
Business Development of Bell Atlantic Corporation. Prior to the merger of NYNEX
Corp. ("NYNEX") and Bell Atlantic Corporation, Mr. Salerno was the Vice Chairman
of the Board of NYNEX for more than five years. Mr. Salerno has served as a
director of the Company since 1992 and is a member of the Audit, Finance and
Risk, and Qualified Legal Compliance Committees and is the Chairman of the
Corporate Governance and Nominating Committee. Mr. Salerno is on the boards of
the
following additional public companies: Akamai Technologies, Inc.; CBS
Corporation; IntercontinentalExchange, Inc.; National Fuel Gas Company; Popular,
Inc. and Viacom Inc.
Alan D. Schwartz, age 58, has been Chief Executive Officer of the Company
and Chairman and Chief Executive Officer of Bear Stearns since January 2008 and
has been President of the Company and Bear Stearns for more than the past five
years. Mr. Schwartz became sole President of the Company and Bear Stearns in
August 2007. Mr. Schwartz was Co-Chief Operating Officer of the Company and Bear
Stearns from June 2001 until August 2007. Mr. Schwartz has served as a director
of the Company from 1987 until 1996 and from 1999 until present and he is a
member of the Executive Committee. Mr. Schwartz is not on the board of directors
of any other public company.
Vincent Tese, age 65, is the Chairman of Wireless Cable International Inc.
Mr. Tese has served as a director of the Company since 1994 and is a member of
the Compensation, Corporate Governance and Nominating, and Finance and Risk
Committees and is the Chairman of the Audit Committee and the Qualified Legal
Compliance Committee. Mr. Tese is on the boards of the following additional
public companies: Bowne & Co., Inc.; Cablevision Systems Corporation;
IntercontinentalExchange Group; Mack-Cali Realty Corporation and NRDC
Acquisition Corp.
Wesley S. Williams Jr., age 65, had been a partner in the law firm of
Covington & Burling LLP for more than five years prior to his retirement in
2005. Mr. Williams has been President and Chief Operating Officer since 2004,
Co-President and Co-Chief Operating Officer from 2003 to 2004, and Co-Chairman
and Co-Chief Executive Officer for more than five years, of Lockhart Companies
Incorporated, a 26-company conglomerate of real estate, insurance, and consumer
finance companies operating largely in the Eastern Caribbean. Prior to his
retirement in 2005, Mr. Williams had been Chairman from 2003 through 2004,
Deputy Chairman from 2001 through 2002, and a member of the Board of Directors
for more than five years, of the Federal Reserve Bank of Richmond. Mr. Williams
has also been Chairman since 2004, and a member of the Board of Directors for
more than five years, of the National Prostate Cancer Coalition. Mr. Williams
has served as a director of the Company since 2004 and is a member of the Audit
and Qualified Legal Compliance Committees. Mr. Williams is not on the board of
directors of any other public company.
There is no family relationship among any of the directors or executive
officers of the Company.
EXECUTIVE OFFICERS
Set forth below are the names, ages, titles, principal occupation and
certain biographical information as of March 28, 2008 concerning the Company's
executive officers. All of the Company's officers have been appointed by and
serve at the discretion of the Board.
Name Age Principal Occupation
--------------------------- --------- ------------------------------------------
Alan D. Schwartz........... 58 President and Chief Executive Officer of
the Company and Bear Stearns and member of
the Executive Committee of the Company
(the "Executive Committee")
Jeffrey M. Farber.......... 43 Senior Vice President-Finance of the
Company and Controller of the Company and
Bear Stearns
Alan C. Greenberg.......... 80 Chairman of the Executive Committee
Jeffrey Mayer.............. 49 Executive Vice President, Co-Head of the
Fixed Income Division of the Company and
Bear Stearns and member of the Executive
Committee
Samuel L. Molinaro Jr...... 50 Executive Vice President, Chief Financial
Officer and Chief Operating Officer of the
Company and Bear Stearns and member of the
Executive Committee
Michael S. Solender........ 43 General Counsel of the Company and Bear
Stearns
-2-
Mr. Schwartz became Chief Executive Officer of the Company and Bear
Stearns in January 2008. Mr. Schwartz became sole President of the Company and
Bear Stearns in August 2007. Mr. Schwartz became a President of the Company and
Bear Stearns and a member of the Executive Committee in June 2001. Mr. Schwartz
was Co-Chief Operating Officer of the Company and Bear Stearns from June 2001 to
August 2007.
Mr. Farber became Senior Vice President-Finance of the Company in February
2007, and has been Controller of the Company and Bear Stearns since January
2004. Mr. Farber was Assistant Controller of the Company from May 2000 to
January 2004, and since May 2000 has been a Senior Managing Director of Bear
Stearns. Prior to May 2000 Mr. Farber was a partner with Deloitte & Touche LLP.
Mr. Greenberg has been Chairman of the Executive Committee for more than
five years and prior to June 2001 was Chairman of the Board of the Company.
Mr. Mayer became Executive Vice President of the Company and Bear Stearns
on August 2007, and has been Co-Head of the Fixed Income Division of the Company
and Bear Stearns since March 2002. In August 2007 Mr. Mayer became a member of
the Executive Committee.
Mr. Molinaro became Chief Operating Officer of the Company and Bear
Stearns in August 2007. Mr. Molinaro became Executive Vice President of the
Company and Bear Stearns in December 2001, and has been Chief Financial Officer
of the Company and Bear Stearns since October 1996.
Mr. Solender became General Counsel of the Company and Bear Stearns in
January 2004. Since February 2002 Mr. Solender has been a Senior Managing
Director in the Legal Department of Bear Stearns. Mr. Solender was a partner at
the law firm of Arnold & Porter LLP from January 1997 to January 2000 and from
November 2001 to February 2002, and had been General Counsel of the U.S.
Consumer Product Safety Commission from January 2000 to November 2001.
CORPORATE GOVERNANCE
Board and Board Committees
The Company is governed by the Board and various committees of the Board.
Directors discharge their duties at Board and committee meetings and also
through meetings and other communications with management. The Board held 13
meetings (exclusive of committee meetings) during fiscal 2007. Each director
attended 75% or more of the Board and committee meetings (including for this
purpose, the Executive Committee) on which he served that were held during the
period he was a director.
There are five Board committees: Audit, Compensation, Corporate Governance
and Nominating, Finance and Risk and Qualified Legal Compliance (collectively,
the "Board Committees"). The Company also has an Executive Committee that
consists of both Board and non-Board members. Any actions taken by the Executive
Committee, which are approved by a majority of the members of the Executive
Committee who are Board members, are deemed to be approved by a committee of the
Board. The members, the purpose and the responsibilities of each committee are
described below.
Audit Committee. The Audit Committee consists of Messrs. Bienen, Glickman,
Goldstein, Novelly, Salerno, Tese (Chairman) and Williams. The Board has
determined that each member of the Audit Committee is financially literate and
has accounting or related financial management expertise as required by NYSE
rules and satisfies the criteria of an "audit committee financial expert" under
Securities and Exchange Commission ("SEC") rules. Pursuant to NYSE Rule 303A.07,
if an audit committee member serves on the audit committees of more than three
public companies, the Board is required to determine that such simultaneous
service would not impair the member's ability to effectively serve on the Audit
Committee. Currently Mr. Goldstein and Mr. Salerno serve on the audit committees
of four and six public companies, including the Company, respectively. The Board
has determined that based upon Mr. Goldstein and Mr. Salerno's wealth of
financial experience, knowledge of the Company and ability to dedicate the
required time to Board service, their service on the audit committees of four
and six public companies, respectively, does not impair their ability to
effectively serve on the Company's Audit Committee and that their service on the
Audit Committee is in the best interest of the Company and its stockholders.
-3-
The purpose of the Audit Committee is to assist the Board in its oversight
of: the integrity of the Company's financial statements; the Company's
compliance with legal and regulatory requirements; the qualifications,
performance and independence of the Company's independent auditor(s); the
performance of the Company's internal audit function; and the Company's systems
of disclosure controls and procedures, external financial reporting and internal
control over financial reporting. The Audit Committee is also directly and
solely responsible for the appointment, retention, compensation, oversight and
termination of the Company's independent auditors and for pre-approving all
audit and permissible non-audit services to be performed by the independent
auditors. The Audit Committee held 10 meetings during fiscal 2007.
Compensation Committee. The Compensation Committee consists of Messrs.
Glickman (Chairman), Harrington, Nickell and Tese. Each Compensation Committee
member is a "non-employee director" pursuant to Rule 16b-3 under the Exchange
Act and an "outside director" pursuant to Section 162(m) of the Internal Revenue
Code of 1986, as amended ("IRC 162(m)"). None of the current members of the
Compensation Committee is or has been an officer or an employee of the Company.
The Compensation Committee is responsible for discharging the responsibilities
of the Board relating to compensation of the Company's Chief Executive Officer
and the other participants in The Bear Stearns Companies Inc. 2007 Performance
Compensation Plan ("PCP") and overseeing the Company's compensation system and
practices. The Compensation Committee held 6 meetings during fiscal 2007.
Corporate Governance and Nominating Committee. The Corporate Governance
and Nominating Committee consists of Messrs. Nickell, Novelly, Salerno
(Chairman) and Tese. Prior to February 8, 2007, the Corporate Governance
Committee and the Nominating Committee were two separate committees. The
Corporate Governance Committee consisted of Messrs. Nickell, Novelly and Tese
(Chairman) and the Nominating Committee consisted of Messrs. Novelly, Salerno
(Chairman) and Tese. In order to increase the efficiency of these committees,
the Company merged these two committees into one committee, which now fulfills
all of the responsibilities that each committee was responsible for prior to the
consolidation. The purpose of the Corporate Governance and Nominating Committee
is: (1) to identify individuals qualified to become Board members and select, or
recommend that the Board select, the director nominees to be voted upon at the
annual meeting of stockholders; (2) to develop and recommend to the Board a set
of corporate governance guidelines for the Company; (3) to make recommendations
to the Board in support of such guidelines; (4) to take a leadership role in
shaping the corporate governance of the Company; and (5) to oversee the
evaluation of the Board and management. The Corporate Governance and Nominating
Committee annually, or as necessary or appropriate, reviews the Company's Board
Candidate Guidelines, Director Independence Standards, Corporate Governance
Guidelines and Code of Business Conduct and Ethics. The Corporate Governance
Committee and the Nominating Committee each held two meetings during fiscal
2007. Following the combination of the two committees in February 2007, the
Corporate Governance and Nominating Committee held two additional meetings
during fiscal 2007.
Finance and Risk Committee. The Finance and Risk Committee consists of
Messrs. Nickell, Novelly (Chairman), Salerno and Tese. The purpose of the
Finance and Risk Committee is to assist the Board in its oversight of the
Company's: (1) credit, market and operational risk management; (2) funding,
liquidity and liquidity risk management practices; (3) balance sheet and capital
management; and (4) insurance programs and related risk mitigation. The Finance
and Risk Committee is responsible for reviewing and discussing with the Audit
Committee the Company's policies and procedures regarding the assessment and
management of the Company's trading and investment risks, counterparty credit
risks, operational risks and significant risk exposures and trends. The Finance
and Risk Committee is also responsible for reviewing the Company's framework for
balance sheet management, including categories of assets and liabilities and the
level of unfunded committed funding obligations. The Finance and Risk Committee
held two meetings during fiscal 2007.
Qualified Legal Compliance Committee. The Qualified Legal Compliance
Committee (the "QLCC") consists of Messrs. Bienen, Goldstein, Glickman, Novelly,
Salerno, Tese (Chairman) and Williams. The QLCC consists of at least one member
of the Audit Committee and two or more members of the Board who are not
employed, directly or indirectly, by the Company, as required by the
Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder. The purpose of
the QLCC is (under certain circumstances) to receive, retain and investigate
reports, from the Company's chief legal officer, or any attorney appearing and
practicing before the SEC in the representation of the Company, of evidence of a
material violation of any United States federal or state securities law,
including any breach of fiduciary duty by the Company, its officers, directors,
employees or agents. The QLCC held one meeting during fiscal 2007.
-4-
Executive Committee. The Executive Committee consists of Messrs. Greenberg
(Chairman), Mayer, Molinaro and Schwartz. The Executive Committee has the
authority to authorize and approve transactions specifically delegated to it by
the Board and other transactions that are considered to be in the ordinary
course of the Company's business and that are not prohibited by Delaware General
Corporation Law or the Company's Restated Certificate of Incorporation. The
Executive Committee generally meets at least once a week, but held 113 meetings
during fiscal 2007.
Executive Sessions
The Company's non-management directors meet in regularly scheduled
executive sessions without management present in order to freely evaluate the
performance of the Company's management. The Company's Corporate Governance
Guidelines require non-management directors to meet in executive session not
less than quarterly. The non-management directors held six executive sessions in
fiscal 2007. The Lead Director, Mr. Tese, serves as the Presiding Director at
such executive sessions.
Procedures by which Stockholders may Nominate Directors
There have been no material changes in the procedures by which
stockholders may nominate directors since March 27, 2007.
Whistle-blowing
The Audit Committee has established procedures to receive, retain and
treat complaints received regarding accounting, internal accounting controls or
auditing matters. These procedures allow for the confidential and anonymous
submission by employees of concerns regarding accounting or auditing matters.
