PRICING SUPPLEMENT NO. 7A Rule 424(b)(3)
DATED: February 24, 2005 File No. 333-121744
(To Prospectus dated February 2, 2005,
and Prospectus Supplement dated February 2, 2005)
$12,410,781,162
THE BEAR STEARNS COMPANIES INC.
Medium-Term Notes, Series B
Principal Amount: $4,100,000 Floating Rate Notes [x] Book Entry Notes [x]
Original Issue Date: 3/8/2005 Fixed Rate Notes [ ] Certificated Notes [ ]
Maturity Date: 3/8/2015 CUSIP#: 073928K51
Option to Extend Maturity: No [x]
Yes [ ] Final Maturity Date:
Minimum Denominations: $100,000, increased in multiples of $10,000
Optional Optional
Redemption Repayment Repayment
Redeemable On Price(s) 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: N/A
[ ] 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
[ ] Prime Rate
[x] CMT Rate +
Interest Rate: Cliquet Inverse Interest Payment Period: Quarterly
Floating Rate+
See Annex A
Index Maturity: Ten Years Interest Determination Date(s): 2nd
Business Day prior to but not
including the first day of the next
Interest Payment Period
Spread (plus or minus): N/A Day Count Basis: 360-day year of twelve
30-day months
Calculation Agent: Bear, Stearns & Co. Inc.
* Commencing June 8, 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 Business Days' notice. For purposes of this provision,
"Business Day" means any day that is not a Saturday or Sunday, and that is
neither 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.
** Commencing June 8, 2005 and on the 8th of each September, December, March
and June prior to Maturity.
*** Commencing June 8, 2005 and on the 8th of each September, December, March
and June thereafter, including the maturity date.
CERTAIN US FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain US federal income tax
consequences of the purchase, beneficial ownership and disposition of the
Cliquet Inverse Floating Rate Notes (the "Notes"). This discussion supplements
the section captioned "Certain US Federal Income Tax Considerations" in the
prospectus supplement dated February 2, 2005. 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;
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 there under, and rulings
and decisions currently in effect (or in some cases proposed), all of which are
subject to change. Any such change may be applied retroactively and may
adversely affect the federal income tax consequences described herein. This
summary addresses only 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,
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investors whose functional currency is not the US dollar, persons subject to the
alternative minimum tax, or 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.
PROSPECTIVE HOLDERS OF THE 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 THE NOTES.
Federal Income Tax Treatment of US Holders
Accruals of Original Issue Discount on the Notes
There are no statutory provisions, regulations, rulings or other
authorities addressing the federal income tax treatment of debt instruments with
terms that are substantially similar to the Notes, and therefore the federal
income tax treatment of the Notes is subject to some uncertainty. We intend to
treat the Notes as "contingent payment debt instruments" ("CPDIs") subject to
taxation under the "noncontingent bond method" for US federal income tax
purposes. Under the noncontingent bond method, US Holders of the Notes will
accrue 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.
In general, the comparable yield of a CPDI is equal to the yield at which its
issuer would issue a fixed-rate debt instrument with terms and conditions
similar to those of the CPDI, including the level of subordination, term, timing
of payments, and general market conditions. If a hedge of the CPDI is available
that, if integrated with the CPDI, would produce a synthetic debt instrument
with a determinable yield to maturity, the comparable yield will be equal to the
yield on the synthetic debt instrument. Alternatively, if such a hedge is not
available, but fixed-rate debt instruments of the issuer trade at a price that
reflects a spread above a benchmark rate, the comparable yield is the sum of the
value of the benchmark rate on the issue date and the spread. Under the
noncontingent bond method, the issuer's reasonable determination of a comparable
yield is respected and binding on holders of the CPDI.
Based on these factors, we believe that the comparable yield of the Notes
is equal to 5.12%, compounded quarterly. 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 quarterly accrual period will be the product of the
"adjusted issue price" of the Notes at the beginning of each such quarterly
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 (determined without regard to any adjustments described below), less the
amount of any noncontingent payment and the projected amount of any payments
previously made with respect to the Notes, as reflected in the "projected
payment schedule" (described below), without regard to the actual payments. 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.
