Title
of Each Class of Securities Offered
|
|
Maximum
Aggregate Offering Price
|
|
Amount
of
Registration
Fee(1)
|
Medium-Term
Notes, Series B
|
|
$1,500,000
|
|
$46.05
|
(1)
Calculated in accordance with Rule 457(r) of the Securities Act of 1933, as
amended. The filing fee of $160.50 is being paid in connection with the
registration of these Medium-Term Notes, Series B.
Filed
pursuant to Rule 424(b)(2)
Registration
No. 333-136666
PRICING
SUPPLEMENT
(To
Prospectus Dated August 16, 2006 and
Prospectus
Supplement Dated August 16, 2006)
The
Bear Stearns Companies Inc.
$1,500,000
17-month 100% Principal Protected “Bronze Medal” Notes Linked to the S&P
500®
Index, the Dow Jones EURO STOXX 50®
Index, or the Nikkei 225Ô
Index
Due
December 31, 2008
|
·
|
The
Notes are fully principal protected if held to maturity and have
a return
that is linked to double the Smallest Percentage Increase of
the following
three indices:
(1)
the S&P 500®
Index (the “SPX”); (2) the Dow Jones EURO STOXX 50®
Index (the “SX5E”) and (3) the Nikkei 225™ Stock Index (the “NKY”, and
along with the SPX and the SX5E, each a “Reference Index”), subject to the
Maximum Return.
|
|
·
|
When
we refer to Notes in this pricing supplement, we mean Notes with
a
principal amount of $1,000.
|
|
·
|
For
each Reference Index, the Index Percentage Increase is calculated
as the
greater of (a) 0.00% and (b) the quotient of (i) the Final Level
(as
defined herein) minus its Initial Level (as defined herein) divided
by
(ii) its Initial Level.
|
|
·
|
At
maturity, the Cash Settlement Value for each $1,000 principal
amount of
the Notes will be equal to:
|
$1,000
principal amount + [$1,000 x Variable Return]
|
·
|
The
Variable Return is equal to the lesser of (a) 17.00% (the “Maximum
Return”) and (b) the product of (i) 200% (the “Participation Rate”)
multiplied
by
(ii) the smallest
of the three Index Percentage Increases (the “Smallest Percentage
Increase”).
The Variable Return will not be less than
0.00%.
|
|
·
|
The
CUSIP number for the Notes is 073928W74.
|
|
·
|
The
Notes will not pay interest during the term of the
Notes.
|
|
·
|
The
Notes will not be listed on any securities exchange or quotation
system.
|
|
·
|
The
Maturity Date for the Notes is expected to be December 31, 2008;
however,
if the Valuation Date is postponed with respect to any Reference
Index,
the Maturity Date will be three Business Days following the postponed
Valuation Date, as described
herein.
|
|
·
|
The
scheduled Valuation Date for the Notes is December 29, 2008.
The Valuation
Date is subject to adjustment as described
herein.
|
INVESTMENT
IN THE NOTES INVOLVES CERTAIN RISKS. THERE MAY NOT BE AN ACTIVE SECONDARY
MARKET
IN THE NOTES, AND IF THERE WERE TO BE AN ACTIVE SECONDARY MARKET, IT MAY
NOT BE
LIQUID. YOU SHOULD REFER TO “RISK FACTORS” BEGINNING ON PAGE
PS-10.
Each
Reference Index is a service mark or trademark of the sponsor of that Reference
Index and has been, or will be, licensed for use by The Bear Stearns Companies
Inc. The Notes, which are linked to the Reference Index with the Smallest
Percentage Increase, are not sponsored, endorsed, sold or promoted by the
sponsor of any Reference Index and the sponsors of such Reference Indices make
no representations regarding the advisability of investing in the
Notes.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of the Notes or determined that this pricing supplement,
or the accompanying prospectus supplement and prospectus, is truthful or
complete. Any representation to the contrary is a criminal
offense.
|
|
Per
Note
|
|
Total
|
Initial
public offering price
|
|
|
100.00%‡
|
|
$
|
1,500,000
|
Agent’s
discount
|
|
|
1.25%
|
|
$
|
18,750
|
Proceeds,
before expenses, to us
|
|
|
98.75%
|
|
$
|
1,481,250
|
‡Any
additional reissuance will be offered at a price to be determined at the time
of
pricing of each offering of Notes, which price will be a function of the
prevailing market conditions and the levels of the Reference Indices at the
time
of the relevant sale.
We
expect
that the Notes will be ready for delivery in book-entry form only through the
book-entry facilities of The Depository Trust Company in New York, New York,
on
or about July 31, 2007, against payment in immediately available funds. The
distribution of the Notes will conform to the requirements set forth in Rule
2720 of the National Association of Securities Dealers, Inc. Conduct
Rules.
We
may
grant our affiliate Bear, Stearns & Co. Inc. a 13-day option from the date
of the final pricing supplement to purchase from us up to an additional $225,000
of Notes at the public offering price to cover any over-allotments.
_______________
Bear,
Stearns & Co. Inc.
July
31,
2007
This
summary highlights selected information from the accompanying prospectus,
prospectus supplement and this pricing supplement to help you understand the
Notes. You should carefully read this entire pricing supplement and the
accompanying prospectus supplement and prospectus to fully understand the terms
of the Notes, as well as certain tax and other considerations that are important
to you in making a decision about whether to invest in the Notes. You should
carefully review the section “Risk Factors” in this pricing supplement and “Risk
Factors” in the accompanying prospectus supplement which highlight a number of
significant risks, to determine whether an investment in the Notes is
appropriate for you. All of the information set forth below is qualified in
its
entirety by the more detailed explanation set forth elsewhere in this pricing
supplement and the accompanying prospectus supplement and prospectus. If
information in this pricing supplement is inconsistent with the prospectus
or
prospectus supplement, this pricing supplement will supersede those documents.
In this pricing supplement, the terms “Company,” “we,” “us” and “our” refer only
to The Bear Stearns Companies Inc. excluding its consolidated
subsidiaries.
The
Bear
Stearns Companies Inc. 17-Month 100% Principal Protected “Bronze Medal” Notes
Linked to the S&P 500®
Index,
the Dow Jones EURO STOXX 50®
Index,
or the Nikkei 225Ô
Index,
Due December 31, 2008 (the “Notes”) are Notes whose return is tied or “linked”
to double the Smallest Percentage Increase of the following three indices:
(1)
the S&P 500®
Index
(“SPX”); (2) the Dow Jones EURO STOXX 50®
Index
(“SX5E”) and (3) the Nikkei 225™ Stock Index (the “NKY”, and along with the SPX
and the SX5E, each a “Reference Index”), subject to a maximum return. When we
refer to Note or Notes in this pricing supplement, we mean $1,000 principal
amount of Notes. The Notes are principal protected. On the Maturity Date, you
will receive the Cash Settlement Value, an amount in cash per $1,000 principal
amount of Notes equal
to
the sum of (a) the $1,000 principal amount plus (b) the product of $1,000
multiplied by the Variable Return.
The
Variable Return, in turn, equals the lesser of (a) the Maximum Return (as
defined below) and (b) the product of the Participation Rate (as defined below)
multiplied by the smallest of the three Index Percentage Returns (the “Smallest
Percentage Increase”). The Index Percentage Increase for a Reference Index is
calculated as the greater of (a) 0.00% and (b) the quotient of (i) the closing
level of the Reference Index on the Valuation Date (the “Final Level”) minus the
closing level of the Reference Index on July 27, 2007 (the “Initial Level”)
divided
by
(ii) its
Initial Level.
Selected
Investment Considerations
|
·
|
Principal
protection—Because the Notes are principal protected if held to maturity,
in no event will you receive a Cash Settlement Value less than $1,000
per
Note. If the Smallest Percentage Increase is less than or equal to
zero,
you will receive the principal amount of the
Notes.
|
|
·
|
Diversification—The
Notes are linked to the Smallest Percentage Increase of the following
three international equity indices: (1) the SPX; (2) the SX5E; and
(3) the
NKY. Therefore, the Notes may allow you to diversify an existing
portfolio
or investment.
|
|
·
|
Potential
leverage in the increase, if any, in the Smallest Percentage Increase—The
Notes may be an attractive investment for investors who have a somewhat
bullish view of all three Reference Indices in the short-term. If
held to
maturity, the Notes allow you to participate in 200.00% of the Smallest
Percentage Increase, not to exceed the maximum return of 17.00%,
representing a 8.50% increase in the Initial Level of the Reference
Index
with the Smallest Percentage
Increase.
|
|
·
|
Taxes—For
U.S. federal income tax purposes, we intend to treat the Notes as
contingent payment debt instruments. As a result, you will be required
to
include original issue discount (“OID”) in income during your ownership of
the Notes even though no cash payments will be made with respect
to the
Notes until maturity. Additionally, you will generally be required
to
recognize ordinary income on the gain, if any, realized on a sale,
upon
maturity, or other disposition of the Notes. You should review the
discussion under the section entitled “Certain U.S. Federal Income Tax
Considerations” in this pricing
supplement.
|
Selected
Risk Considerations
|
·
|
No
current income—We will not pay any interest on the Notes. The yield on the
Notes therefore may be less than the overall return you would earn
if you
purchased a conventional debt security at the same time and with
the same
maturity.
|
|
·
|
No
interest, dividend or other payments—You will not receive any interest,
dividend payments or other distributions on the stocks underlying
any of
the Reference Indices; nor will such payments be included in the
calculation of the Cash Settlement Value you will receive at
maturity.
|
|
·
|
Not
exchange-listed—The Notes will not be listed on any securities exchange or
quotation system and we do not expect a trading market to develop,
which
may affect the price that you receive for your Notes upon any sale
prior
to maturity. If you sell the Notes prior to maturity, you may receive
less, and possibly significantly less, than your initial investment
in the
Notes.
|
|
·
|
Liquidity—Because
the Notes will not be listed on any securities exchange or quotation
system, we do not expect a trading market to develop, and, if such
a
market were to develop, it may not be liquid. Our subsidiary, Bear,
Stearns & Co. Inc. has advised us that they intend under ordinary
market conditions to indicate prices for the Notes on request. However,
we
cannot guarantee that bids for outstanding Notes will be made in
the
future; nor can we predict the price at which those bids will be
made. In
any event, Notes will cease trading as of the close of business on
the
Maturity Date.
|
|
·
|
The
return on the Notes is linked to the single Reference Index with
the
Smallest Percentage Increase over the term of the Notes—You will only
benefit from the performance of the Reference Index with the Smallest
Percentage Increase. Therefore, even if one or more Reference Indices
increase in value, you will not benefit from any such increase if
at least
one Reference Index increases by a smaller value or decreases in
value
since the return on the Notes is linked to the Smallest Percentage
Increase.
|
|
·
|
Maximum
Return of 17.00%—You will not receive more than the maximum return of
17.00% at maturity. Because the maximum return on the Notes is 17.00%,
the
maximum Cash Settlement Value is $1,170.00. Therefore, the Cash Settlement
Value will not reflect the full increase in the value of the Reference
Index with the Smallest Percentage Increase if the Smallest Percentage
Increase is greater than 8.50%.
|
KEY
TERMS
Issuer:
|
The
Bear Stearns Companies Inc.
|
Reference
Indices:
|
The
Notes are linked to the Smallest Percentage Increase of the following
three indices: (1) the S&P 500®
Index (“SPX”); (2) the Dow Jones EURO STOXX 50®
Index (“SX5E”) and (3) the Nikkei 225™ Stock Index (the “NKY”, and along
with the SPX and the SX5E, each a “Reference
Index”).
|
Reference
Index Sponsors:
|
Standard
& Poor’s, a division of The McGraw-Hill Companies, Inc. as the sponsor
of the SPX; STOXX Limited, a partnership of Deutsche Börse AG, Dow Jones
& Company and the SWX Group as the sponsor of the SX5E; and Nihon
Keizai Shimbun, Inc. as the sponsor of the NKY are hereinafter referred
to
as “Reference Index Sponsors.” See “Description of the Reference Indices”
herein.
|
Principal
Amount:
|
The
Notes will be denominated in U.S. dollars. Each Note will be issued
in
minimum denominations of $1,000 and $1,000 multiples thereafter;
provided,
however,
that the minimum purchase for any purchaser domiciled in a Member
state of
the European Economic Area shall be $100,000. The aggregate principal
amount of the Notes being offered is $1,500,000. When we refer to
“Note”
or “Notes” in this pricing supplement, we mean Notes each with a principal
amount of $1,000.
|
Further
Issuances:
|
Under
certain limited circumstances, and at our sole discretion, we may
offer
further issuances of the Notes. These further issuances, if any,
will be
consolidated to form a single series with the Notes and will have
the same
CUSIP number and will trade interchangeably with the Notes immediately
upon settlement.
|
Interest:
|
The
Notes will not bear interest.
|
Participation
Rate:
|
200.00%
|
Cash
Settlement Value:
|
On
the Maturity Date, you will receive the Cash Settlement Value, which
for
each $1,000 principal amount of Notes is equal to: the sum of (a)
the
$1,000 principal amount plus (b) the product of $1,000 multiplied
by
the Variable Return.
|
Variable
Return:
|
An
amount determined by the Calculation Agent and equal to the lesser
of: (a)
the Maximum Return; and (b) the product of (i) the Participation
Rate
multiplied
by
(ii) the smallest of the three Index Percentage Increases (the “Smallest
Percentage Increase”).
|
|
For
purposes of determining the Variable
Return:
|
|
“Index
Percentage Increase”
means, as of the Valuation Date and with respect to a Reference Index,
the
greater of (a) 0.00% and (b) the quotient, expressed as a percentage,
of
(i) the Final Level for that Reference Index minus its Initial Level
divided
by
(ii) its Initial Level.
|
|
“Valuation
Date” means
December 29, 2008; provided
that,
with respect to a Reference Index, (i) if such date is not a Reference
Index Business Day (as defined herein) for that Reference Index,
then the
Valuation Date for that Reference Index will be the next succeeding
day
that is a Reference Index Business Day for that Reference Index and
(ii)
if a Market Disruption Event (as defined herein) exists for that
Reference
Index on the Valuation Date, the Valuation Date for that Reference
Index
will be the next Reference Index Business Day for that Reference
Index on
which a Market Disruption Event does not exist for that Reference
Index.
If the Valuation Date for any Reference Index is postponed for three
consecutive Reference Index Business Days due to the existence of
a Market
Disruption Event, then, notwithstanding the existence of a Market
Disruption Event on that third Reference Index Business Day, that
third
Reference Index Business Day will be the Valuation Date for that
Reference
Index. If no Market Disruption Event exists with respect to a Reference
Index on the Valuation Date, the determination of that Reference
Index’s
Final Level will be made on the Valuation Date, irrespective of the
existence of a Market Disruption Event with respect to one or more
of the
other Reference Indices.
|
|
“Initial
Level”
means (i) 1,458.95 with respect to the SPX; (ii) 4,244.58 with respect
to
the SX5E; and (iii) 17,283.81 with respect to the NKY, each representing
the closing level of the respective Reference Index on July 27,
2007.
|
|
“Final
Level”
means, as of the Valuation Date and with respect to each Reference
Index,
the closing index level as reported by the relevant Reference Index
Sponsor and displayed on Bloomberg Page SPX <Index> <Go> with
respect to the SPX, Bloomberg Page SX5E <Index> <Go> with
respect to the SX5E and Bloomberg Page NKY <Index> <Go> with
respect to the NKY.
|
Pricing
Date:
|
July
27, 2007.
|
Issue
Date:
|
July
31, 2007.
|
Maturity
Date:
|
The
Notes are expected to mature on December 31, 2008; however, if the
Valuation Date is postponed, the Maturity Date will be three Business
Days
following the Valuation Date.
|
Exchange
Listing:
|
The
Notes will not be listed on any securities
exchange.
|
Reference
Index Business Day: |
Means
any day on which the Relevant Exchange and each Related Exchange
are
scheduled
to be open for trading.
|
Business
Day:
|
Means
any day other than a Saturday or Sunday, on which banking institutions
in
the cities of New York, New York and London, England are not authorized
or
obligated by law or executive order to be
closed.
|
Calculation
Agent:
|
Bear,
Stearns & Co. Inc.
|
Relevant
Exchanges:
|
(i)
The New
York Stock Exchange and NASDAQ for the SPX; (ii) the major stock
exchanges, respectively located in one of 17 European countries,
including
the London Stock Exchange, Frankfurt Stock Exchange and others for
the
SX5E; and (iii) the Tokyo Stock Exchange or its successor (the “TSE”) for
the NKY.
|
Related
Exchange:
|
Means
each exchange or quotation system where trading has a material effect
(as
determined by the Calculation Agent) on the overall market for futures
or
options contracts relating to a Reference
Index.
|
Offers
and sales of the Notes are subject to restrictions in certain jurisdictions.
The
distribution of this pricing supplement, the accompanying prospectus supplement
and prospectus and the offer or sale of the Notes in certain other jurisdictions
may be restricted by law. Persons who come into possession of this pricing
supplement, and the accompanying prospectus supplement and prospectus or any
Notes must inform themselves about and observe any applicable restrictions
on
the distribution of this pricing supplement, the accompanying prospectus
supplement and prospectus and the offer and sale of the Notes. Notwithstanding
the minimum denomination of $1,000, the minimum purchase for any purchaser
domiciled in a member state of the European Economic Area shall be $100,000.
What
are the Notes?
