Company Name: Bear Stearns Cos. Inc.
Public Availability Date: February 5, 2008
Document Sections: INQUIRY LETTER
APPENDIX 1
APPENDIX 2
STAFF REPLY LETTER
[INQUIRY LETTER]
December 21, 2007
Office of Chief Counsel
Division of Corporation Finance
U.S. Securities and Exchange Commission
100 F Street, NE
Washington D.C. 20549
Re: The Bear Stearns Companies Inc. Stockholder Proposal
Ladies and Gentlemen:
On behalf of The Bear Stearns Companies Inc., a Delaware corporation (the
"Company"), and in accordance with Rule 14a-8(j) under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), we respectfully request the
concurrence of the staff of the Division of Corporation Finance (the "Staff") of
the Securities and Exchange Commission (the "Commission") that it will not
recommend any enforcement action to the Commission if the stockholder proposal
described below (the "Proposal") is excluded from the Company's proxy statement
for the Company's 2008 Annual Meeting of Stockholders (the "Proxy Statement").
The Annual Meeting is scheduled for April 16, 2008. A copy of the Proposal is
attached hereto. As required by Rule 14a-8(j), six copies of this letter,
including all attachments, are enclosed.
We are also sending a copy of this letter to the Massachusetts Laborers' Pension
Fund to notify them of the Company's intention to omit the Proposal from the
Proxy Statement.
A. Factual Background
On November 28, 2007, the Company received a stockholder proposal from the
Massachusetts Laborers' Pension Fund (the "Proponent"). The Proposal reads as
follows:
"RESOLVED: that the shareholders of the Bear Stearns Companies, Inc. ("Bear
Stearns" or "the Company") request that the Board of Directors prepare and
provide to shareholders a report discussing its potential financial exposure as
a result of the mortgage securities crisis, including the following:
1. A discussion of what percentage of the Company's mortgage originations and/or
mortgage securitizations could be categorized as subprime, Alt-A or other
non-agency loan types;
2. A discussion of the long-term strategic and financial implications of the
Company's recent decision to reduce its resources and capacity in the subprime
area and, [sic]
3. A discussion of what the Company anticipates will be its ultimate realized
losses related to the mortgage securities crisis.
The report should be prepared at reasonable cost, omit proprietary information,
and be distributed to shareholders within six months of the Company's annual
meeting in the manner deemed most efficient by the Company.
The Proponent also included a supporting statement. The Proponent's full letter
is attached hereto as Exhibit A.
B. Reasons for Omission
The Company believes that the Proposal may be properly omitted from the Proxy
Statement for the reasons discussed below.
1. The Proposal May be Excluded Because the Company
has Substantially Implemented the Proposal.
Under Rule 14a-8(i)(10), a shareholder proposal is excludable from a company's
proxy materials if the company has already substantially implemented the
proposal. The Staff has stated that even if company practice does not mirror the
proposal exactly, exclusion may be appropriate if the proposal's purpose has
been substantially implemented by the company. See, e.g., Masco Corporation
(Mar. 29, 1999) (shareholder proposal rendered moot by Board action on
resolution similar to shareholder proposal with amendments); Capital Cities/ABC,
Inc. (Feb. 29, 1988) (finding basis for view that proposal to hire ombudsman was
rendered moot by employment of Vice President of News Practices). Additionally,
the Staff has permitted exclusion of a proposal where the company has
implemented a number, but not all, of the parts of a multi-part proposal.
