Filed
pursuant to Rule 424(b)(2)
Registration
No. 333-136666
Subject
to Completion, dated November 9, 2007
PRICING
SUPPLEMENT
(To
Prospectus dated August 16, 2006 and
Prospectus
Supplement dated August 16, 2006)
This
preliminary pricing supplement relates to an effective registration statement
under the Securities Act of 1933, but is not complete and may be changed.
We may
not sell these securities until we deliver a final pricing supplement. This
preliminary pricing supplement, the accompanying prospectus supplement and
prospectus are not an offer to sell these securities and are not soliciting
an
offer to buy these securities in any state where such an offer or sale would
not
be permitted.
The
Bear Stearns Companies Inc.$[l]
Medium-Term Notes, Series B
Linked
to
the Standard and Poor’s 500®
Index,
due May [l],
2009
| · |
The
Notes are linked to the performance of the Standard and Poor’s
500®
Index (the “Index”) and are not principal protected. When we refer to
Notes in this pricing supplement, we mean Notes with a principal
amount of
$1,000.00. On the Maturity Date, you will receive the “Cash Settlement
Value,” an amount in cash depending on the Index
Return.
|
| · |
The
Cash Settlement Value, per Note, will be calculated as follows:
|
(i) if,
at
maturity, the Index Return is greater than zero, the Cash Settlement Value
will
be equal to the $1,000.00 principal amount of the Note plus the product of
(a)
$1,000 multiplied by (b) the Upside Participation Rate multiplied by (c) the
lesser of the Index Return and the Maximum Index Return. Thus, if the Final
Index Level is greater than 111.00% of the Initial Index Level, regardless
of
the extent to which the Final Index Level is greater than the Initial Index
Level, we will pay you $1,220.00 per Note, which represents a maximum return
of
22.00% on the Notes;
(ii) if
the
Index Return is less than or equal to zero but greater than or equal to the
Trigger Level, the Cash Settlement Value will be equal to the $1,000.00
principal amount of the Note; or
(iii) if
the
Index Return is less than the Trigger Level, the Cash Settlement Value will
be
equal to the $1,000.00 principal amount of the Note plus the product of (i)
the
Index Return minus the Trigger Level, multiplied by (ii) $1,000.00. Thus,
if
the Index Return is less than the Trigger Level, for each 1% difference between
the Index Return and the Trigger Level, you will lose an amount of your Notes
equal to 1% multiplied by the $1,000.00 principal amount of your
Notes.
| · |
The
Index Return will equal the quotient of (a) the Final Index Level
minus
the Initial Index Level, divided by (b) the Initial Index Level.
|
| · |
The
Maximum Index Return will equal
11.00%.
|
| · |
The
Trigger Level will equal -10.00%.
|
| · |
The
Upside Participation Rate will equal
200.00%.
|
| · |
We
will not pay interest during the term of the
Notes.
|
| · |
The
Notes will not be listed on any securities exchange or quotation
system.
|
| · |
The
CUSIP number for the Notes is
073928Y23
|
INVESTMENT
IN THE NOTES INVOLVES CERTAIN RISKS. THE
NOTES ARE NOT PRINCIPAL PROTECTED. THEREFORE, INVESTORS MAY RECEIVE LESS, AND
POSSIBLY SIGNIFICANTLY LESS, THAN THEIR INITIAL INVESTMENT IN THE
NOTES.
THERE MAY NOT BE A SECONDARY MARKET IN THE NOTES, AND IF THERE WERE TO BE A
SECONDARY MARKET, IT MAY NOT BE LIQUID. YOU SHOULD REFER TO “RISK FACTORS”
BEGINNING ON PAGE PS-10.
“Standard
& Poor’s®,”
“S&P®,”
“S&P 500®,”
“Standard & Poor’s 500,” and “500” are trademarks of Standard & Poor’s,
a division of The McGraw-Hill Companies, Inc. (“S&P”) and have been licensed
for use for certain purposes by The Bear Stearns Companies Inc. The Notes are
not sponsored, endorsed, sold or promoted by S&P, and S&P makes no
representation 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
|
[l]%
|
$[l]
|
|
|
Agent’s
discount
|
[l]%
|
$[l]
|
|
|
Proceeds,
before expenses, to us
|
[l]%
|
$[l]
|
Any
additional reissuances will be offered at a price to be determined at the time
of pricing of each offering of Notes, which will be a function of the prevailing
market conditions and the level of the Index 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 November [l],
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 30-day option from the date
of this pricing supplement to purchase from us up to an additional $[l]
of Notes
at the public offering price to cover any over-allotments.
_______________
Bear,
Stearns & Co. Inc.
November
[l],
2007
SUMMARY
This
summary highlights selected information from the accompanying prospectus,
prospectus supplement and this pricing supplement to help you understand the
Notes linked to the Index. 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
“we,” “us” and “our” refer only to The Bear Stearns Companies Inc. excluding its
consolidated subsidiaries.
The
Bear
Stearns Companies Inc. Medium-Term Notes, Series B, Linked to the Standard
and
Poor’s 500®
Index,
due May [l],
2009
(the “Notes”) are Notes whose return is tied or “linked” to the performance of
the Index. When we refer to Note or Notes in this pricing supplement, we mean
$1,000.00 principal amount of Notes. The Notes are not principal protected.
On
the Maturity Date, you will receive the Cash Settlement Value, an amount in
cash
depending on the Index Return. The Cash Settlement Value, per Note, will be
calculated as follows:
(i) if,
at
maturity, the Index Return is greater than zero, the Cash Settlement Value
will
be equal to the $1,000.00 principal amount of the Note plus the product of
(a)
$1,000 multiplied by (b) the Upside Participation Rate and (c) the lesser of
the
Index Return and the Maximum Index Return. Thus, if the Final Index Level is
greater than 111.00% of the Initial Index Level, regardless of the extent to
which the Final Index Level is greater than the Initial Index Level, we will
pay
you $1,220.00 per Note, which represents a maximum return of 22.00% on the
Notes;
(ii) if
the
Index Return is less than or equal to zero but greater than or equal to the
Trigger Level, the Cash Settlement Value will be equal to the $1,000.00
principal amount of the Note; or
(iii) if
the
Index Return is less than the Trigger Level, the Cash Settlement Value will
be
equal to the $1,000.00 principal amount of the Note plus the product of (i)
the
Index Return minus the Trigger Level multiplied by (ii) $1,000. Thus, if the
Index Return is less than the Trigger Level, for each 1% difference between
the
Index Return and the Trigger Level, you will lose an amount of your Notes equal
to 1% multiplied by the $1,000.00 principal amount of your Notes.
The
Index
Return will equal the quotient of (a) the Final Index Level minus the Initial
Index Level, divided by (b) the Initial Index Level.
The
Maximum Index Return will equal 11.00%.
The
Trigger Level will equal -10.00%.
The
Upside Participation Rate will equal 200.00%.