The
Notes
are a series of our senior, unsecured, unsubordinated debt securities, the
value
of which is linked to double the Smallest Percentage Increase of the SPX, the
SX5E and the NKY, subject to the Maximum Return. The Notes will not bear
interest, and no other payments will be made prior to maturity. The Notes are
principal protected if held to maturity. However, the Notes differ from
conventional debt securities in that the Notes offer the opportunity to
participate in 200% of the potential positive performance of the Reference
Index
with the Smallest Percentage Increase of the Reference Indices, if any, subject
to a maximum return. See the section “Risk Factors” for selected risk
considerations prior to making an investment in the Notes.
The
Notes
are expected to mature on December 31, 2008. The Notes do not provide for
earlier redemption. When we refer to Notes in this pricing supplement, we mean
Notes with a principal amount of $1,000. You should refer to the section
“Description of the Notes,” for a detailed description of the Notes prior to
making an investment in the Notes.
Are
there any risks associated with my investment?
Yes.
The
Notes are subject to a number of risks. You should refer to the section “Risk
Factors” in this pricing supplement and the section “Risk Factors” in the
accompanying prospectus supplement.
What
will I receive at maturity of the Notes?
We
have
designed the Notes for investors who want to receive at least 100% of the
principal amount of their Notes at maturity. On the Maturity Date, you will
receive the Cash Settlement Value, which is based on the appreciation, if any,
in the Reference Index with the Smallest Percentage Increase over the term
of
the Notes as measured by such Reference Index’s Index Percentage Increase,
subject to the Maximum Return.
For
each
Reference Index, the Index Percentage Increase is calculated as the greater
of
(a) 0.00% and (b) the quotient of (i) the Final Level of such Reference Index
minus its Initial Level divided by (ii) its Initial Level; where:
“Initial
Level” means (i) 1,458.95 with respect to the SPX; (ii) 4,244.58 with respect to
the SX5E; and (iii) 17,283.81 with respect to the NKY, each representing the
closing level of the respective Reference Index on July 27, 2007.
“Final
Level” means, as of the Valuation Date and with respect to each Reference Index,
the closing index level as reported by the relevant Reference Index Sponsor
and
displayed on Bloomberg Page SPX <Index> <Go> with respect to the
SPX, Bloomberg Page SX5E <Index> <Go> with respect to the SX5E and
Bloomberg Page NKY <Index> <Go> with respect to the
NKY.
At
maturity, the Cash Settlement Value for each $1,000 principal amount of the
Notes will be equal to the sum of (a) the $1,000 principal amount plus (b)
the
product of $1,000 multiplied by the Variable Return.
The
“Variable Return” is equal to the lesser of (a) 17.00% (the “Maximum Return”)
and (b) the product of (i) 200% (the “Participation Rate”) multiplied
by
(ii) the
smallest of the three Index Percentage Increases (the “Smallest Percentage
Increase”).
For
more
specific information about the Cash Settlement Value and for illustrative
examples, you should refer to the section “Description of the
Notes.”
What
does “principal
protected” mean?
“Principal
protected”
means
that at maturity your principal investment in the Notes will not be at risk.
If
the Variable Return is equal to or less than zero on the Valuation Date, the
Cash Settlement Value at maturity will be $1,000. You may, however, receive
less
than the principal amount of the Notes if you sell your Notes prior to
maturity.
Will
I receive
interest on the Notes?
You
will
not receive any periodic interest payments on the Notes. The only interest
you
will receive, if any, will be reflected in the Cash Settlement Value upon the
maturity of the Notes.
Will
there be an additional offering of the Notes?
Under
certain limited circumstances, and at our sole discretion, we may offer further
issuances of the Notes. These further issuances, if any, will be consolidated
to
form a single series with the Notes and will have the same CUSIP number and
will
trade interchangeably with the Notes immediately upon settlement. Any additional
issuance will increase the aggregate principal amount of the outstanding Notes
of this series to include the aggregate principal amount of any Notes bearing
the same CUSIP number that are issued pursuant to (i) any 13-day option we
grant
to Bear, Stearns & Co. Inc. The price of any additional offerings will be
determined at the time of pricing of each offering, which will be a function
of
the prevailing market conditions and levels of the Reference Indices at the
time
of the relevant sale.
Who
publishes information regarding the Reference Indices and where can I obtain
further information?
S&P
500®
Index.
The SPX
is a capitalization weighted stock index published by Standard and Poor’s
(“S&P”) and is intended to provide an indication of the pattern of common
stock price movement. The calculation of the level of the Index, discussed
below
in further detail, is based on the relative value of the aggregate market value
of the common stocks of 500 companies as of a particular time compared to the
aggregate average market value of the common stocks of 500 similar companies
during the base period of the years 1941 through 1943. As of July 2, 2007,
the
common stocks of 427 companies or 85.4% of the market capitalization of the
SPX,
were traded on the New York Stock Exchange (“NYSE”) and the common stocks of 73
companies, or 14.6% of the market capitalization of the Index, were traded
on
The NASDAQ Global Select Market or the NASDAQ Global Market (collectively,
the
“NASDAQ”). As of that date, none of the common stocks included in the Index were
traded on the American Stock Exchange. The SPX is quoted in U.S. dollars. You
can obtain the level of the SPX from the Bloomberg service under the symbol
SPX
<Index> or from the S&P website at http://www.spglobal.com. Other
information on the S&P website is not incorporated into this
document.
Dow
Jones EURO STOXX 50®
Index.
The
SX5E is a free-float weighted index of 50 European blue-chip companies and
is
calculated, published and disseminated by STOXX Limited, a partnership of
Deutsche Börse AG, Dow Jones & Company, Euronext Paris SA and SWX Swiss
Exchange. The SX5E is currently comprised of 50 stocks that respectively trade
on major stock exchanges located in one of 17 European countries, including
the
London Stock Exchange, Frankfurt Stock Exchange and others. The SX5E is quoted
in Euros. You can obtain the level of the SX5E from the Bloomberg service under
the symbol SX5E <Index> or from the Dow Jones website at
http://www.djindexes.com. Other information on the Dow Jones website is not
incorporated into this document.
Nikkei
225TM
Stock
Index.
The NKY is a modified, price-weighted stock index calculated, published
and
disseminated by Nihon Keizai Shimbun, Inc. that measures the composite
price
performance of selected Japanese stocks. The NKY is currently comprised
of 225
stocks that trade on the Tokyo Stock Exchange and represents a broad
cross-section of Japanese industry. All 225 of the stocks underlying the
NKY are
stocks listed in the First Section of the Tokyo Stock Exchange. The NKY
is
quoted in Japanese yen. You can obtain the level of the NKY from the Bloomberg
service under the symbol NKY <Index> or from the Tokyo Stock Exchange
website at http://www.tse.or.jp/english/index.shtml. Other information
on the
Tokyo Stock Exchange website is not incorporated into this
document.
How
have the Reference Indices performed historically?
We
have
provided tables depicting the highest and lowest daily levels for each of the
Reference Indices, as well as the end-of-quarter closing levels for each of
the
Reference Indices, for each quarter beginning with January 2002. You can
find these tables in the section “Description of the Reference
Indices—Historical Data on the Reference Indices.” We have provided this
historical information to help you evaluate the behavior of the Reference
Indices in various economic environments; however, the time period depicted
is
relatively limited and past performance is not indicative of the manner in which
the Reference Indices will perform in the future. You should refer to the
section “Risk Factors—The historical performance of the Reference Indices is not
an indication of the future performance of the Reference Indices.”
What
is the role of Bear,
Stearns & Co. Inc.?
Bear,
Stearns & Co. Inc. (“Bear Stearns”) will be our agent for the offering and
sale of the Notes. After the initial offering, Bear Stearns intends to buy
and
sell the Notes to create a secondary market for holders of the Notes, and may
stabilize or maintain the market price of the Notes during the initial
distribution of the Notes. However, Bear Stearns will not be obligated to engage
in any of these market activities or to continue them once they are
begun.
Bear
Stearns also will be our Calculation Agent for purposes of calculating the
Cash
Settlement Value. Under certain circumstances, these duties could result in
a
conflict of interest between Bear Stearns’ status as our subsidiary and its
responsibilities as Calculation Agent. Bear Stearns is obligated to carry out
its duties and functions as Calculation Agent in good faith, and using its
reasonable judgment. Manifest error by the Calculation Agent, or any failure
by
it to act in good faith, in making a determination adversely affecting the
payment of the Cash Settlement Value or interest on principal to the holders
of
the Notes would entitle the holders, or the Trustee (as defined herein) acting
on behalf of the holders, to exercise rights and remedies available under the
Indenture (as defined herein). If the Calculation Agent uses its discretion
to
make a determination, the Calculation Agent will notify us and the Trustee,
who
will provide notice to the holders. You should refer to “Risk Factors - The
Calculation Agent is one of our affiliates, which could result in a conflict
of
interest.”
Can
you tell me more about The Bear Stearns Companies Inc.?
We
are a
holding company that, through our broker-dealer and international bank
subsidiaries, principally Bear Stearns, Bear, Stearns Securities Corp., Bear,
Stearns International Limited (“BSIL”) and Bear Stearns Bank plc, is a leading
investment banking, securities and derivatives trading, clearance and brokerage
firm serving corporations, governments, institutional and individual investors
worldwide. For more information about us, please refer to the section “The Bear
Stearns Companies Inc.” in the accompanying prospectus. You should also read the
other documents we have filed with the Securities and Exchange Commission,
which
you can find by referring to the section “Where You Can Find More Information”
in the accompanying prospectus.
Who
should consider purchasing the Notes?
Because
the Notes are tied to the Smallest Percentage Increase, they may be appropriate
for investors with specific investment horizons who seek to participate in
the
potential price appreciation of the Reference Indices. In particular, the Notes
may be an attractive investment for you if you:
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want
200% leveraged upside exposure (subject to the Maximum Return) to
global
equity markets as represented by the Reference Index with the Smallest
Percentage Increase;
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seek
a 100% principal protected, relatively short-term (17-month) investment
and are willing to hold the Notes until
maturity;
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have
a somewhat bullish view of all three Reference Indices over the term
of
the Notes;
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understand
that the Reference Indices may not move in tandem and that you will
not
benefit from increases in one or more Reference Indices if at least
one
other Reference Index increases by a smaller value or decreases in
value;
and
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are
willing to forgo interest payments or dividend payments on the stocks
underlying the Reference Indices.
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The
Notes
may not be a suitable investment for you if:
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you
seek current income or dividend payments from your
investment;
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you
are unable or unwilling to hold the Notes until maturity;
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you
seek an investment with an active secondary market;
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you
believe that all three Reference Indices will outperform the Maximum
Return during the term of the Notes;
or
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you
do not have a bullish view of all three Reference Indices over the
term of
the Notes.
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What
are the U.S. federal income tax consequences of investing in the
Notes?
We
intend
to treat the Notes as contingent payment debt instruments for federal income
tax
purposes. Therefore, a U.S. Holder of a Note will be required to include OID
in
gross income over the term of the Note even though no cash payments will be
made
with respect to the Notes until maturity. The amount of OID includible in each
year is based on the “comparable yield.” In addition, we will compute a
“projected payment schedule” that reflects a single payment at maturity that
produces the comparable yield. The comparable yield and the projected payment
schedule are neither predictions nor guarantees of the actual yield on the
Notes
or the actual payment at maturity. If the amount we actually pay at maturity
is,
in fact, less than the amount reflected on the projected payment schedule,
then
a U.S. Holder would have recognized taxable income in periods prior to maturity
that exceeds the U.S. Holder’s economic income from holding the Note during such
periods (with an offsetting ordinary loss). If a U.S. Holder disposes of the
Note prior to maturity, the U.S. Holder will be required to treat any gain
recognized upon the disposition of the Note as ordinary income (rather than
capital gain). You should review the discussion under the section entitled
“Certain U.S. Federal Income Tax Considerations” in this pricing
supplement.
Does
ERISA impose any limitations on purchases of the Notes?
An
employee benefit plan subject to Title I of the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”), a plan that is subject to Section
4975 of the Internal Revenue Code of 1986, as amended (the “Code”), including
individual retirement accounts, individual retirement annuities or Keogh plans,
a governmental or church plan subject to any similar law or any entity the
assets of which are deemed to be “plan assets” under ERISA, Section 4975 of the
Code, any applicable regulations or otherwise, will be permitted to purchase,
hold and dispose of the Notes, subject to certain conditions. Such investors
should carefully review the discussion under “Certain ERISA Considerations” in
this pricing supplement before investing in the Notes.
RISK
FACTORS
Your
investment in the Notes involves a degree of risk similar to investing in the
Reference Indices. Your investment in the Notes will be subject to risks not
associated with conventional fixed-rate or floating-rate debt securities.
Prospective purchasers should recognize the possibility of a loss with respect
to their investment in the Notes if they sell the Notes prior to maturity.
Prospective purchasers of the Notes should understand the risks of investing
in
the Notes and should reach an investment decision only after careful
consideration, with their advisers, of the suitability of the Notes in light
of
their particular financial circumstances, the following risk factors and the
other information set forth in this pricing supplement and the accompanying
prospectus supplement and prospectus. These risks include the possibility that
the Reference Indices will fluctuate. We have no control over a number of
matters that may affect the value of the Notes, including economic, financial,
regulatory, geographic, judicial and political events, that are important in
determining the existence, magnitude, and longevity of these risks and their
influence on the value of, or the payment made on, the Notes.
Your
Notes are principal protected only if you hold the Notes until
maturity.
The
Notes
are principal protected only if you hold your Notes until the Maturity Date.
You
should be aware that if you sell your Notes in the secondary market you will
not
receive principal protection on the Notes sold and you may receive less than
100% of the principal amount of your Notes.
You
will not receive any interest payments on the Notes. Your yield may be lower
than the yield on a conventional debt security of comparable
maturity.
You
will
not receive any periodic payments of interest or any other periodic payments
on
the Notes. On the Maturity Date, you will receive a payment per Note equal
to
the Cash Settlement Value. Thus, the overall return you earn on your Notes
may
be less than that you would have earned by investing in a non-indexed debt
security of comparable maturity that bears interest at a prevailing market
rate
and is principal protected. For more specific information about the Cash
Settlement Value and for illustrative examples, you should refer to the section
“Description of the Notes.”
Your
return on the Notes is linked to the Smallest Percentage Increase.
If
the
Final Level of any of the three Reference Indices is less than its respective
Initial Level, the Cash Settlement Value will be equal to the principal amount
of your Notes regardless of any appreciation in the levels of any other
Reference Index. For example, if the Final Level of one of the Reference Indices
is less than its respective Initial Level, and the Final Levels of each of
the
other two Reference Indices are higher than their respective Initial Levels,
you
will not receive any amount in excess of the principal amount of your Notes.
Therefore, you may receive a return that is less than the return you would
earn
on a conventional debt instrument with the same term, notwithstanding the
positive performance of one or more other Reference Indices.
Owning
the Notes is not the same as having rights in the securities underlying the
Reference Indices.
Even
if
all three of the Reference Indices increase above their respective Initial
Levels during the term of the Notes, the trading value of the Notes may not
increase by the same amount. It is also possible for the Variable Return to
increase while the trading value of the Notes declines.
You
must rely on your own evaluation of the merits of an investment linked to the
Reference
Indices.
In
the
ordinary course of our business, we may from time to time express views on
expected movements in the Reference Indices and the securities underlying the
Reference Indices. These views may vary over differing time horizons and are
subject to change without notice. Moreover, other professionals who deal in
the
equity markets may at any time have views that differ significantly from ours.
In connection with your purchase of the Notes, you should investigate the
Reference Indices and the securities underlying the Reference Indices and not
rely on our views with respect to future movements in these industries and
stocks. You should make such investigation as you deem appropriate as to the
merits of an investment linked to the Reference Indices.
Your
yield will not reflect dividends on the underlying stocks that comprise the
Reference Indices.
The
Reference Indices do not reflect the payment of dividends or other distributions
on the securities underlying the Reference Indices. Therefore, the yield you
will receive by holding the Notes to maturity will not be the same as if you
had
purchased the securities underlying the Reference Indices and held them for
a
similar period. You should refer to the section “Description of the Notes” for a
detailed description of the notes prior to making an investment in the Notes.
Tax
Consequences.
For
U.S.
federal income tax purposes, we intend to treat the Notes as contingent payment
debt instruments. As a result, U.S. Holders will be required to include OID
in
income during their ownership of the Notes even though no cash payments will
be
made with respect to the Notes until maturity. The amount of OID includible
in
each year is based on the “comparable yield.” In addition, we have computed a
“projected payment schedule” that reflects a single payment at maturity that
produces the comparable yield. The comparable yield and the projected payment
schedule are neither predictions nor guarantees of the actual yield on the
Notes
or the actual payment at maturity. If the amount we actually pay at maturity
is,
in fact, less than the amount reflected on the projected payment schedule,
then
a U.S. Holder would have recognized taxable income in periods prior to maturity
that exceeds the U.S. Holder’s economic income from holding the Note during such
periods (with an offsetting ordinary loss). Additionally, U.S. Holders will
generally be required to recognize ordinary income on the gain, if any, realized
on a sale, upon maturity, or other disposition of the Notes. You should review
the discussion under the section entitled “Certain U.S. Federal Income Tax
Considerations” in this pricing supplement.
Equity
market risks may affect the trading value of the Notes and the amount you will
receive at maturity.
