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.
Subject to completion, dated November 12, 2004
PRELIMINARY PRICING SUPPLEMENT NO. Rule 424(b)(5)
DATED: November __, 2004 File No. 333-109793
(To Prospectus dated November 17, 2003,
and Prospectus Supplement dated November 17, 2003)
$10,668,950,162
THE BEAR STEARNS COMPANIES INC.
Medium-Term Notes, Series B
Principal Amount: $ Floating Rate Notes [x] Book Entry Notes [x]
Original Issue Date: 11/29/2004 Fixed Rate Notes [ ] Certificated Notes [ ]
Maturity Date: 11/29/2019 CUSIP No.:
Euroclear and Clearstream Common Code:
Option to Extend Maturity: No [x]
Yes [ ] Final Maturity Date:
Minimum Denominations: $100,000, increased in multiples of $10,000
Optional Optional Repayment
Redeemable On Redemption Price(s) Repayment Date(s) Price(s)
-------------------- ------------------- ----------------- ------------------
* * N/A N/A
Applicable Only to Fixed Rate Notes:
-----------------------------------
Interest Rate:
Interest Payment Dates:
Applicable Only to Floating Rate Notes:
--------------------------------------
Interest Rate Basis: Maximum Interest Rate: N/A
[ ] Commercial Paper Rate Minimum Interest Rate: 0.00%
[ ] Federal Funds Effective Rate
[ ] Federal Funds Open Rate Interest Reset Date(s): **
[ ] Treasury Rate Interest Reset Period: Quarterly
[ ] LIBOR Reuters Interest Payment Date(s): ***
[ ] LIBOR Telerate Interest Payment Period: Quarterly
[ ] Prime Rate
[ ] CMT Rate
[x] Other: See "Interest Rate" below
Index Maturity: N/A Interest Determination Date(s): Fifth
Business Day prior to but not including the
last day of the current Interest Payment
Period
Day Count Basis: 360-day year of twelve
30-day months
* Commencing February 28, 2005 and on each Interest Payment Date thereafter
until Maturity, the Notes may be called in whole at par at the option of the
Company on five New York Business Days' notice.
** Commencing February 28, 2005 and on each February 28th, May 29th, August 29th
and November 29th thereafter prior to Maturity. If any Interest Reset Date is
not a Business Day, then the Interest Reset Date will be postponed to the next
Business Day. If the next Business Day is in the next succeeding calendar month,
the Interest Reset Date will be the preceding Business Day (any such adjustment
being referred to as the "Business Day Convention").
*** Commencing February 28, 2005 and on each February 28th, May 29th, August
29th and November 29th thereafter, including the Maturity Date.
If any Interest Payment Date, Maturity Date or redemption date is not a Business
Day, the related payment of principal, premium, if any, or interest will be
postponed to the next Business Day and no additional interest shall accrue for
the period from and after that Interest Payment Date, Maturity Date or
redemption date, as the case may be, to the next Business Day. If the next
Business Day is in the next calendar month, principal, premium, if any, or
interest will be paid on the preceding Business Day.
Business Day: Any day that is both a London Banking Day and a New
York Business Day.
London Banking Day: A day other than a Saturday or Sunday on which
dealings in deposits in U.S. dollars are transacted,
or with respect to any future date are expected to be
transacted, in the London interbank market.
New York Business Day: Any day that is not a Saturday or Sunday, and that, in
New York City, is not a legal holiday nor a day on
which banking institutions or trust companies in New
York City are authorized or obligated by law to close.
Interest Rate: USD Callable CMS Spread
Principal Protected Range Accrual Note.
The Calculation Agent will determine the Interest Rate
for each Interest Payment Period in accordance with
the following:
-2-
From the Original Issue Date through November 28,
2005:
14.00% (the "Initial Fixed Interest Rate").
For each Interest Payment Period from November 29,
2005 until the Maturity Date, the Interest Rate (the
"Variable Interest Rate") shall equal:
[ n )]
Greater of [0%, (20 x Spread x ---)]
[ N )]
Where n equals the number of days in the respective
Interest Payment Period in which the Accrual Provision
is satisfied, and N equals the actual number of days
in the respective Interest Payment Period.
