As filed with the Securities and Exchange Commission on February 21, 1996
Registration No. 33-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
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J.P. MORGAN & CO. INCORPORATED
(Exact name of Registrant as specified in its charter)
DELAWARE 13-2625764
State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
J.P. MORGAN INDEX FUNDING COMPANY, LLC
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3863618
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
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60 Wall Street
New York , New York 10260-0060
Tel. No. (212) 483-2323
(Address, including zip code, and telephone number, including area
code, of Registrant's principal executive offices)
RACHEL F. ROBBINS, ESQ.
General Counsel and Secretary
J.P. Morgan & Co. Incorporated
60 Wall Street
New York, New York 10260-0060
Tel No.: (212) 648-3535
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
MARGARET M. FORAN, ESQ. B. ROBBINS KIESSLING, ESQ.
Vice President and Assistant Cravath, Swaine & Moore
General Counsel Worldwide Plaza
J.P. Morgan & Co. Incorporated 825 Eighth Avenue
60 Wall Street New York, New York 10019-7475
New York, New York 10260-0060
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Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration
Statement as determined by market conditions.
If any of the securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ] If any of the securities being registered on this Form are
to be offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, please check the following box. [x]
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed maximum maximum Title of each Amount to offering aggregate
class of be price per offering Amount of securities to be registered unit
price registration registered (1) (1)(2)(3) (1)(2)(3) fee--$103,448.28
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Preferred Securities of the Company
- ------------------------------------------------------------------------------
Guarantees of Preferred Securities of the Company and the Senior Note
Guarantee of the Senior Note of Morgan Guaranty by, and certain back-up
obligations of, J.P. Morgan........... (4)
- ------------------------------------------------------------------------------
Total................. $300,000,000
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(1) Such indeterminate number of Preferred Securities of the Company
as may from time to time be issued at indeterminate prices. (2) Estimated
pursuant to Rule 457 under the Securities Act of 1933, as amended, solely
for the purpose of calculating the registration fee. The aggregate public
offering price of the Preferred Securities of the Company registered hereby
will not exceed $300,000,000. (3) Exclusive of accrued interest and
distributions, if any. (4) The back-up obligations of J.P. Morgan, in
addition to the Guarantee and the Senior Note Guarantee, consist of the
obligations of J.P. Morgan with respect to the Preferred Securities that
are set forth in the LLC Agreement. No separate consideration will be
received for the Guarantee, the Senior Note Guarantee or such back- up
obligations. See "Effect of the Obligations Under the Guarantee, the Senior
Note Guarantee and the Senior Notes" in the applicable Prospectus
Supplement.
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The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
SUBJECT TO COMPLETION, DATED [ ] , 1996
PROSPECTUS SUPPLEMENT
(To Prospectus Dated [ ], 1996)
Commodity-Indexed Preferred Securities
(ComPS sm), Series A
J.P. Morgan Index Funding Company, LLC
[]% Series A Preferred Securities Indexed to the
JPMCI Crude Oil Excess Return Index
guaranteed to the extent set forth herein by
J.P. Morgan & Co. Incorporated
--------------------------------------
The []% Series A Preferred Securities (each, a "Preferred Security",
and collectively, the "ComPS") offered hereby are being issued by J.P.
Morgan Index Funding Company, LLC, a limited liability company formed under
the laws of the State of Delaware (the "Company"). The ComPS represent
preferred limited liability company interests in the Company. Each
Preferred Security will have an initial principal amount of [$40] (the
"Face Amount"), and thereafter, the change in value of the principal amount
per Preferred Security will be indexed to the change in value of the JPMCI
Crude Oil Excess Return Index (the "Applicable Index"), which is calculated
based on the change in value of certain crude oil futures contracts
included from time to time in the JPM Indices (such contracts, from time to
time, the "Benchmark Oil Contracts"). J.P. Morgan & Co. Incorporated, a
Delaware corporation ("J.P. Morgan"), will directly or indirectly own all
the common securities (the "Common Securities") representing voting limited
liability company interests in the Company (the ComPS and the Common
Securities, collectively, the "Securities"). The Company exists for the
sole purpose of issuing the ComPS and investing the proceeds thereof in a [
]% Related Note Due [ ], 20[ ] (the "Related Note") of Morgan Guaranty
Trust Company of New York, a trust company with full banking powers
organized under the laws of the State of New York and a wholly-owned
subsidiary of J.P. Morgan ("Morgan Guaranty"), and issuing similar
securities and investing the proceeds thereof in similar notes in the
future. (continued on next page) See "Risk Factors" on Page S-[] for
certain information relevant to an investment in the Preferred Securities.
"ComPS", "JPMCI" and the "J.P. Morgan Commodity Index" are service marks of
J.P. Morgan & Co. Incorporated. The ComPS have been authorized for listing
on the [ (the " ")] under the symbol " ", subject to official notice of
issuance. Trading of the ComPS on the [ ] is expected to commence within a
30-day period after the date of this Prospectus Supplement. See
"Underwriting".
THE SECURITIES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER FEDERAL
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Price $[40] per Preferred Security
plus accrued dividends, if any.
Initial Public Underwriting Proceeds to
Offering Price(1) Commissions(2) The Company(3)(4)
Per Preferred $ (3) $
Security...........
Total.............. $ (3) $
(1) Plus accrued dividends, if any, from the Issue Date (as defined
herein).
<PAGE>
(2) The Company and J.P. Morgan have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriting".
(3) Because the gross proceeds of the sale of the ComPS will be invested
in the Related Note, Morgan Guaranty has agreed to pay to the
Underwriters a commission of $ per Preferred Security (or $ in the
aggregate); provided that such compensation for sales to certain
institutions will be $ per Preferred Security. See "Underwriting".
(4) Expenses of the offering which are payable by the Company and J.P.
Morgan are estimated to be $ .
The ComPS offered hereby are offered severally by the Underwriters,
as specified herein, subject to receipt and acceptance by them and subject
to their right to reject any order in whole or in part. It is expected
that delivery of the ComPS will be made on or about , 1996, through
the book-entry facilities of The Depository Trust Company, against payment
therefor in same-day funds.
J.P. Morgan & Co.
The date of this Prospectus Supplement is [ ], 1996.
<PAGE>
(continued from previous page)
Upon the liquidation, dissolution or winding-up of the Company, the holders
of ComPS will have a preference over the holders of the Common Securities
with respect to payments in respect of dividends and payments upon
redemption, liquidation and otherwise. Certain capitalized terms used in
this Prospectus Supplement have the meaning ascribed to them under
"Glossary of Terms" in Annex I hereto.
Holders of the ComPS are entitled to receive cumulative cash dividends
at an annual rate of % on the Face Amount per Preferred Security, accruing
from , 1996 (the "Issue Date"), and payable monthly in arrears on the last
calendar day of each month. The payment of distributions out of moneys held
by the Company and payments on liquidation of the Company, as set forth
below, are guaranteed on a subordinated basis by J.P. Morgan (the
"Guarantee") to the extent Morgan Guaranty has made payments under the
Related Note as described under "Description of the Guarantee". The
payments by Morgan Guaranty under the Related Note are guaranteed by J.P.
Morgan on a subordinated basis (the "Related Note Guarantee") as described
under "Description of the Related Note Guarantee". The obligations of J.P.
Morgan under the Guarantee and the Related Note Guarantee are subordinate
and junior in right of payment to all other liabilities of J.P. Morgan and
pari passu with the most senior preferred stock outstanding as of the date
hereof of J.P. Morgan. The obligations of Morgan Guaranty under the Related
Note are pari passu with all present and future Senior Indebtedness of
Morgan Guaranty (as defined herein), which aggregated approximately $76.1
billion at December 31, 1995, and are junior to Morgan Guaranty's
obligations to its depositors in the event of a receivership. In addition,
J.P. Morgan's obligations under the Guarantee and the Related Note
Guarantee and Morgan Guaranty's obligations under the Related Note are
effectively subordinated to all liabilities (including indebtedness) of the
consolidated and unconsolidated subsidiaries of each.
The dividend rate and the dividend and other payment dates for the
ComPS will correspond to the interest rate and interest and other payment
dates on the Related Note. As a result, if Morgan Guaranty does not make
principal or interest payments on the Related Note, the Company will not
have sufficient funds to make distributions on the ComPS, in which event
the Guarantee will not apply to such distributions until the Company has
sufficient funds available therefor. However, in such event, the Company
and, in certain circumstances, the holders of ComPS will have remedies
under the Related Note, and the Company will have remedies under the
Related Note Guarantee.
The ComPS are not futures contracts and do not represent an actual
investment in futures contracts. Additionally, the Redemption Value (as
defined below) per Preferred Security may be more or less than the return
from an actual investment in the Benchmark Oil Contracts. See "Description
of the ComPS".
The stated maturity of the Related Note is [ ], 20[] (the "Stated
Maturity"), at which time the Company must, except upon the occurrence and
during the continuance of a Market Disruption Event (as defined herein),
redeem the ComPS in whole at a redemption price equal to (a) the Redemption
Value (as defined herein) per Preferred Security plus (b) accrued and
unpaid dividends to but excluding the date of redemption (the "ComPS
Redemption Price"). The Related Note is redeemable in whole or in part by
Morgan Guaranty at any time in certain circumstances upon the occurrence of
a Special Event (as defined herein). If Morgan Guaranty redeems the Related
Note in whole or in part prior to the Stated Maturity, the Company must
redeem ComPS having an aggregate Principal Amount (as defined herein) equal
to the Principal Amount of the Related Note so redeemed at the ComPS
Redemption Price. See "Description of the ComPS--Redemption at Stated
Maturity;-Special Event Redemption".
<PAGE>
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
SECURITIES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE
[APPLICABLE STOCK EXCHANGE(S)], IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING TRANSACTIONS, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE>
[GRAPHIC OMITTED]
This page contains a schematic depiction of J.P. Morgan, Morgan
Guaranty and the Company, indicating particularly that Morgan Guaranty
and the Company are each wholly-owned subsidiaries of J.P. Morgan,
that the proceeds of the ComPS and related Common Securities will be
loaned to Morgan Guaranty in return for the Related Note, and
depicting the Guarantee and the Related Note Guarantee.
<PAGE>
SUMMARY OF THE OFFERING
Securities Offered [2,500,000] [ ]% Series A Preferred
Securities ("ComPS") Indexed to the
JPMCI Crude Oil Excess Return Index.
Issuer J.P. Morgan Index Funding Company, LLC
(the "Company"), a Delaware limited
liability company and a subsidiary of
J.P. Morgan & Co. Incorporated ("J.P.
Morgan").
Guarantor J.P. Morgan, on a subordinated basis,
(i) of payments to holders of ComPS of
amounts received on the Related Note by
the Company and (ii) of payments to the
Company on the Related Note by Morgan
Guaranty, a wholly-owned subsidiary of
J.P. Morgan.
Initial Offering Price [$40].
Per Preferred Security
("Face Amount")
Aggregate Face Amount [$100,000,000].
ComPS Redemption Price Redemption Value at Stated Maturity plus
accrued and unpaid dividends.
Stated Maturity [ ], 20[ ], subject to extension in
the case of a Market Disruption Event.
Redemption Value per Face Amount X Applicable Index
Preferred Security Settlement Value Applicable Index
Commencement Value
Applicable Index JPMCI Crude Oil Excess Return Index.
Applicable Index [Set on date of pricing].
Commencement Value
Applicable Index The average of the Applicable Index over
Settlement Value the 10 consecutive Trading Days meeting
certain conditions immediately following
the 20th scheduled Business Day prior to
redemption (as described herein), unless
such value has been permanently fixed
prior to such time as described under
"Description of ComPS-Early
Determination of Applicable Index
Settlement Value".
Calculation Agent Morgan Guaranty.
Dividends Cumulative cash dividends of % per annum
on the Face Amount (calculated on the
basis of a 360 day year of twelve 30-day
months) accruing from the Issue Date and
payable monthly in arrears on the last
Business Day of each month.
Cash Redemption prior to
Stated Maturity
Optional Redemption At the holders' option, on each [ ]
prior to the Stated Maturity, for the
ComPS Early Redemption Price.
Special Event Redemption Under certain circumstances, upon the
occurrence of a Tax Event or an
Investment Company Event, for the ComPS
Early Redemption Price.
<PAGE>
Early Determination of Upon the occurrence of certain events
Applicable Index affecting the liquidity or increasing the
Settlement Value cost of holding or trading the Benchmark
Oil Contracts and the inability to find
a suitable replacement Benchmark Oil
Contract, the Applicable Index
Settlement Value may be fixed, and such
fixed value will be used upon any
subsequent Early Redemption and at
Stated Maturity.
ComPS Early Redemption Price The Early Redemption Value (as defined in
the Prospectus), which represents the
payment of the discounted present value
of dividends and Principal Amount on the
applicable Early Redemption Date. See
"Description of the ComPS-Optional
Redemption" and "- Special Event
Redemption".
<PAGE>
Voting Rights Holders of ComPS will have limited voting
rights and will not be entitled to vote
to appoint, remove or replace the
Managing Members of the Company (as
defined in the LLC Agreement). See
"Description of the ComPS- Voting
Rights".
Use of Proceeds The proceeds to the Company from the sale
of ComPS and related Common Securities
will be used to purchase a note of
Morgan Guaranty (the "Related Note"),
and Morgan Guaranty will use such
proceeds for general corporate purposes
and for hedging its obligations under
the Related Note. See "Use of Proceeds".
<PAGE>
THE OFFERING
The information in this Prospectus Supplement concerning J.P. Morgan,
Morgan Guaranty, the Company, the ComPS, the Guarantee, the Related Note
Guarantee and the Related Note supplements, and should be read in
conjunction with, the information contained in the accompanying Prospectus.
The following summary of provisions relating to the ComPS is qualified in
its entirety by the more detailed information contained elsewhere or
incorporated by reference in this Prospectus Supplement and the Prospectus
of which this Prospectus Supplement constitutes a part. Prospective
purchasers of ComPS should carefully review such information. Certain
capitalized terms used in this Prospectus Supplement have the meanings
ascribed to them under the "Glossary of Terms" in Annex I hereto.
General
The Principal Amount of each of the ComPS, which is initially equal to
the Face Amount, will vary over the life of the ComPS in relation to the
JPMCI Crude Oil Excess Return Index (the "Applicable Index"). The Principal
Amount repayable on any Early Redemption Date, upon the occurrence of any
Special Event Redemption or at Stated Maturity will be determined, pursuant
to the terms described herein (including, without limitation, the averaging
of the Applicable Index over the Early Determination Period or
Determination Period, as applicable, and the present-valuing of the
dividends and Principal Amount in connection with early redemptions), by
comparing the level of the JPMCI Crude Oil Excess Return Index at the date
of issuance of the ComPS with the level determined pursuant to the terms
hereof for any such date of redemption. The ComPS represent preferred
limited liability company interests in the Company, the assets of which
will consist of the Related Note and other notes issued by Morgan Guaranty
in connection with other issuances of Preferred Securities. The Related
Note, in which the proceeds of the ComPS and the related Common Securities
will be invested, matures on [ ], 20[ ] (which is the "Stated Maturity"),
subject to extension in the case of a Market Disruption Event, and is
redeemable at certain times, from time to time, at the option of the
Company upon an optional redemption by one or more holders of ComPS in an
amount sufficient to fund such redemption and the redemption of the related
Common Securities and at any time by Morgan Guaranty in whole or in part
upon the occurrence of a Special Event. The ComPS will be redeemed at
Stated Maturity at the ComPS Redemption Price, which is equal to the sum of
(a) the Redemption Value (as defined below) per Preferred Security plus (b)
accrued and unpaid dividends thereon to but excluding the date of
redemption. In addition, if, as a result of a Special Event, Morgan
Guaranty redeems the Related Note in whole or in part prior to Stated
Maturity, the Company must redeem ComPS and related Common Securities
having an aggregate Principal Amount equal to the Principal Amount of the
Related Note so redeemed at the ComPS Redemption Price. See "Description of
the ComPS-Redemption at Stated Maturity";-Special Event Redemption". For
purposes of this Prospectus Supplement, "Principal Amount" means (i) in the
case of any Preferred Security, the Early Redemption Value thereof or the
Redemption Value thereof (as if determined as of such time), as applicable,
and (ii) in the case of the Related Note, the principal amount thereof at
such time determined pursuant to the terms thereof.
Dividends
The holders of ComPS are entitled to receive cumulative cash dividends
at the rate of [ ]% per annum on the Face Amount per Preferred Security,
accruing from the Issue Date, and payable monthly in arrears on the last
calendar day of each month, commencing [ ], 1996, or, if any such date is
not a Business Day (as defined herein), the next succeeding Business Day
when, as and if available for payment by the Company (as described herein),
except as otherwise described herein. The first dividend payment will be
for the period from and including the Issue Date to but excluding [ ],
1996. Dividends (or amounts equal to accrued and unpaid dividends) payable
on the ComPS for any period shorter than a monthly dividend period will be
computed on the basis of a 360-day year of twelve 30-day months and on the
basis of the actual number of days elapsed in any such 30-day month. See
"Description of the ComPS-Dividends".
<PAGE>
Redemption at Stated Maturity
Unless previously redeemed pursuant to the optional or special
redemption provisions described below, each of the outstanding ComPS will
be redeemed by the Company, in cash, on [ ] , 20[ ], which is the Stated
Maturity of the Related Note, subject to extension in the case of a Market
Disruption Event (as defined herein), at the ComPS Redemption Price, which
is equal to (a) the Redemption Value per Preferred Security plus (b)
accrued and unpaid dividends thereon to but excluding the date of
redemption. See "Description of the ComPS-Mandatory Redemption"; "Risk
Factors-Extension of Settlement Date or Stated Maturity".
Calculation of Redemption Value
The Principal Amount of each Preferred Security is indexed to the
JPMCI Crude Oil Excess Return Index (the "Applicable Index"), which is
calculated based on the change in value of certain crude oil futures
contracts included from time to time in the JPM Indices (such
contracts,from time to time, the "Benchmark Oil Contracts"). On the date of
this Prospectus Supplement, the Benchmark Oil Contract is the Light "Sweet"
Crude Oil futures contract traded on the New York Mercantile Exchange
("NYMEX"). In summary, and subject to the complete definitions and formulae
contained herein and in the Prospectus, the Principal Amount of each
Preferred Security at Stated Maturity, subject to extension in the case of
a Market Disruption Event (the "Redemption Value"), shall be determined by
multiplying the Face Amount of each Preferred Security by a fraction, the
numerator of which is the Applicable Index Settlement Value and the
denominator of which is the Applicable Index Commencement Value. Subject to
the more complete definitions contained herein and in the accompanying
Prospectus, "Applicable Index Settlement Value" means the arithmetic
average of the values of the Applicable Index during the Determination
Period (as defined below), and "Applicable Index Commencement Value" means
[value on date of issuance]. See "Description of ComPS- Calculation of
Redemption Value" herein and "Description of ComPS-Determination Period and
Settlement Date" in the accompanying Prospectus.
Early Determination of Applicable Index Settlement Value and Redemption Value
Upon the occurrence of certain events affecting the liquidity or
increasing the cost of holding or trading the Benchmark Oil Contracts and
the inability to find a suitable replacement Benchmark Oil Contract, Morgan
Guaranty has the right to cause the Applicable Index Settlement Value to be
fixed. Following such an event, the Applicable Index Settlement Value will
remain fixed and will be used as the Applicable Index Early Settlement
Value for the computation of any Early Redemption Value and as the
Applicable Index Settlement Value at Stated Maturity. See "Description of
the ComPS--Early Determination of Redemption Value".
For example, with a Face Amount of [$40] and an Applicable Index
Commencement Value of [100], an early determination of the Applicable Index
Settlement Value at the following levels would result in the following
Redemption Values:
Applicable Index Settlement Value Redemption Value
50 $20.00
80 $32.00
100 $40.00
120 $48.00
150 $60.00
Optional Redemption
Each holder of ComPS may, by giving notice as specified herein before
the [ ] of each year prior to Stated Maturity (each, an "Optional
Redemption Date"), cause the Company to redeem some or all of such holder's
ComPS at the ComPS Early Redemption Price, which is equal to (a) the Early
Redemption Value (as defined in the Prospectus) per Preferred Security as
determined at such time plus (b) accrued and unpaid dividends thereon to
but excluding the date of redemption. See "Description of the
ComPS-Optional Redemption".
<PAGE>
Special Event Redemption
Upon the occurrence and during the continuation of a Tax Event or an
Investment Company Event (each as defined herein), Morgan Guaranty will
have the right to redeem the Related Note in whole or, if redemption of
less than all the ComPS will result in the discontinuance of such Special
Event, in part in an amount sufficient to cause such discontinuance, in
each case for cash, with the result that the Company will redeem a
Principal Amount of ComPS and related Common Securities equal to the
Principal Amount of the Related Note so redeemed for cash at the ComPS
Early Redemption Price. However, in the case of a Tax Event, Morgan
Guaranty may allow the Related Note and the Company may allow the ComPS and
related Common Securities to remain outstanding upon the receipt of
indemnification by J.P. Morgan of the Company for all taxes payable by it
as a result of such Tax Event. See "Description of the ComPS-Special Event
Redemption".
Unconditional Guarantee by J.P. Morgan
J.P. Morgan and the Company believe that the mechanisms and
obligations relating to the subordinated obligations of J.P. Morgan under
the Guarantee and the Related Note Guarantee and the obligations of J.P.
Morgan under the LLC Agreement and the Expense Agreement to pay certain
obligations, costs and expenses of the Company, taken together, are
equivalent to a full and unconditional guarantee, on a subordinated basis,
by J.P. Morgan of payments due on the ComPS. See "Risk Factors-Rights Under
the Guarantee, the Related Note Guarantee and the Related Note",
"Description of the Related Note Guarantee" and "Effect of Obligations
Under the Guarantee, the Related Note Guarantee and the Related Note".
The Guarantee
The Guarantee by J.P. Morgan guarantees to the holders of the ComPS
the payment of (i) the ComPS Early Redemption Price or the ComPS Redemption
Price, as applicable, but if and only if and to the extent that, in each
case, Morgan Guaranty has made payment of interest or principal on the
Related Note, as the case may be, and (ii) upon a Liquidation Event (as
defined herein) (other than in connection with the redemption of all the
ComPS upon maturity or redemption of Related Note), the lesser of (A) the
sum of (I) the Early Redemption Value of such ComPS and (II) the amount of
accrued and unpaid dividends on such ComPS to but excluding the date of
payment (the "Liquidation Distribution"), to the extent the Company has
funds available therefor and (B) the amount of assets of the Company
remaining available for distribution to holders of the ComPS upon such
Liquidation Event. J.P. Morgan's obligations under the Guarantee will be
subordinated and junior in right of payment to all liabilities of J.P.
Morgan, pari passu with the most senior preferred stock outstanding as of
the date hereof of J.P. Morgan and senior to the common stock of J.P.
Morgan.
The Related Note Guarantee
The Related Note Guarantee by J.P. Morgan guarantees to the Company
the payment of any dividends on and principal of the Related Note as
provided pursuant to the terms of the Related Note, at such times and in
such amounts as provided therein. J.P. Morgan's obligations under the
Related Note Guarantee will be subordinated and junior in right of payment
to all liabilities of J.P. Morgan, pari passu with the most senior
preferred stock issued from time to time by J.P. Morgan and senior to the
common stock of J.P. Morgan.
Related Note
The Related Note will be issued as an unsecured obligation of Morgan
Guaranty, limited in initial principal amount to approximately $[ ], such
amount being the aggregate Face Amount of the ComPS and the related Common
Securities. The Related Note will mature on the Stated Maturity (subject to
extension in the case of a Market Disruption Event), and will bear interest
at an annual rate of [ ]% on the Face Amount (which is equivalent to the
annual dividend rate with respect to the ComPS), payable monthly in arrears
on the last day of each calendar month, commencing on [ ], 1996. The
Principal Amount of the Related Note at
<PAGE>
any time will be the aggregate Principal Amount of the outstanding ComPS
and related Common Securities at such time. The amount payable upon
maturity for the Related Note will be the Related Note Redemption Price.
The obligations of Morgan Guaranty under the Related Note will be pari
passu with all present and future Senior Indebtedness which aggregated
$76.1 billion at December 31, 1995. Morgan Guaranty's obligations under the
Related Note are effectively subordinated to all liabilities (including
indebtedness) of its consolidated and unconsolidated subsidiaries.
Voting Rights
Holders of ComPS will have limited voting rights and will not be
entitled to vote to appoint, remove or replace the Managing Members of the
Company. See "Description of the ComPS-Voting Rights".
Use of Proceeds
The Company will invest the proceeds from the sale of the ComPS
offered hereby and the related Common Securities in the Related Note, the
proceeds of which will be used by Morgan Guaranty for general corporate
purposes and for hedging its obligations under the Related Note. See "Use
of Proceeds".
Listing
[The ComPS have been authorized for listing on the [ ] under the
symbol " , subject to official notice of issuance. Trading of the ComPS on
the [ ] is expected to commence within a 30-day period after the date of
this Prospectus Supplement.] [Prior to this offering, there has been no
market for the ComPS. In order to meet one of the requirements for listing
the ComPS on the [ ], the Underwriters will undertake to sell lots of 100
or more ComPS to a minimum of 400 beneficial holders.]
<PAGE>
RISK FACTORS
Indexation of Principal Amount
The Principal Amount of each of the ComPS, which is initially equal to
the Face Amount, will vary until Stated Maturity of the ComPS in relation
to the JPMCI Crude Oil Excess Return Index (the "Applicable Index"). The
Principal Amount repayable on any Optional Redemption Date, upon the
occurrence of any Special Event Redemption or in connection with any
Liquidation Distribution (each such redemption date, an "Early Redemption
Date") or at Stated Maturity will be determined, pursuant to the terms
described herein (including, without limitation, the averaging of the
Applicable Index over the Early Determination Period or Determination
Period, as applicable, and the present-valuing of the dividends and
Principal Amount in connection with early redemptions), by comparing the
level of the JPMCI Crude Oil Excess Return Index at the date of issuance of
the ComPS with the level determined pursuant to the terms hereof for any
such date of redemption. Accordingly, the Principal Amount to be received
upon any date of redemption will fluctuate based on the Applicable Index
and may be lower than the Face Amount.
Rights Under the Guarantee, the Related Note Guarantee and the Related Note
The Guarantee will be a full and unconditional guarantee with respect
to the ComPS from the time of issuance of such ComPS but will not apply to
any payment of dividends or other amounts due in respect of the ComPS to
the extent Morgan Guaranty has failed to make a payment of principal or
interest on the Related Note. To the extent Morgan Guaranty were to default
on its obligation to pay amounts payable on the Related Note, the Company
would lack available funds for the payment of distributions on or amounts
payable on redemption of the ComPS and, in such event, holders of the ComPS
would not be able to rely on the Guarantee for payment of such amounts.
Instead, holders of the ComPS would rely on the enforcement by the Company
of its rights as holder of the Related Note against Morgan Guaranty and as
holder of the Related Note Guarantee against J.P. Morgan. J.P. Morgan and
the Company believe that the mechanisms and obligations relating to the
Guarantee, the Related Note Guarantee and the obligations of J.P. Morgan
under the LLC Agreement and Expense Agreement to pay certain obligations,
costs and expenses of the Company, taken together, are equivalent to a full
and unconditional guarantee, on a subordinated basis, by J.P. Morgan of
payments due on the ComPS. See "Description of the Guarantee" and
"Description of the Related Note Guarantee".
Special Event Redemption
Upon the occurrence of a Special Event, in certain circumstances
Morgan Guaranty shall have the right to redeem the Related Note, in whole
or in part, in which event the Company will redeem the ComPS and related
Common Securities on a pro rata basis to the same extent as the Principal
Amount of the Related Note is redeemed by Morgan Guaranty.
As described in more detail below, a Special Event includes (i) a Tax
Event and (ii) an Investment Company Event. See "Description of the
ComPS-Special Event Redemption".
It is possible that the occurrence of a Special Event will cause the
market price of the ComPS in any existing secondary market to decline.
Limited Voting Rights
Holders of ComPS will have limited voting rights and will not be
entitled to vote to appoint, remove or replace the Managing Members of the
Company (as defined in the LLC Agreement), which voting rights are vested
exclusively in the holders of the Common Securities. See "Description of
the ComPS-Voting Rights".
<PAGE>
Trading Price
[The ComPS have been authorized for listing on the [ ] under the
symbol "[ ] ", subject to official notice of issuance. Trading of the ComPS
on the [ ] is expected to commence within a 30-day period after the date of
this Prospectus Supplement. [Prior to this offering there has been no
market for the ComPS. In order to meet one of the requirements for listing
the ComPS on the [ ], the Underwriters will undertake to sell lots of 100
ComPS to a minimum of 400 beneficial holders.] However, it is not possible
to predict whether the necessary number of holders will purchase and, for
the remaining term of the ComPS, continue to hold ComPS in order that any
secondary market which does develop continues to exist. The Underwriters
are not obligated to make a market for the ComPS, and although JPMSI, as
lead Undewriter, intends to use its reasonable efforts to do so, it is
possible that no active secondary market for the ComPS will develop and
remain in existence.
There can be no assurance as to the market prices for the ComPS in any
secondary market which does develop. Accordingly, the ComPS that an
investor may purchase, whether pursuant to the offer made hereby or in the
secondary market, may trade at a discount to the price that the investor
paid to purchase the ComPS offered hereby.
The value of the ComPS at any time will depend upon the interaction of
at least three key factors: (i) the level of the Applicable Index, (ii) the
credit quality of Morgan Guaranty and J.P. Morgan and (iii) the interest
rate environment. Adverse changes in any of these three factors will
adversely affect the value of the ComPS at such time. The ComPS are
expected to trade at a price that takes into account the value, if any, of
accrued and unpaid dividends; thus, purchasers will not pay and sellers
will not receive any accrued and unpaid interest with respect to their pro
rata interests in the Related Note owned through the ComPS that is not
already reflected in the trading price of the ComPS. However, interest on
the Related Note will be included in the gross income of holders of ComPS
as it accrues, rather than when it is paid. See "United States Federal
Income Taxation--Sale or Other Disposition of ComPS".
Because holders of ComPS are essentially investing in a pro rata share
of the Related Note, prospective purchasers of ComPS are also making an
investment decision with regard to the Related Note and should carefully
review all the information regarding the Related Note contained herein and
in the accompanying Prospectus. See "Description of the Related Note".
Bank Regulatory Restrictions
The Company's ability to make distributions and other payments on the
ComPS is dependent upon Morgan Guaranty's making interest and other
payments on the Related Note as and when required or collection by the
Company under the Related Note Guarantee. As noted in the accompanying
Prospectus under "J.P. Morgan & Co. Incorporated-Regulation", Morgan
Guaranty is subject to examination and regulation by U.S. federal and state
banking authorities, and although there is no current restriction on Morgan
Guaranty's ability to make payments under the Related Note, certain other
transactions with affiliates, including the Company, are or may become
subject to restrictions.
Effect of Trading in the Benchmark Oil Contracts and Related Commodities
and Instruments
Morgan Guaranty and other affiliates of J.P. Morgan are and will be
actively involved in the trading of the Benchmark Oil Contracts and other
instruments and derivative products based thereon. Morgan Guaranty, in
particular, is an active participant in various commodity markets including
the physical petroleum, precious and base metals and related derivatives
markets. JPMSI and other affiliates may also issue or underwrite, or
authorize unaffiliated entities to issue or underwrite, other securities or
financial instruments with returns indexed to the Applicable Index, one or
more of the JPM Indices or to another commodity. Morgan Guaranty has
licensed, and may in the future license, the Applicable Index, the JPM
Indices, and related indices and sub-indices for use by affiliated and
unaffiliated parties, for publication in newspapers and periodicals, for
distribution by information and data
<PAGE>
dissemination services and for other purposes. Morgan Guaranty currently
intends to publish individual commodity sub-indices for each of the
commodities included in the JPMCI using the same calculation methodology as
that described below. The Applicable Index on the date hereof is identical
to the sub-index having the same underlying commodity.
Trading in the foregoing contracts and commodities by Morgan Guaranty,
its affiliates (including JPMSI) and unaffiliated third parties could
adversely affect the value of the Applicable Index, which would in turn
adversely affect the return on and the value of the ComPS. See "The
Applicable Index".
Potential for Adverse Interests
As noted above, Morgan Guaranty, JPMSI and their affiliates expect to
engage in trading activities related to the Benchmark Oil Contracts and
other instruments or derivatives products on or related to the Applicable
Index, for their accounts where permitted or for other accounts under their
management. Morgan Guaranty, JPMSI and their affiliates, as well as
unaffiliated third parties, may also engage in other activities related to
the Applicable Index, as discussed above. Because Morgan Guaranty will
issue the Related Note issued to the Company, all such activities could
create interests of Morgan Guaranty adverse to those of the holders of
ComPS. For example, the issuance of other securities indexed to the
Applicable Index, i.e., the introduction of competing products into the
marketplace, could adversely affect the value of the ComPS. To the extent
that J.P. Morgan or one of its affiliates serves as issuer, or JPMSI or one
of its affiliates serves as agent or underwriter, for such securities or
other instruments, their interests with respect to such products may be
adverse to those of the holders of the ComPS. Morgan Guaranty will serve as
Calculation Agent with respect to the ComPS and, accordingly, will in good
faith calculate the Applicable Index, which could also raise certain
adverse interests (for example, in instances where Morgan Guaranty as the
Calculation Agent is required to exercise discretion).
Risk of Carrying and Rolling Benchmark Oil Contracts
As discussed below, the Early Redemption Value and the Redemption
Value of the ComPS will be calculated with reference to the Applicable
Index, the value of which is designed to replicate to the extent provided
herein the cumulative return of holding a continuous investment in the
Benchmark Oil Contracts. At any given time, the Applicable Index will be
calculated based on the change in value of certain Benchmark Oil Contracts
for delivery in the near term (the "shorter dated contracts"). The
Applicable Index will continue to be calculated based on the change in
value of such shorter-dated contracts until they approach maturity, at
which time the Applicable Index will, as described below, cease to be
calculated based on the change in value of such shorter-dated contracts and
begin to be calculated based on the change in value of the subsequent
Benchmark Oil Contracts (the "longer-dated contracts") on a regular
periodic basis so as to be continuously indexed to the change in value of
Benchmark Oil Contracts. The period during which each such replacement of
shorter-dated contracts with longer-dated contracts as the basis for the
calculation of the change in value of the Applicable Index occurs is
referred to herein as the "Rollover Period", as further defined below. If
the market for Benchmark Oil Contracts is in "contango" (i.e., the prices
of longer-dated contracts are above the prices of shorter-dated contracts),
the return on the Applicable Index may be adversely affected. The
Applicable Index would decline if (i) the price of the longer-dated
Benchmark Oil Contracts during the Rollover Period were more than the price
of the shorter-dated contracts which they will replace and (ii) the price
of the longer-dated contracts were to decline as such contracts approach
maturity (i.e., the price of the longer-dated contracts were to converge
toward the price of the replaced shorter-dated contracts). While many of
the commodities included in the JPM Indices have historically exhibited
periods of both "backwardation" (i.e., the prices of longer-dated contracts
are below the prices of shorter-dated contracts) and contango, there can be
no assurance that backwardation will exist at any or all times. The absence
of backwardation in the market for Benchmark Oil Contracts could adversely
affect the Applicable Index and, correspondingly, could adversely affect
the value of the ComPS. Additionally, the issuance and/or the trading of
the ComPS could adversely affect the market for Benchmark Oil Contracts
and, correspondingly, could adversely affect the value of the ComPS.
<PAGE>
The simulated level of the JPMCI Crude Oil Excess Return Index (the
Applicable Index), as calculated for the years 1984-1996, is set forth
below:
Simulated Levels of JMPCI Crude Oil Excess Return Index, 1984-1996*
[GRAPH OMITTED]
This Graphic depicts the simulated level of the JPMCI Crude Oil Excess
Return Index as described herein by applying such Index to historical
futures contract settlement values from January, 1984-January, 1996.
Source: Morgan Guaranty
* These levels are simulated levels only, derived by applying the rules
of the JPMCI Crude Oil Excess Return Index as described herein to
historical NYMEX futures contract settlement values. Morgan Guaranty
commenced actual calculation and publication of the JPMCI Crude Oil
Excess Return Index, using the rules described herein, as of February
1, 1996.
Volatility of Oil and Oil Futures Prices
Oil prices can fluctuate widely and are affected by numerous factors
other than economic activity. Such factors include weather, political
events, labor activity, direct government intervention such as embargos
and, especially, supply disruptions in major oil producing or consuming
regions such as the Middle East, the United States, Latin America and
Russia. Supply disruptions tend to affect oil prices worldwide, regardless
of the location of the disruption. Market expectations about these events
and speculative activity also cause prices to fluctuate.
Oil demand and supply adjust to price changes, but mainly in the long
term. That is, the adjustment that eventually corrects the imbalance that
caused the initial price fluctuation takes time. In the short term,
demand/supply responsiveness to price changes is limited and, at times, in
the opposite direction. For example, if prices rise, oil consumers will
curtail their oil demand over time; often, however, the immediate response
has been an increase in demand through increased stockpiling. In addition,
the structure of oil supply is different from that of most other
commodities. Since the early 1970's, market prices have been well above the
average cost of production, while the marginal producers have been the
large, low-cost producers of the Middle East. This cost structure also
tends to prolong and exacerbate price fluctuations and volatility.
Volatility in the Benchmark Oil Contracts will correlate directly to
volatility in the Applicable Index. Such volatility could adversely affect
the value of the Applicable Index and, correspondingly, could adversely
affect the value of the ComPS.
Effect of Adverse Changes in Commodity Prices
The Applicable Index is designed to replicate to the extent provided
herein the cumulative return of holding a continuous investment in the
Benchmark Oil Contracts over time. In the event of sudden disruptions in
the supplies of crude oil, such as those caused by war, accidents, weather,
or acts of terrorism, prices of Benchmark Oil Contracts, and, consequently,
the value of the Applicable Index, could become extremely volatile and
<PAGE>
unpredictable. Also, sudden and dramatic declines in Benchmark Oil Contract
prices as may occur, for example, upon a cessation of hostilities that may
exist in countries producing crude oil or upon the discovery of significant
additional sources or reserves of crude oil, the introduction of new or
previously withheld supplies into the market (e.g., Iraqi oil) or the
introduction of substitute products or commodities, could have a
significant adverse effect on the value of the Applicable Index and on the
value of the ComPS. In addition, the price of crude oil has on occasion
been subject to very rapid short-term changes due to speculative
activities.
Suspension or Material Disruption of Futures or Commodities Trading;
Temporary Distortions
The futures markets and the markets for oil are subject to temporary
distortions or other disruptions due to conditions of illiquidity in the
markets, the participation of speculators, government regulation and
intervention and other factors. In addition, U.S. futures exchanges
(including the NYMEX) and certain foreign exchanges have regulations which
limit the amount of fluctuation of futures contract prices which may occur
during a single trading day. Such limits are generally referred to as
"daily price fluctuation limits" or, more commonly, "daily limits", and the
maximum or minimum price of a contract on any given day, as a result of the
effect of such limits, is referred to as a "Limit Price", as discussed
below. In a particular futures contract, once the Limit Price has been
reached in such a contract, no trades may be made on that day at a price
above or below the Limit Price, as the case may be. Limit Prices may have
the effect of precluding trading in a particular contract for all or a
portion of a trading day or forcing the liquidation of contracts at
disadvantageous times or prices. Such circumstances, particularly if they
occur during the Rollover Period for the Applicable Index or during an
Early Determination Period or the Determination Period (each as defined
herein) for the Applicable Index, could adversely affect the value of the
Applicable Index and/or could constitute a Market Disruption Event (as
defined below) and, therefore, could adversely affect the value of the
ComPS.
In the event that no official settlement price as reported by the
relevant exchange (the "Settlement Price") is available, such Settlement
Price is a Limit Price or there is a Market Disruption Event, in each case
with respect to any of the Benchmark Oil Contracts underlying the
Applicable Index for any day, no official Applicable Index Value will be
calculated for such day. Depending on the period of time over which such
situation continues, the correlation between changes in the value of the
Applicable Index and changes in the general level of prices of crude oil
may be adversely affected. Under such circumstances, the value of the
Applicable Index, and the value of the ComPS, may be adversely affected.
In the event of a Market Disruption Event during the Determination
Period, the Early Redemption Value or Redemption Value, as applicable,
payable in respect of the ComPS will be calculated using the Applicable
Index on the day or days (other than a Saturday or Sunday) on which either
the NYMEX or the London Metal Exchange (the "LME") is scheduled to be open
or is open (each, a "Trading Day") immediately following the termination of
such Market Disruption Event. However, if such Market Disruption Event
remains in effect for longer than 20 consecutive Trading Days and, in the
reasonable judgment of Morgan Guaranty, such Market Disruption Event is
likely to remain in effect, then the Applicable Index Settlement Value for
each Trading Day subject to a Market Disruption Event may be determined in
good faith by Morgan Guaranty based on alternative pricing sources
reasonably believed by it to be indicative of then-prevailing prices for
notional transactions in futures contracts or commodities equal in size to
the Applicable Index Settlement Value, although Morgan Guaranty has no
obligation to do so. Because Morgan Guaranty's obligations under the
Related Note will also be based on the Applicable Index Settlement Value,
Morgan Guaranty may have an adverse interest with respect to such
determination.
Historical Correlations May Not Prevail in the Future
Although historically the JPMCI Crude Oil Excess Return Index and the
spot prices of crude oil have shown some positive correlation with
inflation and some negative correlation
<PAGE>
with stock and bond returns, there can be no assurance that such
correlations will prevail in the future.
Changes in Laws or Regulations or Interpretations Thereof
Prices of commodities and commodity futures contracts may be adversely
affected by the promulgation of new laws or regulations or by the
reinterpretation of existing laws or regulations (including, without
limitation, those relating to taxes and duties on commodities or commodity
components) by one or more governments, governmental agencies or
instrumentalities, courts or other official bodies. Any such event could
adversely affect the value of the Applicable Index and, correspondingly,
could adversely affect the value of the ComPS. Additionally, the occurrence
of certain events increasing the cost of holding or trading the Benchmark
Oil Contracts and the inability to find a suitable replacement Benchmark
Oil Contract could lead Morgan Guaranty to cause the Applicable Index
Settlement Value to be fixed, in which event the Redemption Value of the
ComPS would not vary through Stated Maturity.
Extension of Settlement Date or Stated Maturity
If any Benchmark Oil Contract were to be affected by a Market
Disruption Event during any Early Determination Period or the Determination
Period, the applicable Settlement Date would be postponed until the fifth
Business Day after the last day of the applicable Early Determination
Period or the Determination Period. Such delay could be of indefinite
duration. In the event that payment of the Redemption Value is postponed
beyond the Stated Maturity, interest will accrue on the Face Amount in the
manner described under the caption "Description of the ComPS-Calculation of
Redemption Value", but no dividends will be payable after Stated Maturity.
In the event payment of the Early Redemption Value is postponed beyond the
applicable Early Redemption Date, no dividends will be payable, and no
interest will accrue and be payable, with respect to ComPS redeemed on such
Early Redemption Date.
Discontinuance of Publishing of the Applicable Index
In the event that Morgan Guaranty discontinues publication of the JPM
Indices or the relevant sub-index, the Calculation Agent will continue to
calculate in good faith the Applicable Index during the remaining term of
the ComPS, based on the methodology described in the accompanying
Prospectus. However, such good-faith calculation may result in a ComPS
Redemption Price or ComPS Early Redemption Price for the ComPS which is
less than the ComPS Redemption Price or ComPS Early Redemption Price, as
applicable, for such ComPS had it been calculated on the basis of the JPM
Indices or the relevant sub-index.
Potential Modifications to the JPM Indices and/or the Applicable Index
Morgan Guaranty reserves the right at its discretion to make any
modifications to the JPM Indices based on the recommendations of the JPMCI
Policy Committee. As discussed in the accompanying Prospectus, the JPMCI
Policy Committee advises Morgan Guaranty with respect to, among other
things, the composition of the JPM Indices, the price sources upon which
the JPM Indices are based (i.e., the underlying futures contracts,
including the Benchmark Oil Contracts) and the weightings and calculation
methodology of the JPM Indices, all with a view toward maintaining the JPM
Indices as appropriate commodity investment benchmarks that serve as a
measure of performance of the commodity markets. Currently, the inclusion
requirements for the futures contracts underlying the JPM Indices require
that such contracts be sufficiently liquid and representative price
sources. It is possible, however, that any such underlying contract could
become less liquid or representative and, as a result, the JPMCI Policy
Committee may recommend a modification in the calculation methodology or
the contracts underlying the JPM Indices and, therefore, the Applicable
Index. Any such replacement contract (i) will be required to satisfy the
JPMCI Inclusion Criteria, as described in the accompanying Prospectus under
the caption "The JPMCI Policy Committee", and (ii) must be
<PAGE>
traded in a market or with a self-regulator which has established either
(a) a comprehensive information sharing agreement with the exchange, if
any, on which the ComPS are then traded or (b) suitable alternative
arrangements with the Commission. For example, the JPMCI currently includes
the NYMEX futures contract for Light "Sweet" Crude Oil. It is possible that
such contract may become less liquid and tradeable over time and an
alternative crude oil futures contract, including, for example, the
contract for Brent Crude Oil traded on the International Petroleum
Exchange, may be the most liquid, tradeable contract and therefore a more
appropriate benchmark and price source. Such a change from a less liquid to
a more liquid contract may result in a lower Early Redemption Value or
Redemption Value for the ComPS than would have been the case if the less
liquid contract had remained the benchmark.
If at any time no contract satisfying both clauses (i) and (ii) of the
previous paragraph can be found to serve as a Benchmark Oil Contract, the
Applicable Index Settlement Value of the ComPS will be determined at such
time (in accordance with the methodology set forth below under the caption
"Description of the ComPS-Calculation of Redemption Value") as if the last
date of the inclusion of the final Benchmark Oil Contract in the JPM
Indices were the Stated Maturity. However, such ComPS will not be redeemed
on such date; rather, the ComPS will remain outstanding to Stated Maturity
and will be redeemed at the Stated Maturity for a Redemption Value
calculated using the Applicable Index Settlement Value determined pursuant
to the terms hereof. Such ComPS will also be subject to redemption upon the
occurrence of a Special Event and optional redemption on each Optional
Redemption Date (treating the Applicable Index Settlement Value determined
pursuant to the terms hereof as the Applicable Index Early Settlement Value
for any Early Redemption Date) Such an early determination of the
Applicable Index Settlement Value may result in the holders of the ComPS
receiving an amount that is less than what indicative commodity and futures
prices prevailing on any Early Redemption Date or at the Stated Maturity
would otherwise imply. Because Morgan Guaranty will be the Calculation
Agent, such early determination may raise adverse interests.
Additionally, if at any time any Benchmark Oil Contract, or the
trading thereof, becomes subject to any increased cost or additional tax,
whether imposed by any exchange or otherwise, Morgan Guaranty reserves the
right to (x) designate a replacement Benchmark Oil Contract, satisfying
both clauses (i) and (ii) of the second preceding paragraph, which contract
is subject to an amount of cost or tax less than or equal to such increased
amount or (y) if no contract satisfying clause (x) of this paragraph is
designated by Morgan Guaranty, to cause, at its option, the Applicable
Index Settlement Value of the ComPS to be determined at such time (in
accordance with the methodology set forth above) as if the date of such
increase in cost or tax (or, in Morgan Guaranty's discretion, the last
calendar day of the month in which the determination of the Applicable
Index Settlement Value is completed) were the Stated Maturity. However, the
ComPS will not be redeemed at such time; rather, the ComPS will remain
outstanding to Stated Maturity and will be redeemed at the Stated Maturity
for a Redemption Value calculated using the Applicable Index Settlement
Value determined pursuant to the terms hereof. Such ComPS will also be
subject to redemption upon the occurrence of a Special Event and optional
redemption on each Optional Redemption Date (treating the Applicable Index
Settlement Value determined pursuant to the terms hereof as the Applicable
Index Early Settlement Value for any Early Redemption Date) and will be
redeemed at the Stated Maturity for a Redemption Value calculated using the
Applicable Index Settlement Value determined pursuant to the terms hereof.
Because Morgan Guaranty will, at the time any Benchmark Oil Contract
becomes subject to such increased cost or additional tax, in its discretion
decide whether or not to cause an early determination of the Applicable
Index Settlement Value of the ComPS, exercise of such option may raise an
adverse interest.
An early determination of the Applicable Index Settlement Value may
cause the market price of ComPS in any existing secondary market to
decline.
Early Redemption
The ComPS may be automatically redeemed prior to their Stated Maturity
upon the occurrence of a Special Event or redeemed at the option of the
holders thereof on each Optional Redemption Date. In the case of a
redemption upon the occurrence of a Special Event, the Early Redemption
Value paid by the Company at such time may be significantly less than
<PAGE>
the Redemption Value that would otherwise have been payable had the ComPS
not been redeemed prior to their Stated Maturity and the occurrence of such
Special Event may cause the market price of ComPS in any existing secondary
market to decline. In the case of an optional redemption by holders, it is
likely, under usually-prevailing market conditions, that the Early
Redemption Value paid by the Company will be less than the amount such
holder could have realized by selling such ComPS in an existing secondary
market, if any, ratably during the Early Determination Period. Delay in
payment of the ComPS Early Redemption Price (as a result of a Market
Disruption Event or a delay in the provision by DTC to the Company of the
Applicable Notice (as defined below)) will not entitle holders of ComPS to
additional dividends on the ComPS or the accrual of any interest on such
ComPS Early Redemption Price.
Certain Considerations Regarding Hedging
Prospective purchasers of the ComPS who intend to hedge against the
risks associated with the market for crude oil should recognize the
complexities of utilizing the ComPS in this manner. The formula under which
the Principal Amount is calculated is not guaranteed to produce
distributions to holders having readily definable relationships with other
crude oil market instruments and products. As described below, because the
Applicable Index is an Excess Return Index, the value of the ComPS will
reflect not only the price of the Benchmark Oil Contracts but also the
state of the futures market for Benchmark Oil Contracts (i.e., whether such
market is in "backwardation" or "contango", as discussed above). Also,
under certain circumstances, amounts payable on the ComPS may be based on
the good faith determination of Morgan Guaranty and not on the Applicable
Index. For these reasons, investors should be cautious in using the ComPS
in a hedging program. The risks associated with utilizing the ComPS in a
hedging program may be magnified in periods of substantial crude oil price
volatility.
J.P. MORGAN & CO. INCORPORATED
J.P. Morgan, whose origins date to a merchant banking firm founded in
London in 1838, is the holding company for a group of global subsidiaries
that provide a wide range of financial services to corporations,
governments, financial institutions, institutional investors, professional
firms, privately held companies, nonprofit organizations, and financially
sophisticated individuals. J.P. Morgan's activities are summarized in the
accompanying Prospectus.
J.P. MORGAN INDEX FUNDING COMPANY, LLC
J.P. Morgan Index Funding Company, LLC, is a Delaware limited
liability company formed pursuant to (i) the filing of a certificate of
formation with the Secretary of State of the State of Delaware on November
21, 1995 and (ii) the limited liability company agreement, dated February
16, 1996, and effective as of November 21, 1995 (the "LLC Agreement"),
filed as an exhibit to the Registration Statement of which this Prospectus
Supplement and the accompanying Prospectus form a part. J.P. Morgan will
directly or indirectly acquire all Common Securities of the Company. The
Company exists for the exclusive purposes of (i) issuing the ComPS and
Common Securities, and from time to time additional series of preferred and
common securities, (ii) investing the gross proceeds of the ComPS and
Common Securities in the Related Note, and investing the proceeds of such
additional issuances of preferred and common securities in other Senior
debt obligations of Morgan Guaranty, and (iii) engaging in only those other
activities necessary or incidental thereto.
Pursuant to the LLC Agreement, the Common Securities will initially be
owned by J.P. Morgan and by J.P. Morgan Ventures Corporation, a Delaware
corporation and a wholly- owned subsidiary of J.P. Morgan ("JPM Ventures").
J.P. Morgan and JPM Ventures will be the Managing Members of the Company
(as defined in the LLC Agreement).
The LLC Agreement and the Agreement as to Expenses and Liabilities,
dated as of [ ], 1996, between J. P. Morgan and the Company (the "Expense
Agreement"), provide that J.P.
<PAGE>
Morgan will pay for all debts and obligations (other than with respect to
the ComPS to the extent set forth herein) and all costs and expenses of the
Company, including any taxes and all costs and expenses with respect
thereto, to which the Company may become subject. The Company and J.P.
Morgan have agreed that any person to whom such debts, obligations, costs
and expenses are owed will have the right to enforce J.P. Morgan's
obligations in respect of such debts, obligations, costs and expenses
directly against J.P. Morgan without first proceeding against the Company.
The rights of the holders of the ComPS, including economic rights,
rights to information and voting rights, are set forth in the LLC
Agreement. See "Description of the ComPS".
USE OF PROCEEDS
The Company will invest the proceeds from the sale of the ComPS
offered hereby and the related Common Securities in a Related Note of
Morgan Guaranty, the proceeds of which will be used by Morgan Guaranty for
general corporate purposes and for hedging its obligations under the
Related Note.
DESCRIPTION OF THE ComPS
The ComPS will be issued pursuant to the LLC Agreement. The following
summary of the principal terms and provisions of the ComPS does not purport
to be complete and is subject to, and qualified in its entirety by
reference to, the Prospectus of which this Prospectus Supplement
constitutes a part and the LLC Agreement, a copy of which is filed as an
exhibit to the Registration Statement of which this Prospectus Supplement
is a part.