We
expect
that the levels of the Reference Indices will fluctuate in accordance with
changes in the financial condition of the companies issuing the securities
comprising the Reference Indices, the prices of the underlying securities
comprising the Reference Indices generally and other factors. The financial
condition of the companies issuing the securities underlying the Reference
Indices may become impaired or the general condition of the global equity market
may deteriorate, either of which may cause decreases in the levels of the
Reference Indices and thus in the value of the Notes. Common stocks are
susceptible to general equity market fluctuations and to volatile increases
and
decreases in value, as market confidence in and perceptions regarding the
underlying securities comprising the Reference Indices change. Investor
perceptions regarding the companies issuing the securities comprising the
Reference Indices are based on various and unpredictable factors, including
expectations regarding government, economic, monetary and fiscal policies,
inflation and interest rates, economic expansion or contraction, and global
or
regional political, economic, and banking crises. The levels of the Reference
Indices are expected to fluctuate until the Maturity Date.
The
historical performance of the Reference Indices is not an indication of the
future performance of the Reference Indices.
The
historical performance of the Reference Indices which is included in this
pricing supplement, should not be taken as an indication of the future
performance of the Reference Indices. While the trading prices of the underlying
securities comprising the Reference Indices will determine the Variable Return,
it is impossible to predict whether the Variable Return will fall or rise.
Trading prices of the underlying securities comprising the Reference Indices
will be influenced by the complex and interrelated economic, financial,
regulatory, geographic, judicial, political and other factors that can affect
the capital markets generally and the equity trading markets on which the
underlying securities are traded, in particular, and by various circumstances
that can influence the prices of the underlying securities in a specific market
segment or the price of a particular underlying stock.
The
Cash Settlement Value will not be adjusted for changes in currency exchange
rates.
Although
the securities underlying certain of the Reference Indices are traded in
currencies other than the U.S. dollar and the Notes are denominated in U.S.
dollars, the amount payable on the Maturity Date will not be adjusted for the
currency exchange rates in effect on the Maturity Date. Any amount in addition
to the principal amount of each Note payable to you on the Maturity Date is
based solely upon the percentage increase in the Variable Return. Changes in
exchange rates, however, may reflect changes in various international economies,
which in turn may affect the levels of the Reference Indices and the trading
value of the Notes.
The
securities underlying certain Reference Indices trade at different times;
however, if an active secondary market develops, the Notes may trade only during
regular trading hours in the United States.
The
hours
of trading for the Notes may not conform to the hours during which the
securities underlying certain of the Reference Indices are traded. To the extent
that U.S. markets are closed while other markets remain open, significant price
and rate movements may take place in the markets for the securities comprising
certain of the Reference Indices that will not be reflected immediately in
the
price of the Notes.
As
a
result of the time difference among the cities where the securities underlying
certain of the Reference Indices trade, and New York City (where the Notes
may
trade), there may be discrepancies between the levels of the Reference Indices,
and the trading prices of the Notes. In addition, there may be periods when
the
international securities markets are closed for trading (for example during
holidays in an applicable country), causing the level of a particular Reference
Index to remain unchanged for multiple New York City trading days.
Your
return may be affected by factors affecting international securities markets.
The
securities underlying certain of the Reference Indices are issued by
international companies. Investors should be aware that investments linked
to
the value of international equity securities might involve particular risks.
The
international securities markets may have less liquidity and could be more
volatile than U.S. or other longer-established international securities markets.
Direct or indirect government intervention to stabilize the international
securities markets, as well as cross-shareholdings in international companies,
may affect trading prices and volumes in those markets. Also, there is generally
less publicly available information about international companies than about
those U.S. companies that are subject to the reporting requirements of the
SEC;
and international companies are often subject to accounting, auditing and
financial reporting standards and requirements that differ from those applicable
to U.S. reporting companies. The other special risks associated with investments
linked to the value of international equity securities may include, but are
not
necessarily limited to: the imposition of taxes; higher transaction and custody
costs; settlement delays and risk of loss; difficulties in enforcing contracts;
less liquidity and smaller market capitalizations; less rigorous regulation
of
securities markets; governmental interference; higher inflation; and social,
economic and political uncertainties. These factors may adversely affect the
performance of certain of the Reference Indices and, as a result, the Cash
Settlement Value may be adversely affected.
The
prices and performance of securities underlying the Reference Indices also
may
be affected by political, economic, financial and social factors. In addition,
recent or future changes in the government, economic and fiscal policies, the
possible imposition of, or changes in, currency exchange laws or other laws
or
restrictions, and possible fluctuations in the rate of exchange between
currencies, are factors that could negatively affect the international
securities markets. Moreover, the applicable international economies may differ
favorably or unfavorably from that of the United States.
The
price at which you will be able to sell your Notes prior to maturity will depend
on a number of factors, and may be substantially less than the amount you had
originally invested.
If
you
wish to liquidate your investment in the Notes prior to maturity, your only
alternative would be to sell them. At that time, there may be an illiquid market
for Notes or no market at all. Even if you were able to sell your Notes, there
are many factors outside of our control that may affect their trading value.
We
believe that the value of your Notes will be affected by the level and
volatility of the Reference Indices, whether the closing levels of all of the
Reference Indices are greater than or equal to their initial levels, changes
in
U.S. interest rates, the supply of and demand for the Notes and a number of
other factors. Some of these factors are interrelated in complex ways; as a
result, the effect of any one factor may be offset or magnified by the effect
of
another factor. The price, if any, at which you will be able to sell your Notes
prior to maturity may be substantially less than the amount you originally
invested if, at such time, the Smallest Percentage Increase is less than, equal
to or not sufficiently above zero. If you sell the Notes prior to maturity,
you
may receive less, and possibly significantly less, than your initial investment
in the Notes. The following paragraphs describe the manner in which we expect
the trading value of the Notes will be affected in the event of a change in
a
specific factor, assuming all other conditions remain constant.
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Value
of the Reference Indices.
We expect that the trading value of the Notes will depend substantially
on
the amount, if any, by which the Variable Return at any given time
is
greater than zero. If you decide to sell your Notes when the Variable
Return is greater than zero, you may nonetheless receive substantially
less than the amount that would be payable at maturity based on that
Variable Return because of expectations that the Variable Return
will
continue to fluctuate until the Cash Settlement Value is
determined.
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Volatility
of the Reference Indices.
Volatility is the term used to describe the size and frequency of
market
fluctuations. If the volatility of the Reference Indices increases
or
decreases, the trading value of the Notes may be adversely affected.
This
volatility may increase the risk that the Variable Return will decline,
which could negatively affect the trading value of Notes. The effect
of
the volatility of the Reference Indices on the trading value of the
Notes
may not necessarily decrease over time during the term of the
Notes.
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Correlation
among the level of the Reference Indices.
Correlation is the extent to which the levels of the Reference Indices
increase or decrease to the same degree at the same time. To the
extent
that correlation among the Reference Indices changes, the volatility
of
the Reference Indices may change and the value of the Notes may be
adversely affected.
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Interest
rates.
We expect that the trading value of the Notes will be affected by
changes
in interest rates. In general, if interest rates increase, the value
of
outstanding debt securities tends to decrease; conversely, if interest
rates decrease, the value of outstanding debt securities tends to
increase. Interest rates may also affect the economy and, in turn,
the
level of the Reference Indices, which may affect the value of the
Notes.
Rising interest rates may lower the level of the Reference Indices
and,
thus, the value of the Notes.
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Our
credit ratings, financial condition and results of
operations.
Actual or anticipated changes in our current credit ratings, A1 by
Moody’s
Investor Service, Inc. and A+ by Standard & Poor’s Rating Services, as
well as our financial condition or results of operations may significantly
affect the trading value of the Notes. However, because the return
on the
Notes is dependent upon factors in addition to our ability to pay
our
obligations under the Notes, such as the level of the Reference Indices,
an improvement in our credit ratings, financial condition or results
of
operations is not expected to have a positive effect on the trading
value
of the Notes.
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Time
remaining to maturity. As
the time remaining to maturity of the Notes decreases, the “time premium”
associated with the Notes will decrease. A “time premium” results from
expectations concerning the levels of the Reference Indices during
the
period prior to the maturity of the Notes. As the time remaining
to the
maturity of the Notes decreases, this time premium will likely decrease,
potentially adversely affecting the trading value of the Notes. As
the
time remaining to maturity decreases, the trading value of the Notes
and
the supplemental return may be less sensitive to the volatility of
the
Reference Indices.
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Dividend
yield.
The value of the Notes may also be affected by the dividend yields
on the
stocks in the Reference Indices. In general, because the Reference
Indices
do not incorporate the value of dividend payments, higher dividend
yields
will likely reduce the value of the Notes and, conversely, lower
dividend
yields are expected to increase the value of the
Notes.
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Volatility
of currency exchange rates.
The exchange rates between the U.S. dollar and the foreign currencies
in
which the securities underlying certain of the Reference Indices
are
denominated are foreign exchange spot rates that measure the relative
values of two currencies: the particular currency in which the securities
underlying a particular Reference Index are denominated and the U.S.
dollar. The spot rate is expressed as a rate that reflects the amount
of
the particular currency that can be purchased for one U.S. dollar.
If the
volatility of the exchange rate between the U.S. dollar and any of
the
foreign currencies in which the securities underlying certain of
the
Reference Indices are denominated changes, the trading value of the
Notes
may be adversely affected.
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Correlation
between currency exchange rates and the Reference Indices.
Correlation is the term used to describe the relationship between
the
percentage changes in the exchange rate between the U.S. dollar and
each
of the foreign currencies in which the securities underlying certain
of
the Reference Indices are denominated and the percentage changes
between
each Reference Index. If the correlation between the relevant exchange
rates and the particular Reference Index changes, the trading value
of the
Notes may be adversely affected.
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Events
involving the companies issuing the securities comprising the Reference
Indices.
General economic conditions and earnings results of the companies
whose
securities comprise the Reference Indices, and real or anticipated
changes
in those conditions or results, may affect the trading value of the
Notes.
Some of the securities underlying the Reference Indices may be affected
by
mergers and acquisitions, which can contribute to volatility of the
Reference Indices. As a result of a merger or acquisition, one or
more
securities in the Reference Indices may be replaced with a surviving
or
acquiring entity’s securities. The surviving or acquiring entity’s
securities may not have the same characteristics as the stock originally
included in the Reference Index.
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Size
and liquidity of the trading market.
The Notes will not be listed on any securities exchange and we do
not
expect a trading market to develop. There may not be an active secondary
market in the Notes, which may affect the price that you receive
for your
Notes upon any sale prior to maturity. If an active secondary market
does
develop, there can be no assurance that there will be liquidity in
the
secondary market. If the secondary market for the Notes is limited,
there
may be a limited number of buyers for your Notes if you do not wish
to
hold your investment until maturity. This may affect the price you
receive
upon any sale of the Notes prior to
maturity.
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Inclusion
of commission.
The inclusion of commissions and projected profit from hedging in
the
initial public offering price of the Notes is likely to adversely
affect
secondary market prices. Assuming no change in the market conditions
or
any other relevant factors, the price, if any, at which Bear Stearns
may
be willing to purchase the Notes in secondary market transactions
may be
lower than the original price of the Notes, because the original
price
included, and secondary market prices are likely to exclude, commissions
paid with respect to the Notes, as well as the projected profit included
in the cost of hedging our obligations under the Notes. In addition,
any
such prices may differ from values determined by pricing models used
by
Bear Stearns as a result of dealer discounts, mark-ups or other
transaction costs.
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Bear
Stearns has advised us that they intend under ordinary market conditions to
indicate prices for the Notes on request. However, we cannot guarantee that
bids
for outstanding Notes will be made in the future, nor can we predict the price
at which any such bids will be made.
We
want
you to understand that the effect of one of the factors specified above, such
as
an increase in interest rates, may offset some or all of any change in the
value
of the Notes attributable to another factor, such as an increase in the level
of
the Variable Return.
You
have no shareholder rights or rights to receive any stock.
Investing
in the Notes will not make you a holder of any of the stocks underlying the
Reference Indices. Neither you nor any other holder or owner of the Notes will
have any voting rights, any right to receive dividends or other distributions
or
any other rights with respect to the underlying stocks. The Cash Settlement
Value, if any, will be paid in cash, and you will have no right to receive
delivery of any stocks underlying the Reference Indices.
Reported
Reference Index levels may be based on non-current
information.
If
trading is interrupted in the securities underlying certain of the Reference
Indices, publicly available information regarding the Variable Return may be
based on the last reported prices or levels. As a result, publicly available
information regarding reported Reference Index levels may at times be based
on
non-current information.
Risks
associated with the Reference Indices may adversely affect the market price
of
the Notes.
Because
the Notes are linked to changes in the levels of equity indices representing
three specific geographic sectors, the Notes will be less diversified than
funds
or investment instruments investing in a broader range of international
securities and, therefore, could experience greater volatility.
Suspensions
or disruptions of market trading in the equity securities markets may adversely
affect the Cash Settlement Value at maturity and/or the market value of the
Notes.
The
equity securities markets are subject to temporary distortions or other
disruptions due to various factors, including a lack of liquidity in the
markets, the participation of speculators and potential government regulation
and intervention. Suspension or other disruptions of market trading in the
securities underlying certain of the Reference Indices could adversely affect
the levels of those Reference Indices and, therefore, the Cash Settlement Value
and/or the trading value of the Notes.
Adjustments
to the Reference Indices could adversely affect the value of the
Notes.
The
policies of a Reference Index Sponsor concerning additions, deletions and
substitutions of the securities underlying the applicable Reference Index and
the manner in which that Reference Index Sponsor takes account of certain
changes affecting those underlying securities may affect the level of the
Reference Index and thus the Variable Return. You should realize that changes
in
the companies included in a Reference Index may affect the Reference Index,
as a
newly-added company may perform significantly better or worse than the company
or companies it replaces. The Reference Index Sponsor also may discontinue
or
suspend calculation or dissemination of that Reference Index or materially
alter
the methodology by which it calculates that Reference Index. Any such actions
could affect the value of the Notes.
The
Calculation Agent is one of our affiliates, which could result in a conflict
of
interest.
Bear
Stearns will act as the Calculation Agent. The Calculation Agent will make
certain determinations and judgments in connection with calculating the Cash
Settlement Value, or deciding whether a Market Disruption Event (as defined
herein) has occurred. You should refer to “Description of the
Notes—Discontinuance of one or more Reference Indices,” “—Adjustments to the
Reference Indices” and “—Market Disruption Events.” Because Bear Stearns is our
affiliate, conflicts of interest may arise in connection with Bear Stearns
performing its role as Calculation Agent. Rules and regulations regarding
broker-dealers (such as Bear Stearns) require Bear Stearns to maintain policies
and procedures regarding the handling and use of confidential proprietary
information, and such policies and procedures will be in effect throughout
the
term of the Notes. Bear Stearns is obligated to carry out its duties and
functions as Calculation Agent in good faith, and using its reasonable judgment.
See “Description of the Notes—Calculation Agent.”
Our
affiliates, including Bear Stearns, may, at various times, engage in
transactions involving the securities underlying the Reference Indices for
their
proprietary accounts, and for other accounts under their management. These
transactions may influence the value of such securities, and therefore the
level
of the respective Reference Index. BSIL, an affiliate of Bear Stearns, or one
of
its subsidiaries will also be the counterparty to the hedge of our obligations
under the Notes. You should refer to “Use of Proceeds and Hedging.” Accordingly,
under certain circumstances, conflicts of interest may arise between Bear
Stearns’ responsibilities as Calculation Agent with respect to the Notes and
BSIL’s obligations under our hedge.
Changes
that affect the calculation of a Reference Index will affect the trading value
of the Notes and the amount you will receive at maturity.
The
Reference Index Sponsor is responsible for calculating and maintaining the
Reference Indices. The policies of a Reference Index Sponsor concerning the
calculation of a Reference Index will affect the level of the Reference Index
and, therefore, the trading value of the Notes and the Cash Settlement Value.
If
a
Reference Index Sponsor discontinues or suspends calculation or publication
of a
Reference Index, it may become difficult to determine the trading value of
the
Notes or the Cash Settlement Value. If a Reference Index Sponsor discontinues
or
suspends calculation of a Reference Index at any time prior to the Maturity
Date
and a Successor Reference Index is not available or is not acceptable to the
Calculation Agent, then the Calculation Agent will determine the amount payable
on the Maturity Date by reference to a group of stocks and a computation
methodology that the Calculation Agent determines will as closely as reasonably
possible replicate the Reference Index. In addition, if the method of
calculating a Reference Index (or a Successor Reference Index) is changed in
a
material respect, or if a Reference Index (or a Successor Reference Index)
is in
any other way modified so that such Reference Index (or Successor Reference
Index) does not, in the opinion of the Calculation Agent, fairly represent
the
level of the Reference Index (or Successor Reference Index) had such changes
or
modifications not been made, the Calculation Agent will make such calculations
and adjustments as may be necessary to arrive at a level of a security index
comparable to the Reference Index (or Successor Reference Index) as if such
changes or modifications had not been made. In each such event, the Calculation
Agent’s determination of the value of the Notes will affect the amount you will
receive at maturity. See “Description of the Notes” and “Description of the
Reference Indices.”
We
cannot control actions by any of the companies whose securities are included
in
any Reference Index.
The
common stock of The Bear Stearns Companies Inc. is an underlying stock of the
SPX. We are not affiliated with any of the other companies whose securities
underlie the Reference Indices. However, we may currently, or in the future,
engage in business with these companies. Actions by any company whose security
is part of a Reference Index may have an adverse effect on the price of the
company’s securities, the trading price of and the closing level of the
Reference Index and the Variable Return, and the trading value of the Notes.