Spread: 30-Year CMS Rate minus 10-Year CMS Rate.
Accrual Provision: A determination as to whether the Accrual Provision
has been satisfied will be made on each Business Day
during an Interest Payment Period, provided that such
Business Day is not within the exclusion period
beginning on the fifth Business Day prior to but not
including the last day of the current Interest Payment
Period. For each such day that is not a Business Day
and not within such excluded period, such
determination will be made on the last preceding
Business Day. The determination made on an Interest
Determination Date with respect to an Interest Payment
Date will remain in effect until that Interest Payment
Date.
The Accrual Provision is satisfied and interest shall
accrue from the Original Issue Date until the Maturity
Date for each day on which the Spread is greater than
or equal to 0%. If the Spread is less than 0%, then
the Accrual Provision is not satisfied and no interest
will accrue for that day. See "Risk Factors" below.
30-Year CMS Rate: The rate in effect for each Interest Payment Period
will be the rate that appears on Reuters page ISDA
FIX1 under the heading "30YR" at 11:00 a.m., New York
City time on the Interest Determination Date for that
Interest Payment Period. If such rate does not appear
on Reuters page ISDA FIX1 on such date, the rate for
such date shall be determined as if the parties had
specified "USD-CMS-Reference Banks" as the applicable
rate.
10-Year CMS Rate: The rate in effect for each Interest Payment Period
will be the rate that appears on Reuters page ISDA
FIX1 under the heading "10YR" at 11:00 a.m., New York
City time on the Interest Determination Date for that
Interest Payment
-3-
Period. If such rate does not appear on Reuters page
ISDA FIX1 on such date, the rate for such date shall
be determined as if the parties had specified
"USD-CMS-Reference Banks" as the applicable rate.
USD-CMS-Reference Banks: The rate determined on the basis of the mid-market
semi-annual swap rate quotations provided by the
Reference Banks at approximately 11:00 a.m., New York
City time on any Interest Determination Date; and for
this purpose, the semi-annual swap rate means the mean
of the bid and offered rates for the semi-annual fixed
leg, calculated on a 30/360 day count basis, of a
fixed-for-floating U.S. Dollar interest rate swap
transaction with a term equal to the Designated
Maturity commencing on that date and in a
Representative Amount with an acknowledged dealer of
good credit in the swap market, where the floating
leg, calculated on an actual/360 day count basis, is
equivalent to USD-LIBOR-BBA with a designated maturity
of three months. The rate for that Interest
Determination Date will be the arithmetic mean of the
quotations, eliminating the highest quotation (or, in
the event of equality, one of the highest) and the
lowest quotation (or, in the event of equality, one of
the lowest).
Reference Banks: The five leading swap dealers in the New York City
interbank market selected by the Calculation Agent for
the purposes of providing quotations as provided
above.
Designated Maturity: Either 30 years or 10 years, as the case may be.
Representative Amount: The amount that is representative for a single
transaction in the relevant market at the relevant
time.
Calculation Agent and
Lead Agent: Bear, Stearns & Co. Inc.
RISK FACTORS
The Notes are subject to special considerations. An investment in the
Notes entails risks that are not associated with an investment in conventional
floating-rate or fixed-rate debt securities. 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 financial and
legal 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. See "Risk Factors" generally in the Prospectus Supplement.
Interest Rate Risk. Investors should consider the risk that the Spread
(the 30-Year CMS Rate minus the 10-Year CMS Rate), determined on a daily basis,
may be less than zero on one or more Business Days during the applicable
Interest Payment Period, in which case the Notes will
-4-
not accrue interest for the related days during the Interest Payment Period.
During the period from February 28, 2000 through August 29, 2000, the difference
of the 30-Year CMS Rate minus the 10-Year CMS Rate was, at times, less than
zero.
Call Risk. Investors should consider that it is more likely that we will
redeem the Notes prior to the Maturity Date if the Accrual Provision results in
an interest payment greater than instruments of comparable maturity and credit
rating trading in the market.