Additionally, it is the Company's policy to not retaliate or take any other
detrimental action against employees who in good faith provide evidence of
fraud.
Code of Business Conduct and Ethics
All of the Company's employees (including employees of subsidiaries and
affiliates), officers (including senior executive, financial and accounting
officers) and directors are held accountable for adherence to the Company's Code
of Business Conduct and Ethics (the "Code"). The Code is intended to establish
standards necessary to deter wrongdoing and to promote compliance with
applicable laws, rules and regulations and honest and ethical conduct. The Code
covers all areas of professional conduct, including conflicts of interest, fair
dealing, financial reporting and disclosure, protection of Company assets and
confidentiality.
Corporate Governance Materials Available on the Bear Stearns Web Site
The Company's Corporate Governance Guidelines are posted on the Corporate
Governance section of the Company's web site at http://www.bearstearns.com/
sitewide/our_firm/corporate_governance/governance_guide.htm. The Company's
Corporate Governance Guidelines include the Company's Director Independence
Standards. In addition to the Company's Corporate Governance Guidelines, other
information relating to corporate governance is available on the Corporate
Governance section of the Company's web site, including:
o Restated Certificate of Incorporation
o By-laws
o Code of Business Conduct and Ethics
o Audit Committee Charter
o Compensation Committee Charter
o Corporate Governance and Nominating Committee Charter
o Finance and Risk Committee Charter
o Qualified Legal Compliance Committee Charter
Stockholders may also obtain copies of these documents without charge by
writing to Mr. Kenneth L. Edlow, Secretary, The Bear Stearns Companies Inc., 383
Madison Avenue, New York, New York 10179.
-5-
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers,
directors, and any persons who own more than 10% of the Common Stock, to file
reports of ownership of, and transactions in, our Common Stock with the SEC and
furnish copies of such forms and amendments thereto to the Company. Based solely
upon a review of the copies of such forms and amendments thereto furnished to
the Company and on written representations from the Company's officers,
directors, and any person who owns more than 10% of the Common Stock, the
Company believes that all Section 16(a) filing requirements were complied with
during fiscal 2007.
Item 11. Executive Compensation.
COMPENSATION DISCUSSION AND ANALYSIS
The following Compensation Discussion and Analysis provides the
objectives, principles and features of our executive compensation programs, as
well as a summary of compensation decisions we made for our executive officers
and other senior leaders, including the six who are named ("named executive
officers") in the compensation tables that follow.
Compensation Program Philosophy and Objectives
Operating in a highly competitive industry, our success relies, in large
part, on the abilities and dedication of our employees. We believe it is
critical to have strong senior executives who are of a caliber to effectively
lead highly talented employees. Therefore, the primary objective of our
compensation program is to attract, motivate and retain executives of
exceptional capability and experience. We seek to do this in a manner that
aligns the interests of our executive officers and stockholders. In support of
these objectives, the following principles guide the design and administration
of our compensation program for our executive officers and other senior leaders.
Performance-Based - We operate as a meritocracy, rewarding our employees,
including executive officers, based on the results that they create and deliver.
Almost all of the compensation paid to executive officers, as well as other key
employees, is variable with the value awarded and ultimately paid to them being
tied to both our annual and longer-term performance. The base salary paid to
executive officers represents a small portion of their total compensation
opportunity. We believe that by having almost all of their compensation at-risk,
executive officers and other key leaders are highly motivated to perform and
deliver strong results to our stockholders.
Ownership - To align the interests of our executive officers with those of
our stockholders, a significant portion of the performance-based annual bonus is
paid in an equity-based component, with multi-year vesting provisions and
holding requirements. As a result, the total value an executive officer
ultimately receives is dependent on our earnings over the holding period and the
market value of our Common Stock at the conclusion of that period. Further, the
portion awarded in equity increases as an executive's total compensation
increases, based on a progressive schedule.
We believe that delivering a meaningful portion of an executive officer's
total compensation in equity-based components also helps us to retain our
executive officers. Equity awards are generally subject to forfeiture if an
executive officer voluntarily leaves the Company prior to vesting for any
reason, other than retirement or disability (more details on termination
provisions are provided under the section entitled "Potential Payments upon
Termination or Change-in-Control"). Consequently, the cost of leaving us can be
significant to both the executive officer and any competitor who wants to hire
the executive. By giving executive officers the chance to share in the long-term
results they produce, we believe that equity-based awards encourage them to
establish long-term careers with us.
We have a stock ownership policy that requires executive officers to hold
a minimum of 5,000 shares of Common Stock or Common Stock equivalents. For
purposes of meeting the requirement, Common Stock equivalents include all vested
CAP units ("CAP Units"), vested but unexercised stock options, and vested
restricted stock units ("RSUs") held by participants under The Bear Stearns
Companies Inc. Restricted Stock Unit Plan (the "RSU Plan"). An executive officer
has three years from the date this policy was adopted, which was in 2005, or
from the time of their appointment as an executive officer to acquire and
maintain such holdings. As of November 30, 2007, all of our executive officers
were in compliance with this policy.
-6-
As of February 20, 2008, our named executive officers beneficially owned
approximately 6.8% of the outstanding Common Stock. Consistent with our
ownership orientation, this level of stock ownership by executive officers
reflects a significant personal investment in us by those who are most
responsible for our future success.
Competitive - Reflecting the intense competition for the caliber of talent
we need to effectively compete in the financial services industry, we believe we
need to offer a total compensation opportunity that is comparable to that
provided by our primary competitors. Our competitors can include other brokers
and dealers, commercial banks, investment banking firms, investment advisors,
mutual funds, hedge funds, private equity funds and insurance companies.
However, our direct competitors were the principal group we used to determine
competitive market pay levels and practices for fiscal year 2007. Our direct
competitors are: Lehman Brothers Holdings, Inc., Merrill Lynch & Co., Inc.,
Morgan Stanley, and The Goldman Sachs Group, Inc.
Our Human Resources Executive Compensation staff regularly reviews,
directly and through data provided by Equilar, a compensation benchmarking
service, the pay levels disclosed in public filings by our peers, including
total compensation and the pay mix, for comparable positions and provides this
market information to both management and the Compensation Committee as
requested or deemed appropriate. Additionally, through survey data published by
McLagan Partners, we monitor pay levels and practice data that can include
large, global commercial banks such as Citigroup Inc., Deutsche Bank AG,
JPMorgan Chase & Co. and UBS AG.
While competitive market data is made available to the Compensation
Committee to help inform its decisions and ensure that our total compensation is
within a reasonably competitive range, the Compensation Committee does not
target a specific percentile or quartile at which it aims to pay, nor does it
target a specific benchmark level for the mix of pay (e.g., portion delivered in
cash versus equity) that it aims to deliver.
Role of the Compensation Committee and Management
The Compensation Committee is responsible for the design and operation of
our compensation program. The Compensation Committee is governed by a written
charter that sets forth its responsibilities and authority.
The Compensation Committee has the authority under its charter to retain
special counsel and other experts, including compensation consultants to support
its responsibilities in determining executive compensation and related programs.
The Compensation Committee did not retain any compensation consultants in fiscal
2007.
The Compensation Committee considers factors and criteria it deems to be
most relevant to the decision required, which can and do vary from year to year.
In carrying out its responsibilities, the Compensation Committee relies on the
expertise of its members, as seasoned business professionals. The Compensation
Committee may also seek input from other members of the Board, the Chief
Executive Officer and other members of senior management; provided that neither
the Chief Executive Officer nor the other members of senior management provide
input with respect to their own compensation. The Compensation Committee makes
the compensation decisions specific to the Chief Executive Officer.
Components and Operation of Our Compensation Program
To implement the foregoing principles, pay is comprised of two elements
for executive officers and other key employees, base salary and a
performance-based annual bonus. The annual bonus is payable in both cash and an
equity-based component. The PCP, which was approved by stockholders at the 2007
annual meeting of stockholders, principally governs the determination and payout
of the annual performance-based bonus, and our stockholder approved equity plans
govern the equity-based portion, as discussed in more detail below.
Base Salary - Under the terms of the PCP, the base salary for all
participants, including executive officers, was $250,000 for fiscal 2007. This
level remained unchanged from the prior fiscal year. Consistent with the
objectives of our compensation program, base salaries are intended to represent
a minimal portion of total compensation to ensure that almost all pay received
is performance-based.
Performance-Based Annual Bonus - The purpose of the PCP is to compensate
our executive officers and other members of senior management for their
significant contributions to our firm and to stimulate their efforts by giving
them a direct interest in our performance. Performance-based bonuses represent
the single largest component of overall compensation for our executive officers.
Under the PCP, executive officers and other key employees are eligible to
receive a share of one of two different performance-based bonus pools. For
fiscal 2007, one pool covered the five individuals that were members of our
Executive Committee as of the start of the fiscal year (the "Executive Committee
Pool"). The named executive officers included in the Executive Committee Pool as
of year end were Messrs. Cayne, Schwartz and
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Molinaro. The second pool (the "Other Pool") covered seven other participants,
including executive officers and certain other members of senior management who
hold meaningful leadership positions. Participants in the Other Pool included
three of the named executive officers, Messrs. Solender, Farber and Minikes.
Jeffrey Mayer, who was appointed to the Executive Committee during fiscal 2007,
was not covered under the Executive Committee Pool, but was a participant in the
Other Pool.
Establishing and Allocating Bonus Pools
Within 90 days after the beginning of each fiscal year, the Compensation
Committee determines the formula that will be used to calculate the level of
bonus funding available under both the Executive Committee Pool and the Other
Pool. Under the PCP, the formula used can be based upon one or more of the
following criteria, individually or in combination, and may be adjusted by the
Compensation Committee as it deems appropriate: pre-tax or after-tax return on
equity; earnings per share; pre-tax or after-tax net income; business unit or
departmental pre-tax or after-tax income; firm revenue growth; departmental
revenue growth; book value per share; market price per share; relative
performance to peer group of companies; expense management; and total return to
stockholders.
For fiscal 2007, the Compensation Committee determined that the basis for
funding the Executive Committee Pool would be our adjusted after-tax return on
common equity ("ROE"). In calculating ROE, we add back into income any amounts
charged to expense as a result of the PCP. For the Executive Committee Pool, the
Compensation Committee designed a formula that would provide for a larger bonus
fund as the level of ROE increased; the minimum level of ROE necessary to
generate funding was 1.15% and there was no maximum ROE level above which the
amount of the pool would be capped. The Compensation Committee has traditionally
selected an ROE based metric for the Executive Committee Pool because it
believes that the way to drive stockholder growth is to focus our executive
officers on the annual return to stockholders. Since a significant portion of
their annual compensation is delivered in the form of equity-based compensation
the focus on ROE also strengthens the alignment of interest between the members
of the Executive Committee and the stockholders.
For fiscal 2007, the Compensation Committee determined that the formula to
be used to determine bonus funding for the Other Pool would be equal to the
greatest amount generated based on performance against three separate metrics:
adjusted pre-tax income for the entire firm; pre-tax income for a selected
department; and expense management. The Compensation Committee selected these
metrics based on its desire to develop a bonus pool that would qualify for tax
deduction pursuant to IRC 162(m). These metrics reflect the performance of the
Company as a whole and provide us with the flexibility to pay the appropriate
levels of compensation to a select group of employees.
At the time it sets the bonus pools funding formula, the Compensation
Committee also determines the share of both the Executive Committee Pool and the
Other Pool that each individual participant may receive for the related fiscal
year. In making the decisions regarding the allocation of the respective pool
available to each pool participant other than the Chief Executive Officer, the
Compensation Committee receives input from the Chief Executive Officer and our
Human Resources Executive Compensation staff. The share assigned is based on
this input, as well as the Compensation Committee's judgment on what the
appropriate maximum compensation opportunity should be for each executive
officer at various levels of the Company's performance. The Compensation
Committee does not use any formulas or specific criteria in setting these
maximums and the basis for its decision can and does change from year to year.
However, under the PCP there is a further cap on the level of bonus compensation
any single participating executive can receive, regardless of the amount of
bonus funding made available under the respective bonus pool in which a
participant is covered. Effective with the 2007 fiscal year, the individual
limit under the PCP is equal to 2.5% of our consolidated pre-tax income for the
related fiscal year.
Determination of Bonuses
At the end of each fiscal year, the Compensation Committee is advised by
management of the total available funding under each of the respective bonus
pools and the maximum amounts payable to each of the participants based on our
results against the established metrics. These results are presented by
management and certified by our Controller. The Compensation Committee reviews
this information, certifies whether the annual performance goals have been met
and then determines the amount of bonus funding to be awarded to each PCP
participant. In arriving at its decision, the Compensation Committee considers a
variety of factors, including competitive market data (as discussed above);
subjective elements, such as the scope of the executive officer's role,
experience and skills, and the executive officer's performance during the fiscal
year; the performance of Bear Stearns; the importance of optimizing our tax
deductibility for executive compensation under IRC 162(m); previous
compensation; and the importance of retaining the executive officer. The
Compensation Committee considers such factors as part of the
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total mix of information and does not attempt to quantify, rank or otherwise
assign relative weights to such factors. The basis for the Compensation
Committee's decision varies each year and is decided on by the Compensation
Committee differently each year, reflecting its judgment of the context in which
the results were achieved.