None of those companies are involved in this offering or has any obligations
with respect to the Notes, including any obligation to take our or your
interests into consideration for any reason. These other companies will not
receive any of the proceeds of this offering and are not responsible for, and
have not participated in, the determination of the timing of, prices for, or
quantities of, the Notes to be issued. These other companies are not involved
with the administration, marketing or trading of the Notes and have no
obligations with respect to the amount to be paid to you under the Notes on
the
Maturity Date.
Neither
we nor any of our affiliates, including Bear Stearns, assumes any responsibility
for the adequacy or accuracy of any publicly available information about the
securities underlying the Reference Indices (other than with respect to our
common stock) or the Reference Indices. You should make your own investigation
into the companies underlying each Reference Index.
We
and our affiliates have no affiliation with any Reference Index Sponsor and
are
not responsible for any Reference Index Sponsor’s public disclosure of
information.
We
and
our affiliates are not affiliated in any way with any Reference Index Sponsor
(except for the licensing arrangements discussed in the section “Description of
the Reference Indices—License Agreements”) and have no ability to control or
predict any Reference Index Sponsor’s actions, including any errors in or
discontinuation of disclosure regarding its methods or policies relating to
the
calculation of the applicable Reference Index. Neither we nor any of our
affiliates assumes any responsibility for the adequacy or accuracy of the
information about the Reference Indices or the Reference Index Sponsors
contained in this pricing supplement. You, as an investor in the Notes, should
make your own investigation into the Reference Indices and the Reference Index
Sponsors. The Reference Index Sponsors are not involved in any way in the
offering of the Notes and have no obligation to consider your interests as
an
owner of Notes when they take any actions that might affect the value of the
Notes.
Trading
and other transactions by us or our affiliates could affect the prices of the
stocks underlying the Reference Indices, the Index Percentage Increases, the
Variable Return, the trading value of the Notes or the amount you may receive
at
maturity.
We
and
our affiliates may from time to time buy or sell shares of the securities
underlying the Reference Indices or derivative instruments related to those
securities for our own accounts in connection with our normal business practices
or in connection with hedging our obligations under the Notes and other
instruments. These trading activities may present a conflict of interest between
your interest in the Notes and the interests we and our affiliates may have
in
our proprietary accounts, in facilitating transactions, including block trades,
for our other customers and in accounts under our management. The transactions
could affect the prices of those securities or the level of the respective
Reference Index in a manner that would be adverse to your investment in the
Notes. See the section “Use of Proceeds and Hedging.”
The
original issue price of the Notes includes the cost of hedging our obligations
under the Notes. Such cost includes BSIL’s expected cost of providing such hedge
and the profit BSIL expects to realize in consideration for assuming the risks
inherent in providing such hedge. As a result, assuming no change in market
conditions or any other relevant factors, the price, if any, at which Bear
Stearns will be willing to purchase Notes from you in secondary market
transactions, if at all, will likely be lower than the original issue price.
In
addition, any such prices may differ from values determined by pricing models
used by Bear Stearns as a result of transaction costs. If you sell the Notes
prior to maturity, you may receive less, and possibly significantly less, than
your initial investment in the Notes.
Hedging
activities we or our affiliates may engage in may affect the level of the
Reference Indices and, accordingly, increase or decrease the trading value
of
the Notes prior to maturity and the Cash Settlement Value you would receive
at
maturity. To the extent that we or any of our affiliates has a hedge position
in
any of the securities that underlie the Reference Indices, or derivative or
synthetic instruments related to those securities or the Reference Indices,
we
or any of our affiliates may liquidate a portion of such holdings at or about
the time of the maturity of the Notes or at or about the time of a change in
the
securities that underlie the Reference Indices. Depending on, among other
things, future market conditions, the aggregate amount and the composition
of
such hedge positions are likely to vary over time. Profits or losses from any
of
those positions cannot be ascertained until the position is closed out and
any
offsetting position or positions are taken into account. Although we have no
reason to believe that any of those activities will have a material effect
on
the level of the Variable Return, we cannot assure you that these activities
will not affect such level and the trading value of the Notes prior to maturity
or the Cash Settlement Value payable at maturity.
In
addition, we or any of our affiliates may purchase or otherwise acquire a long
or short position in the Notes. We or any of our affiliates may hold or resell
the Notes. We or any of our affiliates may also take positions in other types
of
appropriate financial instruments that may become available in the future.
Research
reports and other transactions may create conflicts of interest between you
and
us.
We
or one
or more of our affiliates have published, and may in the future publish,
research reports relating to the Reference Indices or the companies issuing
the
securities included in the Reference Indices. This research may be modified
from
time to time without notice and may express opinions or provide recommendations
that are inconsistent with purchasing or holding the Notes. Any of these
activities may affect the market prices of the securities included in the
Reference Indices and, therefore, the value of the Notes.
We
or any
of our affiliates may also issue, underwrite or assist unaffiliated entities
in
the issuance or underwriting of other securities or financial instruments with
returns indexed to a Reference Index thereof. By introducing competing products
into the marketplace in this manner, we or our affiliates could adversely affect
the value of the Notes.
We
and
our affiliates, at present or in the future, may engage in business with the
companies issuing the securities included in the Reference Indices, including
making loans to, equity investments in, or providing investment banking, asset
management or other advisory services to those companies. In
connection with these activities, we may receive information about those
companies that we will not divulge to you or other third parties.
The
Cash Settlement Value you receive on the Notes may be delayed or reduced upon
the occurrence of a Market Disruption Event, or an Event of
Default.
If
the
Calculation Agent determines that, on the Valuation Date, a Market Disruption
Event has occurred or is continuing, the determination of the Cash Settlement
Value by the Calculation Agent may be deferred. You should refer to the section
“Description of the Notes—Market Disruption Events.”
If
the
Calculation Agent determines that an Event of Default (as defined below) has
occurred, a holder of the Notes will only receive an amount equal to the trading
value of the Notes on the date of such Event of Default, adjusted by an amount
equal to any losses, expenses and costs to us of unwinding any underlying
hedging or funding arrangements, all as determined by the Calculation Agent.
You
should refer to the section “Description of the Notes—Event of Default and
Acceleration.”
You
should decide to purchase the Notes only after carefully considering the
suitability of the Notes in light of your particular financial circumstances.
You should also carefully consider the tax consequences of investing in the
Notes. You should refer to the section “Certain U.S. Federal Income Tax
Considerations” and discuss the tax implications with your own tax
advisor.
The
following description of the Notes (referred to in the accompanying prospectus
supplement as the “Other Indexed Notes”) supplements the description of the
Notes in the accompanying prospectus supplement and prospectus. This is a
summary and is not complete. You should read the indenture, dated as of May
31,
1991, as amended (the “Indenture”), between us and The Bank of New York as
successor in interest to JPMorgan Chase Bank, N.A., as trustee (the “Trustee”).
A copy of the Indenture is available as set forth under the section of the
prospectus “Where You Can Find More Information.”
General
The
Notes
are part of a single series of debt securities under the Indenture described
in
the accompanying prospectus supplement and prospectus designated as Medium-Term
Notes, Series B. The Notes are unsecured and will rank equally with all of
our
unsecured and unsubordinated debt, including the other debt securities issued
under the Indenture. Because we are a holding company, the Notes will be
structurally subordinated to the claims of creditors of our subsidiaries.
The
aggregate principal amount of the Notes will be $1,500,000. The Notes are
expected to mature on December 31, 2008 and do not provide for earlier
redemption. The Notes will be issued only in fully registered form, and in
minimum denominations of $1,000; provided, however, that the minimum purchase
for any purchaser domiciled in a member state of the European Economic Area
shall be $100,000. Initially, the Notes will be issued in the form of one or
more global securities registered in the name of DTC or its nominee, as
described in the accompanying prospectus supplement and prospectus. When we
refer to Note or Notes in this pricing supplement, we mean $1,000 principal
amount of Notes. The Notes will not be listed on any securities exchange.
You
should refer to the section “Certain U.S. Federal Income Tax Considerations,”
for a discussion of certain federal income tax considerations to you as a holder
of the Notes.
Future
Issuances
Under
certain limited circumstances, and at our sole discretion, we may offer further
issuances of the Notes. These further issuances, if any, will be consolidated
to
form a single series with the Notes and will have the same CUSIP number and
will
trade interchangeably with the Notes immediately upon settlement. Any additional
issuances will increase the aggregate principal amount of the outstanding Notes
of this series, plus the aggregate principal amount of any Notes bearing the
same CUSIP number that are issued pursuant to any 13-day option we grant to
Bear
Stearns. The prices of any additional offerings will be determined at the time
of pricing of each offering, which will be a function of the prevailing market
conditions and levels of the Reference Indices at the time of the relevant
sale.
Interest
We
will
not make any periodic payments of interest on the Notes. The only payment you
will receive, if any, will be the Cash Settlement Value upon the maturity of
the
Notes.
Payment
at Maturity
Your
investment is principal protected only if you hold the Notes until maturity.
On
the Maturity Date, you will receive the Cash Settlement Value, which is based
on
the appreciation, if any, in the Reference Index with the Smallest Percentage
Increase over the term of the Notes as measured by such Reference Index’s Index
Percentage Increase, subject to the Maximum Return.
The
Notes
are linked to double the Smallest Percentage Increase of the following indices:
(1) the S&P 500®
Index
(“SPX”); (2) the Dow Jones EURO STOXX 50®
Index
(“SX5E”) and (3) the Nikkei 225™ Stock Index (the “NKY”, and along with the SPX
and the SX5E, each a “Reference Index”), subject to a maximum
return.
At
maturity, the Cash Settlement Value for each $1,000 principal amount of the
Notes will be equal to:
$1,000
principal amount + [$1,000 x Variable Return].
The
“Variable Return” is an amount determined by the Calculation Agent and equal to
the lesser of (a) the Maximum Return and (b) the product of the Participation
Rate multiplied
by
the
Smallest Percentage Increase.
The
“Index Percentage Increase”, as of the Valuation Date and with respect to a
Reference Index, is equal to the greater of (a) 0.00% and (b) the quotient,
expressed as a percentage, of (i) the Final Level for that Reference Index
minus
its Initial Level divided
by
(ii) its
Initial Level.
The
“Valuation Date” means December 29, 2008 provided that, with respect to a
Reference Index, (i) if such date is not a Reference Index Business Day (as
defined herein) for that Reference Index, then the Valuation Date for that
Reference Index will be the next succeeding day that is a Reference Index
Business Day for that Reference Index and (ii) if a Market Disruption Event
(as
defined herein) exists for that Reference Index on the scheduled Valuation
Date,
the Valuation Date for that Reference Index will be the next Reference Index
Business Day for that Reference Index on which a Market Disruption Event does
not exist for that Reference Index. If the Valuation Date for any Reference
Index is postponed for three consecutive Reference Index Business Days due
to
the existence of a Market Disruption Event, then, notwithstanding the existence
of a Market Disruption Event on that third Reference Index Business Day, such
third Reference Index Business Day will be the Valuation Date for that Reference
Index. If no Market Disruption Event exists with respect to a Reference Index
on
the scheduled Valuation Date, the determination of that Reference Index’s Final
Level will be made on the scheduled Valuation Date, irrespective of the
existence of a Market Disruption Event with respect to one or more of the other
Reference Indices.
The
“Initial Level” means (i) 1,458.95 with respect to the SPX; (ii) 4,244.58 with
respect to the SX5E; and (iii) 17,283.81 with respect to the NKY, each
representing the closing level of the respective Reference Index on July 27,
2007.
The
“Final Level” means, as of the Valuation Date and with respect to each Reference
Index, the closing index level as reported by the relevant Reference Index
Sponsor and displayed on Bloomberg Page SPX <Index> <Go> with
respect to the SPX, Bloomberg Page SX5E <Index> <Go> with respect to
the SX5E and Bloomberg Page NKY <Index> <Go> with respect to the
NKY.
The
“Participation Rate” is 200%.
The
“Maximum Return” is 17.00%.
The
“Pricing Date” is July 27, 2007.
The
“Issue Date” is July 31, 2007.
A
“Reference Index Business Day” means any day on which the Relevant Exchange and
each Related Exchange are scheduled to be open for trading.
A
“Business Day” is any day other than a Saturday or Sunday, on which banking
institutions in the cities of New York, New York and London, England are not
authorized or obligated by law or executive order to be closed.
The
Maturity Date for the Notes is expected to be December 31, 2008; however, if
the
Valuation Date is postponed with respect to any Reference Index, the Maturity
Date will be three Business Days following the postponed Valuation Date, as
described herein.
The
“Calculation Agent” is Bear,
Stearns & Co. Inc.
The
“Relevant Exchanges” are the New
York
Stock Exchange and NASDAQ for the SPX; major stock exchanges, respectively
located in one of 17 European countries, including the London Stock Exchange,
Frankfurt Stock Exchange and others for the SX5E; and the Tokyo Stock Exchange
or its successor (the “TSE”) for the NKY.
A
“Related Exchange” means each exchange or quotation system where trading has a
material effect (as determined by the Calculation Agent) on the overall market
for futures or options contracts relating to the Index.
Illustrative
Examples
The
following tables are for illustrative purposes and are not indicative of the
future performance of the Reference Indices or the future value of the
Notes.
The
following table demonstrates the hypothetical Cash Settlement Value of a Note
based on the assumptions outlined below. The table does not purport to be
representative of every possible scenario concerning increases or decreases
in
the Reference Indices. You should not construe this table as an indication
or
assurance of the expected performance of the Notes. Actual returns may be
different. The table demonstrating the hypothetical Cash Settlement Value of
a
Note is based on the following assumptions:
|
·
|
Investor
purchases $1,000 aggregate principal amount of Notes at the initial
public
offering price of $1,000.
|
|
·
|
Investor
holds the Notes to maturity.
|
|
·
|
The
Initial Level for the SPX is equal to 1,550.00.
|
|
·
|
The
Initial Level for the SX5E is equal to 4,600.00.
|
|
·
|
The
Initial Level for the NKY is equal to
18,500.00.
|
|
·
|
The
Maximum Return is 17.00%.
|
|
·
|
The
Participation Rate is 200.00%.
|
|
·
|
All
returns are based on an 17-month term, pre-tax
basis.
|
|
·
|
No
Market Disruption Events or Events of Default occur during the term
of the
Notes.
|
Example
1: The Smallest Percentage Increase multiplied by the Participation Rate is
greater than the Maximum Return.
In
this
example, the levels of all three Reference Indices increase by more than 8.50%
relative to their Initial Levels.
|
SPX
|
SX5E
|
NKY
|
Initial
Level
|
1,550.00
|
4,600.00
|
18,500.00
|
Final
Level
|
1,737.40
|
5,305.64
|
20,586.80
|
(Final
Level - Initial Level) / Initial Level
|
12.09%
|
15.34%
|
11.28%
|
On
the
Valuation Date, the Index Percentage Increase for SPX would be 12.09%, the
Index
Percentage Increase for SX5E would be 15.34%, and the Index Percentage Increase
for NKY would be 11.28%, each calculated as follows:
In
this
example, the Smallest Percentage Increase would be the Index Percentage Increase
of the NKY (11.28%).
The
Variable Return, using the formula below, would equal 17.00%:
Variable
Return:
=
minimum
[(Smallest Percentage Increase x Participation Rate), Maximum
Return]
=
minimum
[(11.28% * 200%), 17.00%]
=
minimum
[22.56%, 17.00%]
=
17.00%
The
Cash
Settlement Value, using the formula below, would equal $1,170.00:
Cash
Settlement Value
=
$1,000
+ [$1,000 x Variable Return]
=
$1,000
+ [$1,000 x 17.00%]
=
$1,000
+ $170
=
$1,170
Example
2:
The Smallest Percentage Increase multiplied by the Participation Rate is greater
than zero, but less than the Maximum Return.
In
this
example, the levels of all three Reference Indices increase relative to their
respective Initial Levels, but the Smallest Percentage Increase multiplied
by
the Participation Rate does not exceed the Maximum Return.
|
SPX
|
SX5E
|
NKY
|
Initial
Level
|
1,550.00
|
4,600.00
|
18,500.00
|
Final
Level
|
1,643.70
|
4,952.82
|
19,543.40
|
(Final
Level - Initial Level) / Initial Level
|
6.05%
|
7.67%
|
5.64%
|
On
the
Valuation Date, the Index Percentage Increase for SPX would be 6.05%, the Index
Percentage Increase for SX5E would be 7.67%, and the Index Percentage Increase
for NKY would be 5.64%, each calculated as follows:
In
this
example, the Smallest Percentage Increase would be the Index Percentage Increase
of the NKY (5.64%).
The
Variable Return, using the formula below, would equal 11.28%:
Variable
Return:
=
minimum
[(Smallest Percentage Increase x Participation Rate), Maximum Return]
=
minimum
[(5.64% * 200%), 17.00%]
=
minimum
[11.28%, 17.00%]
=
11.28%
The
Cash
Settlement Value, using the formula below, would equal $1,112.80:
Cash
Settlement Value
=
$1,000
+ [$1,000 x Variable Return]
=
$1,000
+ [$1,000 x 11.28%]
=
$1,000
+ $112.80
=
$1,112.80
Example
3: The Final Level is less than the Initial Level for at least one Reference
Index.