Liquidity Risk. The Notes will not be listed on any securities exchange
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. You should be
aware that we cannot ensure that a secondary market in the Notes will develop
and, if such market were to develop, it may not be liquid. If you sell your
Notes prior to Maturity, you may receive less than the amount you originally
invested. The Calculation Agent has advised us that it intends 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. The secondary market
for, and the market value of, the Notes will be affected by a number of factors
independent of our creditworthiness, including the level and direction of
interest rates, the Interest Accrual Provisions applicable to the Notes, the
anticipated level and potential volatility of the 30-Year CMS Rate and the
10-Year CMS Rate, the method of calculating the 30-Year CMS Rate and the 10-Year
CMS Rate, the time remaining to Maturity of the Notes, our right to redeem the
Notes, the aggregate principal amount of the Notes, the availability of
comparable instruments and the cost to us of unwinding any related hedging
activity or any funding arrangement.
The following table, showing the historical performance of the 30-Year CMS
Rate minus the 10-Year CMS Rate in effect for the Interest Payment Dates, should
not be taken as an indication of the future performance of the Spread during the
term of the Notes. It is impossible to predict whether the Spread will fall or
rise. The Spread depends on and is influenced by a number of complex and
interrelated factors, including political, economic, financial and other factors
over which the Company has no control.
Interest Payment 30-Year 10-Year Difference
Date CMS Rate(%) CMS Rate(%) 30Y-10Y (%)
--------------------------------------------------------------
May 29, 1994 7.98000 7.53500 0.44500
August 29, 1994 8.10000 7.66500 0.43500
November 29, 1994 8.61000 8.35500 0.25500
February 28, 1995 8.12000 7.81500 0.30500
May 29, 1995 7.31000 6.96500 0.34500
August 29, 1995 7.26000 6.91500 0.34500
November 29, 1995 6.66000 6.32500 0.33500
February 28, 1996 6.73000 6.30500 0.42500
May 29, 1996 7.27000 7.05000 0.22000
August 29, 1996 7.22000 6.96500 0.25500
November 29, 1996 6.76000 6.43500 0.32500
February 28, 1997 6.97000 6.72000 0.25000
May 29, 1997 7.31000 7.08500 0.22500
August 29, 1997 6.96000 6.75500 0.20500
-5-
Interest Payment 30-Year 10-Year Difference
Date CMS Rate(%) CMS Rate(%) 30Y-10Y (%)
--------------------------------------------------------------
November 29, 1997 6.46000 6.31500 0.14500
February 28, 1998 6.27000 6.05500 0.21500
May 29, 1998 6.31000 6.17000 0.14000
August 29, 1998 6.23000 6.09000 0.14000
November 29, 1998 5.88500 5.60500 0.28000
February 28, 1999 6.01000 5.77000 0.24000
May 29, 1999 6.45500 6.29000 0.16500
August 29, 1999 7.10000 6.94000 0.16000
November 29, 1999 7.08000 6.80500 0.27500
February 28, 2000 7.36350 7.39500 -0.03150
May 29, 2000 7.75200 7.76950 -0.01750
August 29, 2000 7.04900 7.07100 -0.02200
November 29, 2000 6.86100 6.80900 0.05200
February 28, 2001 6.34100 6.07600 0.26500
May 29, 2001 6.47450 6.16750 0.30700
August 29, 2001 6.11700 5.71500 0.40200
November 29, 2001 6.01400 5.61700 0.39700
February 28, 2002 6.03000 5.55000 0.48000
May 29, 2002 6.13700 5.62000 0.51700
August 29, 2002 5.44650 4.74000 0.70650
November 29, 2002 5.44000 4.66500 0.77500
February 28, 2003 5.17350 4.29500 0.87850
May 29, 2003 4.61900 3.72600 0.89300
August 29, 2003 5.66900 4.95000 0.71900
November 29, 2003 5.37800 4.62500 0.75300
February 28, 2004 5.22200 4.43000 0.79200
May 29, 2004 5.81300 5.22900 0.58400
August 29, 2004 5.43050 4.74200 0.68850
The historical experience of the 30-Year CMS Rate minus the 10-Year CMS Rate
should not be taken as an indication of the future performance of the 30-Year
CMS Rate minus the 10-Year CMS Rate during the term of the Notes. Fluctuations
in the level of the 30-Year CMS Rate and the 10-Year CMS Rate make the Notes'
effective interest rate difficult to predict and can result in effective
interest rates to investors that are lower than anticipated. In addition,
historical interest rates are not necessarily indicative of future interest
rates. Fluctuations in interest rates and interest rate trends that have
occurred in the past are not necessarily indicative of fluctuations that may
occur in the future, which may be wider or narrower than those that have
occurred historically.