Columbia/HCA Healthcare Corp. (Feb. 18, 1998) (proposal to establish healthcare
compliance committee rendered moot by establishment of ethics committee with
similar responsibilities). The Staff has stated that "a determination that the
Company has substantially implemented the proposal depends upon whether its
particular policies, practices and procedures compare favorably with the
guidelines of the proposal." Texaco, Inc. (March 28, 1991). The Staff has also
determined that a stockholder proposal has been "substantially implemented" and
may be excluded from a company's proxy statement when the company can
demonstrate that it has already taken actions to address the substance of a
shareholder proposal. See, e.g., ConAgra Foods, Inc. (June 20, 2005) (permitting
exclusion of a proposal requesting a sustainability report, including a
company-wide review of related company policies and practices, where the company
already posted on its website a report that addressed social, environmental and
workplace policies), Nordstrom Inc. (February 8, 1995) (proposal that the
company commit to a code of conduct and submit a report to shareholders
describing the Company's supplier policy and compliance efforts was
substantially covered by existing company guidelines and was therefore
excludable as moot) and The Gap, Inc. (March 8, 1996) (proposal that the company
adopt guidelines that were substantially implemented was rendered moot).
The Company is required, pursuant to Section 303 of Regulation S-K, to disclose
in its reports on Forms 10-Q and 10-K any trends or uncertainties that will have
a material unfavorable impact on revenues or income from continuing operations,
any significant economic changes that have materially affected the amount of
reported income from continuing operation, any uncertainties or events that are
reasonably likely to result in the registrant's liquidity decreasing in any
material way and any known trends materially favorable or unfavorable in the
registrant's capital resources which include changes in equity, debt and any
off-balance sheet financing arrangements. The Proposal calls for the Company to
provide a report discussing its "potential financial exposure as a result of the
mortgage securities crisis." The Company has already substantially provided this
information in its reports on Forms 8-K and 10-Q. With respect to the discussion
of the Company's "potential financial exposure as a result of the mortgage
securities crisis" called for by the Proposal, the Company already reported on
its Form 10-Q for the quarterly period ended August 31, 2007 the fact that the
Company recognized approximately $700 million in net inventory markdowns during
the quarter ended August 31, 2007 primarily related to losses experienced in the
mortgage-related and leveraged finance areas. In addition, the Company has
previously disclosed on its Form 8-K filed on November 15, 2007 that as of
August 31, 2007, the Company had total ABS CDO related exposures of
approximately $2 billion, which consisted of $963 million of AAA super senior,
$165 million below AAA and $944 million of CDO Warehouse; that these positions
had been materially reduced through November 9, 2007; that the CDO Warehouse
exposure as of August 31, 2007 had essentially been liquidated or converted into
CDO's; that the Company's overall CDO position as of November 9, 2007 was $884
million, down from approximately $2 billion as of August 31, 2007; and that
during the period between August 31, 2007 and November 9, 2007, the Company
significantly increased its short subprime exposures reducing the August 31,
2007 net exposure of approximately $1 billion to a negative $52 million net
exposure as of November 9, 2007. Moreover, the Company's report on Form 8-K
filed on November 15, 2007 also disclosed that, with respect to the "potential
financial exposure as a result of the mortgage securities crisis" called for by
the Proposal, "the Company will be taking a net write-down of approximately $1.2
billion on these positions and others in our mortgage inventory. Net of tax,
this write down is approximately $700 million." Additionally, the Company's
report on Form 8-K filed on December 21, 2007 disclosed that as of November 30,
2007, the Company had total ABS CDO related exposures of approximately $755
million, which consisted of $765 million of AAA super senior and a negative $10
million below AAA, and that the Company's short subprime exposures as of
November 30, 2007 consisted of a negative $582 million net exposure. The
Company's report on Form 8-K filed on December 21, 2007 further disclosed that
the Company had taken total write-downs of approximately $1.9 billion in
mortgage inventory net of hedges. The Company considers information called for
by the Proposal regarding the "percentage of the Company's mortgage originations
and/or mortgage securitizations that could be categorized as subprime, Alt-A or
other non-agency loan types" and the information called for by the Proposal
regarding the "long-term strategic implications" to be proprietary, and the
Proposal provides that the requested report should "omit proprietary
information". Therefore, the Proposal should be excludable pursuant to Rule
14a-8(i)(10), because the Company has already substantially implemented the
Proposal.
2. The Proposal May be
Omitted from the Proxy Statement Pursuant to Rules 14a-8(i)(3) and 14a-8(i)(6):
The Proposal is Vague and Indefinite and, therefore, the Company would Lack the
Power or Authority to Implement it.