In
this
example, at least one Reference Index declines in value over the course of
the
Notes.
|
SPX
|
SX5E
|
NKY
|
Initial
Level
|
1,550.00
|
4,600.00
|
18,500.00
|
Final
Value
|
1,643.70
|
4,952.82
|
16,413.20
|
(Final
Level - Initial Level) / Initial Level
|
6.05%
|
7.67%
|
-11.28%
|
On
the
Valuation Date, the Index Percentage Increase for SPX would be 6.05%, the Index
Percentage Increase for SX5E would be 7.67%, and the Index Percentage Increase
for NKY would be 0.00%, each calculated as follows:
In
this
example, the Smallest Percentage Increase would be the Index Percentage Increase
of the NKY (0.00%).
The
Variable Return, using the formula below, would equal 0.00%:
Variable
Return:
=
minimum
[(Smallest Percentage Increase x Participation Rate), Maximum Return]
=
minimum
[(0.00% * 200%), 17.00%]
=
minimum
[0.00%, 17.00%]
=
0.00%
The
Cash
Settlement Value, using the formula below, would equal $1,000.00:
Cash
Settlement Value
=
$1,000
+ [$1,000 x Variable Return]
=
$1,000
+ [$1,000 x 0.00%]
=
$1,000
+ $0
=
$1,000.00
Discontinuance
of one or more Reference Indices
If
a
Reference Index Sponsor discontinues publication of or otherwise fails to
publish any Reference Index and such Reference Index Sponsor or another entity
publishes a successor or substitute Reference Index that the Calculation Agent
determines to be comparable to the discontinued Reference Index (the new
Reference Index being referred to as a “Successor Reference Index”), then the
Final Level for that Reference Index will be determined by reference to the
level of the Successor Reference Index at the close of trading on the Relevant
Exchanges or markets for the Successor Reference Index on the Valuation
Date.
Upon
any
selection by the Calculation Agent of a Successor Reference Index, the
Calculation Agent will cause notice thereof to be furnished to us and the
Trustee. If a Successor Reference Index is selected by the Calculation Agent,
the Successor Reference Index will be used as a substitute for the Reference
Index for all purposes, including for purposes of determining whether a Market
Disruption Event exists with respect to the Reference Index.
If
a
Reference Index is discontinued or if a Reference Index Sponsor fails to publish
the Reference Index prior to, and such discontinuance is continuing on, the
Valuation Date and the Calculation Agent determines that no Successor Reference
Index is available at such time, then the Calculation Agent will determine
the
level to be used for the Final Level for the Valuation Date. The Final Level
to
be used for that Valuation Date will be computed by the Calculation Agent in
accordance with the formula for and method of calculating that Reference Index
last in effect prior to the discontinuance, failure or modification but using
only those securities that comprised that Reference Index immediately prior
to
such discontinuance, failure or modification. In such event, the Calculation
Agent will cause notice thereof to be furnished to us and the
Trustee.
Notwithstanding
these alternative arrangements, discontinuance of the publication of a Reference
Index may adversely affect the value of, and trading in, the Notes.
Adjustments
to the Reference Indices
If
at any
time the method of calculating a Reference Index or a Successor Reference Index
is changed in a material respect, or if a Reference Index or a Successor
Reference Index is in any other way modified so that such Reference Index or
Successor Reference Index does not, in the opinion of the Calculation Agent,
fairly represent the level of the Reference Index or Successor Reference Index
had such changes or modifications not been made, then, for purposes of
calculating the Final Level for such Reference Index or making any other
determinations as of or after such time, the Calculation Agent will make such
calculations and adjustments as, the Calculation Agent determines may be
necessary in order to arrive at a level of a Reference Index comparable to
the
applicable Reference Index or Successor Reference Index, as the case may be,
as
if such changes or modifications had not been made, and calculate the Cash
Settlement Value (including the Reference Indices thereof) with reference to
the
Reference Index or the Successor Reference Index, as adjusted. Accordingly,
if
the method of calculating a Reference Index or Successor Reference Index is
modified so that the level of that Reference Index is a fraction of what it
would have been if it had not been modified (e.g., due to a split in the
Reference Index), then the Calculation Agent will adjust that Reference Index
in
order to arrive at a level of the Reference Index or the Successor Reference
Index as if it had not been modified (e.g., as if such split had not occurred).
In such event, the Calculation Agent will cause notice thereof to be furnished
to us and the Trustee.
In
the
event that, on the Valuation Date, the Final Level is not calculated by the
Reference Index Sponsor but is calculated by a third party acceptable to the
Calculation Agent, the Calculation Agent will use such third party’s calculation
as its reference for determining the value of the respective Reference Index.
Market
Disruption Events
If
there
is a Market Disruption Event with respect to a Reference Index on the Valuation
Date, the Final Level of that Reference Index will be determined on the first
succeeding Reference Index Business Day on which there is no Market Disruption
Event (with such succeeding Reference Index Business Day being deemed the
Valuation Date in respect of the disrupted Reference Index). In no event,
however, will the Valuation Date for a Reference Index be a date that is
postponed by more than three Reference Index Business Days following the
original date that, but for the Market Disruption Event, would have been the
Valuation Date. In that case, the third Reference Index Business Day will be
deemed to be the Valuation Date, notwithstanding the Market Disruption Event,
and the Calculation Agent will determine the level of such Reference Index
on
that third Reference Index Business Day in accordance with the formula for
and
method of calculating the applicable underlying Reference Index in effect prior
to the Market Disruption Event using the closing price of each security in
such
Reference Index as described above (or, if trading in any such security has
been
materially suspended or materially limited, the Calculation Agent’s estimate of
the closing price that would have prevailed but for such suspension or
limitation) as of that third Reference Index Business Day. If no Market
Disruption Event exists with respect to a Reference Index, the Final Level
of
that Reference Index shall be determined on the scheduled Valuation Date. In
the
event of a Market Disruption Event on the scheduled Valuation Date, the Maturity
Date will be three Business Days following the final postponed Valuation
Date.
A
“Market
Disruption Event” with respect to a Reference Index means the occurrence or
existence at any time of a condition specified below that the Calculation Agent
determines to be material:
(a) any
suspension of or limitation imposed on trading by any Relevant Exchange or
Related Exchange or otherwise, and whether by reason of movements in price
exceeding limits permitted by the Relevant Exchanges or Related Exchanges or
otherwise, (A) relating to securities that, in the aggregate, comprise 20.00%
or
more of the level of the Reference Index or (B) in futures or options contracts
relating to the Reference Index on any Related Exchange;
(b) any
event
(other than an event described in (c) below) that disrupts or impairs (as
determined by the Calculation Agent) the ability of market participants in
general (A) to effect transactions in, or obtain market values for, securities
that, in the aggregate, comprise 20.00% or more of the level of the Reference
Index or (B) to effect transactions in, or obtain market values for, futures
or
options contracts relating to the Reference Index on any Related
Exchange;
(c) the
closure on any Reference Index Business Day of any Relevant Exchange relating
to
securities that comprise, in the aggregate, 20.00% or more of the level of
the
Reference Index or any Related Exchange prior to its weekday closing time,
without regard to after hours or any other trading outside of the regular
trading session hours, unless such earlier closing time is announced by such
Relevant Exchange or Related Exchange at least one hour prior to the earlier
of
(i) the actual closing time for the regular trading session on such Relevant
Exchange or Related Exchange on such Reference Index Business Day for such
Relevant Exchange or Related Exchange and (ii) the submission deadline for
orders to be entered into the Relevant Exchange system for execution at the
close of trading on such Reference Index Business Day for such Relevant Exchange
or Related Exchange; or
(d) any
Reference Index Business Day on which any Relevant Exchange or Related Exchange
fails to open for trading during its regular trading session.
For
the
purposes of determining whether a Market Disruption Event in respect of the
Reference Index exists at any time, if a Market Disruption Event occurs in
respect of a security included in the Reference Index at any time, then the
relevant percentage contribution of that security to the level of the Reference
Index shall be based on a comparison of (x) the portion of the level of the
Reference Index attributable to that security and (y) the overall level of
the
Reference Index, in each case immediately before the occurrence of such Market
Disruption Event.
“Related
Exchange” means each exchange or quotation system where trading has a material
effect (as determined by the Calculation Agent) on the overall market for
futures or options contracts relating to the Reference Index.
“Relevant
Exchange” means (i) the New York Stock Exchange and NASDAQ for the SPX; (ii) the
major stock exchanges, respectively located in one of 17 European countries,
including the London Stock Exchange, Frankfurt Stock Exchange and others for
the
SX5E; and (iii) the Tokyo Stock Exchange or its successor (the “TSE”) for the
NKY.
“Reference
Index Business Day” means any day on which the Relevant Exchange and each
Related Exchange are scheduled to be open for trading.
For
purposes of the above definition:
(a) a
limitation on the hours in a trading day and/or number of days of trading will
not constitute a Market Disruption Event if it results from an announced change
in the regular business hours of the Relevant Exchange, and
(b) for
purposes of clause (a) above, any limitations on trading during significant
market fluctuations, under NYSE Rule 80B, NASD Rule 4120 or any analogous rule
or regulation enacted or promulgated by the NYSE, NASD or any other self
regulatory organization or the SEC of similar scope as determined by the
Calculation Agent, will be considered “material.”
Redemption;
Defeasance
The
Notes
are not subject to redemption before maturity, and are not subject to the
defeasance provisions described in the section “Description of Debt
Securities—Defeasance” in the accompanying prospectus.
Events
of Default and Acceleration
If
an
Event of Default (as defined in the accompanying prospectus) with respect to
any
Notes has occurred and is continuing, then the amount payable to you, as a
holder of a Note, upon any acceleration permitted by the Notes will be equal
to
the Cash Settlement Value as though the date of early repayment were the
Maturity Date of the Notes, adjusted by an amount equal to any losses, expenses
and costs to us of unwinding any underlying or related hedging or funding
arrangements, all as determined by the Calculation Agent. If a bankruptcy
proceeding is commenced in respect of us, the claims of the holder of a Note
may
be limited under Title 11 of the United States Code.
Same-Day
Settlement and Payment
Settlement
for the Notes will be made by Bear Stearns in immediately available funds.
Payments of the Cash Settlement Value will be made by us in immediately
available funds, so long as the Notes are maintained in book-entry
form.
Calculation
Agent
The
Calculation Agent for the Notes will be Bear Stearns. All determinations made
by
the Calculation Agent will be at the sole discretion of the Calculation Agent
and will be conclusive for all purposes and binding on us and the holders of
the
Notes, absent manifest error and provided the Calculation Agent shall be
required to act in good faith in making any determination. Manifest error by
the
Calculation Agent, or any failure by it to act in good faith, in making a
determination adversely affecting the payment of principal, interest or premium
on principal to holders would entitle the holders, or the Trustee acting on
behalf of the holders, to exercise rights and remedies available under the
Indenture. If the Calculation Agent uses its discretion to make any
determination, the Calculation Agent will notify us and the Trustee, who will
provide notice to the registered holders of the Notes.
DESCRIPTION
OF THE REFERENCE
INDICES
All
disclosures contained in this Supplement regarding the Reference Indices are
derived from publicly available information. Neither the Bank nor any Agent
takes any responsibility for the accuracy or completeness of such
information.
The
S&P 500®
Index
(“SPX”)
We
have
derived all information relating to the SPX, including, without limitation,
its
make-up, performance, method of calculation and changes in its Reference
Indices, from publicly available sources. That information reflects the policies
of and is subject to change by Standard & Poor’s. Standard & Poor’s is
under no obligation to continue to publish, and may discontinue or suspend
the
publication of the SPX at any time.
Standard
& Poor’s publishes the SPX. The SPX is a capitalization-weighted index and
is intended to provide an indication of the pattern of common stock price
movement. The calculation of the level of the SPX, discussed below in further
detail, is based on the relative value of the aggregate market value of the
common stocks of 500 companies as of a particular time compared to the aggregate
average market value of the common stocks of 500 similar companies during the
base period of the years 1941 through 1943. As of July 2, 2007, shares of 427
companies included in the SPX are traded on the New York Stock Exchange and
shares of 73 companies included in the SPX are traded on The NASDAQ Global
Select Market or the NASDAQ Global Market (collectively, the “NASDAQ”). Standard
& Poor’s chooses companies for inclusion in the SPX with the aim of
achieving a distribution by broad industry groupings that approximates the
distribution of these groupings in the common stock population of the New York
Stock Exchange (the “NYSE”), which Standard & Poor’s uses as an assumed
model for the composition of the total market. Relevant criteria employed by
Standard & Poor’s include the viability of the particular company, the
extent to which that company represents the industry group to which it is
assigned, the extent to which the market price of that company’s common stock is
generally responsive to changes in the affairs of the respective industry and
the market value and trading activity of the common stock of that company.
Ten
main groups of companies comprise the SPX with the number of companies included
in each group, as of July 2, 2007, indicated in parenthesis: Industrials (53),
Utilities (32), Telecommunication Services (9), Materials (28), Information
Technology (73), Energy (32), Consumer Staples (39), Consumer Discretionary
(89), Healthcare (54) and Financials (91). Changes in the SPX are reported
daily
in the financial pages of many major newspapers, on the Bloomberg Financial
Service under the symbol “SPX” and on the Standard & Poor’s website
(http://www.spglobal.com). Information contained in the Standard & Poor’s
website is not incorporated by reference in, and should not be considered a
part
of, this pricing supplement. The SPX does not reflect the payment of dividends
on the stocks included in the SPX.
Computation
of the SPX
Standard
& Poor’s currently computes the SPX as of a particular time as
follows:
(i) the
product of the market price per share and the number of then outstanding shares
of each Reference Index stock as determined as of that time (referred to as
the
“market value” of that stock);
(ii) the
market values of all Reference Index stocks as of that time are
aggregated;
(iii) the
average of the market values as of each week in the base period of the years
1941 through 1943 of the common stock of each company in a group of 500
substantially similar companies is determined;
(iv) the
mean
average market values of all these common stocks over the base period are
aggregated (the aggregate amount being referred to as the “Base
Value”);
(v) the
current aggregate market value of all Reference Index stocks is divided by
the
Base Value; and
(vi) the
resulting quotient, expressed in decimals, is multiplied by ten.
While
Standard & Poor’s currently employs the above methodology to calculate the
SPX, no assurance can be given that Standard & Poor’s will not modify or
change this methodology in a manner that may affect the performance of the
SPX.
Standard
& Poor’s adjusts the foregoing formula to offset the effects of changes in
the market value of a Reference Index stock that are determined by Standard
& Poor’s to be arbitrary or not due to true market
fluctuations.
These
changes may result from causes such as:
|
·
|
the
issuance of stock dividends,
|
|
·
|
the
granting to shareholders of rights to purchase additional shares
of
stock,
|
|
·
|
the
purchase of shares by employees pursuant to employee benefit
plans,
|
|
·
|
consolidations
and acquisitions,
|
|
·
|
the
granting to shareholders of rights to purchase other securities of
the
company,
|
|
·
|
the
substitution by Standard & Poor’s of particular Reference Index stocks
in the SSPX, and
|
In
these
cases, Standard & Poor’s first recalculates the aggregate market value of
all Reference Index stocks, after taking account of the new market price per
share of the particular Reference Index stock or the new number of outstanding
shares of that stock or both, as the case may be, and then determines the new
base value in accordance with the following formula:
The
result is that the base value is adjusted in proportion to any change in the
aggregate market value of all Reference Index stocks resulting from the causes
referred to above to the extent necessary to negate the effects of these causes
upon the SPX.
In
addition, Standard & Poor’s’ standard practice is to remove all closely held
shares and shares held between corporations who are both in the calculations
of
the SPX and an Index Reference Index’s market value.
License
Agreement with Standard and Poor’s
The
Company has entered or expects to enter into a non-exclusive license agreement
with Standard & Poor’s providing for the license to us, in exchange for a
fee, of the right to use the SPX, which is owned and published by Standard
&
Poor’s, in connection with certain securities, including the Notes.
The
license agreement between Standard & Poor’s and us provides that the
following language must be set forth in this pricing supplement.
“The
Notes are not sponsored, endorsed, sold or promoted by Standard & Poor’s.
Standard & Poor’s makes no representation or warranty, express or implied,
to the owners of the Notes or any member of the public regarding the
advisability of investing in securities generally or in the Notes particularly.
Standard & Poor’s only relationship to us is the licensing of certain
trademarks, trade names and service marks of Standard & Poor’s and of the
SPX, which is determined, composed and calculated by Standard & Poor’s
without regard to us or the Notes. Standard & Poor’s has no obligation to
take our needs or the needs of holders of the Notes into consideration in
determining, composing, or calculating the SPX. Standard & Poor’s is not
responsible for and has not participated in the determination of the timing
of,
prices at which Notes are sold, or quantities of the Notes to be issued or
in
the determination or calculation of the amount payable at maturity. Standard
& Poor’s has no obligation or liability in connection with the
administration, marketing, or trading of the Notes.
Standard
& Poor’s does not guarantee the accuracy and/or the completeness of the SPX
or any data included therein and Standard & Poor’s shall have no liability
for any errors, omissions, or interruptions therein. Standard & Poor’s makes
no warranty, express or implied, as to results to be obtained by us, owners
of
the Notes, or any other person or entity from the use of the SPX or any data
included therein. Standard & Poor’s makes no express or implied warranties,
and expressly disclaims all warranties of merchantability or fitness for a
particular purpose or use with respect to the SPX or any data included therein.
Without limiting any of the foregoing, in no event shall Standard & Poor’s
have any liability for any lost profits or indirect, punitive, special, or
consequential damages or losses, even if notified of the possibility thereof.
There are no third party beneficiaries or any agreements or arrangements between
Standard & Poor’s and the Company.”