CERTAIN US FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain US federal income tax
consequences of the purchase, beneficial ownership and disposition of Notes.
This summary deals only with a beneficial owner of a Note that is:
o an individual who is a citizen or resident of the United States for
US federal income tax purposes;
-6-
o a corporation (or other entity that is treated as a corporation for
US 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);
o an estate whose income is subject to US federal income taxation
regardless of its source; or
o a trust if a court within the United States is able to exercise
primary supervision over its administration, and one or more United
States persons have the authority to control all of its substantial
decisions (each, a "US Holder").
If a partnership (or other entity that is treated as a partnership for US
federal tax purposes) is a beneficial owner of Notes, the treatment of a partner
in the partnership will generally depend upon the status of the partner and upon
the activities of the partnership. A beneficial owner of Notes that is a
partnership, and partners in such a partnership, should consult their tax
advisors about the US federal income tax consequences of holding and disposing
of the Notes.
An individual may, subject to certain exceptions, be deemed to be a
resident of the United States for US 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 such 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 discussion is based on interpretations of the Internal Revenue Code
of 1986, as amended (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 such change may be applied retroactively and may
adversely affect the federal income tax consequences described herein. This
summary addresses only US Holders that purchase Notes at initial issuance and
beneficially own such Notes as capital assets and not as part of a "straddle,"
"hedge," "synthetic security" or a "conversion transaction" for federal income
tax purposes, or as part of some other integrated investment. This summary does
not discuss all of the tax consequences that may be relevant to particular
investors or to investors subject to special treatment under the federal income
tax laws (such as S corporations, banks, thrifts, other financial institutions,
insurance companies, mutual funds, small business investment companies,
tax-exempt organizations, retirement plans, real estate investment trusts,
regulated investment companies, securities dealers or brokers, traders in
securities electing mark to market treatment, investors whose functional
currency is not the US dollar, persons subject to the alternative minimum tax,
and former citizens or residents of the United States), and this summary does
not discuss the tax consequences under the laws of any foreign, state or local
taxing jurisdictions. Accordingly, prospective investors are urged to consult
their tax advisors with respect to the federal, state and local tax consequences
of investing in the Notes, as well as any consequences arising under the laws of
any other taxing jurisdiction to which they may be subject.
-7-
PROSPECTIVE PURCHASERS OF NOTES SHOULD CONSULT THEIR TAX ADVISORS AS TO
THE FEDERAL, STATE, LOCAL, AND OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF NOTES.
Federal Income Tax Treatment of US Holders
There are no statutory provisions, regulations, published rulings or
judicial decisions addressing or involving the treatment for US federal income
tax purposes of the Notes or securities with terms substantially the same as the
Notes. Accordingly, the proper US federal income tax treatment of the Notes is
uncertain.
If the Initial Fixed Interest Rate is within 25 basis points of the
Variable Interest Rate, computed as if the issue date was the last day of a
quarterly Interest Payment Period, we intend to treat the Notes as "variable
rate debt instruments" ("VRDIs") for federal income tax purposes as described
below. If, however, the Initial Fixed Interest Rate is not within 25 basis
points of the Variable Interest Rate, computed as if the issue date was the last
day of a quarterly Interest Payment Period, we intend to treat the Notes as
"contingent payment debt instruments" ("CPDIs") for federal income tax purposes
as described below. Each Noteholder by purchasing a Note will agree to treat the
Notes in conformity with our treatment, unless otherwise required by law.