The Compensation Committee may exercise negative discretion and reduce the
amount of compensation that would otherwise be payable to any participant under
the PCP, but does not have discretion to increase payments under the PCP. While
the Compensation Committee may exercise negative discretion as to the
compensation awarded to an individual participant in the Executive Committee
Pool, its practice has been to apply the same level of negative discretion to
all participants in this pool, treating them as a group, on the same basis. This
approach reflects the Compensation Committee's and management's belief that it
is the collective efforts of these executives that drive our overall results,
and that this approach aligns with the partnership orientation under which the
Executive Committee has operated. The Compensation Committee determined not to
award any bonuses to the members of the Executive Committee related to fiscal
2007 in recognition of the significant decline in our overall financial results
from the prior year. While some of our business areas recorded strong
year-over-year growth in revenue and pre-tax income the overall results were
down significantly primarily due to asset write-downs and losses incurred in our
Fixed Income business.
The formula approved by the Compensation Committee for the Other Pool
generated a bonus pool of approximately $146.7 million, and the maximum amount
of bonus compensation that could be awarded to any single participant based on
our pre-tax net income was $5.4 million. The seven participants in the Other
Pool received $20.7 million in bonuses related to fiscal 2007, with the member
of the Executive Committee who was a participant in this pool receiving no bonus
consistent with all of the other Executive Committee members. The Compensation
Committee's decisions regarding the participants in the Other Pool were
individually made, and they varied by executive reflecting the results of each
executive's direct organization and the executive's individual contributions
over the year. The bonuses awarded reflect the strong accomplishments by the
organizations managed by each executive, as well as the Compensation Committee's
subjective assessment of each executive's personal contributions to our overall
results. In addition, the Compensation Committee considered each executive's
prior year total compensation. The Compensation Committee's decision also took
into consideration management's assessment of each executive's performance for
the year and the scope of each executive's role and the degree to which the
executive's level of responsibility may have grown over the year. The bonus
amounts awarded to Messrs. Solender, Farber and Minikes are disclosed under the
section entitled "Compensation of the Named Executive Officers including the
Chief Executive Officer", as well as in the required tables that follow this
Compensation Discussion and Analysis.
Capital Accumulation Plan
For fiscal 2007, the Compensation Committee decided to pay out the entire
equity-based component of the performance-based bonuses in the form of CAP
Units. The Bear Stearns Companies Inc. Capital Accumulation Plan for Senior
Managing Directors (the "CAP Plan") was adopted initially by the Board and
approved by stockholders as of September 6, 1990. The CAP Plan was most recently
amended in 2007, following the approval of the amendment by the stockholders at
the 2007 annual meeting of stockholders. The purpose of the CAP Plan is to
promote our interests and our stockholders' interests by providing long-term
incentives to certain key executives who contribute significantly to our
long-term performance and growth.
Certain participating executives received a grant of CAP Units calculated
by dividing the portion of their total compensation to be delivered in equity by
the closing price of the Common Stock on the grant date (December 21, 2007),
which was $89.95. Messrs. Cayne, Schwartz and Molinaro were not granted any CAP
Units and Messrs. Solender, Farber and Minikes were granted 17,463, 13,340 and
34,081 CAP Units, respectively related to fiscal 2007 performance. The timing
for awarding the CAP Units follows our historical practice of making grants
after the close of the fiscal year and the Compensation Committee's and full
Board's review of the financial performance and the release of our earnings.
The CAP Units generally vest 50% in each of the second and third years
following the original grant date. Despite being vested, CAP Units are not paid
out in shares of Common Stock and taxable to the participants until five years
from the original grant date. The vesting conditions and five-year holding
period are intended to drive executives to achieve our long-term goals and take
steps to deliver performance that will increase our value and grow our stock
price. These features also encourage retention, as executives are required to
remain actively employed to receive their shares at the end of the vesting
period, except in certain cases, such as retirement or other terminations, which
are discussed in the section entitled "Potential Payments upon Termination or
Change-in-Control".
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Based on our performance in each subsequent fiscal year, participants are
eligible and may receive earnings in the form of additional CAP Units, which
generally vest 100% at the end of the third year following the original grant
date. The number of additional CAP Units awarded is based on the number of CAP
Units held. The value of these additional CAP Units is in lieu of the cash
dividends paid on equivalent shares of Common Stock. As set forth in the CAP
Plan, the number of additional CAP Units awarded is determined by a formula that
is equal to income per share plus dividends per share. The Compensation
Committee does not consider this element of pay part of the total annual
compensation package awarded to executive officers each year as it relates to
grants of CAP Units made in prior years. As in prior years, additional CAP Units
earned in fiscal 2007 were expensed for financial accounting purposes upon
grant.
Other Benefits - In addition to base salary and performance-based annual
bonuses, we provide our executive officers with certain medical and other
benefits to assist us in remaining competitive in the marketplace. Most of these
benefits are generally made available to our employees.
Health and Welfare Plans - Executive officers are eligible to participate
in the same medical, dental and prescription drug plans that are offered broadly
to eligible U.S. employees. We have structured these plans such that those with
higher compensation levels bear a significantly larger portion of the cost for
their coverage than those employees participating in the same plans who are at
lower income levels.
Company-Paid Insurance - Executive officers are also covered by our life
insurance, travel insurance, and disability plans, which are also offered
broadly to eligible U.S. employees. Executive officers receive $1,000,000 in
company paid group life insurance coverage, business travel insurance of
$500,000, and disability coverage of $3,500 per month consistent with the
benefits provided to any officer at the Senior Managing Director level within
the Company.
Employee-Paid Benefits - In addition to these plans, executive officers
may enroll in flexible spending accounts to offset eligible healthcare expenses
and purchase other voluntary benefits, such as supplemental and dependent life
insurance coverage, and personal liability insurance, at group rates.
Retirement Plans - Executive officers are eligible to participate in our
401(k) Savings Plan on the same basis as other eligible U.S. based employees.
Under this plan, participants may contribute up to 25% of their compensation on
a pre-tax basis, subject to annual IRS limits. We offer a wide range of
professionally managed funds in which participants may invest, but we do not
match any contributions. Further, we do not sponsor a defined benefit retirement
plan or any non-qualified retirement plans for executive officers.
Perquisites - We do not provide perquisites to our executive officers.
Compensation of the Named Executive Officers including the Chief Executive
Officer
As described above, for fiscal 2007, Mr. Cayne did not receive any bonus.
His compensation for fiscal 2007 was his base salary of $250,000. As detailed
below, the fiscal 2007 compensation awarded to the Chief Executive Officer and
other named executive officers included:
Name Salary Bonus (Cash) Bonus (Equity) (1) Total Fiscal 2007 Compensation
---- ------ ------------ ------------------ ------------------------------
James E. Cayne $250,000 $0 $0 $250,000
............................. ............ ................. ..................... ...............................
Alan D. Schwartz $250,000 $0 $0 $250,000
............................. ............ ................. ..................... ...............................
Samuel L. Molinaro Jr. $250,000 $0 $0 $250,000
............................. ............ ................. ..................... ...............................
Michael S. Solender $250,000 $1,179,153 $1,570,847 $3,000,000
............................. ............ ................. ..................... ...............................
Jeffrey M. Farber $250,000 $1,050,000 $1,200,000 $2,500,000
............................. ............ ................. ..................... ...............................
Michael Minikes $250,000 $1,684,375 $3,065,625 $5,000,000
............................. ............ ................. ..................... ...............................
------------
(1) Represents the fair market value on the grant date of the CAP Units
awarded to the named executive officers in December 2007.
-10-
Other Information
Charitable Contributions - In accordance with our longstanding commitment
to philanthropy, executive officers and other key employees are required to make
charitable contributions of at least four percent of their annual earnings each
year to charities of their choosing.
Tax Considerations - IRC 162(m) limits deductibility for federal income
tax purposes of compensation in excess of $1,000,000 annually paid to the named
executive officers (other than the chief financial officer). IRC 162(m)
generally excludes from the calculation of the $1,000,000 annual cap,
compensation that is based on the attainment of pre-established, objective
performance goals established under a stockholder-approved plan. Salaries for
the named executive officers do not qualify as performance-based compensation.
However, the PCP, the CAP Plan and The Bear Stearns Companies Inc. Stock Award
Plan (the "Stock Award Plan") have been established and maintained in a manner
to qualify any compensation paid thereunder as "performance-based compensation"
and deductible. While the Compensation Committee currently seeks to maximize the
deductibility of compensation paid to executive officers, it maintains the
flexibility to take actions that may not be deductible but are deemed
appropriate based upon other business considerations. All of the compensation
paid to the named executive officers in fiscal 2007 is fully deductible under
IRC 162(m).
Timing of Equity Grants - We do not have any policy regarding the timing
of equity grants. Historically, the Compensation Committee's practice has been
to grant equity awards in December following the end of the prior fiscal year
and after the release of earnings for that prior year. To facilitate the hiring
of experienced talent throughout the year, the Compensation Committee has
delegated to our Management & Compensation Committee the authority to grant
equity awards to new hires and current employees, except for any executive
officer (which includes the executive officers who are members of the Executive
Committee). Neither the Compensation Committee nor the Management & Compensation
Committee grants equity compensation awards in anticipation of the release of
material nonpublic information. Similarly, we do not time the release of
material nonpublic information based on equity award grant dates.
The Stock Award Plan provides that the time at which an option is granted
shall be deemed to be the effective date of such grant, and that the option
price of each share of Common Stock granted under the plan shall not be less
than the "fair market value" of such stock at the time the option is granted.
The "fair market value" is defined under the Stock Award Plan as the closing
price of the Common Stock on the grant date or, in the absence of reported sales
on such date, the closing price on the immediately preceding date on which sales
were reported.
Accounting Treatment of Equity-Based Compensation - The Compensation
Committee considers the accounting and cash flow implications of various forms
of executive compensation. We record salaries and performance-based compensation
incentives as expenses in the amount paid, or to be paid, to the named executive
officers in our financial statements. In accordance with Financial Accounting
Standard No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123(R)"), we
expense the fair value of stock options and stock awards granted to employees
over the related service period. In accordance with SFAS 123(R), we measure the
fair value of stock options and stock awards based upon the market price of the
underlying Common Stock on the grant date, reduced by the present value of the
estimated future dividends. The Compensation Committee believes that the many
advantages of equity compensation, as discussed above, more than compensate for
the non-cash accounting expense associated with them. In addition, we purchase
shares of our Common Stock in the open market during the course of the year in
order to hedge the economic cost of granting equity awards.
Executive Compensation Recovery - Although we do not have a formal policy
related to the recovery of compensation earned from our executive officers in
the case of a financial restatement, the CAP Plan and Stock Award Plan provide
that in the event of an executive officer's termination for cause, all
outstanding unvested CAP Units and stock options held by such executive officer
would be cancelled.
Payments upon Termination and Change-in-Control - We do not have
individual employment arrangements or a severance plan for our executive
officers that provide for payments upon termination or a change-in-control.
However, the CAP Plan and the Stock Award Plan have post-termination provisions
that are applicable to all plan participants, as described in more detail in the
section entitled "Potential Payments upon Termination or Change-in-Control".
-11-
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the Compensation
Discussion and Analysis with management. Based upon these reviews and
discussions, the Compensation Committee has recommended to the Board that the
Compensation Discussion and Analysis be included in this report.
COMPENSATION COMMITTEE
Carl D. Glickman, Chairman
Donald J. Harrington
Frank T. Nickell
Vincent Tese
COMPENSATION TABLES AND OTHER INFORMATION
The following tables set forth information with respect to our former
Chief Executive Officer, our Chief Financial Officer and our three most highly
compensated executive officers (other than the former Chief Executive Officer
and the Chief Financial Officer) serving as executive officers for the fiscal
year ended November 30, 2007. In addition, we are voluntarily disclosing
information with respect to our current Chief Executive Officer in the following
tables.
SUMMARY COMPENSATION TABLE
Stock All Other
Fiscal Awards Compensation
Name and Principal Position Year Salary ($) Bonus ($)(1) ($)(2) ($)(3) Total ($)
--------------------------- ---- ---------- ------------ ------ ------ ---------
James E. Cayne 2007 250,000 0 0 440,757 690,757
Chairman of the Board and former
Chief Executive Officer
Alan D. Schwartz 2007 250,000 0 0 415,249 665,249
Chief Executive Officer and
President
Samuel L. Molinaro Jr. 2007 250,000 0 0 222,278 472,278
Chief Financial Officer and Chief
Operating Officer
Michael S. Solender 2007 250,000 1,179,153 0 13,897 1,443,050
General Counsel
Jeffrey M. Farber 2007 250,000 1,050,000 0 11,355 1,311,355
Senior Vice President - Finance
and Controller
Michael Minikes 2007 250,000 1,684,375 0 60,770 1,995,145
Chief Executive Officer of Bear,
Stearns Securities Corp.
-------------------
(1) Portion of the named executive officer's bonus paid in cash under the PCP.
(2) We have historically finalized our stock-based compensation decisions in
December following the end of the related fiscal year. Consistent with
this practice, the Compensation Committee approved the stock-based
compensation relating to employee service in fiscal 2007 on December 21,
2007, and granted Messrs. Solender, Farber and Minikes 17,463, 13,340 and
34,081 CAP Units, respectively. Messrs. Cayne, Schwartz and Molinaro were
not granted any equity awards for employee service in fiscal 2007.