Selected
Investment Considerations
| · |
Growth
potential—The return, if any, on the Notes is based upon whether and the
extent to which (subject to the maximum return of 22.00%) the Final
Index
Level is greater than the Initial Index
Level.
|
| · |
Potential
leverage in the increase, if any, of the Index—The Notes may be an
attractive investment for investors who have a bullish view of the
Index
over the term of the Notes. If held to maturity, the Notes allow
you to
participate in the potential increase in the Index, not to exceed
the
maximum return of 22.00%.
|
| · |
Diversification—Because
the Index represents a broad spectrum of the United States equity
market,
the Notes may allow you to diversify an existing
portfolio
|
PS-2
| · |
Taxes—
The U.S. federal income tax consequences of an investment in the
Notes are
complex and uncertain. We intend to treat the Notes for all tax purposes
as pre-paid cash-settled executory contracts linked to the level
of the
Index and, where required, to file information returns with the Internal
Revenue Service in accordance with such treatment. Prospective investors
are urged to consult their tax advisors regarding the U.S. federal
income
tax consequences of an investment in the Notes. Assuming the Notes
are
treated as pre-paid cash-settled executory contracts, you should
be
required to recognize capital gain or loss to the extent that the
cash you
receive on the Maturity Date or upon a sale or exchange of the Notes
prior
to the Maturity Date differs from your tax basis on the Notes (which
will
generally be the amount you paid for the Notes). See “Certain U.S. Federal
Income Tax Considerations” herein.
|
Selected
Risk Considerations
| · |
Possible
loss of principal—The
Notes are not principal protected. If,
at maturity, the Index Return is less than the Trigger Level for
each 1%
difference between the Index Return and the Trigger Level, you will
lose
an amount of your Notes equal to the product of (i) 1% multiplied
by (ii)
the $1,000.00 principal amount of the Notes.
|
| · |
Maximum
return on the Notes of 22.00%—You will not receive more than the maximum
return of 22.00% at maturity. Because the maximum return on the Notes
is
22.00%, the maximum Cash Settlement Value is $1,220.00. Therefore,
the
Cash Settlement Value will not reflect the increase in the value
of the
Notes if the Index Return is greater than the Maximum Index Return.
|
| · |
No
interest, dividend or other payments—You will not receive any interest,
dividend payments or other distributions on the stocks underlying
the
Index, 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.
|
PS-3
KEY
TERMS
|
Issuer:
|
The
Bear Stearns Companies Inc.
|
|
Index:
|
Standard
& Poor’s 500®
Index (ticker “SPX”), as published by S&P (the
“Sponsor”).
|
|
Face
amount:
|
Each
Note will be issued in minimum denominations of $1,000.00 and $1,000.00
multiples thereafter; provided, however, that the minimum purchase
for any
purchaser domiciled in a Member state of the European Economic Area
shall
be $100,000.00. The aggregate principal amount of the Notes being
offered
is $[l].
When we refer to “Note” or “Notes” in this pricing supplement, we mean
Notes each with a principal amount of
$1,000.00.
|
|
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.
|
|
Cash
Settlement Value:
|
On
the Maturity Date, you will receive the Cash Settlement Value, an
amount
in cash that depends upon the Index Return. The Cash Settlement Value,
per
Note, will be calculated as
follows:
|
|
(i) if,
at maturity, the Index Return is greater than zero, the Cash Settlement
Value will be equal to the $1,000.00 principal amount of the Note
plus the
product of (a) $1,000 multiplied by (b) the Upside Participation
Rate and
(c) the lesser of the Index Return and the Maximum Index Return.
Thus, if
the Final Index Level is greater than 111.00% of the Initial Index
Level,
regardless of the extent to which the Final Index Level is greater
than
the Initial Index Level, we will pay you $1,220.00 per Note, which
represents a maximum return of 22.00% on the
Notes;
|
|
(ii) if
the Index Return is less than or equal to zero but greater
than or equal
to the Trigger Level, the Cash Settlement Value will be equal
to the
$1,000.00 principal amount of the Note;
or
|
|
(iii) if
the Index Return is less than the Trigger Level, the Cash
Settlement Value
will be equal to the $1,000.00 principal amount of the Note
plus the
product of (i) the Index Return minus the Trigger Level,
multiplied by
(ii) $1,000. Thus, if the Index Return is less than the Trigger
Level, for
each 1% difference between the Index Return and the Trigger
Level, you
will lose an amount of your Notes equal to 1% multiplied
by the $1,000.00
principal amount of your Notes.
|
| Index Return: |
Equals
the quotient of (a) the Final Index Level minus the Initial
Index Level,
divided by (b) the Initial Index Level.
|
| Maximum Index Return: |
Equals
11.00%.
|
| Trigger Level: |
Equals
-10.00%.
|
| Upside Participation Rate: |
Equals
200.00%.
|
| Interest: |
The
Notes will not bear interest during the
term of the
Notes.
|
| Initial Index Level: |
Equals
[l],
the closing level of the Index on November
[l],
2007.
|
| Final Index Level: |
The
Final Index Level will be determined
by the Calculation Agent and will
equal the closing level of the
Index on the Calculation Date.
|
| Calculation Date: |
May
[l],
2009 unless
such date is not an Index Business
Day, in which case the Calculation
Date
shall be the next Index Business
Day.
The Calculation Date is subject
to adjustment as described
under
“Description of the Notes -
Market Disruption
Events.”
|
| Maturity Date: |
The
Notes are expected to
mature on May [l],
2009 unless such date
is not an Business Day,
in which case the Maturity
Date shall be the next
Business Day. If the
Calculation Date is adjusted
due to the occurrence
of a Market Disruption
Event, the Maturity Date
will
be three Business Days
following the adjusted
Calculation
Date.
|
PS-4
| Exchange listing: |
The
Notes will not be
listed on any securities
exchange or quotation
system.
|
| Index Business Day: |
Means
any day on which
the Primary Exchange
(as defined below)
and each Related
Exchange (as
defined below)
are scheduled
to be open for
trading.
|
| Business Day: |
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. (“Bear
Stearns”)
|
PS-5
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 $1,000.00, the minimum purchase for any purchaser
domiciled in a member state of the European Economic Area shall be $100,000.00.
QUESTIONS
AND ANSWERS
What
are the Notes?
The
Notes
are a series of our senior debt securities, the value of which is linked to
the
performance of the Index. The Notes will not bear interest, and no other
payments will be made prior to maturity. See the section “Risk Factors” for
selected risk considerations prior to making an investment in the Notes.
The
Notes
will mature on May [l],
2009.
The Notes do not provide for earlier redemption. When we refer to Notes in
this
pricing supplement, we mean Notes each with a principal amount of $1,000.00.
You
should refer to the section “Description of Notes” for a detailed description of
the Notes prior to making an investment in the Notes.
Are
the Notes principal
protected?
No.
The
Notes are not principal protected. If, at maturity, the Index Return is less
than Trigger Level for each 1% difference between the Index Return and the
Trigger Level, you will lose an amount of your Notes equal to the product of
(i)
1% multiplied by (ii) the $1,000.00 principal amount of the Notes.
Are
the Notes equity or debt securities?
The
Notes
are our unsecured, unsubordinated debt securities. However, the Notes differ
from traditional debt securities in that the Notes are not principal protected
and offer the opportunity to participate in the positive performance of the
Index, if any, subject to a maximum return of 22.00%. If, at maturity, the
Index
Return is less than the Trigger Level, you will receive less, and possibly
significantly less, than your initial 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?
The
Notes
are not principal protected. On
the
Maturity Date, you will receive the Cash Settlement Value, an amount in cash
that depends upon the Index Return. The Cash Settlement Value, per Note, will
be
calculated as follows:
(i) If,
at
maturity, the Index Return is greater than zero, the Cash Settlement Value
will
be equal to the $1,000.00 principal amount of the Note plus the product of
(a)
$1,000 multiplied by (b) the Upside Participation Rate and (c) the lesser of
the
Index Return and the Maximum Index Return. Thus, if the Final Index Level is
greater than 111.00% of the Initial Index Level, regardless of the extent to
which the Final Index Level is greater than the Initial Index Level, we will
pay
you $1,220.00 per Note, which represents a maximum return of 22.00% on the
Notes;
(ii) if
the
Index Return is less than or equal to zero but greater than or equal to the
Trigger Level, the Cash Settlement Value will be equal to the $1,000.00
principal amount of the Note; or
PS-6
(iii) if
the
Index Return is less than the Trigger Level, the Cash Settlement Value will
be
equal to the $1,000.00 principal amount of the Note plus the product of (i)
the
Index Return minus the Trigger Level, multiplied by (ii) $1,000. Thus, if the
Index Return is less than the Trigger Level, for each 1% difference between
the
Index Return and the Trigger Level, you will lose an amount of your Notes equal
to 1% multiplied by the $1,000.00 principal amount of your Notes.