General
The Principal Amount of each of the ComPS, which is initially equal to
the Face Amount, will vary over the life of the ComPS in relation to the
JPMCI Crude Oil Excess Return Index (the "Applicable Index"). The Principal
Amount repayable on any Early Redemption Date, upon the occurrence of any
Special Event Redemption or at Stated Maturity will be determined, pursuant
to the terms described herein (including, without limitation, the averaging
of the Applicable Index over the Early Determination Period or the
Determination Period, as applicable, and the present-valuing of the
dividends and Principal Amount in connection with redemptions prior to
Stated Maturity), by comparing the level of the JPMCI Crude Oil Excess
Return Index at the date of issuance of the ComPS with the level determined
pursuant to the terms hereof for any such date of redemption.
The LLC Agreement authorizes the Company to issue Preferred and Common
Securities. All of the Common Securities will be owned, directly or
indirectly, by J.P. Morgan. Payments of interest on and redemptions of
principal of the ComPS and the related Common Securities will be made on a
pro rata basis among the ComPS and the related Common Securities, except
that upon the occurrence of a liquidation, termination or winding up of the
Company, the rights of the holders of the Common Securities to receive
payment of periodic dividends and payments upon liquidation, redemption or
otherwise will be subordinated to the rights of the holders of all
Preferred Securities of the Company. The LLC Agreement does not permit the
incurrence of any indebtedness by the Company (other than any preferred
securities thereof). The payment of distributions out of money held by the
Company, and payments upon liquidation, termination or winding-up of the
Company, are guaranteed by J.P. Morgan to the extent described under
"Description of the Guarantee". The Guarantee does not cover payment of
distributions when Morgan Guaranty has not made payment of principal or
interest, as applicable, on the Related Note. In such event, the remedy of
a holder of ComPS is to direct the Company to enforce its rights under the
Related Note and the Related Note Guarantee with respect to such Related
Note. See "-Voting Rights" and "Effect of Obligations Under the Guarantee,
the Related Note Guarantee and the Related Note".
<PAGE>
Dividends
Dividends on the ComPS will be fixed at a rate per annum of [ ]% of
the Face Amount of $[40] per Preferred Security. The term "dividend" as
used herein includes any such interest payable unless otherwise stated. The
amount of dividends payable for any period will be computed on the basis of
a 360-day year of twelve 30-day months (and actual days elapsed, in the
case of periods of less than a month) and will include the first day but
exclude the last day of such period.
Dividends on the ComPS will be cumulative, will accrue from and
including the Issue Date and will be payable monthly in arrears on the last
calendar day of each month, commencing [ ], 1996, when, as and if available
for payment.
Dividends on the ComPS will be payable to the holders thereof as they
appear on the books and records of the Company on the relevant record
dates, which, as long as the ComPS remain in book-entry only form, will be
one Business Day prior to the relevant payment dates. Subject to any
applicable laws and regulations and the provisions of the LLC Agreement,
each such payment will be made as described under "-Book-Entry Only
Issuance-The Depository Trust Company".
In the event that the ComPS do not continue to remain in book-entry
only form, the Company shall have the right to select relevant record
dates, which shall be at least one Business Day prior to the relevant
payment dates. In the event that any date on which dividends are to be made
on the ComPS is not a Business Day, then payment of the dividends payable
on such date will be made on the next succeeding Business Day with the same
force and effect as if made on such date and no interest on such
distributions will accrue from and after such date, except that, if such
Business Day is in the next succeeding calendar year, such payment shall be
made on the immediately preceding Business Day, in each case with the same
force and effect as if made on such date. A "Business Day" shall mean any
day other than Saturday, Sunday or any other day on which banking
institutions in the City of New York, New York are permitted or required by
any applicable law to close.
The payment of dividends on the ComPS out of moneys held by the
Company is guaranteed by J.P. Morgan on a subordinated basis as and to the
extent set forth under "Description of the Guarantee". The Guarantee is a
full and unconditional guarantee from the time of issuance of the ComPS,
but the Guarantee covers dividends and other payments on the ComPS only if
and to the extent that Morgan Guaranty has made a payment to the Company of
interest or principal on the Related Note, as the case may be.
Redemption at Stated Maturity
Unless previously redeemed pursuant to the optional or special
redemption provisions and subject to extension in the case of a Market
Disruption Event (as defined below), each of the outstanding ComPS will be
redeemed by the Company, in cash, on the Stated Maturity, at the ComPS
Redemption Price. The ComPS Redemption Price is the sum of (a) the
Redemption Value per Preferred Security plus (b) accrued but unpaid
dividends on such ComPS to but excluding the date of redemption.
Calculation of Redemption Value
The Principal Amount of each Preferred Security is indexed to the
JPMCI Crude Oil Excess Return Index (the "Applicable Index"), which is
calculated based on the change in value of certain crude oil futures
contracts included from time to time in the JPM Indices (such contracts,
from time to time, the "Benchmark Oil Contracts"). On the date of this
Prospectus Supplement, the Benchmark Oil Contract is the NYMEX Light
"Sweet" Crude Oil futures contract. Subject to the more complete
definitions and formulae contained in the accompanying Prospectus, the
Principal Amount of each Preferred Security payable at Stated Maturity,
subject to extension in the case of a Market Disruption Event (the
"Redemption Value"), shall be determined by multiplying the Face Amount of
each Preferred Security by a
<PAGE>
fraction, the numerator of which is the Applicable Index Settlement Value
and the denominator of which is the Applicable Index Commencement Value.
For purposes of this Prospectus Supplement, the "Applicable Index
Settlement Value" means the arithmetic average of the daily values of the
Applicable Index for each day of the Determination Period (the period of
ten consecutive Trading Days on which no Market Disruption Event occurs
commencing immediately following the twentieth scheduled Business Day prior
to Stated Maturity), and the "Applicable Index Commencement Value" means [
]. For purposes of this Prospectus Supplement, a "Trading Day" is any day
(other than a Saturday or Sunday) on which either the NYMEX or the London
Metal Exchange (the "LME") is scheduled to be open or is open. The ComPS
Redemption Price will first be payable on the later of the Stated Maturity
and the fifth Business Day after the completion of the Determination
Period.
For a complete description and definition of an Excess Return Index,
see "Description of ComPS-Calculation of Redemption Value" and "The JPM
Indices-Excess Return Methodology" in the accompanying Prospectus. As
defined in the accompanying Prospectus under "Description of ComPS-Market
Disruption Events", a Market Disruption Event is the occurrence of one or
more of the following on any Trading Day with respect to any Benchmark Oil
Contract underlying the Applicable Index, or an exchange on which any
Benchmark Oil Contract is traded (a "Relevant Exchange"): (a) a day on
which the fluctuation of the price of any Benchmark Oil Contract underlying
the Applicable Index is materially limited by the rules of a Relevant
Exchange setting the maximum or minimum price for such day (a "Limit
Price"); (b) a day on which the Settlement Price is the Limit Price; (c)
the failure of a Relevant Exchange to determine, announce or publish the
Settlement Price with respect to a Benchmark Oil Contract underlying the
Applicable Index; (d) the material suspension of trading in any Benchmark
Oil Contract underlying the Applicable Index on a Relevant Exchange; (e)
the failure of trading to commence, or the permanent discontinuation of
trading, in any Benchmark Oil Contract underlying the Applicable Index on
any Relevant Exchange and (f) the imposition of any material limitation on
trading in any Benchmark Oil Contract underlying the Applicable Index on
any Relevant Exchange.
Early Determination of Applicable Index Settlement Value and Redemption Value
Morgan Guaranty reserves the right at its discretion to make any
modifications to the JPM Indices based on the recommendations of the JPMCI
Policy Committee. As discussed in the accompanying Prospectus, the JPMCI
Policy Committee advises Morgan Guaranty with respect to, among other
things, the composition of the JPM Indices, the price sources upon which
the JPM Indices are based (i.e., the underlying futures contracts,
including the Benchmark Oil Contracts), and the weightings and calculation
methodology of the JPM Indices, with a view toward maintaining the JPM
Indices as appropriate commodity investment benchmarks that serve as a
measure of performance of the commodity markets. The inclusion requirements
for the futures contracts underlying the JPM Indices require that such
futures contracts be sufficiently liquid and representative price sources.
It is possible, however, that any such underlying contract could become
less liquid or representative and, as a result, the JPMCI Policy Committee
may recommend a modification in the calculation methodology or the
contracts underlying the JPM Indices and, therefore, the Applicable Index.
Any such replacement contract (i) will be required to satisfy the JPMCI
Inclusion Criteria, as described in the accompanying Prospectus under the
caption "The JPMCI Policy Committee", and (ii) must be traded in a market
or with a self-regulator which has established either (a) a comprehensive
information sharing agreement with the exchange, if any, on which the ComPS
are then traded or (b) suitable alternative arrangements with the
Commission.
If at any time no contract satisfying both clauses (i) and (ii) of the
previous paragraph can be found to serve as a Benchmark Oil Contract, the
Applicable Index Settlement Value of the ComPS will be determined at such
time (in accordance with the methodology set forth above under the caption
"Description of the ComPS-Calculation of Redemption Value") as if the last
date of the inclusion of the final Benchmark Oil Contract in the JPM
Indices were the Stated Maturity. However, the ComPS will not be redeemed
on such date; rather, the ComPS will remain outstanding to Stated Maturity
and will be redeemed at Stated Maturity for a Redemption Value calculated
using the Applicable Index Settlement Value determined pursuant to the
terms of this paragraph. Such ComPS will also be subject to redemption upon
the occurrence
<PAGE>
of a Special Event and optional redemption on each Optional Redemption Date
(treating the Applicable Index Settlement Value determined pursuant to the
terms of this paragraph as the Applicable Index Early Settlement Value for
any Early Redemption Date).
Additionally, if at any time any Benchmark Oil Contract, or the
trading thereof, becomes subject to any increased cost or additional tax,
whether imposed by any exchange or otherwise, Morgan Guaranty reserves the
right to (x) designate a replacement Benchmark Oil Contract, satisfying
both clauses (i) and (ii) of the second preceding paragraph, which contract
is subject to an amount of cost or tax less than or equal to such increased
amount or (y) if no contract satisfying clause (x) of this paragraph is
designated by Morgan Guaranty, to cause, at its option, the Applicable
Index Settlement Value of the ComPS to be determined at such time (in
accordance with the methodology set forth above) as if the date of such
increase in cost or tax (or, in Morgan Guaranty's discretion, the last
calendar day of the month in which the determination of the Applicable
Index Settlement Value is completed) were the Stated Maturity. However, the
ComPS will not be redeemed at such time; rather, the ComPS will remain
outstanding to Stated Maturity and will be redeemed at Stated Maturity for
a Redemption Value calculated using the Applicable Index Settlement Value
determined pursuant to the terms of this paragraph. Such ComPS will also be
subject to redemption upon the occurrence of a Special Event and optional
redemption on each Optional Redemption Date (treating the Applicable Index
Settlement Value determined pursuant to the terms of this paragraph as the
Applicable Index Early Settlement Value for any Early Redemption Date) and
will be redeemed at Stated Maturity for a Redemption Value calculated using
the Applicable Index Settlement Value determined pursuant to the terms of
this paragraph. See "Risk Factors--Potential Modification to the JPM
Indices and/or the Applicable Index".
Optional Redemption
The ComPS will be subject to redemption prior to their Stated Maturity
at the election of the holders thereof on each [ ] prior to the Stated
Maturity, beginning [ ], 1997 (each, an "Optional Redemption Date"). In
order to effect an Optional Redemption, any such redeeming holder will be
required to provide notice of the number of ComPS shares to be redeemed on
such Early Redemption Date to a Participant or Direct Participant in DTC,
and such Participant or Direct Participant must communicate such notice to
DTC no earlier than 32 scheduled Business Days prior to but no later than
22 scheduled Business Days prior to the applicable Early Redemption Date.
The DTC will then provide notice to the Company or its Transfer Agent of
the total number of ComPS shares to be redeemed on the Optional Redemption
Date (the "Applicable Notice"). Each Applicable Notice will be provided by
DTC to the Company by 12:30 p.m. New York time on the Business Day next
succeeding the last day of the applicable notice period. Each Applicable
Notice will be irrevocable upon receipt by the Company or its Transfer
Agent, and may not be withdrawn or modified after such receipt.
Additionally, the Early Determination Period will not commence until the
Company has received the Applicable Notice and the applicable Optional
Redemption Date will be subject to extension in the case of a Market
Disruption Event. The redeeming holders will be entitled to the ComPS Early
Redemption Price for each Preferred Security redeemed, which is equal to
(a) the Early Redemption Value for such ComPS plus (b) accrued and unpaid
dividends thereon to but excluding the scheduled Optional Redemption Date.
The Early Redemption Value of such ComPS shall be determined in accordance
with the formula specified in the Prospectus; provided that, for the
purposes of this Prospectus Supplement, "unused costs" shall equal
[ ]. See "Description of ComPS-Early Redemption Upon the Occurrence of a
Special Event or at the Election of the Holders of the ComPS" in the
Prospectus of which this Prospectus Supplement constitutes a part.
<PAGE>
Special Event Redemption
The ComPS will be subject to redemption by the Company, at is option,
upon the occurrence of a Tax Event or an Investment Company Event (each, a
"Special Event"), as discussed herein.
"Tax Event" means that the Company shall have obtained an opinion of
nationally recognized independent tax counsel experienced in such matters
(a "Tax Opinion") to the effect that, as a result of (a) any amendment to,
or change (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision
or taxing authority thereof or therein, (b) any amendment to, or change in,
an interpretation or application of any such laws or regulations by any
legislative body, court, governmental agency or regulatory authority
(including the enactment of any legislation and the publication of any
judicial decision or regulatory determination), (c) any interpretation or
pronouncement that provides for a position with respect to such laws or
regulations that differs from the theretofore generally accepted position
or (d) any action taken by any governmental agency or regulatory authority,
which amendment or change is enacted, promulgated, issued or announced or
which interpretation or pronouncement is issued or announced or which
action is taken, in each case on or after the date of this Prospectus
Supplement, there is more than an insubstantial risk that at such time or
within 90 days of the date thereof (i) the Company is or would be subject
to United States Federal income tax with respect to income accrued or
received on the Related Note, (ii) the interest payable on the Related Note
is not, or would not be, deductible by Morgan Guaranty for United States
Federal income tax purposes, (iii) the contingent principal in excess of
the Face Amount, if any, payable on the Related Note is not, or would not
be, deductible by Morgan Guaranty for United States Federal income tax
purposes or (iv) the Company is or would be subject to more than a de
minimis amount of other taxes, duties, assessments or other governmental
charges.
"Investment Company Event" means that the Company shall have received
an opinion of a nationally recognized independent counsel experienced in
such matters to the effect that, as a result of the occurrence of a change
in law or regulation, a written change in interpretation or application of
law or regulation by any legislative body, court, governmental agency or
regulatory authority or the expiration or revocation of any exemption from
any provisions of the Investment Company Act of 1940, as amended (the "1940
Act"), obtained by the Company (a "Change in 1940 Act Law"), there is more
than an insubstantial risk that the Company is or will be considered an
"investment company" that is required to be registered as such under the
1940 Act, which Change in 1940 Act Law becomes effective on or after the
date of this Prospectus Supplement.
If at any time a Tax Event or an Investment Company Event shall occur
and be continuing, J.P. Morgan shall elect to either:
(a) direct Morgan Guaranty to redeem the Related Note in whole or
in part, upon not less than 22 scheduled Business Days' notice to DTC,
within 90 days following the occurrence of such Special Event, in
which case the Company shall redeem in cash on a pro rata basis ComPS
and related Common Securities having an aggregate Principal Amount
equal to the Principal Amount of the Related Note so redeemed, at a
price per Preferred Security of the Early Redemption Value, plus an
amount equal to all accrued and unpaid dividends on such ComPS to but
excluding such Early Redemption Date; provided, that Morgan Guaranty
shall only be entitled to redeem the Related Note in part if such
partial redemption is sufficient to cause such Special Event to cease;
or
(b) in the case of a Tax Event, allow the Related Note and the
ComPS to remain outstanding and indemnify the Company for all taxes
payable by it as a result of such Tax Event (if any); provided that,
if at the time there is available to the Company the opportunity to
eliminate, within such 90-day period, the Special Event by taking some
ministerial action, such as filing a form or making an election, or
pursuing some other similar reasonable measure, that has no adverse
effect on the Company, J.P. Morgan, Morgan Guaranty or the holders of
ComPS, the Company will pursue such measure in lieu of redemption;
provided further that Morgan Guaranty shall have no right to redeem
the Related Note and J.P. Morgan shall have no right to direct the
Company to redeem the ComPS while the Company is pursuing any such
ministerial action or reasonable measure unless the Special Event
shall not have been so eliminated by the 85th day following the
occurrence thereof, in which case J.P. Morgan shall be permitted to
direct Morgan Guaranty to provide notice to the Company of the
redemption of the Related Note.
Under current United States Federal income tax law, upon the
occurrence of a Special Event, a redemption of ComPS, whether or not upon
dissolution of the Company, would be a taxable event to such holders. See
"United States Federal Income Taxation".
<PAGE>
Redemption Procedures
In the case of a redemption by a holder of ComPS on an Optional
Redemption Date, any such redeeming holder will be required to provide
notice of the number of ComPS shares to be redeemed on such Optional
Redemption Date to a Participant or Direct Participant in DTC, and such
Participant or Direct Participant must communicate such notice to DTC no
earlier than 32 scheduled Business Days prior to but no later than 22
scheduled Business Days prior to the applicable Optional Redemption Date.
Following receipt by DTC of such notice, DTC will assign a new CUSIP number
to ComPS with respect to which such notice has been given, and such ComPS
will no longer be usable for settling trades with other DTC book-entry
securities.
In the case of a redemption of ComPS upon the occurrence of a Special
Event, the Company will provide notice of such redemption to DTC on a date
not less than 22 scheduled Business Days prior to such Early Redemption
Date stating, among other things, the date of such redemption.
The related Common Securities will be redeemed on a pro rata basis
with the ComPS except that, in the case of any dissolution or liquidation
in which the assets of the Company are insufficient to repay in full the
Principal Amount of all Preferred Securities then outstanding, all
Preferred Securities will be redeemed prior to the redemption of any Common
Securities. ComPS registered in the name of and held by DTC (as defined
herein) or its nominee will be redeemed in accordance with DTC's standard
procedures. See "-Book-Entry Only Issuance-The Depository Trust Company".
Payment of the ComPS Redemption Price or the ComPS Early Redemption
Price, as applicable, of the ComPS is conditioned upon delivery or
book-entry transfer of such ComPS (together with necessary endorsements) to
the Company at any time (whether prior to, on or after the relevant
Redemption Date) after the required notice is given (to the extent such
notice is required). See "-Book-Entry Only Issuance-The Depository Trust
Company". Payment of the ComPS Redemption Price or the ComPS Early
Redemption Price, as applicable, for such ComPS will be made by the
delivery of cash no later than the applicable Settlement Date with respect
to such ComPS or, if later, the time of delivery or book-entry transfer of
such ComPS. If the Company holds money sufficient to pay the ComPS
Redemption Price or the ComPS Early Redemption Price, as applicable, of the
ComPS on the applicable Settlement Date, then immediately at the close of
business on such Settlement Date, such ComPS will cease to be outstanding
and dividends with respect to such ComPS will cease to accrue, whether or
not such ComPS are delivered to the Company, and all rights of the holder
of such ComPS shall terminate and lapse, other than the right to receive
the ComPS Redemption Price or the ComPS Early Redemption Price, as
applicable, upon delivery of the ComPS.
Provided that Morgan Guaranty has paid to the Company the required
amount of cash due upon any redemption or at the maturity of the Related
Note, the Company will irrevocably deposit with DTC no later than the close
of business on the applicable Settlement Date funds sufficient to pay the
ComPS Redemption Price or the ComPS Early Redemption Price, as applicable,
payable with respect to ComPS on such date and will give the Depositary
irrevocable instructions and authority to pay such amount to the holders of
ComPS entitled thereto. See "-Book-Entry Only Issuance-The Depository Trust
Company". In the event that any Settlement Date is not a Business Day, then
payment of the ComPS Redemption Price or the ComPS Early Redemption Price,
as applicable, payable on such date will be made on the next succeeding
Business Day with the same force and effect as if made on such date and no
interest on such distributions will accrue from and after such date, except
that, if such Business Day falls in the next calendar year such payment
will be made on the immediately preceding Business Day. In the event that
payment of the ComPS Redemption Price or the ComPS Early Redemption Price,
as applicable, is improperly withheld or refused and not paid by the
Company or by J.P. Morgan pursuant to the Guarantee, dividends on such
ComPS will continue to accrue from the original Redemption Date to the
actual date of payment by the Company to DTC.
<PAGE>
The Company may not redeem fewer than all of the outstanding ComPS on
any Redemption Date unless all accrued and unpaid dividends have been or
are concurrently being paid on all ComPS for all monthly dividend periods
terminating on or prior to the applicable Redemption Date. If a partial
redemption as a result of a Special Event Redemption by Morgan Guaranty of
a part or all of the Related Note would result in the delisting of the
ComPS by any national securities exchange (or automated inter-dealer
quotation system, including The Nasdaq Stock Market ("Nasdaq")) on which
the ComPS are then listed, Morgan Guaranty may only redeem the Related Note
in whole and, as a result, the Company may only redeem the ComPS in whole.
Subject to the foregoing and to applicable law (including, without
limitation, United States Federal securities laws), J.P. Morgan or its
affiliates may, at any time and from time to time, purchase outstanding
ComPS by tender, in the open market or by private agreement.
Liquidation Distribution Upon Dissolution
In the event of any liquidation, dissolution, winding-up or
termination of the Company (each, a "Liquidation Event"), whether voluntary
or involuntary, the holders of ComPS on the date of such Liquidation Event
will be entitled to be paid out of the assets of the Company the
Liquidation Distribution. The "Liquidation Distribution" will be equal to
(a) the Early Redemption Value with respect to such ComPS (treating the
date of such distribution as the Early Redemption Date) plus (b) the amount
of accrued and unpaid dividends on such ComPS to but excluding the date of
payment. To the extent the assets of the Company are insufficient to repay
all amounts due to holders of all Preferred Securities of the Company,
holders of all Preferred Securities then outstanding (including the ComPS)
will be entitled to a pro rata share of the assets of the Company, based
upon the relative Principal Amounts of all Preferred Securities
outstanding. In addition, in the event that the assets of the Company
exceed the amount necessary to pay to all holders of ComPS the full amount
of the Liquidation Distribution, such excess will be paid to the holders of
Common Securities.
Pursuant to the LLC Agreement, the legal existence of the Company
shall terminate on November 21, 2105.
Voting Rights
Except as described herein and under "-Modification of the LLC
Agreement", and as otherwise required by law and the LLC Agreement, the
holders of the ComPS will have no voting rights.
Pursuant to the provisions of the Guarantee, certain amendments to or
modifications of the Guarantee may only be effected with the approval of a
majority in aggregate Principal Amount at such time of the ComPS and all
other affected Preferred Securities. See "Description of the
Guarantee-Modification of the Guarantee".
Pursuant to the provisions of the Related Note, certain amendments to
or modifications of the Related Note may only be effected with the approval
of a majority in aggregate Principal Amount at such time of the ComPS. See
"Description of the Related Note-Modification of the Related Note".
<PAGE>
Notwithstanding that holders of ComPS are entitled to vote or consent
under any of the circumstances described above, any of the ComPS that are
owned at such time by J.P. Morgan or any entity directly or indirectly
controlling or controlled by, or under direct or indirect common control
with, J.P. Morgan, shall not be entitled to vote or consent and shall, for
purposes of such vote or consent, be treated as if such ComPS were not
outstanding.
The procedures by which holders of ComPS may exercise their voting
rights are described below under "-Book-Entry Only Issuance-The Depository
Trust Company" and in the LLC Agreement.
Modification of the LLC Agreement
The LLC Agreement may be amended or modified if approved by a written
instrument executed by a majority in interest of the holders of Common
Securities; provided that, if any proposed amendment provides for (i) any
action that would adversely affect the powers, preferences or special
rights of the ComPS or (ii) the dissolution, winding up or termination of
the Company other than pursuant to the terms of the LLC Agreement, then the
holders of all affected outstanding Preferred Securities (or, in the case
of an event described in clause (ii), all Preferred Securities) of the
Company voting together as a single class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of holders of not less than a majority in
aggregate Principal Amount of all affected outstanding Preferred Securities
(or, in the case of an event described in clause (ii), all Preferred
Securities) of the Company affected thereby.
The LLC Agreement further provides that it may be amended without the
consent of the holders of the ComPS to (i) cure any ambiguity, (ii) correct
or supplement any provision in the LLC Agreement that may be defective or
inconsistent with any other provision of the LLC Agreement, (iii) add to
the covenants, restrictions or obligations of J.P. Morgan, (iv) conform to
changes in, or a change in interpretation or application of, certain
requirements of the 1940 Act by the Commission and (v) conform to certain
requirements of the Code with respect to the characterization of the
Company as a partnership for U.S. Federal income tax purposes, including,
without limitation, an alteration of the capitalization of the Company upon
any such change, which amendment does not adversely affect the rights,
preferences or privileges of the holders of the ComPS.
Listing
[The ComPS have been authorized for listing on the [ ] under the
symbol "[ ]", subject to official notice of issuance. Trading of the ComPS
on the [ ] is expected to commence within a 30-day period after the date of
this Prospectus Supplement.] [Prior to this offering, there has been no
market for the ComPS. In order to meet one of the requirements for listing
the ComPS on the [ ], the underwriters will undertake to sell lots of 100
ComPS to a minimum of 400 beneficial holders.]
Accounting Treatment
The financial statements of the Company will be included in the
consolidated financial statements of J.P. Morgan, with the ComPS included
on the balance sheet with J.P. Morgan's other obligations.
Mergers, Consolidations or Amalgamations
The Company may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other entity, except
upon satisfaction of the conditions set forth in Section 2.8 of the LLC
Agreement, which includes in certain circumstances approval of 2/3 of
<PAGE>
the outstanding Principal Amount of all Preferred Securities. In addition,
so long as any ComPS are outstanding and are not held directly or
indirectly entirely by J.P. Morgan, the Company may not voluntarily
liquidate, dissolve, wind-up or terminate on or prior to the Stated
Maturity.
Book-Entry Only Issuance-
The Depository Trust Company
The Depository Trust Company ("DTC") will act as securities depositary
for the ComPS. The ComPS will be issued only as fully-registered securities
registered in the name of Cede & Co. (DTC's nominee). One or more
fully-registered global ComPS certificates, representing the total
aggregate number of ComPS, will be issued and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). DTC holds securities that its participants ("Participants") deposit
with DTC. DTC also facilitates the settlement among Participants of
securities transactions, such as transfers and pledges, in deposited
securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement
of securities certificates. Direct Participants include securities brokers
and dealers, banks, trust companies, clearing corporations and certain
other organizations ("Direct Participants"). DTC is owned by a number of
its Direct Participants and by the New York Stock Exchange, the American
Stock Exchange, Inc. and the National Association of Securities Dealers,
Inc. Access to the DTC system is also available to others, such as
securities brokers and dealers, banks and trust companies that clear
transactions through or maintain a direct or indirect custodial
relationship with a Direct Participant either directly or indirectly
("Indirect Participants"). The rules applicable to DTC and its Participants
are on file with the Commission.
Purchases of ComPS within the DTC system must be made by or through
Direct Participants, which will receive a credit for the ComPS on DTC's
records. The ownership interest of each actual purchaser of each Preferred
Security ("Beneficial Owner") is in turn to be recorded on the Direct and
Indirect Participants' records. Beneficial Owners will not receive written
confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the
transactions, as well as periodic statements of their holdings, from the
Direct or Indirect Participants through which the Beneficial Owners
purchased ComPS. Transfers of ownership interests in the ComPS are to be
accomplished by entries made on the books of Participants acting on behalf
of Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in the ComPS, except in the event
that use of the book-entry system for the ComPS is discontinued.
To facilitate subsequent transfers, all the ComPS deposited by
Participants with DTC are registered in the name of DTC's nominee, Cede &
Co. The deposit of ComPS with DTC and their registration in the name of
Cede & Co. effect no change in beneficial ownership. DTC has no knowledge
of the actual Beneficial Owners of the ComPS. DTC's records reflect only
the identity of the Direct Participants to whose accounts such ComPS are
credited, which may or may not be the Beneficial Owners. The Participants
will remain responsible for keeping account of their holdings on behalf of
their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory
requirements that may be in effect from time to time.
In the case of a Special Event Redemption, redemption notices shall be
sent to Cede & Co. If less than all of the ComPS are being redeemed, DTC
will reduce the amount of the
<PAGE>
interest of each Direct Participant in such ComPS in accordance with its
procedures. In the case of an Optional Redemption, redemption notices shall
be provided by Beneficial Owners and Participants to DTC in accordance with
its procedures. DTC will then provide the Applicable Notice to the Company
or its Transfer Agent of the number of ComPS to be redeemed on the
applicable Optional Redemption Date. The Applicable Notice will be
irrevocable upon receipt by the Company or its Transfer Agent, and may not
be withdrawn or modified after such receipt.
Although voting with respect to the ComPS is limited, in those cases
where a vote is required, neither DTC nor Cede & Co. will itself consent or
vote with respect to ComPS. Under its usual procedures, DTC would mail an
Omnibus Proxy to the Company as soon as possible after the record date. The
Omnibus Proxy assigns Cede & Co. consenting or voting rights to those
Direct Participants to whose accounts the ComPS are credited on the record
date (identified in a listing attached to the Omnibus Proxy). J.P. Morgan
and the Company believe that the arrangements among DTC, Direct and
Indirect Participants and Beneficial Owners will enable the Beneficial
Owners to exercise rights equivalent in substance to the rights that can be
directly exercised by a holder of a limited liability company interest in
the Company.
Dividend payments on the ComPS will be made to DTC. DTC's practice is
to credit Direct Participants' accounts on the relevant payment date in
accordance with their respective holdings shown on DTC's records unless DTC
has reason to believe that it will not receive payments on such payment
date. Payments by participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is the case with
securities held for the account of customers in bearer form or registered
in "street name", and such payments will be the responsibility of such
Participant and not of DTC, the Company or J.P. Morgan, subject to any
statutory or regulatory requirements to the contrary that may be in effect
from time to time. Payment of dividends to DTC is the responsibility of the
Company, disbursement of such payments to Direct Participants is the
responsibility of DTC, and disbursement of such payments to the Beneficial
Owners is the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depositary
with respect to the ComPS at any time by giving reasonable notice to the
Company. Under such circumstances, in the event that a successor securities
depositary is not obtained, ComPS certificates are required to be printed
and delivered. Additionally, the Company may decide to discontinue use of
the system of book-entry transfers through DTC (or any successor
depositary) with respect to the ComPS. In that event, certificates for the
ComPS will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that J.P. Morgan believes to be
reliable, but neither J.P. Morgan nor the Company takes responsibility for
the accuracy thereof.
Governing Law
The LLC Agreement and the ComPS will be governed by and interpreted in
accordance with the laws of the State of Delaware.
DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the Guarantee
that will be delivered by J.P. Morgan for the benefit of the holders of
ComPS. The terms of the Guarantee will be those set forth in the Guarantee
Agreement. The following summary does not purport to be complete and is
subject in all respects to the provisions of, and is qualified in its
entirety by reference to, the Prospectus of which this Prospectus
Supplement is a part and the form of Guarantee, which is filed as an
exhibit to the Registration Statement of which this Prospectus Supplement
forms a part.
General
Pursuant to the Guarantee, J.P. Morgan irrevocably and unconditionally
agrees, on a subordinated basis, to pay in full to the holders of the ComPS
the Guarantee Payments (as defined herein) (except to the extent paid by
the Company), as and when due, regardless of any defense, right of set-off
or counterclaim that the Company may have or assert. The following payments
with respect to ComPS issued by the Company (the "Guarantee Payments"), to
the extent not paid by the Company, will be subject to the Guarantee
(without duplication): (i)(A) any accrued and unpaid dividends that are
required to be paid on the ComPS and (B) the ComPS Early Redemption Price
or the ComPS Redemption Price, as applicable, but if and only if to the
extent that, in each case, Morgan Guaranty has made payment of interest or
principal on the Related Note, as the case may be, and (ii) upon a
Liquidation Event (other than in connection with the redemption of all of
the ComPS at Stated Maturity or redemption of the Related Note) the lesser
of (A) the Liquidation Distribution to the extent the Company has funds
available therefor and (B) the amount of assets of the Company remaining
available for distribution to holders of the ComPS upon such Liquidation
Event. J.P. Morgan's obligation to make a Guarantee Payment may be
satisfied by direct payment of the required amounts by J.P. Morgan to the
holders of ComPS or by causing the Company to pay such amounts to such
holders. The Guarantee will be a full and unconditional guarantee with
respect to the ComPS from the time of issuance of the ComPS to the extent
Morgan Guaranty has made payments under the Related Note. If Morgan
Guaranty does not make payments on the Related Note, the Company may not
pay distributions on the ComPS issued and may not have funds available
therefor. See "Description of the Related Note".
<PAGE>
Modification of the Guarantee; Assignment
Except with respect to any changes that do not adversely affect the
rights of holders of all Preferred Securities (in which case no vote will
be required), the Guarantee may be amended only with the prior approval of
the holders of not less than a majority in aggregate Principal Amount of
the outstanding ComPS and all other Preferred Securities entitled to vote
thereon, voting as a single class. All guarantees and agreements contained
in the Guarantee shall bind the successors, assignees, receivers, trustees
and representatives of J.P. Morgan and shall inure to the benefit of the
holders of the ComPS.
Remedies of Holders
If J.P. Morgan fails to perform any of its payment or other
obligations with respect to the ComPS under the Guarantee, any holder of
ComPS may institute a legal proceeding directly against J.P. Morgan to
enforce such holder's rights under the Guarantee without first instituting
a legal proceeding against the Company or any other person or entity.
Subject to the award by a court of competent jurisdiction of legal fees in
connection with any such legal proceeding, each holder will be required to
bear its own costs in connection with instituting a legal proceeding
directly against J.P. Morgan, which cost may be significant.
Termination of the Guarantee
The Guarantee will terminate with respect to the ComPS upon full
payment of the aggregate ComPS Early Redemption Price or ComPS Redemption
Price, as applicable, or upon full payment of the amounts payable in
accordance with the LLC Agreement upon liquidation of the Company. The
Guarantee will continue to be effective or will be reinstated, as the case
may be, if at any time any holder of ComPS must restore payment of any sums
paid under such ComPS or the Guarantee.
<PAGE>
Status of the Guarantee
The Guarantee will constitute an unsecured obligation of J.P. Morgan
and will rank (i) subordinate and junior in right of payment to all other
liabilities of J.P. Morgan, (ii) pari passu with the most senior preferred
or preference stock outstanding as of the date hereof of J.P. Morgan and
(iii) senior to J.P. Morgan's common stock. The terms of the ComPS provide
that each holder of ComPS by acceptance thereof agrees to the subordination
provisions and other terms of the Guarantee.
The Guarantee will constitute a guarantee of payment and not of
collection (that is, the guaranteed party may institute a legal proceeding
directly against the guarantor to enforce its rights under the Guarantee
without instituting a legal proceeding against any other person or entity).
Governing Law
The Guarantee will be governed by and construed and interpreted in
accordance with the laws of the State of New York.
DESCRIPTION OF THE RELATED NOTE GUARANTEE
Set forth below is a summary of information concerning the Related
Note Guarantee that will be delivered by J.P. Morgan for the benefit of the
Company. The terms of the Related Note Guarantee will be those set forth in
the Related Note Guarantee Agreement. The following summary does not
purport to be complete and is subject in all respects to the provisions of,
and is qualified in its entirety by reference to, the Prospectus of which
this Prospectus Supplement is a part and the form of Related Note
Guarantee, which is filed as an exhibit to the Registration Statement of
which this Prospectus Supplement forms a part. The Related Note Guarantee
will be held by the Company, as the holder of the Related Note.
General
Pursuant to the Related Note Guarantee, J.P. Morgan irrevocably and
unconditionally agrees, on a subordinated basis, to pay in full to the
Company the Related Note Guarantee Payments (as defined herein), as and
when due, regardless of any defense, right of set-off or counterclaim that
Morgan Guaranty may have or assert with respect to its obligation to make
such Related Note Guarantee Payments. The following payments with respect
to the Related Note issued by Morgan Guaranty (the "Related Note Guarantee
Payments") will be subject to the Related Note Guarantee (without
duplication): (i) any accrued and unpaid distributions that are required to
be paid by Morgan Guaranty on the Related Note and (ii) any principal
payable by Morgan Guaranty under the Related Note, as and when payable by
Morgan Guaranty. J.P. Morgan's obligation to make a Related Note Guarantee
Payment may be satisfied by direct payment of the required amounts by J.P.
Morgan to the Company or by causing Morgan Guaranty to pay such amounts to
the Company. The Related Note Guarantee will be a full and unconditional
guarantee with respect to the Related Note from the time of issuance of the
Related Note.
Modification of the Related Note Guarantee; Assignment
The Related Note Guarantee may be amended only with the prior approval
of the Company. All guarantees and agreements contained in the Related Note
Guarantee shall bind the successors, assignees, receivers, trustees and
representatives of J.P. Morgan and shall inure to the benefit of the
Company as the holder of the Related Note.
<PAGE>
Remedies of the Company
The Company has the sole right to direct the time, method and place of
conducting any proceeding for any remedy available to it in respect of the
Related Note Guarantee.
Termination of the Related Note Guarantee
The Related Note Guarantee will terminate with respect to the Related
Note upon full payment of the Related Note Redemption Price (as defined
below) of the Related Note. The Related Note Guarantee will continue to be
effective or will be reinstated with respect to the Related Note, as the
case may be, if at any time the Company must restore payment of any sums
paid under the Related Note or the Related Note Guarantee.
Status of the Related Note Guarantee
The Related Note Guarantee will constitute an unsecured obligation of
J.P. Morgan and will rank (i) subordinate and junior in right of payment to
all other liabilities of J.P. Morgan, (ii) pari passu with the most senior
preferred or preference stock outstanding as of the date hereof of J.P.
Morgan and (iii) senior to J.P. Morgan's common stock. The terms of the
ComPS provide that each holder of ComPS by acceptance thereof agrees to the
subordination provisions and other terms of the Related Note Guarantee.
The Related Note Guarantee will constitute a guarantee of payment and
not of collection (that is, the Company may institute a legal proceeding
directly against J.P. Morgan to enforce its rights under the Related Note
Guarantee without instituting a legal proceeding against Morgan Guaranty).
Governing Law
The Related Note Guarantee will be governed by and construed and
interpreted in accordance with the laws of the State of New York.
DESCRIPTION OF THE RELATED NOTE
Set forth below is a summary of the terms of the Related Note in which
the Company will invest the proceeds from the issuance and sale of the
ComPS and the related Common Securities. The following description does not
purport to be complete and is subject to, and is qualified in its entirety
by reference to, the Prospectus of which this Prospectus Supplement is a
part and the Related Note, the form of which is filed as an exhibit to the
Registration Statement of which this Prospectus Supplement is a part.
Certain capitalized terms are used herein as defined in the Related Note.
General
The Related Note will be issued as an unsecured, unsubordinated
obligation of Morgan Guaranty, limited in initial principal amount to
approximately $[ ] , such amount being the sum of the aggregate Initial
Public Offering Price shown on the cover page hereof for the ComPS and the
related Common Securities issued in connection therewith.
The Related Note is not subject to a sinking fund provision. The
entire Principal Amount of the Related Note will mature and become due and
payable, together with any accrued and unpaid interest thereon, if any, on
the Stated Maturity (subject to extension in the case of a Market
Disruption Event), subject to the prior redemption of the Related Note in
whole or in part at the option of the holders of ComPS or in certain
circumstances upon the occurrence of a Special Event. If Morgan Guaranty
redeems the Related Note in whole or in part, the Company must redeem on a
pro rata basis ComPS and related Common Securities having
<PAGE>
an aggregate Principal Amount equal to the Principal Amount of the Related
Note so redeemed at the ComPS Early Redemption Price. See "Description of
the ComPS-Redemption at Stated Maturity; -Special Event Redemption".
Related Note Redemption Price
The amount payable under the Related Note by Morgan Guaranty to the
Company at any time shall equal (a) the Principal Amount of the Related
Note at such time plus (b) any accrued but unpaid distributions due to the
Company (the "Related Note Redemption Price"). The Principal Amount of the
Related Note at any time shall equal the aggregate Principal Amount of
outstanding ComPS and the related Common Securities at such time.
Subordination
Morgan Guaranty's obligations under the Related Note are effectively
subordinated to all liabilities (including indebtedness) of its
consolidated and unconsolidated subsidiaries. Moreover, Morgan Guaranty's
subsidiaries may incur indebtedness and other liabilities and have
obligations to third parties. Generally, the claims of such third parties
to the assets of Morgan Guaranty's subsidiaries will be superior to those
of Morgan Guaranty as a stockholder, and, therefore, the Related Note may
be deemed to be effectively subordinated to the claims of such third
parties.
Upon any payment or distribution of all or substantially all of the
assets of Morgan Guaranty or in the event of any insolvency, bankruptcy,
receivership, liquidation, dissolution, reorganization or other similar
proceeding whether voluntary or involuntary relative to Morgan Guaranty or
its creditors, the holders of all Senior Indebtedness will be entitled to
receive payment pari passu and pro rata with the Company. However,
depositors in Morgan Guaranty will have a preference over holders of Senior
Indebtedness upon any such event.
As used in the Related Note, the term "Senior Indebtedness" means the
principal of, premium, if any, and interest on (a) all indebtedness of
Morgan Guaranty for money borrowed, whether outstanding as of the date
hereof or hereafter created, issued or incurred (other than Morgan
Guaranty's obligations to its depositors), except any indebtedness
expressly subordinated to such Senior Indebtedness, and (b) any deferrals,
renewals or extensions of any such Senior Indebtedness. The Related Note
does not limit the amount of Senior Indebtedness which Morgan Guaranty may
incur.
Interest
The Related Note shall bear interest at the rate of [ ] % per annum on
the Face Amount from the original date of issuance, payable monthly in
arrears on the last calendar day of each month (each, an "Interest Payment
Date"), commencing [ ], 1996, to the Company, subject to certain
exceptions, at the close of business on the Business Day next preceding the
relevant Interest Payment Date.
The amount of interest payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months. The amount of interest
payable for any period shorter than a full monthly period for which
interest is computed will be computed on the basis of the actual number of
days elapsed per 30-day month. In the event that any date on which interest
is payable on the Related Note is not a Business Day, payment of the
interest payable on such date will be made on the next succeeding Business
Day with the same force and effect as if made on such date and no interest
on such distributions will accrue from and after such date, except that, if
such Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each case with
the same force and effect as if made on such date.
<PAGE>
Optional Redemption
The Company shall have the right to call for redemption prior to each
Optional Redemption Date a Principal Amount of the Related Note sufficient
to allow it to pay the ComPS Early Redemption Price to any holders of ComPS
who exercise their right to redeem any or all of such holders' ComPS and a
pro rata portion of the related Common Securities. See "Description of the
ComPS-Optional Redemption".
Special Event Redemption
Upon the occurrence of a Special Event, Morgan Guaranty will have the
right to elect to, under certain circumstances (a) redeem the Related Note
at the Related Note Redemption Price or (b) in the case of a Tax Event,
allow the Related Note to remain outstanding and indemnify the Company for
any taxes payable by it as a result of such Tax Event. See "Description of
the ComPS-Special Event Redemption".
Events of Default
The Related Note Events of Default are described in "Description of
the Related Notes- Related Note Events of Default" in the Prospectus of
which this Prospectus Supplement constitutes a part. A default or event of
default under any Senior Indebtedness would not constitute a default or
event of default under the Related Note.
Modification of the Related Note
The Related Note contains provisions permitting Morgan Guaranty and
the Company, with the consent of the holders of not less than a majority in
Principal Amount of the outstanding ComPS, to modify the Related Note,
subject to certain exceptions. See "Description of the Related Notes
- -Modification of the Related Notes" in the Prospectus of which this
Prospectus Supplement constitutes a part.
Consolidation, Merger and Sale
The Related Note provides that Morgan Guaranty may, without the
consent of the Company or the holders of the ComPS, consolidate or merge
with or into, or sell or transfer all or substantially all of its property
or assets to, any corporation or association; provided that (i) the
corporation (if other than Morgan Guaranty) or association formed by or
resulting from any such consolidation or merger or which shall have
received such property or assets shall have assumed Morgan Guaranty's
obligations under the Related Note and (ii) immediately after giving effect
to such transaction, Morgan Guaranty or such successor corporation shall
not be in default under the terms of the Notes.
Governing Law
The Related Note will be governed by, and construed in accordance
with, the laws of the State of New York.
Miscellaneous
Morgan Guaranty will have the right at all times to assign any of its
rights or obligations under the Related Note to J.P. Morgan or to a direct
or indirect wholly-owned subsidiary of Morgan Guaranty; provided that, in
the event of any such assignment, Morgan Guaranty will remain jointly and
severally liable for all such obligations. Subject to the foregoing, the
Related Note will be binding upon and inure to the benefit of the parties
thereto and their respective successors and assigns. The Related Note is
not a deposit or other obligation of a bank and is not insured by the
Federal Deposit Insurance Corporation or any other federal agency.
<PAGE>
EFFECT OF OBLIGATIONS UNDER THE GUARANTEE,
THE RELATED NOTE GUARANTEE AND THE RELATED NOTE
As set forth in the LLC Agreement, the sole purpose of the Company is
to issue the Securities and other Preferred and Common Securities, and to
invest the proceeds from such issuances in the Related Note and other debt
obligations of Morgan Guaranty.
As long as payments of interest and other payments are made when due
on the Related Note, such payments will be sufficient to cover dividends
and payments due on the ComPS because of the following factors: (i) the
Principal Amount of the Related Note will be equal to the sum of the
aggregate Principal Amount of the ComPS and the related Common Securities;
(ii) the interest rate and the interest and other payment dates on the
Related Note will match the dividend rate and dividend and other payment
dates for the ComPS; (iii) J.P. Morgan shall pay all, and the Company shall
not be obligated to pay, directly or indirectly, any, costs and expenses of
the Company other than principal of and dividends on the ComPS and the
related Common Securities; and (iv) the LLC Agreement further provides that
the J.P. Morgan shall not cause the Company to, among other things, engage
in any activity that is not consistent with the purposes of the Company.
Payments of dividends (to the extent Morgan Guaranty has made payments
of interest on the Related Note) and other payments due on the ComPS (to
the extent Morgan Guaranty has made payment of principal and other amounts
on the Related Note) are guaranteed by J.P. Morgan as and to the extent set
forth under "Description of the Guarantee" herein and in the accompanying
Prospectus. If Morgan Guaranty does not make interest payments on the
Related Note, it is expected that the Company will not have sufficient
funds to pay dividends on the ComPS. The Guarantee is a full and
unconditional guarantee from the time of its issuance but does not apply to
any dividends or other payments unless and until Morgan Guaranty has made
payment of interest or other payments on the Related Note.
If Morgan Guaranty fails to make interest or other payments on the
Related Note when due, the LLC Agreement provides a mechanism whereby the
holders of the ComPS, using the procedures described in the LLC Agreement,
may direct the Company to enforce its rights under the Related Note. If
J.P. Morgan fails to perform any of its payment or other obligations with
respect to the ComPS under the Guarantee, any holder of ComPS may institute
a legal proceeding directly against J.P. Morgan to enforce such holder's
rights under the Guarantee without first instituting a legal proceeding
against the Company or any other person or entity.
The Related Note Guarantee by J.P. Morgan guarantees to the Company
the payment of any distributions on and principal of the Related Note as
provided pursuant to the terms of the Related Note, at such times and in
such amounts as provided therein. J.P. Morgan's obligations under the
Related Note Guarantee will be subordinated and junior in right of payment
to all liabilities of J.P. Morgan, pari passu with the most senior
preferred stock outstanding as of the date hereof of J.P. Morgan and senior
to the common stock of J.P. Morgan.
The LLC Agreement and the Expense Agreement provide that J.P. Morgan
will pay for, or cause to be paid, all debts and obligations (other than
with respect to the ComPS) and all costs and expenses of the Company,
including any taxes and all costs and expenses with respect thereto, to
which the Company may become subject. J.P. Morgan and the Company agreed
that any person to whom such debts, obligations, costs and expenses are
owed will have the right to enforce J.P. Morgan's obligations in respect of
such debts, obligations, costs and expenses directly against J.P. Morgan
without first proceeding against the Company.
J.P. Morgan and the Company believe that the above mechanisms and
obligations, taken together, are equivalent to a full and unconditional
guarantee by J.P. Morgan of payments due on the ComPS. See "Description of
the Guarantee-General" and "Description of the Related Note
Guarantee-General" herein and in the accompanying Prospectus.
<PAGE>
Upon any voluntary or involuntary liquidation, dissolution, winding-up
or termination of the Company, the holders of Securities will be entitled
to receive the Liquidation Distribution. Holders of ComPS will be entitled
to the benefits of the Guarantee with respect to the Liquidation
Distribution. See "Description of the ComPS-Liquidation Distribution Upon
Dissolution". Upon any voluntary or involuntary liquidation or bankruptcy
of Morgan Guaranty, the Company as holder of the Related Note would be pari
passu with creditors of Morgan Guaranty (other than any depositors
therein), equal in right of payment with all Senior Indebtedness and
entitled to receive payment in full of principal, premium, if any, and
interest, before any stockholders of Morgan Guaranty receive payments of
distributions.
UNITED STATES FEDERAL INCOME TAXATION
General
The following is a summary of the material United States Federal
income tax consequences of the purchase, ownership and disposition of ComPS
by U.S. Holders (as defined herein). Unless otherwise stated, this summary
deals only with ComPS held as capital assets by holders who purchase the
ComPS upon original issuance ("Initial Holders").
This summary does not address tax considerations applicable to
investors that may be subject to special U.S. Federal income tax treatment,
such as dealers in securities or persons that will hold the ComPS as a
position in a "straddle" (within the meaning of Section 1092 of the
Internal Revenue Code of 1986, as amended (the "Code")), or as part of a
"conversion transaction" (within the meaning of Section 1258 of the Code)
or "synthetic security" or other integrated investment comprised of ComPS
and one or more other investments. This summary also does not address the
tax consequences to persons that have a functional currency other than the
U.S. Dollar or the tax consequences to shareholders, partners or
beneficiaries of a holder of ComPS. Further, it does not include any
description of any alternative minimum tax consequences or the tax laws of
any state or local government or of any foreign government that may be
applicable to the ComPS.
This summary is based on the Code, Treasury regulations thereunder and
administrative and judicial interpretations thereof, as of the date hereof,
all of which are subject to change, possibly on a retroactive basis. In the
opinion of Cravath, Swaine & Moore, special tax counsel to J.P. Morgan and
the Company ("Tax Counsel"), the statements contained in the following
summary, to the extent they constitute matters of law, accurately describe
the material U.S. Federal income tax consequences to holders of the
acquisition, ownership and disposition of ComPS. For purposes of this
summary, a "U.S. Holder" shall mean a holder who is (i) a citizen or a
resident of the United States (or any state thereof), (ii) a corporation,
partnership or other entity created or organized in or under the laws of
the United States or any political subdivision thereof, (iii) an estate or
trust, the income of which is subject to U.S. Federal income tax regardless
of its source, and (iv) any other person subject to U.S. Federal income tax
on net income.
Classification of the Related Note
No statutory, judicial or administrative authority directly addresses
the characterization of the Related Note or instruments similar to the
Related Note for U.S. Federal income tax purposes. As a result, significant
aspects of the U.S. Federal income tax consequences of investment in ComPS
are not certain. No ruling is being requested from the Internal Revenue
Service (the "IRS") with respect to the Related Note and no assurance can
be given that the IRS will agree with the conclusions expressed herein. In
the absence of clear authority and based on the advice of Tax Counsel, it
is the intention of the Company to treat the Related Note as a contingent
debt instrument with interest accruing (and currently taxable to holders)
at the stated coupon rate. By purchasing the ComPS, the holders will agree
to treat the Related Note in the same manner.
<PAGE>
Classification of the Company
In connection with the issuance of the ComPS, it is Tax Counsel's
opinion that, under current law and assuming full compliance with the terms
of the LLC Agreement (and certain other documents), and based on certain
facts and assumptions contained in the opinion of Tax Counsel, the Company
will be classified for U.S. Federal income tax purposes as a partnership
and not as an association taxable as a corporation. Accordingly, for U.S.
Federal income tax purposes, each holder of ComPS will be required to
include in its gross income its distributive share of any item of income or
gain realized by the Company including any interest accrued with respect to
the Related Note. No portion of the income accrued by the Company will be
eligible for the dividends received deduction. By acquiring one or more
ComPS, each holder thereof agrees to treat such ComPS as an interest in a
partnership holding the Related Note.
The Company will have a calendar year tax year and will use the
accrual method of accounting. Accordingly, calendar year holders will be
required to include their distributive share of the income accrued by
Company in their taxable year that corresponds to the year in which the
Company accrued such income. Holders with a different taxable year will
include such income in their taxable year that includes the December 31 of
the Company's taxable year in which the Company accrued the income.