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Under the noncontingent bond method, the comparable yield of a CPDI is
used to construct a projected payment schedule that produces the comparable
yield. US Holders can obtain the projected payment schedule for the Notes by
contacting us at:
The Bear Stearns Companies Inc.
John F. Stacconi: (212) 272-2123
Under the noncontingent bond method, the projected payment schedule will
not be revised to account for changes in circumstances that occur until December
6, 2007, as discussed below. The comparable yield and the projected payment
amount for the Notes are used to determine accruals of OID for tax purposes
only, and are not assurances by us or any of our affiliates with respect to the
actual yield or payments on the Notes and do not represent expectations by any
such person regarding an 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 the comparable yield for the Notes are
reasonable and will therefore be respected by the IRS. Our determination,
however, is not binding on the IRS, and the IRS could conclude that some other
projected payment schedule or comparable yield should be used for the Notes.
Adjustments for Differences Between the Projected Interest Payments and
Actual Interest Payments for the Taxable Year
Treatment of Actual Interest Payments Received Prior to December 6, 2007.
If the actual interest payments received on the Notes by a US Holder prior to
December 6, 2007 exceed the amounts reflected on the projected payment schedule
for such year (a "net positive adjustment"), the US Holder will be required to
include such excess in income as ordinary OID income for the US Holder's taxable
year. Alternatively, if the actual interest payments received on the Notes by a
US Holder prior to December 6, 2007 are less than the amounts reflected on the
projected payment schedule for such year (a "net negative adjustment"), the
shortfall will (i) be applied first to reduce any OID otherwise includible in
income by the US Holder with respect to the Note for such 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.
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. A net negative adjustment is not subject to the two percent floor
limitation imposed on miscellaneous deductions under section 67 of the Code.
Treatment of Actual Interest Payments Made After December 6, 2007. On
December 6, 2007, the amount of all remaining interest payments on the Notes
will become fixed. Under the noncontingent bond method, on this date the accrual
period for the Notes will end, and US Holders will be required to determine the
present value of each remaining interest payment that has become fixed and the
present value of the corresponding projected payment, in each case using a
discount rate equal to the comparable yield. If the present value of the
interest payment exceeds the present value of the corresponding projected
payment, the difference will be treated as a net positive adjustment. If the
present value of a projected payment exceeds the present value of the
corresponding interest payment, the difference will be treated as a net negative
adjustment. US Holders will be required to take the positive or negative
adjustment with respect to each interest payment into account in a reasonable
manner over the period to which the adjustment relates. Also, on December 6,
2007, the projected payment schedule will be adjusted to reflect the fixed
amount of each remaining interest payment.
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Sale, Exchange, Retirement, or Other Disposition of the Notes
When a US Holder sells, exchanges or otherwise disposes of an 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 an Note will be equal to
the US Holder's original purchase price for the Note, plus any OID accrued by
the US Holder (determined without regard to the adjustments described above),
plus, for any period beginning after December 6, 2007, any accrued positive
adjustment as determined under "-- Treatment of Actual Interest Payments Made
After December 6, 2007," less the amount of any noncontingent payments received
and the projected amount of any payments previously made with respect to the
Notes, as reflected in the projected payment schedule, and less, for any period
after December 6, 2007, any accrued negative adjustment, as determined under "--
Treatment of Actual Interest Payments Made After December 6, 2007." Any gain
realized by a US Holder on a disposition prior to December 6, 2007 will be
treated as ordinary interest income. Any gain realized by a US Holder on a
disposition on or after December 6, 2007 will be treated as ordinary interest
income to the extent of any positive adjustment that has not yet been accrued
and included in income and otherwise as capital gain. Any loss realized by a US
Holder on a disposition prior to December 6, 2007 will be treated as ordinary
loss to the extent of the US Holder's OID inclusions with respect to the Note
(taking into account the adjustments described above). Any loss realized in
excess of such amount generally will be treated as a capital loss. Any capital
gain or loss recognized by a US Holder will be a long-term capital gain or loss
if such US Holder has held such Note for more than one year, and a short-term
capital gain or loss in other cases.
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.
Backup withholding is not an additional tax and may be refunded (or
credited against your US federal income tax liability, if any).