The
Index
Return equals the quotient of (a) the Final Index Level minus the Initial Index
Level, divided by (b) the Initial Index Level.
The
Maximum Index Return equals 11.00%.
The
Trigger Level equals -10.00%.
The
Upside Participation Rate equals 200.00%.
For
more
specific information about the Cash Settlement Value and for illustrative
examples, you should refer to the section “Description 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 30-day option we
grant
to Bear, Stearns & Co. Inc., and (ii) any future issuances of Notes bearing
the same CUSIP number. 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 level of the Index at the time of the relevant
sale.
Will
I receive
interest on the Notes?
You
will
not receive any periodic interest payments on the Notes. The only payment you
will receive, if any, will be the Cash Settlement Value upon the maturity of
the
Notes.
What
is the Index?
Unless
otherwise stated, all information on the Index that is provided in this pricing
supplement is derived from the Sponsor or other publicly available sources.
The
Index 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 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
November 7, 2007, the common stocks of 425 companies, or 85.0% of the market
capitalization of the Index, were traded on the New York Stock Exchange (“NYSE”
); the common stocks of 75 companies, or 15.0% of the market capitalization
of
the Index, were traded on The Nasdaq Stock Market (“Nasdaq”). As of that date,
none of the common stocks included in the Index were companies traded on the
American Stock Exchange (“AMEX”).
For
more
information, see the section “Description of the Index.”
How
has the Index performed historically?
We
have
provided tables and graphs depicting the performance of the Index from January
1, 1998 through October 31, 2007. You can find these tables and graphs in the
section “Description of the Index - Historical Data on the Index.” We have
provided this historical information to help you evaluate the behavior of the
Index in various economic environments; however, past performance is not
indicative of the manner in which the Index will perform in the future. You
should refer to the section “Risk Factors - The historical performance of the
Index is not an indication of the future performance of the Index.”
PS-7
Will
the Notes be listed on a securities exchange?
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. 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 those bids will be
made. In any event, the Notes will cease trading as of the close of business
on
the Maturity Date. You should refer generally to the section “Risk Factors.” If
you sell the Notes prior to maturity, you may receive less, and possibly
significantly less, than your initial investment in the Notes.
What
is the role of 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. 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 performance of an underlying equity index, they may
be
appropriate for investors with specific investment horizons who seek to
participate in the potential price appreciation of the underlying stocks
comprising the Index. In particular, the Notes may be an attractive investment
for investors who:
| · |
want
potential upside exposure to stocks underlying the
Index;
|
| · |
believe
that the Index will increase over the term of the Notes and that
such
increase will not exceed Maximum Index Return;
|
| · |
are
willing to risk the possible loss of their initial investment in
the Notes
in exchange for the opportunity to participate in the appreciation,
if
any, of the Index of up to the Maximum Index Return (which represents
a
maximum return per Note of 22.00%),
and
|
| · |
are
willing to forgo income in the form of interest payments on the Notes
or
dividend payments on the stocks underlying the
Index.
|
The
Notes
may not be a suitable investment for you if:
| · |
you
seek principal protection;
|
| · |
you
seek current income or dividend payments from your
investment;
|
PS-8
| · |
you
seek an investment that offers the possibility to fully participate
in the
potential appreciation of the Index (since the return on the Notes
is
capped at 22.00%);
|
| · |
you
seek an investment with an active secondary
market;
|
| · |
you
are unable or unwilling to hold the Notes until maturity;
or
|
| · |
you
do not have a bullish view of the Index over the term of the
Notes.
|
What
are the U.S. federal income tax consequences of investing in the
Notes?
The
U.S.
federal income tax consequences of an investment in the Notes are complex and
uncertain. We intend to treat the Notes for all tax purposes as pre-paid
cash-settled executory contracts linked to the value of the Index and, where
required, to file information returns with the Internal Revenue Service in
accordance with such treatment. Prospective investors are urged to consult
their
tax advisors regarding the U.S. federal income tax consequences of an investment
in the Notes. Assuming the Notes are treated as pre-paid cash-settled executory
contracts, you should be required to recognize capital gain or loss to the
extent that the cash you receive on the Maturity Date or upon a sale or exchange
of the Notes prior to the Maturity Date differs from your tax basis on the
Notes
(which will generally be the amount you paid for the Notes). It is possible
that
certain of the components of the Index could be treated as “pass-thru entities”
for purposes of section 1260 of the Code, in which case the “constructive
ownership” rules of section 1260 could cause a portion of any long-term capital
gain that is recognized on sale, exchange, maturity, or other taxable
disposition of the Notes to be treated as ordinary income and subject to an
interest charge. Because of the uncertainty regarding the tax treatment of
the
Notes, we urge you to consult your tax advisor as to the tax consequences of
your investment in a Note. For a more complete discussion of the U.S. federal
income tax consequences of your investment in a Note, please see the discussion
under “Certain U.S. Federal Income Tax Considerations.”
Does
ERISA impose any limitations on purchases of the
Notes?
An
employee benefit plan subject to the fiduciary responsibility provisions 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 other 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” herein before investing in the Notes.
PS-9
RISK
FACTORS
Your
investment in the Notes involves a degree of risk similar to investing in the
Index. However, your ability to participate in the appreciation of the Index
is
limited. The maximum return on the Notes is 22.00%. Therefore, the maximum
Cash
Settlement Value is $1,220.00 and the Cash Settlement Value will not reflect
the
increase in the Index if the Index Return is greater than or equal to the
Maximum Index Return. You will be subject to significant risks not associated
with conventional fixed-rate or floating-rate debt securities. Prospective
purchasers should recognize the possibility of a substantial loss with respect
to their investment in the Notes. 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 Index will fluctuate, and the possibility
that you will receive a substantially lower amount of principal than the amount
you invested. 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, and 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.
The
Notes are not principal protected. At
maturity, the Notes may pay less than the principal
amount.
The
Notes are not principal protected. If, at maturity, the Index Return is less
than the Trigger Level for each 1% difference between the Index Return and
the
Trigger Level, you will lose an amount of your Notes equal to the product of
(i)
1% multiplied by (ii) the $1,000.00 principal amount of the
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.”
You
must rely on your own evaluation of the merits of an investment linked to
the
Index.
In
the
ordinary course of our business, we may from time to time express views on
expected movements in the Index and in the stocks underlying the Index. 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 Index and the stocks that
underlie the Index 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 Index.
Your
yield will not reflect dividends on the underlying stocks that comprise the
Index.
The
Index
does not reflect the payment of dividends on its underlying stocks. Therefore,
the yield based on the Index to the maturity of the Notes will not produce
the
same yield as if you had purchased such underlying stocks 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.
Your
return on the Notes will not exceed 22.00% over the term of the Notes,
regardless of the positive percentage increase of the Final Index Level over
the
Initial Index Level.
If
the
Index Return is greater than or equal to the Maximum Index Return, the Cash
Settlement Value will be equal to $1,220.00. Thus, if the Final Index Level
is
greater than 111.00% of the Initial Index Level, regardless of the extent to
which the Final Index Level is greater than the Initial Index Level, we will
pay
you $1,220.00 per Note, which represents a maximum return of 22.00% on the
Notes. Under these circumstances, the Cash Settlement Value you receive at
maturity may not fully reflect the performance of the Index.
PS-10
Tax
Consequences.
Although
we intend to treat the Notes for all tax purposes as pre-paid cash-settled
executory contracts linked to the Index, there is no direct legal authority
as
to the proper tax treatment of the Notes, and therefore significant aspects
of
the tax treatment of the Notes are uncertain. In particular, it is possible
that
you will be required to recognize income for U.S. federal tax purposes with
respect to the Notes prior to the sale, exchange or maturity of the Notes,
and
it is possible that any gain or income recognized with respect to the Notes
will
be treated as ordinary income rather than capital gain. Prospective investors
are urged to consult their tax advisors regarding the U.S. federal income tax
consequences of an investment in the Notes. Please read carefully the section
“Certain U.S. Federal Income Tax Considerations.”