U.S. Holders
Taxation of Income Accrued by the Company
Assuming the Related Notes are treated as contingent debt instruments
for U.S. Federal income tax purposes, the following rules are believed to
apply:
(1) a U.S. Holder would be required to include its distributive
share of the stated interest on the Related Note in income as it is
accrued by the Company, and would not be entitled to the dividends
received deduction with respect thereto;
(2) upon the redemption of the ComPS (whether optional or Special
Event redemption or at Stated Maturity) or liquidation of the Company,
it is expected that a U.S. Holder will have gain or loss equal to the
difference between the amount realized by the U.S. Holder and such
Holder's tax basis in the ComPS; any loss would be capital loss, but
the tax characterization of gain is not clear and may be ordinary
income rather than capital gain;
(3) for the purpose of computing gain or loss, a U.S. Holder's
tax basis in the ComPS would equal the cost of the ComPS increased by
such Holder's distributive share of income accrued with respect to the
Related Note and decreased by the amount of dividends received by such
Holder; and
(4) any capital gain or loss on the redemption of the ComPS will
be characterized as a long-term capital gain or loss if at the time of
redemption or liquidation the holding period in the ComPS is in excess
of one year.
However, even assuming the Related Note is properly treated as a
contingent debt instrument, in the absence of authority concerning the
proper tax treatment of such instruments, no assurance can be given that
the above tax consequences would be accepted by the IRS or upheld by a
court. Moreover, a variety of different tax characterizations can apply to
the Related Note. For example the Related Note can be viewed as a "notional
principal contract" (as defined in Treasury Regulations 1.446-3), a
non-contingent debt instrument coupled with a cash-settled forward purchase
contract or some other contractual arrangement.
Accordingly, the tax consequences of investment in ComPS may not be as
described above. For example, (i) gain on redemption of the ComPS or on
liquidation of the Company may be ordinary income rather than capital gain,
(ii) a U.S. Holder might be required to accrue income at a rate greater
than the stated rate on the Related Note, and have less income or
<PAGE>
gain (or a greater loss) upon disposition or redemption of ComPS, or (iii)
all or part of the stated interest on the Related Note might be treated as
a nontaxable return of capital, increasing the amount of income or gain (or
decreasing the loss) upon disposition or redemption of ComPS.
In connection with clause (ii) of the preceding paragraph, recently
proposed Treasury Regulations with respect to contingent debt instruments
would require the accrual of interest income on the Related Note based on
the projected yield to maturity of the Related Note. The projected yield
would take into account the projected Related Note Redemption Price (based
upon forward pricing for the Applicable Index). This method might result in
an annual inclusion of income at a rate in excess of the stated rate of
interest on the Related Note. An adjustment would be made at maturity to
reflect the actual Related Note Redemption Price as compared to the
projected amount. Moreover, any gain on redemption of ComPS or upon
liquidation of the Company would be ordinary income and any loss would be
ordinary loss to the extent of the amount of prior interest accrual. These
proposed regulations by their terms only apply to debt issued at least 60
days after publication of final regulations, and therefore would not apply
to the Related Note. However, no assurance can be given that the IRS or the
courts would not apply the principles of the regulations to the Related
Note.
Sale or Other Disposition of ComPS
Upon the sale or other disposition of ComPS (other than redemption of
ComPS by the Company), a U.S Holder would have gain or loss equal to the
difference between the amount realized by the U.S. Holder and such Holder's
tax basis in the ComPS disposed of. Generally, it is believed that such
gain or loss will be capital gain or loss, although such gain might be
ordinary income. Any such capital gain or loss will be a long-term capital
gain or loss if upon disposition the ComPS will have been held for more
than one year.
The ComPS may trade at a price that does not accurately reflect the
value of accrued but unpaid interest with respect to the underlying Related
Note. A U.S. Holder who disposes of ComPS between record dates for payments
of dividends thereon will be required to include accrued but unpaid
interest on the Related Note through the date of disposition in income as
ordinary income, and to add such amount to his adjusted tax basis in the
ComPS. To the extent the selling price is less than the U.S. Holder's
adjusted tax basis (which will include all accrued but unpaid interest), a
holder will recognize a capital loss. Subject to certain limited
exceptions, capital losses cannot be applied to offset ordinary income for
U.S. Federal income tax purposes.
Non-United States Holders
In the case of a holder of ComPs that is not a U.S. Holder, although
no assurance can be given it is believed that payments made with respect to
ComPs will not be subject to U.S. withholding tax, provided that such
holder complies with applicable certification requirements. The Company may
withhold on such payments, in which case the holder will be entitled to
file a claim with the IRS claiming a refund of such withholding tax. No
assurance can be given whether such a claim would be successful. Any
capital gain realized upon the redemption, sale or other disposition of
ComPs by a holder that is not a U.S. Holder will generally not be subject
to U.S. Federal income tax if (i) such gain is not effectively connected
with a U.S. trade or business of such holder and (ii) in the case of an
individual, such individual is not present in the United States for 183
days or more in the taxable year of the redemption, sale or other
disposition or the gain is not attributable to a fixed place of business
maintained by such individual in the United States.
Information Reporting to Holders
The Company will annually report each holder's distributive share of
the Company's income, gains, expenses and losses to the holders and the IRS
on Schedule K-1. The Company currently intends to report such information
prior to January 31 following each calendar year even though the Company is
not legally required to report to record holders until April 15
<PAGE>
following each calendar year. The Company will provide the Schedule K-1
information to nominees (other than certain clearing agencies) that fail to
provide the information statements described below and such nominees will
be required to forward such information to the beneficial owners of the
ComPS.
Under section 6031 of the Code, any person (other than certain
clearing agencies) that holds ComPS as a nominee at any time during a
calendar year is required to furnish the Company with a statement
containing certain information on the nominee, the beneficial holders and
the ComPS so held. Such information includes (i) the name, address and
taxpayer identification number of the nominee and each beneficial owner and
(ii) as to each beneficial owner (x) whether such person is a United States
person, a tax-exempt entity, a foreign government, an international
organization or any wholly-owned agency or instrumentality of the either of
the foregoing and (y) certain information on ComPS that were held, bought
or sold on behalf of such person throughout the year. In addition, brokers
and financial institutions that hold ComPS for their own account through a
clearing agency are required to furnish the Company additional information
as to themselves and their ownership of ComPS. The information referred to
above for any calendar year must be furnished to the Company on or before
the following January 31. Nominees, brokers and financial institutions that
fail to provide the Company with such information may be subject to
penalties.
Backup Withholding
Payments made on, and proceeds from the sale of, the ComPS may be
subject to a "backup" withholding tax of 31% unless the holder complies
with certain identification requirements. Any withheld amounts will be
allowed as a credit against the holder's United States Federal income tax,
provided that the required information is provided to the IRS.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS
INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING
UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF THE COMPS, INCLUDING THE TAX CONSEQUENCES
UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF
CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Generally, employee benefit plans that are subject to the Employee
Retirement Income Security Act of 1974 ("ERISA") or Section 4975 of the
Code ("Plans"), may purchase ComPS, subject to the investing fiduciary's
determination that the investment in ComPS satisfies ERISA's fiduciary
standards and other requirements applicable to investments by the Plans.
In any case, J.P. Morgan, Morgan Guaranty and/or any affiliates of
either may be considered a "party in interest" (within the meaning of
ERISA) or a "disqualified person" (within the meaning of Section 4975 of
the Code) with respect to certain Plans. The acquisition and ownership of
ComPS by a Plan (or by an individual retirement arrangement or other plans
described in Section 4975(e)(i) of the Code) with respect to which J.P.
Morgan, Morgan Guaranty or any of its affiliates of either is considered a
party in interest or a disqualified person may constitute or result in a
prohibited transaction under ERISA or Section 4975 of the Code, unless such
ComPS are acquired pursuant to and in accordance with an applicable
exemption.
As a result, Plans with respect to which J.P. Morgan, Morgan Guaranty
or any affiliates of either is a party in interest or a disqualified person
should not acquire ComPS. Any other Plans or other entities whose assets
include plan assets subject to ERISA proposing to acquire ComPS should
consult with their own ERISA counsel.
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement (the "Underwriting Agreement"), the Company has agreed to sell to
the Underwriters, and the Underwriters have agreed, severally and not
jointly, to purchase, the ComPS. In the Underwriting Agreement, the
Underwriters have agreed, subject to the terms and conditions set forth
therein, to purchase all the ComPS offered hereby if any of the ComPS are
purchased. In the event of default by any Underwriter and failure by the
other Underwriters to purchase such defaulting Underwriter's portion of the
ComPS, the Underwriting Agreement provides that, in certain circumstances,
the Underwriting Agreement may be terminated.
The Underwriters propose to offer the ComPS, in part, directly to the
public at the initial public offering price set forth on the cover page of
this Prospectus Supplement, and, in part, to certain securities dealers at
such price less a concession of $[ ] per Preferred Security. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $[ ] per Preferred Security to certain brokers and dealers. After
the ComPS are released for sale to the public, the offering price and other
selling terms may from time to time be varied by the Representatives.
In view of the fact that the proceeds of the sale of the ComPS will
ultimately be used to purchase the Related Note of Morgan Guaranty, the
Underwriting Agreement provides that Morgan Guaranty will pay as
compensation ("Underwriters' Compensation") to the Underwriters $[ ] per
Preferred Security (or $[ ] in the aggregate) for the accounts of the
several Underwriters; provided that such compensation for sales of ComPS to
certain institutions will be $[ ] per Preferred Security. Therefore, to the
extent of such institutional sales, the actual amount of Underwriters'
Compensation will be less than the aggregate amount specified in the
preceding sentence.
[The ComPS have been authorized for listing on the [ ] under the
symbol "[ ]", subject to official notice of issuance. Trading of the ComPS
on the [ ] is expected to commence within a 30-day period after the date of
this Prospectus Supplement.] [Prior to this offering, there has been no
market for the ComPS. In order to meet one of the requirements for listing
the ComPS on the [ ], the Underwriters will undertake to sell lots of 100
ComPS to a minimum of 400 beneficial holders.]
The Company and J.P. Morgan have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended.
This Prospectus Supplement and related the Prospectus may be used by
direct or indirect wholly-owned subsidiaries of J.P. Morgan in connection
with offers and sales related to secondary market transactions in the
ComPS. Such subsidiaries may act as principal or agent in such
transactions. Such sales will be made at prices related to prevailing
market prices at the time of a sale.
The Underwriters, certain agents and their associates may be customers
of, engage in transactions with, and perform services for, J.P. Morgan in
the ordinary course of business.
The lead Underwriter is an indirect, wholly-owned subsidiary of J.P.
Morgan. The participation of the lead Underwriter in the offer and sale of
the ComPS complies with the requirements of Schedule E of the By-laws of
the National Association of Securities Dealers, Inc. (the "NASD") regarding
underwriting of securities of an affiliate and complies with any
restrictions imposed on such Underwriters by the Board of Governors of the
Federal Reserve System, including the use of a "qualified independent
underwriter" (if required by the NASD).
<PAGE>
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon by
Margaret M. Foran, Vice President, Assistant General Counsel and Assistant
Secretary of J.P. Morgan, and by Cravath, Swaine & Moore, New York, New
York, counsel for the Underwriter. Ms. Foran owns or has the right to
acquire a number of shares of Common Stock of J.P. Morgan equal to or less
than 0.01% of the outstanding Common Stock of J.P. Morgan.
EXPERTS
The audited financial statements contained in J.P. Morgan's Annual
Report on Form 10-K for the year ended December 31, 1994 (included in J.P.
Morgan's Annual Report to Stockholders), are incorporated by reference in
this Prospectus Supplement in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
ANNEX I
GLOSSARY OF TERMS
The following are abbreviated definitions of certain capitalized terms
used in the Prospectus Supplement. The LLC Agreement, the Guarantee, the
Related Note Guarantee and the Related Note may contain more complete
definitions of certain of the terms defined herein, as well as definitions
of certain other terms not defined herein, and reference should be made to
the LLC Agreement, the Guarantee, the Related Note Guarantee and the
Related Note, as applicable, for complete definitions of such terms.
Applicable Index the JPMCI Crude Oil Excess Return Index.
Applicable Index [ ].
Commencement Value
Applicable Index the arithmetic average of the values of the
Settlement Value Applicable Index during the Determination
Period; provided, however, that if the
Applicable Index Settlement Value has
been permanently determined prior to
such time, the Applicable Index
Settlement Value shall equal the value
so determined.
Applicable Index Early the arithmetic average of the values of the
Settlement Value Applicable Index during the Early
Determination Period; provided, however,
that if the Applicable Index Settlement
Value has been permanently determined
prior to such time, the Applicable Index
Early Settlement Value shall equal the
value so determined.
Benchmark Oil Contracts the crude oil futures contracts included
from time to time in the JPM Indices,
which shall initially be the NYMEX Light
"Sweet" Crude Oil futures contract.
Business Day any day other than a Saturday, Sunday or
any other day on which banking
institutions in the City of New York,
New York, are permitted or required by
any applicable law to close.
Code the Internal Revenue Code of 1986,
as amended.
Commission the Securities and Exchange Commission.
<PAGE>
Common Securities the common securities of the Company
representing voting limited liability
company interests in the Company, to be
directly or indirectly owned by J.P.
Morgan.
ComPS Early Redemption On any Early Redemption Date, an amount
Price equal to (i) the Early Redemption Value
per Preferred Security plus (ii) accrued
and unpaid dividends to but excluding
the date of redemption.
ComPS Redemption Price at Stated Maturity, an amount equal to
(i) the Redemption Value per Preferred
Security plus (ii) accrued and unpaid
dividends to but excluding Stated
Maturity.
Determination Period the 10 consecutive Trading Days on which
no Market Disruption Event occurs
immediately following the 20th scheduled
Business Day prior to Stated Maturity.
Dividends cumulative cash dividends of [ ]% per
annum on the Face Amount (calculated on
the basis of a 360 day year of twelve
30-day months) accruing from the Issue
Date and payable monthly in arrears.
DTC the Depository Trust Company.
ERISA the Employee Retirement Income Security
Act of 1974.
Early Determination Period the 10 consecutive Trading Days which are
Business Days on which U.S. Treasury
Bond markets are open and on which no
Market Disruption Event occurs
immediately following the 20th scheduled
Business Day prior to the applicable
Early Redemption Date.
Early Redemption Date each Optional Redemption Date and the date
of any Special Event Redemption or
Liquidation Distribution.
Exchange Act the Securities Exchange Act of 1934,
as amended.
Face Amount [$40].
Guarantee the Guarantee Agreement executed by J.P.
Morgan on behalf of the holders of each
series of Preferred Securities.
Guarantee Payments without duplication, (i)(A) any accrued
and unpaid dividends that are required
to be paid on the ComPS and (B) the
ComPS Early Redemption Price or the
ComPS Redemption Price, as applicable,
but if and only to the extent that, in
<PAGE>
each of case, Morgan Guaranty has made a
payment of interest or principal, as the
case may be, on the Related Note and
(ii) upon a Liquidation Event (other
than in connection with the redemption
of all the ComPS upon the maturity or
redemption of the Related Note), the
lesser of (A) the Liquidation
Distribution to the extent the Company
has funds available therefor, and (B)
the amount of assets of the Company
remaining available for distribution to
holders of all Preferred Securities upon
such Liquidation Event.
Initial Holders holders who purchase any ComPS upon
original issuance.
Interest Payment Date with respect to the Related Note, the
last calendar day of each month,
beginning [ ], 1996.
Investment Company Event the receipt by the Company of an opinion
of a nationally recognized independent
counsel experienced in such matters to
the effect that, as a result of the
occurrence of a change in law or
regulation, a written change in
interpretation or application of law or
regulation by any legislative body,
court, governmental agency or regulatory
authority or the expiration or
revocation of any applicable exemption
obtained by the Company (a "Change in
1940 Act Law"), there is more than an
insubstantial risk that the Company is
or will be considered an "investment
company" that is required to be
registered under the 1940 Act, which
Change in 1940 Act Law becomes effective
on or after the date of this Prospectus.
IRS Internal Revenue Service.
Issue Date [ ], 1996.
JPMCI The J.P. Morgan Commodity Index.
Liquidation Distribution in respect of any Liquidation Event, the
sum of (a) the Early Redemption Value or
stated liquidation preference, as
applicable, plus (b) the amount of
accrued and unpaid dividends on such
Preferred Security to but excluding the
date of payment.
Liquidation Event any liquidation, dissolution, winding-up
or termination of the Company, whether
voluntary or involuntary.
<PAGE>
LLC Agreement the limited liability company agreement
among J.P. Morgan, JPM Ventures and
holders of Preferred Securities
subsequently becoming members thereof
dated February 16, 1996, and effective
as of November 21, 1995.
Market Disruption Event the occurrence of one or more of the
following on any Trading Day with
respect to any Benchmark Oil Contract
underlying the Applicable Index, or an
exchange on which any Benchmark Oil
Contract is traded (a "Relevant
Exchange"): (a) a day on which the
fluctuation of the price of any
Benchmark Oil Contract underlying the
Applicable Index is materially limited
by the rules of a Relevant Exchange
setting the maximum or minimum price for
such day (a "Limit Price"); (b) a day on
which the Settlement Price is the Limit
Price; (c) the failure of a Relevant
Exchange to determine, announce or
publish the Settlement Price with
respect to a Benchmark Oil Contract
underlying the Applicable Index; (d) the
material suspension of trading in any
Benchmark Oil Contract underlying the
Applicable Index on a Relevant Exchange;
(e) the failure of trading to commence,
or the permanent discontinuation of
trading, in any Benchmark Oil Contract
underlying the Applicable Index on any
Relevant Exchange; and (f) the
imposition of any material limitation on
trading in any Benchmark Oil Contract
underlying the Applicable Index on any
Relevant Exchange.
Nasdaq The Nasdaq Stock Market.
1940 Act the Investment Company Act of 1940,
as amended.
NYMEX the New York Mercantile Exchange.
Optional Redemption the redemption of ComPS by the holders
thereof on any Optional Redemption Date
for the ComPS Early Redemption Price.
Optional Redemption Date each [ ] prior to Stated Maturity,
subject to extension in the case of (i)
delay in the provision by DTC of the
Applicable Notice and (ii) the
occurrence and continuance of a Market
Disruption Event.
Principal Amount at any time, (i) in the case of ComPS, the
Redemption Value or Early Redemption
Value, as applicable, as if determined
as of such time, and (ii) in the case of
<PAGE>
the Related Note, the principal amount
thereof at such time determined pursuant
to the terms thereof.
Redemption Date either the Stated Maturity or an Early
Redemption Date, as applicable.
Redemption Value at Stated Maturity, the Face Amount per
Preferred Security multiplied by a
fraction, the numerator of which is the
Applicable Index Settlement Value and
the denominator of which is the
Applicable Index Commencement Value.
Related Note the [ ]% unsecured, unsubordinated debt
obligation of Morgan Guaranty due 20[ ].
Rollover Period the period during which each replacement
of shorter-dated Benchmark Oil
Contracts with longer-dated Benchmark
Oil Contracts as the basis for the
change in value of the Applicable Index
occurs.
Securities the ComPS and the Common Securities.
Securities Act the Securities Act of 1933.
Senior Indebtedness with respect to Morgan Guaranty, the
principal of, premium, if any, and
interest on (a) all indebtedness of
Morgan Guaranty for money borrowed,
whether outstanding as of the date
hereof or hereafter created, issued or
incurred (other than Morgan Guaranty's
obligations to its depositors), except
any indebtedness expressly subordinated
to such Senior Indebtedness, and (b) any
deferrals, renewals or extensions of any
such Senior Indebtedness.
Related Note Event of (i) default for 30 days in the payment of
Default interest on the Related Note; (ii) default
in payment of principal amount at the
Stated Maturity or any amount payable
upon any redemption of the Related Note;
(iii) failure by Morgan Guaranty for 90
days after receipt of notice to it to
comply with any of its covenants or
agreements contained in the Related
Note; and (iv) certain events of
bankruptcy, insolvency, receivership or
reorganization involving Morgan Guaranty
or certain affiliates.
Special Event either a Tax Event or an Investment
Company Event.
Special Redemption upon the occurrence and during the
continuation of a Special Event, Morgan
<PAGE>
Guaranty will have the right to redeem
the Related Note in whole or in part for
cash at the Related Note Redemption
Price, with the result that the Company
will redeem on a pro rata basis ComPS
and related Common Securities in an
equal Principal Amount for cash at the
ComPS Early Redemption Price.
Special Redemption Date any date in respect of which upon the
occurrence and continuation of a Tax
Event or an Investment Company Event
Morgan Guaranty shall have called for
redemption in whole or in part the
Related Note, and the Company shall have
called for redemption on a pro rata
basis an equal Principal Amount of the
ComPS and related Common Securities.
Stated Maturity [ ]. 20[ ].
Tax Counsel Cravath, Swaine & Moore, special tax
counsel to J.P. Morgan and the Company.
Tax Event the receipt by the Company of an opinion
of nationally recognized independent tax
counsel experienced in such matters (a
"Tax Opinion") to the effect that, as a
result of (a) any amendment to, or
change (including any announced
prospective change) in, the laws (or any
regulations thereunder) of the United
States or any political subdivision or
taxing authority thereof or therein, (b)
any amendment to, or change in, an
interpretation or application of such
laws or regulations by any legislative
body, court, governmental agency or
regulatory authority (including the
enactment of any legislation and the
publication of any judicial decision or
regulatory determination), (c) any
interpretation or pronouncement that
provides for a position with respect to
such laws or regulations that differs
from the theretofore generally accepted
position or (d) any action taken by any
governmental agency or regulatory
authority, which amendment or change is
enacted, promulgated, issued or
announced or which interpretation or
pronouncement is issued or announced or
which action is taken, in each case on
or after the date of this Prospectus
Supplement, that there is more than an
insubstantial risk that at such time or
within 90 days of the date thereof (i)
the Company is or would be subject to
United States Federal income tax with
respect to income accrued or received on
any Related Note, (ii) the interest
<PAGE>
payable on any Related Note is not or
would not be deductible by Morgan
Guaranty for United States Federal
income tax purposes, (iii) the
contingent principal in excess of the
Face Amount of any series of Preferred
Securities (if any) payable on any
Related Note is not or would not be
deductible by Morgan Guaranty for United
States Federal income tax purposes or
(iv) the Company is or would be subject
to more than a de minimis amount of
other taxes, duties or other
governmental charges.
Trading Day any day (other than a Saturday or Sunday)
on which either NYMEX or the London
Metal Exchange (the "LME") is scheduled
to be open or is open.
<PAGE>
SUBJECT TO COMPLETION, DATED [ ] , 1996
PROSPECTUS SUPPLEMENT
(To Prospectus Dated [ ], 1996)
Commodity-Indexed Preferred Securities
(ComPSsm), Series [B]
J.P. Morgan Index Funding Company, LLC
[ ]% Series B Preferred Securities Indexed to Gold
guaranteed to the extent set forth herein by
J.P. Morgan & Co. Incorporated
The % Series [B] Preferred Securities (each, a "Preferred Security",
and collectively, the "ComPS") offered hereby are being issued by J.P.
Morgan Index Funding Company, LLC, a limited liability company formed under
the laws of the State of Delaware (the "Company"). The ComPS represent
preferred limited liability company interests in the Company. The issuance
price of each Preferred Security is [$40], the approximate value of
one-tenth of the London P.M. gold fixing price for one ounce of gold in the
London bullion market on [ ], 1996. After issuance, the principal amount of
each Preferred Security (the "Principal Amount") will be indexed to the
U.S. dollar value at such time (the "Dollar Equivalent Value") of one-tenth
of the London P.M. gold fixing price for one ounce of gold in the London
bullion market (such index, the "Applicable Index"). J.P. Morgan & Co.
Incorporated, a Delaware corporation ("J.P. Morgan"), will directly or
indirectly own all the common securities (the "Common Securities")
representing voting limited liability company interests in the Company (the
ComPS and the Common Securities, collectively, the "Securities"). The
Company exists for the sole purpose of issuing the ComPS and investing the
proceeds thereof in a [ ]% Related Note Due [ ], 20[ ] (the "Related Note")
of Morgan Guaranty Trust Company of New York, a trust company with full
banking powers organized under the laws of the State of New York and a
wholly-owned subsidiary of J.P. Morgan ("Morgan Guaranty"), and issuing
similar securities and investing the proceeds thereof
(continued on next page)
See "Risk Factors" on Page S-[] for certain information relevant to an
investment in the Preferred Securities.
"ComPS", "JPMCI" and the "J.P. Morgan Commodity Index" are service
marks of J.P. Morgan & Co. Incorporated.
The ComPS have been authorized for listing on the [ (the " ")] under
the symbol " ", subject to official notice of issuance. Trading of the
ComPS on the [ ] is expected to commence within a 30-day period after the
date of this Prospectus Supplement. See "Underwriting".
THE SECURITIES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER FEDERAL
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Price $[40] per Preferred Security plus accrued dividends, if any.
Initial Public Underwriting Proceeds to
Offering Price(1) Commissions(2) The Company(3)(4)
Per Preferred Security..... $ (3) $
Total...................... $ (3) $
(1) Plus accrued dividends, if any, from the Issue Date (as defined herein).
(2) The Company and J.P. Morgan have agreed to indemnify the several Under-
writers against certain liabilities, including liabilities under the Secu-
rities Act of 1933, as amended. See "Underwriting".
(3) Because the gross proceeds of the sale of the ComPS will be invested in the
Related Note, Morgan Guaranty has agreed to pay to the Underwriters a
commission of $ per Preferred Security (or $ in the aggregate); provided
that such compensation for sales to certain institutions will be $ per
Preferred Security. See "Underwriting".
(4) Expenses of the offering which are payable by the Company and J.P. Morgan
are estimated to be $ .
The ComPS offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
delivery of the ComPS will be made on or about , 1996, through the
book-entry facilities of The Depository Trust Company, against payment
therefor in same-day funds.
J.P. Morgan & Co.
The date of this Prospectus Supplement is [ ], 1996.
Information contained herein is subject to completion or amendment. This
prospectus supplement and the accompanying prospectus shall not constitute
an offer to sell or the solicitation of an offer to buy nor shall there be
any sale of these securities in any State in which such offer, solicitaion
or sale would be unlawful prior to registration or qualification under the
securities laws of any such State.
<PAGE>
(continued from previous page)
in similar notes in the future. Upon the liquidation, dissolution or
winding-up of the Company, the holders of ComPS will have a preference over
the holders of the Common Securities with respect to payments in respect of
dividends and payments upon redemption, liquidation and otherwise. Certain
capitalized terms used in this Prospectus Supplement have the meaning
ascribed to them under "Glossary of Terms" in Annex I hereto.
Dividends on the ComPS will be fixed at a rate per annum of [2]% of
the Principal Amount per Preferred Security. Dividends on the ComPS will be
cumulative and will be payable monthly on the last calendar day of each
month based on the Dollar Equivalent Value of one-tenth of the London P.M.
gold fixing price for one ounce of gold on the London bullion market on the
fifth London Business Day prior to such calendar day, commencing [ ], 1996,
when, as and if available for payment.The payment of distributions out of
moneys held by the Company and payments on liquidation of the Company, as
set forth below, are guaranteed on a subordinated basis by J.P. Morgan (the
"Guarantee") to the extent Morgan Guaranty has made payments under the
Related Note as described under "Description of the Guarantee". The
payments by Morgan Guaranty under the Related Note are guaranteed by J.P.
Morgan on a subordinated basis (the "Related Note Guarantee") as described
under "Description of the Related Note Guarantee". The obligations of J.P.
Morgan under the Guarantee and the Related Note Guarantee are subordinate
and junior in right of payment to all other liabilities of J.P. Morgan and
pari passu with the most senior preferred stock outstanding as of the date
hereof of J.P. Morgan. The obligations of Morgan Guaranty under the Related
Note are pari passu with all present and future Senior Indebtedness of
Morgan Guaranty (as defined herein), which aggregated approximately $71.6
billion at December 31, 1995, and are junior to Morgan Guaranty's
obligations to its depositors in the event of a receivership. In addition,
J.P. Morgan's obligations under the Guarantee and the Related Note
Guarantee and Morgan Guaranty's obligations under the Related Note are
effectively subordinated to all liabilities (including indebtedness) of the
consolidated and unconsolidated subsidiaries of each.
The dividend rate and the dividend and other payment dates for the
ComPS will correspond to the interest rate and interest and other payment
dates on the Related Note. As a result, if Morgan Guaranty does not make
principal or interest payments on the Related Note, the Company will not
have sufficient funds to make distributions on the ComPS, in which event
the Guarantee will not apply to such distributions until the Company has
sufficient funds available therefor. However, in such event, the Company
and, in certain circumstances, the holders of ComPS will have remedies
under the Related Note, and the Company will have remedies under the
Related Note Guarantee.
The ComPS are not futures contracts and do not represent an actual
investment in futures contracts, and are not and do not represent an actual
investment in gold. See "Description of the ComPS".
The stated maturity of the Related Note is [ ], 20[ ] (the "Stated
Maturity"), at which time the Company must, except upon the occurrence and
during the continuance of a Market Disruption Event (as defined herein),
redeem the ComPS in whole at a redemption price equal to (a) the Redemption
Value (as defined herein) per Preferred Security plus (b) accrued and
unpaid dividends to but excluding the date of redemption (the "ComPS
Redemption Price"). The Related Note is redeemable in whole or in part by
Morgan Guaranty at any time in certain circumstances upon the occurrence of
a Special Event (as defined herein). If Morgan Guaranty redeems the Related
Note in whole or in part prior to the Stated Maturity, the Company must
redeem ComPS having an aggregate Principal Amount equal to the Principal
Amount of the Related Note so redeemed at the ComPS Redemption Price. See
"Description of the ComPS--Redemption at Stated Maturity;--Special Event
Redemption".
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE [APPLICABLE STOCK
EXCHANGE(S)], IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING
TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
[GRAPHIC OMITTED]
This page contains a schematic depiction of J.P. Morgan, Morgan
Guaranty and the Company, indicating particularly that Morgan Guaranty
and the Company are each wholly-owned subsidiaries of J.P. Morgan,
that the proceeds of the ComPS and related Common Securities will be
loaned to Morgan Guaranty in return for the Related Note, and
depicting the Guarantee and the Related Note Guarantee.
<PAGE>
SUMMARY OF THE OFFERING
Securities Offered....... [2,500,000] [ ]% Series B Preferred Securities
("ComPS") Indexed to the Dollar Equivalent Value
of one-tenth of the London P.M. gold fixing price
for one ounce of gold in the London bullion market.
Issuer................... J.P. Morgan Index Funding Company, LLC (the "Com-
pany"), a Delaware limited liability company and a
subsidiary of J.P. Morgan & Co. Incorporated
(J.P. Morgan").
Guarantor................ J.P. Morgan, on a subordinated basis, (i) of
payments to holders of ComPS of amounts received on
the Related Note by the Company and (ii) of payments
to the Company on the Related Note by Morgan
Guaranty, a wholly-owned subsidiary of J.P. Morgan.
Initial Offering Price [$40] (i.e., the approximate value of one-tenth of
Per Preferred Security... the London P.M. gold fixing price for one ounce of
gold in the London bullion market on [ ], 1996.
Principal Amount Per The Dollar Equivalent Value of one tenth of the
Preferred Security....... London P.M. gold fixing price on such day for one
ounce of gold in the London bullion market.
Aggregate Initial
Principal Amount......... [$100,000,000].
ComPS Redemption Price... Redemption Value at Stated Maturity plus accrued
and unpaid dividends.
Stated Maturity.......... [ ], 20[ ], subject to extension in the case
of a Market Disruption Event.
Redemption Value per The average of the Principal Amount over the 10
Preferred Security....... consecutive Trading Days meeting certain
conditions immediately following the 20th
scheduled Business Day prior to redemption (as
described herein).
Applicable Index......... The Dollar Equivalent Value of one-tenth of the
London P.M. gold fixing price for one ounce of
gold in the London bullion market.
Calculation Agent........ Morgan Guaranty.
Dividends................ Cumulative cash dividends of [2%] per annum on the
Principal Amount determined five London Business
Days prior to the applicable payment date, subject
to extension in the case of a Market Disruption
Event (calculated on the basis of a 360 day year of
twelve 30-day months), accruing from the Issue Date
and payable monthly; provided, however, that upon
the occurrence of a Market Disruption Event, such
dividend will be payable on the later of such
calendar day and the day two Business Days
following the determination of the amount thereof.
Special Event Under certain circumstances, upon the occurrence
Redemption............... of a Tax Event or an Investment Company Event, for
the ComPS Early Redemption Price.
ComPS Early The Early Redemption Value (as defined in the Pro-
Redemption Price......... spectus), which represents the payments of the dis-
counted present value of dividends and Principal
Amount on the applicable Early Redemption Date. See
"Description of the ComPS--Special Event Redemption".
Voting Rights............ Holders of ComPS will have limited voting rights
and will not be entitled to vote to
<PAGE>
appoint, remove or replace the Managing Members of
the Company (as defined in the LLC Agreement). See
"Description of the ComPS--Voting Rights".
Use of Proceeds.......... The proceeds to the Company from the sale of ComPS
and related Common Securities will be used to
purchase a note of Morgan Guaranty (the "Related
Note"), and Morgan Guaranty will use such proceeds
for general corporate purposes and for hedging its
obligations under the Related Note. See "Use of
Proceeds".
<PAGE>
THE OFFERING
The information in this Prospectus Supplement concerning J.P. Morgan,
Morgan Guaranty, the Company, the ComPS, the Guarantee, the Related Note
Guarantee and the Related Note supplements, and should be read in
conjunction with, the information contained in the accompanying Prospectus.
The following summary of provisions relating to the ComPS is qualified in
its entirety by the more detailed information contained elsewhere or
incorporated by reference in this Prospectus Supplement and the Prospectus
of which this Prospectus Supplement constitutes a part. Prospective
purchasers of ComPS should carefully review such information. Certain
capitalized terms used in this Prospectus Supplement have the meanings
ascribed to them under the "Glossary of Terms" in Annex I hereto.
General
The issuance price of each security is [$40], the approximate value of
one-tenth of the London P.M. gold fixing price for one ounce of gold in the
London bullion market on [ ], 1996. After issuance, the Principal Amount of
each Preferred Security will be indexed to the Dollar Equivalent Value of
one-tenth of the London P.M. gold fixing price for one ounce of gold in the
London bullion market (such index, the "Applicable Index"). The Principal
Amount repayable upon the occurrence of any Special Event Redemption or at
Stated Maturity will be determined, pursuant to the terms described herein
(including, without limitation, the averaging of the Applicable Index over
the Early Determination Period or Determination Period, as applicable, and
the present-valuing of the dividends and Principal Amount in connection
with redemptions prior to Stated Maturity), based on the Dollar Equivalent
Value of one-tenth of the London P.M. gold fixing price for one ounce of
gold in the London bullion market for each day during the Determination
Period (as defined herein). The ComPS represent preferred limited liability
company interests in the Company, the assets of which will consist of the
Related Note and other notes issued by Morgan Guaranty in connection with
other issuances of Preferred Securities. The Related Note, in which the
proceeds of the Preferred Securities offered hereby and the related Common
Securities will be invested, matures on [ ], 20[ ] (which is the "Stated
Maturity"), subject to extension in the case of a Market Disruption Event,
and is redeemable at any time by Morgan Guaranty in whole or in part upon
the occurrence of a Special Event. The ComPS will be redeemed at Stated
Maturity at the ComPS Redemption Price, which is equal to the sum of (a)
the Redemption Value (as defined below) per Preferred Security plus (b)
accrued and unpaid dividends thereon to but excluding the date of
redemption. In addition, if, as a result of a Special Event, Morgan
Guaranty redeems the Related Note in whole or in part prior to Stated
Maturity, the Company must redeem ComPS and related Common Securities
having an aggregate Principal Amount equal to the Principal Amount of the
Related Note so redeemed at the ComPS Early Redemption Price. See
"Description of the ComPS--Redemption at Stated Maturity";--Special Event
Redemption".
Dividends
Dividends on the ComPS will be fixed at a rate per annum of [2]% of
the Principal Amount per Preferred Security. The term "dividend" as used
herein includes any such interest payable unless otherwise stated.
Dividends on the ComPS will be cumulative and will be payable monthly on
the last calendar day of each month (calculated on the basis of a 360-day
year of twelve 30-day months) based on the Dollar Equivalent Value of
one-tenth of the London P.M. gold fixing price for one ounce of gold on the
London bullion market on the fifth London Business Day prior to such
calendar day, commencing [ ], 1996, when, as and if available for payment;
provided, however, that upon the occurrence of a Market Disruption Event,
such dividend will be payable on the later of such calendar day and the day
two Business Days following the determination of the amount thereof. The
first dividend payment will be for the period from and including the Issue
Date to but excluding [ ], 1996. Dividends payable on the ComPS for any
period shorter than a monthly dividend period will be computed on the basis
of a 360-day year of twelve 30-day months and on the basis of the actual
number of days elapsed in any such 30-day month. See "Description of the
ComPS--Dividends".
Redemption at Stated Maturity
Unless previously redeemed pursuant to the special redemption
provisions described below, each of the outstanding ComPS will be redeemed
by the Company, in cash, on [ ], 20[ ], which is the Stated Maturity of the
Related Note, subject to extension in
<PAGE>
the case of a Market Disruption Event (as defined herein), at the ComPS
Redemption Price, which is equal to (a) the Redemption Value per Preferred
Security plus (b) accrued and unpaid dividends thereon to but excluding the
date of redemption. See "Description of the ComPS--Redemption at Stated
Maturity"; "Risk Factors--Extension of Settlement Date or Stated Maturity".
Calculation of Redemption Value
The Principal Amount of each Preferred Security at any time is equal
to one-tenth of the Dollar Equivalent Value of the price of one ounce of
gold on the London bullion market. In summary, and subject to the complete
definitions and formulae contained herein and in the Prospectus, the
Principal Amount of each Preferred Security at Stated Maturity, subject to
extension in the case of a Market Disruption Event (the "Redemption
Value"), shall be the arithmetic average of the Dollar Equivalent Value of
one-tenth of the London P.M. gold fixing price of one ounce of gold in the
London Bullion market for each day of the Determination Period (as defined
below). See "Description of ComPS--Calculation of Redemption Value" herein
and "Description of ComPS--Determination Period and Settlement Date" in the
accompanying Prospectus.
For example, with a Face Amount of [$40], the following average Dollar
Equivalent Values of London P.M. gold fixing prices for one ounce of gold
in the London bullion market over the Determination Period would result in
the following Redemption Values:
Average London P.M. gold fixing Redemption
price per ounce Value
$200 $20.00
$320 $32.00
$400 $40.00
$480 $48.00
$600 $60.00
Special Event Redemption
Upon the occurrence and during the continuation of a Tax Event or an
Investment Company Event (each as defined herein), Morgan Guaranty will
have the right to redeem the Related Note in whole or, if redemption of
less than all the ComPS will result in the discontinuance of such Special
Event, in part in an amount sufficient to cause such discontinuance, in
each case for cash, with the result that the Company will redeem a
Principal Amount of ComPS and related Common Securities equal to the
Principal Amount of the Related Note so redeemed for cash at the ComPS
Early Redemption Price. However, in the case of a Tax Event, Morgan
Guaranty may allow the Related Note and the Company may allow the ComPS to
remain outstanding upon the receipt of indemnification by J.P. Morgan of
the Company for all taxes payable by it as a result of such Tax Event. See
"Description of the ComPS--Special Event Redemption".
Unconditional Guarantee by J.P. Morgan
J.P. Morgan and the Company believe that the mechanisms and
obligations relating to the subordinated obligations of J.P. Morgan under
the Guarantee and the Related Note Guarantee and the obligations of J.P.
Morgan under the LLC Agreement and the Expense Agreement to pay certain
obligations, costs and expenses of the Company, taken together, are
equivalent to a full and unconditional guarantee; on a subordinated basis,
by J.P. Morgan of payments due on the ComPS. See "Risk Factors--Rights
Under the Guarantee, the Related Note Guarantee and the Related Note",
"Description of the Related Note Guarantee" and "Effect of Obligations
Under the Guarantee, the Related Note Guarantee and the Related Note".
The Guarantee
The Guarantee by J.P. Morgan guarantees to the holders of the ComPS
the payment of (i) the ComPS Early Redemption Price or the ComPS Redemption
Price, as applicable, but if and only if and to the extent that, in each
case, Morgan Guaranty has made payment of interest or principal on the
Related Note, as the case may be, and (ii) upon a Liquidation Event (as
defined herein) (other
<PAGE>
than in connection with the redemption of all the ComPS upon maturity or
redemption of Related Note), the lesser of (A) the sum of (I) the Early
Redemption Value of such ComPS and (II) the amount of accrued and unpaid
dividends on such ComPS to but excluding the date of payment (the
"Liquidation Distribution"), to the extent the Company has funds available
therefor and (B) the amount of assets of the Company remaining available
for distribution to holders of the ComPS upon such Liquidation Event. J.P.
Morgan's obligations under the Guarantee will be subordinated and junior in
right of payment to all liabilities of J.P. Morgan, pari passu with the
most senior preferred stock outstanding as of the date hereof of J.P.
Morgan and senior to the common stock of J.P. Morgan.
The Related Note Guarantee
The Related Note Guarantee by J.P. Morgan guarantees to the Company
the payment of any distributions on and principal of the Related Note as
provided pursuant to the terms of the Related Note, at such times and in
such amounts as provided therein. J.P. Morgan's obligations under the
Related Note Guarantee will be subordinated and junior in right of payment
to all liabilities of J.P. Morgan, pari passu with the most senior
preferred stock issued from time to time by J.P. Morgan and senior to the
common stock of J.P. Morgan.
Related Note
The Related Note will be issued as an unsecured obligation of Morgan
Guaranty, limited in initial principal amount to approximately $[ ], such
amount being the initial aggregate Principal Amount of the ComPS and the
related Common Securities. The Related Note will mature on the Stated
Maturity (subject to extension in the case of a Market Disruption Event),
and will bear interest at an annual rate of [2]% on the Principal Amount
(which is equivalent to the annual dividend rate with respect to the
ComPS), payable monthly in arrears on the last day of each calendar month,
commencing on [ ], 1996. The Principal Amount of the Related Note at any
time will be the aggregate Principal Amount of the outstanding ComPS and
related Common Securities at such time. The amount payable upon maturity
for the Related Note will be the Related Note Redemption Price.
The obligations of Morgan Guaranty under the Related Note will be pari
passu with all present and future Senior Indebtedness which aggregated
$71.6 billion at December 31, 1995. Morgan Guaranty's obligations under the
Related Note are effectively subordinated to all liabilities (including
indebtedness) of its consolidated and unconsolidated subsidiaries.
Voting Rights
Holders of ComPS will have limited voting rights and will not be
entitled to vote to appoint, remove or replace the Managing Members of the
Company (as defined in the LLC Agreement). See "Description of the
ComPS--Voting Rights".
Use of Proceeds
The Company will invest the proceeds from the sale of the ComPS
offered hereby and the related Common Securities in the Related Note, the
proceeds of which will be used by Morgan Guaranty for general corporate
purposes and for the hedging of its obligations under the Related Note. See
"Use of Proceeds".
Listing
[The ComPS have been authorized for listing on the [ ] under the
symbol "[ ]", subject to official notice of issuance. Trading of the ComPS
on the [ ] is expected to commence within a 30-day period after the date of
this Prospectus Supplement.] [Prior to this offering, there has been no
market for the ComPS. In order to meet one of the requirements for listing
the ComPS on the [ ], the Underwriters will undertake to sell lots of 100
or more ComPS to a minimum of 400 beneficial holders.]
<PAGE>
RISK FACTORS
Indexation of Principal Amount
The Principal Amount of each of the ComPS will vary over the life of
the ComPS in relation to the Dollar Equivalent Value of one-tenth of the
London P.M. gold fixing price of one ounce of gold on the London bullion
market (the "Applicable Index"). The Principal Amount repayable upon the
occurrence of any Special Event Redemption or at Stated Maturity will be
determined, pursuant to the terms and calculations described herein
(including, without limitation, the averaging of gold prices over the Early
Determination Period or the Determination Period, as applicable, and the
present-valuing of the indexed dividends and Principal Amount in the case
of early redemptions), based the Dollar Equivalent Value of one-tenth of
the London P.M. fixing price of one ounce of gold on the London bullion
market. Accordingly, the Principal Amount to be received upon any date of
redemption will fluctuate based on the Applicable Index and may be lower
than the initial Principal Amount.
Rights Under the Guarantee, the Related Note Guarantee and the Related Note
The Guarantee will be a full and unconditional guarantee with respect
to the ComPS from the time of issuance of such ComPS but will not apply to
any payment of dividends or other amounts due in respect of the ComPS to
the extent Morgan Guaranty has failed to make a payment of principal or
interest on the Related Note. To the extent Morgan Guaranty were to default
on its obligation to pay amounts payable on the Related Note, the Company
would lack available funds for the payment of dividends on or amounts
payable on redemption of the ComPS and, in such event, holders of the ComPS
would not be able to rely on the Guarantee for payment of such amounts.
Instead, holders of the ComPS would rely on the enforcement by the Company
of its rights as holder of the Related Note against Morgan Guaranty and as
holder of the Related Note Guarantee against J.P. Morgan. J.P. Morgan and
the Company believe that the mechanisms and obligations relating to the
Guarantee, the Related Note Guarantee and the obligations of J.P. Morgan
under the LLC Agreement and Expense Agreement to pay certain obligations,
costs and expenses of the Company, taken together, are equivalent to a full
and unconditional guarantee, on a subordinated basis, by J.P. Morgan of
payments due on the ComPS. See "Description of the Guarantee" and
"Description of the Related Note Guarantee".
Special Event Redemption
Upon the occurrence of a Special Event, in certain circumstances
Morgan Guaranty shall have the right to redeem the Related Note, in whole
or in part, in which event the Company will redeem the ComPS and related
Common Securities on a pro rata basis to the same extent as the Principal
Amount of the Related Note is redeemed by Morgan Guaranty.
As described in more detail below, a Special Event includes (i) a Tax
Event and (ii) an Investment Company Event. See "Description of the
ComPS--Special Event Redemption".
It is possible that the occurrence of a Special Event will cause the
market price of the ComPS in any existing secondary market to decline.
Limited Voting Rights
Holders of ComPS will have limited voting rights and will not be
entitled to vote to appoint, remove or replace the Managing Members of the
Company (as defined in the LLC Agreement), which voting rights are vested
exclusively in the holders of the Common Securities. See "Description of
the ComPS--Voting Rights".
<PAGE>
Trading Price
[The ComPS have been authorized for listing on the [ ] under the
symbol "[ ]", subject to official notice of issuance. Trading of the ComPS
on the [ ] is expected to commence within a 30-day period after the date of
this Prospectus Supplement. [Prior to this offering there has been no
market for the ComPS. In order to meet one of the requirements for listing
the ComPS on the [ ], the Underwriter will undertake to sell lots of 100 or
more ComPS to a minimum of 400 beneficial holders.] However, it is not
possible to predict whether the necessary number of holders will purchase
and, for the remaining term of the ComPS, continue to hold ComPS in order
that any secondary market which does develop continues to exist. The
Underwriters are not obligated to make a market for the ComPS, and although
JPMSI, as lead Underwriter, intends to use its reasonable efforts to do so,
it is possible that no active secondary market for the ComPS will develop
and remain in existence.
There can be no assurance as to the market prices for the ComPS in any
secondary market which does develop. Accordingly, the ComPS that an
investor may purchase, whether pursuant to the offer made hereby or in the
secondary market, may trade at a discount to the price that the investor
paid to purchase the ComPS offered hereby.
The value of the ComPS at any time will depend upon the interaction of
at least three key factors: (i) the level of the Applicable Index (i.e.,
one-tenth of the Dollar Equivalent Value of the price of one ounce of gold
on the London bullion market), (ii) the credit quality of Morgan Guaranty
and J.P. Morgan and (iii) the lease rate environment for borrowing and
lending gold. Adverse changes in any of these three factors will adversely
affect the value of the ComPS at such time. The ComPS are expected to trade
at a price that takes into account the value, if any of accrued and unpaid
dividends; thus, purchasers will not pay and sellers will not receive any
accrued and unpaid interest with respect to their pro rata interests in the
Related Note owned through the ComPS that is not already reflected in the
trading price of the ComPS.
Because holders of ComPS are essentially investing in a pro rata share
of the Related Note, prospective purchasers of ComPS are also making an
investment decision with regard to the Related Note and should carefully
review all the information regarding the Related Note contained herein and
in the accompanying Prospectus. See "Description of the Related Note".
Bank Regulatory Restrictions
The Company's ability to make dividends and other payments on the
ComPS is dependent upon Morgan Guaranty's making interest and other
payments on the Related Note as and when required or collection by the
Company under the Senior Note Guarantee. As noted in the accompanying
Prospectus under "J.P. Morgan & Co. Incorporated--Regulation", Morgan
Guaranty is subject to examination and regulation by U.S. federal and state
banking authorities, and although there is no current restriction on Morgan
Guaranty's ability to make payments under the Senior Note, certain other
transactions with affiliates, including the Company, are or may become
subject to restrictions.
Effect of Trading in Related Commodities and Instruments
Morgan Guaranty and other affiliates of J.P. Morgan are and will be
actively involved in the trading of gold and other instruments and
derivative products based thereon. Morgan Guaranty, in particular, is an
active participant in various commodity markets including the physical
petroleum, precious and base metals and related derivatives markets. JPMSI
and other affiliates may also issue or underwrite, or authorize
unaffiliated entities to issue or underwrite, other securities or financial
instruments with returns indexed to the Applicable Index or one or more of
the JPM Indices. Morgan Guaranty has licensed, and may in the future
license, the JPM Indices and related indices and sub-indices for use by
affiliated and unaffiliated parties, for publication in newspapers and
periodicals, for distribution by information and data dissemination
services and for other purposes. Morgan Guaranty currently intends to
publish individual commodity sub-indices for each of the commodities
included in the JPMCI using the same calculation methodology as that
described below.
<PAGE>
Trading in the foregoing commodities by Morgan Guaranty, its
affiliates (including JPMSI) and unaffiliated third parties could adversely
affect the value of the Applicable Index, which could in turn adversely
affect the return on and the value of the ComPS. See "The Applicable
Index".
Potential for Adverse Interests
As noted above, Morgan Guaranty, JPMSI and their affiliates expect to
engage in trading activities related to gold and other instruments or
derivatives products on or related to the Applicable Index, for their
accounts where permitted or for other accounts under their management.
Morgan Guaranty, JPMSI and their affiliates, as well as unaffiliated third
parties, may also engage in other activities related to the Applicable
Index, as discussed above. Because Morgan Guaranty will issue the Related
Note to the Company, all such activities could create interests of Morgan
Guaranty adverse to those of the holders of ComPS. For example, the
issuance of other securities indexed to the Applicable Index, i.e., the
introduction of competing products into the marketplace, could adversely
affect the value of the ComPS. To the extent that J.P. Morgan or one of its
affiliates serves as issuer, or JPMSI or one of its affiliates serves as
agent or underwriter, for such securities or other instruments, their
interests with respect to such products may be adverse to those of the
holders of the ComPS. Morgan Guaranty will serve as Calculation Agent with
respect to the ComPS and, accordingly, will in good faith calculate the
Applicable Index, which could also raise certain adverse interests (for
example, in instances where the Calculation Agent is required to exercise
discretion).
Volatility of Gold Prices
Prices of commodities are extremely volatile and can be affected by a
variety of factors, including weather, governmental programs and policies,
national and international political and economic events, changes in
interest and exchange rates and trading activity in such commodities.
Volatility in gold prices will correlate directly with volatility in the
Applicable Index. Such volatility could adversely affect the value of the
Applicable Index and, correspondingly, could adversely affect the value of
the ComPS.
As discussed below, the Redemption Value of the ComPS will be based on
the Principal Amount, which will vary directly with the Dollar Equivalent
Value of one-tenth of the London P.M. gold fixing price of one ounce of
gold on the London bullion market. The London P.M. gold fixing price of one
ounce of gold on the London bullion market from 1985-1996 is set forth in
the graph below:
London P.M. Gold Fixing Price, 1985-1996
[GRAPHIC OMITTED]
<PAGE>
Effect of Adverse Changes in Commodity Prices
The Applicable Index is designed to replicate, to the extent provided
herein, the Dollar Equivalent Value of one-tenth of the London P.M. gold
fixing price of one ounce of gold on the London bullion market. Market gold
prices can fluctuate widely and are affected by numerous factors beyond the
Company's control, including industrial and jewelry demand, expectations
with respect to the rate of inflation, the strengh of the U.S. dollar (the
currency in which the price of gold is generally quoted) and of other
currencies, interest rates, central bank sales, forward sales by producers,
global or regional political or economic events, and production costs and
disruptions in major gold producing regions such as South Africa and the
former Soviet Union. The demand for and supply of gold affect gold prices,
but not necessarily in the same manner as supply and demand affect the
prices of other commodities. The supply of gold consists of a combination
of new mine production and existing stock of bullion and fabricated gold
held by governments, public and private financial institutions, industrial
organizations and private individuals. As the amounts produced in any
single year constitute a very small portion of the total potential supply
of gold, normal variations in production do not necessarily have a
significant impact on the supply of gold or on its price. In addition, the
price of gold has on occasion been subject to very rapid short-term changes
due to speculative activities.