Rule 14a-8(i)(3) provides that a registrant may exclude a proposal if it
violates the proxy rules, including Rule 14a-9, which prohibits materially false
or misleading statements in proxy soliciting materials. The Staff has determined
that a proposal is excludable under this rule if it is "so inherently vague and
indefinite that neither the stockholders voting on the proposal, nor the Company
in implementing the proposal (if adopted), would be able to determine with any
reasonable certainty exactly what actions or measures the proposal requires."
Philadelphia Electric Company (July 30, 1992); see also Bristol-Myers Squibb Co.
(February 1, 1999) (the Staff permitted exclusion of a proposal which was so
vague that it precluded shareholders from determining with reasonable certainty
either the meaning of the resolution or the consequences of its implementation)
and Microlog Corporation (December 22, 1994) (a proposal that recommended that a
company pay bonuses, etc. based on a very convoluted formula could be excluded
as vague and indefinite). Furthermore, Rule 14a-8(i)(6) allows for the exclusion
of a shareholder proposal if the company lacks the power or authority to
implement it. The Staff has previously held that a proposal may be omitted under
Rule 14a-8(i)(6) where the proposal is so vague and indefinite that the company
is unable to determine what actions are required by the proposal and, as such,
the proposal is "beyond the [company's] power to effectuate." Int'l Business
Machines Corporation (January 14, 1992) (permitted the exclusion of a resolution
stating only that "It is now apparent that the need for representation has
become a necessity."); see also The Southern Company (February 23, 1995)
(permitted the exclusion of a proposal recommending that the company take the
essential steps to ensure the highest standards of ethical behavior of employees
appointed to serve in the public sector without providing any suggestions on how
to achieve such an objective).
The Proposal is indefinite because it, by its own terms, is inherently
contradictory. According to the Proposal, the Company is, at the same time,
required to provide information and permitted to exclude the same information.
The Proposal states that the Company may "omit proprietary information." To the
extent the information requested in the Proposal is not already disclosed by the
Company in its reports on Forms 8-K, 10-Q and 10-K, the information requested by
the Proposal is proprietary, so the Proposal essentially requests the Company to
produce a report excluding the very substance of the report. The "discussion of
what percentage of the Company's mortgage originations and/or mortgage
securitizations could be categorized as subprime, Alt-A or other non-agency loan
types" called for by the Proposal requests proprietary information of the
Company. In addition, the discussion of the "long-term strategic...implications
of the Company's recent decision to reduce its resources and capacity in the
subprime area" and the "ultimate realized losses related to the mortgage
securities crisis" called for by the Proposal is inherently vague and unknowable
by the Company. Thus, the terms of the Proposal are so vague and ambiguous that
it is impossible for the Company to be able to ascertain with any reasonable
certainty the exact actions that it would be required to take with respect to
the Proposal. If the Company were to implement the Proposal as drafted, it would
issue a report excluding substantially all of the information sought for by the
Proposal; this could result in a significantly different outcome than that
envisioned by the shareholders voting on the Proposal. Therefore, the Proposal
can be excluded under the Staff's interpretations of Rules 14a-8(i)(3) and
14a-8(i)(6).
3. The Proposal Relates to Ordinary Business Matters.
Rule 14a-8(i)(7) provides that a company may exclude a proposal if it relates to
the company's ordinary business operations. The Commission has indicated that
where a proposal requires the preparation of a report on a particular aspect of
a company's business, the Staff will consider whether the subject matter of the
report relates to the conduct of ordinary business operations. See Exchange Act
Release No. 34-20091 (August 16, 1983). A shareholder proposal is considered
"ordinary business" when it relates to matters that are so fundamental to
management's ability to run a company on a day-to-day basis that they are not
appropriate for shareholder oversight. Exchange Act Release No. 34-40018 (May
21, 1998).