Pursuant to SFAS 123(R), we expense the fair value of stock options and
CAP Units granted to employees over the requisite service period, which is
the vesting schedule for the CAP Units. The CAP Units that were granted
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to the named executive officers in December 2007 vest 50% on November 30,
2009 and 50% on November 30, 2010.
(3) Represents earnings on all outstanding CAP Units awarded based on the
average of the high and low sale prices of $101.625 of the Common Stock on
November 30, 2007. The number of additional CAP Units awarded is based on
the number of underlying CAP Units held, and are in lieu of cash dividends
paid on equivalent shares of Common Stock.
GRANTS OF PLAN-BASED AWARDS
All Other Stock All Other Option
Awards: Number Awards: Number
of Shares of of Securities Exercise or Base Grant Date Fair Value
Stock or Units Underlying Price of Option of Stock and Option
Name Grant Date (#)(1) Options (#)(2) Awards ($/Sh) Awards ($)(3)
---- ---------- ------ -------------- ------------- -------------
James E. Cayne 12/20/06 89,758 35,788 165.32 16,529,255
Alan D. Schwartz 12/20/06 84,769 33,847 165.32 15,612,851
Samuel L. Molinaro Jr. 12/20/06 66,367 26,691 165.32 12,232,500
Michael S. Solender 12/20/06 5,189 2,900 165.32 994,890
Jeffrey M. Farber 12/20/06 4,537 2,646 165.32 875,000
Michael Minikes 12/20/06 11,309 5,280 165.32 2,119,000
-------------------
(1) Represents CAP Units granted on December 20, 2006 for performance related
to fiscal 2006. These CAP Units vest 50% on November 30, 2008 and 50% on
November 30, 2009. The shares of Common Stock underlying the CAP Units
will not become freely transferable until November 30, 2011.
(2) Represents stock options granted on December 20, 2006 for performance
related to fiscal 2006, with an exercise price equal to the closing price
of the Common Stock on the grant date. These stock options become
exercisable on the third anniversary of the grant date (December 20, 2009)
for Messrs. Cayne, Schwartz, and Molinaro as they were members of the
Executive Committee, and were immediately vested for Messrs. Solender,
Farber and Minikes. All options expire ten years from the grant date
(December 20, 2016).
(3) For stock awards, represents the value of the CAP Units granted based on
the closing price of the Common Stock on the grant date. For option
awards, represents the grant date fair value of option awards based on a
value of $47.23 per share calculated in accordance with SFAS 123(R) using
a modified Black-Scholes option pricing model. The assumptions used for
the variables in the model were: 26.67% volatility (a projection of the
volatility of the Common Stock over the 10-year term of the options); a
4.60% risk-free rate of return (based on the USD Interest Rate Swap Curve,
expressed as a zero-coupon rate over the 10-year term); a 0.68% dividend
yield (which was an estimated projected dividend yield on the grant date);
and a 10-year option term (which is the maximum term of the options). A
discount was applied to the option value yielded by the model to reflect
the non-marketability of the options. The actual gain, if any that the
executive officers will realize on their stock options will depend on the
future price of the Common Stock and may vary from the value forecasted by
application of an option pricing model.
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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
--------------------------- ---------------------------------------------------------------- ----------------------------------
Option Awards Stock Awards
--------------------------- ---------------------------------------------------------------- ----------------------------------
Number of Number of
Securities Securities Number of Market Value of
Underlying Underlying Shares or Shares or Units
Unexercised Unexercised Option Option Units of Stock of Stock That
Options (#) Options (#) Exercise Expiration That Have Not Have Not Vested
Name Exercisable Unexercisable Price ($) Date Vested (#)(4) ($)(5)
--------------------------- -------------- --------------------- ---------- ---------------- ---------------- -----------------
James E. Cayne 72,427 38.75 01/10/10 141,144 14,072,078
108,856 49.625 12/10/10
30,581 56.88 12/17/11
68,000 64.00 11/29/12
256,143 73.75 12/15/13
168,585(1) 102.65 12/28/14
56,573(2) 116.50 12/22/15
35,788(3) 165.32 12/20/16
--------------------------- -------------- --------------------- ---------- ---------------- ---------------- -----------------
Alan D. Schwartz 57,500 38.75 01/10/10 133,403 13,300,271
86,354 49.625 12/10/10
28,934 56.88 12/17/11
65,000 64.00 11/29/12
242,307 73.75 12/15/13
159,784(1) 102.65 12/28/14
53,650(2) 116.50 12/22/15
33,847(3) 165.32 12/20/16
--------------------------- -------------- --------------------- ---------- ---------------- ---------------- -----------------
Samuel L. Molinaro Jr. 5,571 38.75 01/10/10 98,024 9,773,001
21,877 49.625 12/10/10
15,605 56.88 12/17/11
30,000 64.00 11/29/12
116,582 73.75 12/15/13
92,895(1) 102.65 12/28/14
35,534(2) 116.50 12/22/15
26,691(3) 165.32 12/20/16
--------------------------- -------------- --------------------- ---------- ---------------- ---------------- -----------------
Michael S. Solender 1,100 64.00 11/29/12 25,185 2,510,926
4,444 73.75 12/15/13
4,404 102.65 12/28/14
4,672 116.50 12/22/15
2,900 165.32 12/20/16
--------------------------- -------------- --------------------- ---------- ---------------- ---------------- -----------------
Jeffrey M. Farber 2,719 49.625 12/10/10 19,842 1,978,262
2,907 56.88 12/17/11
3,000 64.00 11/29/12
3,559 73.75 12/15/13
3,707 102.65 12/28/14
3,931 116.50 12/22/15
2,646 165.32 12/20/16
--------------------------- -------------- --------------------- ---------- ---------------- ---------------- -----------------
Michael Minikes 9,577 102.65 12/28/14 52,510 5,235,209
9,558 116.50 12/22/15
5,280 165.32 12/20/16
--------------------------- -------------- --------------------- ---------- ---------------- ---------------- -----------------
-------------------
(1) Stock options vested on December 28, 2007.
(2) Stock options will vest on December 22, 2008.
(3) Stock options will vest on December 20, 2009.
(4) All unvested CAP Units will vest on November 30, 2008, 2009 and 2010 as
follows, respectively: Mr. Cayne -- (95,651, 45,493, and 0 Units); Mr.
Schwartz -- (90,438, 42,965, and 0 Units); Mr. Molinaro -- (64,386,
33,638, and 0 Units); Mr. Solender --
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(5,091, 11,362, and 8,732 Units); Mr. Farber -- (4,202, 8,970, and 6,670
Units); and Mr. Minikes - (12,696, 22,773 and 17,041). However, the shares
of Common Stock underlying the CAP Units will not become freely
transferable for five years from the grant date.
(5) Value based on $99.70 per share, the closing price of the Common Stock on
November 30, 2007.
OPTION EXERCISES AND STOCK VESTED
Stock Awards (1)
Number of Shares Acquired Value Realized on
Name on Vesting (#) Vesting ($)
---- -------------- ------------
James E. Cayne 103,682 10,337,092
Alan D. Schwartz 97,887 9,759,374
Samuel L. Molinaro Jr. 58,241 5,806,611
Michael S. Solender 4,584 456,981
Jeffrey M. Farber 3,539 352,834
Michael Minikes 13,752 1,371,040
--------------------------------------------------------------------------------
-------------------
(1) Represents CAP Units that vested on November 30, 2007. The shares of
Common Stock underlying the CAP Units will not become freely transferable
for five years from the grant date. The value realized on vesting is based
on $99.70 per share, the closing price of the Common Stock on November 30,
2007.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL
We do not provide special change-in-control benefits to our executive
officers. Our only change-in-control arrangement, which applies to all
participants, is accelerated vesting of CAP Units and stock options, as
discussed below.
Termination
CAP Units and stock options awarded to participants under the CAP Plan and
the Stock Award Plan contain provisions relating to vesting upon death,
voluntary termination by the participant, termination by us for Cause,
involuntary termination by us (other than for Cause) and Retirement.
In the case of death, all unvested CAP Units and stock options shall
immediately vest.
In the case of a voluntary termination by the participant, all unvested
CAP Units and stock options shall be cancelled; provided, however, that unvested
CAP Units granted prior to 2007 shall continue to vest in accordance with the
original vesting schedule. Generally, in order to receive such post-termination
benefits under the CAP Plan, the participant must comply with the specified
non-compete requirements.
In the case of termination by us for Cause, all unvested CAP Units and
stock options shall be cancelled.
In the case of an involuntary termination by us (other than for Cause),
all unvested stock options shall continue to vest in accordance with the
original vesting schedule and all unvested CAP Units shall become fully vested
on the earlier of the original vesting schedule or 180 days from the termination
date.
In the case of Retirement, all unvested CAP Units and stock options shall
continue to vest in accordance with the original vesting schedule.
We may, at our discretion, provide for accelerated vesting in the event of
an involuntary termination by the Company (other than for Cause) or Retirement.
Generally, in order to receive such post-termination benefits, the participant
must execute a general release and/or comply with the specified non-solicitation
and non-compete provisions.
-15-
Change-in-Control
In the case of a Change-in-Control, the CAP Plan and the Stock Award Plan
have a "double-trigger provision." Therefore, following a Change-in-Control,
awards will not be accelerated unless the participant was either subsequently
terminated by the new company without Cause, or resigns due to Good Reason.
Defined Terms - For purposes of the CAP Units and the stock options, the
above-referenced terms are defined in the applicable award agreements or the CAP
Plan or the Stock Award Plan as follows:
"Cause" generally means: (1) any act or omission that constitutes a
material breach by the participant of the terms of any agreement setting forth
the terms of employment; (2) any notice that the participant is the subject of
any governmental or regulatory investigation relating to any acts or omissions
in connection with the participant's securities trading activity or employment
with us; (3) any act or omission that has resulted in a notification to an
exchange, regulator or governmental or regulatory investigation related to the
participant's conduct; (4) the filing of an indictment or charge alleging the
participant's commission of a felony or any crime that would constitute a lesser
crime relating to any acts or omissions that would result in a statutory
disqualification; (5) the filing of an administrative charge by a regulatory
agency in connection with the participant's employment activities; (6) the
participant's violation of a material company policy; (7) the participant's
violation of a specific lawful direction from a person to whom the participant
reports; (8) the participant's engagement in an act involving fraud,
misrepresentation or moral turpitude; (9) the participant's willful failure to
perform a substantial part of such participant's duties; (10) the participant's
breach of any fiduciary duty or duty of loyalty; (11) any conduct by the
participant that violates any federal or state securities law; (12) the issuance
of any consent decree, cease and desist or similar order against the participant
by a governmental or regulatory agency relating to violations of any federal or
state securities law; (13) the participant's unauthorized disclosure of any
confidential information; or (14) the participant's material failure to fulfill
such participant's compliance obligations.
"Change-in-Control" generally means: (1) a majority of the Board ceases to
consist of continuing directors; (2) any person becomes the beneficial owner of
25% (50% under the CAP Plan) or more of the outstanding voting power of the
Company unless such acquisition is approved by a majority of the continuing
directors; (3) the stockholders approve an agreement to merge or consolidate
into any other entity, unless such merger or consolidation is approved by a
majority of the continuing directors; or (4) the stockholders approve an
agreement to dispose of all or substantially all of our assets, unless approved
by a majority of the continuing directors.
"Good Reason" means: (1) a material diminution in authority, duties or
responsibilities; (2) a reduction of more than 10% in the participant's base
compensation; or (3) a requirement to relocate more than 50 miles from the
participant's principal place of employment.
"Retirement" means generally: (1) under the stock option award agreement
as having attained a minimum of 45 years of age and completed 10 years of
continuous service; and (2) under the CAP Plan or CAP Unit award agreement as
having attained a minimum of 45 years of age and completed 10 years of
continuous service, or attained a minimum of 50 years of age with at least five
years of service where the sum of the participant's age plus years of service is
equal to or greater than 60.
Market Value of Unvested Equity
The table below shows our estimates of the amount of the benefit each of
our named executive officers would have received if the CAP Units and stock
options held by them as of November 30, 2007 had become fully vested as a result
of a termination of employment or Change-in-Control where the vesting of the
participant's equity awards is accelerated. The estimated amount of the benefit
was calculated by: (1) multiplying the number of unvested stock options held by
the applicable named executive officer by the difference between the closing
price of the Common Stock on November 30, 2007, which was $99.70, and the
exercise price of the option; and (2) multiplying the number of unvested CAP
Units held by the applicable named executive officer by the closing price of the
Common Stock on November 30, 2007.
-16-
Value of Accelerated Stock and Option Awards upon Termination
or Change-in-Control
Before Change- After Change-
In-Control In-Control
Number of Unvested Number of Unvested CAP Involuntary Termination
Stock Options at Units at Involuntary (other than for cause) or
Name November 30, 2007 November 30, 2007 Termination (1) for Good Reason (1) Death (1)
---- ----------------- ----------------- --------------- ------------------- ---------
James E. Cayne 260,946 141,144 $14,072,078 $14,072,078 $14,072,078
Alan D. Schwartz 247,281 133,403 $13,300,271 $13,300,271 $13,300,271
Samuel L. Molinaro Jr. 155,120 98,024 $9,773,001 $9,773,001 $9,773,001
Michael S. Solender -- 25,185 $2,510,926 $2,510,926 $2,510,926
Jeffrey M. Farber -- 19,842 $1,978,262 $1,978,262 $1,978,262
Michael Minikes -- 52,510 $5,235,209 $5,235,209 $5,235,209
-------------------
(1) These values do not include any unvested stock options, since all unvested
options were granted at exercise prices that were higher than the closing
price on November 30, 2007.