Equity
market risks may affect the trading value of the Notes and the amount you
will
receive at maturity.
We
expect
that the level of the Index will fluctuate in accordance with changes in the
financial condition of the companies issuing the common stocks comprising the
Index, the level of the underlying common stocks comprising the Index generally
and other factors. The financial condition of the companies issuing the common
stocks comprising the Index may become impaired or the general condition of
the
equity market may deteriorate, either of which may cause a decrease in the
level
of the Index 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 common
stocks comprising the Index change. Investor perceptions regarding the companies
issuing the common stocks comprising the Index 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 level of the Index is expected to fluctuate until the Maturity
Date.
The
historical performance of the Index is not an indication of the future
performance of the Index.
The
historical performance of the Index, which is included in this pricing
supplement, should not be taken as an indication of the future performance
of
the Index. While the trading prices of the underlying common stocks comprising
the Index will determine the level of the Index, it is impossible to predict
whether the level of the Index will fall or rise. Trading prices of the
underlying common stocks comprising the Index 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 common stocks are traded,
and
by various circumstances that can influence the levels of the underlying common
stocks in a specific market segment or the level of a particular underlying
stock.
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 Index, whether the level of the Index is greater than or
equal
to the Initial Index Level, 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 level of the
Index
is less than, equal to or not sufficiently above the Initial Index Level. 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.
PS-11
| · |
Index
performance.
We expect that the value of the Notes prior to maturity will depend
substantially on whether the level of the Index is greater than the
Initial Index Level. If you decide to sell your Notes when the level
of
the Index exceeds the Initial Index Level, you may nonetheless receive
substantially less than the amount that would be payable at maturity
based
on that level of the Index because of expectations that the level
of the
Index will continue to fluctuate until the Final Index Level is
determined. Economic, financial, regulatory, geographic, judicial,
political and other developments that affect the common stocks in
the
Index may also affect the level of the Index and, thus, the value
of the
Notes.
|
| · |
Volatility
of the Index.
Volatility is the term used to describe the size and frequency of
market
fluctuations. If the volatility of the Index increases or decreases,
the
trading value of the Notes may be adversely affected. This volatility
may
increase the risk that the level of the Index will decline, which
could
negatively affect the trading value of Notes. The effect of the volatility
of the Index on the trading value of the Notes may not necessarily
decrease over time during the term of the
Notes.
|
| · |
Interest
rates.
We expect that the trading value of the Notes will be affected by
changes
in U.S. interest rates. In general, if U.S. interest rates increase,
the
value of the Notes may decrease, and if U.S. interest rates decrease,
the
value of the Notes is expected to increase. Interest rates may also
affect
the economy and, in turn, the level of the Index, which would affect
the
value of the Notes. Rising interest rates may lower the level of
the Index
and, thus, the value of the Notes. Falling interest rates may increase
the
level of the Index and, thus, the value of the Notes.
|
| · |
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 Index, 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.
|
| · |
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 level of the Index 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
may
be less sensitive to the volatility of the
Index.
|
| · |
Dividend
yield.
The value of the Notes may also be affected by the dividend yields
on the
stocks in the Index. In general, because the Index does not incorporate
the value of dividend payments, higher dividend yields is expected
to
reduce the value of the Notes and, conversely, lower dividend yields
is
expected to increase the value of the
Notes.
|
| · |
Events
involving the companies issuing the common stocks comprising the
Index.
General economic conditions and earnings results of the companies
whose
stocks comprise the Index, and real or anticipated changes in those
conditions or results, may affect the trading value of the Notes.
For
example, some of the stocks included in the Index may be affected
by
mergers and acquisitions, which can contribute to volatility of the
Index.
As a result of a merger or acquisition, one or more stocks in the
Index
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
Index.
|
| · |
Size
and liquidity of the trading market.
The Notes will not be listed on any securities exchange or quotation
system, and we do not expect a trading market to develop. There may
not be
a secondary market in the Notes, which may affect the price that
you
receive for your Notes upon any sale prior to maturity. If a trading
market does develop, there can be no assurance that there will be
liquidity in the trading market. If the trading 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. If you
sell the
Notes prior to maturity, you may receive less, and possibly significantly
less, than your initial investment in the
Notes.
|
PS-12
| · |
The
inclusion of commissions and projected profit from hedging in the
original
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.
|
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 Index.
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
Index. 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 Index.
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 Final
Index Level, or deciding whether a Market Disruption Event (as defined herein)
has occurred. You should refer to the sections “Description of the Notes -
Discontinuance of the Index,” “- Adjustments to the Index” 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 the section “Description of the
Notes - Calculation Agent.”
Our
affiliates, including Bear Stearns, may, at various times, for their proprietary
accounts and for other accounts under their management, engage in transactions
involving the stocks underlying the Index, exchange-traded and over-the-counter
options on, or other derivative or synthetic instruments related to, the Index,
individual futures contracts on the Index and on stocks included in the Index,
futures contracts on the Index and/or options on these futures contracts. These
transactions may influence the value of such stocks, and therefore the level
of
the 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 the section “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 its
obligations under our hedge.
Changes
that affect the calculation of the Index will affect the trading
value of the Notes and the amount you will receive at
maturity.
The
Sponsor is responsible for calculating and maintaining the Index. The policies
of the Sponsor concerning the calculation of the Index will affect the level
of
the Index and, therefore, will affect the trading value of the Notes and the
Cash Settlement Value.
If
the
Sponsor discontinues or suspends calculation or publication of the Index, it
may
become difficult to determine the trading value of the Notes or the Cash
Settlement Value. If this occurs, the Calculation Agent will determine the
value
of the Notes. As a result, the Calculation Agent’s determination of the value of
the Notes will affect the amount you will receive at maturity. In addition,
if
the Sponsor discontinues or suspends calculation of the Index at any time prior
to the Maturity Date and a Successor Index (as defined herein) 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 Index. The level of the Index
is only one of the factors that will affect this determination and the value
of
the Notes prior to maturity. See the sections “Description of the Notes -
Discontinuance of the Index” and “Description of the Index.”
PS-13
The
Sponsor may change the companies underlying the Index in a way that adversely
affects the level of the Index and consequently the value of the
Notes.
The
Sponsor can add, delete or substitute the stocks underlying the Index or make
other methodological changes that could adversely change the level of the Index,
the Final Index Level and the value of the Notes. You should realize that
changes in the companies included in the Index may affect the Index, as a newly
added company may perform significantly better or worse than the company or
companies it replaces.
We
cannot control actions by any
of the other companies whose stocks are included in the
Index.
Our
common stock is a component of the Index. However, we are not affiliated with
any of the other companies whose stock underlies the Index. Actions by any
company whose stock is part of the Index may have an adverse effect on the
price
of its stock, the Final Index Level, and the trading value of the Notes. These
companies (other than us) are not involved in this offering and have no
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.
We
are
not affiliated with any of the other companies included in the Index and are
not
responsible for any disclosure by any such company. However, we may currently,
or in the future, engage in business with such companies. 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 Index
or
any company included in the Index. You should make your own investigation into
the Index and the companies underlying the Index.
We
and our affiliates have no affiliation with the Sponsor and are not responsible
for its public disclosure of information.
We
and
our affiliates are not affiliated in any way with the Sponsor (except for the
licensing arrangements discussed in the section “Description of the
Index—License Agreement”) and have no ability to control or predict the
Sponsor’s actions, including any errors in or discontinuation of disclosure
regarding its methods or policies relating to the calculation of the Index.