Suspension or Material Disruption Commodities Trading; Temporary Distortions
The markets for gold are subject to temporary distortions or other
disruptions due to conditions of illiquidity in the markets, the
participation of speculators, government regulation and intervention and
other factors. Certain events could cause there to be no London P.M. gold
fixing price on any particular day. Such circumstances, particularly if
they occur during the Determination Period (as defined herein) for the
Applicable Index, could adversely affect the value of the Applicable Index
and, therefore, the value of the ComPS.
In the event that no official London P.M. fixing price as reported by
the relevant fixing association (the "Fixing Price") is available with
respect to the price of one ounce of gold on the London bullion market for
any given day, no Applicable Index Value will be available for such day. If
such London P.M. fixing price shall have ceased as of such date to be
available for an indefinite period of time, the Applicable Index will
thereafter be calculated based on the London A.M. fixing price (or such
other successor London fixing price) until the London P.M. fixing price
again becomes available.
In the event of a Market Disruption Event during any Early
Determination Period or the Determination Period, the Early Redemption
Value or Redemption Value, as applicable, payable in respect of the ComPS
will be calculated using the Dollar Equivalent Value of one-tenth of the
London P.M. gold fixing price for one ounce of gold on the day or days
(other than a Saturday or Sunday) on which either the New York Mercantile
Exchange (the "NYMEX") or the London Metal Exchange (the "LME") is
scheduled to be open or is open (each, a "Trading Day") immediately
following the termination of such Market Disruption Event. However, if such
Market Disruption Event remains in effect for longer than 20 consecutive
Trading Days and, in the reasonable judgment of Morgan Guaranty, such
Market Disruption Event is likely to remain in effect, then Principal
Amount for each Trading Day subject to a Market Disruption Event may be
determined in good faith by Morgan Guaranty based on alternative pricing
sources reasonably believed by it to be indicative of then-prevailing
prices for notional transactions in gold equal in size to the aggregate
Early Redemption Value or Redemption Value, as applicable, of the ComPS,
although Morgan Guaranty has no obligation to do so. Because Morgan
Guaranty's obligations under the Related Note will also be based on the
aggregate Early Redemption Value and Redemption Value of the ComPS, Morgan
Guaranty may have an adverse interest with respect to such determination.
Historical Correlations May Not Prevail in the Future
Although historically the price of gold has shown some positive
correlation with inflation and some negative correlation with stock and
bond returns, there can be no assurance that such correlations will prevail
in the future.
<PAGE>
Changes in Laws or Regulations or Interpretations Thereof
Prices of commodities may be adversely affected by the promulgation of
new laws or regulations or by the reinterpretation of existing laws or
regulations (including, without limitation, those relating to taxes and
duties on commodities or commodity components) by one or more governments,
governmental agencies or instrumentalities, courts or other official
bodies. Any such event could adversely affect the value of the Applicable
Index and, correspondingly, could adversely affect the value of the ComPS.
Extension of Settlement Date or Stated Maturity
If the market for one ounce of gold on the London bullion market were
to be affected by a Market Disruption Event during any Early Determination
Period or the Determination Period, the applicable Settlement Date would be
postponed until the fifth Business Day after the last day of the applicable
Early Determination Period or the Determination Period. Such delay could be
of indefinite duration. In the event that payment of the Redemption Value
is postponed beyond the Stated Maturity, interest will accrue on the
Principal Amount in the manner described under the caption "Description of
the ComPS--Calculation of Redemption Value", but no dividends will be
payable after Stated Maturity. In the event payment of the Early Redemption
Value is postponed beyond the applicable Early Redemption Date, no
dividends will be payable, and no interest will accrue or be payable, with
respect to ComPS redeemed on such Early Redemption Date.
Early Redemption
The ComPS may be automatically redeemed prior to their Stated Maturity
upon the occurrence of a Special Event. In such case, the Redemption Value
paid by the Company at such time may be significantly less than the
Redemption Value that would otherwise have been payable had the ComPS not
been redeemed prior to their Stated Maturity, and it is possible that the
occurrence of such Special Event may cause the market price of the ComPS in
any existing secondary market to decline.
Certain Considerations Regarding Hedging
Prospective purchasers of the ComPS who intend to hedge against the
risks associated with the market for gold should recognize the complexities
of utilizing the ComPS in this manner. The formulae by which the Early
Redemption Value and Redemption Value are calculated provide for the
averaging of gold prices over the Early Determination Period or the
Determination Period, as applicable. Also, under certain circumstances,
amounts payable on the ComPS may be based on the good faith determination
of Morgan Guaranty and not on the Applicable Index. For this reason,
investors should be cautious in using the ComPS in a hedging program. The
risks associated with utilizing the ComPS for in a hedging program may be
magnified in periods of substantial gold price volatility.
J.P. MORGAN & CO. INCORPORATED
J.P. Morgan, whose origins date to a merchant banking firm founded in
London in 1838, is the holding company for a group of global subsidiaries
that provide a wide range of financial services to corporations,
governments, financial institutions, institutional investors, professional
firms, privately held companies, nonprofit organizations, and financially
sophisticated individuals. J.P. Morgan's activities are in the accompanying
Prospectus.
J.P. MORGAN INDEX FUNDING COMPANY, LLC
J.P. Morgan Index Funding Company, LLC, is a Delaware limited
liability company formed pursuant to (i) the filing of a certificate of
formation with the Secretary of State of the State of Delaware on November
21, 1995 and (ii) the limited liability
<PAGE>
company agreement, dated February 16, 1996, and effective as of November
21, 1995 (the "LLC Agreement"), filed as an exhibit to the Registration
Statement of which this Prospectus Supplement and the accompanying
Prospectus form a part. J.P. Morgan will directly or indirectly acquire all
Common Securities of the Company. The Company exists for the exclusive
purposes of (i) issuing the ComPS and Common Securities, and from time to
time additional series of preferred and common securities, (ii) investing
the gross proceeds of the ComPS and Common Securities in the Related Note,
and investing the proceeds of such additional issuances of preferred and
common securities in other Senior debt obligations of Morgan Guaranty, and
(iii) engaging in only those other activities necessary or incidental
thereto.
Pursuant to the LLC Agreement, the Common Securities will initially be
owned by J.P. Morgan and by J.P. Morgan Ventures Corporation, a Delaware
corporation and a wholly-owned subsidiary of J.P. Morgan ("JPM Ventures").
J.P. Morgan and JPM Ventures will be the Managing Members of the Company
(as defined in the LLC Agreement).
The LLC Agreement and the Agreement as to Expenses and Liabilities,
dated as of [ ], 1996, between J. P. Morgan and the Company (the Expense
Agreement"), provide that J.P. Morgan will pay for all debts and
obligations (other than with respect to the ComPS to the extent set forth
herein) and all costs and expenses of the Company, including any taxes and
all costs and expenses with respect thereto, to which the Company may
become subject. The Company and J.P. Morgan have agreed that any person to
whom such debts, obligations, costs and expenses are owed will have the
right to enforce J.P. Morgan's obligations in respect of such debts,
obligations, costs and expenses directly against J.P. Morgan without first
proceeding against the Company.
The rights of the holders of the ComPS, including economic rights,
rights to information and voting rights, are set forth in the LLC
Agreement. See "Description of the ComPS".
USE OF PROCEEDS
The Company will invest the proceeds from the sale of the ComPS
offered hereby and the related Common Securities in a Related Note of
Morgan Guaranty, the proceeds of which will be used by Morgan Guaranty for
general corporate purposes and for hedging its obligations under the
Related Note.
<PAGE>
DESCRIPTION OF THE COMPS
The ComPS will be issued pursuant to the LLC Agreement. The following
summary of the principal terms and provisions of the ComPS does not purport
to be complete and is subject to, and qualified in its entirety by
reference to, the Prospectus of which this Prospectus Supplement
constitutes a part and the LLC Agreement, a copy of which is filed as an
exhibit to the Registration Statement of which this Prospectus Supplement
is a part.
General
The Principal Amount of each of the ComPS will vary over the life of
the ComPS in relation to the Dollar Equivalent Value of one-tenth of the
London P.M. gold fixing price of one ounce of gold on the London bullion
market (the "Applicable Index"). The Principal Amount repayable upon the
occurrence of any Special Event Redemption or at Stated Maturity will be
determined, pursuant to the terms and calculations described herein
(including, without limitation, the average of gold prices during any early
Determination Period and the Determination Period and the present-valuing
of the indexed dividends and Principal Amount), based on the Dollar
Equivalent Value of one-tenth of the London P.M. gold fixing price of one
ounce of gold on the London bullion market.
The LLC Agreement authorizes the Company to issue Preferred and Common
Securities. All of the Common Securities will be owned, directly or
indirectly, by J.P. Morgan. Payments of interest on and redemptions of
principal of the ComPS and the related Common Securities will be made on a
pro rata basis among the ComPS and the related Common Securities, except
that upon the occurrence of a liquidation, termination or winding up of the
Company, the rights of the holders of the Common Securities to receive
payment of periodic dividends and payments upon liquidation, redemption or
otherwise will be subordinated to the rights of the holders of all
Preferred Securities of the Company. The LLC Agreement does not permit the
incurrence of any indebtedness by the Company (other than any preferred
securities thereof). The payment of distributions out of money held by the
Company, and payments upon liquidation, termination or winding-up of the
Company, are guaranteed by J.P. Morgan to the extent described under
"Description of the Guarantee". The Guarantee does not cover payment of
distributions when Morgan Guaranty has not made payment of principal or
interest, as applicable, on the Related Note. In such event, the remedy of
a holder of ComPS is to direct the Company to enforce its rights under the
Related Note and the Related Note Guarantee with respect to such Related
Note. See "--Voting Rights" and "Effect of Obligations Under the Guarantee,
the Related Note Guarantee and the Related Note".
Dividends
Dividends on the ComPS will be fixed at a rate per annum of [2]% of
the Principal Amount per Preferred Security. The term "dividend" as used
herein includes any such interest payable unless otherwise stated..
Dividends on the ComPS will be cumulative and will be payable monthly on
the last calendar day of each month (calculated on the basis of a 360-day
year of twelve 30-day months) based on the Dollar Equivalent Value of
one-tenth of the London P.M. gold fixing price for one ounce of gold on the
London bullion market on the fifth London Business Day prior to such
calendar day, commencing [ ], 1996, when, as and if available for payment;
provided, however, that upon the occurrence of a Market Disruption Event,
such dividend will be payable on the later of such calendar day and the day
two Business Days following the determination of the amount thereof..
Dividends on the ComPS will be payable to the holders thereof as they
appear on the books and records of the Company on the relevant record
dates, which, as long as the ComPS remain in book-entry only form, will be
one London Business Day prior to the relevant payment dates. Subject to any
applicable laws and regulations and the provisions of the LLC Agreement,
each such payment will be made as described under "--Book-Entry Only
Issuance--The Depository Trust Company".
In the event that the ComPS do not continue to remain in book-entry
only form, the Company shall have the right to select relevant record
dates, which shall be at least one Business Day prior to the relevant
payment dates. In the event that any date on which dividends are to be made
on the ComPS is not a Business Day, then payment of the dividends payable
on such date will be made on the next succeeding Business Day with the same
force and effect as if made on such date and no interest on such dividends
will accrue
<PAGE>
from and after such date, except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if
made on such date. A "Business Day" shall mean any day other than Saturday,
Sunday or any other day on which banking institutions in the City of New
York, New York, are permitted or required by any applicable law to close.
The payment of dividends on the ComPS out of moneys held by the
Company is guaranteed by J.P. Morgan on a subordinated basis as and to the
extent set forth under "Description of the Guarantee". The Guarantee is a
full and unconditional guarantee from the time of issuance of the ComPS,
but the Guarantee covers dividends and other payments on the ComPS only if
and to the extent that Morgan Guaranty has made a payment to the Company of
interest or principal on the Related Note, as the case may be.
Redemption at Stated Maturity
Unless previously redeemed pursuant to the special redemption
provisions and subject to extension in the case of a Market Disruption
Event (as defined below), each of the outstanding ComPS will be redeemed by
the Company, in cash, on the Stated Maturity, at the ComPS Redemption
Price. The ComPS Redemption Price is the sum of (a) the Redemption Value
per Preferred Security plus (b) accrued but unpaid dividends on such ComPS
to but excluding the date of redemption.
Calculation of Redemption Value
The Principal Amount of each Preferred Security at any time is equal
to one-tenth of the Dollar Equivalent Value of the London P.M. gold fixing
price of one ounce of gold on the London bullion market. On the date of
this Prospectus Supplement. In summary, and subject to the complete
definitions and formulae contained herein and in the Prospectus, the
Principal Amount of each Preferred Security at Stated Maturity, subject to
extension in the case of a Market Disruption Event (the "Redemption
Value"), shall be the arithmetic average of the Dollar Equivalent Value of
one-tenth of the London P.M. gold fixing price of one ounce of gold in the
London Bullion market for each day of the Determination Period. The
"Determination Period" is the period of 10 consecutive Trading Days not
subject to a Market Disruption Event. The ComPS Redemption Price will first
be payable on the later of the Stated Maturity and the fifth Business Day
after the completion of the Determination Period.
As defined in the accompanying Prospectus under "Description of
ComPS--Market Disruption Events", a Market Disruption Event is the
occurrence of one or more of the following on any Trading Day with respect
to the London P.M. gold fixing price of one ounce of gold on the LMBA
London bullion market (the "Relevant Fixing Association"): (a) a day on
which the fluctuation of the price of one ounce of gold is materially
limited by the rules of the Relevant Fixing Association (a "Limit Price");
(b) a day on which the London P.M. gold fixing price is the Limit Price;
(c) the failure of the Relevant Fixing Association to determine, announce
or publish the London P.M. gold fixing price of one ounce of gold; provided
that if such London P.M. fixing price shall have ceased as of such date to
be available for an indefinite period of time, the Applicable Index will
thereafter be calculated based on the London A.M. fixing price (or such
other successor London fixing price) until the London P.M. fixing price
again becomes available and the absence of such price will not constitute a
Market Disruption Event; (d) the material suspension of trading of ounces
of gold or any other amount of gold on the Relevant Fixing Association
affecting the price of one ounce of gold; (e) the failure of trading to
commence, or the permanent discontinuation of trading, in ounces of gold on
the Relevant Fixing Association and (f) the imposition of any material
limitation on trading in ounces of gold or any other amount of gold on the
Relevant Fixing Association affecting the price of one ounce of gold.
<PAGE>
Special Event Redemption
The ComPS will be subject to redemption by the Company, at is option,
upon the occurrence of a Tax Event or an Investment Company Event (each, a
"Special Event"), as discussed herein.
"Tax Event" means that the Company shall have obtained an opinion of
nationally recognized independent tax counsel experienced in such matters (a
"Tax Opinion") to the effect that, as a result of (a) any amendment to, or
change (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, (b) any amendment to, or change in, an
interpretation or application of any such laws or regulations by any
legislative body, court, governmental agency or regulatory authority
(including the enactment of any legislation and the publication of any
judicial decision or regulatory determination), (c) any interpretation or
pronouncement that provides for a position with respect to such laws or
regulations that differs from the theretofore generally accepted position or
(d) any action taken by any governmental agency or regulatory authority, which
amendment or change is enacted, promulgated, issued or announced or which
interpretation or pronouncement is issued or announced or which action is
taken, in each case on or after the date of this Prospectus Supplement, there
is more than an insubstantial risk that at such time or within 90 days of the
date thereof (i) the Company is or would be subject to United States Federal
income tax with respect to income accrued or received on the Related Note,
(ii) the interest payable on the Related Note is not, or would not be,
deductible by Morgan Guaranty for United States Federal income tax purposes,
(iii) the contingent principal in excess of the Face Amount, if any, payable
on the Related Note is not, or would not be, deductible by Morgan Guaranty for
United States Federal income tax purposes or (iv) the Company is or would be
subject to more than a de minimis amount of other taxes, duties, assessments
or other governmental charges.
"Investment Company Event" means that the Company shall have received an
opinion of a nationally recognized independent counsel experienced in such
matters to the effect that, as a result of the occurrence of a change in law
or regulation, a written change in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority or the expiration or revocation of any exemption from any provisions
of the Investment Company Act of 1940, as amended (the "1940 Act"), obtained
by the Company (a "Change in 1940 Act Law"), there is more than an
insubstantial risk that the Company is or will be considered an "investment
company" that is required to be registered as such under the 1940 Act, which
Change in 1940 Act Law becomes effective on or after the date of this
Prospectus Supplement.
If at any time a Tax Event or an Investment Company Event shall occur and
be continuing, J.P. Morgan shall elect to either:
(a) direct Morgan Guaranty to redeem the Related Note in whole or in
part, upon not less than 22 scheduled Business Days' notice to DTC,
within 90 days following the occurrence of such Special Event, in which
case the Company shall redeem in cash on a pro rata basis ComPS and
related Common Securities having an aggregate Principal Amount equal to
the Principal Amount of the Related Note so redeemed, at the ComPS Early
Redemption Price per Preferred Security which is equal to the sum of the
Early Redemption Value plus an amount equal to all accrued and unpaid
dividends on such ComPS to but excluding the date of such redemption (the
"Early Redemption Date"); provided, that Morgan Guaranty shall only be
entitled to redeem the Related Note in part if such partial redemption is
sufficient to cause such Special Event to cease; or
(b) in the case of a Tax Event, allow the Related Note and the ComPS
to remain outstanding and indemnify the Company for all taxes payable by
it as a result of such Tax Event (if any);
provided that, if at the time there is available to the Company the opportun-
ity to eliminate, within such 90-day period, the Special Event by taking some
ministerial action, such as filing a form or making an election, or pursuing
some other similar reasonable measure, that has no adverse effect on the
Company, J.P. Morgan, Morgan Guaranty or the holders of ComPS, the Company will
pursue such measure in lieu of redemption; provided further that Morgan
Guaranty shall have no right to redeem the Related Note and J.P. Morgan shall
have no right to direct the Company to redeem the ComPS while the Company is
pursuing any such ministerial action or reasonable measure unless the Special
Event shall not have been so eliminated by the 85th day following the occurrence
thereof, in which case J.P. Morgan shall be permitted to direct Morgan Guaranty
to provide notice to the Company of the redemption of the Related Note.
<PAGE>
Under current United States Federal income tax law, upon the
occurrence of a Special Event, a redemption of ComPS, whether or not upon
dissolution of the Company, would be a taxable event to such holders. See
"United States Federal Income Taxation".
Redemption Procedures
In the case of a redemption of ComPS upon the occurrence of a Special
Event, the Company will provide notice of such redemption to DTC on a date
not less than 22 scheduled Business Days prior to such Early Redemption
Date stating, among other things, the date of such redemption.
The related Common Securities will be redeemed on a pro rata basis
with the ComPS except that, in the case of any dissolution or liquidation
in which the assets of the Company are insufficient to repay in full the
Principal Amount of all Preferred Securities then outstanding, all
Preferred Securities will be redeemed prior to the redemption of any Common
Securities. ComPS registered in the name of and held by DTC (as defined
herein) or its nominee will be redeemed in accordance with DTC's standard
procedures. See "--Book-Entry Only Issuance--The Depository Trust Company".
Payment of the ComPS Redemption Price or the ComPS Early Redemption
Price, as applicable, of the ComPS is conditioned upon delivery or
book-entry transfer of such ComPS (together with necessary endorsements) to
the Company at any time (whether prior to, on or after the relevant
Redemption Date) after the required notice is given (to the extent such
notice is required). See "--Book-Entry Only Issuance--The Depository Trust
Company". Payment of ComPS Redemption Price or the ComPS Early Redemption
Price, as applicable, for such ComPS will be made by the delivery of cash
no later than the applicable Settlement Date with respect to such ComPS or,
if later, the time of delivery or book-entry transfer of such ComPS. If the
Company holds money sufficient to pay the ComPS Redemption Price or the
ComPS Early Redemption Price, as applicable, of the ComPS on the applicable
Settlement Date, then immediately at the close of business on such
Settlement Date, such ComPS will cease to be outstanding and dividends with
respect to such ComPS will cease to accrue, whether or not such ComPS are
delivered to the Company, and all rights of the holder of such ComPS shall
terminate and lapse, other than the right to receive the ComPS Redemption
Price or the ComPS Early Redemption Price, as applicable, upon delivery of
the ComPS.
Provided that Morgan Guaranty has paid to the Company the required
amount of cash due upon any redemption or at the maturity of the Related
Note, the Company will irrevocably deposit with DTC no later than the close
of business on the applicable Settlement Date funds sufficient to pay the
ComPS Redemption Price or the ComPS Early Redemption Price, as applicable,
payable with respect to ComPS on such date and will give the Depositary
irrevocable instructions and authority to pay such amount to the holders of
ComPS entitled thereto. See "--Book-Entry Only Issuance--The Depository
Trust Company". In the event that any Settlement Date is not a Business
Day, then payment of the ComPS Redemption Price or the ComPS Early
Redemption Price, as applicable, payable on such date will be made on the
next succeeding Business Day (and without any interest or other payment in
respect of any such delay), except that, if such Business Day falls in the
next calendar year such payment will be made on the immediately preceding
Business Day. In the event that payment of the ComPS Redemption Price or
the ComPS Early Redemption Price, as applicable, is improperly withheld or
refused and not paid by the Company or by J.P. Morgan pursuant to the
Guarantee, dividends on such ComPS will continue to accrue from the
original Redemption Date to the actual date of payment by the Company to
DTC.
The Company may not redeem fewer than all of the outstanding ComPS on
any Redemption Date unless all accrued and unpaid dividends have been or
are concurrently being paid on all ComPS for all monthly dividend periods
terminating on or prior to the applicable Redemption Date. If a partial
redemption as a result of a Special Event Redemption by Morgan Guaranty of
a part or all of the Related Note would result in the delisting of the
ComPS by any national securities exchange (or automated inter-dealer
quotation system, including The Nasdaq Stock Market ("Nasdaq")) on which
the ComPS are then listed, Morgan Guaranty may only redeem the Related Note
in whole and, as a result, the Company may only redeem the ComPS in whole.
<PAGE>
Subject to the foregoing and to applicable law (including, without
limitation, United States Federal securities laws), J.P. Morgan or its
affiliates may, at any time and from time to time, purchase outstanding ComPS
by tender, in the open market or by private agreement.
Liquidation Distribution Upon Dissolution
In the event of any liquidation, dissolution, winding-up or termination
of the Company (each, a "Liquidation Event"), whether voluntary or
involuntary, the holders of ComPS on the date of such Liquidation Event will
be entitled to be paid out of the assets of the Company the Liquidation
Distribution. The "Liquidation Distribution" will be equal to (a) the Early
Redemption Value with respect to such ComPS (treating the date of such
distribution as the Early Redemption Date) plus (b) the amount of accrued and
unpaid dividends on such ComPS to but excluding the date of payment. To the
extent the assets of the Company are insufficient to repay all amounts due to
holders of all Preferred Securities of the Company, holders of all Preferred
Securities then outstanding (including the ComPS) will be entitled to a pro
rata share of the assets of the Company, based upon the relative Principal
Amounts of all Preferred Securities outstanding. In addition, in the event
that the assets of the Company exceed the amount necessary to pay to all
holders of ComPS the full amount of the Liquidation Distribution, such excess
will be paid to the holders of Common Securities.
Pursuant to the LLC Agreement, the legal existence of the Company shall
terminate on November 21, 2105.
Voting Rights
Except as described herein and under "--Modification of the LLC
Agreement", and as otherwise required by law and the LLC Agreement, the
holders of the ComPS will have no voting rights.
Pursuant to the provisions of the Guarantee, certain amendments to or
modifications of the Guarantee may only be effected with the approval of a
majority in aggregate Principal Amount at such time of the ComPS and all other
affected Preferred Securities. See "Description of the Guarantee--Modification
of the Guarantee".
Pursuant to the provisions of the Related Note, certain amendments to or
modifications of the Related Note may only be effected with the approval of a
majority in aggregate Principal Amount at such time of the ComPS. See
"Description of the Related Note--Modification of the Related Note".
Notwithstanding that holders of ComPS are entitled to vote or consent
under any of the circumstances described above, any of the ComPS that are
owned at such time by J.P. Morgan or any entity directly or indirectly
controlling or controlled by, or under direct or indirect common control
with, J.P. Morgan, shall not be entitled to vote or consent and shall, for
purposes of such vote or consent, be treated as if such ComPS were not
outstanding.
The procedures by which holders of ComPS may exercise their voting rights
are described below under "--Book-Entry Only Issuance--The Depository Trust
Company" and in the LLC Agreement.
Modification of the LLC Agreement
The LLC Agreement may be amended or modified if approved by a written
instrument executed by a majority in interest of the holders of Common
Securities; provided that, if any proposed amendment provides for (i) any
action that would adversely affect the powers, preferences or special rights
of any Preferred Securities or (ii) the dissolution, winding up or termination
of the Company other than pursuant to the terms of the LLC Agreement, then the
holders of all affected outstanding Preferred Securities (or, in the case of
an event described in clause (ii), all Preferred Securities) of the Company
voting together as a single class will be entitled to vote on such amendment
or proposal and such amendment or proposal shall not be effective except with
the approval of holders of
<PAGE>
not less than a majority in aggregate Principal Amount of all affected
outstanding Preferred Securities (or, in the case of an event described in
clause (ii), all Preferred Securities) of the Company.
The LLC Agreement further provides that it may be amended without the
consent of the holders of the ComPS to (i) cure any ambiguity, (ii) correct
or supplement any provision in the LLC Agreement that may be defective or
inconsistent with any other provision of the LLC Agreement, (iii) add to
the covenants, restrictions or obligations of J.P. Morgan, (iv) conform to
changes in, or a change in interpretation or application of, certain
requirements of the 1940 Act by the Commission and (v) conform to certain
requirements of the Code with respect to the characterization of the
Company as a partnership for U.S. Federal income tax purposes, including,
without limitation, an alteration of the capitalization of the Company upon
any such change, which amendment does not adversely affect the rights,
preferences or privileges of the holders of the ComPS.
Listing
[The ComPS have been authorized for listing on the [ ] under the
symbol "[ ]", subject to official notice of issuance. Trading of the ComPS
on the [ ] is expected to commence within a 30-day period after the date of
this Prospectus Supplement.] [Prior to this offering, there has been no
market for the ComPS. In order to meet one of the requirements for listing
the ComPS on the [ ], the underwriters will undertake to sell lots of 100
or more ComPS to a minimum of 400 beneficial holders.]
Accounting Treatment
The financial statements of the Company will be included in the
consolidated financial statements of J.P. Morgan, with the ComPS included
on the balance sheet with J.P. Morgan's other obligations.
Mergers, Consolidations or Amalgamations
The Company may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other entity, except
upon satisfaction of the conditions set forth in Section 2.8 of the LLC
Agreement, which include in certain circumstances the approval of 2/3 of
the outstanding Principal Amount of all Preferred Securities. In addition,
so long as any ComPS are outstanding and are not held directly or
indirectly entirely by J.P. Morgan, the Company may not voluntarily
liquidate, dissolve, wind-up or terminate on or prior to the Stated
Maturity.
Book-Entry Only Issuance--
The Depository Trust Company
The Depository Trust Company ("DTC") will act as securities depositary
for the ComPS. The ComPS will be issued only as fully-registered securities
registered in the name of Cede & Co. (DTC's nominee). One or more
fully-registered global ComPS certificates, representing the total
aggregate number of ComPS, will be issued and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). DTC holds securities that its participants ("Participants") deposit
with DTC. DTC also facilitates the settlement among Participants of
securities transactions, such as transfers and pledges, in deposited
securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement
of securities certificates. Direct Participants include securities brokers
and dealers, banks, trust companies, clearing corporations and certain
other organizations ("Direct Participants"). DTC is owned by a number of
its Direct Participants and by the
<PAGE>
New York Stock Exchange, the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others, such as securities brokers and dealers, banks and trust
companies that clear transactions through or maintain a direct or indirect
custodial relationship with a Direct Participant either directly or indirectly
("Indirect Participants"). The rules applicable to DTC and its Participants
are on file with the Commission.
Purchases of ComPS within the DTC system must be made by or through
Direct Participants, which will receive a credit for the ComPS on DTC's
records. The ownership interest of each actual purchaser of each Preferred
Security ("Beneficial Owner") is in turn to be recorded on the Direct and
Indirect Participants' records. Beneficial Owners will not receive written
confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the
transactions, as well as periodic statements of their holdings, from the
Direct or Indirect Participants through which the Beneficial Owners
purchased ComPS. Transfers of ownership interests in the ComPS are to be
accomplished by entries made on the books of Participants acting on behalf
of Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in the ComPS, except in the event
that use of the book-entry system for the ComPS is discontinued.
To facilitate subsequent transfers, all the ComPS deposited by
Participants with DTC are registered in the name of DTC's nominee, Cede &
Co. The deposit of ComPS with DTC and their registration in the name of
Cede & Co. effect no change in beneficial ownership. DTC has no knowledge
of the actual Beneficial Owners of the ComPS. DTC's records reflect only
the identity of the Direct Participants to whose accounts such ComPS are
credited, which may or may not be the Beneficial Owners. The Participants
will remain responsible for keeping account of their holdings on behalf of
their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements
that may be in effect from time to time.
In the case of a Special Event Redemption, redemption notices shall be
sent to Cede & Co. If less than all of the ComPS are being redeemed, DTC will
reduce the amount of the interest of each Direct Participant in such ComPS in
accordance with its procedures.
Although voting with respect to the ComPS is limited, in those cases
where a vote is required, neither DTC nor Cede & Co. will itself consent or
vote with respect to ComPS. Under its usual procedures, DTC would mail an
Omnibus Proxy to the Company as soon as possible after the record date. The
Omnibus Proxy assigns Cede & Co. consenting or voting rights to those
Direct Participants to whose accounts the ComPS are credited on the record
date (identified in a listing attached to the Omnibus Proxy). J.P. Morgan
and the Company believe that the arrangements among DTC, Direct and
Indirect Participants and Beneficial Owners will enable the Beneficial
Owners to exercise rights equivalent in substance to the rights that can be
directly exercised by a holder of a limited liability company interest in
the Company.
Dividend payments on the ComPS will be made to DTC. DTC's practice is
to credit Direct Participants' accounts on the relevant payment date in
accordance with their respective holdings shown on DTC's records unless DTC
has reason to believe that it will not receive payments on such payment
date. Payments by participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is the case with
securities held for the account of customers in bearer form or registered
in "street name", and such payments will be the responsibility of such
Participant and not of DTC, the Company or J.P. Morgan, subject to any
statutory or regulatory requirements to the contrary that may be in effect
from time to time. Payment of dividends to DTC is the responsibility of the
Company, disbursement of such payments to Direct Participants is the
responsibility of DTC, and disbursement of such payments to the Beneficial
Owners is the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depositary
with respect to the ComPS at any time by giving reasonable notice to the
Company. Under such circumstances, in the event that a successor securities
depositary is not obtained, ComPS certificates are required to be printed
and delivered. Additionally, the Company may decide to discontinue use of
the system of book-entry transfers through DTC (or any successor
depositary) with respect to the ComPS. In that event, certificates for the
ComPS will be printed and delivered.
<PAGE>
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that J.P. Morgan believes to be
reliable, but neither J.P. Morgan nor the Company takes responsibility for
the accuracy thereof.
Governing Law
The LLC Agreement and the ComPS will be governed by and interpreted in
accordance with the laws of the State of Delaware.
DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the Guarantee
that will be delivered by J.P. Morgan for the benefit of the holders of
ComPS. The terms of the Guarantee will be those set forth in the Guarantee
Agreement. The following summary does not purport to be complete and is
subject in all respects to the provisions of, and is qualified in its
entirety by reference to, the Prospectus of which this Prospectus
Supplement is a part and the form of Guarantee, which is filed as an
exhibit to the Registration Statement of which this Prospectus Supplement
forms a part.
General
Pursuant to the Guarantee, J.P. Morgan irrevocably and unconditionally
agrees, on a subordinated basis, to pay in full to the holders of the ComPS
the Guarantee Payments (as defined herein) (except to the extent paid by
the Company), as and when due, regardless of any defense, right of set-off
or counterclaim that the Company may have or assert. The following payments
with respect to ComPS issued by the Company (the "Guarantee Payments"), to
the extent not paid by the Company, will be subject to the Guarantee
(without duplication): (i)(A) any accrued and unpaid dividends that are
required to be paid on the ComPS and (B) the ComPS Redemption Price, but if
and only if to the extent that, in each case, Morgan Guaranty has made
payment of interest or principal on the Related Note, as the case may be,
and (ii) upon a Liquidation Event (other than in connection with the
redemption of all of the ComPS at Stated Maturity or redemption of the
Related Note) the lesser of (A) the Liquidation Distribution to the extent
the Company has funds available therefor and (B) the amount of assets of
the Company remaining available for distribution to holders of the ComPS
upon such Liquidation Event. J.P. Morgan's obligation to make a Guarantee
Payment may be satisfied by direct payment of the required amounts by J.P.
Morgan to the holders of ComPS or by causing the Company to pay such
amounts to such holders. The Guarantee will be a full and unconditional
guarantee with respect to the ComPS from the time of issuance of the ComPS
to the extent Morgan Guaranty has made payments under the Related Note. If
Morgan Guaranty does not make payments on the Related Note, the Company may
not pay distributions on the ComPS issued and may not have funds available
therefor. See "Description of the Related Note".
Modification of the Guarantee; Assignment
Except with respect to any changes that do not adversely affect the
rights of holders of all Preferred Securities (in which case no vote will
be required), the Guarantee may be amended only with the prior approval of
the holders of not less than a majority in aggregate Principal Amount of
the outstanding ComPS and all other Preferred Securities entitled to vote
thereon, voting as a single class. All guarantees and agreements contained
in the Guarantee shall bind the successors, assignees, receivers, trustees
and representatives of J.P. Morgan and shall inure to the benefit of the
holders of the ComPS.
<PAGE>
Remedies of Holders
If J.P. Morgan fails to perform any of its payment or other
obligations with respect to the ComPS under the Guarantee, any holder of
ComPS may institute a legal proceeding directly against J.P. Morgan to
enforce such holder's rights under the Guarantee without first instituting
a legal proceeding against the Company or any other person or entity.
Subject to the award by a court of competent jurisdiction of legal fees in
connection with any such legal proceeding, each holder will be required to
bear its own costs in connection with instituting a legal proceeding
directly against J.P. Morgan, which cost may be significant.
Termination of the Guarantee
The Guarantee will terminate with respect to the ComPS upon full
payment of the aggregate ComPS Early Redemption Price or ComPS Redemption
Price, as applicable, or upon full payment of the amounts payable in
accordance with the LLC Agreement upon liquidation of the Company. The
Guarantee will continue to be effective or will be reinstated, as the case
may be, if at any time any holder of ComPS must restore payment of any sums
paid under such ComPS or the Guarantee.
Status of the Guarantee
The Guarantee will constitute an unsecured obligation of J.P. Morgan
and will rank (i) subordinate and junior in right of payment to all other
liabilities of J.P. Morgan, (ii) pari passu with the most senior preferred
or preference stock outstanding as of the date hereof of J.P. Morgan and
(iii) senior to J.P. Morgan's common stock. The terms of the ComPS provide
that each holder of ComPS by acceptance thereof agrees to the subordination
provisions and other terms of the Guarantee.
The Guarantee will constitute a guarantee of payment and not of
collection (that is, the guaranteed party may institute a legal proceeding
directly against the guarantor to enforce its rights under the Guarantee
without instituting a legal proceeding against any other person or entity).
Governing Law
The Guarantee will be governed by and construed and interpreted in
accordance with the laws of the State of New York.
DESCRIPTION OF THE RELATED NOTE GUARANTEE
Set forth below is a summary of information concerning the Related
Note Guarantee that will be delivered by J.P. Morgan for the benefit of the
Company. The terms of the Related Note Guarantee will be those set forth in
the Related Note Guarantee Agreement. The following summary does not
purport to be complete and is subject in all respects to the provisions of,
and is qualified in its entirety by reference to, the Prospectus of which
this Prospectus Supplement is a part and the form of Related Note
Guarantee, which is filed as an exhibit to the Registration Statement of
which this Prospectus Supplement forms a part. The Related Note Guarantee
will be held by the Company, as the holder of the Related Note.
General
Pursuant to the Related Note Guarantee, J.P. Morgan irrevocably and
unconditionally agrees, on a subordinated basis, to pay in full to the
Company the Related Note Guarantee Payments (as defined herein), as and
when due, regardless of any defense, right of set-off or counterclaim that
Morgan Guaranty may have or assert with respect to its obligation to make
such Related Note Guarantee Payments. The following payments with respect
to the Related Note issued by Morgan Guaranty (the "Related Note Guarantee
<PAGE>
Payments") will be subject to the Related Note Guarantee (without
duplication): (i) any accrued and unpaid distributions that are required to
be paid by Morgan Guaranty on the Related Note and (ii) any principal
payable by Morgan Guaranty under the Related Note, as and when payable by
Morgan Guaranty. J.P. Morgan's obligation to make a Related Note Guarantee
Payment may be satisfied by direct payment of the required amounts by J.P.
Morgan to the Company or by causing Morgan Guaranty to pay such amounts to
the Company. The Related Note Guarantee will be a full and unconditional
guarantee with respect to the Related Note from the time of issuance of the
Related Note.
Modification of the Related Note Guarantee; Assignment
The Related Note Guarantee may be amended only with the prior approval
of the Company. All guarantees and agreements contained in the Related Note
Guarantee shall bind the successors, assignees, receivers, trustees and
representatives of J.P. Morgan and shall inure to the benefit of the
Company as the holder of the Related Note.
Remedies of the Company
The Company has the sole right to direct the time, method and place of
conducting any proceeding for any remedy available to it in respect of the
Related Note Guarantee.
Termination of the Related Note Guarantee
The Related Note Guarantee will terminate with respect to the Related
Note upon full payment of the Related Note Redemption Price (as defined
below) of the Related Note. The Related Note Guarantee will continue to be
effective or will be reinstated with respect to the Related Note, as the
case may be, if at any time the Company must restore payment of any sums
paid under the Related Note or the Related Note Guarantee.
Status of the Related Note Guarantee
The Related Note Guarantee will constitute an unsecured obligation of
J.P. Morgan and will rank (i) subordinate and junior in right of payment to
all other liabilities of J.P. Morgan, (ii) pari passu with the most senior
preferred or preference stock outstanding as of the date hereof of J.P.
Morgan and (iii) senior to J.P. Morgan's common stock. The terms of the
ComPS provide that each holder of ComPS by acceptance thereof agrees to the
subordination provisions and other terms of the Related Note Guarantee.
The Related Note Guarantee will constitute a guarantee of payment and
not of collection (that is, the Company may institute a legal proceeding
directly against J.P. Morgan to enforce its rights under the Related Note
Guarantee without instituting a legal proceeding against Morgan Guaranty).
Governing Law
The Related Note Guarantee will be governed by and construed and
interpreted in accordance with the laws of the State of New York.
<PAGE>
DESCRIPTION OF THE RELATED NOTE
Set forth below is a summary of the terms of the Related Note in which
the Company will invest the proceeds from the issuance and sale of the
ComPS and the related Common Securities. The following description does not
purport to be complete and is subject to, and is qualified in its entirety
by reference to, the Prospectus of which this Prospectus Supplement is a
part and the Related Note, the form of which is filed as an exhibit to the
Registration Statement of which this Prospectus Supplement is a part.
Certain capitalized terms are used herein as defined in the Related Note.
General
The Related Note will be issued as an unsecured, unsubordinated
obligation of Morgan Guaranty, limited in initial principal amount to
approximately $[ ] , such amount being the sum of the aggregate Initial
Public Offering Price shown on the cover page hereof for the ComPS and the
Common Securities issued in connection therewith.
The Related Note is not subject to a sinking fund provision. The
entire Principal Amount of the Related Note will mature and become due and
payable, together with any accrued and unpaid interest thereon, if any, on
the Stated Maturity (subject to extension in the case of a Market
Disruption Event), subject to the redemption of the Related Note in whole
or in part in certain circumstances upon the occurrence of a Special Event.
If Morgan Guaranty redeems the Related Note in whole or in part, the
Company must redeem ComPS and related Common Securities having an aggregate
Principal Amount equal to the Principal Amount of the Related Note so
redeemed at the ComPS Early Redemption Price. See "Description of the
ComPS--Redemption or Stated Maturity; --Special Event Redemption".
Related Note Redemption Price
The amount payable under the Related Note by Morgan Guaranty to the
Company at any time shall equal (a) the Principal Amount of the Related
Note at such time plus (b) any accrued but unpaid distributions due to the
Company (the "Related Note Redemption Price"). The Principal Amount of the
Related Note at any time shall equal the aggregate Principal Amount of
outstanding ComPS and the related Common Securities at such time.
Subordination
Morgan Guaranty's obligations under the Related Note are effectively
subordinated to all liabilities (including indebtedness) of its
consolidated and unconsolidated subsidiaries. Moreover, Morgan Guaranty's
subsidiaries may incur indebtedness and other liabilities and have
obligations to third parties. Generally, the claims of such third parties
to the assets of Morgan Guaranty's subsidiaries will be superior to those
of Morgan Guaranty as a stockholder, and, therefore, the Related Note may
be deemed to be effectively subordinated to the claims of such third
parties.
Upon any payment or distribution of all or substantially all of the
assets of Morgan Guaranty or in the event of any insolvency, bankruptcy,
receivership, liquidation, dissolution, reorganization or other similar
proceeding whether voluntary or involuntary relative to Morgan Guaranty or
its creditors, the holders of all Senior Indebtedness will be entitled to
receive payment pari passu and pro rata with the Company. However,
depositors in Morgan Guaranty will have a preference over holders of Senior
Indebtedness upon any such event.
As used in the Related Note, the term "Senior Indebtedness" means the
principal of, premium, if any, and interest on (a) all indebtedness of
Morgan Guaranty for money borrowed, whether outstanding as of the date
hereof or hereafter created, issued or incurred (other than Morgan
Guaranty's obligations to its depositors), except any indebtedness
expressly subordinated to such Senior Indebtedness, and (b) any deferrals,
renewals or extensions of any such Senior Indebtedness.. The Related Note
does not limit the amount of Senior Indebtedness which Morgan Guaranty may
incur.
<PAGE>
Interest
The Related Note shall bear interest at the rate of [2] % per annum on
the Principal Amount from the original date of issuance, payable monthly on
the last calendar day of each month (each, an "Interest Payment Date"),
commencing [ ], 1996, to the Company, subject to certain exceptions, at the
close of business on the Business Day next preceding the relevant Interest
Payment Date.
The amount of interest payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months. The amount of interest
payable for any period shorter than a full monthly period for which
interest is computed will be computed on the basis of the actual number of
days elapsed per 30-day month. In the event that any date on which interest
is payable on the Related Note is not a Business Day, payment of the
interest payable on such date will be made on the next succeeding day that
is a Business Day (without any interest or other payment in respect of any
such delay), except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding
Business Day, in each case with the same force and effect as if made on
such date.
Special Event Redemption
Upon the occurrence of a Special Event, Morgan Guaranty will have the
right to elect to, under certain circumstances (a) redeem the Related Note
at the Related Note Redemption Price or (b) in the case of a Tax Event,
allow the Related Note to remain outstanding and indemnify the Company for
any taxes payable by it as a result of such Tax Event. See "Description of
the ComPS--Special Event Redemption".
Events of Default
The Related Note Events of Default are described in "Description of
the Related Notes --Related Note Events of Default" in the Prospectus of
which this Prospectus Supplement constitutes a part. A default or event of
default under any Senior Indebtedness would not constitute a default or
event of default under the Related Note.
Modification of the Related Note
The Related Note contains provisions permitting Morgan Guaranty and
the Company, with the consent of the holders of not less than a majority in
Principal Amount of the outstanding ComPS, to modify the Related Note,
subject to certain exceptions. See "Description of the Related Notes
- --Modification of the Related Notes" in the Prospectus of which this
Prospectus Supplement constitutes a part.
Consolidation, Merger and Sale
The Related Note provides that Morgan Guaranty may, without the
consent of the Company or the holders of the ComPS, consolidate or merge
with or into, or sell or transfer all or substantially all of its property
or assets to, any corporation or association; provided that (i) the
corporation (if other than Morgan Guaranty) or association formed by or
resulting from any such consolidation or merger or which shall have
received such property or assets shall have assumed Morgan Guaranty's
obligations under the Related Note and (ii) immediately after giving effect
to such transaction, Morgan Guaranty or such successor corporation shall
not be in default under the terms of the Notes.
<PAGE>
Governing Law
The Related Note will be governed by, and construed in accordance
with, the laws of the State of New York.
Miscellaneous
Morgan Guaranty will have the right at all times to assign any of its
rights or obligations under the Related Note to J.P. Morgan or to a direct
or indirect wholly-owned subsidiary of Morgan Guaranty; provided that, in
the event of any such assignment, Morgan Guaranty will remain jointly and
severally liable for all such obligations. Subject to the foregoing, the
Related Note will be binding upon and inure to the benefit of the parties
thereto and their respective successors and assigns. The Related Note is
not a deposit or other obligation of a bank and is not insured by the
Federal Deposit Insurance Corporation or any other federal agency.
EFFECT OF OBLIGATIONS UNDER THE GUARANTEE,
THE RELATED NOTE GUARANTEE AND THE RELATED NOTE
As set forth in the LLC Agreement, the sole purpose of the Company is
to issue the Securities and other Preferred and Common Securities, and to
invest the proceeds from such issuances in the Related Note and other debt
obligations of Morgan Guaranty.
As long as payments of interest and other payments are made when due
on the Related Note, such payments will be sufficient to cover dividends
and payments due on the ComPS because of the following factors: (i) the
Principal Amount of the Related Note will be equal to the sum of the
aggregate Principal Amount of the ComPS and the related Common Securities;
(ii) the interest rate and the interest and other payment dates on the
Related Note will match the dividend rate and dividend and other payment
dates for the ComPS; (iii) J.P. Morgan shall pay all, and the Company shall
not be obligated to pay, directly or indirectly, any, costs and expenses of
the Company other than principal of and dividends on the ComPS and the
related Common Securities; and (iv) the LLC Agreement further provides that
the J.P. Morgan shall not cause the Company to, among other things, engage
in any activity that is not consistent with the purposes of the Company.
Payments of dividends (to the extent Morgan Guaranty has made payments
of interest on the Related Note) and other payments due on the ComPS (to
the extent Morgan Guaranty has made payment of principal and other amounts
on the Related Note) are guaranteed by J.P. Morgan as and to the extent set
forth under "Description of the Guarantee" herein and in the accompanying
Prospectus. If Morgan Guaranty does not make interest payments on the
Related Note, it is expected that the Company will not have sufficient
funds to pay dividends on the ComPS. The Guarantee is a full and
unconditional guarantee from the time of its issuance but does not apply to
any dividends or other payments unless and until Morgan Guaranty has made
payment of interest or other payments on the Related Note.
If Morgan Guaranty fails to make interest or other payments on the
Related Note when due, the LLC Agreement provides a mechanism whereby the
holders of the ComPS, using the procedures described in the LLC Agreement,
may direct the Company to enforce its rights under the Related Note. If
J.P. Morgan fails to perform any of its payment or other obligations with
respect to the ComPS under the Guarantee, any holder of ComPS may institute
a legal proceeding directly against J.P. Morgan to enforce such holder's
rights under the Guarantee without first instituting a legal proceeding
against the Company or any other person or entity.
The Related Note Guarantee by J.P. Morgan guarantees to the Company
the payment of any distributions on and principal of the Related Note as
provided pursuant to the terms of the Related Note, at such times and in
such amounts as provided therein. J.P. Morgan's obligations under the
Related Note Guarantee will be subordinated and junior in right of payment
to all liabilities of J.P. Morgan, pari passu with the most senior
preferred stock outstanding as of the date hereof of J.P. Morgan and senior
to the common stock of J.P. Morgan.
<PAGE>
The LLC Agreement and the Expense Agreement provide that J.P. Morgan will
pay for, or cause to be paid, all debts and obligations (other than with
respect to the ComPS) and all costs and expenses of the Company, including any
taxes and all costs and expenses with respect thereto, to which the Company
may become subject. J.P. Morgan and the Company agreed that any person to whom
such debts, obligations, costs and expenses are owed will have the right to
enforce J.P. Morgan's obligations in respect of such debts, obligations, costs
and expenses directly against J.P. Morgan without first proceeding against the
Company.
J.P. Morgan and the Company believe that the above mechanisms and
obligations, taken together, are equivalent to a full and unconditional
guarantee by J.P. Morgan of payments due on the ComPS. See "Description of the
Guarantee--General" and "Description of the Related Note Guarantee--General"
herein and in the accompanying Prospectus.
Upon any voluntary or involuntary liquidation, dissolution, winding-up or
termination of the Company, the holders of Securities will be entitled to
receive the Liquidation Distribution. Holders of ComPS will be entitled to the
benefits of the Guarantee with respect to the Liquidation Distribution. See
"Description of the ComPS--Liquidation Distribution Upon Dissolution". Upon
any voluntary or involuntary liquidation or bankruptcy of Morgan Guaranty, the
Company as holder of the Related Note would be pari passu with creditors of
Morgan Guaranty (other than any depositors therein), equal in right of payment
with all Senior Indebtedness and entitled to receive payment in full of
principal, premium, if any, and interest, before any stockholders of Morgan
Guaranty receive payments of distributions.
UNITED STATES FEDERAL INCOME TAXATION
General
The following is a summary of the material United States Federal income
tax consequences of the purchase, ownership and disposition of ComPS by U.S.
Holders (as defined herein). Unless otherwise stated, this summary deals only
with ComPS held as capital assets by holders who purchase the ComPS upon
original issuance ("Initial Holders").
This summary does not address tax considerations applicable to investors
that may be subject to special U.S. Federal income tax treatment, such as
dealers in securities or persons that will hold the ComPS as a position in a
"straddle" (within the meaning of Section 1092 of the Internal Revenue Code of
1986, as amended (the "Code")), or as part of a "conversion transaction"
(within the meaning of Section 1258 of the Code) or "synthetic security" or
other integrated investment comprised of ComPS and one or more other
investments. This summary also does not address the tax consequences to
persons that have a functional currency other than the U.S. Dollar or the tax
consequences to shareholders, partners or beneficiaries of a holder of ComPS.
Further, it does not include any description of any alternative minimum tax
consequences or the tax laws of any state or local government or of any
foreign government that may be applicable to the ComPS.
This summary is based on the Code, Treasury regulations thereunder and
administrative and judicial interpretations thereof, as of the date hereof,
all of which are subject to change, possibly on a retroactive basis. In the
opinion of Cravath, Swaine & Moore, special tax counsel to J.P. Morgan and the
Company ("Tax Counsel"), the statements contained in the following summary, to
the extent they constitute matters of law, accurately describe the material
U.S. Federal income tax consequences to holders of the acquisition, ownership
and disposition of ComPS. For purposes of this summary, a "U.S. Holder" shall
mean a holder who is (i) a citizen or a resident of the United States (or any
state thereof), (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or any political
subdivision thereof, (iii) an estate or trust, the income of which is subject
to U.S. Federal income tax regardless of its source, and (iv) any other person
subject to U.S. Federal income tax on net income.
Classification of the Related Note
No statutory, judicial or administrative authority directly addresses the
characterization of the Related Note or instruments similar to the Related
Note for U.S. Federal income tax purposes. As a result, significant aspects of
the U.S. Federal income tax
<PAGE>
consequences of investment in ComPS are not certain. No ruling is being
requested from the Internal Revenue Service (the "IRS") with respect to the
Related Note and no assurance can be given that the IRS will agree with the
conclusions expressed herein. In the absence of clear authority and based
on the advice of Tax Counsel, it is the intention of the Company to treat
the Related Note as a contingent debt instrument with interest payable (and
currently taxable to holders) at the stated rate. By purchasing the ComPS,
the holders will agree to treat the Related Note in the same manner.
Classification of the Company
In connection with the issuance of the ComPS, it is Tax Counsel's
opinion that, under current law and assuming full compliance with the terms
of the LLC Agreement (and certain other documents), and based on certain
facts and assumptions contained in the opinion of Tax Counsel, the Company
will be classified for U.S. Federal income tax purposes as a partnership
and not as an association taxable as a corporation. Accordingly, for U.S.
Federal income tax purposes, each holder of ComPS will be required to
include in its gross income its distributive share of any item of income or
gain realized by the Company including any interest accrued with respect to
the Related Note. No portion of the income accrued by the Company will be
eligible for the dividends received deduction. By acquiring one or more
ComPS, each holder thereof agrees to treat such ComPS as an interest in a
partnership holding the Related Note.
The Company will have a calendar year tax year and will use the
accrual method of accounting. Accordingly, calendar year holders will be
required to include their distributive share of the income accrued by
Company in their taxable year that corresponds to the year in which the
Company accrued such income. Holders with a different taxable year will
include such income in their taxable year that includes the December 31 of
the Company's taxable year in which the Company accrued the income.