Treatment of the Notes as Variable Rate Debt Instruments
If the Notes are treated as VRDIs, a US Holder would be required to
include in gross income payments of stated interest on the Notes when accrued or
received, in accordance with their usual method of tax accounting, as ordinary
interest income. In addition, upon a sale, exchange, or retirement of a Note, a
US Holder would generally recognize capital gain or loss equal to the difference
between the amount realized on the sale, exchange, or retirement (less any
accrued and unpaid interest, which will be taxable as such) and the US Holder's
tax basis in the Note, which would generally equal the US Holder's cost of the
Note reduced by payments of principal on the Note. Such gain or loss will be
long-term capital gain or loss if the US Holder held the Note for more than one
year at the time of disposition. US Holders that are individuals are entitled to
preferential treatment for net long-term capital gains; however, the ability of
US Holders to offset capital losses against ordinary income is limited.
Treatment of the Notes as Contingent Payment Debt Instruments
If the Notes are treated as CPDIs, the Notes will be subject to taxation
under the "noncontingent bond method."
Accruals of Original Issue Discount on the Notes
Under the noncontingent bond method, US Holders of the Notes will accrue
original issue discount ("OID") over the term of the Notes based on the Notes'
"comparable yield." As a result, US Holders that employ the cash method of tax
accounting will be required to include OID with respect to their Notes in gross
income each year, without regard to the actual interest payments received.
-8-
In general, the comparable yield of a CPDI is equal to the yield at which
its issuer would issue a fixed-rate debt instrument with terms and conditions
similar to those of the CPDI, including the level of subordination, term, timing
of payments, and general market conditions. If a hedge of the CPDI is available
that, if integrated with the CPDI, would produce a synthetic debt instrument
with a determinable yield to maturity, the comparable yield will be equal to the
yield on the synthetic debt instrument. Alternatively, if such a hedge is not
available, but fixed-rate debt instruments of the issuer trade at a price that
reflects a spread above a benchmark rate, the comparable yield is the sum of the
value of the benchmark rate on the issue date and the spread. Under the
noncontingent bond method, the issuer's reasonable determination of a comparable
yield is respected and binding on holders of the CPDI.
Based on these factors in the current interest rate environment, we
estimate that the comparable yield of the Notes would be an annual rate of
approximately 5.51%, compounded quarterly. We will not determine the actual
comparable yield of the Notes, however, until they are issued.
Accordingly, US Holders will accrue OID in respect of the Notes at a rate
equal to the comparable yield. The amount of OID allocable to each annual
accrual period will be the product of the "adjusted issue price" of the Notes at
the beginning of each such annual accrual period and the comparable yield. The
"adjusted issue price" of the Notes at the beginning of an accrual period will
equal the issue price of the Notes plus the amount of OID previously includible
in the gross income of the US Holder less the amount of any interest payments
previously made on the Notes. The amount of OID includible in income of each US
Holder for each taxable year will equal the sum of the "daily portions" of the
total OID on the Notes allocable to each day during the taxable year in which a
US Holder held the Notes, regardless of the US Holder's method of accounting.
The daily portion of the OID is determined by allocating to each day in any
accrual period a ratable portion of the OID allocable to such accrual period.
US Holders can obtain the comparable yield and projected payment schedule
for the Notes by submitting a written request to us at the following address:
The Bear Stearns Companies Inc.
Attn: Corporate Secretary
383 Madison Avenue, 6th Floor
New York, New York 10179
Under the noncontingent bond method, the projected payment schedule is not
revised to account for changes in circumstances that occur while the Notes are
outstanding. The comparable yield and the projected payment amount for the Notes
are used to determine accruals of OID for tax purposes only, and are not
assurances by us with respect to the actual yield or payments on the Notes and
do not represent our expectations regarding a Note's yield or the index price
return amount.
A US Holder will generally be bound by our determination of the comparable
yield and projected payment schedule for the Notes, unless the US Holder
determines its own projected payment schedule and comparable yield, explicitly
discloses such schedule to the Internal Revenue Service (the "IRS"), and
explains to the IRS the reason for preparing its own schedule. We believe that
the projected payment schedule and comparable yield for the Notes as set forth
-9-
above are reasonable and will therefore be respected by the IRS. Our
determination, however, is not binding on the IRS, and it is possible that the
IRS could conclude that some other projected payment schedule or comparable
yield should be used for the Notes.