Neither we nor any or our affiliates assumes any responsibility for the adequacy
or accuracy of the information about the Index or the Sponsor contained in
this
pricing supplement. You, as an investor in the Notes, should make your own
investigation into the Index and the Sponsor. The Sponsor is not involved in
any
way in the offering of the Notes and has no obligation to consider your
interests as an owner of Notes when it takes 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 Index, the level of the Index, 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 stocks underlying
the Index or derivative instruments related to those stocks 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 stocks or the level of the Index in a manner that would be adverse to
your
investment in the Notes. See the section “Use of Proceeds and
Hedging.”
PS-14
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 Index,
including the Final Index Level, 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 stocks that comprise the Index, or derivative
or
synthetic instruments related to those stocks or the Index, 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 stocks that
underlie the Index. 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 Index,
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 on the Index or the companies issuing the common stock included
in the Index. 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
price of common stocks included in the Index and, therefore, the Final Index
Level and 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 the Index. 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 common stock included in the Index, 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 Calculation Date, a Market Disruption
Event has occurred or is continuing, the determination of the level of the
Index
and therefore 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.”
PS-15
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.
PS-16
DESCRIPTION
OF THE NOTES
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 $[l].
The
Notes are expected to mature on May [l],
2009
and do not provide for earlier redemption. The Notes will be issued only in
fully registered form, and in minimum denominations of $1,000.00; provided,
however, that the minimum purchase for any purchaser domiciled in a member
state
of the European Economic Area shall be $100,000.00. 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
$1,000.00 principal amount of Notes. The Notes will not be listed on any
securities exchange or quotation system.
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.
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 may result in a loss because the Notes are not principal protected.
On the Maturity Date, you will receive the Cash Settlement Value, an amount
in
cash that depends upon the Index Return. The Cash Settlement Value, per Note,
will be calculated as follows:
(i) if,
at
maturity, the Index Return is greater than zero, the Cash Settlement Value
will
be equal to the $1,000.00 principal amount of the Note plus the product of
(a)
$1,000 multiplied by (b) the Upside Participation Rate and (c) the lesser of
the
Index Return and the Maximum Index Return. Thus, if the Final Index Level is
greater than 111.00% of the Initial Index Level, regardless of the extent to
which the Final Index Level is greater than the Initial Index Level, we will
pay
you $1,220.00 per Note, which represents a maximum return of 22.00% on the
Notes;
(ii) if
the
Index Return is less than or equal to zero but greater than or equal to the
Trigger Level, the Cash Settlement Value will be equal to the $1,000.00
principal amount of the Note; or
(iii) if
the
Index Return is less than the Trigger Level, the Cash Settlement Value will
be
equal to the $1,000.00 principal amount of the Note plus the product of (i)
the
Index Return minus the Trigger Level, multiplied
by
(ii)
$1,000. Thus, if the Index Return is less than the Trigger Level, for each
1%
difference between the Index Return and the Trigger Level, you will lose an
amount of your Notes equal to 1% multiplied by the $1,000.00 principal amount
of
your Notes.
PS-17
The
“Index
Return”
will
equal the quotient of (a) the Final Index Level minus the Initial Index Level,
divided by (b) the Initial Index Level.
The
“Maximum
Index Return”
equals
11.00%.
The
“Trigger
Level”
equals
-10.00%.
The
“Upside
Participation Rate”
equals
200.00%.
The
“Initial
Index Level”
equals
[l],
the
closing level of the Index on November [l],
2007.
The
“Final
Index Level”
will
be
determined by the Calculation Agent and will equal the closing level of the
Index on the Calculation Date.
The
“Calculation
Date”
is
scheduled to be May [l],
2009
unless such date is not an Index Business Day, in which case the Calculation
Date shall be the next Index Business Day. The Calculation Date is subject
to
adjustment as described under “Description of the Notes - Market Disruption
Events.”
The
“Maturity
Date”
is
expected to be May [l],
2009
unless such date is not an Business Day, in which case the Maturity Date shall
be the next Business Day. If the Calculation Date is adjusted due to the
occurrence of a Market Disruption Event, the Maturity Date will be three
Business Days following the adjusted Calculation Date.
An
“Index
Business Day”
means
any day on which the Primary Exchange (as defined below) and each Related
Exchange (as defined below) are scheduled to be open for trading.
A
“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.
Illustrative
Examples
The
following tables and graphs are for illustrative purposes and are not indicative
of the future performance of the Index or the future value of the
Notes.
Because
the level of the Index may be subject to significant fluctuation over the term
of the Notes, it is not possible to present a chart or table illustrating the
complete range of all possible Cash Settlement Values. Therefore, the examples
do not purport to be representative of every possible scenario concerning
increases or decreases in the Index during the term of the Notes. You should
not
construe these examples or the data included in any table or graph below as
an
indication or assurance of the expected performance of the Notes. Numbers are
rounded for ease of use.
You
can
review the historical levels of the Index in the section of this pricing
supplement called “Description of the Index.” The historical performance of the
Index included in this pricing supplement should not be taken as an indication
of the future performance of the Index during the term of the Notes. It is
impossible to predict whether the Final Index Level will be greater than or
less
than the Initial Index Level.
The
examples demonstrating the hypothetical Cash Settlement Value of a Note are
based on the following assumptions:
| · |
Investor
purchases $1,000.00 aggregate principal amount of Notes at the initial
public offering price of $1,000.00.
|
| · |
Investor
holds the Notes to maturity.
|
| · |
The
Initial Index Level is equal to
1,475.00.
|
| · |
The
maximum return on the Notes is 22.00%.
|
| · |
All
returns are based on an 18-month term; pre-tax
basis.
|
| · |
No
Market Disruption Events occur during the term of the
Notes.
|
PS-18
Example
1: The Index Return is positive and greater than the Maximum Index
Return.
In
this
example, the Index rises over the term of the Notes. On the Calculation Date,
the Final Index Level is 2,065.00, representing an Index Return of 40.00%.
In
this example, because the Index Return is greater than the Maximum Index Return,
the Cash Settlement
Value would be $1,220.00,
as
calculated below.
If
the
Index Return is positive, the Cash Settlement Value will be equal to the
$1,000.00 principal amount of the Notes plus the product of (a)
$1,000.00 multiplied by (b) the Upside Participation Rate and (c) the lesser
of
the Index Return and the Maximum Index Return. In this example, since the Index
Return is greater than the Maximum Index Return, the Cash Settlement Value
on
the Maturity Date would be $1,220.00, which is equal to the $1,000.00 principal
amount of the Notes plus the product of (i) $1,000.00 multiplied by (ii) 200.00%
multiplied by (iii) 11.00%. This example illustrates the fact that the return
on
your Notes will be limited to the maximum return on the Notes of 22.00% if
the
Index Return is greater than the Maximum Index Return.
Example
2: The Index Return is positive but less than the Maximum Index
Return.
In
this
example, the Index rises over the term of the Notes. On the Calculation Date,
the Final Index Level is 1,622.50, representing an Index Return of 10.00%,
as
calculated below.
In
this
example, because the Index Return is less than the Maximum Index Return, the
Cash Settlement Value would be $1,200.00, as calculated below.
In
this
example, the level of the Index rises 10.00% over the term of the Notes, and
your return on investment would be 20.00%.
Example
3: The Index Return is negative, but is greater than the Trigger Level.
In
this
example, the Index declines over the term of the Notes. On the Calculation
Date,
the Final Index Level is 1,357.00, representing an Index Return of -8.00%,
as
calculated below.
PS-19
Since
the
Index Return is negative but is greater than the Trigger Level, the Cash
Settlement Value would equal the $1,000.00 principal amount of the
Note.
In
this
example, the level of the Index decreases 8.00% over the term of the Notes,
and
your return on investment would be 0.00%.
Example
4: The Index Return is negative and is less than the Trigger Level.
In
this
example, the Index declines over the term of the Notes. On the Calculation
Date,
the Final Index Level is 1,032.00, representing an Index Return of -30.00%,
as
calculated below.
In
this
example, because the Index Return is less than the Trigger Level the Cash
Settlement Value would be $800.00, as calculated below.