COMPENSATION FOR NON-EMPLOYEE DIRECTORS
In fiscal 2007, each director who was not an employee of the Company or
any of its subsidiaries during fiscal 2007 (the "Non-Employee Directors")
received an annual retainer of $50,000, plus $1,500 for each Board meeting
attended, plus between $200 and $1,500 for each committee meeting attended
(based upon the duration and importance of the topics discussed at the committee
meeting) and reasonable expenses relating to attendance at such meetings. In
addition, the Company pays an annual fee of $20,000 to the Lead Director,
$25,000 to the Chairman of the Audit Committee and $10,000 to the Chairman of
the Compensation Committee.
Pursuant to the provisions of The Bear Stearns Companies Inc. Non-Employee
Directors Stock Option and Stock Unit Plan (the "Directors' Plan"), each
Non-Employee Director as of the date of each annual meeting of stockholders and
whose service will continue after such annual meeting is granted an option to
purchase shares of Common Stock and a number of RSUs. The number of shares
covered by the option and the number of RSUs is equal to the quotient of an
amount determined by the Executive Committee divided by the average closing
price of the Common Stock for the five trading days immediately preceding the
date of such annual meeting, subject to adjustment as provided in the Directors'
Plan. For fiscal 2007, the amount determined by the Executive Committee was
$78,510 for RSUs and $62,808 for options. The exercise price of the option is
equal to the closing price of the Common Stock on the grant date. The options
have a ten-year term, are exercisable six months from the date of grant and are
subject to termination upon the occurrence of certain events that are set forth
in the Directors' Plan.
The table below sets forth the compensation earned by the Non-Employee
Directors for fiscal 2007.
Compensation for Non-Employee Directors
Fees Earned or
Paid in Cash Stock Awards Option Awards All Other
Name ($)(1)(2)(3) ($)(4)(5) ($)(6)(7) Compensation ($)(8) Total ($)
---------------------------------------- --------------- --------------- ----------------- --------------------- ----------------
Henry S. Bienen ........................ 59,500 103,510 62,808 -- 225,818
Carl D. Glickman ....................... 102,000 78,510 62,808 -- 243,318
Michael Goldstein....................... 77,000 78,510 62,808 -- 218,318
Donald J. Harrington ................... 78,500 78,510 62,808 -- 219,818
Frank T. Nickell ....................... 62,500 78,510 87,808 -- 228,818
Paul A. Novelly ........................ 68,500 91,010 75,308 -- 234,818
Frederic V. Salerno .................... 68,500 78,510 87,808 -- 234,818
Vincent Tese ........................... 152,000 78,510 62,808 18,500 311,818
Wesley S. Williams Jr. ................. 84,500 78,510 62,808 -- 225,818
-------------------
(1) In fiscal 2007, each Non-Employee Director who was not an employee of the
Company or any of its subsidiaries received an annual retainer of $50,000.
These fees were paid quarterly. Under the Directors' Plan, up to one-half
of this annual cash retainer may be paid in shares of Common Stock or
stock options at the election of each Non-Employee Director, as described
in more detail in footnotes five and seven below.
(2) The Company pays annual fees of $20,000 to the Lead Director, $25,000 to
the Chairman of the Audit Committee, and $10,000 to the Chairman of the
Compensation Committee. In the table above, the amounts paid to Mr. Tese
reflect his roles as both Lead Director and Chairman of the Audit
Committee, and the fees paid to Mr. Glickman reflect his role as Chairman
of the Compensation Committee.
-17-
(3) In fiscal 2007, each Non-Employee Director received $1,500 for each Board
meeting attended, between $200 and $1,500 for each committee meeting
attended (based upon the duration and importance of the topics discussed
at the committee meeting), and reasonable expenses relating to attendance
at such meetings. Details regarding the number of meetings held by the
Board and each committee can be found under the section entitled "Board
and Board Committees".
(4) Amounts shown in this column reflect the Company's accounting expense for
these awards and do not reflect whether the recipient has actually
realized a financial benefit from the awards (such as by vesting in a RSU
award). This column represents the dollar amount recognized for financial
statement reporting purposes with respect to fiscal 2007 for the fair
value of RSUs granted to the directors in accordance with SFAS 123(R.
Pursuant to SEC rules, the amounts shown exclude the impact of estimated
forfeitures related to service-based vesting conditions. For additional
information, refer to Note 13 of the Company's financial statements
incorporated by reference in the Annual Report on Form 10-K for the year
ended November 30, 2007, as filed with the SEC. Pursuant to the Directors'
Plan, each Non-Employee Director received 500 RSUs with a grant date fair
value of $78,510. As of February 20, 2008, the aggregate number of RSUs
held by each Non-Employee Director was Mr. Bienen - 2,372; Mr. Glickman -
2,875; Mr. Goldstein - 506; Mr. Harrington - 2,565; Mr. Nickell - 2,875;
Mr. Novelly - 3,568; Mr. Salerno - 2,875; Mr. Tese - 2,875; and Mr.
Williams Jr. - 1,689.
(5) Amounts shown in this column reflect the Company's accounting expense for
the equity awards that Messrs. Bienen and Novelly elected to receive in
lieu of cash, as described in footnote one above. Mr. Bienen elected to
receive shares of Common Stock in lieu of $25,000 and Mr. Novelly elected
to receive shares of Common Stock in lieu of $12,500. Mr. Bienen and Mr.
Novelly received an aggregate of 201 and 99 shares, respectively. The
aggregate grant date fair value of such shares was $25,000 and $12,500,
respectively. This column represents the dollar amount recognized for
financial statement reporting purposes with respect to the fiscal 2007 for
the fair value of RSUs granted to the Messrs. Bienen and Novelly in
accordance with SFAS 123(R). Pursuant to SEC rules, the amounts shown
exclude the impact of estimated forfeitures related to service-based
vesting conditions. For additional information, refer to Note 13 of the
Company's financial statements incorporated by reference in the Annual
Report on Form 10-K for the year ended November 30, 2007, as filed with
the SEC.
(6) Amounts shown in this column reflect the Company's accounting expense for
these awards and do not reflect whether the recipient has actually
realized a financial benefit from the awards (such as by exercising stock
options). This column represents the dollar amount recognized for
financial statement reporting purposes with respect to fiscal 2007 for the
fair value of stock options granted to the directors. The fair value was
estimated using the Black-Scholes option pricing model in accordance with
SFAS 123(R). Pursuant to SEC rules, the amounts shown exclude the impact
of estimated forfeitures related to service-based vesting conditions. For
additional information, refer to Note 13 of the Company's financial
statements incorporated by reference in the Annual Report on Form 10-K for
the year ended November 30, 2007, as filed with the SEC. Pursuant to the
Directors' Plan, each Non-Employee Director received 1,200 stock options
with a grant date fair value of $62,808. The exercise price of the stock
options is equal to the closing price of the Common Stock on the grant
date. The options have a ten-year term, are exercisable six months from
the grant date and are subject to termination upon the occurrence of
certain events that are set forth in the Directors' Plan. As of February
20, 2008, the aggregate number of shares of Common Stock underlying the
stock options held by each Non-Employee Director was: Mr. Bienen - 2,622;
Mr. Glickman - 16,119; Mr. Goldstein - 1,200; Mr. Harrington - 9,119; Mr.
Nickell - 20,814; Mr. Novelly - 10,108; Mr. Salerno - 20,814; Mr. Tese -
16,119; and Mr. Williams Jr. - 4,665.
(7) Amounts shown in this column reflect the Company's accounting expense for
the awards of stock options that Messrs. Nickell and Salerno elected to
receive in lieu of $25,000 and Mr. Novelly elected to receive in lieu of
$12,500, as described in footnote one above. Messrs. Nickell and Salerno
each received an aggregate of 608 stock options and Mr. Novelly received
an aggregate of 303 stock options. A portion of these equity awards were
granted at the end of each quarter during fiscal 2007. The exercise price
of each stock option is equal to the closing price of the Common Stock on
the grant date of such option. The options have a ten-year term, are
exercisable six months from the grant date and are subject to termination
upon the occurrence of certain events that are set forth in the Directors'
Plan. The aggregate grant date fair value of such shares was $25,000 and
$12,500, respectively. This column represents the dollar amount recognized
for financial statement reporting purposes with respect to the 2007 fiscal
year for the fair value of stock options granted to the directors. The
fair value was estimated using the Black-Scholes option pricing model in
accordance with SFAS 123(R). Pursuant to SEC rules, the amounts shown
exclude the impact of estimated forfeitures related to service-based
vesting conditions. For additional information, refer to Note 13 of the
Company's financial statements incorporated by reference in the Annual
Report on Form 10-K for the year ended November 30, 2007, as filed with
the SEC.
(8) Includes an annual retainer of $5,000 and board meeting fees of $13,500
paid to Mr. Tese for his membership on the Board of Directors of the
Custodial Trust Company, a state-chartered commercial bank, which is a
wholly owned subsidiary of The Bear Stearns Companies Inc.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the current members of the Company's Compensation Committee is or
has been an officer or an employee of the Company. There were no "Compensation
Committee Interlocks" during fiscal 2007. None of the current members of the
Company's Compensation Committee had any relationship requiring disclosure as a
related party transaction under the section entitled "Certain Transactions".
-18-
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information as of February 20, 2008
concerning the beneficial ownership of the Common Stock by the Company's
directors, each executive officer named in the "Summary Compensation Table"
under "Compensation Tables and Other Information", and the Company's directors
and executive officers as a group.
Amount and Nature Percent of Common Stock Percentage of
of Common Common Stock Represented by Outstanding Common
Stock Beneficially Beneficially Restricted Stock, and Restricted
Name and Address (1) Owned (2)(3)(4)(5) Owned Stock Units Stock Units Combined
------------------------------------------------ -------------------- ------------------ ---------------- -----------------------
Henry S. Bienen................................ 4,665 (6) 2,372 (6)
James E. Cayne (7)(8).......................... 6,828,525 4.7% -- 4.7%
Jeffrey M. Farber.............................. 53,712 (6) -- (6)
Carl D. Glickman............................... 307,661 (6) 2,875 (6)
Michael Goldstein.............................. 1,200 (6) 506 (6)
Alan C. Greenberg.............................. 371,481 (6) -- (6)
Donald J. Harrington........................... 9,175 (6) 2,565 (6)
Michael Minikes................................ 370,528 (6) -- (6)
Samuel L. Molinaro Jr (9)...................... 621,474 (6) -- (6)
Frank T. Nickell............................... 54,843 (6) 2,875 (6)
Paul A. Novelly (10)........................... 135,014 (6) 3,568 (6)
Frederic V. Salerno............................ 21,783 (6) 2,875 (6)
Alan D. Schwartz............................... 2,105,939 1.4% -- 1.4%
Michael S. Solender............................ 53,010 (6) -- (6)
Vincent Tese................................... 17,221 (6) 2,875 (6)
Wesley S. Williams Jr.......................... 8,165 (6) 1,689 (6)
All directors and executive
officers as a group (17 individuals).......... 11,532,3435 7.8% 22,199 7.8%
-------------------
(1) The address in each case is c/o The Bear Stearns Companies Inc., 383
Madison Avenue, New York, New York 10179.
(2) Nature of Common Stock beneficially owned is sole voting or investment
power, except as indicated in subsequent notes.
(3) Includes shares underlying CAP Units credited under the CAP Plan to be
distributed during March 2008 to the following persons: Mr. Cayne - 1,181;
Mr. Greenberg - 680; Mr. Minikes - 177; Mr. Molinaro - 448; Mr. Schwartz -
1,107; and 701 shares to be distributed to the remaining executive officer
included in the group of 17 individuals referred to above.
(4) Includes shares of Common Stock subject to exercisable options and those
which are exercisable within 60 days of February 20, 2008 held by the
following persons: Mr. Bienen - 2,622; Mr. Cayne - 704,592; Mr. Farber -
22,469; Mr. Glickman - 16,119; Mr. Goldstein - 1,200; Mr. Greenberg -
98,176; Mr. Harrington - 9,119; Mr. Minikes - 24,415; Mr. Molinaro -
282,530; Mr. Nickell - 20,454; Mr. Novelly - 9,928; Mr. Salerno - 20,454;
Mr. Schwartz - 639,879; Mr. Solender - 17,520; Mr. Tese - 16,119; Mr.
Williams - 4,665; and 255,446 shares of Common Stock subject to
exercisable options and those which are exercisable within 60 days of
February 20, 2008 held by the remaining executive officer included in the
group of 17 individuals referred to above. 1,011,384 of such shares of
Common Stock were out-of-the-money as of February 20, 2008 based upon a
closing price of $83.05.
(5) Includes shares of Common Stock held in The Bear Stearns Companies Inc.
2008 Trust corresponding to vested and unvested CAP Units held by the
executive officers as follows: Mr. Cayne - 464,100; Mr. Farber - 27,315;
Mr. Greenberg - 257,625; Mr. Minikes - 95,936; Mr. Molinaro - 255,813; Mr.