Historical
Data
on the SPX
The
following table sets forth the month-end closing index levels of the
SPX
for each
month in the period from January 1998 through June 2007. The SPX’s
closing
index levels listed below were obtained from the Bloomberg, without independent
verification by the Company. The
historical values of the SPX
should not be taken as an indication of future performance, and no assurance
can
be given that the level of the SPX
will increase relative to its the Initial Level during the term of the
Notes.
The
closing index level of the SPX
on July
27, 2007 was 1,458.95.
Month
End Closing Reference Index Levels: January 1998-June
2007
|
|
|
1998
|
|
|
1999
|
|
|
2000
|
|
|
2001
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
January
|
|
|
980.28
|
|
|
1,279.64
|
|
|
1,394.46
|
|
|
1,366.01
|
|
|
1,130.20
|
|
|
855.70
|
|
|
1,131.13
|
|
|
1,181.27
|
|
|
1,280.08
|
|
|
1,438.24
|
|
February
|
|
|
1,049.34
|
|
|
1,238.33
|
|
|
1,366.42
|
|
|
1,239.94
|
|
|
1,106.73
|
|
|
841.15
|
|
|
1,144.94
|
|
|
1,203.60
|
|
|
1,280.66
|
|
|
1,406.82
|
|
March
|
|
|
1,101.75
|
|
|
1,286.37
|
|
|
1,498.58
|
|
|
1,160.33
|
|
|
1,147.39
|
|
|
848.18
|
|
|
1,126.21
|
|
|
1,180.59
|
|
|
1,294.83
|
|
|
1,420.86
|
|
April
|
|
|
1,111.75
|
|
|
1,335.18
|
|
|
1,452.43
|
|
|
1,249.46
|
|
|
1,076.92
|
|
|
916.92
|
|
|
1,107.30
|
|
|
1,156.85
|
|
|
1,310.61
|
|
|
1,482.37
|
|
May
|
|
|
1,090.82
|
|
|
1,301.84
|
|
|
1,420.60
|
|
|
1,255.82
|
|
|
1,067.14
|
|
|
963.59
|
|
|
1,120.68
|
|
|
1,191.50
|
|
|
1,270.09
|
|
|
1,530.62
|
|
June
|
|
|
1,133.84
|
|
|
1,372.71
|
|
|
1,454.60
|
|
|
1,224.42
|
|
|
989.82
|
|
|
974.50
|
|
|
1,140.84
|
|
|
1,191.33
|
|
|
1,270.20
|
|
|
|
|
July
|
|
|
1,120.67
|
|
|
1,328.72
|
|
|
1,430.83
|
|
|
1,211.23
|
|
|
911.62
|
|
|
990.31
|
|
|
1,101.72
|
|
|
1,234.18
|
|
|
1,276.66
|
|
|
|
|
August
|
|
|
957.28
|
|
|
1,320.41
|
|
|
1,517.68
|
|
|
1,133.58
|
|
|
916.07
|
|
|
1,008.01
|
|
|
1,104.24
|
|
|
1,220.33
|
|
|
1,303.82
|
|
|
|
|
September
|
|
|
1,017.01
|
|
|
1,282.71
|
|
|
1,436.51
|
|
|
1,040.94
|
|
|
815.28
|
|
|
995.97
|
|
|
1,114.58
|
|
|
1,228.81
|
|
|
1,335.85
|
|
|
|
|
October
|
|
|
1,098.67
|
|
|
1,362.93
|
|
|
1,429.40
|
|
|
1,059.78
|
|
|
885.76
|
|
|
1,050.71
|
|
|
1,130.20
|
|
|
1,207.01
|
|
|
1,377.94
|
|
|
|
|
November
|
|
|
1,163.63
|
|
|
1,388.91
|
|
|
1,314.95
|
|
|
1,139.45
|
|
|
936.31
|
|
|
1,058.20
|
|
|
1,173.82
|
|
|
1,249.48
|
|
|
1,400.63
|
|
|
|
|
December
|
|
|
1,229.23
|
|
|
1,469.25
|
|
|
1,320.28
|
|
|
1,148.08
|
|
|
879.82
|
|
|
1,111.92
|
|
|
1,211.92
|
|
|
1,248.29
|
|
|
1,418.30
|
|
|
|
|
The
following graph illustrates the historical performance of the SPX based on
the
closing level on the last Reference Index Business Day of each month from
January 1998 to June 2007.
The
Dow Jones EURO STOXX 50®
Index
(“SX5E”)
The
SX5E
was created by STOXX Limited, a joint venture between Deutsche Börse AG, Dow
Jones & Company and the SWX Group. Publication of the SX5E began on February
28, 1998, based on an initial EURO STOXX 50®
Index
value of 1,000 at December 31, 1991. The SX5E is reported daily in the financial
pages of many major newspapers, on Bloomberg Page SX5E <Index> <Go>
and on the STOXX Limited website: http://www.stoxx.com.
Information contained in the STOXX Limited website is not incorporated by
reference in, and should not be considered a part of, this Pricing
Supplement.
Computation
of the SX5E
The
SX5E
is composed of 50 Reference Index stocks of market sector leaders from within
the SX5E, which includes stocks selected from the Eurozone. The Reference Index
stocks have a high degree of liquidity and represent the largest companies
across all market sectors defined by the Dow Jones Global Classification
Standard. The composition of the SX5E is reviewed annually in September, based
on the closing stock data on the last trading day in August. The Reference
Index
stocks are announced the first trading day in September. Changes to the
Reference Index stocks are implemented on the third Friday in September and
are
effective the following trading day. Changes in the composition of the SX5E
are
made to ensure that the SX5E includes the 50 market sector leaders from within
the SX5E.
The
SX5E
is calculated with the “Laspeyres formula”, which measures the aggregate price
changes in the Reference Index stocks against a fixed base quantity weight.
The
formula for calculating the SX5E value can be expressed as follows:
![](form3.jpg)
Each
Reference Index’s weight is capped at 10% of the SX5E Index’s total free-float
market capitalization. Weights are reviewed quarterly. Within each of the SX5E
market sector indices, the Reference Index stocks are ranked by free-float
market capitalization. The largest stocks are added to the selection list until
the coverage is close to, but still less than, 60% of the free-float market
capitalization of the corresponding SX5E market sector index. If the next-ranked
stock brings the coverage closer to 60% in absolute terms, then it is also
added
to the selection list. Any remaining stocks that are current SX5E Reference
Indices are added to the selection list. The stocks on the selection list are
ranked by free-float market capitalization. In exceptional cases, the STOXX
Limited Supervisory Board may make additions and deletions to the selection
list.
The
40
largest stocks on the selection list are chosen as Reference Indices. Any
remaining current Reference Indices of the SX5E ranked between 41 and 60 are
added as index Reference Indices. If the Reference Index number is still below
50, then the largest stocks on the selection list are added until the index
contains 50 stocks.
The
divisor of the aforementioned formula is adjusted to maintain the continuity
of
the SX5E value across changes due to corporate actions such as the issuance
of
dividends, the occurrence of stock splits, stock repurchase by the issuer and
other reasons.
License
Agreement with SX5E
The
Company has entered or expects to enter into non-exclusive license agreement
with EURO STOXX 50®,
whereby
the Company and its affiliates, in exchange for a fee, will be permitted to
use
the SX5E in connection with the offer and sale of the Notes.
EURO
STOXX 50®
and Dow
Jones & Company, Inc. (“Dow
Jones”)
have
no relationship to the Company, other than the licensing of the SX5E and the
related trademarks for use in connection with the Notes.
EURO
STOXX 50®
and Dow Jones do not:
·
|
Sponsor,
endorse, sell or promote the Notes.
|
·
|
Recommend
that any person invest in the Notes or any other
securities.
|
·
|
Have
any responsibility or liability for or make any decisions about the
timing, amount or pricing of Notes.
|
·
|
Have
any responsibility or liability for the administration, management
or
marketing of the Notes.
|
·
|
Consider
the needs of the Notes or the owners of the Notes in determining,
composing or calculating the SX5E or have any obligation to do
so.
|
EURO
STOXX 50®
and Dow Jones will not have any liability in connection with the Notes.
Specifically,
·
|
EURO
STOXX 50®
and Dow Jones do not make any warranty, express or implied and disclaim
any and all warranty about:
|
|
·
|
The
results to be obtained by the Notes, the owner of the Notes or any
other
person in connection with the use of the SX5E and the data included
in the
SX5E;
|
|
·
|
The
accuracy or completeness of the SX5E and its data;
and
|
|
·
|
The
merchantability and the fitness for a particular purpose or use of
the
SX5E and its data.
|
·
|
EURO
STOXX 50®
and Dow Jones will have no liability for any errors, omissions or
interruptions in the SX5E or its
data.
|
·
|
Under
no circumstances will EURO STOXX 50®
or
Dow Jones be liable for any lost profits or indirect, punitive, special
or
consequential damages or losses, even if EURO STOXX 50®
or
Dow Jones knows that they might
occur.
|
The
licensing agreement between the Company and EURO STOXX 50®
is solely for their benefit and not for the benefit of the owners of the Notes
or any other third parties.
Historical
Data on the SX5E
The
following table sets forth the month-end closing index levels of the SX5E for
each month in the period from January 2002 through June 2007. The SX5E closing
index levels listed below were obtained from the Bloomberg, without independent
verification by the Company. The
historical values of the EURO STOXX 50®
Index should not be taken as an indication of future performance, and no
assurance can be given that the level of the SX5E will increase relative to
its
the Initial Level during the term of the Notes.
The
closing index level of the SX5E on July 27, 2007 was 4,244.58.
Month
End Closing Reference Index Levels: January 1998-June 2007
|
|
1998
|
|
1999
|
|
2000
|
|
2001
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
January
|
|
|
2,676.03
|
|
|
3,547.15
|
|
|
4,684.48
|
|
|
4,779.90
|
|
|
3,670.26
|
|
|
2,248.17
|
|
|
2,839.13
|
|
|
2,984.59
|
|
|
3,691.41
|
|
|
4,178.54
|
|
February
|
|
|
2,878.04
|
|
|
3,484.24
|
|
|
5,182.62
|
|
|
4,318.88
|
|
|
3,624.74
|
|
|
2,140.73
|
|
|
2,893.18
|
|
|
3,058.32
|
|
|
3,774.51
|
|
|
4,087.12
|
|
March
|
|
|
3,153.32
|
|
|
3,559.86
|
|
|
5,249.55
|
|
|
4,185.00
|
|
|
3,784.05
|
|
|
2,036.86
|
|
|
2,787.49
|
|
|
3,055.73
|
|
|
3,853.74
|
|
|
4,181.03
|
|
April
|
|
|
3,120.94
|
|
|
3,757.87
|
|
|
5,303.95
|
|
|
4,525.01
|
|
|
3,574.23
|
|
|
2,324.23
|
|
|
2,787.48
|
|
|
2,930.10
|
|
|
3,839.90
|
|
|
4,392.34
|
|
May
|
|
|
3,357.77
|
|
|
3,629.46
|
|
|
5,200.89
|
|
|
4,426.24
|
|
|
3,425.79
|
|
|
2,330.06
|
|
|
2,749.62
|
|
|
3,076.70
|
|
|
3,637.17
|
|
|
4,512.65
|
|
June
|
|
|
3,406.82
|
|
|
3,788.66
|
|
|
5,145.35
|
|
|
4,243.91
|
|
|
3,133.39
|
|
|
2,419.51
|
|
|
2,811.08
|
|
|
3,181.54
|
|
|
3,648.92
|
|
|
4,489.77
|
|
July
|
|
|
3,480.63
|
|
|
3,638.62
|
|
|
5,122.80
|
|
|
4,091.38
|
|
|
2,685.79
|
|
|
2,519.79
|
|
|
2,720.05
|
|
|
3,326.51
|
|
|
3,691.87
|
|
|
|
|
August
|
|
|
2,978.12
|
|
|
3,769.14
|
|
|
5,175.12
|
|
|
3,743.97
|
|
|
2,709.29
|
|
|
2,556.71
|
|
|
2,670.79
|
|
|
3,263.78
|
|
|
3,808.70
|
|
|
|
|
September
|
|
|
2,670.97
|
|
|
3,669.71
|
|
|
4,915.18
|
|
|
3,296.66
|
|
|
2,204.39
|
|
|
2,395.87
|
|
|
2,726.30
|
|
|
3,428.51
|
|
|
3,899.41
|
|
|
|
|
October
|
|
|
2,887.11
|
|
|
3,922.91
|
|
|
5,057.46
|
|
|
3,478.63
|
|
|
2,518.99
|
|
|
2,575.04
|
|
|
2,811.72
|
|
|
3,320.15
|
|
|
4,004.80
|
|
|
|
|
November
|
|
|
3,179.09
|
|
|
4,314.38
|
|
|
4,790.08
|
|
|
3,658.27
|
|
|
2,656.85
|
|
|
2,630.47
|
|
|
2,876.39
|
|
|
3,447.07
|
|
|
3,987.23
|
|
|
|
|
December
|
|
|
3,342.32
|
|
|
4,904.46
|
|
|
4,772.39
|
|
|
3,806.13
|
|
|
2,386.41
|
|
|
2,760.66
|
|
|
2,951.01
|
|
|
3,578.93
|
|
|
4,119.94
|
|
|
|
|
The
following graph illustrates the historical performance of the SX5E based on
the
closing level on the last Reference Index Business Day of each month from
January 1998 to June 2007.
The
Nikkei 225 Stock Index
(“NKY”)
The
NKY
is a stock index calculated, published and disseminated by Nihon Keizai Shimbun,
Inc. (“Nihon
Keizai”)
that
measures the composite price performance of selected Japanese stocks. Nihon
Keizai first calculated and published the NKY in 1970. The Nikkei 225 Stock
Index currently is based on 225 underlying stocks (the “Nikkei
Underlying Stocks”)
trading on the Tokyo Stock Exchange (the “TSE”)
representing a broad cross-section of Japanese industries. All 225 Nikkei
Underlying Stocks are stocks listed in the First Section of the TSE. Stocks
listed in the First Section of the TSE are among the most actively traded stocks
on the TSE. Nihon Keizai rules require that the 75 most liquid issues (one-third
of the Reference Index count of the NKY) be included in the NKY.
The
225
companies included in the NKY are divided into six sector categories:
Technology, Financials, Consumer Goods, Materials, Capital Goods/Others and
Transportation and Utilities. These six sector categories are further divided
into 36 industrial classifications as follows:
|
·
|
Technology
— Pharmaceuticals, Electrical Machinery, Automobiles, Precision Machinery,
Telecommunications;
|
|
·
|
Financials
— Banks, Miscellaneous Finance, Securities,
Insurance;
|
|
·
|
Consumer
Goods — Marine Products, Food, Retail,
Services;
|
|
·
|
Materials
— Mining, Textiles, Paper and Pulp, Chemicals, Oil, Rubber, Ceramics,
Steel, Nonferrous Metals, Trading
House;
|
|
·
|
Capital
Goods/Others — Construction, Machinery, Shipbuilding, Transportation
Equipment, Miscellaneous Manufacturing, Real Estate;
and
|
|
·
|
Transportation
and Utilities — Railroads and Buses, Trucking, Shipping, Airlines,
Warehousing, Electric Power,
Gas.
|
The
NKY
is a modified, price-weighted index (i.e., a Nikkei Underlying Stock’s weight in
the index is based on its price per share rather than the total market
capitalization of the issuer) that is calculated by (i) multiplying the
per-share price of each Nikkei Underlying Stock by the corresponding weighting
factor for such Nikkei Underlying Stock (a “Weight
Factor”),
(ii)
calculating the sum of all these products and (iii) dividing such sum by a
divisor (the “Divisor”).
The
Divisor was initially set at 225 for the date of May 16, 1949 using historical
numbers from May 16, 1949, the date on which the TSE was reopened. The Divisor
was 24.293 as of May 21, 2007 and is subject to periodic adjustments as set
forth below. Each Weight Factor is computed by dividing ¥50 by the par value of
the relevant Nikkei Underlying Stock, so that the share price of each Nikkei
Underlying Stock, when multiplied by its Weight Factor, corresponds to a share
price based on a uniform par value of ¥50. The stock prices used in the
calculation of the NKY are those reported by a primary market for the Nikkei
Underlying Stocks (currently the TSE). The level of the NKY is calculated once
per minute during TSE trading hours.
In
order
to maintain continuity in the NKY in the event of certain changes due to
non-market factors affecting the Nikkei Underlying Stocks, such as the addition
or deletion of stocks, substitution of stocks, stock splits or distributions
of
assets to stockholders, the Divisor used in calculating the NKY is adjusted
in a
manner designed to prevent any instantaneous change or discontinuity in the
level of the NKY. Thereafter, the Divisor remains at the new value until a
further adjustment is necessary as the result of another change. As a result
of
such change affecting any Nikkei Underlying Stock, the Divisor is adjusted
in
such a way that the sum of all share prices immediately after such change
multiplied by the applicable Weight Factor and divided by the new Divisor (i.e.,
the level of the NKY immediately after such change) will equal the level of
the
NKY immediately prior to the change.