This
example demonstrates that if the Index Return is less than the Trigger Level,
for each 1% difference between the Index Return and the Trigger Level, you
will
lose an amount of your Notes equal to 1% multiplied by the $1,000.00 principal
amount of your Notes. If the Index Return is less than the Trigger Level, you
will lose some or possibly all of your initial investment in the
Notes.
PS-20
Summary
of Examples 1 Through 4
Reflecting
the Cash Settlement Value
|
Example
1
|
Example
2
|
Example
3
|
Example
4
|
||||
|
Initial
Index Level
|
1,475.00
|
1,475.00
|
1,475.00
|
1,475.00
|
|||
|
Hypothetical
Final Index Level
|
2,065.00
|
1,622.50
|
1,357.00
|
1,032.50
|
|||
|
Value
of Final Index Level relative to the Initial Index Level
|
Higher
|
Higher
|
Lower
|
Lower
|
|||
|
Principal
fully repaid?
|
Yes
|
Yes
|
Yes
|
No
|
|||
|
Cash
Settlement Value per Note
|
$1,220.00
|
$1,200.00
|
$1,000.00
|
$800.00
|
Table
of Hypothetical Cash Settlement Values
|
Initial
Index Level
|
Final
Index Level
|
Index
Return
|
Cash
Settlement Value Per Note
|
Return
if Held to Maturity
|
Initial
Index Level
|
Final
Index Level
|
Index
Return
|
Cash
Settlement Value Per Note
|
Return
if Held to Maturity
|
|
|
1,475.00
|
1,888.00
|
+28.00%
|
$
1,220.00
|
22.00%
|
|
1,475.00
|
1,460.25
|
-1.00%
|
$
1000.00
|
0.00%
|
|
1,475.00
|
1,873.25
|
+27.00%
|
$
1,220.00
|
22.00%
|
|
1,475.00
|
1,445.50
|
-2.00%
|
$
1000.00
|
0.00%
|
|
1,475.00
|
1,858.50
|
+26.00%
|
$
1,220.00
|
22.00%
|
|
1,475.00
|
1,430.75
|
-3.00%
|
$
1000.00
|
0.00%
|
|
1,475.00
|
1,843.75
|
+25.00%
|
$
1,220.00
|
22.00%
|
|
1,475.00
|
1,416.00
|
-4.00%
|
$
1000.00
|
0.00%
|
|
1,475.00
|
1,829.00
|
+24.00%
|
$
1,220.00
|
22.00%
|
|
1,475.00
|
1,401.25
|
-5.00%
|
$
1000.00
|
0.00%
|
|
1,475.00
|
1,814.25
|
+23.00%
|
$
1,220.00
|
22.00%
|
|
1,475.00
|
1,386.50
|
-6.00%
|
$
1000.00
|
0.00%
|
|
1,475.00
|
1,799.50
|
+22.00%
|
$
1,220.00
|
22.00%
|
|
1,475.00
|
1,371.75
|
-7.00%
|
$
1000.00
|
0.00%
|
|
1,475.00
|
1,784.75
|
+21.00%
|
$
1,220.00
|
22.00%
|
|
1,475.00
|
1,357.00
|
-8.00%
|
$
1000.00
|
0.00%
|
|
1,475.00
|
1,770.00
|
+20.00%
|
$
1,220.00
|
22.00%
|
|
1,475.00
|
1,342.25
|
-9.00%
|
$
1000.00
|
0.00%
|
|
1,475.00
|
1,755.25
|
+19.00%
|
$
1,220.00
|
22.00%
|
|
1,475.00
|
1,327.50
|
-10.00%
|
$
1000.00
|
0.00%
|
|
1,475.00
|
1,740.50
|
+18.00%
|
$
1,220.00
|
22.00%
|
|
1,475.00
|
1,312.75
|
-11.00%
|
$
990.00
|
-1.00%
|
|
1,475.00
|
1,725.75
|
+17.00%
|
$
1,220.00
|
22.00%
|
|
1,475.00
|
1,298.00
|
-12.00%
|
$
980.00
|
-2.00%
|
|
1,475.00
|
1,711.00
|
+16.00%
|
$
1,220.00
|
22.00%
|
|
1,475.00
|
1,283.25
|
-13.00%
|
$
970.00
|
-3.00%
|
|
1,475.00
|
1,696.25
|
+15.00%
|
$
1,220.00
|
22.00%
|
|
1,475.00
|
1,268.50
|
-14.00%
|
$
960.00
|
-4.00%
|
|
1,475.00
|
1,681.50
|
+14.00%
|
$
1,220.00
|
22.00%
|
|
1,475.00
|
1,253.75
|
-15.00%
|
$
950.00
|
-5.00%
|
|
1,475.00
|
1,666.75
|
+13.00%
|
$
1,220.00
|
22.00%
|
|
1,475.00
|
1,239.00
|
-16.00%
|
$
940.00
|
-6.00%
|
|
1,475.00
|
1,652.00
|
+12.00%
|
$
1,220.00
|
22.00%
|
|
1,475.00
|
1,224.25
|
-17.00%
|
$
930.00
|
-7.00%
|
|
1,475.00
|
1,637.25
|
+11.00%
|
$
1,220.00
|
22.00%
|
|
1,475.00
|
1,209.50
|
-18.00%
|
$
920.00
|
-8.00%
|
|
1,475.00
|
1,622.50
|
+10.00%
|
$
1,200.00
|
20.00%
|
|
1,475.00
|
1,194.75
|
-19.00%
|
$
910.00
|
-9.00%
|
|
1,475.00
|
1,607.75
|
+9.00%
|
$
1,180.00
|
18.00%
|
|
1,475.00
|
1,180.00
|
-20.00%
|
$
900.00
|
-10.00%
|
|
1,475.00
|
1,593.00
|
+8.00%
|
$
1,160.00
|
16.00%
|
|
1,475.00
|
1,165.25
|
-21.00%
|
$
890.00
|
-11.00%
|
|
1,475.00
|
1,578.25
|
+7.00%
|
$
1,140.00
|
14.00%
|
|
1,475.00
|
1,150.50
|
-22.00%
|
$
880.00
|
-12.00%
|
|
1,475.00
|
1,563.50
|
+6.00%
|
$
1,120.00
|
12.00%
|
|
1,475.00
|
1,135.75
|
-23.00%
|
$
870.00
|
-13.00%
|
|
1,475.00
|
1,548.75
|
+5.00%
|
$
1,100.00
|
10.00%
|
|
1,475.00
|
1,121.00
|
-24.00%
|
$
860.00
|
-14.00%
|
|
1,475.00
|
1,534.00
|
+4.00%
|
$
1,080.00
|
8.00%
|
|
1,475.00
|
1,106.25
|
-25.00%
|
$
850.00
|
-15.00%
|
|
1,475.00
|
1,519.25
|
+3.00%
|
$
1,060.00
|
6.00%
|
|
1,475.00
|
1,091.50
|
-26.00%
|
$
840.00
|
-16.00%
|
|
1,475.00
|
1,504.50
|
+2.00%
|
$
1,040.00
|
4.00%
|
|
1,475.00
|
1,076.75
|
-27.00%
|
$
830.00
|
-17.00%
|
|
1,475.00
|
1,489.75
|
+1.00%
|
$
1,020.00
|
2.00%
|
|
1,475.00
|
1,062.00
|
-28.00%
|
$
820.00
|
-18.00%
|
|
1,475.00
|
1,475.00
|
0.00%
|
$
1,000.00
|
0.00%
|
|
1,475.00
|
1,047.25
|
-29.00%
|
$
810.00
|
-19.00%
|
PS-21
Discontinuance
of the Index
If
the
Sponsor discontinues publication of or otherwise fails to publish the Index
and
such Sponsor or another entity publishes a successor or substitute index that
the Calculation Agent determines to be comparable to the discontinued Index
(such index being referred to herein as a “Successor Index”), then the Final
Index Level for such Index will be determined by reference to the level of
such
Successor Index at the close of trading on the relevant exchanges or markets
for
the Successor Index on the date as of which such Final Index Level for such
Index is to be determined.