In addition to the OID accruals discussed above, a US Holder will be
required to recognize interest income equal to the amount of the excess of
actual payments over projected payments (a "net positive adjustment") in respect
of a Note for a taxable year. If a US holder receives actual payments that are
less than the projected payments in respect of a Note for a taxable year, the US
Holder will incur a "net negative adjustment" equal to the amount of such
difference. This negative adjustment will (i) first reduce the amount of OID in
respect of the Note that a US Holder would otherwise be required to include in
the taxable year and (ii) to the extent of any excess, will give rise to an
ordinary loss equal to that portion of such excess that does not exceed the
excess of (A) the amount of all previous OID inclusions under the Note over (B)
the total amount of the US Holder's net negative adjustment treated as ordinary
loss on the Note in prior taxable years. A net negative adjustment is not
subject to the two percent floor limitation imposed on miscellaneous deductions
under section 67 of the Code. Any net negative adjustment in excess of the
amounts described in (i) and (ii) will be carried forward to offset future
interest income in respect of the Notes or to reduce the amount realized on a
sale, exchange, conversion or retirement of the Notes.
Sale, Exchange, Retirement, or Other Disposition of the Notes
When a US Holder sells, exchanges or otherwise disposes of a Note, the US
Holder's gain (or loss) on the disposition will equal the difference between the
amount received by the US Holder for the Note and the US Holder's adjusted tax
basis in the Note. A US Holder's adjusted tax basis in a Note will be equal to
the US Holder's original purchase price for the Note, plus any OID accrued by
the US Holder less the aggregate amount of interest payments previously
received. Any gain realized by a US Holder on a disposition will be treated as
ordinary interest income. Any loss realized by a US Holder on a disposition will
be treated as ordinary loss to the extent of the US Holder's OID inclusions with
respect to the Note. Any loss realized in excess of such amount generally will
be treated as a capital loss. Any capital loss recognized by a US Holder will be
a long-term capital loss if such US Holder has held such Note for more than one
year, and a short-term capital loss in other cases. For US Holders that are
individuals, such capital losses are subject to certain limitations.
Possible Alternative Tax Treatment of an Investment in the Notes
As mentioned above, there are no statutory provisions, regulations,
published rulings or judicial decisions addressing or involving the treatment
for US federal income tax purposes of the Notes or securities with terms
substantially the same as the Notes. Therefore, the federal income tax treatment
of the Notes is not free from doubt. For example, if we treat the Notes as
VRDIs, it is possible that the IRS could assert that the Notes should be treated
as CPDIs (or vice versa). US Holders are urged to consult their tax advisors
regarding the US federal income tax consequences of an investment in the Notes.
-10-
Disclosure Requirements for US Holders Recognizing Significant Losses or
Experiencing Significant Book-Tax Differences
A US Holder that claims significant losses in respect of a Note (generally
(i) $10 million or more in a taxable year or $20 million or more in any
combination of taxable years for corporations or partnerships all of whose
partners are corporations or (ii) $2 million or more in a taxable year or $4
million or more in any combination of taxable years for all other taxpayers) or
reports any item or items of income, gain, expense, or loss in respect of a Note
for tax purposes in an amount that differs from the amount reported for book
purposes by more than $10 million on a gross basis in any taxable year may be
subject to certain disclosure requirements for "reportable transactions."
Prospective investors should consult their tax advisors concerning any possible
disclosure obligation with respect to the Notes.
Information Reporting and Backup Withholding
Information reporting will apply to certain payments on a Note (including
interest and OID) and proceeds of the sale of a Note held by a US Holder that is
not an exempt recipient (such as a corporation). Backup withholding may apply to
payments made to a US Holder if (a) the US Holder has failed to provide its
correct taxpayer identification number on IRS Form W-9, (b) we have been
notified by the IRS of an underreporting by the US Holder (underreporting
generally refers to a determination by the IRS that a payee has failed to
include in income on its tax return any reportable dividend and interest
payments required to be shown on a tax return for a taxable year) or (c) we have
been notified by the IRS that the tax identification number provided to the IRS
on an information return does not match IRS records or that the number was not
on the information return.