U.S. Holders
Taxation of Income Accrued by the Company
Assuming the Related Notes are treated as contingent debt instruments
for U.S. Federal income tax purposes, the following rules are believed to
apply:
(1) a U.S. Holder would be required to include its distributive
share of the stated interest on the Related Note in income as it
becomes fixed and is accrued by the Company, and would not be entitled
to the dividends received deduction with respect thereto;
(2) upon the redemption of the ComPS (whether a Special Event
redemption or at Stated Maturity) or liquidation of the Company, it is
expected that a U.S. Holder will have gain or loss equal to the
difference between the amount realized by the U.S. Holder and such
Holder's tax basis in the ComPS; any loss would be capital loss, but
the tax characterization of gain is not clear and may be ordinary
income rather than capital gain;
(3) for the purpose of computing gain or loss, a U.S. Holder's
tax basis in the ComPS would equal the cost of the ComPS increased by
such Holder's distributive share of income accrued with respect to the
Related Note and decreased by the amount of dividends received by such
Holder; and
(4) any capital gain or loss on the redemption of the ComPS will
be characterized as a long-term capital gain or loss if at the time of
redemption or liquidation the holding period in the ComPS is in excess
of one year.
However, even assuming the Related Note is properly treated as a
contingent debt instrument, in the absence of authority concerning the
proper tax treatment of such instruments, no assurance can be given that
the above tax consequences would be accepted by the IRS or upheld by a
court. Moreover, a variety of different tax characterizations can apply to
the Related Note. For example
<PAGE>
the Related Note can be viewed as a "notional principal contract" (as defined
in Treasury Regulations 1.446-3), a series of prepaid cash-settled forward
purchase contracts to buy gold, a series of loans combined with cash-settled
contracts to buy gold or some other contractual arrangement.
Accordingly, the tax consequences of investment in ComPS may not be as
described above. For example, (i) gain on redemption of the ComPS or on
liquidation of the Company may be ordinary income rather than capital gain,
(ii) a U.S. Holder might be required to accrue income at a rate greater than
the stated rate on the Related Note, possibly at the market rate for a fixed
debt instrument, and have less income or gain (or a greater loss) upon
disposition or redemption of ComPS, or (iii) all or part of the stated
interest on the Related Note might be treated as a nontaxable return of
capital, increasing the amount of income or gain (or decreasing the loss) upon
disposition or redemption of ComPS.
In connection with clause (ii) of the preceding paragraph, recently
proposed Treasury Regulations with respect to contingent debt instruments
would require the accrual of interest income on the Related Note based on the
projected yield to maturity of the Related Note. The projected yield would
take into account the projected interest payments and project Principal Amount
at Stated Maturity (based upon forward pricing for the Applicable Index). This
method might result in an annual inclusion of income at a rate in excess of
the stated rate of interest on the Related Note. An adjustment would be made
at the end of each taxable year of the Company and at maturity to reflect the
actual interest payments and the payment at Stated Maturity as compared to the
projected amount. Moreover, any gain on redemption of ComPS or upon
liquidation of the Company would be ordinary income and any loss would be
ordinary loss to the extent of the amount of prior interest accrual. These
proposed regulations by their terms only apply to debt issued at least 60 days
after publication of final regulations, and therefore would not apply to the
Related Note. However, no assurance can be given that the IRS or the courts
would not apply the principles of the regulations to the Related Note.
Sale or Other Disposition of ComPS
Upon the sale or other disposition of ComPS (other than redemption of
ComPS by the Company), a U.S Holder would have gain or loss equal to the
difference between the amount realized by the U.S. Holder and such Holder's
tax basis in the ComPS disposed of. Generally, it is believed that such gain
or loss will be capital gain or loss, although such gain might be ordinary
income. Any such capital gain or loss will be a long-term capital gain or loss
if upon disposition the ComPS will have been held for more than one year.
Non-United States Holders
In the case of a holder of ComPs that is not a U.S. Holder, although
no assurance can be given it is believed that payments made with respect to
ComPs will not be subject to U.S. withholding tax, provided that such
holder complies with applicable certification requirements. The Company may
withhold on such payments, in which case the holder will be entitled to
file a claim with the IRS claiming a refund of such tax. No assurance can
be given whether such claim would be successful. Any capital gain realized
upon the redemption, sale or other disposition of ComPS by a holder that is
not a U.S. Holder will generally not be subject to U.S. Federal income tax
if (i) such gain is not effectively connected with a U.S. trade or business
of such holder and (ii) in the case of an individual, such individual is
not present in the United States for 183 days or more in the taxable year
of the redemption, sale or other disposition or the gain is not
attributable to a fixed place of business maintained by such individual in
the United States.
Information Reporting to Holders
The Company will annually report each holder's distributive share of
the Company's income, gains, expenses and losses to the holders and the IRS
on Schedule K-1. The Company currently intends to report such information
prior to January 31 following each calendar year even though the Company is
not legally required to report to record holders until April 15 following
each calendar year. The Company will provide the Schedule K-1 information
to nominees (other than certain clearing agencies) that fail to provide the
information statements described below and such nominees will be required
to forward such information to the beneficial owners of the ComPS.
<PAGE>
Under section 6031 of the Code, any person (other than certain
clearing agencies) that holds ComPS as a nominee at any time during a
calendar year is required to furnish the Company with a statement
containing certain information on the nominee, the beneficial holders and
the ComPS so held. Such information includes (i) the name, address and
taxpayer identification number of the nominee and each beneficial owner and
(ii) as to each beneficial owner (x) whether such person is a United States
person, a tax-exempt entity, a foreign government, an international
organization or any wholly-owned agency or instrumentality of the either of
the foregoing and (y) certain information on ComPS that were held, bought
or sold on behalf of such person throughout the year. In addition, brokers
and financial institutions that hold ComPS for their own account through a
clearing agency are required to furnish the Company additional information
as to themselves and their ownership of ComPS. The information referred to
above for any calendar year must be furnished to the Company on or before
the following January 31. Nominees, brokers and financial institutions that
fail to provide the Company with such information may be subject to
penalties.
Backup Withholding
Payments made on, and proceeds from the sale of, the ComPS may be
subject to a "backup" withholding tax of 31% unless the holder complies
with certain identification requirements. Any withheld amounts will be
allowed as a credit against the holder's United States Federal income tax,
provided that the required information is provided to the IRS.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS
INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING
UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF THE ComPS, INCLUDING THE TAX CONSEQUENCES
UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF
CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Generally, employee benefit plans that are subject to the Employee
Retirement Income Security Act of 1974 ("ERISA") or Section 4975 of the
Code ("Plans"), may purchase ComPS, subject to the investing fiduciary's
determination that the investment in ComPS satisfies ERISA's fiduciary
standards and other requirements applicable to investments by the Plans.
In any case, J.P. Morgan, Morgan Guaranty and/or any affiliates of
either may be considered a "party in interest" (within the meaning of
ERISA) or a "disqualified person" (within the meaning of Section 4975 of
the Code) with respect to certain Plans. The acquisition and ownership of
ComPS by a Plan (or by an individual retirement arrangement or other plans
described in Section 4975(e)(i) of the Code) with respect to which J.P.
Morgan, Morgan Guaranty or any of its affiliates of either is considered a
party in interest or a disqualified person may constitute or result in a
prohibited transaction under ERISA or Section 4975 of the Code, unless such
ComPS are acquired pursuant to and in accordance with an applicable
exemption.
As a result, Plans with respect to which J.P. Morgan, Morgan Guaranty
or any affiliates of either is a party in interest or a disqualified person
should not acquire ComPS. Any other Plans or other entities whose assets
include plan assets subject to ERISA proposing to acquire ComPS should
consult with their own ERISA counsel.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement (the "Underwriting Agreement"), the Company has agreed to sell to
the Underwriters, and the Underwriters have agreed to purchase, severally
but not jointly, the ComPS. In the Underwriting Agreement, the Underwriters
have agreed, subject to the terms and conditions set forth therein, to
purchase all the ComPS offered hereby if any of the ComPS are purchased. In
the event of default by any Underwriter and failure by the other
Underwriters
<PAGE>
to purchase such defaulting Underwriter's portion of the ComPS, the
Underwriting Agreement provides that, in certain circumstances, the
Underwriting Agreement may be terminated.
The Underwriters propose to offer the ComPS, in part, directly to the
public at the Initial Public Offering Price set forth on the cover page of
this Prospectus Supplement, and, in part, to certain securities dealers at
such price less a concession of $[ ] per Preferred Security. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $[ ] per Preferred Security to certain brokers and dealers. After
the ComPS are released for sale to the public, the offering price and other
selling terms may from time to time be varied by the Representatives.
In view of the fact that the proceeds of the sale of the ComPS will
ultimately be used to purchase the Related Note of Morgan Guaranty, the
Underwriting Agreement provides that Morgan Guaranty will pay as
compensation ("Underwriters' Compensation") to the Underwriters $[ ] per
Preferred Security (or $[ ] in the aggregate) for the accounts of the
several Underwriters; provided that such compensation for sales of ComPS to
certain institutions will be $[ ] per Preferred Security. Therefore, to the
extent of such institutional sales, the actual amount of Underwriters'
Compensation will be less than the aggregate amount specified in the
preceding sentence.
[The ComPS have been authorized for listing on the [ ] under the
symbol "[ ]", subject to official notice of issuance. Trading of the ComPS
on the [ ] is expected to commence within a 30-day period after the date of
this Prospectus Supplement.] [Prior to this offering, there has been no
market for the ComPS. In order to meet one of the requirements for listing
the ComPS on the [ ], the Underwrites will undertake to sell lots of 100 or
more ComPS to a minimum of 400 beneficial holders.]
The Company and J.P. Morgan have agreed to indemnify the Underwriter
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended.
This Prospectus Supplement and the related Prospectus may be used by
direct or indirect wholly-owned subsidiaries of J.P. Morgan in connection
with offers and sales related to secondary market transactions in the
ComPS. Such subsidiaries may act as principal or agent in such
transactions. Such sales will be made at prices related to prevailing
market prices at the time of a sale.
The Underwriters, certain agents and their associates may be customers
of, engage in transactions with, and perform services for, J.P. Morgan in
the ordinary course of business.
The lead Underwriter is an indirect, wholly-owned subsidiary of J.P.
Morgan. The participation of the lead Underwriter in the offer and sale of
the ComPS complies with the requirements of Schedule E of the By-laws of
the National Association of Securities Dealers, Inc. (the "NASD") regarding
underwriting of securities of an affiliate and complies with any
restrictions imposed on such Underwriter by the Board of Governors of the
Federal Reserve System, including the use of a "qualified independent
underwriter" (if required by the NASD).
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon by
Margaret M. Foran, Vice President, Assistant General Counsel and Assistant
Secretary of J.P. Morgan, and by Cravath, Swaine & Moore, New York, New
York, counsel for the Underwriters. Ms. Foran owns or has the right to
acquire a number of shares of Common Stock of J.P. Morgan equal to or less
than 0.01% of the outstanding Common Stock of J.P. Morgan.
EXPERTS
The audited financial statements contained in J.P. Morgan's Annual
Report on Form 10-K for the year ended December 31, 1994 (included in J.P.
Morgan's Annual Report to Stockholders), are incorporated by reference in
this Prospectus Supplement in
<PAGE>
reliance on the report of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
ANNEX I
GLOSSARY OF TERMS
The following are abbreviated definitions of certain capitalized terms
used in the Prospectus Supplement. The LLC Agreement, the Guarantee, the
Related Note Guarantee and the Related Note may contain more complete
definitions of certain of the terms defined herein, as well as definitions
of certain other terms not defined herein, and reference should be made to
the LLC Agreement, the Guarantee, the Related Note Guarantee and the
Related Note, as applicable, for complete definitions of such terms.
Applicable Index............ the Dollar Equivalent Value of
one-tenth of the London P.M. gold
fixing price for one ounce of gold
in the London bullion market.
Business Day................ any day other than a Saturday,
Sunday or any other day on which
banking institutions in the City of
New York, New York, are permitted
or required by any applicable law
to close.
Code........................ the Internal Revenue Code of 1986,
as amended.
Commission.................. the Securities and Exchange
Commission.
Common Securities........... the common securities of the
Company representing voting limited
liability company interests in the
Company, to be directly or
indirectly owned by J.P. Morgan.
ComPS Early Redemption On any Early Redemption Date, an
Price....................... amount equal to (i) the Early
Redemption Value per Preferred
Security plus (ii) accrued and
unpaid dividends to but excluding
the date of redemption.
ComPS Redemption Price...... at Stated Maturity, an amount equal
to (i) the Redemption Value per
Preferred Security plus (ii)
accrued and unpaid dividends to but
excluding Stated Maturity.
Determination Period........ the 10 Trading Days on which no
Market Disruption Event occurs
immediately following the 20th
scheduled Business Day prior to
Stated Maturity.
Dividends................... cumulative cash dividends of [ ]%
per annum on the Principal Amount
determined five London Business
Days prior to the relevant payment
date (calculated on the basis of a
360 day year of twelve 30-day
months), accruing from the Issue
Date and payable monthly; provided,
however, that upon the occurrence
of a Market Disruption
<PAGE>
Event, such dividend will be
payable on the later of such
calendar day and the day two
Business Days following the
determination of the amount
thereof.
DTC......................... the Depository Trust Company.
ERISA....................... the Employee Retirement Income
Security Act of 1974.
Early Determination the 10 Trading Days which are Business
Period...................... Days on which U.S. Treasury Bond
markets are open and on which no
Market Disruption Event occurs
immediately following the 20th
scheduled Business Day prior to the
applicable Early Redemption Date.
Early Redemption Date....... the date of any Special Event
Redemption or Liquidation
Distribution.
Exchange Act................ the Securities Exchange Act of
1934, as amended.
Guarantee................... the Guarantee Agreement executed by
J.P. Morgan on behalf of the
holders of each series of Preferred
Securities.
Guarantee Payments.......... without duplication, (i)(A) any
accrued and unpaid dividends that
are required to be paid on the
ComPS and (B) the ComPS Early
Redemption Price or the ComPS
Redemption Price, as applicable,
but if and only to the extent that,
in each of case, Morgan Guaranty
has made a payment of interest or
principal, as the case may be, on
the Related Note and (ii) upon a
Liquidation Event (other than in
connection with the redemption of
all the ComPS upon the maturity or
redemption of the Related Note),
the lesser of (A) the Liquidation
Distribution to the extent the
Company has funds available
therefor, and (B) the amount of
assets of the Company remaining
available for distribution to
holders of all Preferred Securities
upon such Liquidation Event.
Initial Holders............. holders who purchase any ComPS upon
original issuance.
Initial Offering Price [$40] (i.e., the approximate value of
per Preferred Security...... one-tenth of the London P.M. gold
fixing price for one ounce of gold
in the London bullion market on [
], 1996.
Interest Payment Date....... with respect to the Related Note,
the last calendar day of each
month, beginning [ ], 1996.
Investment Company the receipt by the Company of an
Event....................... opinion of a nationally recognized
independent counsel experienced in
such matters to the effect that, as
a result of the occurrence of
<PAGE>
a change in law or regulation, a
written change in interpretation or
application of law or regulation by
any legislative body, court,
governmental agency or regulatory
authority or the expiration or
revocation of any applicable
exemption obtained by the Company
(a "Change in 1940 Act Law"), there
is more than an insubstantial risk
that the Company is or will be
considered an "investment company"
that is required to be registered
under the 1940 Act, which Change in
1940 Act Law becomes effective on
or after the date of this
Prospectus.
IRS......................... Internal Revenue Service.
Issue Date.................. [ ], 1996.
Liquidation Distribution.... in respect of any Liquidation
Event, the sum of (a) the Early
Redemption Value (treating the date
of such distribution as the Early
Redemption Date) plus (b) the
amount of accrued and unpaid
dividends on such Preferred
Security to but excluding the date
of payment.
Liquidation Event........... any liquidation, dissolution,
winding-up or termination of the
Company, whether voluntary or
involuntary.
LLC Agreement............... the limited liability company
agreement among J.P. Morgan, JPM
Ventures and holders of Preferred
Securities subsequently becoming
members thereof dated February 16,
1996, and effective as of November
21, 1995.
Market Disruption Event..... the occurrence of one or more of
the following on any Trading Day
with respect to the London P.M.
gold fixing price of one ounce of
gold on the LBMA London bullion
market (the "Relevant Fixing
Association"): (a) a day on which
the fluctuation of the price of one
ounce of gold is materially limited
by the rules of the Relevant Fixing
Association setting the maximum or
minimum price for such day (a
"Limit Price"); (b) a day on which
the London P.M. gold fixing price
is the Limit Price; (c) the failure
of the Relevant Fixing Association
to determine, announce or publish
the London P.M. gold fixing price
of one ounce of gold; provided that
if such London P.M. fixing price
shall have ceased as of such date
to be available for an indefinite
period of time, the Applicable
Index will thereafter be calculated
based on the London A.M. fixing
price (or such successor London
fixing price) until the London P.M.
fixing price again becomes
available, and the absence of such
price will not thereafter
constitute a Market Disruption
Event; (d) the material suspension
of trading of ounces of gold or any
other amount of gold on the
Relevant Fixing Association
affecting the price of one
<PAGE>
ounce of gold; (e) the failure of
trading to commence, or the
permanent discontinuation of
trading, in ounces of gold on the
Relevant Fixing Association; and
(f) the imposition of any material
limitation on trading in ounces of
gold or any other amount of gold on
the Relevant Fixing Association
affecting the price of one ounce of
gold.
Nasdaq...................... The Nasdaq Stock Market.
1940 Act.................... the Investment Company Act of 1940,
as amended.
NYMEX....................... the New York Mercantile Exchange.
Principal Amount............ at any time, (i) in the case of
ComPS, the Dollar Equivalent Value
of one-tenth of the London P.M.
gold fixing price on such day for
one ounce of gold in the London
bullion market, and (ii) in the
case of the Related Note, the
principal amount thereof at such
time determined pursuant to the
terms thereof.
Redemption Date............. either the Stated Maturity or an
Early Redemption Date, as
applicable.
Redemption Value............ at Stated Maturity, the average of
the Principal Amount over the 10
consecutive Trading Days meeting
certain conditions immediately
following the 20th scheduled
Business Day prior to redemption
(as described herein).
Related Note ............... the [ ]% unsecured, unsubordinated
debt obligation of Morgan Guaranty
due 20[ ].
Securities.................. the ComPS and the Common Securities.
Securities Act.............. the Securities Act of 1933.
Senior Indebtedness......... with respect to Morgan Guaranty,
the principal of, premium, if any,
and interest on (a) all
indebtedness of Morgan Guaranty for
money borrowed, whether outstanding
as of the date hereof or hereafter
created, issued or incurred (other
than Morgan Guaranty's obligations
to its depositors), except any
indebtedness expressly subordinated
to such Senior Indebtedness, and
(b) any deferrals, renewals or
extensions of any such Senior
Indebtedness.
Related Note Event of (i) default for 30 days in the
Default..................... payment of interest on the Related
Note; (ii) default in payment of
principal amount at the Stated
Maturity or any amount payable upon
any redemption of the Related Note;
(iii) failure by Morgan
<PAGE>
Guaranty for 90 days after receipt
of notice to it to comply with any
of its covenants or agreements
contained in the Related Note; and
(iv) certain events of bankruptcy,
insolvency, receivership or
reorganization involving Morgan
Guaranty or certain affiliates.
Special Event............... either a Tax Event or an Investment
Company Event.
Special Redemption.......... upon the occurrence and during the
continuation of a Special Event,
Morgan Guaranty will have the right
to redeem the Related Note for cash
at the Related Note Redemption
Price, with the result that the
Company will redeem ComPS in an
equal Principal Amount for cash at
the ComPS Early Redemption Price.
Special Redemption Date..... any date in respect of which upon
the occurrence and continuation of
a Tax Event or an Investment
Company Event, Morgan Guaranty
shall have called for redemption in
whole or in part the Related Note,
and the Company shall have called
for redemption an equal Principal
Amount of the ComPS.
Stated Maturity............. [ ]. 20[ ].
Tax Counsel................. Cravath, Swaine & Moore, special
tax counsel to J.P. Morgan and the
Company.
Tax Event................... the receipt by the Company of an
opinion of nationally recognized
independent tax counsel experienced
in such matters (a "Tax Opinion")
to the effect that, as a result of
(a) any amendment to, or change
(including any announced
prospective change) in, the laws
(or any regulations thereunder) of
the United States or any political
subdivision or taxing authority
thereof or therein, (b) any
amendment to, or change in, an
interpretation or application of
such laws or regulations by any
legislative body, court,
governmental agency or regulatory
authority (including the enactment
of any legislation and the
publication of any judicial
decision or regulatory
determination), (c) any
interpretation or pronouncement
that provides for a position with
respect to such laws or regulations
that differs from the theretofore
generally accepted position or (d)
any action taken by any
governmental agency or regulatory
authority, which amendment or
change is enacted, promulgated,
issued or announced or which
interpretation or pronouncement is
issued or announced or which action
is taken, in each case on or after
the date of this Prospectus
Supplement, that there is more than
an insubstantial risk that at such
time or within 90 days of the date
thereof (i) the Company is
<PAGE>
or would be subject to United
States Federal income tax with
respect to income accrued or
received on any Related Note, (ii)
the interest payable on any Related
Note is not or would not be
deductible by Morgan Guaranty for
United States Federal income tax
purposes, (iii) the contingent
principal in excess of the Face
Amount of any series of Preferred
Securities (if any) payable on any
Related Note is not or would not be
deductible by Morgan Guaranty for
United States Federal income tax
purposes or (iv) the Company is or
would be subject to more than a de
minimis amount of other taxes,
duties or other governmental
charges.
Trading Day................. any day (other than a Saturday or
Sunday) on which either NYMEX or
the London Metal Exchange (the
"LME") is scheduled to be open or
is open.
<PAGE>
No dealer, salesperson or other
individual has been authorized to give
any information or to make any
representations other than those
contained or incorporated by reference
in this Prospectus Supplement or the
Prospectus in connection with the offer
made by this Prospectus Supplement and
the Prospectus and, if given or made,
such information or representations must
not be relied upon as having been
authorized by J.P. Morgan, the Company
or the Underwriters. Neither the
delivery of this Prospectus Supplement
and the Prospectus nor any sale made
hereunder and thereunder shall under any
circumstance create an implication that Series [B]
there has been no change in the affairs Preferred Securities
of J.P. Morgan, or the Company since the Indexed to Gold
date hereof. This Prospectus Supplement
and the Prospectus do not constitute an
offer or solicitation by anyone in any
state in which such offer or
solicitation is not authorized or in J.P. Morgan Index
which the person making such offer or Funding Company, LLC
solicitation is not qualified to do so
or to anyone to whom it is unlawful to
make such offer or solicitation.
TABLE OF CONTENTS
Prospectus Supplement Preferred Securities
guaranteed to the extent
set forth herein by
Summary of the Offering................ S-
Risk Factors........................... S-
J.P. Morgan & Co. Incorporated......... S-
J.P. Morgan Index Funding Company, LLC S-
Use of Proceeds........................ S- J.P. Morgan & Co.
Description of the ComPS............... S- Incorporated
Description of the Guarantee........... S-
Description of the Related Note
Guarantee............................ S-
Description of the Related Note........ S
Effect of Obligations Under the PROSPECTUS SUPPLEMENT
Guarantee, the Related Note Guarantee
and the Related Note................. S-
United States Federal Income Taxation.. S-
ERISA Considerations................... S
Underwriting........................... S- [ ]
Legal Matters.......................... S-
Experts................................ S-
Prospectus
Available Information..................
Documents Incorporated by Reference....
J.P. Morgan & Co. Incorporated.........
J.P. Morgan Index Funding Company,
LLC..................................
Use of Proceeds........................
Consolidated Ratios....................
Description of All Preferred
Securities...........................
Description of the ComPS...............
Description of the Guarantee...........
Description of the Related Note
Guarantee............................
Description of the Related Notes.......
Plan of Distribution...................
Legal Matters..........................
Experts................................
Annex I
Glossary of Terms...................... A-1
, 1995
<PAGE>
PROSPECTUS (Subject to Completion)
$300,000,000
J.P. Morgan Index Funding Company, LLC
Preferred Securities
Guaranteed to the extent set forth herein by
J.P. Morgan & Co. Incorporated
------------
J.P. Morgan Index Funding Company, LLC (the "Company"), a Delaware
limited liability company, may offer, from time to time, preferred
securities representing preferred limited liability company interests in
the Company ("Preferred Securities"). The payment of periodic cash
distributions ("distributions") with respect to Preferred Securities out of
moneys held by the Company and payments on liquidation, redemption or
otherwise with respect to such Preferred Securities will be guaranteed on a
subordinated basis by J.P. Morgan & Co. Incorporated, a Delaware
corporation ("J.P. Morgan"), to the extent described herein (the
"Guarantee"). See "Description of the Guarantee". The Company will invest
the proceeds from the issuance of Preferred Securities and, at the option
of the Company, related Common Securities in unsecured notes (each, a
"Related Note") of Morgan Guaranty Trust Company of New York ("Morgan
Guaranty"), a trust company with full banking powers organized under the
laws of the State of New York, and payments to the Company on liquidation,
redemption or otherwise with respect to the Related Notes will be
guaranteed on a subordinated basis by J.P. Morgan to the extent described
herein (the "Related Note Guarantee"). See "Description of the Related Note
Guarantee". J.P. Morgan's obligations under the Guarantee and Related Note
Guarantee are subordinate and junior in right of payment to all other
liabilities of J.P. Morgan and rank pari passu with the most senior
preferred stock outstanding as of the date hereof of J.P. Morgan. Related
Notes may be issued and sold from time to time by Morgan Guaranty to the
Company in connection with the investment of the proceeds from the offering
of Preferred Securities and, at the option of the Company, common
securities (the "Common Securities") of the Company.
----------------
Specific terms of the Preferred Securities in respect of which this
Prospectus is being delivered (the "Offered Securities") will be set forth
in an accompanying Prospectus Supplement (the "Prospectus Supplement") with
respect to such Offered Securities, which will describe, without limitation
and where applicable, the following: (i) in the case of Preferred
Securities, the designation, number of securities, liquidation preference
per security (including, without limitation, a description of any
indexation thereof), initial public offering price, any listing on a
securities exchange, distribution rate (or method of calculation thereof),
dates on which distributions shall be payable and dates from which
distributions shall accrue, any voting rights, terms for any conversion or
exchange into other securities, any redemption, exchange or sinking fund
provisions, any other rights, preferences, privileges, limitations or
restrictions relating to the Preferred Securities and the terms upon which
the proceeds of the sale of the Preferred Securities shall be used to
purchase a specific Related Note of Morgan Guaranty; (ii) in the case of
the applicable Related Note, the specific designation, aggregate principal
amount (including, without limitation, a description of any indexation
thereof), denomination, maturity, premium, if any, any exchange,
conversion, redemption or sinking fund provisions, if any, interest rate
(which may be fixed or variable), if any, the time and method of
calculating interest payments, if any, dates on which premium, if any, and
interest, if any, will be payable, the right of Morgan Guaranty, if any, to
defer payment of interest on the Related Note and the maximum length of
such deferral period, and (iii) the initial public offering price,
subordination terms, and other specific terms of the offering.
----------------
The Offered Securities may be offered in amounts, at prices and on
terms to be determined at the time of offering; provided, however, that the
aggregate initial public offering price of all Offered Securities shall not
exceed $300,000,000. Any Prospectus Supplement relating to any series of
Offered Securities will contain information concerning certain United
States Federal income tax considerations, if applicable, for purchasers and
holders of the Offered Securities.
----------------
The Company may sell the Offered Securities directly, through agents
designated from time to time or through underwriters or dealers. See "Plan
of Distribution". If any agents of the Company or any underwriters or
dealers are involved in the sale of the Offered Securities, the names of
such agents, underwriters or dealers and any applicable commissions and
discounts will be set forth in any related Prospectus Supplement.
<PAGE>
----------------
No dealer, salesperson or any other individual has been authorized by
the Company or J.P. Morgan to give any information or to make any
representation other than those contained or incorporated by reference in
this Prospectus or any accompanying Prospectus Supplement and, if given or
made, such information or representation must not be relied upon as having
been authorized. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus
nor any sale made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of J.P. Morgan,
Morgan Guaranty or the Company since the date hereof.
----------------
THE SECURITIES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER FEDERAL
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS PROSPECTUS MAY NOT BE USED TO
CONSUMMATE SALES OF SECURITIES UNLESS ACCOMPANIED BY A PROSPECTUS
SUPPLEMENT.
The date of this Prospectus is [ ], 1996.
<PAGE>
AVAILABLE INFORMATION
This Prospectus constitutes a part of a Registration Statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") filed by J.P. Morgan and the Company with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Offered Securities.
This Prospectus does not contain all of the information set forth in such
Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. Reference is made to such
Registration Statement and to the exhibits relating thereto for further
information with respect to J.P. Morgan, the Company and the Offered
Securities. Any statements contained herein concerning the provisions of
any document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission or incorporated by reference herein are not
necessarily complete, and, in each instance, reference is made to the copy
of such document so filed for a more complete description of the matter
involved. Each such statement is qualified in its entirety by such
reference.
J.P. Morgan is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the Commission. Reports, proxy statements and other information
concerning J.P. Morgan can be inspected and copied at prescribed rates at
the Commission's Public Reference Room, Judiciary Plaza, 450 Fifth Street,
Northwest, Washington, D.C. 20549, as well as the following Regional
Offices of the Commission: Seven World Trade Center, New York, New York
10048; and Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661-2511. Such reports, proxy statements and other information
may also be inspected at the offices of the New York Stock Exchange, on
which J.P. Morgan common stock is traded, at 20 Broad Street, New York, New
York 10005.
No separate financial statements of the Company have been included
herein. J.P. Morgan does not consider that such financial statements would
be material to holders of the Preferred Securities because (i) all of the
voting securities of the Company will be owned, directly or indirectly, by
J.P. Morgan, a reporting company under the Exchange Act, (ii) the Company
has no independent operations and exists for the sole purpose of issuing
securities and investing the proceeds thereof in Related Notes to be issued
by Morgan Guaranty, and (iii) the obligations of the Company under the
Preferred Securities that may be issued from time to time are fully and
unconditionally guaranteed, on a subordinated basis, by J.P. Morgan to the
extent that the Company has funds available to meet such obligations. See
"Description of the Related Notes", "Description of the Guarantee" and
"Description of the Related Note Guarantee".
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
J.P. Morgan hereby incorporates by reference in this Prospectus J.P.
Morgan's Annual Report on Form 10-K for the year ended December 31, 1994
(included in its Annual Report to Stockholders), J.P. Morgan's Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1995, June 30, 1995
and September 30, 1995, and J.P. Morgan's Reports on Form 8-K dated January
12, 1995, February 14, 1995, February 27, 1995, April 13, 1995, May 23,
1995, June 21, 1995, July 13, 1995, July 18, 1995, October 12, 1995,
December 13, 1995, December 14, 1995 and January 11, 1996 heretofore filed
pursuant to Section 13 of the Exchange Act.
In addition, all reports and definitive proxy or information
statements filed pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the offering of the Securities shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from
the date of filing of such documents. Any statement contained herein or in
a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is or is deemed to be incorporated
by reference herein or in the accompanying Prospectus Supplement modifies
or supersedes such statement. Any such statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a
part of this Prospectus.
<PAGE>
J.P. Morgan will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the written or
oral request of any such person, a copy of any or all of the foregoing
documents incorporated herein by reference (other than exhibits to such
documents). Written requests should be directed to the Office of the
Secretary, J.P. Morgan & Co. Incorporated, 60 Wall Street, New York, New
York 10260-0060. Telephone requests may be directed to (212) 648-2157.
J.P. MORGAN & CO. INCORPORATED
J.P. Morgan, whose origins date to a merchant banking firm founded in
London in 1838, is the holding company for a group of global subsidiaries
that provide a wide range of financial services to corporations,
governments, financial institutions, institutional investors, professional
firms, privately held companies, nonprofit organizations, and financially
sophisticated individuals. J.P. Morgan's activities are summarized below.
Finance and Advisory
J.P. Morgan provides strategic advice and capital raising services to
its broad range of clients. J.P. Morgan advises clients on the financial
and business implications of corporate strategies, which may result in
mergers, acquisitions, divestitures, recapitalizations, privatizations,
joint ventures, and restructurings. J.P. Morgan also provides advice on
defensive strategies and analysis and research on capital structure. J.P.
Morgan structures and executes financing strategies in markets throughout
the world. These strategies may involve commercial paper, syndicated loans,
private placements, and the underwriting of both debt and equity, as well
as other financing techniques. J.P. Morgan also extends credit, accepts
deposits, and provides a variety of other banking and financial services.
Sales and Trading
J.P. Morgan is an active participant, as a principal and as an agent
for clients, in the markets for all major financial instruments, and it
engages in hedging and managing a wide variety of financial risks both for
clients and its own account. J.P. Morgan trades debt and equity securities
in U.S. and international markets, and it distributes these securities to
investors. J.P. Morgan structures, executes and makes markets in swaps,
options, and other derivative instruments, and it buys and sells foreign
currencies, conducting all of these transactions with clients and
counterparties around the world. J.P. Morgan also trades certain
commodities, and it buys and sells the loans of emerging market countries
and other debtors. Market activities for clients and for its own account
are supported by credit, economic, market, and fundamental industry and
company research.
Asset Management and Servicing
J.P. Morgan provides investment management services to institutional
investors and investment management and fiduciary services to private
clients, consisting of wealthy individuals, their families, and their
businesses. J.P. Morgan manages employee benefit plans for corporations,
state and local governments, and unions. Investment management services are
also provided to a broad spectrum of other institutional investors,
including foundations, endowments, sovereign governments, and insurance
companies. Discretionary and nondiscretionary investment management
services, credit and deposit products, and investment banking services are
provided to private clients as well as fiduciary services, consisting of
generational planning and trust and estate administration services.
J.P. Morgan provides operational services such as the administration
of American and other depositary receipts as well as U.S. money transfer,
and global trust and agency services. J.P. Morgan operates the Euroclear
System, the world's largest clearance and settlement system for
internationally traded securities, under contract to the Euroclear System
Societe Cooperative in Brussels, Belgium. J.P. Morgan also serves as a
futures commission merchant in the execution and clearance of futures
contracts on major futures exchanges worldwide.
<PAGE>
Equity Investments
J.P. Morgan invests in debt and equity securities for its own account.
The firm acquires equity securities for investment purposes primarily
through private placements, recapitalizations, and corporate
restructurings.
Asset and Liability Management
Asset and liability management activities include managing the
interest rate risk that arises from the firm's interest-rate-sensitive
assets and liabilities. A variety of instruments, both on- and off-balance
sheet, in numerous currencies are used in an integrated manner to achieve
the firm's objectives.
Regulation
J.P. Morgan is subject to regulation under the Bank Holding Company
Act of 1956 (the "Act"). Under the Act, J.P. Morgan is required to file
certain reports with the Board of Governors of the Federal Reserve System
(the "Board") and is subject to examination by the Board. The Act generally
precludes J.P. Morgan and its subsidiaries from engaging in nonbanking
activities, or from acquiring more than 5% of any class of voting
securities of any company engaging in such activities, unless the Board has
determined, by order or regulation, that such proposed activities are
closely related to banking. Federal law and Board interpretations limit the
extent to which J.P. Morgan and its subsidiaries can engage in certain
aspects of the securities business. Under Board policy, J.P. Morgan is
expected to act as a source of financial strength to each subsidiary bank
and to commit resources to support such subsidiary bank, even in
circumstances where J.P. Morgan might not be in a financial position to do
so.
The Glass-Steagall Act prohibits affiliates of banks that are members
of the Federal Reserve System, including J.P. Morgan Securities Inc.
("JPMSI"), from being "engaged principally" in bank-ineligible underwriting
and dealing activities (mainly corporate debt and equity securities). As
interpreted by the Board, this prohibition restricts JPMSI's gross revenues
from such activities to a maximum of 10% of its total gross revenues. J.P.
Morgan will continue to seek ways to expand the limits on such activities
and to achieve the reform of the Glass-Steagall Act necessary to achieve
its long-term objectives.
Morgan Guaranty, J.P. Morgan's largest subsidiary, is a member of the
Federal Reserve System. It and J.P. Morgan Delaware, another wholly owned
subsidiary of J.P. Morgan, are members of the Federal Deposit Insurance
Corporation ("FDIC"). Their businesses are subject to both U.S. federal and
state law and to examination and regulation by U.S. federal and state
banking authorities. J.P. Morgan and its nonbank subsidiaries are
affiliates of Morgan Guaranty and J.P. Morgan Delaware within the meaning
of the applicable federal statutes. Such banks are subject to restrictions
on loans and extensions of credit to J.P. Morgan and certain other
affiliates and on certain other types of transactions with them or
involving their securities.
Among other wholly owned subsidiaries:
JPMSI is a broker-dealer registered with the Securities and Exchange
Commission and is a member of the National Association of Securities
Dealers, the New York Stock Exchange, and other exchanges.
J.P. Morgan Futures Inc. is subject to regulation by the Commodity
Futures Trading Commission, the National Futures Association, and the
commodity exchanges and clearinghouses of which it is a member.
J.P. Morgan Investment Management Inc. is registered with the
Securities and Exchange Commission as an investment adviser under the
Investment Advisers Act of 1940, as amended.
J.P. Morgan subsidiaries conducting business in other countries are
also subject to regulations and restrictions imposed by those
jurisdictions, including capital requirements.
<PAGE>
The principal executive office of J.P. Morgan is located at 60 Wall
Street, New York, New York 10260-0060, and its telephone number is (212)
483-2323.
As used in this Prospectus, unless the context otherwise requires, the
term "J.P. Morgan" refers to J.P. Morgan & Co. Incorporated and its
consolidated and unconsolidated subsidiaries.
J.P. MORGAN INDEX FUNDING COMPANY, LLC
J.P. Morgan Index Funding Company, LLC, is a Delaware limited
liability company formed pursuant to (i) the filing of a certificate of
formation with the Secretary of State of the State of Delaware on November
21, 1995 and (ii) the limited liability company agreement, dated February
16, 1996, and effective as of November 21, 1995 (the "LLC Agreement"),
filed as an exhibit to the Registration Statement of which this Prospectus
Supplement and the accompanying Prospectus form a part. J.P. Morgan will
directly or indirectly acquire all Common Securities of the Company. The
Company exists for the exclusive purposes of (i) issuing the Preferred and
Common Securities representing undivided beneficial interests in the assets
of the Company, (ii) investing the proceeds of the Preferred and, at the
option of the Company, Common Securities in Related Notes of Morgan
Guaranty and (iii) engaging in only those other activities necessary or
incidental thereto.
Pursuant to the LLC Agreement, the Common Securities will be owned by
J.P. Morgan and by J.P. Morgan Ventures Corporation, a Delaware corporation
and a wholly-owned subsidiary of J.P. Morgan ("JPM Ventures"). J.P. Morgan
and JPM Ventures will be the Managing Members of the Company, as defined in
the LLC Agreement.
The rights of the holders of each series of Preferred Securities,
including economic rights, rights to information and voting rights, are set
forth in the applicable Prospectus Supplement and this Prospectus.
USE OF PROCEEDS
The proceeds to the Company from the sale of the Preferred Securities
offered from time to time hereby and, at the option of the Company, related
Common Securities will be invested in one or more Related Notes of Morgan
Guaranty, the proceeds of which will be used by Morgan Guaranty for general
corporate purposes and for hedging its obligation under the relevant
Related Note, except as may otherwise be set forth in the applicable
Prospectus Supplement.
<PAGE>
CONSOLIDATED RATIOS
Consolidated Ratio of Earnings to Fixed Charges
Year Ended December 31,
---------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Excluding Interest on
Deposits............... 1.35 1.40 1.70(a) 1.53(b) 1.42(c)
Including Interest on
Deposits............... 1.24 1.28 1.46(a) 1.31(b) 1.23(c)
- ----------------
(a) For the year ended December 31, 1993, the ratio of earnings to
fixed charges, including the cumulative effect of a change in the method of
accounting for postretirement benefits other than pensions, was 1.64
excluding interest on deposits and 1.43 including interest on deposits.
(b) For the year ended December 31, 1992, the ratio of earnings to
fixed charges, including the cumulative effect of a change in the method of
accounting for income taxes, was 1.67 excluding interest on deposits and
1.39 including interest on deposits.
(c) For the year ended December 31, 1991, the ratio of earnings to
fixed charges, including the extraordinary gain on early retirement of
debt, was 1.43 excluding interest on deposits and 1.24 including interest
on deposits.
Consolidated Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends
Year Ended December 31,
------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Excluding Interest on
Deposits............... 1.34 1.39 1.69(a) 1.52(b) 1.40(c)
Including Interest on
Deposits............... 1.23 1.27 1.46(a) 1.31(b) 1.22(c)
- ----------------
(a) For the year ended December 31, 1993, the ratio of earnings to
combined fixed charges and preferred stock dividends, including the
cumulative effect of a change in the method of accounting for
postretirement benefits other than pensions, was 1.63 excluding interest on
deposits and 1.42 including interest on deposits.
(b) For the year ended December 31, 1992, the ratio of earnings to
combined fixed charges and preferred stock dividends, including the
cumulative effect of a change in the method of accounting for income taxes,
was 1.65 excluding interest on deposits and 1.39 including interest on
deposits.
(c) For the year ended December 31, 1991, the ratio of earnings to
combined fixed charges and preferred stock dividends, including the
extraordinary gain on early retirement of debt, was 1.41 excluding interest
on deposits and 1.23 including interest on deposits.
DESCRIPTION OF ALL PREFERRED SECURITIES
The Company is authorized by the LLC Agreement to issue, from time to
time, one or more series of Preferred Securities having terms described in
the Prospectus Supplement relating to each. Each series of Preferred
Securities will have such terms, including distributions, redemption,
voting, liquidation rights and such other preferred or other special rights
or such restrictions, as shall be set forth in the Prospectus Supplement
relating to such Preferred Securities, including (i) the distinctive
designation of such Preferred Securities, (ii) the number of Preferred
Securities issued in such series, (iii) the annual distribution rate (or
method of determining such rate) for such Preferred Securities and the date
or dates upon which such distributions shall be payable, (iv) whether
distributions on such Preferred Securities shall be cumulative, and, in the
case of Preferred Securities having such cumulative distribution rights,
the date or dates or method of determining the date or dates from which
distributions on such Preferred Securities shall be
<PAGE>
cumulative, (v) the amount or amounts (or the method for determining such
amount or amounts) which shall be paid out of the assets of the Company to
the holders of such Preferred Securities upon voluntary or involuntary
dissolution, winding-up or termination of the Company, (vi) the obligation,
if any, of the Company to purchase or redeem, and the option of the
holders of Preferred Securities, if any, to redeem, Preferred Securities
issued by the Company and the price or prices at which, the period or
periods within which and the terms and conditions upon which such Preferred
Securities shall be purchased or redeemed, in whole or in part, pursuant to
such obligation, (vii) the voting rights, if any, of such Preferred
Securities in addition to those required by law, including the number of
votes per Preferred Security and any requirement for the approval by the
holders of Preferred Securities as a condition to specified action or
amendments to the LLC Agreement, and (viii) any other relevant rights,
preferences, privileges, limitations or restrictions of Preferred
Securities consistent with the LLC Agreement and with applicable law.
All Preferred Securities offered hereby will be guaranteed, on a
subordinated basis, by J.P. Morgan to the extent set forth below under
"Description of the Guarantees".
Certain United States federal income tax considerations applicable to
any offering of Preferred Securities will be described in the Prospectus
Supplement relating thereto.
In connection with the issuance from time to time of Preferred
Securities, the Company may issue Common Securities. Upon an event of
liquidation, termination or winding-up of the Company, the rights of the
holders of the Common Securities to payments in respect of distributions
and payments upon liquidation, redemption and otherwise will be
subordinated to the rights of the holders of the Preferred Securities. Each
holder of Common Securities will be a "Managing Member" of the Company, as
defined in the LLC Agreement. All of the Common Securities will be directly
or indirectly owned by J.P. Morgan.
Each series of Preferred Securities will be subject to redemption
prior to the Stated Maturity thereof upon the occurrence of a Tax Event or
an Investment Company Event (each, a "Special Event") upon the terms set
forth in the applicable Prospectus Supplement.
DESCRIPTION OF COMPS
Among the types of Preferred Securities currently contemplated for
issuance by the Company are one or more series of Preferred Securities
sharing the characteristics described below (each such series, "ComPS").
The following description is a general description of all series of ComPS,
and prospective purchasers of any series of ComPS should consult the
applicable Prospectus Supplement for such series and other documents
referred to or incorporated by reference therein.
The Principal Amount of each series of ComPS to be paid upon any
amortization of principal and at the Stated Maturity of such series (the
"Redemption Value") will be determined with reference to, and will
fluctuate based on, the level of a commodity index (referred to herein as
the "Applicable Index" or collectively as the "Applicable Indices"), as
specified in the applicable Prospectus Supplement.
The Applicable Index will be one of the following types: (i) an
"excess return" index, the change in value of which will be calculated with
reference to the changes in value of certain futures contracts on the
relevant commodity, which contracts are replaced regularly as the
determinant of change in value of the Applicable Index according to the
methodology used in calculating the JPM Indices as described herein (such
index referred to herein as an "Excess Return Index"), (ii) a "total
return" index, calculated in the same manner as an Excess Return Index but
including an additional component of return (the "Collateral Return")
arising from interest accrued on the value of the Applicable Index (such
index referred to herein as a "Total Return Index") or (iii) the price of
the relevant commodity as reported in the pricing source identified in the
Prospectus Supplement, which may be the settlement prices for futures
contracts on the underlying commodity or prices of the underlying commodity
determined by the relevant market participants, reporting services or
associations at the official price determination, in each case during the
applicable distribution period, Early Determination Period or Determination
Period (such index referred to herein as a "Price Reference Index"). ComPS
for which the Applicable Index is a Price Reference Index in which all
distributions and the Principal Amount are indexed to the value at any time
in U.S. dollars (the "Dollar Equivalent Value") of bullion (i.e., gold,
silver, platinum or
<PAGE>
palladium) will referred to as "Bullion ComPS". For the purposes of this
Prospectus, "Principal Amount" shall mean (a) in the case of Bullion ComPS,
the applicable portion of the applicable fixing price of the applicable
amount of the applicable bullion commodity at any time (the "Bullion ComPS
Principal Amount"), (b) in the case of all other Preferred Securities, the
Redemption Value, Early Redemption Value or stated liquidation preference
thereof, as applicable, as if determined as of such time, and (c) in the
case of any Related Note, the principal amount thereof at such time
determined pursuant to the terms thereof.
Each commodity underlying the Applicable Index will be one of the
commodities included in the J.P. Morgan Commodity Index (the "JPMCI"), one
of the JPMCI sub-indices or such other commodity as may be specified in the
Prospectus Supplement. As described herein, the JPMCI is computed on an
excess return and a total return basis. The variations of the JPMCI,
including the permutations of the JPMCI in the form of sub-indices, which
may be based on one or more commodities (whether computed on an excess
return or total return basis) and which have been or may be originated and
calculated by Morgan Guaranty, are collectively referred to herein as the
"JPM Indices". JPM Indices which are based upon only one underlying
commodity (whether computed on an excess return or total return basis) are
referred to as "JPM Individual Indices".
Calculation of Redemption Value
The Redemption Value of any particular series of ComPS will be
determined in accordance with one of the following methodologies:
Excess Return Index. In the case of ComPS for which the Applicable
Index is an Excess Return Index, the Redemption Value payable in respect of
the ComPS on the Settlement Date will be determined by the Calculation
Agent based on the following formula:
ER-RV = FA X [Applicable Index Settlement Value]
[Applicable Index Commencement Value]
where "ER-RV" refers to the Redemption Value of the Excess Return
Index; "FA" refers to the Face Amount of the ComPS, "Applicable Index
Settlement Value" refers to the arithmetic average of the values of
the Applicable Index for the 10 consecutive days (other than a
Saturday or Sunday) on which either the New York Mercantile Exchange
("NYMEX") or the London Metal Exchange (the "LME") is scheduled to be
open or is open (each, a "Trading Day") and on which no Market
Disruption Event occurs immediately following the 20th scheduled
Business Day prior to Stated Maturity (such 10 days, the
"Determination Period") (calculated in accordance with the methodology
described below under the caption "The JPM Indices--Excess Return
Index"); provided, that if a Market Disruption Event remains in
effect for longer than 20 consecutive Trading Days (or such period as
may be specified in the applicable Prospectus Supplement) falling
within such Determination Period and in the reasonable judgment of
Morgan Guaranty such Market Disruption Event is likely to remain in
effect, then the Applicable Index Settlement Value for such days may
be determined by Morgan Guaranty in good faith based on alternative
pricing sources reasonably believed by it to be indicative of then-
prevailing prices for transactions with a notional principal amount
equal to the Principal Amount of the outstanding ComPS, although it
will have no obligation to do so; and "Applicable Index Commencement
Value" means the value of the Applicable Index determined on the date
of issuance of such ComPS, as specified in the applicable Prospectus
Supplement. In the case of any Prospectus Supplement providing for an
early determination of Applicable Index Settlement Value, upon the
occurrence of such an event, the Applicable Index Settlement Value
shall have the value so determined.
Total Return Index. In the case of ComPS for which the Applicable
Index is a Total Return Index, the Redemption Value payable in respect of
such ComPS on the Settlement Date will be determined by the Calculation
Agent based on the following formula:
TR-RV = FA x (Applicable Index Settlement Value - Factor x Applicable
Index Commencement Value)
Applicable Index Commencement Value
<PAGE>
where "TR-RV" refers to the Redemption Value of the Total Return
Index; each of "FA", "Applicable Index Settlement Value" and
"Applicable Index Commencement Value" refer to the respective
definitions set forth above under Excess Return Index, except that in
the case of the Applicable Index Settlement Value, such value shall be
determined in accordance with the methodology described below under
the caption "The JPM Indices--Total Return Index", and "Factor" shall
be the amount provided in the applicable Prospectus Supplement. In
the case of any Prospectus Supplement providing for an early
determination of Applicable Index Settlement Value, upon the
occurrence of such an event, the Applicable Index Settlement Value
shall have the value so determined.
Price Reference Index. In the case of ComPS for which the Applicable
Index is a Price Reference Index, the Redemption Value payable in respect
of such ComPS on the Settlement Date will be determined by the Calculation
Agent (i) in the case of Bullion ComPS, by taking the arithmetic average of
the Dollar Equivalent Value of the applicable portion of the applicable
fixing price for the applicable amount of the applicable bullion commodity
during the Determination Period, and (ii) in the case of all other Price
Reference Index ComPS, by multiplying (a) the Face Amount of such ComPS by
(b) the quotient of (I) the arithmetic average of the closing prices of the
underlying commodity as reported in the pricing source identified in the
applicable Prospectus Supplement for each day of the Determination Period
(i.e., the Applicable Index Settlement Value), divided by (II) the
Applicable Index Commencement Value (as defined above).
The Calculation Agent in its sole discretion will be responsible for
determining if a Market Disruption Event has occurred. In no event shall
the Redemption Value payable in respect of any series of ComPS be less than
zero, although the Redemption Value of any series of ComPS may be more or
less than the Face Amount of such series.
Early Determination of Applicable Index Settlement Value and Redemption Value
Morgan Guaranty reserves the right at its discretion to make any
modifications to the JPM Indices based on the recommendations of the JPMCI
Policy Committee. The JPMCI Policy Committee advises Morgan Guaranty with
respect to, among other things, the composition of the JPM Indices, the
price sources upon which the JPM Indices are based (i.e., the underlying
futures contracts), and the weightings and calculation methodology of the
JPM Indices, with a view toward maintaining the JPM Indices as appropriate
commodity investment benchmarks that serve as a measure of the performance
of the commodity markets. Currently, the inclusion requirements for the
futures contracts underlying the JPM Indices require that such contracts be
sufficiently liquid and representative price sources. It is possible,
however, that any such underlying contract could become less liquid or
representative and, as a result, the JPMCI Policy Committee may recommend a
modification in the calculation methodology or the contracts underlying the
JPM Indices and, therefore, the Applicable Index. Any such replacement
contract (i) will be required to satisfy the JPMCI Inclusion Criteria, as
described below and under the caption "The JPMCI Policy Committee", and
(ii) must be traded in a market or with self-regulator which has
established either (a) a comprehensive information sharing agreement with
the exchange, if any, on which the ComPS are then traded or (b) suitable
alternative arrangements with the Commission.
If at any time no contracts satisfying both clauses (i) and (ii) of
the previous paragraph can be found to serve as a benchmark contract with
respect to the Applicable Index for any series of ComPS the Applicable
Index for which is an Excess Return Index or a Total Return Index, the
Applicable Index Settlement Value of such ComPS will be determined at such
time (in accordance with the methodology set forth in the applicable
Prospectus Supplement) as if the last date of the inclusion of the final
benchmark contract with respect to such Applicable Index in the JPM Indices
were the Stated Maturity. However, such ComPS will not be redeemed on such
date; rather, such ComPS will remain outstanding to Stated Maturity thereof
and will be redeemed at Stated Maturity for a Redemption Value calculated
using the Applicable Index Settlement Value determined pursuant to the
terms of this paragraph. Such ComPS will also be subject to redemption upon
the occurrence of a Special Event and optional redemption on each Early
Redemption Date if specified in the applicable Prospectus Supplement
(treating the Applicable Index Settlement Value determined pursuant to the
terms of this paragraph as the Applicable Index Early Settlement Value for
any such Early Redemption Date).