The Commission has consistently found that proposals seeking additional detailed
disclosure (whether in Exchange Act filings or special reports) may be excluded
under Rule 14a-8(i)(7) (or its predecessor Rule 14a-8(c)(7)). Johnson Controls,
Inc. (October 26, 1999); see also J.P. Morgan Chase & Co. (February 28, 2001) (a
proposal requesting detailed disclosure regarding the risks of inflation and
deflation on the company's financial condition was excludable because it related
to the company's ordinary business); BankAmerica Corporation (February 8, 1996)
(a proposal requesting that the company's governing instruments be amended to
require detailed disclosure regarding the company's reserve accounts because the
shareholder could not determine the "true profitability of BAC" based on the
current disclosures was excludable because it related to the format and content
of the company's periodic reports). In addition, the Staff has held that the
determination of whether, and what, steps should be taken to enhance a Company's
financial performance and the determination and implementation of a company's
investment strategies are matters relating to the ordinary business operations
and are therefore excludable under Rule 14a-8(i)(7). Ohio Edison Company
(February 3, 1989); see also General Motors Corporation (March 31, 1988)
(decisions regarding investment and application of corporate assets are matters
relating to the ordinary business operations of the company). The Staff has
agreed that a proposal may be excluded under Rule 14a-8(i)(7) where it deals
with ordinary business matters of a complex nature that shareholders, as a
group, would not be qualified to make an informed decision on, due to their lack
of business expertise. See SEC Release No. 34-129999 (November 22, 1976).
The Proposal seeks an assessment of the Company's financial exposure in the
mortgage securities market. This Proposal falls squarely within the scope of the
Company's ordinary business operations, as interpreted by the Commission, and
should be excludable pursuant to Rule 14a-8(i)(7). The additional detailed
disclosure requested regarding the Company's involvement in "mortgage
securities" closely parallels the additional requested disclosure regarding the
risks of inflation and deflation in J.P. Morgan. The Company makes decisions
regarding the desired allocation of its assets on a daily basis in the ordinary
course of business. Moreover, as the Commission stated in General Motors
Corporation, the investment of corporate assets is a matter of ordinary business
to be determined by the Company. By requesting a report from the Company
detailing its involvement with a particular asset, the Proponent is, in essence,
requesting that the Company engage in a discussion with its shareholders of its
investment strategy and the financial impact on the Company of the "mortgage
securities downturn." The Proposal may be viewed as an attempt to second-guess
the Company and to substitute the judgment of the shareholders for that of
management and the board of directors on the Company's complex decisions
regarding its investment strategy. As the Staff has previously decided, the
investment decisions of a company are fundamental to, and indeed the very
essence of, its business and should not be decided by its shareholders. Making
investment decisions and monitoring financial risks are tasks for the Company's
management and board of directors, and they are a part of the conduct of the
Company's ordinary, every-day business. Furthermore, the complex nature of the
Company's investments are such that we believe shareholders, due to their lack
of business experience, would not be qualified to make an informed decision on
the matter.
Additionally, the Company believes that the Proposal is distinguishable from the
request for no-action letter submitted by Beazer Homes on October 15, 2007. In
Beazer, the proponent's reply to Beazer's request for no action focused on the
fact that the request for the report on Beazer's "mortgage originations in
subprime, Alt-A, jumbo and "exotic" mortgages, including piggyback/second
mortgages, interest only loans, negative amortization loans and low/no
documentation loans" clearly transcended the company's ordinary business
operations because of the extraordinary challenges that Beazer faced. Beazer
Homes USA, Inc. (November 30, 2007). The Company does not face the extraordinary
challenges that confront Beazer. Beazer is the subject of a joint investigation
by the Federal Bureau of Investigation, the Internal Revenue Service and the
Justice Department, the subject of a Securities and Exchange Commission formal
investigation, experienced revenue declines of 31.4% for the six months ended
March 31, 2007, reduced its workforce by 25%, suspended its dividend and faces
bankruptcy rumors and restated earnings relating to fiscal years 2004-2006 and
the interim periods of fiscal 2006 and fiscal 2007. Moreover, Beazer's business
consists of only home design and construction and mortgage origination and title
insurance services for its home buyers. The Company, on the other hand, is a
fully diversified financial institution with business lines that include
institutional equities, fixed income, investment banking, global clearing
services, asset management, and private client services. Making investment
decisions and monitoring the financial risks with respect to the Company's
mortgage origination and securitization activities are part of the conduct of
the Company's ordinary, every-day business. In addition, mortgage origination
and securitization is only one aspect of the Company's business and, as such,
any challenges with respect to this segment of the business would not impact the
Company to the same extent that Beazer has been impacted. The Company has not
had to face the extraordinary challenges faced by Beazer and, therefore, is
distinguishable from Beazer. The Proposal should be excludable as relating to
ordinary business matters.