A
Nikkei
Underlying Stock may be deleted or added by Nihon Keizai. Any stock becoming
ineligible for listing in the First Section of the TSE due to any of the
following reasons will be deleted from the Nikkei Underlying Stocks: (i)
bankruptcy of the issuer, (ii) merger of the issuer with, or acquisition of
the
issuer by, another company, (iii) delisting of such stock, (iv) transfer of
such
stock to the “Seiri-Post” because of excess debt of the issuer or because of any
other reason or (v) transfer of such stock to the Second Section. In addition,
a
Reference Index stock transferred to the “Kanri-Post” (Posts for stocks under
supervision) is in principle a candidate for deletion. Nikkei Underlying Stocks
with relatively low liquidity, based on trading value and rate of price
fluctuation over the past five years, may be deleted by Nihon Keizai. Upon
deletion of a stock from the Nikkei Underlying Stocks, Nihon Keizai will select
a replacement for such deleted Nikkei Underlying Stock in accordance with
certain criteria. In an exceptional case, a newly listed stock in the First
Section of the TSE that is recognized by Nihon Keizai to be representative
of a
market may be added to the Nikkei Underlying Stocks. In such a case, an existing
Underlying Stock with low trading volume and deemed not to be representative
of
a market will be deleted by Nihon Keizai.
A
list of
the issuers of the Nikkei Underlying Stocks constituting the NKY is available
from the Nikkei Economic Electronic Databank System and from the Stock Market
Indices Data Book published by Nihon Keizai.
License
Agreement with Nihon Keizai
The
Company has entered or expects to enter into non-exclusive license agreement
with Nihon Keizai, whereby the Company and its affiliates, in exchange for
a
fee, will be permitted to use the NKY in connection with the offer and sale
of
the Notes.
The
copyright relating to the NKY and intellectual property rights as to “Nikkei”
(including in combination with other words) and the NKY and any other rights
will belong to Nihon Keizai.
Nihon
Keizai will be entitled to change the details of the NKY and to suspend the
announcement thereof.
All
the
businesses and implementation relating to the use of the NKY and related
intellectual property rights will be conducted exclusively at the risk of the
Company and Nihon Keizei assumes no obligation or responsibility
therefor.
The
Tokyo Stock Exchange
The
TSE
is one of the world’s largest securities exchanges in terms of market
capitalization. Trading hours are currently from 9:00 a.m. to 11:00 a.m. and
from 12:30 p.m. to 3:00 p.m., Tokyo time, Monday through Friday.
Due
to
the time zone difference, on any normal trading day the TSE will close prior
to
the opening of business in New York City on the same calendar day. Therefore,
the closing level of the NKY on a trading day will generally be available in
the
United States by the opening of business on the same calendar day.
The
TSE
has adopted certain measures, including daily price floors and ceilings on
individual stocks, intended to prevent any extreme short-term price fluctuations
resulting from order imbalances. In general, any stock listed on the TSE cannot
be traded at a price lower than the applicable price floor or higher than the
applicable price ceiling. These price floors and ceilings are expressed in
absolute Japanese yen, rather than percentage limits based on the closing price
of the stock on the previous trading day. In addition, when there is a major
order imbalance in a listed stock, the TSE posts a “special bid quote” or a
“special asked quote” for that stock at a specified higher or lower price level
than the stock’s last sale price in order to solicit counter orders and balance
supply and demand for the stock. The TSE may suspend the trading of individual
stocks in certain limited and extraordinary circumstances, including, for
example, unusual trading activity in that stock. As a result, changes in the
NKY
may be limited by price limitations or special quotes, or by suspension of
trading, on individual stocks that make up the NKY, and these limitations,
in
turn, may adversely affect the value of the Notes.
Historical
Data
on the NKY
The
following table sets forth the month-end closing index levels of the NKY for
each month in the period from January 2002 through June 2007. The NKY closing
index levels listed below were obtained from the Bloomberg, without independent
verification by the Company. The
historical values of the NKY should not be taken as an indication of future
performance, and no assurance can be given that the level of the NKY will
increase relative to its the Initial Level during the term of the
Notes.
The
closing index level of the NKY on July 27, 2007 was 17,283.81.
Month
End Closing Reference Index Levels: January 1998-June 2007
|
|
1998
|
|
1999
|
|
2000
|
|
2001
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
January
|
|
|
16,628.47
|
|
|
14,499.25
|
|
|
19,539.70
|
|
|
13,843.55
|
|
|
9,997.80
|
|
|
8,339.94
|
|
|
10,783.61
|
|
|
11,387.59
|
|
|
16,649.82
|
|
|
17,383.42
|
|
February
|
|
|
16,831.67
|
|
|
14,367.54
|
|
|
19,959.52
|
|
|
12,883.54
|
|
|
10,587.83
|
|
|
8,363.04
|
|
|
11,041.92
|
|
|
11,740.60
|
|
|
16,205.43
|
|
|
17,604.12
|
|
March
|
|
|
16,527.17
|
|
|
15,836.59
|
|
|
20,337.32
|
|
|
12,999.70
|
|
|
11,024.94
|
|
|
7,972.71
|
|
|
11,715.39
|
|
|
11,668.95
|
|
|
17,059.66
|
|
|
17,287.65
|
|
April
|
|
|
15,641.26
|
|
|
16,701.53
|
|
|
17,973.70
|
|
|
13,934.32
|
|
|
11,492.54
|
|
|
7,831.42
|
|
|
11,761.79
|
|
|
11,008.90
|
|
|
16,906.23
|
|
|
17,400.41
|
|
May
|
|
|
15,670.78
|
|
|
16,111.65
|
|
|
16,332.45
|
|
|
13,262.14
|
|
|
11,763.70
|
|
|
8,424.51
|
|
|
11,236.37
|
|
|
11,276.59
|
|
|
15,467.33
|
|
|
17,875.75
|
|
June
|
|
|
15,830.27
|
|
|
17,529.74
|
|
|
17,411.05
|
|
|
12,969.05
|
|
|
10,621.84
|
|
|
9,083.11
|
|
|
11,858.87
|
|
|
11,584.01
|
|
|
15,505.18
|
|
|
18,138.36
|
|
July
|
|
|
16,378.97
|
|
|
17,861.86
|
|
|
15,727.49
|
|
|
11,860.77
|
|
|
9,877.94
|
|
|
9,563.21
|
|
|
11,325.78
|
|
|
11,899.60
|
|
|
15,456.81
|
|
|
|
|
August
|
|
|
14,107.89
|
|
|
17,436.56
|
|
|
16,861.26
|
|
|
10,713.51
|
|
|
9,619.30
|
|
|
10,343.55
|
|
|
11,081.79
|
|
|
12,413.60
|
|
|
16,140.76
|
|
|
|
|
September
|
|
|
13,406.39
|
|
|
17,605.46
|
|
|
15,747.26
|
|
|
9,774.68
|
|
|
9,383.29
|
|
|
10,219.05
|
|
|
10,823.57
|
|
|
13,574.30
|
|
|
16,127.58
|
|
|
|
|
October
|
|
|
13,564.51
|
|
|
17,942.08
|
|
|
14,539.60
|
|
|
10,366.34
|
|
|
8,640.48
|
|
|
10,559.59
|
|
|
10,771.42
|
|
|
13,606.50
|
|
|
16,399.39
|
|
|
|
|
November
|
|
|
14,883.70
|
|
|
18,558.23
|
|
|
14,648.51
|
|
|
10,697.44
|
|
|
9,215.56
|
|
|
10,100.57
|
|
|
10,899.25
|
|
|
14,872.15
|
|
|
16,274.33
|
|
|
|
|
December
|
|
|
13,842.17
|
|
|
18,934.34
|
|
|
13,785.69
|
|
|
10,542.62
|
|
|
8,578.95
|
|
|
10,676.64
|
|
|
11,488.76
|
|
|
16,111.43
|
|
|
17,225.83
|
|
|
|
|
The
following graph illustrates the historical performance of the NKY based on
the
closing level on the last Reference Index Business Day of each month from
January 1998 to June 2007.
CERTAIN
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The
following discussion summarizes certain U.S. federal income tax consequences
of
the purchase, beneficial ownership and disposition of Notes. As used in this
discussion, the term “U.S. Holder” means a beneficial owner of a Note that
is:
•
an
individual who is a citizen or resident of the United States for U.S. federal
income tax purposes;
•
a
corporation (or other entity that is treated as a corporation for U.S. federal
tax purposes) that is created or organized in or under the laws of the United
States or any State thereof (including the District of Columbia);
•
an
estate whose income is subject to U.S. federal income taxation regardless of
its
source; or
•
a
trust
if a court within the United States is able to exercise primary supervision
over
its administration, and one or more United States persons have the authority
to
control all of its substantial decisions.
As
used
in this discussion, the term “Non-U.S. Holder” means a beneficial owner of a
Note that is, for U.S. federal income tax purposes:
•
a
nonresident alien individual,
•
a
foreign corporation,
•
an
estate whose income is not subject to U.S. federal income tax on a net income
basis, or
•
a
trust
if no court within the United States is able to exercise primary jurisdiction
over its administration or if no United States persons have the authority to
control all of its substantial decisions.
This
summary is based on interpretations of the Internal Revenue Code of 1986, as
amended (the “Code”), regulations issued there under, and rulings and decisions
currently in effect (or in some cases proposed), all of which are subject to
change. Any such change may be applied retroactively and may adversely affect
the federal income tax consequences described herein. This summary addresses
only U.S. Holders that purchase Notes at initial issuance and beneficially
own
such Notes as capital assets and not as part of a “straddle,” “hedge,”
“synthetic security” or a “conversion transaction” for federal income tax
purposes, or as part of some other integrated investment. This summary does
not
discuss all of the tax consequences that may be relevant to particular investors
or to investors subject to special treatment under the federal income tax laws
(such as banks, thrifts, or other financial institutions; insurance companies;
securities dealers or brokers, or traders in securities electing mark to market
treatment; mutual funds or real estate investment trusts; small business
investment companies; S corporations; investors that hold their Notes through
a
partnership or other entity treated as a partnership for federal tax purposes;
investors whose functional currency is not the U.S. dollar; certain former
citizens or residents of the United States; persons subject to the alternative
minimum tax; retirement plans or other tax-exempt entities, or persons holding
the Notes in tax-deferred or tax-advantaged accounts; or “controlled foreign
corporations” or “passive foreign investment companies” for federal income tax
purposes). This summary also does not address the tax consequences to
shareholders, or other equity holders in, or beneficiaries of, a holder, or
any
state, local or foreign tax consequences of the purchase, ownership or
disposition of the Notes.
Accordingly,
prospective investors are urged to consult their tax advisors with respect
to
the federal, state and local tax consequences of investing in the Notes, as
well
as any consequences arising under the laws of any other taxing jurisdiction
to
which they may be subject.
Prospective
purchasers of Notes should consult their tax advisors as to the federal, state,
local, and other tax consequences to them of the purchase, ownership and
disposition of Notes.
Federal
Income Tax Treatment of U.S. Holders
Accruals
of Original Issue Discount on the Notes
For
U.S.
federal income tax purposes, we intend to treat the Notes as “contingent payment
debt instruments” (“CPDIs”) subject to taxation under the “noncontingent bond
method.” Under the noncontingent bond method, U.S. Holders of the Notes will
accrue OID over the term of the Notes based on the Notes’ “comparable yield.” As
a result, U.S. Holders will be required to include OID over the term of the
Notes even though no cash payments will be made with respect to the Notes until
maturity.
In
general, the comparable yield of a CPDI is equal to the yield at which its
issuer would issue a fixed-rate debt instrument with terms and conditions
similar to those of the CPDI, including the level of subordination, term, timing
of payments, and general market conditions. If a hedge of the CPDI is available
that, if integrated with the CPDI, would produce a synthetic debt instrument
with a determinable yield to maturity, the comparable yield will be equal to
the
yield on the synthetic debt instrument. Alternatively, if such a hedge is not
available, but fixed-rate debt instruments of the issuer trade at a price that
reflects a spread above a benchmark rate, the comparable yield is the sum of
the
value of the benchmark rate on the issue date and the spread. Under the
noncontingent bond method, the issuer’s reasonable determination of a comparable
yield is respected and binding on holders of the CPDI.
Based
on
these factors, we estimate that the comparable yield of the Notes will be an
annual rate of approximately 5.46%, compounded annually. U.S. Holders may obtain
the actual comparable yield by contacting The Bear Stearns Companies Inc.,
Bill
Bamber at (212) 272-6635. U.S. Holders will accrue OID in respect of the Notes
at a rate equal to the comparable yield. The amount of OID allocable to each
annual accrual period will be the product of the “adjusted issue price” of the
Notes at the beginning of each such annual accrual period and the comparable
yield. The “adjusted issue price” of the Notes at the beginning of an accrual
period will equal the issue price of the Notes, increased by the OID accrued
in
all prior periods. The issue price of the Notes will be the first price at
which
a substantial amount of the Notes are sold to the public for money (excluding
sales to bond houses, brokers or similar persons or organizations acting in
the
capacity of underwriters, placement agents or wholesalers). U.S. Holders may
obtain the issue price of the Notes by contacting The Bear Stearns Companies
Inc., Bill Bamber at (212) 272-6635. (The accrual of OID by U.S. Holders that
purchase their Notes at a price other than the issue price of the Notes will
be
subject to an adjustment described below.) The amount of OID includible in
income of each U.S. Holder for each taxable year will equal the sum of the
“daily portions” of the total OID on the Notes allocable to each day during the
taxable year in which a U.S. Holder held the Notes, regardless of the U.S.
Holder’s method of accounting. The daily portion of the OID is determined by
allocating to each day in any accrual period a ratable portion of the OID
allocable to such accrual period. Under the noncontingent bond method, the
comparable yield of a CPDI is used to construct a projected payment schedule
that reflects an estimate of the Cash Settlement Value upon the maturity of
the
Notes and which is adjusted to produce the comparable yield. U.S. Holders may
obtain the projected payment schedule by contacting The Bear Stearns Companies
Inc., Bill Bamber at (212) 272-6635.
Under
the
noncontingent bond method, the projected payment schedule is not revised to
account for changes in circumstances that occur while the Notes are
outstanding.
The
comparable yield and the projected payment amount for the Notes are used to
determine accruals of OID for tax purposes only, and are not assurances by
us or
any of our affiliates with respect to the actual yield or payments on the Notes
and do not represent expectations by any such person regarding a Note’s yield or
the index price return amount.
A
U.S.
Holder will generally be bound by our determination of the comparable yield
and
projected payment schedule for the Notes, unless the U.S. Holder determines
its
own projected payment schedule and comparable yield, explicitly discloses such
schedule to the Internal Revenue Service (the “IRS”), and explains to the IRS
the reason for preparing its own schedule. We believe that the projected payment
schedule and comparable yield that we provide for the Notes will be reasonable
and therefore will be respected by the IRS. Our determination, however, is
not
binding on the IRS, and the IRS could conclude that some other comparable yield
or projected payment schedule should be used for the Notes.
A
U.S.
Holder that purchases a Note for an amount other than the issue price of the
Note will be required to adjust its OID inclusions to account for the
difference. These adjustments will affect the U.S. Holder’s basis in the Note.
Reports to US Holders may not include these adjustments. U.S. Holders that
purchase Notes at other than the issue price should consult their tax advisors
regarding these adjustments.
Sale,
Exchange, Retirement, or Other Disposition of the Notes
If
the
payment of the Cash Settlement Value on the Maturity Date exceeds the projected
maturity amount in the projected payment schedule, a U.S. Holder will be
required to include such excess in income as ordinary interest on the Maturity
Date. Alternatively, if the Cash Settlement Value payment is less than the
projected maturity amount, the shortfall will be treated as an offset to any
OID
otherwise includible in income by the U.S. Holder with respect to the Note
for
the taxable year in which the Maturity Date occurs, and any remaining portion
of
such shortfall may be recognized and deducted by the U.S. Holder as an ordinary
loss that will not be subject to the two percent floor limitation imposed on
miscellaneous deductions under section 67 of the Code.
A
U.S.
Holder will generally recognize gain or loss on the sale, exchange, or other
disposition of a Note to the extent that the amount realized is more or less
than its purchase price, increased by the OID previously accrued by the U.S.
Holder on the Note. In general, any gain realized by a U.S. Holder on the sale,
exchange or other disposition of a Note will be treated as ordinary interest
income, and any loss realized will be treated as an ordinary loss to the extent
of the OID previously accrued by the U.S. Holder on the Note, and the loss
will
not be subject to the two percent floor limitation imposed on miscellaneous
deductions under section 67 of the Code. Any loss in excess of the accrued
OID
will be treated as a capital loss. The deductibility of capital losses by U.S.
Holders is subject to limitations.
Federal
Income Tax Treatment of Non-U.S. Holders
Payments
on the Notes to Non-U.S. Holders will not be subject to U.S. federal income
or
withholding tax if the following conditions are satisfied:
•
the
Non-U.S. Holder does not actually or constructively own 10% or more of the
total
combined voting power of all classes of our stock entitled to vote,
•
the
Non-U.S. Holder is not a controlled foreign corporation for U.S. federal income
tax purposes that is related to us through actual or constructive
ownership,
•
the
Non-U.S. Holder is not a bank receiving interest on a loan made in the ordinary
course of its trade or business,
•
the
stocks included in the Reference Indices are actively traded within the meaning
of section 871(h)(4)(C)(v) of the Code, and
•
the
payments are not effectively connected with a trade or business conducted by
the
Non-U.S. Holder in the United States and either (a) the Non-U.S. Holder provides
a correct, complete and executed IRS Form W-8BEN, Form W-8EXP or Form W-8IMY
(or
successor form) with all of the attachments required by the IRS, or (b) the
Non-U.S. Holder holds its Note through a qualified intermediary (generally
a
foreign financial institution or clearing organization or a non-U.S. branch
or
office of a U.S. financial institution or clearing organization that is a party
to a withholding agreement with the IRS) which has provided to us an IRS Form
W-8IMY stating that it is a qualified intermediary and has received
documentation upon which it can rely to treat the payment as made to a foreign
person.