Upon
any
selection by the Calculation Agent of a Successor Index, the Calculation Agent
will cause notice thereof to be furnished to us and the Trustee. If a Successor
Index is selected by the Calculation Agent, the Successor Index will be used
as
a substitute for the Index for all purposes, including for purposes of
determining whether a Market Disruption Event exists with respect to the
Index.
If
the
Index is discontinued or if the Sponsor fails to publish the Index prior to,
and
such discontinuance is continuing on, the Calculation Date and the Calculation
Agent determines that no Successor Index is available at such time, then in
connection with its calculation of the Cash Settlement Value, the Calculation
Agent will determine the level to be used for the Final Index Level for the
Index. The level to be used for the Final Index Level will be computed by the
Calculation Agent in accordance with the formula for and method of calculating
the Index last in effect prior to the discontinuance, failure or modification
but using only those securities that comprised the Index immediately prior
to
that 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 the Index
may adversely affect the value of, and trading in, the Notes.
Adjustments
to the Index
If
at any
time the method of calculating the Index or a Successor Index, or the value
thereof, is changed in a material respect, or if the Index or a Successor Index
is in any other way modified so that such index does not, in the opinion of
the
Calculation Agent, fairly represent the level of the Index or such Successor
Index had such changes or modifications not been made, then, for purposes of
calculating the Initial Index Level, the Final Index Level or the Cash
Settlement Value 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
an index comparable to the Index or such Successor Index, as the case may be,
as
if such changes or modifications had not been made, and calculate the Cash
Settlement Value (including the components thereof) with reference to such
Index
or such Successor Index, as adjusted. Accordingly, if the method of calculating
the Index or a Successor Index is modified so that the level of such index
is a
fraction of what it would have been if it had not been modified (e.g., due
to a
split in the index), then the Calculation Agent will adjust such index in order
to arrive at a level for the Index or such Successor 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.
PS-22
In
the
event that, on the Calculation Date, the Index is not calculated by the 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 level of the Index.
Market
Disruption Events
If
there
is a Market Disruption Event on the Calculation Date, the Final Index Level
will
be determined on the first succeeding Index Business Day on which there is
no
Market Disruption Event. In no event, however, will the Calculation Date be
a
date that is postponed by more than three Index Business Days following the
original date that, but for the Market Disruption Event, would have been the
Calculation Date. In that case, the third Index Business Day will be deemed
to
be the Calculation Date, notwithstanding the Market Disruption Event, and the
Calculation Agent will determine the Final Index Level on that third Index
Business Day in accordance with the formula for and method of calculating the
Index in effect prior to the Market Disruption Event using the price of each
security in the Index on the primary exchange or trading system on which such
security is then listed or admitted to trading (or, if trading in any such
security has been materially suspended or materially limited, the Calculation
Agent’s estimate of the price that would have prevailed on the primary exchange
or trading system on which such security is then listed or admitted to trading
but for such suspension or limitation) as of that third Index Business
Day.
A
“Market
Disruption Event” 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 Primary Exchange or
Related Exchange or otherwise, and whether by reason of movements in price
exceeding limits permitted by the Primary Exchanges or Related Exchanges or
otherwise, (A) relating to securities that, in the aggregate, comprise 20.00%
or
more of the level of the Index or (B) in futures or options contracts relating
to the 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 Index or
(B)
to effect transactions in, or obtain market values for, futures or options
contracts relating to the Index on any Related Exchange;
(c) the
closure on any Index Business Day of any Primary Exchange relating to securities
that comprise, in the aggregate, 20.00% or more of the level of the 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 Primary 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 Primary Exchange or Related Exchange
on
such Index Business Day for such Primary 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 Index Business Day for
such
Primary Exchange or Related Exchange; or
(d) any
Index
Business Day on which any Primary 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
Index exists at any time, if a Market Disruption Event occurs in respect of
a
security included in the Index at any time, then the relevant percentage
contribution of that security to the level of the Index shall be based on a
comparison of (x) the portion of the level of the Index attributable to that
security and (y) the overall level of the Index, in each case immediately before
the occurrence of such Market Disruption Event.
PS-23
“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.
“Primary
Exchange” means the primary exchange or market of trading of any security then
included in the Index.
“Index
Business Day” means any day on which the Primary 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 the Cash Settlement Value
or
interest or principal to holders of the Notes, 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.
PS-24
DESCRIPTION
OF THE INDEX
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 composition,
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 November 7, 2007, shares
of
425 companies included in the SPX are traded on the New York Stock Exchange
and
shares of 75 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 November 7, 2007, indicated in parenthesis: Industrials
(55), Utilities (30), Telecommunication Services (9), Materials (29),
Information Technology (71), Energy (34), Consumer Staples (39), Consumer
Discretionary (88), Health Care (52) and Financials (93). 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.sandp.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.
PS-25
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 SPX, and
|
| · |
other
reasons.
|
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 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
PS-26
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.”
PS-27
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 October 2007. The SPX’s
closing
index levels listed below were obtained from the Bloomberg Financial Service,
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 Index Level during the term of the
Notes.
The
closing index level of the SPX
on
November 8, 2007 was 1,474.77.
Month
End Closing Index Levels: January 1998 -October 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
|
1,503.35
|
|
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
|
1,455.27
|
|
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
|
1,473.99
|
|
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
|
1,526.75
|
|
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
|
1,549.38
|
|
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 Index Business Day of each month from January 1998
to
November 2007.
PS-28
CERTAIN
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The
following discussion summarizes certain of the material U.S. federal income
tax
consequences of the purchase, beneficial ownership, and disposition of the
Notes. For purposes of this summary, a “U.S. holder” is a beneficial owner of a
Note that is:
| · |
an
individual who is a citizen or a resident of the United States, for
federal income tax purposes;
|
| · |
a
corporation (or other entity that is treated as a corporation for
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 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
(as defined for federal income tax purposes) have the authority to
control
all of its substantial decisions.
|
For
purposes of this summary, a “non-U.S. holder” is a beneficial owner of a Note
that is:
| · |
a
nonresident alien individual for federal income tax
purposes;
|
| · |
a
foreign corporation for federal income tax
purposes;
|
| · |
an
estate whose income is not subject to 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 United States persons
(as
defined for federal income tax purposes) do not have the authority
to
control all of its substantial
decisions.
|
An
individual may, subject to certain exceptions, be deemed to be a resident of
the
United States for federal income tax purposes by reason of being present in
the
United States for at least 31 days in the calendar year and for an aggregate
of
at least 183 days during a three year period ending in the current calendar
year
(counting for those purposes all of the days present in the current year, one
third of the days present in the immediately preceding year, and one sixth
of
the days present in the second preceding year).
This
summary is based on interpretations of the Code, regulations issued thereunder,
and rulings and decisions currently in effect (or in some cases proposed),
all
of which are subject to change. Any of those changes may be applied
retroactively and may adversely affect the federal income tax consequences
described herein. This summary addresses only holders that purchase Notes at
initial issuance, and own Notes as capital assets and not as part of a
“straddle,” “hedge,” “synthetic security,” or “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; regulated investment companies 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.
This
summary was not intended or written to be used, and cannot be used, for the
purpose of avoiding U.S. federal, state, or local tax penalties. This summary
was written in connection with the promotion or marketing by the Issuer of
the
Notes addressed in this summary. Prospective investors are urged to consult
their tax advisors with respect to the federal, state and local tax consequences
of investing in the Notes based on the taxpayer’s particular circumstances, as
well as any consequences arising under the laws of any other taxing jurisdiction
to which they may be subject.
PS-29
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.
There
are
no statutory provisions, regulations, published rulings or judicial decisions
addressing the characterization for U.S. federal income tax purposes of
securities with terms that are substantially the same as those of the Notes.