<PAGE>
Additionally, if at any time the benchmark contracts then serving as
the basis for calculating the Applicable Index with respect to any series
of ComPS the Applicable Index for which is an Excess Return Index or a
Total Return Index, or the trading thereof, become subject to any increased
cost or additional tax, whether imposed by any exchange or otherwise,
Morgan Guaranty reserves the right to (x) designate a replacement benchmark
contract, satisfying both clauses (i) and (ii) of the second preceding
paragraph, which contract is subject to an amount of cost or tax less than
or equal to such increased amount or (y) if no contract satisfying clause
(x) of this paragraph is designated by J.P. Morgan, to cause, at its
option, the Applicable Index Settlement Value of such ComPS to be
determined at such time (in accordance with the methodology set forth in
the applicable Prospectus Supplement) as if the date of such increase in
cost or tax (or, in Morgan Guaranty's discretion, the last calendar day of
the month in which the determination of the Applicable Index Settlement
Value is completed) were the Stated Maturity. However, such ComPS will not
be redeemed on such date; rather, such ComPS will remain outstanding to
Stated Maturity thereof and will be redeemed at Stated Maturity for a
Redemption Value calculated using the Applicable Index Settlement Value
determined pursuant to the terms of this paragraph. Such ComPS will also be
subject to redemption upon the occurrence of a Special Event and optional
redemption on each Early Redemption Date if specified in the applicable
Prospectus Supplement (treating the Applicable Index Settlement Value
determined pursuant to the terms of this paragraph as the Applicable Index
Early Settlement Value for any such Early Redemption Date). See "Risk
Factors With Respect to ComPS--Potential Modifications to the JPM Indices
and/or the Applicable Index."
As discussed below, in order to satisfy the JPMCI Inclusion Criteria,
a futures contract must (i) be priced in U.S. dollars, or if priced in a
foreign currency, the exchange on which the contract is traded must publish
an official exchange rate for conversion of the futures contract price into
U.S. dollars; (ii) be traded on a regulated futures exchange located in the
United States, Canada, the United Kingdom, Japan, Singapore or an O.E.C.D.
country and (iii) have a minimum annual trading volume of 300,000 contracts
or $500,000,000 for all contract months.
For example, assuming a Face Amount of $40 and an Applicable Index
Commencement Value of 100, an early determination of the Applicable Index
Settlement Value at the following levels would result in the following
Redemption Values:
Applicable Index Settlement Value Redemption Value
50 $20.00
80 $32.00
100 $40.00
120 $48.00
150 $60.00
Early Redemption Upon the Occurrence of a Special Event or at the Election
of the Holders of the ComPS
The ComPS will be subject to redemption prior to their Stated Maturity
upon the occurrence of a Special Event (a "Special Event Redemption") or,
if so indicated in the applicable Prospectus Supplement, at the election of
the holders of such series of ComPS (an "Optional Redemption") on any one
of the dates set forth in the applicable Prospectus Supplement (each such
date, an "Optional redemption Date"; each such date and each date on which
a Special Event Redemption or a Liquidation Redemption shall occur being
referred to herein as an "Early Redemption Date"). In order to effect an
Optional Redemption, the holder of such ComPS will be required to provide
notice to DTC (or, in the case of Preferred Securities which are not solely
book-entry securities, the Company's transfer agent) as specified in the
applicable Prospectus Supplement. In the case of notice provided through
DTC, the notice provided by DTC to the Company or its transfer agent (the
"Applicable Notice") shall be final and irrevocable upon receipt. The
redemption value of ComPS redeemed prior to their Stated Maturity (the
"Early Redemption Value") shall be determined during the 10 consecutive
Trading Days which are Business Days on which U.S. Treasury bond markets
are open and on which no Market Disruption Event occurs immediately
following the 20th scheduled Business Day prior to the applicable Early
Redemption Date (such ten days, the "Early
<PAGE>
Determination Period"), provided, however, that the Early Redemption Period
will not begin until the day after the Company has received the Applicable
Notice. The Early Redemption Value shall be equal to the average for the 10
days of the Early Determination Period of the sum for each such day of the
results of the following equation:
ERV = FA x {(Dividend + Unused costs) x AF + (IESV/ICV) x PVF}
Where "FA" means (i) in the case of Bullion ComPS, each portion of the
Bullion ComPS Principal Amount thereof which must be redeemed on the
same date and (ii) in the case of all other ComPS, each portion of the
Face Amount of the ComPS which must be redeemed on the same date.
In the case of ComPS for which the entire Face Amount matures on the
same date, the average of the sum for each day of such equation shall equal
the Early Redemption Value. In the case of ComPS for which portions of the
Face Amount must be redeemed on different dates, the Early Redemption Value
shall equal the average over the Early Redemption Period of the sum of the
results for each day of such equation for each such portion of the Face
Amount. The Company shall pay the Early Redemption Value, together with all
accrued but unpaid dividends from monthly periods prior to the Early
Redemption Date, on the Early Redemption Date. The Early Redemption Value
shall never be less than zero. Other terms used in the formula above shall
have the meanings set forth below (with each yield, lease rate, rate and
percentage rate expressed in decimal form (e.g., 3% equals 0.03)):
For all ComPS
"Dividend" means the per annum rate of dividends on the Face Amount
(or, in the case of Bullion ComPS, the Principal Amount), as specified
in the applicable Prospectus Supplement.
"AF" means the Annuity Factor for the term remaining from the
applicable Early Redemption Date until the mandatory redemption of
such portion of the Face Amount (such remaining term being referred to
herein as the "Remaining Maturity"), which shall be determined in
accordance with the following formula:
(1-VN)/y
where "V" is equal to (1/(1 + y/12)) and "y" is the yield which
shall be equal to the Base Yield (as defined below) plus the
Applicable Spread (as defined below), converted to an annualized
monthly compounded rate calculated on the basis of a 360- day year
of twelve 30-day months.
The "Base Yield" will equal (i) in the case of Bullion ComPS, the
single lowest lease rate obtained by polling three dealers in such
loans for a loan to Morgan Guaranty (or, in the case of a
Liquidation Event, to a notional counterparty rated A or higher) of
such bullion in the same notional Bullion ComPS Principal Amount,
terms, amortization and maturity as such ComPS (which may be the
same rate for all days and/or for each Remaining Maturity) or, if
there is no such rate, as calculated by the Calculation Agent in
good faith, and (ii) in the case of any other ComPS, the Constant
Maturity Treasury Rate for the Remaining Maturity among the
applicable Constant Maturity Treasury rates set forth in Statistical
Release H.15(519) as such appears on Telerate Page 7051 under the
heading "Daily Treasury Constant Maturities from the Economic
Bulletin Board" (or its successor or such other pricing source as
the Calculation Agent may reasonably select) for each date of the
Early Determination Period. If the applicable rate for the Remaining
Maturity is not published on such page, the applicable rate will be
determined by calendar month weighted linear interpolation between
one Constant Maturity Treasury rate with respect to a maturity up to
or equal to the Remaining Maturity and the other Constant Maturity
Treasury rate with respect to a maturity greater than the Remaining
Maturity. If such information ceases to be provided or is not
available for any day of the Early Determination Period by the end
of the Business Day next succeeding the last day of the Early
Determination Period, the Base Yield for such day will be calculated
by the Calculation Agent by calendar month weighted linear
interpolation among the rates it shall have obtained for such
applicable date by polling three dealers of such instruments in New
York, New York for the bid side
<PAGE>
yield to maturity of the most recently issued on-the-run direct
non-callable fixed rate obligations of the United States Treasury
("U.S. Government Securities") with a maturity equal to the
Remaining Maturity or, if no such maturity exists, by calendar month
weighted linear interpolation among rates so obtained with a
maturity up to or equal to the Remaining Maturity and a maturity
greater than the Remaining Maturity.
The "Applicable Spread" will equal (i) for all ComPS other than
Bullion ComPS, (a) in the case of a Liquidation Redemption, the
offer side U.S. dollar swap spread for the maturity closest to the
Remaining Maturity as published by International Financing Review
("IFR") Corporate Eye on Telerate Page 42276 (or such successor as
the Calculation Agent may reasonably determine) for each day of the
Early Determination Period (except that, in the case of a
determination for which the Remaining Maturity is one year or less,
"Applicable Spread" will equal the difference between then-current
yields on LIBOR-based Euro deposits and yields on Treasury Bills
with maturities approximately equal to the Remaining Maturity as
determined by the Calculation Agent) (the "Swap Spread") and (b) in
the case of all other redemptions, the greater of the Swap Spread
and the yield spread between (I) the average of quotations from
three dealers in such instruments chosen in the discretion of the
Calculation Agent for notional issuances of debt securities of
Morgan Guaranty in a notional amount equal to the Face Amount of the
ComPS being redeemed at such time and having a similar maturity and
similar subordination provisions as those contained in the
applicable Related Note and (II) U.S. Government Securities of
approximately similar maturities, as such yield spread may be
reasonably determined by the Calculation Agent (such yield spread,
the "Funding Spread") and (ii) for Bullion ComPS, (x) in the case of
a Liquidation Redemption, zero, and (y) in all other cases, the
difference between the Funding Spread and the Swap Spread, but never
less than zero. If the Telerate Page (or any successor) referred to
in clause (a) of the preceding sentence is unavailable or ceases to
report such swap spread, the Calculation Agent shall calculate such
spread based on (i) a source supplying the equivalent information or
(ii) if no such source is available, the average quotations from
three dealers in U.S. dollar swaps chosen by the Calculation Agent
in its reasonable discretion. As of the date of this Prospectus,
J.P. Morgan is among the six dealers of such instruments currently
polled for the purpose of calculating the swap spread published by
IFR on Telerate Page 42276.
"PVF" means the Present Value Factor for Remaining Maturity, which
shall be determined as follows:
(1/(1+y/12)N)
where "y" has the meaning set forth above in the definition of
Annuity Factor.
"ICV" means the Applicable Index Commencement Value, or the value of
the Applicable Index determined on the date of issuance of the
applicable series of ComPS, as specified in the applicable
Prospectus Supplement.
"N" means the number of monthly periods in the Remaining Maturity
(e.g., one year = N = 12).
For ComPS calculated based on a Price Reference Index:
"Unused costs" means zero.
"IESV" means the Applicable Index Early Settlement Value, which
shall be equal to (i) in the case of Bullion ComPS, the ICV, and
(ii) in the case of all other Price Reference Index ComPS, the
average of the Applicable Index for each day of the Early
Determination Period.
For ComPS calculated based on an Excess Return Index:
"Unused costs" means the number specified as such in the applicable
Prospectus Supplement.
<PAGE>
"IESV" means the Applicable Index Early Settlement Value, which
shall be equal to the average of the Applicable Index for each day
of the Early Determination Period provided, however, that if an
Applicable Index Settlement Value has been permanently determined
for such ComPS prior to such time, IESV shall equal the value so
determined.
For ComPS calculated based on a Total Return Index:
"Unused costs" means zero.
"IESV" means the difference of (a) the average for each day of the
Early Determination Period of the product of (i) the Applicable
Index (which, if an Applicable Index Settlement Value has been
permanently determined for such ComPS prior to such time, shall
equal the value so determined) multiplied by (ii) the Future Value
Factor less (b) the product of the Factor and the Applicable Index
Commencement Value.
"Future Value Factor" shall be determined with reference to the
following formula:
(1 + BY/12)N
where BY is the Base Yield (as determined for such day), computed on
an annualized, monthly compounded basis, expressed in decimal form.
"Factor" means the number specified in the applicable Prospectus
Supplement for the applicable Remaining Maturity.
Determination Period and Settlement Date
Unless otherwise specified in the applicable Prospectus Supplement,
the term "Determination Period" with respect to Excess Return, Total Return
and Price Reference Indices shall mean the period of ten consecutive
Trading Days on which no Market Disruption Event occurs commencing
immediately following the twentieth scheduled Business Day prior to the
Stated Maturity of such ComPS.
The date on which the Early Redemption Value or Redemption Value, as
applicable, will first be payable (the "Settlement Date") in respect of any
series of ComPS will be the later of the date on which such ComPS are
eligible for redemption (the "Redemption Date") or the fifth Business Day
after the completion of the Early Determination Period or the Determination
Period, as applicable.
Market Disruption Events
The occurrence of one or more of the following events on any Trading
Day shall constitute a "Market Disruption Event" with respect to a relevant
commodity (a "Relevant Commodity"), any benchmark contract underlying the
Applicable Index (a "Relevant Contract"), the market participants or
association responsible for determining the price of a commodity (the
"Fixing Association") which determines the price of a Relevant Commodity (a
"Relevant Fixing Association") or an exchange on which a Relevant Contract
is traded (a "Relevant Exchange"): (a) a day on which the fluctuation of
the price of the applicable commodity or commodity futures contract is
materially limited by the rules of the Relevant Exchange or Relevant Fixing
Association setting the maximum or minimum price for such day (a "Limit
Price"); (b) a day on which the Settlement Price is the Limit Price; (c)
the failure of the Relevant Exchange or Relevant Fixing Association to
determine, announce or publish the Settlement or Fixing price with respect
to the Relevant Contract or commodity (as the case may be); (d) the
material suspension of trading in the Relevant Commodity by members of the
Relevant Fixing Association or otherwise or any Relevant Contract with
respect to such commodity or in any other futures contract affecting the
Relevant Contract with respect to such commodity on the Relevant Exchange;
(e) the failure of trading to commence, or the permanent discontinuation of
trading, in the Relevant Commodity by the members of the Relevant Fixing
Association or otherwise or any Relevant Contract on the Relevant Exchange
and (f) the imposition of any material limitation on trading in the
Relevant Commodity by the members of the Relevant Fixing Association or
otherwise or any Relevant Contract on the Relevant Exchange.
<PAGE>
If a Market Disruption Event occurs and is continuing during the
Determination Period or any Early Determination Period with respect to any
series of ComPS, the Determination Period or such Early Determination
Period will be extended, with the result that the calculation of the
Applicable Index Settlement Value and the settlement of such ComPS may be
delayed for an indefinite period of time including, in the case of an
extension of the Determination Period, an indefinite period of time after
the Stated Maturity. With respect to ComPS for which the Applicable Index
is either a Price Reference Index or an Excess Return Index, in the event
that the payment of the Redemption Value is postponed beyond the Stated
Maturity, no distributions or dividends will accrue or be payable with
respect to such ComPS, but interest will accrue on the Face Amount from and
including the Stated Maturity to but excluding the last day of the
Determination Period at a rate equal to the day-weighted average of the Fed
Effective Rate until the end of the Determination Period, as reported on
Telerate Page 118 (or its successor or such other pricing source as the
Calculation Agent may reasonably select), less in each case 0.25%,
calculated on the basis of a year of 360 days and payable for the actual
number of days elapsed. Payment of such interest amount and the Redemption
Value will be made on the fifth Business Day following the last day of the
Determination Period. With respect to ComPS for which the Applicable Index
is a Total Return Index, in the event that the payment of the Redemption
Value is postponed beyond the Stated Maturity, no distributions will be
payable, and no interest or dividend in respect of such ComPS will accrue
or be payable, after the Stated Maturity. With respect to all ComPS, in the
event that the payment of the Early Redemption Value is postponed beyond
the applicable Early Redemption Date, no distributions will be payable, and
no interest or dividends in respect of such ComPS will accrue or be
payable, after such Early Redemption Date.
Calculations
As discussed above, the Company will appoint Morgan Guaranty as
Calculation Agent for the purpose of determining the Applicable Index
Settlement Value, as described herein, and calculating the Early Redemption
Value and Redemption Value and, if applicable, the dividends payable in
respect of any ComPS. The Calculation Agent will determine the Applicable
Index Settlement Value and the Early Redemption Value and Redemption Value
of any ComPS and, if applicable, dividends payable in good faith, which
determination shall be final and binding on the Company and the holders of
such ComPS. Morgan Guaranty and its affiliates may from time to time engage
in transactions with and perform services for the Company in the ordinary
course of business.
License of Applicable Index
Morgan Guaranty will enter into a license agreement (the "License
Agreement") granting the Company a non-exclusive license to use the
Applicable Index in connection with each series of ComPS the Applicable
Index for which is an Excess Return Index or a Total Return Index. The
License Agreement will provide that, in the event that Morgan Guaranty
fails to provide the Applicable Index to the Company on a regular basis
with the result that the Company is unable to determine the Applicable
Index Settlement Value and the Early Redemption Value and Redemption Value
payable in respect of such ComPS, the Company, its Calculation Agent or its
authorized designee (which shall be a major accounting firm appointed by
the Company) shall be authorized to calculate the Applicable Index. In such
event, Morgan Guaranty will provide the Company, its Calculation Agent or
such accounting firm with any and all information which may be necessary in
order to enable the Company, its Calculation Agent or such accounting firm
to perform such calculations.
Morgan Guaranty may also enter into license agreements with any or all
of the exchanges on which any benchmark futures contracts or commodities
are traded with respect to the information provided by such exchanges.
However, no such license agreement will contain any obligation or liability
provisions with respect to provision of such information by the relevant
exchange. Furthermore, no exchange on which any benchmark futures contract
or commodity is traded is or will be an issuer, underwriter or guarantor of
any Preferred Security, nor has any such exchange approved the Preferred
Securities or any terms thereof, nor is any such exchange responsible for
the calculation of any Applicable Index.
<PAGE>
RISK FACTORS WITH RESPECT TO ALL PREFERRED SECURITIES
Rights Under the Guarantee, the Related Note Guarantee and the Related Note
The Guarantee will be a full and unconditional guarantee with respect
to each series of Preferred Securities from the time of issuance of such
Preferred Securities but will not apply to any payment of distributions or
other amounts due in respect of such Preferred Securities to the extent
Morgan Guaranty has failed to make a payment of principal or interest on
the applicable Related Note. To the extent Morgan Guaranty were to default
on its obligation to pay amounts payable on the applicable Related Note,
the Company would lack available funds for the payment of distributions on
or amounts payable on redemption of such Preferred Securities and, in such
event, holders of such Preferred Securities would not be able to rely on
the Guarantee for payment of such amounts. Instead, holders of such
Preferred Securities would rely on the enforcement by the Company of its
rights as holder of the applicable Related Note against Morgan Guaranty and
as holder of the Related Note Guarantee against J.P. Morgan. J.P. Morgan
and the Company believe that the mechanisms and obligations relating to the
Guarantee, the Related Note Guarantee and the obligations of J.P. Morgan
under the LLC Agreement and the Expense Agreement to pay certain
obligations, costs and expenses of the Company, taken together, are
equivalent to a full and unconditional guarantee, on a subordinated basis,
by J.P. Morgan of payments due on the Preferred Securities. See
"Description of the Guarantee" and "Description of the Related Note
Guarantee".
Special Event Redemption
Upon the occurrence of a Special Event, in certain circumstances
Morgan Guaranty shall have the right to redeem any or all Related Notes, in
whole or in part, in which event the Company will redeem the related
Preferred Securities and Common Securities on a pro rata basis to the same
extent as the Principal Amount of the Related Notes is redeemed by Morgan
Guaranty.
A Special Event includes (i) a Tax Event and (ii) an Investment
Company Event.
In the case of any series of ComPS, upon the occurrence of a Special
Event it is possible that the market price of such ComPS in any existing
secondary market will decline.
Limited Voting Rights
Holders of Preferred Securities will have limited voting rights and
will not be entitled to vote to appoint, remove or replace the Managing
Members of the Company (as defined in the LLC Agreement), which voting
rights are vested exclusively in the holders of the Common Securities.
Trading Price
Preferred Securities are expected to trade at a price that takes into
account the value, if any, of accrued and unpaid distributions; thus,
purchasers will not pay and sellers will not receive any accrued and unpaid
interest with respect to their pro rata interests in the applicable Related
Note owned through the applicable Preferred Securities that is not already
included in the trading price of the applicable Preferred Securities.
However, interest on the applicable Related Note will be included in the
gross income of holders of applicable Preferred Securities as it accrues,
rather than when it is paid.
<PAGE>
There can be no assurance as to the market prices for any Preferred
Securities in any secondary market which does develop. Accordingly, any
Preferred Securities that an investor may purchase, whether pursuant to the
offer made hereby or in any such secondary market, may trade at a discount
to the price that the investor paid to purchase the Preferred Securities
offered hereby.
Because holders of Preferred Securities are essentially investing in a
pro rata share of a Related Note, prospective purchasers of Preferred
Securities are also making an investment decision with regard to such
Related Note and should carefully review all the information regarding the
Related Note contained herein and in the relevant Prospectus Supplement.
Bank Regulatory Restrictions
The Company's ability to make distributions and other payments on the
Preferred Securities is dependent upon Morgan Guaranty's making interest
and other payments on each Related Note as and when required or collection
with respect to such Related Note under the Related Note Guarantee. As
noted herein, Morgan Guaranty is subject to examination and regulation by
U.S. federal and state banking authorities, and although there is no
current restriction on Morgan Guaranty's ability to make payments under any
Related Note, certain other transactions with affiliates, including the
Company, are or may become subject to restrictions.
RISK FACTORS WITH RESPECT TO COMPS
Effect of Trading in the Futures Contracts and Related Commodities and
Instruments
Morgan Guaranty and other affiliates of J.P. Morgan are and will be
actively involved in the trading of the futures contracts or the
commodities underlying the Applicable Index and other instruments and
derivative products based thereon. Morgan Guaranty, in particular, is an
active participant in various commodity markets including the physical
petroleum, precious and base metals and related derivatives markets. JPMSI
and other affiliates may also issue or underwrite, or authorize
unaffiliated entities to issue or underwrite, other securities or financial
instruments with returns indexed to the Applicable Index or one or more of
the JPM Indices. Morgan Guaranty has licensed, and may in the future
license, the Applicable Index, the JPM Indices, and related indices and
sub-indices for use by affiliated and unaffiliated parties, for publication
in newspapers and periodicals, for distribution by information and data
dissemination services and for other purposes. Morgan Guaranty currently
intends to publish individual commodity sub-indices for each of the
commodities included in the JPMCI using the same calculation methodology as
that described below. The Applicable Index may be similar or identical to
the sub-index having the same underlying commodity.
Trading in the foregoing contracts and commodities by Morgan Guaranty,
its affiliates (including JPMSI) and unaffiliated third parties could
adversely affect the value of the Applicable Index, which could in turn
adversely affect the return on and the value of the ComPS. See "The
Applicable Index".
Potential for Adverse Interests
As noted above, Morgan Guaranty, JPMSI and their affiliates expect to
engage in trading activities related to the futures contracts or the
commodities underlying the Applicable Index and other instruments or
derivatives products on or related to the Applicable Index, for their
accounts where permitted or for other accounts under their management.
Morgan Guaranty, JPMSI and their affiliates, as well as unaffiliated third
parties, may also engage in other activities related to the Applicable
Index, as discussed above. Because Morgan Guaranty will issue the Related
Notes to the Company, all such activities could create interests of Morgan
Guaranty adverse to those of the holders of ComPS. For example, the
issuance of other securities indexed to the Applicable Index, i.e., the
introduction of competing products into the marketplace, could adversely
affect the value of the ComPS. To
<PAGE>
the extent that J.P. Morgan or its affiliates serve as issuer, or JPMSI or
one of its affiliates serves as agent or underwriter, for such securities
or other instruments, their interests with respect to such products may be
adverse to those of the holders of the ComPS. Morgan Guaranty will serve as
Calculation Agent with respect to the ComPS and, accordingly, will in good
faith calculate the Applicable Index, which could present certain conflicts
of interest (for example, in instances where the Calculation Agent is
required to exercise discretion).
Risk of Carrying and Rolling Commodity Futures
As discussed above, if the Applicable Index is an Excess Return Index
or a Total Return Index, the Redemption Value of the ComPS will be
calculated with reference to the Applicable Index, the value of which is
designed to replicate to the extent provided herein the cumulative return
of holding a continuous investment in the futures contracts on the relevant
commodity underlying the Applicable Index. At any given time, the
Applicable Index will be calculated based on the change in value of certain
futures contracts on the relevant commodity for delivery in the near term
(the "shorter-dated contracts"). The Applicable Index will continue to be
calculated based on the change in value of such shorter-dated contracts
until they approach maturity, at which time the Applicable Index will, as
described below, cease to be calculated based on the change in value of
such shorter-dated contracts and begin to be calculated based on the change
in value of the subsequent futures contract (the "longer-dated contracts")
on a regular periodic basis so as to be continuously indexed to the change
in value of the futures contracts on the relevant commodity. The period
during which each such replacement of shorter-dated contracts with
longer-dated contracts as the basis for the calculation of the change in
value of the Applicable Index occurs is referred to herein as the "Rollover
Period", as further defined below. If the market for the commodity futures
contract underlying the Applicable Index is in "contango" (i.e., the prices
of longer-dated contracts are above the prices of shorter-dated contracts),
the return on the Applicable Index may be adversely affected. The
Applicable Index would decline if (i) the price of the longer-dated
contracts underlying the Applicable Index during the Rollover Period were
more than the price of the shorter-dated contracts which they will replace
and (ii) the price of the longer-dated contracts were to decline as such
contracts approach maturity (i.e., the price of the longer-dated contracts
were to converge toward the price of the replaced shorter-dated contracts),
the value of the Applicable Indices will decline. While many of the
commodities included in the JPM Indices have historically exhibited periods
of both "backwardation" (i.e., the prices of longer-dated contracts are
below the prices of shorter-dated contracts) and contango, there can be no
assurance that backwardation will exist at any or all times. If the
Applicable Index is an Excess Return Index or a Total Return Index, the
absence of backwardation in the market for the commodity underlying the
Applicable Index could adversely affect the Applicable Index and,
correspondingly, could adversely affect the value of the ComPS.
Additionally, the issuance and/or the trading of the ComPS could adversely
affect the market for the benchmark contracts underlying such Applicable
Index and, accordingly, could adversely affect the value of such ComPS.
Volatility of Commodity and Commodity Futures Prices
Prices of commodities and commodity futures contracts are extremely
volatile and can be affected by a variety of factors, including weather,
governmental programs and policies, national and international political
and economic events, changes in interest and exchange rates and trading
activity in such commodities and commodity futures contracts. Volatility in
the benchmark contracts underlying any Applicable Index will correlate
directly to volatility in such Applicable Index. Such volatility could
adversely affect the value of such Applicable Index and, correspondingly,
could adversely affect the value of the ComPS.
Effect of Adverse Changes in Commodity Prices
The Applicable Index is designed to replicate, to the extent provided
herein, the performance of investing in the markets for the underlying
commodity or futures contracts on the underlying commodity over time. In
the event of sudden disruptions in the supplies of the relevant constituent
commodity for the Applicable Index, such as those caused by war, accidents,
weather, or acts of terrorism, prices of the relevant constituent
commodity, and,
<PAGE>
consequently, the value of the Applicable Index, could become extremely
volatile and unpredictable. Also, sudden and dramatic declines in commodity
and commodity futures contract prices as may occur, for example, upon a
cessation of hostilities that may exist in countries producing the relevant
commodity or upon the discovery of significant additional sources or
reserves of the relevant commodity or the introduction of new or previously
withheld supplies into the market or the introduction of substitute
products or commodities, could have a significant adverse effect on the
value of the Applicable Index and on the value of any ComPS. In addition,
the prices of certain commodities have on occasion been subject to very
rapid short-term changes due to speculative activities.
Suspension or Material Disruption of Futures or Commodities Trading;
Temporary Distortions
The futures markets and the markets for the commodities underlying the
Applicable Index are subject to temporary distortions or other disruptions
due to conditions of illiquidity in the markets, the participation of
speculators, government regulation and intervention and other factors. In
addition, U.S. futures exchanges and certain foreign exchanges have
regulations which limit the amount of fluctuation of futures contracts
prices which may occur during a single trading day. Such limits are
generally referred to as "daily price fluctuation limits" or, more
commonly, "daily limits", and the maximum or minimum price of a contract on
any given day, as a result of the effect of such limits, is referred to as
a "Limit Price", as discussed below. In a particular futures contract, once
the Limit Price has been reached in such a contract, no trades may be made
on that day at a price above or below the Limit Price, as the case may be.
Limit Prices may have the effect of precluding trading in a particular
contract for all or a portion of a trading day or forcing the liquidation
of contracts at disadvantageous times or prices. Such circumstances,
particularly if they occur during the Rollover Period for the Applicable
Index (which is an Excess Return Index or a Total Return Index) or during
the Early Determination Period or the Determination Period (as defined
herein) for the Applicable Index, could adversely affect the value of the
Applicable Index and/or could constitute a Market Disruption Event (as
defined herein) and, therefore, could adversely affect the value of the
applicable ComPS.
Depending on the period of time over which a Market Disruption Event
continues, the correlation between changes in the value of the Applicable
Index and changes in the general level of prices of the relevant
commodities may be adversely affected. Under such circumstances, the value
of the Applicable Index (if the Applicable Index is an Excess Return Index,
a Total Return Index or a Price Reference Index the pricing source for
which is one or more futures contract Settlement Prices), and the value of
the ComPS, may be adversely affected.
In the event of a Market Disruption Event during the Early
Determination Period or the Determination Period, the Early Redemption
Value or Redemption Value, as applicable, payable in respect of the ComPS
will be calculated using the Applicable Index on the Trading Day or Days
immediately following the termination of such Market Disruption Event.
However, if such Market Disruption Event remains in effect for longer than
20 consecutive Trading Days and, in the reasonable judgment of the
Calculation Agent such Market Disruption Event is likely to remain in
effect, then the Applicable Index Settlement Value for each day subject to
a Market Disruption Event may be determined in good faith by the
Calculation Agent based on alternative pricing sources reasonably believed
by it to be indicative of then-prevailing prices for notional transactions
in futures contracts or commodities equal in size to the Applicable Index
Settlement Value. Because Morgan Guaranty's obligations under the related
Related Note will also be based on the Applicable Index Settlement Value,
Morgan Guaranty may have an adverse interest with respect to such
determination.
Historical Correlations May Not Prevail in the Future
Although historically the JPMCI and many of the commodities underlying
it have shown a positive correlation with inflation, some positive
correlation with industrial growth and negative correlations with stock and
bond returns, there can be no assurance that such correlations will prevail
in the future.
<PAGE>
Changes in Laws or Regulations or Interpretations Thereof
Prices of commodities and commodity futures contracts may be adversely
affected by the promulgation of new laws or regulations or by the
reinterpretation of existing laws or regulations (including, without
limitation, those relating to taxes and duties on commodities or commodity
components) by one or more governments, governmental agencies or
instrumentalities, courts or other official bodies. Any such event could
adversely affect the value of the Applicable Index and, correspondingly,
could adversely affect the value of the ComPS.
Extension of Settlement Date or Stated Maturity
If any futures contract or constituent commodity included in the
Applicable Index were to be affected by a Market Disruption Event during
any Early Determination Period or the Determination Period, the applicable
Settlement Date would be postponed until the fifth Business Day after the
last day of the applicable Early Determination Period or the Determination
Period. Such delay could be of indefinite duration. With respect to ComPS
for which the Applicable Index is either a Price Reference Index or an
Excess Return Index, in the event that payment of the Redemption Value is
postponed beyond the Stated Maturity, interest will accrue on the Face
Amount in the manner described herein, but no distributions will be payable
on such ComPS after the Stated Maturity thereof. With respect to ComPS for
which the Applicable Index is a Total Return Index, in the event that the
payment of the Redemption Value is postponed beyond the Stated Maturity, no
interest, dividends or distributions in respect of such ComPS will accrue
or be payable after the Stated Maturity. With respect to all ComPS, no
distributions will be payable, and no interest will accrue or be payable,
if payment of the ComPS Early Redemption Price is postponed beyond any
applicable Early Redemption Date.
Discontinuance of Publishing of the Applicable Index
In the event that Morgan Guaranty discontinues publication of the JPM
Indices or the relevant sub-index, the Calculation Agent will continue to
calculate in good faith the Applicable Index for each series of ComPS
during the remaining term of such ComPS, based on the methodology described
herein. However, such change of calculation methodology may result in a
ComPS Redemption Price for such ComPS which is less than the ComPS
Redemption Price for such ComPS had it been calculated on the basis of the
JPM Indices or the relevant sub-index.
Potential Modifications to the JPM Indices and/or the Applicable Index
Morgan Guaranty reserves the right at its discretion to make any
modifications to the JPM Indices based on the recommendations of the JPMCI
Policy Committee. The JPMCI Policy Committee advises Morgan Guaranty with
respect to, among other things, the composition of the JPM Indices, the
price sources upon which the JPM Indices are based (i.e., the underlying
futures contracts) and the weightings and calculation methodology of the
JPM Indices, all with a view toward maintaining the JPM Indices as
appropriate commodity investment benchmarks that serve as a measure of
performance of the commodity markets. Currently, the inclusion requirements
for the futures contracts underlying the JPM Indices require that such
contracts be sufficiently liquid and representative price sources. It is
possible, however, that any such underlying contract could become less
liquid or representative and, as a result, the JPMCI Policy Committee may
recommend a modification in the calculation methodology or the contracts
underlying the JPM Indices and, therefore, the Applicable Index. Any such
replacement contract (i) will be required to satisfy the JPMCI Inclusion
Criteria, as described below under the caption "The JPMCI Policy Committee"
and (ii) must be traded in a market or with self-regulator which has
established either (a) a comprehensive information sharing agreement with
the exchange, if any, on which the ComPS are then traded or (b) suitable
alternative arrangements with the Commission. For example, the JPMCI
currently includes the New York Mercantile Exchange futures contract for
Light "Sweet" Crude Oil. It is possible that such contract may become less
liquid and tradeable over time and an alternative crude oil futures
contract, including, for example, the contract for Brent Crude Oil traded
on the International Petroleum Exchange, may be the most liquid, tradeable
contract and therefore a more appropriate benchmark and price source. Such
a change from a
<PAGE>
less liquid to a more liquid contract may result in a lower Redemption
Value for such ComPS than would have been the case if the less liquid
contract had remained the benchmark.
If at any time no contracts satisfying both clauses (i) and (ii) of
the previous paragraph can be found to serve as a benchmark contract with
respect to the Applicable Index for any series of ComPS the Applicable
Index for which is an Excess Return Index or a Total Return Index, the
Applicable Index Settlement Value of such ComPS will be determined at such
time (in accordance with the methodology set forth in the applicable
Prospectus Supplement) as if the last date of the inclusion of the final
benchmark contract with respect to such Applicable Index in the JPM Indices
were the Stated Maturity. However, such ComPS will not be redeemed on such
date; rather, such ComPS will remain outstanding to Stated Maturity thereof
and will be redeemed at Stated Maturity for a Redemption Value calculated
using the Applicable Index Settlement Value determined pursuant to the
terms of this paragraph. Such ComPS will also be subject to redemption upon
the occurrence of a Special Event and optional redemption on each Optional
Redemption Date if specified in the applicable Prospectus Supplement
(treating the Applicable Index Settlement Value determined pursuant to the
terms of this paragraph as the Applicable Index Early Settlement Value for
any Early Redemption Date). Such an early determination of the Applicable
Index Settlement Value with respect to any series of ComPS may result in
the holders of such ComPS receiving an amount that is less than what
indicative commodity and futures prices prevailing at any Early Redemption
Date or at the Stated Maturity thereof would otherwise imply. Because
Morgan Guaranty will be the Calculation Agent, such early determination may
raise adverse interests.
Additionally, if at any time the benchmark contracts then serving as
the basis for calculating the Applicable Index with respect to any series
of ComPS, or the trading thereof, become subject to any increased cost or
additional tax, whether imposed by any exchange or otherwise, Morgan
Guaranty reserves the right to (x) designate a replacement benchmark
contract, satisfying both clauses (i) and (ii) of the second preceding
paragraph, which contract is subject to an amount of cost or tax less than
or equal to such increased amount or (y) if no contract satisfying clause
(x) of this paragraph is designated by Morgan Guaranty, to cause, at its
option, the Applicable Index Settlement Value of such ComPS to be
determined at such time (in accordance with the methodology set forth in
the applicable Prospectus Supplement) as if the date of such increase in
cost or tax (or, in Morgan Guaranty's discretion, the last calendar day of
the month in which the determination of the Applicable Index Settlement
Value is completed) were the Stated Maturity. However, such ComPS will not
be redeemed on such date, rather, such ComPS will remain outstanding to
Stated Maturity thereof and will be redeemed at Stated Maturity for a
Redemption Value calculated using the Applicable Index Settlement Value
determined pursuant to the terms of this paragraph. Such ComPS will also be
subject to redemption upon the occurrence of a Special Event and optional
redemption on each Optional Redemption Date if specified in the applicable
Prospectus Supplement (treating the Applicable Index Settlement Value
determined pursuant to the terms of this paragraph as the Applicable Index
Early Settlement Value for any Early Redemption Date) and will be redeemed
at Stated Maturity for a Redemption Value calculated using the Applicable
Index Settlement Value determined pursuant to the terms of this paragraph.
Because Morgan Guaranty will, at the time any benchmark contract then
serving as the basis for calculating any Applicable Index becomes subject
to such increased cost or tax, in its discretion decide whether or not to
cause an early determination of the Applicable Settlement Value of any such
ComPS, exercise of such option may raise an adverse interest.
Early Redemption
All ComPS may be redeemed by the Company prior to their Stated
Maturity upon the occurrence of a Special Event or, if so specified in the
applicable Prospectus Supplement, redeemed at the option at the holders
thereof at certain times. In the case of a redemption upon the occurrence
of a Special Event, the Early Redemption Value paid by the Company at such
time may be significantly less than the Redemption Value that would
otherwise have been payable had such ComPS not been redeemed prior to their
Stated Maturity and the occurrence of such Special Event may cause the
market price of such ComPS in any existing secondary market to decline. In
the case of an optional redemption by holders of any ComPS subject to such
provisions, it is likely, under prevailing market conditions, that the
Early Redemption Value paid by the Company will be less than the amount
such holder could have realized by selling such ComPS in an existing
secondary market, if any. Delay in payment of the ComPS Early Redemption
Price due to the occurrence of a Market Disruption Event will not entitle
<PAGE>
holders of such ComPS to additional distributions on such ComPS or the
accrual of any interest on such ComPS Early Redemption Price.
Secondary Trading in the ComPS; Possible Illiquidity of the ComPS
It is intended that each series of ComPS will be listed on a stock
exchange; however, it is not possible to predict whether the necessary
number of holders will purchase and, for the remaining term of each series
of ComPS, continue to hold such ComPS in order that a secondary market for
each series of ComPS will develop and remain in existence, or how any ComPS
will trade in any such market which does develop. The Underwriters of any
issuance of ComPS will not obligated to make a market for such ComPS;
therefore, it is possible that no active secondary market for any ComPS
will develop.
Value of the ComPS
The value of any series of ComPS at any time will depend upon the
interaction of at least three key factors: (i) the value of the Applicable
Index, (ii) the credit quality of Morgan Guaranty and J.P. Morgan and (iii)
the interest rate environment. Adverse changes in any of these three
factors will adversely affect the value of the ComPS at such time.
Certain Considerations Regarding Hedging
Prospective purchasers of ComPS who intend to hedge against the risks
associated with the market for commodity futures or commodities should
recognize the complexities of utilizing ComPS in this manner. The formula
under which the Principal Amount is calculated is not guaranteed to produce
distributions to holders having readily definable relationships with other
commodity futures and commodity instruments and products. As described
above, in the case of ComPS for which the Applicable Index is an Excess
Return Index or a Total Return Index, the value of such ComPS will reflect
not only the price of the benchmark contracts or the relevant commodity but
also, in the case of an Applicable Index based on futures contracts, the
state of the market in which such futures contracts are traded (i.e.,
whether such market is in "backwardation" or "contango"). Also, under
certain circumstances, amounts payable on the ComPS may be based on the
good faith determination of Morgan Guaranty and not on the Applicable
Index. For these reasons, investors should be cautious in using ComPS in a
hedging program. The risks associated with utilizing the ComPS in a hedging
program may be magnified in periods of substantial futures or commodities
price volatility
THE UNDERLYING MARKETS
Futures Markets
An exchange-traded futures contract is a bilateral agreement providing
for the purchase and sale of a specified type and quantity of a commodity
or financial instrument during a stated delivery month for a fixed price
or, in the case of a futures contract on an index, providing for the
payment and receipt of a cash settlement. By its terms, a futures contract
provides for a specified settlement month in which the commodity or
financial instrument is to be delivered by the seller (whose position is
therefore described as "short") and acquired by the purchaser (whose
position is therefore described as "long") or in which the cash settlement
amount is required to be paid. Prior to the date on which delivery is to be
made under a futures contract, the exchange clearing house will require the
holders of short positions to state their intentions with respect to
delivery and, to the extent that such holders elect to make delivery (as
opposed to cash settlement), the clearing house will match them with
holders of long positions, who will then be required to accept delivery.
No purchase price is paid or received on the purchase or sale of a
futures contract. Instead, an amount of cash or cash equivalents, which
varies based on the requirements imposed by the exchange clearing houses,
but which may be as low as 5% or less of the value of the
contract, must be deposited with broker as "initial margin". This margin
deposit
<PAGE>
collateralizes the obligations of the parties to the futures contract to
perform their obligations under such contract. Subsequent payments to and
from the broker, referred to as "variation margin", are then normally made
on a daily basis as the price of the futures contract fluctuates, thereby
making existing positions in the futures contract more or less valuable, a
process known as "marking to the market". By depositing and/or receiving
margin in the most advantageous form (which may vary depending on the
exchange, clearing house or broker involved), a market participant may be
able to earn interest on its margin funds, thereby increasing the potential
total return which may be realized from an investment in futures contracts.
Futures contracts are traded on organized exchanges, known as
"contract markets" in the U.S., through the facilities of a centralized
clearing house and a brokerage firm which is a member of the clearing house
(a "clearing member"). The clearing house guarantees the performance of
each clearing member which is a party to a futures contract by, in effect,
taking the opposite side of the transaction. At any time prior to the
expiration of a futures contract, subject to the availability of a liquid
secondary market, a trader may elect to close out its position by taking an
opposite position on the exchange on which the position entered into, which
operates to terminate the position and fix the trader's profit or loss.
U.S. contract markets, as well as brokers and market participants, are
subject to regulation by the Commodity Futures Trading Commission. Futures
markets outside the U.S. are generally subject to regulation by comparable
regulatory authorities.
The principal non-U.S. futures market on which the futures contracts
which may underlie the Applicable Index are traded is the London Metal
Exchange (the "LME"). The LME, which is subject to the regulation of the
Securities and Investments Board and the Securities and Futures Authority
(a self-regulatory organization), is a primary international exchange for
futures contracts on aluminum, copper, nickel and zinc (which are included
in the JPMCI) and for lead and tin. Unlike most other futures exchanges
(including those in the U.S.), the LME is a "principal's market". This
means that when a clearing member of the LME enters into a trade with a
client or non-clearing member, there will not necessarily be an offsetting
contract on the exchange. Rather, such clearing member remains liable on
such trade, though it may then enter into an offsetting contract with
another member having substantially similar, if not necessarily identical,
terms. In addition, official LME trading is conducted by open outcry during
two daily trading sessions of short duration rather than by means of
continuous trading, as used on most exchanges. In addition to such open
outcry trading, trading takes place during the rest of the day directly
between members by means of a telephone trading system. Settlement prices
for contracts with specified settlement dates are determined by a committee
selected by the directors of the LME (the "Quotations Committee") of the
LME promptly following the morning trading session, based on the last bid
and offer prices for the relevant commodity at such trading session or, if
the Quotations Committee determines there were no such prices, at such
other level as the Quotations Committee may in its discretion determine at
the end of each LME trading day. The Quotations Committee is similarly
responsible for determining LME closing prices. If the Quotations Committee
fails to determine such closing prices on any LME trading day, such closing
prices shall be determined by the London Clearing House, which is the
clearinghouse for the LME.
United States commodity futures exchanges typically have similar
procedures for determining end-of-day settlement prices, although each
exchange or type of commodity may have slightly different procedures. All
exchanges have quotations or settlement price committees which determine
the settlement prices using prescribed formulaic methodologies. However,
such committees may, if they believe the application of the formulaic
methodology would yield a settlement price which is inappropriate, in their
own discretion determine a settlement price which is appropriate.
For precious metals futures contracts, exchanges typically determine
the settlement price for the most active month contract as the average of
the highest and lowest prices of trades reported in the closing period. All
other contracts settlement prices are determined as a spread from this
active contract using spreads determined in the closing range. For energy
contracts, exchanges typically determine the settlement prices for the
"more active contracts" (i.e., contracts which meet certain open interest
percentage threshholds which, for example, is 10% on the NYMEX) as the
average price of all outright transactions during the closing range for
such contract. In all other contracts, the settlement prices are determined
as spread relationships to the more active contracts.
<PAGE>
Precious Metals Spot Markets
In the case of Bullion ComPS, it may be the case that the value of the
Bullion ComPS Principal Amount and the Applicable Index (and thus the
Redemption Value of and distributions on such ComPS) will be determined
with reference to the Fixing Price of the relevant Fixing Association. The
relevant Fixing Association for gold and silver is the London Bullion
Market Association (the "LBMA"); in the case of platinum and palladium, the
relevant Fixing Association is the London Platinum and Palladium Market
(the "LPPM"). The Fixing Price represents the spot price for the relevant
underlying commodity as determined in accordance with the procedures of the
relevant Fixing Association. The fixing procedures for the LBMA and the
LPPM are similar. Fixings occur twice each trading day for gold, platinum
and palladium and once each trading day for silver. At the commencement of
the fixing, an opening price is announced by the presiding official. This
price is relayed to the dealing rooms of the members or the relevant Fixing
Association. The price is in turn relayed to the customers of such members
and on the basis of orders received, such members declare as a buyer or a
seller. Provided that both buying and selling interests are declared,
members are then asked to state the amount they wish to trade. If the
amounts of buying and selling do not balance, the same procedure is
followed again at higher or lower prices until a balance is achieved. The
chairperson of the relevant Fixing Association may exercise some discretion
in determining the final Fixing Price. Because members of the LBMA must
submit fixed orders for silver (i.e., no additional attempts at buying or
selling occur as described in the second preceding sentence), trade
imbalances may arise from time to time in the determination of the Fixing
Price for silver.
Investing in the Commodities and Commodity Futures Markets
Investments in commodities and commodity futures markets offer
potential returns from several sources and strategies, two of which are as
follows: (i) the change in price of the underlying commodity or commodity
futures contract ("Price Return") and (ii) the cumulative return created by
a continuous investment in the same type of futures contract by buying,
holding and then selling such contracts as they approach expiration and
reinvesting the notional proceeds of such sale in the same type of contract
with a more distant expiration date (such cumulative return, "Excess
Return", is the sum of the price returns for all such contracts held during
their holding period, and such Excess Return is often described or
accounted for as the sum of Spot Return plus Roll Return).
Price Return. Price Return is the return that arises from changes over
time in prices of futures contracts or in the prices of the commodities
themselves, as applicable. Thus, if on the first day of a given month the
price of the futures contract is $15.00, and on the 30th day of such month
the price of the futures contract is $15.50, the investor in such contract
has earned a price return of 3.33% on the initial notional amount of
$15.00.
Excess Return. Excess Return is the cumulative return of holding a
continuous investment in commodity futures contracts. Excess Return is just
the cumulative return of the individual Price Returns of the contracts held
during their holding period. Thus, Excess Return is calculated as the
return of holding a certain contract and, as it nears expiration, selling
such contract and reinvesting the notional proceeds of the sale into
another contract with a more distant expiration date. Commodity market
participants often describe Excess Return as the sum of Spot Return plus
Roll Return. Describing Excess Return as Spot Return plus Roll Return helps
describe the cumulative price returns of the contracts held in terms of (a)
overall trends in the spot or nearby futures prices (Spot Return) and (b)
the average shape of the forward curve during the roll days over the
holding period (Roll Return).
"Spot Return" is defined as the change in the price of the nearest to
expiration contract underlying the Excess Return calculation from the
beginning of the calculation period to the end of the calculation period
(without regard to the actual underlying contract referenced).
"Roll Return" is the number that, when added to the Spot Return, gives
the true Excess Return. Roll Return represents the portion of return on a
continuous investment in nearby futures that one might attribute to the
average shape over the holding period of the forward curve during the roll
days (i.e., whether the forward contracts that were rolled into were so
rolled at a premium or a discount to the nearer to expiration contracts).
<PAGE>
Example
The following table illustrates the calculation of the Excess Return
of a continuous investment in nearby futures over a 2 month holding period
and shows how Spot Return plus Roll Return are defined and calculated so
that the sum thereof equals the actual Excess Return calculation.
Day 1 Day 30 Day 60 Total
Futures #1 $15.00 $15.00
Futures #2 $14.75 $14.50 $15.00
Return on Futures #1 0.00%
Return on Futures #2 NA 3.45%
Return on Excess 0.00%(a) 3.45%(b) 3.45%
Return
(a) return on Futures #1 for first month holding
period
(b) return on Futures #2 for second month holding
period
In the preceding example, if the change in value of an index had been
calculated entirely based on Futures #1 beginning on day 1, had ceased to
be based on such contract on day 30 and had begun to be calculated entirely
based on Futures #2 on such day, and had continued to be based entirely on
such contract to expiration on day 60, the index would have appreciated by
3.45%, despite the fact that the price of Futures #1 on day 1 and the price
of Futures #2 on day 60 were equal (i.e. Spot Return was 0.00%). Thus,
while Futures #1 yielded no price return, Futures #2 yielded a price return
of 3.45% during its holding period. Such a continuous investment in nearby
futures contracts produced a return of 3.45% over the two month holding
period, which can be accounted for as a Spot Return of 0.00% plus a Roll
Return of 3.45%.* However, this is only one example of a possible futures
market alignment; in any market, Excess Return, or the sum of Spot Return
plus Roll Return, could be positive or negative over any given holding
period.
The price of the longer-dated position may be higher or lower than the
price of the shorter-dated position based on a variety of factors,
including the cost of borrowing, transportation, storage and insurance of
commodities, the expectations of market participants with respect to future
price trends and general inventory, supply and demand trends.
THE JPM INDICES
The JPM Indices have been developed and are calculated by Morgan
Guaranty as indices proprietary to J.P. Morgan. The JPMCI, the primary
commodities index calculated by Morgan Guaranty, is the arithmetic weighted
average of the cumulative returns afforded by notional investments in
exchange-traded futures contracts on the principal non-financial "hard"
commodities which satisfy specified criteria (including base metals, energy
products and precious metals). Each of the JPM Indices is designed as a
measure of the performance over time of the markets for the applicable
commodities.
Morgan Guaranty calculates two investable versions of the JPM Indices,
the Excess Return Indices and the Total Return Indices. Subject to the
specific terms of each methodology set forth below, each methodology
represents a method for determining the cumulative change in value of
notional positions in certain commodities or commodity futures
- --------
*Spot Return is (($15.00/$15.00) -1) or 0.00%, since the beginning
price of Futures #1 is $15.00 and the ending price of Futures #2 is $15.00
over the two month index period. Because Roll Return is the number that,
when added to the Spot Return calculation, gives the true Excess Return,
and because Excess Return is 3.45% in the above example, Roll Return must
be Excess Return minus Spot Return (3.45% - 0.00%), or 3.45%.
<PAGE>
contracts, and does not represent an actual investment in commodities or
commodity futures contracts. Calculations for the JPM Indices are based on
end-of-day futures settlement prices for energy and precious metal indices
and on LME end-of-day closing prices for third Wednesday dates for base
metal indices.
Excess Return Methodology
The actual methodology applied by Morgan Guaranty in calculating
Excess Return JPM Individual Indices is set forth below. If the Applicable
Index of any series of ComPS is an Excess Return Index, the following
methodology will be applied by the Calculation Agent in calculating the
Applicable Index:
The value of the relevant Excess Return Index on any Trading Day not
subject to a Market Disruption Event will be determined with reference to
the following formula:
I(t)=I(t-1) + Change(t)
Where "I(t)" is the value of the relevant Excess Return Index on the
date of determination (such date being referred to as "(t)"); "I(t-1)"
is the value of the relevant Excess Return Index on the Trading Day
not subject to a Market Disruption Event immediately preceding the
date of determination (such date being referred to as "(t-1)"); and
"Change(t)" is equal to the product of (i) I(t-1) and (ii) the sum of
the weighted percentage changes on the date of determination of the
U.S. dollar prices of the futures contracts underlying the Applicable
Index. Each such weighted percentage change shall be equal to the
product of (a) the U.S. dollar percentage gain or loss on such
underlying contracts to the date of determination from the immediately
preceding Trading Day that is not subject to a Market Disruption Event
multiplied by (b) the applicable futures contract's weight in the
Applicable Index for such date of determination. The methodology
behind the weighting of the futures contracts is set forth under the
caption "Rebalance of JPM Indices".