Schwartz - 438,273; Mr. Solender - 35,476; and 301,793 shares of Common
Stock corresponding to vested and unvested CAP Units held by the remaining
executive officer included in the group of 17 individuals referred to
above. The executive officers have the right to direct the voting by
Wilmington Trust Company, as trustee of the shares of Common Stock held in
the Trust for them.
(6) Less than one percent.
(7) Includes 45,669 shares of Common Stock owned by Mr. Cayne's wife, as to
which shares Mr. Cayne disclaims beneficial ownership. Does not include
202,704 shares of Common Stock held by trusts established for Mr. Cayne's
children, as to which shares Mr. Cayne disclaims beneficial ownership.
Does not include 8,593 shares of Common Stock owned by the children of Mr.
Cayne, as to which shares Mr. Cayne disclaims beneficial ownership.
(8) On March 25, 2008, Mr. Cayne sold 5,612,922 shares of Common Stock and Mr.
Cayne's wife sold 45,669 shares of Common Stock.
(9) Includes 43,450 shares of Common Stock held jointly with Mr. Molinaro's
wife. Also includes 1,211 shares of Common Stock owned by Mr. Molinaro
through The Bear Stearns Companies Inc. Employee Stock Ownership Plan.
(10) Does not include 125,000, shares of Common Stock held by St. Albans Global
Management LLLP, of which Mr. Novelly is the chief executive officer and
as to which shares Mr. Novelly disclaims beneficial ownership.
-19-
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Based upon a review of filings made pursuant to Section 13(d) or 13(g) of
the Exchange Act, the following are the only persons (other than as set forth
under "Security Ownership of Directors and Executive Officers" and the Company's
employees as a group) known to the Company to be the beneficial owners of more
than 5% of the Company's Common Stock as of February 20, 2008:
Total Number of Shares Percent
Name and Address of Beneficial Owner Beneficially Owned of Class (1)
------------------------------------ -------------------------- ----------------
Wilmington Trust Corporation and Wilmington Trust Company........................... 27,336,926(2) 18.8%
Rodney Square North
1100 North Market Street
Wilmington, DE 19890
Barrow, Hanley, Mewhinney & Strauss, Inc............................................ 11,485,058(3) 7.9%
2200 Ross Avenue, 31st Floor
Dallas, TX 75201-2761
Joseph Lewis........................................................................ 11,053,463(4) 7.6%
c/o Thomas B. Youth
Tavistock Group
P.O. Box 9000
9350 Conroy-Windemere Road
Windemere, FL 34786
Morgan Stanley...................................................................... 6,047,931(5) 4.2%
1585 Broadway
New York, NY 10036
-------------------
(1) Percentages based upon the Common Stock outstanding as of February 20,
2008 and holdings of Common Stock set forth in the Schedule 13Gs and the
Schedule 13D described in notes 2-5 below. The Schedule 13Gs state that
(1) Barrow, Hanley, Mewhinney & Strauss, Inc. beneficially owned 9.9% of
the Common Stock on December 31, 2007 and (2) Morgan Stanley beneficially
owned 5.2% of the Common Stock on December 31, 2007. The Schedule 13D
states that Joseph Lewis, Aquarian Investments Ltd., Cambria Investments
Ltd., Darcin Inc., Mandarin Inc. and Nivon Inc. beneficially owned 9.6% of
the Common Stock on December 26, 2007.
(2) The information provided is based on the Schedule 13G filed by Wilmington
Trust Company and Wilmington Trust Corporation on February 22, 2008 with
the SEC. Wilmington Trust Corporation has sole voting power with respect
to 43,446 shares of Common Stock, shared voting power with respect to
27,316,339 shares of Common Stock, sole dispositive power with respect to
10,620 shares of Common Stock and shared dispositive power with respect to
8,925 shares of Common Stock. Wilmington Trust Company, in various
fiduciary capacities has sole voting power with respect to 43,076 shares
of Common Stock, shared voting power with respect to 27,316,339 shares of
Common Stock, sole dispositive power with respect to 10,400 shares of
Common Stock and shared dispositive power with respect to 8,775 shares of
Common Stock. Wilmington Trust Company is a wholly owned subsidiary of
Wilmington Trust Corporation. With respect to 27,316,339 shares of the
shares of Common Stock reported, Wilmington Trust Company acts as trustee
for The Bear Stearns Companies Inc. 2008 Trust. The Trust was established
to hold shares of Common Stock underlying awards granted under certain of
the Company's compensation plans, including the CAP Plan and the RSU Plan.
Participants have the right to direct the voting by Wilmington Trust
Company, as trustee of the shares of Common Stock underlying their awards.
Wilmington Trust Company, as trustee is generally obligated to vote shares
for which it has not received voting instructions in the same proportion
as shares for which it has received voting instructions.
(3) The information provided is based on the Schedule 13G filed by Barrow,
Hanley, Mewhinney & Strauss, Inc. on February 13, 2008 with the SEC.
According to the Schedule 13G, Barrow, Hanley, Mewhinney & Strauss, Inc.
has sole power to vote or direct the vote of 1,990,448 shares of Common
Stock, shared power to vote or direct the vote of 9,494,610 shares of
Common Stock and sole power to dispose of or direct the disposition of
11,485,058 shares of Common Stock.
(4) The information provided is based on the Schedule 13D/A filed by Joseph
Lewis, Aquarian Investments Ltd., Cambria Investments Ltd., Darcin Inc.,
Mandarin Inc. and Nivon Inc. on December 26, 2007 with the SEC. According
to the Schedule 13D/A, Acquarian, Cambria, Darcin, Mandarin and Nivon have
shared voting power and dispositive power with regard to 650,000,
1,475,300, 1,537,700, 5,110,182 and 2,280,281 shares, respectively, that
they own directly and Joseph Lewis has shared voting power and shared
dispositive power with regard to each of the shares owned directly by
Acquarian, Cambria, Darcin, Mandarin and Nivon.
(5) The information provided is based on a Schedule 13G filed by Morgan
Stanley on February 14, 2008 with the SEC. According to the Schedule 13G,
Morgan Stanley has sole voting power with respect to 5,742,795 shares of
Common Stock, shared voting power with respect to 1,000 shares of Common
Stock and sole dispositive power with respect to 6,047,931 shares of
Common Stock.
-20-
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of November 30, 2007 regarding
the total shares of Common Stock subject to outstanding stock options and rights
and the total additional shares of Common Stock available for issuance under the
Company's existing equity compensation plans.
Number of securities
remaining available for
Number of securities to Weighted-average future issuance under
be issued upon exercise exercise price of equity compensation plans
of outstanding options, outstanding options, (excluding securities
Plan category warrants and rights (1) warrants and rights (1) reflected in column (a))
----------------- ------------------------- ------------------------ ---------------------------
(a) (b) (c)
Equity compensation plans approved by
security holders............................... 44,431,438 (2) $86.75(2) 20,885,685 (3)(4)
Equity compensation plan not approved by
security holders............................... 283,828 (5) N/A -- (5)
---------------- ----------------
Total............................................. 44,715,266 20,885,685
================ ================
--------------------
(1) This column contains information regarding stock options, CAP Units and
RSUs only; there are no warrants or rights outstanding.
(2) Includes stock options to purchase 19,390,856 and 101,580 shares of Common
Stock under the Stock Award Plan and the Directors' Plan, respectively,
with a combined weighted-average exercise price of $86.75, 18,188,880 CAP
Units, 6,725,447 RSUs under the RSU Plan and 24,674 RSUs under the
Directors' Plan.
(3) Equity compensation plans approved by security holders include the Stock
Award Plan, Directors' Plan, RSU Plan and CAP Plan. The material features
of each of these plans are described in Note 13, "Stock Compensation
Plans", to the Company's Consolidated Financial Statements.
o Includes stock options available for future issuance of 9,249,966
shares under the Stock Award Plan.
o Includes stock options and RSUs available for future issuance of
146,060 shares under the Directors' Plan.
o Includes 11,489,659 shares remaining available for future issuance
under the RSU Plan.
CAP Units available for future issuance under the CAP Plan are not
included. Pursuant to the terms of the CAP Plan, the total number of CAP
Units that may be issued under the CAP Plan during any fiscal year may not
exceed 15% of the sum of issued and outstanding shares of Common Stock and
CAP Units outstanding determined as of the last day of the current fiscal
year.
(4) In December 2007, the Company granted 6,093,917 CAP Units, 1,992,257 RSUs
and 34,807 options to employees. In addition, in December 2007, 3,996,173
and 1,497,992 CAP Units and RSUs, respectively, were converted into common
shares and distributed to participants. The award grants and distributions
made in December 2007 are not reflected in the table above.
(5) The equity compensation plan not previously approved or required to be
approved by security holders is the AE Investment and Deferred
Compensation Plan.
The table above does not include equity compensation plans that meet the
qualification requirements of Section 401(a) of the Internal Revenue Code of
1986, as amended, namely the Profit Sharing Plan, 401(k) Savings Plan and the
Employee Stock Ownership Plan.
AE Investment and Deferred Compensation Plan
The AE Investment and Deferred Compensation Plan is a non-qualified
defined contribution retirement plan covering substantially all account
executives. The plan allows participants to defer a portion of their annual
compensation in a variety of self-directed investment options. None of the
executive officers are participants in this plan. One of the options allows the
participants to invest in the Common Stock of the Company. Such investments are
restricted from sale, transfer or assignment until the end of the restricted
period, which is predetermined prior to the original deferral. As of November
30, 2007, the total number of such units outstanding was 283,828.
-21-
Item 13. Certain Relationships and Related Transactions, and Director
Independence.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Review and Approval of Transactions with Related Parties
The Board has adopted a written Related Party Transactions Policy, which
sets forth the Company's policies and procedures for reviewing and approving
transactions with related parties, specifically its directors and executive
officers, and their immediate family members. The transactions covered by the
policy include any transaction or series of related transactions in which the
Company was, or is proposed to be, a participant, where the amount involved
exceeds $120,000, and where the related party had, or will have, a direct or
indirect material interest.
Pursuant to the Related Party Transactions Policy, each executive officer
and director is required to notify the General Counsel of the Company (or such
person as shall be designed by the General Counsel) orally or in writing, of any
interest that such person, or an immediate family member of such person, had,
has or may have in a potential related party transaction. Upon determination by
the General Counsel or the designated person that a transaction requires
compliance with the policy or disclosure under the applicable rules of the SEC,
the General Counsel or the designated person is required to refer the matter to
the Corporate Governance and Nominating Committee for review. The transaction is
then reviewed by the Corporate Governance and Nominating Committee, which then
determines whether approval or ratification of the transaction will be granted.
If written or oral notice of a potential related party transaction or a related
party transaction is given and it is impractical to convene a meeting of the
Corporate Governance and Nominating Committee prior to its next regularly
scheduled meeting, then the Chairman of the Corporate Governance and Nominating
Committee shall consider whether approval of the transaction is appropriate and,
if so, shall conditionally approve the transaction, subject to ratification by
the Corporate Governance and Nominating Committee. Such transaction shall then
be considered and, if the Corporate Governance and Nominating Committee
determines it to be appropriate, ratified at the Corporate Governance and
Nominating Committee's next regularly scheduled meeting. In determining whether
to approve or ratify a potential related party transaction, the Corporate
Governance and Nominating Committee will take into account, among other factors
it deems appropriate: (1) whether the terms of the related party transaction are
fair to the Company and such terms would be on the same basis if the transaction
did not involve a related party; (2) whether there are business reasons for the
Company to enter into the transaction; (3) whether the transaction would impair
the independence of an outside director; (4) whether the transaction would
present an improper conflict of interest for any executive officer or director;
and (5) whether the proposed transaction could harm the Company's reputation. In
the event that the Corporate Governance and Nominating Committee determines not
to ratify a related party transaction, the Corporate Governance and Nominating
Committee may consider additional action in consultation with counsel,
including, but not limited to, termination of the transaction on a prospective
basis, rescission of such transaction, or modification of the transaction in a
manner that would permit it to be ratified by the Corporate Governance and
Nominating Committee.
Certain types of transactions are pre-approved in accordance with the
terms of the policy. These include the reimbursement of ordinary course business
expenses, transactions where rates and charges are determined by competitive
bids, investments in the employee funds and transactions in the ordinary course
of business involving financial services provided by the Company, including
brokerage services and loans, provided that such loans are of a type that is
generally made available to the public, and is on market terms, or terms that
are no more favorable than those offered to the general public and comply with
applicable law.
Certain Transactions
The Company, in the ordinary course of business, has extended credit to
certain of its directors, officers and employees in connection with their
purchase of securities (other than the Company's equity securities). Such
extensions of credit have been made on substantially the same terms (including
as to interest rates and collateral requirements) as those prevailing at the
time for comparable transactions with non-affiliated persons, except that in the
case of some credit products, the interest rates charged were equivalent to the
lowest of the interest rates charged to other persons or were the same as those
charged to Company employees and did not involve more than the normal risk of
collectability or have unusual terms or conditions that are disadvantageous to
the Company. Bear Stearns periodically, and in the ordinary course of its
business may enter into transactions, involving the purchase or sale of
securities and commercial paper (including different forms of repurchase
transactions) with directors,
-22-
officers, employees of the Company and members of their immediate families. Such
purchases and sales of securities or commercial paper in brokerage transactions
or on a principal basis are affected on substantially the same terms as similar
transactions with unaffiliated third parties. The Company in connection with its
Common Stock repurchase programs may purchase shares of Common Stock from
directors, executive officers and employees at prevailing market prices.