THE PRECEDING DISCUSSION IS ONLY A SUMMARY OF CERTAIN OF THE TAX
IMPLICATIONS OF AN INVESTMENT IN NOTES. PROSPECTIVE PURCHASERS ARE URGED TO
CONSULT WITH THEIR OWN TAX ADVISORS PRIOR TO INVESTING TO DETERMINE THE TAX
IMPLICATIONS OF SUCH INVESTMENT IN LIGHT OF EACH SUCH INVESTOR'S PARTICULAR
CIRCUMSTANCES.
SUPPLEMENTAL PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Distribution
Agreement dated as of June 19, 2003, as amended, and the Agent Accession
Agreement, dated November [ ], 2004, the Notes will be offered by us to or
through the Lead Agent for subsequent resale to Hennion & Walsh, Inc. (the
"Participating Dealer"). The Participating Dealer has agreed to use its
reasonable best efforts to solicit orders to purchase Notes and has executed a
master selected dealer agreement with the Lead Agent. The Notes will be offered
for sale in the United States only.
We will offer the Notes to the Lead Agent at a discount of [ ]% of the
price at which the Notes are offered to the public. The Lead Agent may reallow a
discount to the Participating Dealer not in excess of [ ]% of the public
offering price. The Lead Agent and the Participating Dealer may sell Notes to
other dealers at a concession not in excess of the discount they received from
us.
-11-
Following the solicitation of orders, the Participating Dealer may
purchase Notes as principal for its own account from the Lead Agent. The Notes
will be purchased by the Participating Dealer and resold by the Participating
Dealer to one or more investors at the public offering price. After the initial
public offering of Notes to be resold by the Lead Agent or the Participating
Dealer to investors, the public offering price, discount and concession may be
changed. In the future, the Lead Agent and the Participating Dealer 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.
The Lead Agent and the Participating Dealer may be deemed to be
"underwriters" within the meaning of the Securities Act. We have agreed to
indemnify the Lead Agent and the Participating Dealer against or to make
contributions relating to certain civil liabilities, including liabilities under
the Securities Act. We have agreed to reimburse them for certain expenses.
Neither the Lead Agent nor the Participating Dealer will confirm sales to
any accounts over which they exercise discretionary authority without the prior
approval of the customer.
The Notes are a new issue of securities with no established trading
market. The Notes will not be listed on any securities exchange and we do not
expect a trading market to develop. The Lead Agent 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 those bids will be made.
In order to facilitate the offering of the Notes, the Lead 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 Lead 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. The Lead Agent may elect to cover any such short position
by purchasing Notes in the open market. In addition, the Lead Agent may
stabilize or maintain the price of the Notes by bidding for or purchasing Notes
in the open market and may impose penalty bids, under which selling concessions
allowed to syndicate members or other broker-dealers participating in the
offering are reclaimed if Notes previously distributed in the offering are
repurchased in connection with stabilization transactions or otherwise. The
effect of these transactions may be to stabilize or maintain the market price of
the Notes at a level above that which might otherwise prevail in the open
market. The imposition of a penalty bid may also affect the price of the Notes
to the extent that it discourages resales of Notes. 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.
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The agents or dealers to or though which we or the Lead Agent may sell
Notes may be our affiliates or customers and may engage in transactions with and
perform services for us in the ordinary course of business.
The Participating Dealer has represented and agreed that it will comply
with all applicable laws and regulations, including without limitation the NASD
Conduct Rules, in force in any jurisdiction in which it purchases, offers or
sells the Notes or possesses or distributes this pricing supplement, and will
obtain any consent, approval or permission required by it for the purchase,
offer or sale by it of the Notes under the laws and regulations, including those
of self-regulatory organizations, in force in any jurisdiction to which it is
subject or in which it makes such purchases, offers or sales and neither we nor
any other agent will have responsibility for such compliance.
The distribution of the Notes will conform to the requirements set forth
in Rule 2720 of the NASD Conduct Rules.
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