Total Return Methodology
The methodology applied by Morgan Guaranty in calculating Total Return
JPM Individual Indices is set forth below. If the Applicable Index of any
series of ComPS is a Total Return Index, the following methodology will be
applied by the Calculation Agent in calculating the Applicable Index:
The value of the relevant Total Return Index for any Trading Day on
which a Settlement Price is determined for the relevant contract or
contracts, as the case may be (regardless of whether or not such Trading
Day is subject to a Market Disruption Event), will be determined with
reference to the following formula:
I(t)=I(t-1) + Change(t) + R(t)
Where "I(t)" is the value of the relevant Total Return Index on the
date of determination (such date being referred to as "(t)"); "I(t-1)"
is the value of the relevant Total Return Index on the Trading Day on
which a Settlement Price is determined for the relevant contract or
contracts, as the case may be, immediately preceding the date of
determination (such date being referred to as "(t-1)"); "Change(t)" is
equal to the product of (i) I(t-1) and (ii) the sum of the weighted
percentage changes on the date of determination of the U.S. dollar
prices of the futures contracts underlying the Applicable Index. Each
such weighted percentage change shall be equal to the product of (a)
the U.S. dollar percentage gain or loss on such underlying contracts
to the date of determination from the immediately preceding Trading
Day for which a Settlement Price exists for the relevant contract or
contracts, as the case may be, multiplied by (b) the applicable
futures contract's weight in the Applicable Index for the date of
determination. Also, "R(t)" is the return arising
<PAGE>
for the period from (t-1) to (t) from interest payable on the nominal
value of the Applicable Index, which shall be based on the rate
determined with reference to the following formula:
R(t) = I(t-1) x Y(t)
Where "I(t-1)" has the meaning set forth in the preceding paragraph
and
Days/91
Y(t) = [1/(1-Q)] - 1
Where "Q" equals the most recently available noncompetitive discount
rate on 13-week U.S. Treasury Bills (updated on weekly auction), as
found in the H.15(519) report published by the Board of Governors of
the Federal Reserve System, multiplied by the quotient of 91/360, and
"Days" equals the number of calendar days from Trading Day (t-1) to
(t); and
This methodology for calculation of the Total Return Index takes into
account the change in value of the index for the purpose of computing the
collateral return for Trading Days on which no official Applicable Index is
calculated but on which a Settlement Price is determined.
Rebalance of JPM Indices
Because the JPM Indices are measures of a continuous investment in
commodity futures contracts, and because futures contracts have a finite
maturity, the futures contracts serving as bases from which to calculate
the change in value of the JPM Indices must be replaced on a periodic basis
during the applicable Rollover Period (as defined below) for each. If the
Applicable Index for any series of ComPS is an Excess Return Index or Total
Return Index, the futures contracts on the commodity underlying the
Applicable Index will similarly be replaced during the Rollover Period. The
"Rollover Period" is the period of five consecutive Trading Days commencing
on the fifth Trading Day of the month in which such replacement occurs.
During each day of the Rollover Period, a portion of change in value of the
Applicable Index ceases as of the end of such day to be based on the change
in value of existing contracts (the "Old Contracts") and begins as of the
beginning of the next day to be based on the change in value of the New
Contracts. The "New Contracts" are those contracts which are the nearest
designated futures contract which (i) have a termination of trading at
least ten Trading Days into the month following the Rollover Period and
(ii) have a first "notice day" at least ten Trading Days into the month
following the Rollover Period. The "notice day" is the first day on which
persons holding a short position on such futures contract must inform the
exchange on which such contract is traded that they will deliver under such
contract.
In the case of energy products for which there exist designated
futures contracts for delivery in each month of the year, the New Contracts
will be different from the Old Contracts. As indicated in the table below,
which lists each of the designated contracts, the rebalancing procedure
will occur on a less frequent basis for precious metals and base metals,
and as a result the New Contracts and Old Contracts for any Rollover Period
may be the same.
<PAGE>
Table : Futures Contracts Underlying Excess Return and Total Return Indices
No Commodity Name/Units Applicable Exchange Units per Designated
Delivery Contract Contract
1 Aluminum $/MT LME LME 25 tonnes Third Wednesday
(Metric Tonne) Warehouses of every March,
(High Grade Primary Worldwide June, September,
Aluminum) December<F1>
2 Copper $/MT LME LME 25 tonnes Third Wednesday
(Copper Grade A) Warehouses of every March,
Worldwide June, September,
December
3 Nickel $/MT LME LME 6 tonnes Third Wednesday
(Primary Nickel) Warehouses of every March,
Worldwide June, September,
December
4 Zinc $/MT LME LME 25 tonnes Third Wednesday
(Special High Grade Warehouses of every March,
Zinc) Worldwide June, September,
December
5 Heating Oil #2, New York NYMEX 42,000 Every month
Harbor gallons
6 Natural Gas $/MM BTU Henry Hub, NYMEX 10,000 MM Every month
Louisiana BTU
7 Unleaded Gasoline, New York NYMEX 42,000 Every month
Harbor gallons
8 Light "Sweet" Crude Cushing, NYMEX 1,000 bbl Every month
Oil $/BBL Oklahoma
9 Gold $/troy oz COMEX- COMEX 100 troy February, April,
(.995 fineness) approved oz June, August,
vaults December
10 Silver oz COMEX- COMEX 5,000 troy March, May, July,
(.999 fineness) approved oz September,
vaults December
11 Platinum $/troy oz NYMEX- NYMEX 50 troy oz January, April,
approved July, October
vaults
Additional underlying futures contracts may from time to time be
added to the JPM Indices and may thereafter serve as Applicable
Indices. Information substantially similar to that disclosed in the
preceding table will be disclosed in any Prospectus Supplement
relating to such additional Applicable Indices.
As discussed above, for JPM Individual Indices and for the
Applicable Indices, the replacement of the contracts serving as the
basis for the calculation of index change will be effected on a
proportionate basis over the five day Rollover Period in order to
avoid the risks of effecting such replacement entirely on a single day
(e.g., a day on which the applicable market displays unusual
volatility).
As a result of such process of replacement, the weighting of
contracts in the Applicable Indices shall be such that for the Trading
Days in any month up to and including the first day of the Rollover
Period for such month, the Change(t) (as described above) will be
calculated as 100% of the daily change of the underlying Old
Contracts. The Change(t) for the second Trading Day of the Rollover
Period (assuming no Market Disruption Event) shall be calculated based
80% on the change attributable to the Old Contracts plus 20% on the
change
- --------
<F1>
The LME trades contracts on every business day for three months.
The most actively traded contracts are the 3-month forward, the cash,
and the contract maturing the third Wednesday of each month.
<PAGE>
for the New Contacts, with similar adjustments made for each day of
the Rollover Period. Accordingly, the relative weights of the Old
Contracts and the New Contacts during any given day of a calendar
month for calculation of the Change(t) on such day will be as follows:
Standard Rollover Period
Trading Day of Month Old Contract Weight % New Contract Weight %
1-4 100 0
5 100 0
Rollover 6 80 20
Period 7 60 40
8 40 60
9 20 80
10 0 100
11-month end 0 100
However, if a Market Disruption Event occurs during a Rollover
Period (i.e., on any day on which a replacement is otherwise scheduled
to take place), such replacement will be postponed until the next
Trading Day of the Rollover Period on which the Market Disruption
Event ceases to be in effect. On the Trading Day such Market
Disruption Event ceases to be in effect, the replacement for that day
and for all preceding days during which such Market Disruption Event
was continuing will be effected. The Change(t) for all Trading Days
from the day first subject to a Market Disruption Event to the first
Trading Day not subject to a Market Disruption Event shall use the
contract weights for the Trading Day on which the Market Disruption
Event began. If the Market Disruption Event remains in effect for the
remainder of the Rollover Period, the Old Contract will be replaced by
the New Contract to the full extent not previously replaced at the end
of the next succeeding Trading Day on which such Market Disruption
Event ceases to be in effect. The following chart illustrates the
replacement process for a Rollover Period including the occurrence of
a Market Disruption Event (indicated as an "MDE") on the seventh
Trading Day of the month:
Example of Rollover Period with Market Disruption Event
Trading Day of Month Old Contract Weight % New Contract Weight %
1-4 100 0
5 100 0
6 80 20
7 (MDE) 60 40
8 60 40
9 20 80
10 0 100
11-month end 0 100
For an Applicable Index which is an Excess Return Index, because
of the occurrence of the Market Disruption Event on Trading Day 7, the
Index would not be officially calculated and no roll would occur.
Since no Market Disruption Event occurs on Trading Day 8, an index
value is determined for Trading Day 8, and the Change(t) is calculated
using the relative contract weights applicable to the Trading Day
first subject to the Market Disruption Event (in this example, Trading
Day 7) using the index level on Trading Day 6 (the immediately
preceding Trading Day not subject to a Market Disruption Event) as
I(t-1).
For an Applicable Index which is a Total Return Index, because of
the occurrence of the Market Disruption Event on Trading Day 7, no
roll would occur, and any index calculations on Trading Day 7 (if
Settlement Prices are determined for the relevant contracts for such
day) and on Trading Day 8 would use the relative contract weights
applicable to Trading Day 7.
The JPMCI Policy Committee
Morgan Guaranty has established the JPMCI Policy Committee to
advise and make recommendations with respect to the determination of
the JPM Indices and, to the extent appropriate, the Applicable
Indices. The JPMCI Policy Committee meets on an ad hoc basis at the
request of Morgan Guaranty in order to discuss policy matters relating
to the operation
<PAGE>
of the JPM Indices and, to the extent appropriate, the Applicable
Indices. The JPMCI Policy Committee will advise Morgan Guaranty with
respect to, among other things, the effectiveness of the JPMCI as an
appropriate commodity investment benchmark; the effectiveness of the
JPMCI as a measure of commodity market performance; the need for
changes in the weights, composition, price sources or calculation
methodology of the JPMCI or the Applicable Indices; the need for
creation or elimination of sub-indices of the JPMCI or other commodity
indices, drawing either from the existing components of the JPMCI or
new commodity components and the treatment of issues relating to
market disruptions issues. Morgan Guaranty may at any time act at its
discretion to make any modifications to the JPMCI based on
recommendations of the JPMCI Policy Committee. Membership of the JPMCI
Policy Committee will be subject to change from time to time. At the
time of this Prospectus, the JPMCI Policy Committee consists of the
following members:
JPMCI Policy Committee
Name Title Function
John Fullerton Managing Director, J.P. Head of Global
(Chairman) Morgan Commodities
Victor S. Filatov President, Smith Barney Chief Investment
Global Capital Management Officer
Inc.
Martin B. Greenberg Chairman of the Board and Former Chairman of the
President of Sterling Commodities Exchange,
Commodities Inc
Philip K. Verleger, Vice President, Charles Economic Consultant and
Jr. River Associates former Visiting Fellow,
Institute of
International Economics
Jeanne Feldhusen Managing Director, J.P. Head of Fixed Income
Morgan Research
Each of the futures contracts included in the JPM Indices must
satisfy each of the following JPMCI Inclusion Criteria: the futures
contracts must (i) be priced in U.S. dollars, or if priced in a
foreign currency, the exchange on which the contract is traded must
publish an official exchange rate for conversion of the futures price
into U.S. dollars and such currency must be freely convertible into
U.S. dollars; (ii) be traded on a regulated futures exchange located
in the United States, Canada, the United Kingdom, Japan, Singapore or
an O.E.C.D. country and (iii) have a minimum annual trading volume of
300,000 contracts or $500,000,000 for all contract months. If a
contract included in the JPM Indices ceases to satisfy the JPMCI
Inclusion Criteria, the JPMCI Policy Committee shall meet to consider
the substitution of a replacement futures contract for such contract.
If no appropriate replacement contract can be found, the JPMCI Policy
Committee may recommend the removal of such contract from the JPM
Indices. Morgan Guaranty reserves the right to act at its discretion
to make any modifications to the JPM Indices based on the
recommendations of the JPMCI Policy Committee.
Changes in JPM Indices Designated Contracts
Before implementing a change in definition or price sources for a
designated contract in the JPM Indices, the JPMCI Policy Committee
shall consider the following: (i) the effectiveness of the JPMCI and
JPM Indices as appropriate commodity investment benchmarks, (ii) the
effectiveness of the JPMCI and JPM Indices as a measure of commodity
market performance and (iii) the respective contract volumes, U.S.
dollar volumes, open interest, liquidity and transaction costs of the
proposed replacement and existing benchmark contracts.
The JPMCI Policy Committee may recommend a change in one or more
of the benchmark contracts underlying the JPM Indices if, in the
majority opinion of the committee members, the proposed replacement
benchmark contract better meets the objectives set forth in clauses
(i) and (ii) above and has higher annual contract volumes or U.S.
dollar volumes. However,
<PAGE>
as noted above, Morgan Guaranty may cause a change in one or more of
such contracts if any increased cost or tax is imposed on holding or
trading such contracts if such contract meets the applicable inclusion
rules even though such contract does not have higher annual contract
volumes or U.S. dollar volumes.
After consideration of the above (and other) issues the JPMCI
Policy Committee may recommend to Morgan Guaranty a change in the
composition of the JPM Indices. Morgan Guaranty reserves the right to
act at its discretion to make any modifications to the JPMCI based on
recommendations of the policy committee. Such changes, including the
implementation date and details, shall be published and disseminated
by Morgan Guaranty through its usual research distribution network.
The Applicable Index
The Prospectus Supplement for any series of ComPS will specify
and provide details with respect to the Applicable Index and the
commodity underlying the Applicable Index. As discussed above, the
Applicable Index will be an Excess Return Index calculated in the same
manner as those of the Excess Return JPM Indices, a Total Return Index
calculated in the same manner as those of the Total Return JPM Indices
or a Price Reference Index. Each such Prospectus Supplement will also
contain information with regard to the historical performance of the
Applicable Index.
DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the
Guarantee that will be executed and delivered by J.P. Morgan for the
benefit of the holders, from time to time, of Preferred Securities.
The terms of the Guarantee will be those set forth in the Guarantee.
The summary set forth herein does not purport to be complete and is
subject in all respects to the provisions of, and is qualified in its
entirety by reference to, the form of Guarantee, which is filed as an
exhibit to the Registration Statement of which this Prospectus forms a
part.
General
Pursuant to the Guarantee, J.P. Morgan will irrevocably and
unconditionally agree, on a subordinated basis to the extent set forth
therein, to pay in full to the holders of the applicable Preferred
Securities the Guarantee Payments (as defined herein), without
duplication of amounts paid by the Company, as and when due,
regardless of any defense, right of set-off or counterclaim that the
Company may have or assert. The following payments with respect to
Preferred Securities (the "Guarantee Payments"), to the extent not
paid by the Company, will be subject to the Guarantee (without
duplication): (i)(A) any accrued and unpaid distributions that are
required to be paid on such Preferred Securities and (B) in the case
of ComPS, the ComPS Early Redemption Price or the ComPS Redemption
Price, as applicable, and in the case of all other Preferred
Securities, the Preferred Redemption Price, in each case including all
accrued and unpaid distributions, but if and only if to the extent
that, in each case, Morgan Guaranty has made payment to the Company of
interest or principal on the Related Note underlying such Preferred
Securities, and (ii) upon a voluntary or involuntary dissolution,
winding-up or termination of the Company (other than in connection
with the redemption of all of the Preferred Securities upon maturity
or redemption of the applicable Related Note) the lesser of (A) the
Liquidation Distribution to the extent the Company has funds available
therefor and (B) the amount of assets of the Company remaining
available for distribution to holders of such Preferred Securities
upon such liquidation, dissolution, winding-up or termination of the
Company. J.P. Morgan's obligation to make a Guarantee Payment may be
satisfied by direct payment of the required amounts by J.P. Morgan to
the holders of Preferred Securities or by causing the Company to pay
such amounts to such holders.
Each Guarantee will be a full and unconditional guarantee with
respect to the Preferred Securities issued by the Company from the
time of issuance of such Preferred Securities but will not apply to
any payment of distributions except to the extent Morgan Guaranty has
made the related payment on the Related Note underlying such Preferred
Securities. If Morgan
<PAGE>
Guaranty does not make interest payments on the applicable Related
Note, the Company will not pay distributions on the related Preferred
Securities and will not have funds available therefor. See
"Description of the Related Notes".
Modification of the Guarantee; Assignment
Except with respect to any changes that do not adversely affect
the rights of holders of the applicable Preferred Securities (in which
case no vote will be required), the Guarantee may be amended only with
the prior approval of the holders of not less than a majority in
aggregate Principal Amount of the affected outstanding Preferred
Securities, voting as a single class. The manner of obtaining any such
approval of holders of such Preferred Securities will be set forth in
an accompanying Prospectus Supplement. All guarantees and agreements
contained in the Guarantee shall bind the successors, assignees,
receivers, trustees and representatives of J.P. Morgan and shall inure
to the benefit of the holders of the applicable Preferred Securities
then outstanding.
Remedies of Holders
Upon the failure of J.P. Morgan to perform any of its payments or
other obligations with respect to any Preferred Securities under the
Guarantee, any holder of such Preferred Securities may institute a
legal proceeding directly against J.P. Morgan without first
instituting a legal proceeding against the Company. Subject to the
award by a court of competent jurisdiction of legal fees in connection
with any such legal proceeding, each holder will be required to bear
its own costs in connection with instituting a legal proceeding
directly against J.P. Morgan, which cost may be significant.
Termination of the Guarantee
The Guarantee will terminate as to the applicable Preferred
Securities upon full payment of the ComPS Early Redemption Price, the
ComPS Redemption Price, Preferred Redemption Price of all such
Preferred Securities or upon full payment of the amounts payable upon
liquidation of the Company, as applicable. The Guarantee will continue
to be effective or will be reinstated as to any Preferred Securities,
as the case may be, if at any time any holder of the applicable
Preferred Securities must restore payment of any sums paid under such
Preferred Securities or the Guarantee.
Status of the Guarantee
The Guarantee will constitute an unsecured obligation of J.P.
Morgan and will rank (i) subordinate and junior in right of payment to
all other liabilities of J.P. Morgan, (ii) pari passu with the most
senior preferred or preference stock outstanding as of the date hereof
of J.P. Morgan and (iii) senior to J.P. Morgan's common stock. The
terms of the Preferred Securities provide that each holder of
Preferred Securities by acceptance thereof agrees to the subordination
provisions and other terms of the applicable Guarantee.
The Guarantee will constitute a guarantee of payment and not of
collection (that is, the guaranteed party may institute a legal
proceeding directly against the guarantor to enforce its rights under
the Guarantee without instituting a legal proceeding against any other
person or entity).
Governing Law
The Guarantee will be governed by and construed and interpreted
in accordance with the laws of the State of New York.
<PAGE>
DESCRIPTION OF THE RELATED NOTE GUARANTEE
Set forth below is a summary of information concerning the
Related Note Guarantee that will be executed and delivered by J.P.
Morgan in respect of each Related Note for the benefit of the Company
as the holder of the Related Notes. The terms of the Related Note
Guarantee will be those set forth in the Related Note Guarantee. The
summary set forth herein does not purport to be complete and is
subject in all respects to the provisions of, and is qualified in its
entirety by reference to, the form of the Related Note Guarantee,
which is filed as an exhibit to the Registration Statement of which
this Prospectus forms a part. The Related Note Guarantee will be held
by the Company.
General
Pursuant to the Related Note Guarantee, J.P. Morgan will
irrevocably and unconditionally agree, on a subordinated basis to the
extent set forth therein, to pay in full to the Company, as the holder
of each Related Note, the Related Note Guarantee Payments (as defined
herein), without duplication of amounts paid by Morgan Guaranty, as
and when due, regardless of any defense, right of set-off or
counterclaim that Morgan Guaranty may have or assert with respect to
the obligation to make such Related Note Guarantee Payments. The
following payments with respect to the applicable Related Note (the
"Related Note Guarantee Payments"), to the extent not paid by Morgan
Guaranty, will be subject to the Related Note Guarantee (without
duplication): (i) any accrued and unpaid distributions that are
required to be paid on such Related Note and (ii) any principal
payable by Morgan Guaranty, as and when payable by Morgan Guaranty.
J.P. Morgan's obligation to make a Related Note Guarantee Payment may
be satisfied by direct payment of the required amounts by J.P. Morgan
to the Company or by causing Morgan Guaranty to pay such amounts to
the Company.
The Related Note Guarantee will be a full and unconditional
guarantee with respect to each Related Note issued by Morgan Guaranty
from the time of issuance of such Related Note.
Modification of the Related Note Guarantee; Assignment
The Related Note Guarantee may be amended only with the prior
approval of the Company. All guarantees and agreements contained in
the Related Note Guarantee shall bind the successors, assignees,
receivers, trustees and representatives of J.P. Morgan and shall inure
to the benefit of the Company as the holder of each Related Note then
outstanding.
Remedies of the Company
The Company has the sole right to direct the time, method and
place of conducting any proceeding providing for any remedy available
to it in respect of the Related Note Guarantees.
Termination of the Related Note Guarantee
The Related Note Guarantee will terminate as to any Related Note
upon full payment of the Related Note Redemption Price (as defined
below) of such Related Note . The Related Note Guarantee will continue
to be effective or will be reinstated with respect to any Related
Note, as the case may be, if at any time the Company must restore
payment of any sums paid under the Related Note or under the Related
Note Guarantee with respect to such Related Note.
Status of the Related Note Guarantee
The Related Note Guarantee will constitute an unsecured
obligation of J.P. Morgan and will rank (i) subordinate and junior in
right of payment to all other liabilities of J.P. Morgan, (ii) pari
passu with the most senior preferred or preference stock outstanding
as of the date hereof of J.P. Morgan, and (iii) senior to J.P.
Morgan's common stock. The terms of the Preferred Securities provide
that each holder of Preferred Securities by acceptance thereof agrees
to the subordination provisions and other terms of the Related Note
Guarantee.
<PAGE>
The Related Note Guarantee will constitute a guarantee of payment
and not of collection (that is, the Company may institute a legal
proceeding directly against J.P. Morgan to enforce its rights under a
Related Note Guarantee without instituting a legal proceeding against
Morgan Guaranty).
Governing Law
The Related Note Guarantee will be governed by and construed and
interpreted in accordance with the laws of the State of New York.
DESCRIPTION OF THE RELATED NOTES
The Related Notes may be issued from time to time in respect of
one or more series of Preferred Securities. The following description
sets forth certain general terms and provisions of each Related Note
to which any series of Preferred Securities may relate. The particular
terms of the Related Note included in any Prospectus Supplement and
the extent, if any, to which such general provisions may apply to such
Related Note will be described in the Prospectus Supplement relating
to such Related Note. The following description does not purport to be
complete and is subject to, and is qualified in its entirety by
reference to, any Prospectus Supplement relating to any Related Note
and the other documents incorporated by reference herein. Certain
capitalized terms are used herein as defined in the relevant Related
Note.
General
Each Related Note will be an unsecured, unsubordinated obligation
of Morgan Guaranty. No Related Note will limit the principal amount of
Related Notes that may be issued by Morgan Guaranty. The financial
terms of the Related Notes, including, among other things, the
principal of, interest and any premium on any Related Note (or the
method of calculating any of the foregoing), shall be set forth in the
Prospectus Supplement related thereto. References made herein to the
Related Note refer to each Related Note that may be issued from time
to time.
No Related Note will contain any provisions that would limit the
ability of Morgan Guaranty to incur indebtedness. Reference is made to
any Prospectus Supplement relating to the Related Note offered thereby
for information with respect to any deletions from, modifications of
or additions to the events of default or covenants of Morgan Guaranty
applicable to the Related Note that is referred to therein.
Under terms of each Related Note, Morgan Guaranty will have the
ability to issue Related Notes with terms different from those of
Related Notes previously issued without the consent of the holders of
previously issued Related Notes, in an aggregate principal amount
determined by Morgan Guaranty.
Subordination
The Related Notes will be subordinated and junior in right of
payment to certain other indebtedness of subsidiaries of Morgan
Guaranty to the extent set forth in each Prospectus Supplement that
will accompany this Prospectus.
Related Note Events of Default
If any Related Note Event of Default shall occur with respect to
any Related Note and be continuing, the Company will have the right to
declare the principal of and the interest on such Related Note and any
other amounts payable under the applicable Related Note to be
forthwith due and payable and to enforce its other rights as a
creditor with respect to such Related Note as applicable. A "Related
Note Event of Default" with respect to any Related Note is defined as:
(i) default for 30 days in the payment of interest on such Related
Note;
<PAGE>
(ii) default in payment of the principal amount at Stated Maturity or
any amount payable upon any redemption of such Related Note; (iii)
failure by Morgan Guaranty for 90 days after receipt of notice to it
by the Company to comply with any of its covenants or agreements
contained in the relevant Related Note; and (iv) certain events of
bankruptcy, insolvency, receivership or reorganization involving
Morgan Guaranty or certain affiliates. If any Related Note Event of
Default described in clause (i), (ii) or (iii) above occurs and is
continuing, the Company may declare the relevant Related Note to be
due and payable and, upon any such declaration, the relevant Related
Note shall become immediately due and payable along with any accrued
and unpaid interest. If any Related Note Event of Default described in
clause (iv) above occurs and is continuing, all Related Notes shall
become immediately due and payable along with any accrued and unpaid
interest. Under certain conditions the Company may waive certain past
defaults and their consequences with respect to such Related Note. The
holders of Preferred Securities in certain circumstances have the
right to direct the Company to exercise certain of its rights as the
holder of the relevant Related Note.
Modification of any Related Note
Morgan Guaranty and the Company may, without the consent of the
holders of any Preferred Securities, enter into senior notes
supplemental to any Related Note for, among others, one or more of the
following purposes: (i) to evidence the succession of another person
to, and the assumption by such successor of, Morgan Guaranty's
obligations under such Related Note; (ii) to add covenants of Morgan
Guaranty, or surrender any rights of Morgan Guaranty, for the benefit
of the Company and (iii) to cure any ambiguity, or correct any
inconsistency in, such Related Note.
Each Related Note will contain provisions permitting Morgan
Guaranty and the Company, with the consent of the holders of the not
less than a majority in Principal Amount of the outstanding Preferred
Securities relating to such Related Note, to modify such Related Note;
provided that no such modification may, without the consent of the
holders of all outstanding Preferred Securities affected thereby, (i)
reduce the amount of Preferred Securities of such series the holders
of which must consent to any amendment, supplement or waiver of such
Related Note; (ii) reduce the rate of or extend the time for the
payment of interest on the Related Note; (iii) alter the method of
calculation of, or reduce, the amount paid at Stated Maturity or
extend the Stated Maturity of such Related Note (other than pursuant
to the terms of such Related Note) or (iv) make any Related Note
payable in money or property other than that stated in the Related
Note.
Governing Law
Each Related Note will be construed in accordance with the laws
of the State of New York.
Miscellaneous
Related Notes will not be deposits or other obligations of a bank
and will not be insured by the Federal Deposit Insurance Corporation
or any other federal agency.
PLAN OF DISTRIBUTION
The Company may sell the Preferred Securities in one or more of
the following ways from time to time: (i) to or through underwriters
or dealers, (ii) directly to purchasers or (iii) through agents. The
Prospectus Supplement with respect to any Offered Securities will set
forth (a) the terms of the offering of the Offered Securities,
including the name or names of any underwriters, dealers or agents,
(b) the purchase price of the Offered Securities and the proceeds to
the Company from such sale, (c) any underwriting discounts and
commissions or agency fees and other items constituting underwriters'
or agents' compensation, (d) any initial public offering prices, (e)
any discounts or concessions allowed or paid to dealers and (f) any
securities exchange on which such Offered Securities may be listed.
Any initial public offering price, discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
<PAGE>
If underwriters are used in the sale, the Offered Securities will
be acquired by the underwriters for their own account and may be
resold from time to time in one or more transactions, including
negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. The Offered Securities
may be offered to the public either through underwriting syndicates
represented by one or more managing underwriters or directly by one or
more firms acting as underwriters. The underwriter or underwriters
with respect to a particular underwritten offering of Offered
Securities will be named in the Prospectus Supplement relating to such
offering and, if an underwriting syndicate is used, the managing
underwriter or underwriters will be set forth on the cover of such
Prospectus Supplement. Unless otherwise set forth in the Prospectus
Supplement relating thereto, the obligations of the underwriters to
purchase the Offered Securities will be subject to certain conditions
precedent, and the underwriters will be obligated to purchase all the
Offered Securities if any are purchased.
If dealers are utilized in the sale of Offered Securities, the
Company will sell such Offered Securities to the dealers as
principals. The dealers may then resell such Offered Securities to the
public at varying prices to be determined by such dealers at the time
of resale. The names of the dealers and the terms of the transaction
will be set forth in the Prospectus Supplement relating thereto.
Any series of Preferred Securities may be sold from time to time
either directly by the Company or by agents of the Company designated
by the Company. Any agent involved in the offer or sale of the Offered
Securities with respect to which this Prospectus is delivered will be
named, and any commissions payable by the Company to such agent will
be set forth, in the applicable Prospectus Supplement relating
thereto. Unless otherwise indicated in the applicable Prospectus
Supplement, any such agent will be acting on a best efforts basis for
the period of its appointment.
The Preferred Securities may be sold directly by the Company to
institutional investors or others who may be deemed to be underwriters
within the meaning of the Securities Act with respect to any resale
thereof. The terms of any such sales will be described in the
Prospectus Supplement relating thereto.
If so indicated in the Prospectus Supplement, the Company will
authorize agents, underwriters or dealers to solicit offers from
certain types of institutions to purchase Offered Securities from the
Company at the public offering price set forth in the Prospectus
Supplement pursuant to delayed delivery contracts providing for
payment and delivery on a specified date in the future. Such contracts
will be subject only to those conditions set forth in the Prospectus
Supplement, and the Prospectus Supplement will set forth the
commission payable for solicitation of such contracts.
Agents, dealers and underwriters may be entitled under agreements
with J.P. Morgan or the Company to indemnification by J.P Morgan or
the Company against certain civil liabilities, including liabilities
under the Securities Act, or to contribution with respect to payments
that such agents, dealers or underwriters may be required to make in
respect thereof. Agents, dealers and underwriters may be customers of,
engage in transactions with, or perform services for J.P Morgan or the
Company in the ordinary course of business.
Each series of Offered Securities will be a new issue of
securities and will have no established trading market. Any
underwriters to whom Offered Securities are sold for public offering
and sale may make a market in such Offered Securities, but such
underwriters will not be obligated to do so and may discontinue any
market making at any time without notice. The Offered Securities may
or may not be listed on a national securities exchange. No assurance
can be given that there will be a market for the Offered Securities.
This Prospectus and the related Prospectus Supplement may be used
by direct or indirect wholly-owned subsidiaries of J.P. Morgan in
connection with offers and sales related to secondary market
transactions in the ComPS. Such subsidiaries may act as principal or
agent in such transactions. Such sales will be made at prices related
to prevailing market prices at the time of a sale.
<PAGE>
LEGAL OPINIONS
The validity of the Securities offered hereby will be passed upon
by Margaret M. Foran, Vice President, Assistant General Counsel and
Assistant Secretary of J.P. Morgan, and by Cravath, Swaine & Moore,
New York, New York, counsel for any underwriters, selling agents and
certain other purchasers. Ms. Foran owns or has the right to acquire a
number of shares of Common Stock of J.P. Morgan equal to or less than
0.01% of the outstanding Common Stock of J.P. Morgan.
EXPERTS
The audited financial statements contained in J.P. Morgan's
Annual Report on Form 10-K for the year ended December 31, 1994
(included in J.P. Morgan's Annual Report to Stockholders), are
incorporated by reference in this Prospectus in reliance on the report
of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
ANNEX I
GLOSSARY OF TERMS
The following are abbreviated definitions of certain capitalized
terms used in the Prospectus Supplement. The LLC Agreement, the
Guarantee, the Related Note Guarantee and any Related Note may contain
more complete definitions of certain of the terms defined herein, as
well as definitions of certain other terms not defined herein, and
reference should be made to the LLC Agreement, the Guarantee, the
Related Note Guarantee and the relevant Related Note, as applicable,
for complete definitions of such terms.
Bullion ComPS ............ ComPS for which the Applicable
Index is a Price Reference
Index in which all
distributions and the Bullion
ComPS Principal Amount are
indexed to the value at such
time in U.S. dollars (the
"Dollar Equivalent Value") of
bullion (i.e., gold, silver,
platinum or palladium).
Bullion ComPS Principal the Dollar Equivalent Value of
Amount .................... the applicable portion of
the applicable fixing
price for the applicable
amount of the applicable
bullion commodity at such
time.
Business Day .............. any day other than a Saturday,
Sunday or any other day on
which banking institutions in
New York, New York, are
permitted or required by any
applicable law to close.
Code ...................... the Internal Revenue Code of
1986, as amended.
Commission ................ the Securities and Exchange
Commission.
Common Securities ......... the common securities of the
Company representing voting
limited liability company
interests in the Company, to
be directly or indirectly
owned by J.P. Morgan.
Distributions ............. if any, as specified in the
applicable Prospectus
Supplement.
<PAGE>
DTC ....................... the Depository Trust Company.
ERISA ..................... the Employee Retirement Income
Security Act of 1974.
Exchange Act .............. the Securities Exchange Act of
1934, as amended.
Face Amount ............... as set forth in the applicable
Prospectus Supplement.
Guarantee ................. the Guarantee Agreement
executed by J.P. Morgan on
behalf of the holders of each
series of Preferred
Securities.
Guarantee Payments ........ without duplication, (i)(A)
any accrued and unpaid
distributions that are
required to be paid on the
Preferred Securities and (B)
the Preferred Redemption
Price, but if and only to the
extent that, in each of case,
Morgan Guaranty has made a
payment of interest or
principal, as the case may be,
on the Related Note and (ii)
upon a Liquidation Event
(other than in connection with
the redemption of all the
Preferred Securities upon the
maturity or redemption of the
applicable Related Note), the
lesser of (A) the Liquidation
Distribution to the extent the
Company has funds available
therefor, and (B) the amount
of assets of the Company
remaining available for
distribution to holders of the
Preferred Securities upon such
Liquidation Event.
Initial Holders ........... holders who purchase any
Preferred Securities upon
original issuance.
Interest Payment Date ..... with respect to any Related
Note, as specified in the
applicable Prospectus
Supplement.
Investment Company Event .. the receipt by the Company of
an opinion of a nationally
recognized independent counsel
experienced in such matters to
the effect that, as a result
of the occurrence of a change
in law or regulation, a
written change in
interpretation or application
of law or regulation by any
legislative body, court,
governmental agency or
regulatory authority or the
expiration or revocation of
any applicable exemption
obtained by the Company (a
"Change in 1940 Act Law"),
there is more than an
insubstantial risk that the
Company is or will be
considered an "investment
company" that is required to
be registered under the 1940
Act, which Change in 1940 Act
Law becomes effective on or
after the date of this
Prospectus.
<PAGE>
IRS ....................... Internal Revenue Service.
Issue Date ................ as set forth in the applicable
Prospectus Supplement.
LLC Agreement ............. the limited liability company
agreement among J.P. Morgan,
JPM Ventures and holders of
Preferred Securities
subsequently becoming members
thereof dated February 16,
1996, and effective as of
November 21, 1995.
Liquidation Distribution .. in respect of any Liquidation
Event, the sum of (a) the
Early Redemption Value or
stated liquidation preference,
as applicable, plus (b) the
amount of accrued and unpaid
distributions on such
Preferred Security to but
excluding the date of payment.
Liquidation Event ......... any liquidation, dissolution,
winding-up or termination of
the Company, whether voluntary
or involuntary.
Nasdaq .................... The Nasdaq Stock Market.
1940 Act .................. the Investment Company Act of
1940, as amended.
Preferred Redemption Price. On any date of redemption, an
amount equal to (i) the
Principal Amount per Preferred
Security plus (ii) accrued and
unpaid distributions to but
excluding the date of
redemption.
Preferred Securities ...... Preferred Securities of J.P.
Morgan Index Funding Company,
LLC.
Principal Amount .......... at any time, (i) in the case
of any Preferred Security, the
Bullion ComPS Principal
Amount, Redemption Value,
Early Redemption Value or
stated liquidation preference
thereof, as applicable, as if
determined as of such time,
and (ii) in the case of any
Related Note, the principal
amount thereof at such time
determined pursuant to the
terms thereof.
Redemption Date ........... either the Stated Maturity or
an Early Redemption Date, as
applicable.
Securities ................ the Common Securities and the
Preferred Securities.
Securities Act ............ the Securities Act of 1933.
Senior Indebtedness ....... with respect to Morgan
Guaranty, as specified in the
applicable Prospectus
Supplement.
Related Note Event of (i) default for 30 days in the
Default ................... payment of interest on
the applicable Related Note;
(ii) default in payment of
<PAGE>
principal amount at the Stated
Maturity or any amount payable
upon any redemption of the
applicable Related Note; (iii)
failure by Morgan Guaranty for
90 days after receipt of
notice to it to comply with
any of its covenants or
agreements contained in the
applicable Related Note; and
(iv) certain events of
bankruptcy, insolvency,
receivership or reorganization
involving Morgan Guaranty or
certain affiliates.
Special Event ............. either a Tax Event or an
Investment Company Event.
Special Redemption ....... if specified in the applicable
Prospectus Supplement, upon
the occurrence and during the
continuation of a Special
Event, Morgan Guaranty will
have the right to redeem the
applicable Related Note for
cash at the Related Note
Redemption Price, with the
result that the Company will
redeem Preferred Securities on
a Pro Rata Basis for cash at
the Preferred Redemption
Price.
Special Redemption Date ... any date in respect of which
upon the occurrence and
continuation of a Tax Event or
an Investment Company Event,
Morgan Guaranty shall have
called for redemption in whole
or in part the Related Notes,
and the Company shall have
called for redemption in whole
or in part the Preferred
Securities.
Stated Maturity ........... with respect to any series of
Preferred Securities, as set
forth in the applicable
Prospectus Supplement.
Related Note ............. an unsecured, unsubordinated
debt obligation of Morgan
Guaranty, as described in the
applicable Prospectus
Supplement.
Tax Counsel ............... Cravath, Swaine & Moore,
special tax counsel to J.P.
Morgan and the Company.
Tax Event ................. the receipt by the Company of
an opinion of nationally
recognized independent tax
counsel experienced in such
matters (a "Tax Opinion") to
the effect that, as a result
of (a) any amendment to, or
change (including any
announced prospective change)
in, the laws (or any
regulations thereunder) of the
United States or any political
subdivision or taxing
authority thereof or therein,
(b) any amendment to, or
change in, an interpretation
or application of such laws or
regulations by any legislative
body, court, governmental
agency or regulatory authority
(including the enactment of
any legislation and the
<PAGE>
publication of any judicial
decision or regulatory
determination), (c) any
interpretation or
pronouncement that provides
for a position with respect to
such laws or regulations that
differs from the theretofore
generally accepted position or
(d) any action taken by any
governmental agency or
regulatory authority, which
amendment or change is
enacted, promulgated, issued
or announced or which
interpretation or
pronouncement is issued or
announced or which action is
taken, in each case on or
after the date of this
Prospectus Supplement, that
there is more than an
insubstantial risk that at
such time or within 90 days of
the date thereof (i) the
Company is or would be subject
to United States Federal
income tax with respect to
income accrued or received on
any Related Note, (ii) the
interest payable on any
Related Note is not or would
not be deductible by Morgan
Guaranty for United States
Federal income tax purposes,
(iii) the contingent principal
in excess of the Face Amount
of any series of Preferred
Securities (if any) payable on
any Related Note is not or
would not be deductible by
Morgan Guaranty for United
States Federal income tax
purposes or (iv) the Company
is or would be subject to more
than a de minimis amount of
other taxes, duties or other
governmental charges.
<PAGE>
No dealer, salesperson or other individual
has been authorized to give any information
or to make any representations other than
those contained or incorporated by reference
in this Prospectus Supplement or the Series [A]
Prospectus in connection with the offer made Preferred Securities
by this Prospectus Supplement and the Indexed to the JPMCI
Prospectus and, if given or made, such Crude Oil Excess Return Index
information or representations must not be
relied upon as having been authorized by J.P. J.P. Morgan Index
Morgan, the Company or the Underwriters. Funding Company, LLC
Neither the delivery of this Prospectus
Supplement and the Prospectus nor any sale
made hereunder and thereunder shall under any Preferred Securities
circumstance create an implication that there guaranteed to the extent
has been no change in the affairs of J.P. set forth herein by
Morgan, or the Company since the date hereof.
This Prospectus Supplement and the Prospectus
do not constitute an offer or solicitation by
anyone in any state in which such offer or
solicitation is not authorized or in which
the person making such offer or solicitation J.P. Morgan & Co.
is not qualified to do so or to anyone to Incorporated
whom it is unlawful to make such offer or
solicitation.
---------------------------
TABLE OF CONTENTS
Prospectus Supplement ---------------------
PROSPECTUS SUPPLEMENT
Page ---------------------
Summary of the Offering................ S-
Risk Factors........................... S-
J.P. Morgan & Co. Incorporated......... S-
J.P. Morgan Index Funding Company,LLC.. S-
Selected Historical and Pro Forma
Financial Information............... S-
Use of Proceeds........................ S-
Description of the ComPS............... S-
Description of the Guarantee........... S-
Description of the Related Note
Guarantee........................... S- [ ]
Description of the Related Note........ S
Effect of Obligations Under the
Guarantee, the Related Note
Guarantee and the Related Note...... S-
United States Federal Income
Taxation............................ S-
ERISA Considerations................... S
Underwriting........................... S-
Legal Matters.......................... S-
Experts................................ S-
Prospectus , 1995
Available Information..................
Documents Incorporated by Reference....
J.P. Morgan & Co. Incorporated.........
J.P. Morgan Index Funding Company, LLC.
Use of Proceeds........................
Consolidated Ratios....................
Description of All Preferred Securities
Description of the ComPS...............
Description of the Guarantees..........
Description of the Related Note
Guarantees..........................
Description of the Related Notes.......
Plan of Distribution...................
Legal Matters..........................
Experts................................
Annex I
Glossary of Terms......................
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 16. Exhibits.
1(a)(1) -- Form of Underwriting Agreement for Preferred
Securities.
3(a) -- Certificate of Formation of J.P. Morgan Index
Funding Company, LLC. 1
3(b) -- Limited Liability Company Agreement of J.P. Morgan
Index Funding Company, LLC.
3(c) -- Restated Certificate of Incorporation of J.P.
Morgan & Co. Incorporated, as amended. *
3(d) -- By-Laws of J.P. Morgan & Co. Incorporated as
amended through December 11, 1991. *
4(a)(1) -- Form of Certificate for Securities for Preferred
Securities (included in Exhibit 3(b))
4(b) -- Form of Guarantee Agreement
4(c) -- Form of Related Note Guarantee Agreement
4(d) -- Form of Related Note
4(e) -- Form of Agreement as to Expenses and Liabilities
5 -- Opinion of Margaret M. Foran. 1
23(a) -- Consent of Price Waterhouse LLP.
23(b) -- Consent of Margaret M. Foran (included in Exhibit 5).
24 -- Powers of Attorney.
- ---------------
* Incorporated by reference to J.P. Morgan's 10K as of December 31, 1994.
1 To be filed by amendment.
<PAGE>
Item 17. Undertaking.
The Registrants hereby undertake that, for purposes of
determining any liability under the Securities Act, each filing of
J.P. Morgan's Annual Report pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (and where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
The Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) that, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(iii) to include any material information with respect to the
Plan of Distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
provided, however, that the undertakings set forth in paragraphs (i)
and (ii) above do not apply if the information required to be included
in a post-effective amendment by those paragraphs is contained in
periodic reports filed by J.P. Morgan pursuant to Section 13 or
Section 15(d) of the Exchange Act that are incorporated by reference
in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
The Registrants hereby undertake that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus
filed as part of a registration statement in reliance upon Rule
430A and contained in the form of prospectus filed by the
registrant pursuant to Rule 424(b)-(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the
Securities Act each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona
fide offering thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to
believe that it meets all the requirements for filing on Form S-3 and
has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in The City of New York
and State of New York, on this 21st day of February, 1996.
J.P. Morgan & Co. Incorporated
By
(Margaret M. Foran Vice President,
Assistant General Counsel and Assistant
Secretary)
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the
following persons in the capacities indicated.
Signature Title Date
/s/ Douglas A. Warner III
- ------------------------- Chairman of the Board, February 20, 1995
Douglas A. Warner III* President and Director
/s/ Riley P. Bechtel
- ------------------------- (Principal Executive February 20, 1995
Riley P. Bechtel* Officer)
Director
/s/ Martin Feldstein
- ------------------------- Director February 20, 1995
Martin Feldstein*
/s/ Hanna H. Gray
- ------------------------- Director February 20, 1995
Hanna H. Gray*
/s/ James R. Houghton
- ------------------------- Director February 20, 1995
James R. Houghton*
/s/ James L. Ketelsen
- ------------------------- Director February 20, 1995
James L. Ketelsen*
/s/ William S. Lee
- ------------------------- Director February 20, 1995
William S. Lee*
/s/ Roberto G. Mendoza
- ------------------------- Vice Chairman of the Board February 20, 1995
Roberto G. Mendoza* and Director
/s/ Michael E. Patterson
- ------------------------- Vice Chairman of the Board February 20, 1995
Michael E. Patterson* and Director
/s/ Lee R. Raymond
- ------------------------- Director February 20, 1995
Lee R. Raymond*
/s/ Richard D. Simmons
- ------------------------- Director February 20, 1995
Richard D. Simmons*
/s/ Kurt F. Viermetz
- ------------------------- Vice Chairman of the Board February 20, 1995
Kurt F. Viermetz* and Director
/s/ Dennis Weatherstone
- ------------------------- Retired Chairman of the February 20, 1995
Dennis Weatherstone* Board and Director
/s/ John A. Mayer
- ------------------------- Chief Financial Officer February 20, 1995
John A. Mayer* (Principal Financial
Officer)
/s/ David H. Sidwell
- ------------------------- Managing Director and February 20, 1995
David H. Sidwell* Controller (Principal
Accounting, Officer)
<PAGE>
Signature Title Date
------------------------ ------------------- ----------------
*By: /s/ Margaret M. Foran
----------------------
(Margaret M. Foran,
Attorney-in-Fact)
EXHIBIT [ ]
J.P. MORGAN INDEX FUNDING COMPANY, LLC
J.P. MORGAN & CO. INCORPORATED
Preferred Securities
--------------------
Underwriting Agreement
, 199
To the Underwriters
to be named in the applicable
Pricing Agreement
supplemental hereto
Ladies and Gentlemen:
From time to time J.P. Morgan Index Funding Company, LLC, a
limited liability company formed under the laws of Delaware (the
"Company"), and J.P. Morgan & Co. Incorporated, a Delaware corporation
("J.P. Morgan"), as guarantor and provider of certain backup obligations,
propose to enter into one or more Pricing Agreements (each a "Pricing
Agreement") in the form of Annex I hereto, with such additions and
deletions as the parties thereto may determine and subject to the terms and
conditions stated herein and therein, pursuant to which the Company will
issue to the firms named in Schedule I to the applicable Pricing Agreement
(such firms constituting the "Underwriters" with respect to such Pricing
Agreement and the securities specified therein) its Preferred Limited
Liability Company Interests (the "Preferred Securities"), in one or more
series, guaranteed by J.P. Morgan to the extent set forth in the prospectus
and registration statement described herein and to sell such Preferred
Securities (with respect to such Pricing Agreement, the "Firm Designated
Preferred Securities"). If specified in such Pricing Agreement, the Company
may grant to the Underwriters the right to purchase at their election an
additional number of Preferred Securities, specified in such Pricing
Agreement as provided in Section 3 hereof (the "Optional Designated
Preferred
<PAGE>
Securities"). The Firm Designated Preferred Securities and any Optional
Designated Preferred Securities are collectively called the "Designated
Preferred Securities".
The terms and rights of any particular issuance of Designated
Preferred Securities shall be as specified in the Pricing Agreement
relating thereto (to the extent not set forth in the registration statement
or prospectus with respect thereto) and in or pursuant to the resolution or
resolutions adopted by J.P. Morgan and J.P. Morgan Ventures Corporation, in
their capacity as the members (the "Managing Members") of the Company that
hold all the Common Limited Liability Company Interests (the "Common
Securities"). The Company will loan the proceeds of the offering of the
Designated Preferred Securities to Morgan Guaranty Trust Company of New
York ("Morgan Guaranty"), such loan to be evidenced by a note (the "Senior
Note") to be issued by Morgan Guaranty to the Company.
1. Particular sales of Designated Preferred Securities may be
made from time to time to the Underwriters of such Designated Preferred
Securities, for whom the firms designated as representatives of the
Underwriters of such Designated Preferred Securities in the Pricing
Agreement relating thereto will act as representatives (the
"Representatives"). The term "Representatives" also refers to a single firm
acting as sole representative of the Underwriters and to Underwriters who
act without any firm being designated as their representative. Except as
incorporated by reference into a Pricing Agreement, this Underwriting
Agreement shall not be construed as an obligation of the Company to issue
any Preferred Securities or sell any Preferred Securities or as an
obligation of any of the Underwriters to purchase any of the Preferred
Securities. The obligation of the Company to issue any Preferred Securities
and to sell any Preferred Securities and the obligation of any of the
Underwriters to purchase any of the Preferred Securities shall be evidenced
by the Pricing Agreement with respect to the Designated Preferred
Securities specified therein.
Each Pricing Agreement shall specify, among other things, the
number of Firm Designated Preferred Securities, the maximum number of
Optional Designated Preferred Securities, if any, the initial public
offering price of such Firm and Optional Designated Preferred Securities or
the manner of determining such price, the purchase price to the
Underwriters of such Designated Preferred Securities,
<PAGE>
the amount of any compensation to be paid to the Underwriters by J.P.
Morgan for their services thereunder ("Underwriters' Compensation"), the
names of the Underwriters of such Designated Preferred Securities, the
names of the Representatives of such Underwriters, the number of such
Designated Preferred Securities to be purchased by each Underwriter and the
commission, if any, payable to the Underwriters with respect thereto and
shall set forth the date, time and manner of delivery of such Firm and
Optional Preferred Securities and payment therefor. The Pricing Agreement
shall also specify (to the extent not set forth in the registration
statement or prospectus with respect thereto) the terms of such Designated
Preferred Securities. A Pricing Agreement shall be in the form of an
executed writing (which may be in counterparts) and may be evidenced by an
exchange of telegraphic communications or any other rapid transmission
device designed to produce a written record of communications transmitted.
The obligations of the Underwriters under this Agreement and each Pricing
Agreement shall be several and not joint.
2. Each of the Company and J.P. Morgan, jointly and severally,
represents and warrants to, and agrees with, each of the Underwriters that:
(a) A registration statement in respect of the Preferred
Securities has been filed with, or mailed for filing to, the
Securities and Exchange Commission (the "Commission"); such
registration statement and any post-effective amendments thereto, each
in the form heretofore delivered or to be delivered to the
Representatives (with exhibits thereto) for delivery to each of the
other Underwriters (without exhibits thereto), have been declared
effective by the Commission in such form; no other document with
respect to such registration statement or document incorporated by
reference therein has been filed or transmitted for filing with the
Commission prior to the effective date of the registration statement;
and no stop order suspending the effectiveness of such registration
statement has been issued and no proceeding for that purpose has been
initiated or, to the knowledge of the Company or J.P. Morgan,
threatened by the Commission. Any preliminary prospectus included in
such registration statement or filed with the Commission pursuant to
Rule 424(a) of the rules and regulations of the Commission under the
Securities Act of 1933, as amended (the "Act"), is hereinafter
collectively called
<PAGE>
a "Preliminary Prospectus"; the various parts of such
registration statement, including all exhibits thereto and the
information, if any, deemed to be part of such registration statement
at the time of effectiveness pursuant to Rule 430A under the Act, but
excluding Form T-1, each as amended at the time such part of the
registration statement became effective, are hereinafter collectively
called the "Registration Statement"; the prospectus relating to the
Preferred Securities, in the form in which it has most recently been
filed, or transmitted for filing, with the Commission on or prior to
the date of this Agreement is hereinafter called the "Prospectus"; any
reference herein to any Preliminary Prospectus or the Prospectus shall
be deemed to refer to and include the documents incorporated by
reference therein pursuant to the applicable form under the Act, as of
the date of such Preliminary Prospectus or Prospectus, as the case may
be; any reference to any amendment or supplement to any Preliminary
Prospectus or the Prospectus shall be deemed to refer to and include
any documents filed with the Commission after the date of such
Preliminary Prospectus or Prospectus, as the case may be, under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
incorporated by reference in such Preliminary Prospectus or
Prospectus, as the case may be; any reference to any amendment to the
Registration Statement shall be deemed to refer to and include any
annual report of J.P. Morgan filed pursuant to Section 13(a) or 15(d)
of the Exchange Act after the effective date of the Registration
Statement that is incorporated by reference in the Registration
Statement; and any reference to the Prospectus as amended or
supplemented shall be deemed to refer to the Prospectus as amended or
supplemented in relation to the applicable Designated Preferred
Securities in the form in which it is first filed with the Commission
pursuant to Rule 424(b) under the Act in accordance with Section 5(a)
hereof, including any documents incorporated by reference therein as
of the date of such filing.
(b) The Registration Statement and the Prospectus conform, and
any further amendments or supplements to the Registration Statement or
the Prospectus will conform, in all material respects to the
requirements of the Act, and the rules and regulations of the
Commission thereunder do not and will not, as of the
<PAGE>
applicable effective date as to the Registration Statement and
any amendment thereto and as of the applicable filing date as to the
Prospectus and any amendment or supplement thereto, contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein (i)
in the case of the Registration Statement, not misleading and (ii) in
the case of the Prospectus, in light of the circumstances under which
they were made, not misleading; provided, however, that this
representation and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with information
furnished in writing to the Company or J.P. Morgan by an Underwriter
of Designated Preferred Securities through the Representatives for use
in the Prospectus as amended or supplemented relating to such
Designated Preferred Securities.
(c) J.P. Morgan has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware.
(d) The Company has been duly formed and is validly existing as a
limited liability company in good standing under the laws of the State
of Delaware.