We
expect
that the stocks included in the Reference Indices will be treated as actively
traded within the meaning of section 871(h)(4)(C)(v). If any of the above
conditions are not satisfied, payments on the Notes will be subject to a
withholding tax equal to 30% of any income with respect to a Note for which
amounts were not previously withheld, unless an income tax treaty reduces or
eliminates the tax or the income with respect to the Note is effectively
connected with the conduct of a U.S. trade or business and the Non-U.S. Holder
provides a correct, complete and executed IRS Form W-8ECI. In the latter case,
the Non-U.S. Holder will be subject to U.S. federal income tax with respect
to
all income with respect to the Note at regular rates applicable to U.S.
taxpayers, unless an income tax treaty reduces or eliminates the tax, and
Non-U.S. Holders that are treated as corporations for federal income tax
purposes may also be subject to a 30% branch profits tax, unless an income
tax
treaty reduces or eliminates the branch profits tax.
Federal
Estate Tax Treatment of Non-U.S. Holders.
A
Note
held by an individual who at death is a Non-U.S. Holder will not be includible
in the Non-U.S. Holder’s gross estate for U.S. federal estate tax purposes if
payments on the Notes to the Non-U.S. Holder would not have been subject to
U.S.
federal income or withholding tax at the time of death under the tests described
above.
Information
Reporting and Backup Withholding
Information
reporting will apply to certain payments on a Note (including interest and
OID)
and proceeds of the sale of a Note held by a U.S. Holder that is not an exempt
recipient (such as a corporation). Backup withholding may apply to payments
made
to a U.S. Holder if (a) the U.S. Holder has failed to provide its correct
taxpayer identification number on IRS Form W-9, (b) we have been notified by
the
IRS of an underreporting by the U.S. Holder (underreporting generally refers
to
a determination by the IRS that a payee has failed to include in income on
its
tax return any reportable dividend and interest payments required to be shown
on
a tax return for a taxable year), or (c) we have been notified by the IRS that
the tax identification number provided to the IRS on an information return
does
not match IRS records or that the number was not on the information
return.
Backup
withholding and nonresident alien withholding will not be required with respect
to interest paid to Non- U.S. Holders, so long as we have received from the
Non-U.S. Holder a correct and complete IRS Form W-8BEN, W-8ECI, W-8EXP or Form
W-8IMY with all of the attachments required by the IRS. Interest paid to a
Non-U.S. Holder will be reported on IRS Form 1042-S which is filed with the
IRS
and sent to Non-U.S. Holders.
Information
reporting and backup withholding may apply to the proceeds of a sale of a Note
by a Non-U.S. Holder made within the United States or conducted through certain
U.S. related financial intermediaries, unless we receive one of the tax forms
described above.
Backup
withholding is not an additional tax and may be refunded (or credited against
your U.S. federal income tax liability, if any). The information reporting
requirements may apply regardless of whether withholding is required. For
Non-U.S. Holders, copies of the information returns reporting such interest
and
withholding also may be made available to the tax authorities in the country
in
which a Non-U.S. Holder is a resident under the provisions of an applicable
income tax treaty or agreement.
THE
PRECEDING DISCUSSION IS ONLY A SUMMARY OF CERTAIN OF THE TAX IMPLICATIONS OF
AN
INVESTMENT IN NOTES. PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR
OWN
TAX ADVISORS PRIOR TO INVESTING TO DETERMINE THE TAX IMPLICATIONS OF SUCH
INVESTMENT IN LIGHT OF EACH SUCH INVESTOR’S PARTICULAR
CIRCUMSTANCES.
CERTAIN
ERISA CONSIDERATIONS
Section
4975 of the Code prohibits the borrowing of money, the sale of property and
certain other transactions involving the assets of plans that are qualified
under the Code (“Qualified Plans”) or individual retirement accounts (“IRAs”)
and persons who have certain specified relationships to them. Section 406 of
ERISA prohibits similar transactions involving employee benefit plans that
are
subject to ERISA (“ERISA Plans”). Qualified Plans, IRAs and ERISA Plans are
referred to as “Plans.”
Persons
who have such specified relationships are referred to as “parties in interest”
under ERISA and as “disqualified persons” under the Code. “Parties in interest”
and “disqualified persons” encompass a wide range of persons, including any
fiduciary (for example, an investment manager, trustee or custodian) of a Plan,
any person providing services (for example, a broker) to a Plan, the Plan
sponsor, an employee organization any of whose members are covered by the Plan,
and certain persons related to or affiliated with any of the
foregoing.
The
purchase and/or holding of Notes by a Plan with respect to which we, Bear
Stearns and/or certain of our affiliates is a fiduciary and/or a service
provider (or otherwise is a “party in interest” or “disqualified person”) would
constitute or result in a prohibited transaction under Section 406 of ERISA
or
Section 4975 of the Code, unless such the Notes are acquired or held pursuant
to
and in accordance with an applicable statutory or administrative exemption.
Each
of us, Bear Stearns and Bear, Stearns Securities Corp. is considered a
"disqualified person" under the Code or a “party in interest” under ERISA with
respect to many Plans, although neither we nor Bear Stearns can be a “party in
interest” to any IRA other than certain employer-sponsored IRAs, as only
employer-sponsored IRAs are covered by ERISA.
Applicable
administrative exemptions may include certain prohibited transaction class
exemptions (for example, Prohibited Transaction Class Exemption (“PTCE”) 84-14
relating to qualified professional asset managers, PTCE 96-23 relating to
certain in-house asset managers, PTCE 91-38 relating to bank collective
investment funds, PTCE 90-1 relating to insurance company separate accounts
and
PTCE 95-60 relating to insurance company general accounts).
It
should
also be noted that the recently enacted Pension Protection Act of 2006 contains
a new statutory exemption from the prohibited transaction provisions of Section
406 of ERISA and Section 4975 of the Code for transactions involving certain
parties in interest or disqualified persons who are such merely because they
are
a service provider to a Plan, or because they are related to a service provider.
Generally, the new exemption would be applicable if the party to the transaction
with the Plan is a party in interest or a disqualified person to the Plan but
is
not (i) an employer, (ii) a fiduciary who has or exercises any discretionary
authority or control with respect to the investment of the Plan assets involved
in the transaction, (iii) a fiduciary who renders investment advice (within
the
meaning of ERISA and Section 4975 of the Code) with respect to those assets,
or
(iv) an affiliate of (i), (ii) or (iii). Any Plan fiduciary relying on this
new
statutory exemption (Section 408(b)(17) of ERISA and Section 4975(d)(20) of
the
Code) and purchasing Notes on behalf of a Plan will be deemed to represent
that
(x) the fiduciary has made a good faith determination that the Plan is paying
no
more than, and is receiving no less than, adequate consideration in connection
with the transaction and (y) neither we, Bear Stearns, nor any of our affiliates
directly or indirectly exercises any discretionary authority or control or
renders investment advice (as defined above) with respect to the assets of
the
Plan which such fiduciary is using to purchase the Notes, both of which are
necessary preconditions to utilizing this new exemption. Any purchaser that
is a
Plan is encouraged to consult with counsel regarding the application of the
new
exemption.
A
fiduciary who causes a Plan to engage, directly or indirectly, in a non-exempt
prohibited transaction may be subject to a penalty under ERISA, and may be
liable for any losses to the Plan resulting from such transaction. Code Section
4975 generally imposes an excise tax on disqualified persons who engage,
directly or indirectly, in non-exempt transactions with the assets of Plans
subject to such Section. If an IRA engages in a prohibited transaction, the
assets of the IRA are deemed to have been distributed to the IRA
beneficiaries.
In
accordance with ERISA’s general fiduciary requirements, a fiduciary with respect
to any ERISA Plan who is considering the purchase of Notes on behalf of such
plan should consider the foregoing information and the information set forth
in
the applicable prospectus supplement and any applicable pricing supplement,
and
should determine whether such purchase is permitted under the governing plan
document and is prudent and appropriate for the ERISA Plan in view of its
overall investment policy and the composition and diversification of its
portfolio. Fiduciaries of Plans established with, or for which services are
provided by, us, Bear Stearns, and/or certain of our affiliates should consult
with counsel before making any acquisition. Each purchaser of any Notes, the
assets of which constitute the assets of one or more Plans, and each fiduciary
that directs such purchaser with respect to the purchase or holding of such
Notes, will be deemed to represent that the purchase, holding and disposition
of
the Notes does not and will not constitute a prohibited transaction under
Section 406 of ERISA or Section 4975 of the Code for which an exemption is
not
available.
Certain
employee benefit plans, such as governmental plans (as defined in Section 3(32)
of ERISA) and, if no election has been made under Section 410(d) of the Code,
church plans (as defined in Section 3(33) of ERISA), are not subject to Section
406 of ERISA or Section 4975 of the Code. However, such plans may be subject
to
the provisions of applicable federal, state or local law (“Similar Law”) similar
to the foregoing provisions of ERISA or the Code. Fiduciaries of such plans
(“Similar Law Plans”) should consider applicable Similar Law when investing in
the Notes. Each fiduciary of a Similar Law Plan will be deemed to represent
that
the Similar Law Plan’s acquisition and holding of the Notes will not result in a
non-exempt violation of applicable Similar Law.
The
sale
of any Note to a Plan or a Similar Law Plan is in no respect a representation
by
us or any of our affiliates that such an investment meets all relevant legal
requirements with respect to investments by Plans or Similar Law Plans generally
or any particular Plan or Similar Law Plan, or that such an investment is
appropriate for a Plan or a Similar Law Plan generally or any particular Plan
or
Similar Law Plan.
USE
OF PROCEEDS AND HEDGING
We
will
use the net proceeds from the sale of the Notes for general corporate purposes.
We or one or more of our subsidiaries (including BSIL) may hedge our obligations
under the Notes by the purchase and sale of the stocks included in the Reference
Index, exchange-traded and over-the-counter options on, or other derivative
or
synthetic instruments related to, the Reference Index, individual futures
contracts on the Reference Index and on stocks included in the Reference Index,
futures contracts on the Reference Index and/or options on these futures
contracts. At various times after the initial offering and before the maturity
of the Notes, depending on market conditions (including the levels of the
Reference Indices), in connection with hedging with respect to the Notes, we
expect that we and/or one or more of our subsidiaries will increase or decrease
those initial hedging positions using dynamic hedging techniques and may take
long or short positions in any of these instruments. We or one or more of our
subsidiaries may also take positions in other types of appropriate financial
instruments that may become available in the future. If we or one or more of
our
subsidiaries has a long hedge position in any of these instruments then we
or
one or more of our subsidiaries may liquidate a portion of these instruments
at
or about the time of the maturity of the Notes. Depending on, among other
things, future market conditions, the total amount and the composition of such
positions are likely to vary over time. We will not be able to ascertain our
profits or losses from any hedging position until such position is closed out
and any offsetting position or positions are taken into account. Although we
have no reason to believe that such hedging activity will have a material effect
on the price of any of these instruments or on the level of the Reference Index,
we cannot guarantee that we and one or more of our subsidiaries will not affect
such levels as a result of its hedging activities. You should also refer to
“Use
of Proceeds” in the accompanying prospectus.
SUPPLEMENTAL
PLAN OF
DISTRIBUTION
Subject
to the terms and conditions set forth in the Distribution Agreement dated as
of
June 19, 2003, as amended, we have agreed to sell to Bear Stearns, as principal,
and Bear Stearns has agreed to purchase from us, the aggregate principal amount
of Notes set forth opposite its name below.
Agent
|
Principal
Amount
of
Notes
|
Bear,
Stearns & Co. Inc.
|
$1,500,000
|
Total
|
$1,500,000
|
The
Agent
intends to initially offer $1,500,000 of the Notes to the public at the offering
price set forth on the cover page of this pricing supplement, and to
subsequently resell the remaining principal amount of the Notes at prices
related to the prevailing market prices at the time of resale. In the future,
the Agent may repurchase and resell the Notes in market-making transactions,
with resales being made at prices related to prevailing market prices at the
time of resale or at negotiated prices. We will offer the Notes to Bear Stearns
at a discount of 98.75% of the price at which the Notes are offered to the
public.
In
order
to facilitate the offering of the Notes, we may grant the Agent a 13-day option
from the date of the final pricing supplement, to purchase from us up to an
additional $225,000 at the public offering price, less the agent’s discount, to
cover any over-allotments. The Agent may over-allot or effect transactions
which
stabilize or maintain the market price of the Notes at a level higher than
that
which might otherwise prevail in the open market. Specifically, the Agent may
over-allot or otherwise create a short position in the Notes for its own account
by selling more Notes than have been sold to it by us. If this option is
exercised, in whole or in part, subject to certain conditions, the Agent will
become obligated to purchase from us and we will be obligated to sell to the
Agent an amount of Notes equal to the amount of the over-allotment exercised.
The Agent may elect to cover any such short position by purchasing Notes in
the
open market. No representation is made as to the magnitude or effect of any
such
stabilization or other transactions. Such stabilizing, if commenced, may be
discontinued at any time and in any event shall be discontinued within a limited
period. No other party may engage in stabilization.
Payment
of the purchase price shall be made in funds that are immediately available
in
New York City.
The
agents may be deemed to be “underwriters” within the meaning of the Securities
Act of 1933, as amended (the “Securities Act”). We have agreed to indemnify the
agents against or to make contributions relating to certain civil liabilities,
including liabilities under the Securities Act. We have agreed to reimburse
the
agents for certain expenses.
The
Notes
are a new issue of securities with no established trading market. The Notes
will
not be listed on any securities exchange and we do not expect a trading market
will develop. Bear Stearns has advised us that, following completion of the
offering of the Notes, it intends under ordinary market conditions to indicate
prices for the Notes on request, although it is under no obligation to do so
and
may discontinue any market-making activities at any time without notice.
Accordingly, no guarantees can be given as to whether an active trading market
for the Notes will develop or, if such a trading market develops, as to the
liquidity of such trading market. We cannot guarantee that bids for outstanding
Notes will be made in the future; nor can we predict the price at which any
such
bids will be made. The Notes will cease trading as of the close of business
on
the Maturity Date.
Because
Bear Stearns is our wholly-owned subsidiary, each distribution of the Notes
will
conform to the requirements set forth in Rule 2720 of the NASD Conduct
Rules.
LEGAL
MATTERS
The
validity of the Notes will be passed upon for us by Cadwalader, Wickersham
&
Taft LLP, New York, New York.
|
|
|
You
should only rely on the information contained in this pricing supplement
and the accompanying prospectus supplement and prospectus. We have
not
authorized anyone to provide you with information or to make any
representation to you that is not contained in this pricing supplement
or
the accompanying prospectus supplement and prospectus. If anyone
provides
you with different or inconsistent information, you should not
rely on it.
This pricing supplement and the accompanying prospectus supplement
and
prospectus are not an offer to sell these securities, and these
documents
are not soliciting an offer to buy these securities, in any jurisdiction
where the offer or sale is not permitted. You should not under
any
circumstances assume that the information in this pricing supplement
and
the accompanying prospectus supplement and prospectus is correct
on any
date after their respective dates.
|
|
The
Bear Stearns
Companies
Inc.
$1,500,000
Medium-Term
Notes, Series B
Linked
to Double the Smallest Percentage
Increase
of Three Major Equity Indices
Due
December 31, 2008
PRICING
SUPPLEMENT
Bear,
Stearns & Co. Inc.
July
31, 2007
|
______________
|
|
|
TABLE
OF CONTENTS
|
|
|
Pricing
Supplement
|
|
|
|
Page
|
|
Summary
|
PS-2
|
|
Key
Terms
|
PS-4
|
|
Questions
and Answers
|
PS-6
|
|
Risk
Factors
|
PS-10
|
|
Description
of the Notes
|
PS-18
|
|
Description
of the Reference Indices
|
PS-25
|
|
Certain
U.S. Federal Income Tax Considerations
|
PS-35
|
|
Certain
ERISA Considerations
|
PS-38
|
|
Use
of Proceeds and Hedging
|
PS-40
|
|
Supplemental
Plan of Distribution
|
PS-40
|
|
Legal
Matters
|
PS-41
|
|
Prospectus
Supplement
|
|
|
Risk
Factors
|
S-3
|
|
Pricing
Supplement
|
S-8
|
|
Description
of the Notes
|
S-8
|
|
Certain
U.S. Federal Income Tax Considerations
|
S-32
|
|
Supplemental
Plan of Distribution
|
S-46
|
|
Listing
|
S-47
|
|
Validity
of the Notes
|
S-47
|
|
Glossary
|
S-47
|
|
Prospectus
|
|
|
Where
You Can Find More Information
|
1
|
|
The
Bear Stearns Companies Inc.
|
2
|
|
Use
of Proceeds
|
4
|
|
Description
of Debt Securities
|
4
|
|
Description
of Warrants
|
16
|
|
Description
of Preferred Stock
|
21
|
|
Description
of Depositary Shares
|
25
|
|
Description
of Depositary Contracts
|
28
|
|
Description
of Units
|
31
|
|
Book-Entry
Procedures and Settlement
|
33
|
|
Limitations
on Issuance of Bearer Debt Securities and Bearer Warrants
|
43
|
|
Plan
of Distribution
|
44
|
|
ERISA
Considerations
|
48
|
|
Legal
Matters
|
49
|
|
Experts
|
49
|
|
|
|
|
|