The Company is aware that the Staff will make an exception if the proposal
pertains to significant social policy issues. In this instance, however, the
Proposal seeks only a report detailing the Company's involvement with a
particular asset. The standard with regard to exclusion of a proposal pursuant
to Rule 14a-8(i)(7) is not whether the proposal may be construed as tangentially
relating to a significant social policy issue, but whether the proposal requests
action in furtherance of a significant social policy issue. See Weatherford
International Ltd. (February 25, 2005) and Washington Mutual Inc. (March 6,
2002). In Weatherford International Ltd., the Staff agreed that the company
could omit a proposal to report on the impact of its reorganization from the
United States to Bermuda pursuant to Rule 14a-8(i)(7). The Staff concurred with
Weatherford International's argument that social policy issues are not raised
when a proposal requests an evaluation of essentially ordinary business
activities. In Washington Mutual, Inc., the company was permitted to exclude a
proposal that requested, among other things, a report on the company's policy
regarding "speculative real estate development." Washington Mutual commented
that the proposal did not involve a request to institute a broad or fundamental
corporate policy regarding a social policy issue, but simply sought a report
evaluating the impact of undertaking real estate development projects on the
company's performance.
Here, as in Weatherford International Ltd. and Washington Mutual, Inc., the
Proposal does not request any action in furtherance of a significant social
policy issue. In addition, as discussed earlier, we believe that making
investment decisions and monitoring investments involve a number of day-to-day
matters that are best left to management and the board of directors of the
Company. Therefore, the Proposal should be excludable as relating to ordinary
business matters.
C. Request
Based on the foregoing, the Company believes that it may omit the Proposal from
the Proxy Statement, and we respectfully request that the Staff not recommend
any enforcement action if the Proposal is omitted from the Proxy Statement. If
you have any questions or if the Staff is unable to concur with our conclusions
without additional information or discussion, we respectfully request the
opportunity to confer with members of the Staff prior to the issuance of a
written response to this letter. Please do not hesitate to contact me at (212)
504-5555. Thank you for your consideration.
Very truly yours,
/s/
Dennis J. Block
cc: Massachusetts Laborers' Pension Fund
Jeffrey Lipman, The Bear Stearns Companies Inc.
Robert K. Kane, The Bear Stearns Companies Inc.
[APPENDIX 1]
November 28,2007
Via Facsimile
212-272-8239
Mr. Kenneth L. Edlow
Corporate Secretary
Bear Stearns Companies, Inc.
383 Madison Avenue
New York, NY 10179
Dear Mr. Edlow:
On behalf of the Massachusetts Laborers' Pension Fund ("Fund"), I hereby submit
the enclosed shareholder proposal ("Proposal") for inclusion in the Bear Stearns
Companies, Inc. ("Company") proxy statement to be circulated to Company
shareholders in conjunction with the next annual meeting of shareholders. The
Proposal is submitted under Rule 14(a)-8 (Proposals of Security Holders) of the
U.S. Securities and Exchange Commission's proxy regulations.
The Fund is the beneficial owner of approximately 600 shares of the Company's
common stock, which have been held continuously for more than a year prior to
this date of submission. The Proposal is submitted in order to promote a
governance system at the Company that enables the Board and senior management to
manage the Company for the long-term. Maximizing the Company's wealth generating
capacity over the long-term will best serve the interests of the Company
shareholders and other important constituents of the Company.