The Company, from time to time, has made loans to its executive officers
and other employees. All loans outstanding between the Company and any of its
directors or executive officers on and after July 30, 2002, including the loan
discussed below, have been in existence without material modification since such
date or are otherwise exempt from the prohibitions of Section 12(k) of the
Exchange Act.
The Company has formed several limited partnerships that provide
investment opportunities for the Company's key employees. For certain of the
partnerships, the Company provided non-recourse, interest-bearing loans to the
participants. At November 30, 2007, the only outstanding loan in excess of
$120,000 to a director or fiscal 2007 executive officer was to Warren J.
Spector, a former President and Co-Chief Operating Officer ($502,997). The
outstanding loan to Mr. Spector bears interest at the London Interbank Offered
Rate ("LIBOR") plus 1.0%. For the fiscal year ended November 30, 2007,
distributions from these partnerships consisting of return of capital and gains
to directors and fiscal 2007 executive officers who were participants were: Mr.
Cayne ($285,980); Mr. Farber ($86,757); Mr. Minikes ($109,784); Mr. Molinaro
($432,706); Mr. Schwartz ($2,808,812); and Mr. Spector ($3,318,812).
Mr. Cayne and his wife own in excess of 48% of the limited partnership
interests in Colden Capital Partners L.P. ("Colden CP"). The managing partner of
Colden CP is Colden Capital Management LLC, the managing member of which is the
Caynes' son-in-law. A master fund managed by Colden Capital Management LLC (the
"Master Fund"), in which Colden CP is an investor, is a prime brokerage client
of Bear Stearns and, as such, is eligible to receive a wide variety of services
from Bear Stearns, including clearing services and the use of office space. All
transactions between the Master Fund and Bear Stearns are conducted in the
ordinary course of business and on terms comparable with transactions of
unrelated third parties. During the fiscal year ended November 30, 2007, Bear
Stearns received interest from the Master Fund of approximately $2.4 million,
and the largest total amount owed to Bear Stearns during fiscal 2007 was $94.9
million. During fiscal 2007, Bear Stearns paid the Master Fund on credit
balances approximately $168,000. In addition, during the fiscal year ended
November 30, 2007, Colden Capital Management LLC and its affiliates paid Bear
Stearns approximately $268,000 in rent, clearance charges, telephone charges and
repairs and maintenance expenses. During fiscal 2007, the Master Fund received
short market rebates of approximately $2.1 million from Bear Stearns.
INDEPENDENT DIRECTORS
Annually, the Board reviews its members to ensure that a majority of the
Board is "independent", as required by and defined by SEC and NYSE rules. Each
Board member is provided with a copy of the text of NYSE Rule 303A. In order to
assist it in its annual review, the Board adopted Director Independence
Standards that set forth the criteria by which director independence will be
determined, which include: prohibitions on material relationships with the
Company; limitations on employment of a director or such director's immediate
family members with the Company; limitation on the receipt of direct
compensation from the Company; limitations on affiliation with the Company's
auditors; and restrictions on commercial relationships.
The Board has determined that each of the non-management directors (other
than Mr. Cayne), constituting a majority of the Board, have no material, direct
or indirect, relationships with the Company and are "independent" under SEC and
NYSE rules and the Company's Director Independence Standards. The non-management
directors consist of Messrs. Bienen, Cayne, Goldstein, Glickman, Harrington,
Nickell, Novelly, Salerno, Tese and Williams. In making this determination, the
Board reviewed the following information: relationships and/or transactions, if
any, that a director has with the Company; a summary of the director and officer
questionnaires; and the recommendation of the Corporate Governance and
Nominating Committee. In assessing the materiality of a director's relationship
with the Company, the Board reviewed all relevant facts and circumstances,
including all other companies or organizations where a director has an
affiliation and any other relationships with the Company, including, but not
limited to, commercial, industrial, banking, consulting, legal, accounting,
charitable and familial. In particular, the Board identified and reviewed the
relationships and transactions described below. None of these relationships or
transactions constitutes a "related person transaction" under applicable SEC
rules.
-23-
Mr. Nickell is the President and Chief Executive Officer of Kelso &
Company. In fiscal 2007, Bear Stearns underwrote shares of capital stock of a
public company from a selling stockholder, a portion of which were reflective of
the beneficial ownership of the selling stockholder by affiliates of Kelso &
Company. Bear Stearns re-sold these shares. Also in fiscal 2007, Bear Stearns
acted as dealer manager and solicitation agent in connection with the tender
offer by a portfolio company of Kelso & Company for its senior notes. In
addition, Bear Stearns acted as joint book-running manager in connection with
the issuance of notes by a portfolio company of Kelso & Company. Mr. Nickell is
not an employee, nor is he an immediate family member, of an executive officer
of these portfolio companies.
Mr. Harrington is President of St. John's University. In fiscal 2007, Bear
Stearns acted as manager in connection with the issuance of three series of
insured revenue bonds for St. John's University and as remarketing agent in
connection with certain bonds.
Mr. Novelly is Chairman of the Board and Chief Executive Officer of Apex
Oil Company, Inc. Apex Oil Company, Inc. and certain of its subsidiaries
maintain accounts with Bear Stearns.
In light of the ordinary course of business nature of the foregoing
transactions, the amounts received or paid by the Company and the other party,
and the nature of the director's role in these other parties, the Board
determined that these relationships are not material and that such transactions
did not affect the non-management directors' status as "independent" directors
of the Company.
In order to facilitate their service as directors and committee members,
the Company has had a policy of making office space and administrative services
available to each member of the Board. During fiscal 2007, Mr. Tese utilized
office space. The Company also provided the services of an administrative
assistant to Mr. Tese in order to support him in his role as Lead Director of
the Board and Chairman of the Audit Committee. Mr. Tese reimburses the Company
for the proportionate cost of such services attributable to non-Company matters.
For fiscal 2007, Mr. Tese reimbursed the Company $28,425. The Board determined
that this transaction was not material and that it did not affect Mr. Tese's
status as an "independent" director of the Company.
In addition, the Company, in the ordinary course of business, entered into
transactions, as principal, involving the purchase or sale of securities and
commercial paper (including different forms of repurchase transactions) with
non-management directors and members of their immediate families. Because these
transactions were made on the same terms as similar transactions with
non-affiliated third parties, the Board determined that they were not material
and that such transactions did not affect the non-management directors' status
as "independent" directors of the Company.
Item 14. Principal Accountant Fees and Services.
FEES PAID TO INDEPENDENT AUDITORS
The following table sets forth the fees paid to Deloitte & Touche LLP, the
member firms of Deloitte Touche Tohmatsu, and their respective affiliates
(collectively, the "Deloitte Entities") for the fiscal years ending November 30,
2007 and 2006.
Fiscal Year Ended
-------------------
2007 2006
-------- --------
(In millions)
Audit Fees ............................................ $ 11.7 $ 10.5
Audit-Related Fees .................................... 11.7 10.0
Tax Fees .............................................. 3.7 2.9
All Other Fees ........................................ 1.2 3.7
-------- --------
Total ............................................ $ 28.3 $ 27.1
Audit and Audit-Related Fees aggregated $23.4 million and $20.5 million
for the years ended November 30, 2007 and 2006, respectively and consisted of
the following:
-24-
Audit Fees
The aggregate Audit Fees billed by the Deloitte Entities for the fiscal
year ending November 30, 2007 were $11.7 million. This included fees for
services rendered for the audit of the Company's annual financial statements for
the fiscal year ended November 30, 2007, for the reviews of the financial
statements included in the Company's Quarterly Reports on Form 10-Q, other
statutory and regulatory filings and comfort letters and consents related to
registration statements filed with the SEC. The comparative amount for the
fiscal year ended November 30, 2006 was $10.5 million.
Audit-Related Fees
In addition to Audit Fees, the Deloitte Entities have billed the Company
$11.7 million, in the aggregate, for Audit-Related Fees for assurance and
related services for the fiscal year ending November 30, 2007. These services
include, among others, accounting and internal control consultations, reports in
connection with data verification relating to securitization activities and
agreed-upon procedures, as well as services to the Company's triple-A rated
derivative subsidiaries. The comparative amount for the fiscal year ended
November 30, 2006 was $10.0 million.
Tax and Other Fees consisted of the following:
Tax Fees
The Deloitte Entities have billed the Company $3.7 million, in the
aggregate, for the fiscal year ending November 30, 2007, for services rendered
to the Company for tax compliance, tax planning and advice related to debt
structures and transactions. The Deloitte Entities billed the Company $2.9
million for Tax Fees for the fiscal year ending November 30, 2006. Included
within these amounts were tax compliance fees of $2.3 million and $1.8 million
for the fiscal years ending November 30, 2007 and 2006, respectively.
All Other Fees
The aggregate fees billed by the Deloitte Entities for services rendered
to the Company, other than the services described above under Audit Fees,
Audit-Related Fees and Tax Fees, for the fiscal year ended November 30, 2007 and
2006 were approximately $1.2 million and $3.7 million, respectively. The
aggregate fees for All Other Fees in fiscal 2007 included due diligence for
merchant banking projects and the Williams Power Company, Inc. acquisition of
$1.0 million, collectively. All Other Fees for the fiscal year ended November
30, 2006 included due diligence for merchant banking and asset management
projects of $3.5 million, collectively.
--------------------
Fund and Other Fees
The Company offers investment products, including money-market, equity,
fixed income and merchant banking funds ("Funds"). The Deloitte Entities provide
audit and other services to certain of these Funds. The aggregate fees billed by
the Deloitte Entities for such services for fiscal 2007 and 2006 were
approximately $5.2 million and $3.5 million, respectively.
In connection with its merchant banking activities, the Company had
significant investments in various entities. The Deloitte Entities received fees
of approximately $3.5 million for the audits of six of these entities for fiscal
2007 and approximately $3.7 million for the audits of six of these entities in
fiscal 2006.
AUDIT COMMITTEE'S PRE-APPROVAL POLICIES AND PROCEDURES
In accordance with SEC policies regarding auditor independence, the Audit
Committee has established the following policies and procedures to review and
pre-approve all audit, internal-control-related and permissible non-audit
services provided by the independent auditors. These services may include audit
services, audit-related services, internal-control-related services, tax
services and other services.
-25-
Prior to the engagement of the independent auditors, the Audit Committee
is required to pre-approve all audit services and all permitted non-audit
services (including the estimated fees), except those excluded from requiring
pre-approval based upon the de minimus exception set forth in Section
10A(i)(1)(B) of the Exchange Act. The Audit Committee is also required to
pre-approve any internal-control-related services to be provided by the
independent auditors.
In applying the pre-approval policies set forth above, the following
procedures are followed: (1) prior to the beginning of each fiscal year, the
Audit Committee pre-approves a schedule of estimated fees for proposed
non-prohibited audit and non-audit services; (2) actual amounts paid are
monitored by the Company's financial management and reported to the Audit
Committee; and (3) between Audit Committee meetings, the Audit Committee has
authorized Mr. Tese, Chairman of the Audit Committee, to pre-approve (subject to
certain limitations) additional non-prohibited services. Mr. Tese reports any
pre-approvals granted by him between Audit Committee meetings to the entire
Audit Committee at the next regularly scheduled meeting.
All work performed by the Deloitte Entities as described above under the
captions Audit Fees, Audit-Related Fees, Tax Fees and All Other Fees was
approved or pre-approved by the Audit Committee in accordance with the policies
and procedures set forth above. The Audit Committee has considered and concluded
that the provision of non-audit services is compatible with maintaining the
auditor's independence.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a)(3) Exhibits
(2)(a)(1) Agreement and Plan of Merger, dated as of March 16, 2008 by and
between The Bear Stearns Companies Inc. and JPMorgan Chase & Co.
(incorporated by reference to Exhibit 2.1 to the registrant's
Current Report on Form 8-K filed with the Commission on March 20,
2008).
(2)(a)(2) Amendment No. 1, dated as of March 24, 2008, to the Agreement and
Plan of Merger, dated as of March 16, 2008, by and between JPMorgan
Chase & Co. and The Bear Stearns Companies Inc. (incorporated by
reference to Exhibit 2.1 to the registrant's Current Report on Form
8-K filed with the Commission on March 24, 2008).
(2)(b) Share Exchange Agreement, dated as of March 24, 2008, by and between
JPMorgan Chase & Co. and The Bear Stearns Companies Inc.
(incorporated by reference to Exhibit 2.1 to the registrant's
Current Report on Form 8-K filed with the Commission on March 24,
2008).
(3)(a)(1) Restated Certificate of Incorporation of the registrant
(incorporated by reference to Exhibit (4)(a)(1) to the registrant's
registration statement on Form S-3 (File No. 333-57083)).
(3)(a)(2) Certificate of Amendment of Restated Certificate of Incorporation of
the registrant (incorporated by reference to Exhibit 4(a)(2) to the
registrant's registration statement on Form S-8 (File No.
333-92357)).
(3)(a)(3) Certificate of Stock Designation relating to the registrant's 6.15%
Cumulative Preferred Stock, Series E (incorporated by reference to
Exhibit 1.4 to the registrant's registration statement on Form 8-A
filed on January 14, 1998).