Accordingly, the proper U.S. federal income tax treatment of the Notes is
uncertain. Under one approach, the Notes would be treated as pre-paid
cash-settled executory contracts with respect to the Index. We intend to treat
the Notes consistent with this approach, and pursuant to the terms of the Notes,
you agree (in the absence of an administrative or judicial ruling to the
contrary) to treat the Notes consistent with this approach. Except as otherwise
provided in “—Alternative Characterizations and Treatments,” the balance of this
summary assumes that the Notes are so treated.
Federal
Income Tax Treatment of U.S. Holders
Upon
the
receipt of cash at maturity of a Note or upon the sale, exchange or other
disposition of a Note in a taxable transaction, a U.S. holder generally will
recognize gain or loss equal to the difference between the amount realized
at
maturity or upon the sale, exchange or other disposition and the U.S. holder’s
tax basis in the Note. A U.S. holder’s tax basis in a Note will generally be
equal to the U.S. holder’s cost for the Note. Any such gain or loss generally
will constitute capital gain or loss, and if held for more than a year at the
time of maturity, sale, exchange or other disposition, generally should be
long-term capital gain or loss. Long-term capital gains of non-corporate
taxpayers are generally eligible for reduced rates of taxation. The ability
of
U.S. holders to use capital losses to offset ordinary income is
limited.
It
is
possible that one or more of the components of the index may be treated as
a
“pass-thru entity” for purposes of section 1260 of the Code. In this case, it is
possible that the Notes may be subject to the “constructive ownership” rules of
section 1260 of the Code. If section 1260 applies to the Notes, the portion
of
any long-term capital gain that is recognized on the sale, exchange, maturity,
or other taxable disposition of the Notes and is attributable to a component
of
the Index that is a pass-thru entity for purposes of section 1260 of the Code
may be treated as ordinary income and subject to an interest charge. Prospective
investors in the securities should consult their tax advisors as to the
possibility that one or more of the components of the Index is treated as a
pass-thru entity for purposes of section 1260, and section 1260 applies to
their
Notes.
Alternative
Characterizations and Treatments
Although
the Issuer and the holders have agreed (in the absence of an administrative
or
judicial ruling to the contrary) to treat each Note as a pre-paid cash-settled
executory contract as described above, there are no statutory provisions,
regulations, published rulings or judicial decisions addressing the
characterization of securities with terms that are substantially the same as
those of the Notes, and therefore the Notes could be subject to some other
characterization or treatment for U.S. federal income tax purposes. For example,
each Note could be treated as a “contingent payment debt instrument” for U.S.
federal income tax purposes. In this event, a U.S. holder would be required
to
accrue original issue discount income, subject to adjustments, at the
“comparable yield” of the Notes and any gain recognized with respect to the Note
generally would be treated as ordinary income. Prospective investors should
consult their tax advisors as to the federal income tax consequences to them
if
the Notes are treated as debt instruments for federal income tax
purposes.
In
addition, certain proposed Treasury regulations require the accrual of income
on
a current basis for contingent payments made under certain “notional principal
contracts.” The preamble to the proposed regulations states that the “wait and
see” method of accounting does not properly reflect the economic accrual of
income on those contracts and requires current accrual of income for some
contracts already in existence. While the proposed regulations do not apply
to
the Notes, the preamble to the proposed regulations indicates that similar
timing issues exist in the case of pre-paid forward contracts and therefore
similar timing issues may exist in the case of executory contracts. If the
IRS
or the U.S. Treasury Department publishes future guidance requiring current
economic accrual for contingent payments on pre-paid forward or executory
contracts, it is possible that a U.S. holder could be required to accrue income
over the term of the Notes.
PS-30
Other
alternative federal income tax characterizations or treatments of the Notes
are
possible, and if applied could also affect the amount, the timing and the
character of the income, gain, or loss with respect to the Notes.
Prospective
investors in the Notes should consult their tax advisors as to the tax
consequences to them of purchasing Notes, including any alternative
characterizations and treatments.
Federal
Income Tax Treatment of Non-U.S. Holders
In
general, the gain realized on the maturity, sale, exchange or other disposition
of the Notes by a non-U.S. holder should not be subject to U.S. federal income
tax unless the gain is effectively connected with a trade or business conducted
by the non-U.S. holder in the United States, in which case the non-U.S. holder
will generally be subject to U.S. federal income tax on any income or gain
in
respect of the Note at the regular rates applicable to U.S. taxpayers, and,
for
a foreign corporation, possibly branch profits tax, unless an applicable treaty
reduces or eliminates such tax, or the non-U.S. holder is an individual that
is
present in the United States for 183 days or more in the taxable year of the
maturity, sale, exchange or other disposition and certain other conditions
are
satisfied, in which case the non-U.S. holder will generally be subject to tax
at
a rate of 30% on the amount by which the non-U.S. holder's capital gains derived
from the maturity, sale, exchange, retirement or other disposition of the Notes
and other assets that are from U.S. sources exceed capital losses allocable
to
U.S. sources.
Information
Reporting and Backup Withholding
Distributions
made on the Notes and proceeds from the sale of Notes to or through certain
brokers may be subject to a “backup” withholding tax on “reportable payments”
unless, in general, the holder of Notes complies with certain procedures or
is
an exempt recipient. Any amounts so withheld from distributions on the Notes
generally would be refunded by the IRS or allowed as a credit against the holder
of Notes federal income tax, provided the holder of Notes makes a timely filing
of an appropriate tax return or refund claim.
Reports
will be made to the IRS and to holder of Notes that are not exempt from the
reporting requirements.
PS-31
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 Pension Protection Act of 2006 contains a 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
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 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 exemption. Any purchaser that is
a
Plan is encouraged to consult with counsel regarding the application of the
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.
PS-32
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 (direct or indirect) 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 Index,
exchange-traded and over-the-counter options on, or other derivative or
synthetic instruments related to, the Index, individual futures contracts on
the
Index and on stocks included in the Index, futures contracts on the 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 level of the Index), 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
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.
|
$[l]
|
|
Total
|
$[l]
|
The
Agent
intends to initially offer $[l]
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 face 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 [l]%
of the
price at which the Notes are offered to the public. Bear Stearns may reallow
a
discount to other agents not in excess of [l]%
of the
public offering price.
PS-33
In
order
to facilitate the offering of the Notes, we may grant the Agent a 30-day option
from the date of the final pricing supplement, to purchase from us up to an
additional $[l]
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 or quotation system, 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.
PS-34
|
You
should only rely on the information contained in this pricing supplement,
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,
the accompanying prospectus supplement and prospectus. If anyone
provides
you with different or inconsistent information, you should not
rely on it.
This pricing supplement, the accompanying prospectus supplement
and
prospectus are not an offer to sell these Notes, and these documents
are
not soliciting an offer to buy these Notes, 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, the accompanying
prospectus supplement and prospectus is correct on any date after
their
respective dates.
|
The
Bear Stearns
Companies
Inc.
$[l]
Medium-Term
Notes, Series B
Linked
to the Standard and Poor’s 500®
Index
Due
May [l],
2009
PRICING
SUPPLEMENT
Bear,
Stearns & Co. Inc.
November
[l],
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-17
|
||
|
Description
of the Index
|
PS-25
|
||
|
Certain
U.S. Federal Income Tax Considerations
|
PS-29
|
||
|
Certain
ERISA Considerations
|
PS-32
|
||
|
Use
of Proceeds and Hedging
|
PS-33
|
||
|
Supplemental
Plan of Distribution
|
PS-33
|
||
|
Legal
Matters
|
PS-34
|
||
|
Prospectus
Supplement
|
|||
|
Risk
Factors
|
S-3
|
||
|
Pricing
Supplement
|
S-8
|
||
|
Description
of Notes
|
S-8
|
||
|
Certain
US 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 Depository 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
|
||
|
|
|||