The Fund intends to hold the shares through the date of the Company's next
annual meeting of shareholders. The record holder of the stock will provide the
appropriate verification of the Fund's beneficial ownership by separate letter.
Either the undersigned or a designated representative will present the Proposal
for consideration at the annual meeting of shareholders.
If you have any questions or wish to discuss the Proposal, please contact,
Jennifer O'Dell, Assistant Director, LIUNA Corporate Affairs Department, at
(202) 942-2359. Copies of correspondence or a request for a "no-action" letter
should be forwarded to Ms. O'Dell to the following address: Laborers'
International Union of North America Corporate Governance Project, 905 16\th/
Street, NW, Washington, DC 20006.
Sincerely,
/s/
Thomas P.V. Masiello
Administrator
TPVM/gdo
Enclosure
cc: Jennifer O'Dell
[APPENDIX 2]
Resolved: That the shareholders of Bear Stearns Companies, Inc. ("Bear Steams"
or "the Company") request that the Board of Directors prepare and provide to
shareholders a report discussing its potential financial exposure as a result of
the mortgage securities crisis, including the following:
1. A discussion of what percentage of the Company's mortgage originations and/or
mortgage securitizations could be categorized as subprime, Alt-A or other
non-agency loan types;
2. A discussion of the long-term strategic and financial implications of the
Company's recent decision to reduce its resources and capacity in the subprime
area and,
3. A discussion of what the Company anticipates will be its ultimate realized
losses related to the mortgage securities crisis.
The report should be prepared at reasonable cost, omit proprietary information,
and be distributed to shareholders within six months of the Company's annual
meeting in the manner deemed most efficient by the Company.
Supporting Statement
As long term shareholders, we are concerned about our Company's recent
performance. Our Company is a major player in the non-agency mortgage loan area
As major news outlets have reported, these types of loans have suffered major
losses over the past year. Our Company has been forced to lay off workers,
reduce operations in subprime and other non-agency loan-types and has seen its
market cap drop significantly over a short period of time. We are particularly
concerned that information about the Company's operations in these areas is not
easily accessible to Company shareholders.
According to press reports, our Company was, "...forced to bail out one of its
hedge funds that was collapsing because of bad bets on mortgages. It is the
biggest rescue of a hedge fund since 1998..." 1 In addition to the failure of
this fund and a second fund that also collapsed over the summer, the Company has
been forced to take, "a $700 million write-down in the third quarter, related to
souring loans and mortgages." 2 For these reasons, shareholders have reason to
be concerned and to seek greater information from our Board of Directors.
Shareholders of our Company require transparency so that we may adequately
evaluate risk. Currently there is no single source on the Company's balance
sheet that provides the requested information to shareholders.
We therefore urge shareholders to vote FOR our proposal.
-----FOOTNOTES-----
1 "$3.2 Billion Move by Bear Stearns to Rescue Fund", New York Times, June 23,
2007.
2 "HSBC and Bear Steams Increase Loan Write-Downs", New York Times, November 15.
2007.
[STAFF REPLY LETTER]
February 5, 2008
Response of the Office of Chief Counsel Division of Corporation Finance
Re: The Bear Stearns Companies Inc. Incoming letter dated December 21, 2007
The proposal requests that the board prepare and
provide to shareholders a report discussing the company's potential financial
exposure as a result of the mortgage securities crisis, including information
specified in the proposal.
There appears to be some basis for your view that Bear Stearns may exclude the
proposal under rule 14a-8(i)(7), as relating to Bear Stearns' ordinary business
operations (i.e., evaluation of risk). Accordingly, we will not recommend
enforcement action to the Commission if Bear Stearns omits the proposal from its
proxy materials in reliance on rule 14a-8(i)(7). In reaching this position, we
have not found it necessary to address the alternative bases for omission upon
which Bear Stearns relies.
Sincerely,
/s/
Greg Belliston
Special Counsel
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