THE PRECEDING DISCUSSION IS ONLY A SUMMARY OF CERTAIN OF THE TAX
IMPLICATIONS OF AN INVESTMENT IN NOTES. PROSPECTIVE INVESTORS ARE URGED TO
CONSULT WITH THEIR OWN TAX ADVISORS PRIOR TO INVESTING TO DETERMINE THE TAX
IMPLICATIONS OF SUCH INVESTMENT IN LIGHT OF EACH SUCH INVESTOR'S PARTICULAR
CIRCUMSTANCES.
The distribution of Notes will conform to the requirements set forth in Rule
2720 of the NASD Conduct Rules.
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 &
Co. Inc. ("Bear Stearns"), as principal, and Bear Stearns has agreed to purchase
from us, $4,100,000 aggregate principal amount of Notes. An aggregate of
$4,100,000 of the Notes will be initially offered to the public at 100% of their
principal amount. We will offer the Notes to Bear Stearns at 100% of the price
at which the Notes are offered to the public. Bear Stearns intends to allow a
discount to other agents not in excess of 1.95% of the public offering price.
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Annex A
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Cliquet Inverse Floating Rate
+ The Interest Rate for each Interest Payment Period shall be determined by the
Calculation Agent in accordance with the following:
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Interest Payment Period Quarterly Coupon
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For the Interest Payment Period from and including 8.50% (Initial Interest Rate)
March 8, 2005 to but excluding June 8, 2005
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For the Interest Payment Period from and including Previous Quarterly Coupon - 4.25%
June 8, 2005 to but excluding September 8, 2005 + 10 Year CMT Rate
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For the Interest Payment Period from and including Previous Quarterly Coupon - 4.50%
September 8, 2005 to but excluding December 8, 2005 + 10 Year CMT Rate
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For the Interest Payment Period from and including Previous Quarterly Coupon - 4.75%
December 8, 2005 to but excluding March 8, 2006 + 10 Year CMT Rate
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For the Interest Payment Period from and including Previous Quarterly Coupon - 5.00%
March 8, 2006 to but excluding June 8, 2006 + 10 Year CMT Rate
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For the Interest Payment Period from and including Previous Quarterly Coupon - 5.25%
June 8, 2006 to but excluding September 8, 2006 + 10 Year CMT Rate
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For the Interest Payment Period from and including Previous Quarterly Coupon - 5.25%
September 8, 2006 to but excluding December 8, 2006 + 10 Year CMT Rate
---------------------------------------------------------------------------------------------
For the Interest Payment Period from and including Previous Quarterly Coupon - 5.25%
December 8, 2006 to but excluding March 8, 2007 + 10 Year CMT Rate
---------------------------------------------------------------------------------------------
For the Interest Payment Period from and including Previous Quarterly Coupon - 5.25%
March 8, 2007 to but excluding June 8, 2007 + 10 Year CMT Rate
---------------------------------------------------------------------------------------------
For the Interest Payment Period from and including Previous Quarterly Coupon - 5.25%
June 8, 2007 to but excluding September 8, 2007 + 10 Year CMT Rate
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For the Interest Payment Period from and including Previous Quarterly Coupon - 5.25%
September 8, 2007 to but excluding December 8, 2007 + 10 Year CMT Rate
---------------------------------------------------------------------------------------------
For the Interest Payment Period from and including Previous Quarterly Coupon - 5.25%
December 8, 2007 to but excluding March 8, 2008 + 10 Year CMT Rate ("Fixed Coupon")
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For each Interest Payment Period from and including Fixed Coupon
March 8, 2008 to but excluding March 8, 2015
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Previous Quarterly Coupon means the Interest Rate for the preceding
Interest Payment Period.
With respect to any Interest Payment Period, 10 year CMT Rate shall be the
CMT rate with a Designated CMT Index Maturity of 10 years as quoted on CMT
Telerate page 7051 at 11:00 a.m. on the second Business Day prior to but not
including the first day of such Interest Payment Period. If any Interest Reset
Date would otherwise be a day that is not a Business Day, such Interest Reset
Date shall be postponed to the next succeeding day that is a Business Day. For
purposes of determining an Interest Reset Date, "Business Day" means any day
that is not a Saturday or Sunday, and that is neither 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.
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