(3)(a)(4) Certificate of Stock Designation relating to the registrant's 5.72%
Cumulative Preferred Stock, Series F (incorporated by reference to
Exhibit 1.4 to the registrant's registration statement on Form 8-A
filed on April 20, 1998).
(3)(a)(5) Certificate of Stock Designation relating to the registrant's 5.49%
Cumulative Preferred Stock, Series G (incorporated by reference to
Exhibit 1.4 to the registrant's registration statement on Form 8-A
filed on June 18, 1998).
(3)(a)(6) Certificate of Elimination of the Cumulative Convertible Preferred
Stock, Series A; Cumulative Convertible Preferred Stock, Series B;
Cumulative Convertible Preferred Stock, Series C; and Cumulative
Convertible Preferred Stock, Series D of the registrant
(incorporated by reference to Exhibit 4(d)(9) to the registrant's
Current Report on Form 8-K filed with the Commission on January 15,
2002).
(3)(a)(7) Certificate of Elimination of the 7.88% Cumulative Convertible
Preferred Stock, Series B of the registrant (incorporated by
reference to Exhibit 4(d)(10) to the registrant's Current Report on
Form 8-K filed with the Commission on January 15, 2002).
-26-
(3)(a)(8) Certificate of Elimination of the 7.60% Cumulative Convertible
Preferred Stock, Series C of the registrant (incorporated by
reference to Exhibit 4(d)(11) to the registrant's Current Report on
Form 8-K filed with the Commission on January 15, 2002).
(3)(a)(9) Certificate of Elimination of the Adjustable Rate Cumulative
Preferred Stock, Series A of the registrant (incorporated by
reference to the registrant's Post-Effective Amendment No. 2 to Form
S-8 (File No. 33-108976).
(3)(b)(1) Amended and Restated By-laws of the registrant as amended through
January 8, 2002 (incorporated by reference to Exhibit 4(d)(6) to the
registrant's Current Report on Form 8-K filed with the Commission on
January 15, 2002).
(3)(b)(2) Amendment to By-laws of the registrant (incorporated by reference to
Exhibit 3.1 to the registrant's Current Report on Form 8-K filed
with the Commission on March 19, 2008).
(4)(a)(1) Indenture, dated as of May 31, 1991, between the registrant and
JPMorgan Chase Bank (formerly, The Chase Manhattan Bank), as trustee
(incorporated by reference to Exhibit (4)(a) to registrant's
registration statement on Form S-3 (File No. 33-40933)).
(4)(a)(2) Indenture, dated as of November 14, 2006, between the registrant and
The Bank of New York as trustee (incorporated by reference to
Exhibit (4)(a)(4) to Amendment No. 1 to registrant's registration
statement on Form S-3 (File No. 333-136666) filed with the
Commission on November 14, 2006).
(4)(b) Supplemental Indenture, dated as of January 29, 1998, between the
registrant and JPMorgan Chase Bank (formerly, The Chase Manhattan
Bank), as trustee (incorporated by reference to Exhibit 4(a)(2) to
the registrant's Current Report on Form 8-K filed with the
Commission on February 2, 1998).
(4)(c)(1) Supplemental Note Issuance Agreement, dated November 18, 2004, among
Bear Stearns Global Asset Holdings, Ltd., The Bear Stearns Companies
Inc., as Guarantor, JPMorgan Chase Bank, N.A., as Agent, Registrar,
Transfer Agent and Exchange Agent, Kredietbank S.A. Luxembourgeoise,
as Paying Agent and Bear, Stearns International Limited and Bear,
Stearns & Co. Inc., as Dealers (incorporated by reference to Exhibit
4(c)(1) to the registrant's Current Report on Form 8-K filed with
the Commission on November 23, 2004).
(4)(c)(2) Supplemental Note Issuance Agreement, dated November 18, 2003, among
Bear Stearns Global Asset Holdings, Ltd., The Bear Stearns Companies
Inc., as Guarantor, JPMorgan Chase Bank, as Agent, Registrar,
Transfer Agent and Exchange Agent, Kredietbank S.A. Luxembourgeoise,
as Paying Agent and Bear, Stearns International Limited and Bear,
Stearns & Co. Inc., as Dealers (incorporated by reference to Exhibit
4(c)(2) to the registrant's Current Report on Form 8-K filed with
the Commission on November 23, 2004).
(4)(c)(3) Amended and Restated Note Issuance Agreement, dated June 28, 2002,
among Bear Stearns Global Asset Holdings, Ltd., The Bear Stearns
Companies Inc., JPMorgan Chase Bank, as Agent, Registrar, Transfer
Agent and Exchange Agent, Kredietbank S.A. Luxembourgeoise, as
Paying Agent and Bear, Stearns International Limited and Bear,
Stearns & Co. Inc., as Dealers (incorporated by reference to Exhibit
4(c)(3) to the registrant's Current Report on Form 8-K filed with
the Commission on November 23, 2004).
(4)(c)(4) Deed of Covenant, dated June 28, 2002, made by Bear Stearns Global
Asset Holdings, Ltd. (incorporated by reference to Exhibit 4(c)(4)
to the registrant's Current Report on Form 8-K filed with the
Commission on November 23, 2004).
(4)(c)(5) Deed of Guarantee, dated June 29, 2001, made by The Bear Stearns
Companies Inc. (incorporated by reference to Exhibit 4(c)(5) to the
registrant's Current Report on Form 8-K filed with the Commission on
November 23, 2004).
(4)(c)(6) Except as set forth in (4)(a), (4)(b) and (4)(c)(1)-(4)(c)(5) 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)).
(4)(e) Warrant Agreement, dated July 9, 2003, between the registrant and
JPMorgan Chase Bank, as warrant agent (incorporated by reference to
Exhibit 4.1(a) to the registrant's registration statement on Form
8-A filed on July 17, 2003).
(10)(a)(1) Capital Accumulation Plan for Senior Managing Directors, as amended
and restated as of October 28, 1999 and further amended as of March
31, 2004 (incorporated by reference to Exhibit (10)(a)(1) to the
registrant's Quarterly Report on Form 10-Q for its fiscal quarter
ended May 31, 2004).*
-27-
(10)(a)(2) Capital Accumulation Plan for Senior Managing Directors, as amended
and restated November 29, 2000 for Plan Years beginning on or after
July 1, 1999 and further amended as of March 31, 2004, February 8,
2006, February 28, 2006 and April 18, 2007 (incorporated by
reference to Exhibit (10.3) to the registrant's Quarterly Report on
Form 10-Q for its fiscal quarter ended May 31, 2007).*
(10)(a)(3) Performance Compensation Plan, as amended and restated as of
February 9, 2005 (incorporated by reference to: (i) Exhibit 10(a)(1)
to the registrant's Quarterly Report on Form 10-Q for its fiscal
quarter ended February 28, 2003; (ii) Item 9B, Other Information to
the registrant's Annual Report on Form 10-K for its fiscal year
ended November 30, 2004; and (iii) the registrant's Current Report
on Form 8-K filed with the Commission on December 15, 2005).*
(10)(a)(4) Stock Award Plan, as amended and restated as of March 31, 2004 and
April 18, 2007 (incorporated by reference to Exhibit (10.1) to the
registrant's Quarterly Report on Form 10-Q for its fiscal quarter
ended May 31, 2007).*
(10)(a)(5) Non-Employee Directors' Stock Option and Stock Unit Plan, amended
and restated as of January 8, 2002 (incorporated by reference to
Exhibit 10(a)(1) to the registrant's Quarterly Report on Form 10-Q
for its fiscal quarter ended August 31, 2002).*
(10)(a)(6) Restricted Stock Unit Plan, as amended and restated as of March 31,
2004 and April 18, 2007 (incorporated by reference to Exhibit (10.2)
to the registrant's Quarterly Report on Form 10-Q for its fiscal
quarter ended May 31, 2007).*
(10)(a)(7) The Bear Stearns Companies Inc. AE Investment and Deferred
Compensation Plan, effective January 1, 1989 (the "AE Investment and
Deferred Compensation Plan") (incorporated by reference to Exhibit
10(a)(14) to the registrant's Annual Report on Form 10-K for its
fiscal year ended June 30, 1996).*
(10)(a)(8) Amendment to the AE Investment and Deferred Compensation Plan,
adopted April 29, 1996 and effective as of January 1, 1995
(incorporated by reference to Exhibit 10(a)(15) to the registrant's
Annual Report on Form 10-K for its fiscal year ended June 30,
1996).*
(10)(a)(9) Form of Forward Purchase Agreement, dated as of September 6, 2005,
between The Bear Stearns Companies Inc. and a number of CAP Plan
participants (incorporated by reference to Exhibit 10.1 to the
registrant's Quarterly Report on Form 10-Q for its fiscal quarter
ended August 31, 2005).*
(10)(a)(10) Form of Agreement evidencing a grant of CAP Units to Executive
Officers under the Capital Accumulation Plan (incorporated by
reference to Exhibit 10.1 to the registrant's Current Report on Form
8-K filed with the Commission on January 4, 2005).*
(10)(a)(11) Form of Agreement evidencing a grant of Nonqualified Stock Options
(subject to vesting) to Executive Officers under the Stock Award
Plan (incorporated by reference to Exhibit 10.2 to the registrant's
Current Report on Form 8-K filed with the Commission on January 4,
2005).*
(10)(a)(12) Form of Agreement evidencing a grant of Nonqualified Stock Options
(immediately exercisable) to Executive Officers under the Stock
Award Plan (incorporated by reference to Exhibit 10.3 to the
registrant's Current Report on Form 8-K filed with the Commission on
January 4, 2005).*
(10)(a)(13) Agreement and Release dated November 15, 2007 with Warren Spector
(incorporated by reference to Exhibit 10.1 to the registrant's
Current Report on Form 8-K filed with the Commission on November 21,
2007).*
(10)(a)(14) 2007 Performance Compensation Plan (incorporated by reference to
Exhibit 10.4 to the registrant's Current Report on Form 8-K filed
with the Commission on April 24, 2007).*
(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 North, 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) First Amendment to Lease, dated December 20, 1999, between Forest
City Jay Street Associates, L.P. and The Bear Stearns Companies Inc.
with respect to the premises located at One MetroTech Center North,
Brooklyn, New York (incorporated by reference to Exhibit (10)(b)(2)
to the registrant's Annual Report on Form 10-K for its fiscal year
ended November 30, 2001).
(10)(b)(3) Second Amendment to Lease, dated April 23, 2003, between Forest City
Jay Street Associates, L.P. and The Bear Stearns Companies Inc. with
respect to the premises located at One MetroTech Center North,
Brooklyn, New York (incorporated by reference to Exhibit (10)(b)(3)
to the registrant's Annual Report on Form 10-K for its fiscal year
ended November 30, 2003).
(11) Statement regarding: computation of per share earnings. (The
calculation of per share earnings is in
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Part II, Item 8, Note 11 to the Consolidated Financial Statements
(Earnings Per Share) and is omitted here in accordance with Section
(b)(11) of Item 601 of Regulation S-K).
(12) Statement regarding: computation of ratio of earnings to fixed
charges and combined fixed charges and preferred stock dividends
(incorporated by reference to Exhibit 12 to the registrant's Annual
Report on Form 10-K for the year ended November 30, 2007).
(13) 2007 Annual Report to Stockholders (only those portions expressly
incorporated by reference herein shall be deemed filed with the
Commission) (incorporated by reference to Exhibit 13 to the
registrant's Annual Report on Form 10-K for the year ended November
30, 2007).
(14) Code of Business Conduct and Ethics (incorporated by reference to
Exhibit 14 to the registrant's Annual Report on Form 10-K for its
fiscal year ended November 30, 2004).
(18) Letter Re: Change in Accounting Principles (incorporated by
reference to Exhibit 18 to the registrant's Annual Report on Form
10-K for its fiscal year ended November 30, 2006).
(21) Subsidiaries of the registrant (incorporated by reference to Exhibit
21 to the registrant's Annual Report on Form 10-K for the year ended
November 30, 2007).
(23) Consent of Deloitte & Touche LLP (incorporated by reference to
Exhibit 23 to the registrant's Annual Report on Form 10-K for the
year ended November 30, 2007).
(31.1) + Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)
or 15d-14(a) of the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(31.2) + Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)
or 15d-14(a) of the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(32.1) Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (incorporated by reference to Exhibit
32.1 to the registrant's Annual Report on Form 10-K for the year
ended November 30, 2007).
(32.2) Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (incorporated by reference to Exhibit
32.2 to the registrant's Annual Report on Form 10-K for the year
ended November 30, 2007).
* Executive Compensation Plans and Arrangements
+ Filed herewith.
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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 31st day of
March 2008.
THE BEAR STEARNS COMPANIES INC.
(Registrant)
By: /s/ SAMUEL L. MOLINARO JR.
------------------------------
Samuel L. Molinaro Jr.
Executive Vice President,
Chief Financial Officer and 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 31st day of March 2008.
NAME TITLE
---- -----
/s/ ALAN D. SCHWARTZ President, Chief Executive Officer
-------------------- (Principal Executive Officer) and
Alan D. Schwartz Director
/s/ SAMUEL L. MOLINARO JR. Executive Vice President, Chief
-------------------------- Financial Officer (Principal Financial
Samuel L. Molinaro Jr. Officer) and Chief Operating Officer
/s/ JEFFREY M. FARBER Senior Vice President-Finance and
--------------------- Controller
Jeffrey M. Farber (Principal Accounting Officer)