(e) The Preferred Securities have been duly authorized and, when
the terms of the Designated Preferred Securities have been established
by resolutions adopted by the Managing Members and such Designated
Preferred Securities have been issued, delivered and paid for pursuant
to this Agreement and the Pricing Agreement with respect to such
Designated Preferred Securities, such Designated Preferred Securities
will be validly issued, fully paid and nonassessable limited liability
company interests in the Company, as to which the members of the
Company who hold such Designated Preferred Securities (the "Preferred
Securityholders"), in their capacity as members of the Company, will
have no liability solely by reason of being Preferred Securityholders
in excess of their share of the Company's assets and undistributed
profits (subject to any obligation of a Preferred Securityholder to
repay any funds wrongfully distributed to it); and the Designated
Preferred Securities will conform, in all material respects, to the
descriptions thereof contained in the Prospectus as
<PAGE>
amended or supplemented with respect to such Designated Preferred
Securities.
(f) The Limited Liability Company Agreement of the Company ("LLC
Agreement"), which is in substantially the form filed as an exhibit to
the Registration Statement, constitutes a valid and legally binding
agreement of the Company, enforceable against the Company by the
members of the Company that hold Preferred Securities in accordance
with its terms, subject to (i) bankruptcy, insolvency, reorganization,
fraudulent transfer, moratorium and other similar laws now of
hereafter in effect relating to or affecting creditors' rights
generally, (ii) general principles of equity (regardless of whether
considered in a proceeding at law or in equity) and (iii) applicable
laws relating to fiduciary duties.
(g) Each of the guarantee of certain obligations of the Company
by J.P. Morgan for the benefit of the holders from time to time of the
Preferred Securities (the "Guarantee Agreement") and the guarantee by
J.P. Morgan of certain liabilities of the Company for the benefit of
persons other than such holders (the "Expense Agreement"), each of
which is substantially in the form filed as an exhibit to the
Registration Statement, has been duly authorized, executed and
delivered by J.P. Morgan and, in the case of the Expense Agreement,
the Company and constitutes a valid and legally binding agreement of
J.P. Morgan enforceable against J.P. Morgan in accordance with its
terms, subject to (i) bankruptcy, insolvency, reorganization,
fraudulent transfer, moratorium and other similar laws now or
hereafter in effect relating to or affecting creditors' rights
generally and (ii) general principles of equity (regardless of whether
considered in a proceeding at law or in equity); and each of the
Guarantee Agreement and the Expense Agreement conforms, in all
material respects, to the description thereof contained in the
Prospectus as amended or supplemented with respect to the Designated
Preferred Securities.
(h) The Senior Note has been duly authorized by Morgan Guaranty,
and, when the Senior Note is issued, executed, authenticated,
delivered and paid for, such Senior Note will be duly issued, executed
and delivered and will constitute a valid and legally binding
<PAGE>
obligation of Morgan Guaranty enforceable against Morgan Guaranty
in accordance with its terms, subject to (i) bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium and other similar laws
now or hereafter in effect relating to or affecting creditors' rights
generally and the rights of creditors of New York State chartered
banks generally and (ii) general principles of equity (regardless of
whether considered in a proceeding at law or in equity); and the
Senior Note will conform, in all material respects, to the description
thereof contained in the Prospectus as amended or supplemented with
respect to such Designated Preferred Securities.
(i) The issue and sale of the Designated Preferred Securities and
the performance by the Company, J.P. Morgan and Morgan Guaranty of
their respective obligations under this Agreement, any Pricing
Agreement, the Senior Notes, the Guarantee Agreement, the Expense
Agreement and each Over-Allotment Option (as defined in Section 3
hereof), if any, and the consummation of the transactions herein and
therein contemplated will not result in any violation of (A) the
provisions of the Certificate of Formation of the Company or the LLC
Agreement, the Certificate of Incorporation or By-laws of J.P. Morgan
or the Charter of Morgan Guaranty or (B) any statute of the United
States or the State of New York or Delaware or any order, rule or
regulation of any court or governmental agency or body of the United
States or the State of New York or Delaware having jurisdiction over
the Company, J.P. Morgan or Morgan Guaranty or any of their respective
properties; provided, however, that, in the case of clause (B) of this
paragraph 2(i), this representation and warranty shall not extend to
such violations as would not have a material adverse effect on the
financial condition of J.P. Morgan and its subsidiaries taken as a
whole or would not have a material adverse effect on the issuance or
sale of the Designated Preferred Securities; provided further that,
insofar as this representation and warranty relates to the performance
by the Company, J.P. Morgan or Morgan Guaranty of each of their
respective obligations under this Agreement, the Pricing Agreement
relating to the Designated Preferred Securities, the Designated
Preferred Securities, the Senior Notes, the Guarantee Agreement and
the Expense Agreement, such performance is subject to bankruptcy,
insolvency, reorganization,
<PAGE>
fraudulent transfer, moratorium and other similar laws now or
hereafter in effect relating to or affecting creditors' rights
generally and the rights of creditors of New York State chartered
banks generally.
3. Upon the execution of the Pricing Agreement applicable to any
Designated Preferred Securities the several Underwriters propose to offer
the Firm Designated Preferred Securities for sale upon the terms and
conditions set forth in the Prospectus as amended or supplemented.
The Company may specify in the Pricing Agreement applicable to
any Designated Preferred Securities that the Company thereby grants to the
Underwriters the right (an "Over-Allotment Option") to purchase at their
election up to the number of Optional Designated Preferred Securities set
forth in such Pricing Agreement, at the terms set forth in the paragraph
above, for the sole purpose of covering over-allotments in the sale of the
Firm Designated Preferred Securities. Any such election to purchase
Optional Designated Preferred Securities may be exercised only by written
notice from the Representatives to the Company and J.P. Morgan, given
within a period specified in the Pricing Agreement, setting forth the
aggregate number of Optional Designated Preferred Securities to be
purchased and the date on which such Optional Designated Preferred
Securities are to be delivered, as determined by the Representatives but in
no event earlier than the First Time of Delivery (as defined in Section 4
hereof) or, unless the Representatives, J.P. Morgan and the Company
otherwise agree in writing, earlier than or later than the respective
number of business days after the date of such notice set forth in such
Pricing Agreement.
The number of Optional Designated Preferred Securities to be
added to the number of Firm Designated Preferred Securities to be purchased
by each Underwriter as set forth in Schedule I to the Pricing Agreement
applicable to such Designated Preferred Securities shall be, in each case,
the number of Optional Designated Preferred Securities which each of the
Company and J.P. Morgan has been advised by the Representatives have been
attributed to such Underwriter; provided that, if each of the Company and
J.P. Morgan has not been so advised, the number of Optional Designated
Preferred Securities to be so added shall be, in each case, that proportion
of Optional Designated Preferred Securities which the number of Firm
Designated Preferred
<PAGE>
Securities to be purchased by such Underwriter under such Pricing Agreement
bears to the aggregate number of Firm Designated Preferred Securities
(rounded as the Representatives may determine to the nearest 100
securities). The total number of Designated Preferred Securities to be
purchased by all the Underwriters pursuant to such Pricing Agreement shall
be the aggregate number of Firm Designated Preferred Securities set forth
in Schedule I to such Pricing Agreement plus the aggregate number of the
Optional Designated Preferred Securities which the Underwriters elect to
purchase.
4. Unless otherwise specified in the applicable Pricing
Agreement, global certificates for the Firm Designated Preferred Securities
and Optional Designated Preferred Securities to be purchased by each
Underwriter pursuant to such Pricing Agreement, registered in the name of
"Cede & Co.", shall be delivered by or on behalf of the Company to the
Representatives for the account of such Underwriter, against payment by
such Underwriter or on its behalf of the purchase price therefor by
certified or official bank check or checks, payable to the order of the
Company or, if so requested by the Company, by wire transfer to a bank
account specified by the Company and specified in Schedule II, in the funds
specified in such Pricing Agreement. The place, time and date of delivery
of and payment for Firm Designated Preferred Securities and Optional
Designated Preferred Securities shall be as specified in such Pricing
Agreement or at such other place, time and date as the Representatives,
J.P. Morgan and the Company may agree upon in writing. Such time and date
for delivery of Firm Designated Preferred Securities pursuant to the
Pricing Agreement relating thereto is herein called the "First Time of
Delivery", such time and date for delivery of Optional Designated Preferred
Securities, if not the First Time of Delivery, is herein called the "Second
Time of Delivery" and each such time and date is herein called the "Time of
Delivery".
5. Each of the Company and J.P. Morgan, jointly and severally,
agrees with each of the Underwriters of any Designated Preferred Securities
to furnish the Underwriters with copies of the Prospectus as amended or
supplemented in such quantities as the Representatives may from time to
time reasonably request and, if the delivery of a prospectus is required at
any time in connection with the offering or sale of the Designated
Preferred Securities and if at such time any event shall have occurred as a
result of which the
<PAGE>
Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the circumstances
under which they were made when such Prospectus is delivered, not
misleading or, if for any other reason it shall be necessary during such
same period to amend or supplement the Prospectus in order to comply with
the Act or the Exchange Act, to notify the Representatives and to file such
document and to prepare and furnish without charge to each Underwriter and
to any dealer in securities as many copies as the Representatives may from
time to time reasonably request of any amended Prospectus or a supplement
to the Prospectus which will correct such statement or omission or effect
such compliance; provided, however, that, in case any Underwriter is
required under the Act to deliver a prospectus in connection with the
offering or sale of the Designated Preferred Securities at any time more
than nine months after the date of the Pricing Agreement relating to the
Designated Preferred Securities, the costs of such preparation and
furnishing such amended or supplemented Prospectus shall be borne by the
Underwriters of such Designated Preferred Securities.
6. The obligations of the Underwriters of any Designated
Preferred Securities under the Pricing Agreement relating to such
Designated Preferred Securities shall be subject, in the discretion of the
Representatives, to the condition that all representations and warranties
and other statements of each of the Company and J.P. Morgan in or
incorporated by reference in the Pricing Agreement relating to such
Designated Preferred Securities are, at and as of the respective Time of
Delivery for such Designated Preferred Securities, true and correct, the
condition that each of the Company and J.P. Morgan shall have performed in
all material respects all of its obligations hereunder theretofore to be
performed, and the following additional conditions:
(a) No stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and
no proceeding for that purpose shall have been initiated or, to the
knowledge of the Company or J.P. Morgan, threatened by the Commission.
(b) Cravath, Swaine & Moore, counsel for the Underwriters, shall
have furnished to the Representatives such opinion or opinions, dated
the
<PAGE>
respective Time of Delivery for such Designated Preferred
Securities, with respect to the incorporation of J.P. Morgan and the
Company, the Guarantee Agreement, the Expense Agreement, the Senior
Notes, the Registration Statement, the Prospectus as amended or
supplemented, the Investment Company Act of 1940, as amended, the
validity of such Designated Preferred Securities and other related
matters as the Representatives may reasonably request, and such
counsel shall have received such papers and information as they may
reasonably request to enable them to pass upon such matters.
(c) Margaret M. Foran, Vice President, Assistant General Counsel
and Assistant Secretary of J.P. Morgan, shall have furnished to the
Representatives such counsel's written opinion, dated the respective
Time of Delivery for such Designated Preferred Securities, in form and
substance satisfactory to the Representatives, to the effect that:
(i) J.P. Morgan has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware;
(ii) Morgan Guaranty has been duly incorporated and is
validly existing as a chartered New York State trust company in
good standing under the laws of the State of New York;
(iii) this Agreement and the Pricing Agreement with respect
to the Designated Preferred Securities have been duly authorized,
executed and delivered by J.P. Morgan;
(iv) each of the Guarantee Agreement and the Expense
Agreement has been duly authorized, executed and delivered by
J.P. Morgan and, in the case of the Expense Agreement, assuming
the due authorization, execution and delivery thereof by the
Company, constitutes a valid and legally binding agreement of
J.P. Morgan enforceable in accordance with its terms, subject to
(1) bankruptcy, insolvency, reorganization, fraudulent transfer,
moratorium and other similar laws now or hereafter in effect
relating to or affecting creditors' rights generally and the
rights of creditors of bank holding companies
<PAGE>
generally and (2) general principles of equity (regardless
of whether considered in a proceeding at law or in equity);
(v) the Senior Notes have been duly authorized by Morgan
Guaranty, and, when the Senior Notes are issued, executed,
authenticated, delivered and paid for, such Senior Notes will be
duly issued, executed and delivered and will constitute valid and
legally binding obligations of Morgan Guaranty enforceable
against Morgan Guaranty in accordance with their terms, subject
to (1) bankruptcy, insolvency, reorganization, fraudulent
transfer, moratorium and other similar laws now or hereafter in
effect relating to or affecting creditors rights generally and
the rights of creditors of New York State chartered banks
generally and (2) general principles of equity (regardless of
whether considered in a proceeding at law or in equity);
(vi) the issue and sale of the Designated Preferred
Securities being delivered at such Time of Delivery and the
performance by each of J.P. Morgan and Morgan Guaranty of its
respective obligations under the Senior Notes, the Guarantee
Agreement, the Expense Agreement, this Agreement, and the Pricing
Agreement with respect to the Designated Preferred Securities
will not result in any violation of (A) the provisions of the
Certificate of Incorporated or By-Laws of J.P. Morgan or the
Charter of Morgan Guaranty or (B) any statute of the United
States or the State of New York having jurisdiction over J.P.
Morgan, Morgan Guaranty or any properties of either, except with
respect to clause (B) of this Paragraph (vii)(2), such violations
as would not have a material adverse effect on the financial
condition of J.P. Morgan and its subsidiaries taken as a whole or
would not have a material adverse effect on the issuance or sale
of the Designated Preferred Securities (and except that for
purposes of this paragraph (vii) such counsel need not express
any opinion as to any violation of any fraudulent transfer laws
or other antifraud laws or as to any violation of any federal or
state securities laws or blue sky or banking laws; and except
that insofar as performance by each of
<PAGE>
J.P. Morgan and Morgan Guaranty of its respective
obligations under the Senior Notes, the Guarantee Agreement, the
Expense Agreement, this Agreement and the Pricing Agreement
relating to the Designated Preferred Securities is concerned,
such counsel need not express any opinion as to bankruptcy,
insolvency, reorganization, moratorium and other similar laws now
or hereafter in effect relating to or affecting creditors' rights
generally and the rights of creditors of New York chartered banks
generally);
(vii) under the laws of the State of Delaware and under the
Federal laws of the United States, no consent, approval,
authorization, order, registration, filing or qualification of or
with any court or governmental agency or body is required for the
issue and sale of the Designated Preferred Securities being
delivered at such Time of Delivery in accordance with this
Agreement or the Pricing Agreement relating to the Designated
Preferred Securities, except for such consents, approvals,
authorizations, orders, registrations, filings or qualifications
as have been obtained under the Act and such consents, approvals,
authorizations, orders, registrations, filings or qualifications
as may be required under state securities or Blue Sky laws of any
such jurisdiction in connection with the purchase and sale and
distribution of the Designated Preferred Securities by the
Underwriters, and except those which, if not obtained, will not
have a material adverse effect on the financial condition of J.P.
Morgan and its subsidiaries taken as a whole.
In rendering this opinion required by subsection (c) of this
Section, Ms. Foran may state that she is admitted to the Bar of the
State of New York and she does not expect any opinion as to the laws
of any other jurisdiction other than the Federal laws of the United
States of America. Ms. Foran may rely (A) to the extent specified in
such opinion, upon the opinions of other counsel in good standing
which counsel Ms. Foran believes to be reliable, provided that Ms.
Foran shall state that she and you are justified in relying on such
opinions and (B) as to matters of fact, upon certificates of officers
and representatives of J.P. Morgan, Morgan Guaranty and of
<PAGE>
public officials, and may state that she has not verified
independently the accuracy or completeness of information or documents
furnished to her with respect to the Registration Statement or the
Prospectus.
(d) [Cravath, Swaine & Moore], special counsel for the Company
and J.P. Morgan, shall have furnished to the Representative their
written opinion, dated the respective Time of Delivery for such
Designated Preferred Securities, in form and substance satisfactory to
the Representatives, to the effect that:
(i) the Company has been duly formed and is validly existing
as a limited liability company in good standing under the laws of
Delaware;
(ii) the Designated Preferred Securities being delivered at
such Time of Delivery have been duly authorized and validly
issued and are fully paid and nonassessable limited liability
company interests in the Company, as to which the Preferred
Securityholders, in their capacity as members of the Company,
will have no liability solely by reason of being Preferred
Securityholders in excess of their share of the Company's assets
and undistributed profits (subject to any obligation of a
Preferred Securityholder to repay any funds wrongfully
distributed to it); and the Preferred Securities conform, in all
material respects, to the descriptions thereof contained in the
Prospectus as amended or supplemented with respect to such
Designated Preferred Securities;
(iii) the Common Securities issued to the Managing Members
have been duly authorized and are validly issued;
(iv) the LLC Agreement constitutes a valid and legally
binding agreement of the Company, enforceable against the Company
by the members of the Company that hold Preferred Securities in
accordance with its terms, subject to (1) bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium and other similar
laws now or hereafter in effect relating to or affecting
creditors' rights generally, (2) general
<PAGE>
principles of equity (regardless of whether considered in a
proceeding at law or in equity) and (3) applicable law relating
to fiduciary duties;
(v) this Agreement and the Pricing Agreement with respect to
such Designated Preferred Securities have been duly executed and
delivered by each of J.P. Morgan and the Company;
(vi) each of the Guarantee Agreement and the Expense
Agreement have been duly authorized, executed and delivered by
J.P. Morgan and, in the case of the Expense Agreement, the
Company and constitutes a valid and legally binding agreement of
J.P. Morgan enforceable against J.P. Morgan in accordance with
its terms, subject to (1) bankruptcy, insolvency, reorganization,
fraudulent transfer, moratorium and other laws now or hereafter
in effect relating to or affecting creditors' rights generally
and the rights of creditors of bank holding companies generally
and (2) general principles of equity (regardless of whether
considered in a proceeding at law or in equity);
(vii) the Senior Notes have been duly authorized by Morgan
Guaranty, and, when the Senior Notes are issued, executed,
authenticated, delivered and paid for, such Senior Notes will be
duly issued, executed and delivered and will constitute valid and
legally binding obligations of Morgan Guaranty enforceable
against Morgan Guaranty in accordance with their terms, subject
to (1) bankruptcy, insolvency, reorganization, fraudulent
transfer, moratorium and other similar laws now or hereafter in
effect relating to or affecting creditors' rights generally and
the rights of creditors of New York State chartered banks
generally and (2) general principles of equity (regardless of
whether considered in a proceeding at law or in equity);
(viii) the issue and sale of the Designated Preferred
Securities being delivered at such Time of Delivery and the
performance by the Company of its obligations under this
Agreement and the Pricing Agreement with respect to the
Designated
<PAGE>
Preferred Securities will not result in any violation of (A)
the provisions of the Certificate of Formation of the Company or
the LLC Agreement or (B) any statute of Delaware or any order,
rule or regulation known to such counsel of any court or
governmental agency or body of Delaware having jurisdiction over
the Company or any of its properties, except with respect to
clause (B) of this Paragraph (viii)(2), such violations as would
not have a material adverse effect on the financial condition of
the Company or would not have a material adverse effect on the
issuance or sale of the Designated Preferred Securities (and
except that for purposes of this paragraph (viii) such counsel
need not express any opinion as to any violation of any
fraudulent transfer laws or other antifraud laws; and except
that, insofar as performance by the Company of its obligation
under this Agreement and the Pricing Agreement relating to the
Designated Preferred Securities is concerned, such bankruptcy,
insolvency, reorganization, moratorium and other similar laws now
or hereafter in effect relating to or affecting creditors' rights
generally);
(ix) under the laws of Delaware, no consent, approval,
authorization, order, registration, filing or qualification of or
with any court or governmental agency or body is required for the
issue and sale of the Designated Preferred Securities being
delivered at such Time of Delivery in accordance with this
Agreement or the Pricing Agreement relating to the Designated
Preferred Securities being delivered at such Time of Delivery;
(x) the Company is has obtained an exemption pursuant to
Section 6(c) of the Investment Company Act of 1940, as amended,
and such exemption is valid as of the date of such opinion;
(xi) the statements contained in the Prospectus under the
captions "Description of All Preferred Securities", "Description
of the Guarantee", "Description of the Senior Notes", and "Plan
of Distribution" and the corresponding sections in any prospectus
supplement relating to the description of the Designated
Preferred
<PAGE>
Securities or their distribution, insofar as such statements
constitute summaries of certain provisions of the documents
referred to therein, accurately summarize the material provisions
of such documents required to be stated therein; and
(xii) (1) such counsel is of the opinion that the
Registration Statement, as amended, and the Prospectus, as
amended or supplemented, as of the First Time of Delivery for the
Designated Preferred Securities (other than the financial
statements and related notes, information as to reserves, the
financial statement schedules and the other financial data
included therein or omitted therefrom, as to which such counsel
need express no opinion), comply as to form in all material
respects with the Act and the rules and regulations of the
Commission thereunder, (2) nothing has come to the attention of
such counsel that would cause such counsel to believe that the
Registration Statement or the Prospectus, as amended or
supplemented, as of the date of the Pricing Agreement with
respect to the Designated Preferred Securities and the First Time
of Delivery for the Designated Preferred Securities (other than
the financial statements and related notes, information as to
reserves, the financial statement schedules and the other
financial data included therein or omitted therefrom, as to which
such counsel need express no belief), contained or contains an
untrue statement of a material fact or omitted or omits to state
a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not
misleading.
With respect to clause (xii) of subsection (d) of this Section,
[Cravath, Swaine & Moore] may state that their opinion and belief are
based upon their participation in the preparation of the Registration
Statement and Prospectus and any amendments or supplements thereto and
review and discussion of the contents thereof, but are without
independent check or verification except as specified. In rendering
the opinion required by subsection (d) of this Section, [Cravath,
Swaine & Moore] may rely upon the accuracy of matters (A) involving
the application of laws of any jurisdiction other than the United
States or New York
<PAGE>
and, to the extent specified in such opinion, upon the opinions
of other counsel reasonably satisfactory to you (including without
limitation, as to matters of Delaware law, on the opinion of Richards,
Layton & Finger, P.A.), and (B) of fact upon certificates of officers
and representatives of the Company and J.P. Morgan and of public
officials.
(e) On the date of the Pricing Agreement for such Designated
Preferred Securities and at the respective Time of Delivery for such
Designated Preferred Securities, Price Waterhouse LLP shall have
furnished to the Representatives a letter, dated the date of the
Pricing Agreement and a letter dated the First Time of Delivery,
respectively, to the effect set forth in Annex II hereto, and with
respect to such letter dated such First Time of Delivery, as to such
other matters as the Representatives may reasonably request and in
form and substance satisfactory to the Representatives.
(f) Since the respective dates as of which information is given
in the Prospectus as amended or supplemented as of the date of the
Pricing Agreement until the respective Time of Delivery of the
Designated Preferred Securities there shall not have been any adverse
change or a development involving a prospective material adverse
change in the financial position, stockholders' equity or results of
operations of J.P. Morgan and its subsidiaries considered as a whole,
otherwise than as set forth or contemplated in such Prospectus as
amended or supplemented, the effect of which, in any such case
described above, is in the reasonable judgment of the Representatives,
after consultation with the Company and J.P. Morgan, so material and
adverse as to make it impracticable to proceed with the public
offering or the delivery of the Designated Preferred Securities on the
terms and in the manner contemplated in such Prospectus as amended or
supplemented.
(g) On or after the date of the Pricing Agreement relating to the
Designated Preferred Securities until the respective Time of Delivery
of the Designated Preferred Securities, there shall not have occurred
any of the following: (i) a suspension or material limitation in
trading in securities generally on the [New York Stock Exchange]; (ii)
a general moratorium on commercial banking activities in New York
declared by
<PAGE>
either Federal or New York State authorities; or (iii) the
outbreak or material escalation of hostilities involving the United
States or the declaration by the United States of a national emergency
or war, if the effect of any of the above such events, in the
reasonable judgment of the Representatives, after consultation with
the Company and J.P. Morgan, makes it impracticable to proceed with
the public offering or the delivery of the Designated Preferred
Securities on the terms and in the manner contemplated by the
Prospectus as amended or supplemented.
(h) J.P. Morgan shall have furnished or caused to be furnished to
the Representatives at the respective Time of Delivery for the
Designated Preferred Securities a certificate or certificates of the
[CFO] or the Treasurer as to the accuracy of the representations and
warranties of the Company and J.P. Morgan herein at and as of such
Time of Delivery, as to the performance by the Company and J.P. Morgan
of all of their obligations hereunder to be performed at or prior to
such Time of Delivery, as to the matters set forth in subsections (a)
and (f) of this Section.
8. (a) Each of the Company and J.P. Morgan, jointly and
severally, will indemnify and hold harmless each Underwriter against any
losses, claims, damages or liabilities to which such Underwriter may become
subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) are caused by an
untrue statement or alleged untrue statement of a material fact contained
in any Preliminary Prospectus, any preliminary prospectus supplement, the
Registration Statement, the Prospectus as amended or supplemented and any
other prospectus relating to the Designated Preferred Securities, or any
amendment or supplement thereto, or are caused by the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (i) in the case of the
Registration Statement, not misleading, and (ii) in the case of any
Prospectus, in light of the circumstances in which they were made, not
misleading, and will reimburse each Underwriter for any legal or other
expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that neither the Company nor J.P. Morgan shall
be liable in any such case to
<PAGE>
the extent that any such loss, claim, damage or liability is caused by an
untrue statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus, any preliminary prospectus
supplement, the Registration Statement, the Prospectus as amended or
supplemented and any other prospectus relating to the Designated Preferred
Securities, or any such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company or J.P. Morgan
by any Underwriter of Designated Preferred Securities through the
Representatives for inclusion therein; and provided further, that neither
the Company nor J.P. Morgan shall be liable to any Underwriter under this
subsection (a) with respect to any Preliminary Prospectus or any
preliminary prospectus supplement to the extent that any such loss, claim,
damage or liability of such Underwriter results from the fact such
Underwriter sold Designated Preferred Securities to a person to whom there
was not sent or given, at or prior to the written confirmation of such
sale, a copy of the Prospectus (excluding documents incorporated by
reference) or of the Prospectus as then amended or supplemented (excluding
documents incorporated by reference) in any case where such delivery is
required by the Act if the Company or J.P. Morgan has previously furnished
copies thereof to such Underwriter (or to the Representatives) and the
loss, claim, damage or liability of such Underwriter results from an untrue
or alleged untrue statement or omission or alleged omission of a material
fact contained in the Preliminary Prospectus or any preliminary prospectus
supplement which was corrected in the Prospectus (or the Prospectus as
amended or supplemented).
(b) Each Underwriter will indemnify and hold harmless the Company
and J.P. Morgan against any losses, claims, damages or liabilities to which
the Company or J.P. Morgan may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, any preliminary prospectus supplement, the Registration
Statement, the Prospectus as amended or supplemented and any other
prospectus relating to the Designated Preferred Securities, or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein (i) in the
case of the Registration Statement, not misleading and (ii) in
<PAGE>
the case of any Prospectus, in light of the circumstances under which they
were made, not misleading, in each case to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was
made in any Preliminary Prospectus, any preliminary prospectus supplement,
the Registration Statement, the Prospectus as amended or supplemented and
any other prospectus relating to the Designated Preferred Securities, or
any such amendment or supplement, in reliance upon and in conformity with
written information furnished to the Company or J.P. Morgan by such
Underwriter through the Representatives for inclusion therein; and will
reimburse the Company and J.P. Morgan for any legal or other expenses
reasonably incurred by the Company or J.P. Morgan in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under
subsection (a) and (b) above of notice of the commencement of any action,
such indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the
indemnifying party in writing of the commencement thereof; but the omission
so to notify the indemnifying party shall not relieve it from any liability
which it may have to any indemnified party otherwise than under such
subsection. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party (who shall
not, except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses,
in each case subsequently incurred by such indemnified party, in connection
with the defense thereof other than reasonable costs of investigation. In
no event shall any indemnifying party be liable for the fees and expenses
of more than one counsel (in addition to local counsel) separate from their
own counsel for all indemnified parties in connection with any one action
or separate but similar or related actions in the same jurisdiction arising
out of the same general
<PAGE>
allegations or circumstances. In no event shall an indemnifying party be
liable with respect to any action or claim settled without its written
consent. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been
a party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter
of such proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in
respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company and J.P. Morgan on the one hand
and the Underwriters of the Designated Preferred Securities on the other
from the offering of the Designated Preferred Securities to which such
loss, claim, damage or liability (or action in respect thereof) relates.
If, however, the allocation provided by the immediately preceding sentence
is not permitted by applicable law or if the indemnified party is not
entitled to receive the indemnification provided for in subsection (a)
above because of the second proviso thereof or if the indemnified party
failed to give the notice required under subsection (c) above, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company and J.P.
Morgan on the one hand and the Underwriters of the Designated Preferred
Securities on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions
in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company and J.P.
Morgan on the one hand and such Underwriters on the other shall be deemed
to be in the same proportion as the total proceeds from such offering
(before deducting expenses) received by the Company less the total
underwriting compensation paid by J.P. Morgan bear to the
<PAGE>
total underwriting discounts and commissions received by such Underwriters.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by the Company and J.P. Morgan on the one hand or such
Underwriters on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement
or omission, including with respect to any Underwriter, the extent to which
such losses, claims, damages or liabilities (or actions in respect thereof)
with respect to any Preliminary Prospectus or any preliminary prospectus
supplement result from the fact that the Underwriter sold Designated
Preferred Securities to a person to whom there was not sent or given, at or
prior to the written confirmation of such sale, a copy of the Prospectus
(excluding documents incorporated by reference) or of the Prospectus as
then amended or supplemented (excluding documents incorporated by
reference), if the Company or J.P. Morgan have previously furnished copies
thereof to such Underwriters. The Company, J.P. Morgan and the Underwriters
agree that it would not be just and equitable if contribution pursuant to
this subsection (d) were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable
considerations referred to above in this subsection (d). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages
or liabilities (or actions in respect thereof) referred to above in this
subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. The obligations of the Underwriters
of Designated Preferred Securities in this subsection (d) to contribute are
several in proportion to their respective underwriting obligations with
respect to such Designated Preferred Securities and not joint. No
indemnifying party will be liable for contribution with respect to any
action or claim settled without its written consent.
(e) The obligations of the Company and J.P. Morgan under this
Section 8 shall be in addition to any
<PAGE>
liability which the Company and J.P. Morgan may otherwise have and shall
extend or not extend, as the case may be, upon the same terms and
conditions, to each person, if any, who controls any Underwriting within
the meaning of the Act; and the obligations of the Underwriters under this
Section 8 shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend or not extend, as the case
may be, upon the same terms and conditions, to each officer and director of
J.P. Morgan and the Company and to each person, if any, who controls J.P.
Morgan or the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to
purchase the Firm Designated Preferred Securities or Optional Designated
Preferred Securities which it has agreed to purchase under the Pricing
Agreement relating to such Preferred Securities, the Representatives may in
their discretion arrange for themselves or another party or other parties
to purchase such Preferred Securities on the terms contained herein. If
within 36 hours after such default by any Underwriter the Representatives
do not arrange for the purchase of such Firm Designated Preferred
Securities or Optional Designated Preferred Securities, as the case may be,
then the Company and J.P. Morgan shall be entitled to a further period of
36 hours within which to procure another party or other parties reasonably
satisfactory to the Representatives to purchase such Preferred Securities
on such terms. In the event that, within the respective prescribed period,
the Representatives notify the Company and J.P. Morgan that they have so
arranged for the purchaser of such Preferred Securities, or the Company or
J.P. Morgan notifies the Representatives that it has so arranged for the
purchaser of such Preferred Securities, the Representatives, J.P. Morgan or
the Company shall have the right to postpone the Time of Delivery for such
Preferred Securities for a period of not more than seven days in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus as amended or supplemented, or in any other
documents or arrangements, and the Company and J.P. Morgan agree to file
promptly any amendments or supplements to the Registration Statement or the
Prospectus which in the opinion of the Representatives may thereby be made
necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such
person had originally been a party to the Pricing Agreement with respect to
such Designated Preferred Securities.
<PAGE>
(b) If, after giving effect to any arrangement for the purchase
of the Firm Designated Preferred Securities or Optional Designated
Preferred Securities, as the case may be, of a defaulting Underwriter or
Underwriters by the Representatives, the Company or J.P. Morgan as provided
in subsection (a) above, the aggregate amount of Designated Preferred
Securities which remains unpurchased does not exceed one-tenth of the
aggregate number of Firm Designated Preferred Securities or Optional
Designated Preferred Securities, as the case may be, to be purchased at the
respective Time of Delivery, then the Company and J.P. Morgan shall have
the right to require each nondefaulting Underwriter to purchase the number
of Firm Designated Preferred Securities or Optional Designated Firm
Securities, as the case may be, which such Underwriter agreed to purchase
under the Pricing Agreement relating to such Designated Preferred
Securities and, in addition, to require each nondefaulting Underwriter to
purchase its pro rata share (based on the number of Firm Designated
Preferred Securities or Optional Designated Preferred Securities, as the
case may be, which such Underwriter agreed to purchase under such Pricing
Agreement) of the Firm Designated Preferred Securities or the Optional
Designated Preferred Securities, as the case may be, of such defaulting
Underwriter or Underwriters for which such arrangements have not been made;
but nothing herein shall relieve a defaulting Underwriter from any
liability for its default.
(c) If, after giving effect to any arrangement for the purchaser
of the Firm Designated Preferred Securities or Optional Designated
Preferred Securities, as the case may be, of a defaulting Underwriter or
Underwriters by the Representatives, J.P. Morgan or the Company as provided
in subsection (a) above, the aggregate amount of Firm Designated Preferred
Securities or the Optional Designated Preferred Securities, as the case may
be, which remains unpurchased exceeds one-tenth of the aggregate number of
Firm Designated Preferred Securities or Optional Designated Preferred
Securities, as the case may be, to be purchased at the respective Time of
Delivery, as referred to in subsection (b) above, or if the Company or J.P.
Morgan shall not exercise the right described in subsection (b) above to
require nondefaulting Underwriters to purchase Firm Designated Preferred
Securities or Optional Designated Preferred Securities, as the case may be,
of a defaulting Underwriter or Underwriters, then the Pricing Agreement
relating to such Firm Designated Preferred Securities or Over-Allotment
Option relating to such Optional Designated
<PAGE>
Preferred Securities, as the case may be, shall thereupon terminate,
without liability on the part of any nondefaulting Underwriter, J.P. Morgan
or the Company, except for the expenses to be borne by the Company, J.P.
Morgan and the Underwriters as provided in Section 6 hereof and the
indemnity and contribution agreements in Section 8 hereof; but nothing
herein shall relieve a defaulting Underwriter from any liability for its
default.
10. The respective indemnities, agreements, representations,
warranties and other statements of the Company and J.P. Morgan and the
several Underwriters, as set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement, shall remain in
full force and effect, regardless of any investigation (or any statement as
to the results thereof) made by or on behalf of any Underwriter or any
controlling person of any Underwriter, or the Company or J.P. Morgan, or
any officer or director or controlling person of the Company or J.P.
Morgan, and shall survive delivery of and payment for the Designated
Preferred Securities.
11. In all dealings hereunder the Representatives of the
Underwriters of Designated Preferred Securities shall act on behalf of each
of such Underwriters, and the parties hereto shall be entitled to act and
rely upon any statement, request, notice or agreement on behalf of any
Underwriter made or given by such Representatives jointly or by such of the
Representatives, if any, as may be designated for such purpose in the
Pricing Agreement.
All statements, requests, notices and agreements hereunder shall
be in writing, and if to the Underwriters shall be delivered or sent by
mail, telex or facsimile transmission to the address of the Representatives
as set forth in the Pricing Agreement; and if to the Company or J.P. Morgan
shall be delivered or sent by mail, telex or facsimile transmission to the
address of the Company and J.P. Morgan set forth in the Registration
Statement; Attention: Secretary; provided, however, that any notice to an
Underwriter pursuant to Section 8(c) hereof shall be delivered or sent by
mail, telex or facsimile transmission to such Underwriter at its address
set forth in its Underwriters' Questionnaire, or telex constituting such
Questionnaire, which address will be supplied to the Company and J.P.
Morgan by the Representatives upon request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
<PAGE>
12. This Agreement and each Pricing Agreement shall be binding
upon, and inure solely to the benefit of, the Underwriters, the Company and
J.P. Morgan and, to the extent provided in Section 8 and Section 10 hereof,
the officers and directors of the Company and J.P. Morgan and each person
who controls the Company and J.P. Morgan or any Underwriter, and their
respective heirs, executors, administrators, successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement or any such Pricing Agreement. No purchaser of any of the
Preferred Securities from any Underwriter shall be deemed a successor or
assign by reason merely of such purchase.
13. Time shall be of the essence for each Pricing Agreement. As
used herein, "business day" shall mean any day when the Commissioner's
office in Washington, D.C., is open for business.
14. This Agreement and each Pricing Agreement shall be governed
by and construed in accordance with the laws of the State of New York,
without giving effect to the conflict of law provisions thereof.
15. This Agreement and each Pricing Agreement may be executed by
any one or more of the parties hereto and thereto in any number of
counterparts, each of which shall be deemed to be an original, but all of
which counterparts together constitute one and the same agreement.
Very truly yours,
J.P. MORGAN INDEX FUNDING
COMPANY, LLC,
by J.P. MORGAN & CO.
INCORPORATED, as Managing
Member,
by
---------------------------------
Name:
Title:
<PAGE>
J.P. MORGAN & CO.
INCORPORATED,
by
--------------------------
Name:
Title:
<PAGE>
ANNEX I
PRICING AGREEMENT
[J.P. Morgan Securities Inc.]
As Representatives
of the several
Underwriters named in Schedule I hereto,
, 1996
Ladies and Gentlemen:
J.P. Morgan Index Funding Company, LLC, a limited liability
company formed under the laws of the State of Delaware (the "Company"),
proposes, subject to the terms and conditions stated herein and in the
Underwriting Agreement, dated , 1996 (the "Underwriting Agreement"), to
issue and sell to the Underwriters named in Schedule I hereto (the
"Underwriters") the Preferred Securities specified in Schedule II hereto
(the "Designated Preferred Securities" consisting of Firm Designated
Preferred Securities and any Optional Designated Preferred Securities the
Underwriters may elect to purchase) of ( )% [ ] Preferred Securities,
Series [ ], of the Company, guaranteed by J.P. Morgan & Co. Incorporated, a
Delaware corporation, to the extent set forth in the Prospectus and
Registration Statement relating to the Preferred Securities. Each of the
provisions of the Underwriting Agreement is incorporated herein by
reference in its entirety, and shall be deemed to be a part of this
Agreement to the same extent as if such provisions had been set forth in
full herein; and each of the representations and warranties set forth
therein shall be deemed to have been made at and as of the date of this
Pricing Agreement, except that each representation and warranty that refers
to the Prospectus in Section 2 of the Underwriting Agreement shall be
deemed to be a representation or warranty as of the date of the
Underwriting Agreement in relation to the Prospectus (as therein defined),
and also a representation and warranty as of the date of this Pricing
Agreement in relation to the Prospectus as amended or supplemented relating
to the Designated Preferred Securities which are the subject of this
Pricing Agreement. Each reference to the Representatives herein and in the
provisions of the Underwriting Agreement so incorporated by reference shall
be
<PAGE>
deemed to refer to you. Unless otherwise defined herein, terms defined in
the Underwriting Agreement are used herein as therein defined. The
Representatives designated to act on behalf of each of the Underwriters of
the Designated Preferred Securities pursuant to Section 12 of the
Underwriting Agreement and the address of the Representatives referred to
in such Section 12 are set forth at the end of Schedule II hereto.
An amendment to the Registration Statement, or a supplement to
the Prospectus, as the case may be, relating to the Designated Preferred
Securities, in the form heretofore delivered to you is now proposed to be
filed with the Commission.
Subject to the terms and conditions set forth herein and in the
Underwriting Agreement incorporated herein by reference, (a) the Company
agrees to issue and to sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the
Company, at the time and place and at the purchase price to the
Underwriters set forth in Schedule II hereto, the number of Firm Designated
Preferred Securities set forth opposite the name of such Underwriter in
Schedule I hereto and (b) in the event and to the extent that the
Underwriters shall exercise the election to purchase Optional Designated
Preferred Securities, as provided below, the Company agrees to issue and
sell to each of the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company at the purchase
price to the Underwriters set out in Schedule II hereto that portion of the
number of Optional Designated Preferred Securities as to which such
election shall have been exercised.
The Company hereby grants to each of the Underwriters the right
to purchase at their election up to the number of Optional Designated
Preferred Securities set forth opposite the name of such Underwriter in
Schedule I hereto on the terms referred to in the paragraph above for the
sole purpose of covering over-allotments in the sale of the Firm Designated
Preferred Securities. Any such election to purchase Optional Designated
Preferred Securities may be exercised by written notice from the
Representatives to the Company and J.P. Morgan given within a period of
calendar days after the date of this Pricing Agreement, setting forth the
aggregate number of Optional Designated Preferred Securities to be
purchased and the date on which such Optional Designated Preferred
Securities are to be
<PAGE>
delivered, as determined by the Representatives but in no event earlier
than the First Time of Delivery or, unless the Representatives, J.P. Morgan
and the Company otherwise agree in writing, no earlier than two or later
than 10 business days after the date of such notice.
If the foregoing is in accordance with your understanding, please
sign and return to us counterparts hereof, and upon acceptance hereof by
you, on behalf of each of the Underwriters, this letter and such acceptance
hereof, including the provisions of the Underwriting Agreement incorporated
herein by reference, shall constitute a binding agreement between each of
the Underwriters, the Company and J.P. Morgan. It is understood that your
acceptance of this letter on behalf of each of the Underwriters is or will
be pursuant to the authority set forth in a form of Agreement among
Underwriters, the form of which shall be submitted to the Company and J.P.
Morgan for examination upon request.
J.P. MORGAN INDEX FUNDING
COMPANY, LLC,
by J.P. MORGAN & CO.
INCORPORATED, as Managing
Member,
by
--------------------------
Name:
Title:
J.P. MORGAN & CO.
INCORPORATED,
by
------------------------------
Name:
Title:
<PAGE>
Accepted as of the
date hereof:
[J.P. MORGAN SECURITIES INC.,]
On behalf of each
of the Underwriters,
by
------------------------
Name:
Title:
<PAGE>
SCHEDULE I
Maximum Number
Number of Firm of Optional
Designated Designated
Preferred Preferred Securities
Securities Which
Underwriter To Be Purchased May Be Purchased
----------- --------------- --------------------
[J.P. Morgan
Securities Inc.]
Total . . . . . . .
<PAGE>
SCHEDULE II
Title of Designated Preferred Securities: ( )% [ ]
Preferred Securities, Series :
Date of Resolution Adopted by the Managing Members To Fix the Terms and
Conditions of the Designated Preferred Securities:
, 199
Number of Designated Preferred Securities:
Number of Firm Designated Preferred Securities:
Maximum Number of Optional Designated Preferred
Securities:
Initial Offering Price to Public:
$ per security, plus accrued dividends, if any,
from , 199
Purchase Price by Underwriters (including the Optional Designated
Preferred Securities):
$ per security, plus accrued dividends, if any,
from , 199
Underwriters' Compensation:
$ per security
Specified Funds for Payment of Purchase Price and
Underwriters' Compensation:
((New York) Clearing House Funds)
(Immediately Available Funds)
<PAGE>
Dividend Rate:
$ per annum
Dividend Payment Dates:
(insert language from Prospectus and Prospectus
Supplement)
Liquidation Preference:
Redemption and Exchange Provisions:
(insert language from Prospectus and Prospectus
Supplement)
(First) Time of Delivery:
, 19
Closing Location:
Names and addresses of Representatives:
Designated Representatives:
Address for Notices, etc.:
(Other Terms) <F1>:
- -------------------
<F1> A description of particular tax, accounting or other unusual
features of the Designated Preferred Securities should be set forth,
or referenced to an attached and accompanying description, if necessary,
to ensure agreement as to the terms of the Designated Preferred Securities
to be purchased and sold. Such a description might appropriately be in the
form in which such features will be described in the Prospectus Supplement
for the offering.
<PAGE>
ANNEX II
Pursuant to Section 7(e) of the Underwriting Agreement, the
accountants shall furnish letters to the Underwriters to the effect that:
(i) they are independent, certified public accountants with
respect to J.P. Morgan and its subsidiaries within the meaning of the
Act and the applicable published rules and regulations thereunder;
(ii) in their opinion, the financial statements and any
supplementary financial information and schedules audited by them and
included or incorporated by reference in the Registration Statement or
the Prospectus comply as to form in all material respects with the
applicable accounting requirements of the Act or the Exchange Act, as
applicable, and the related, published rules and regulations
thereunder; and, if applicable, they have made a review in accordance
with standards established by the American Institute of Certified
Public Accountants of the consolidated interim financial statements
and selected financial data derived from audited financial statements
of J.P. Morgan for the periods specified in such letter, as indicated
in their reports thereon, copies of which have been furnished to the
representative of the Underwriters (the "Representatives");
(iii) the unaudited, selected financial information with respect
to the consolidated results of operations and financial position of
J.P. Morgan for the five most recent fiscal years included in the
Prospectus and included or incorporated by reference in Item 6 of J.P.
Morgan's Annual Report on Form 10-K for the most recent fiscal year
agrees with the corresponding amounts (after restatement where
applicable) in the audited, consolidated financial statements for five
such fiscal years which were included or incorporated by reference in
J.P. Morgan's Annual Reports on Form 10-K for such fiscal years;
(iv) on the basis of limited procedures, not constituting an
audit in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and
other information referred to below, a reading of the latest available
interim financial statements of J.P. Morgan and its subsidiaries,
inspection of the minute books of J.P. Morgan and its subsidiaries
since the date of the latest
<PAGE>
audited financial statements included or incorporated by
reference in the Prospectus, inquiries of officials of J.P. Morgan and
its subsidiaries responsible for financial and accounting matters and
such other inquiries and procedures as may be specified in such
letter, nothing came to their attention that caused them to believe
that:
(a) the unaudited condensed consolidated statements of
income, consolidated balance sheets and consolidated statements
of cash flows including or incorporated by reference in J.P.
Morgan's Quarterly Reports on Form 10-Q incorporated by reference
in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the
Exchange Act as it applies to Form 10-Q and the related published
rules and regulations thereunder or, if no report has been issued
by such accountants on the consolidated interim financial
statements as set forth in (ii) above, based on a review under
the applicable professional standards, that any material
modifications should be made to such condensed consolidated
financial statements for them to be in conformity with generally
accepted accounting principles;
(b) any other unaudited income statement data and balance
sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial
statements from which such data and items were derived, and any
such unaudited data and items were not determined on a basis
substantially consistent with the basis for the corresponding
amounts in the audited consolidated financial statements included
or incorporated by reference in J.P. Morgan's Annual Report on
Form 10-K for the most recent fiscal year; and
(c) the unaudited financial statements which were not
included in the Prospectus but from which were derived the
unaudited condensed financial statements referred to in clause
(a) above and any unaudited income statement data and balance
sheet items included in the Prospectus and referred to in clause
(b) above were not determined on a basis substantially consistent
with the basis for the audited financial statements included or
incorporated by reference in J.P. Morgan's Annual Report on Form
10-K for the most recent fiscal year.
<PAGE>
(v) in addition to the audit referred to in their report(s)
included or incorporated by reference in the Prospectus and the
limited procedures, inspection of minute books, inquiries and other
procedures referred to in paragraphs (iii) and (iv) above, they have
carried out certain specified procedures, not constituting an audit in
accordance with generally accepted auditing standards, with respect to
certain amounts, percentages and financial information specified by
the Representatives which are derived from the general accounting
records of J.P. Morgan and its subsidiaries, which appear in the
Prospectus (excluding documents incorporated by reference), or in Part
II of, or in exhibits and schedules to, the Registration Statement
specified by the Representatives or in documents incorporated by
reference in the Prospectus specified by the Representatives, and have
compared certain of such amounts, percentages and financial
information with the accounting records of or schedules prepared by
J.P. Morgan and its subsidiaries and have found them to be in
agreement; and
(vi) if pro forma financial statements and other pro forma
financial information (the "Pro Forma Disclosure") are required to be
included in the Registration Statement, such letter shall further
state that although they are unable to and do not express any opinion
on such Pro Forma Disclosure or on the pro forma adjustments applied
to the historical amounts included in that statement, for purposes of
such letter they have:
(a) read the Pro Forma Disclosure;
(b) made inquiries of certain officials of J.P. Morgan who
have responsibility for financial and accounting matters about
the basis for their determination of the pro forma adjustments
and whether the Pro Forma Disclosure above complies in form in
all material respects with the applicable accounting requirements
of Rule 11-02 of Regulation S-X; and
(c) provided the arithmetic accuracy of the application of
the pro forma adjustments to the historical amounts in the Pro
Forma Disclosure; and
on the basis of such procedures, and such other inquiries and
procedures as may be specified in such
<PAGE>
letter, nothing came to their attention that caused them to
believe that the Pro Forma Disclosure included in the
Registration Statement does not comply in form in all material
respects with the applicable requirements of Rule 11-02 of
Regulation S-X and that the pro forma adjustments have not been
properly applied to the historical amounts in the compilation of
that statement.
All references in this Annex II to the Prospectus shall be deemed
to refer to the Prospectus (including the documents incorporated by
reference therein) as defined in the Underwriting Agreement as of the date
of the letter delivered on the date of the Pricing Agreement for purposes
of such letter and to the Prospectus as amended or supplemented
(including the documents incorporated by reference therein) in relation to
the applicable Designated Preferred Securities for purposes of the letter
delivered at the Time of Delivery for such Designated Preferred Securities.
LIMITED LIABILITY COMPANY AGREEMENT of J.P. MORGAN
INDEX FUNDING COMPANY, LLC (the "Company"), made as of
February 16, 1996, among J.P. MORGAN & CO. INCORPORATED,
a Delaware corporation ("J.P. Morgan"), and J.P. MORGAN
VENTURES CORPORATION, a Delaware corporation and a
wholly owned subsidiary of J.P. Morgan ("JPM
Ventures"), as initial Members (as defined below) of
the Company, and the Persons (as defined below) who
become Members of the Company in accordance with the
terms hereof.
WHEREAS J.P. Morgan and JPM Ventures have heretofore formed a
limited liability company pursuant to the Delaware Limited Liability
Company Act, 6 Del C. Section 18-101, et seq., as amended from time to time
(the "Delaware Act"), by filing a Certificate of Formation of the Company
with the office of the Secretary of State of the State of Delaware on
November 21, 1995; and
WHEREAS the Members desire to provide for the operation of the
Company as a limited liability company under the Delaware Act and pursuant
to the terms hereof.
NOW, THEREFORE, in consideration of the agreements and
obligations set forth herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Members
hereby agree as follows:
ARTICLE I
DEFINED TERMS
Section 1.1. Definitions. The terms defined in this Article I
shall, for the purposes of this Agreement, have the meanings herein
specified.
"Affiliate" means with respect to a specified Person, any Person
that directly or indirectly controls, is controlled by, or is under common
control with, the specified Person. As used in this definition, the term
"control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management
<PAGE>
and policies of a Person, whether through ownership of voting securities,
by contract or otherwise.
"Agreement" means this Limited Liability Company Agreement of the
Company as amended, modified, supplemented or restated from time to time.
"Certificate" means the Certificate of Formation and any and all
amendments thereto and restatements thereof filed on behalf of the Company
with the office of the Secretary of State of the State of Delaware pursuant
to the Delaware Act.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time, or any corresponding federal tax statute enacted after the
date of this Agreement. A reference to a specific section (Section) of the
Code refers not only to such specific section but also to any corresponding
provision of any federal tax statute enacted after the date of this
Agreement, as such specific section or corresponding provision is in effect
on the date of application of the provisions of this Agreement containing
such reference.
"Common Member" means a Member that holds one or more Common
Securities.
"Common Securities" shall mean the Interests in the Company which
represent common limited liability company interests in the Company and are
described in this Agreement.
"Company Dividend Junior Securities" shall have the meaning set
forth in Section 9.3 of this Agreement.
"Company Dividend Parity Securities" shall have the meaning set
forth in Section 9.3 of this Agreement.
"Company Liquidation Parity Securities" shall have the meaning
set forth in Section 15.5 of this Agreement.
"Covered Person" means the Managing Members, any Affiliate of the
Managing Members or any officers, directors, shareholders, partners,
employees, representatives or agents of the Managing Members, or any
employee or agent of the Company or its Affiliates.
<PAGE>
"Early Redemption Value", with respect to any Indexed Preferred
Securities of any series or any related Common Securities, shall have the
meaning, if any, set forth in the Written Action of the Company
establishing such series and Common Securities.
"Face Amount" means, with respect to any Preferred Security, the
initial stated principal amount thereof.
"Indemnified Person" means each Common Member, any Affiliate of
such Common Member or any officers, directors, shareholders, partners,
employees, representatives or agents of such Common Member, or any employee
or agent of the Company or its Affiliates.
"Indexed Preferred Security" means any Preferred Security the
stated liquidation preference or redemption value, as applicable, of which
varies or may vary from the Face Amount thereof.
"Interest" means a limited liability company interest in the
Company, including the right of the holder thereof to any and all benefits
to which a Member may be entitled as provided in this Agreement, together
with the obligations of a Member to comply with all of the terms and
provisions of this Agreement.
"Liquidation Distribution" shall have the meaning set forth in
Section 15.5 of this Agreement.
"LP Act" means the Delaware Revised Uniform Limited Partnership
Act, 6 Del C. Section 17-101, et seq., as amended from time to time.
"Managing Members" means J.P. Morgan and JPM Ventures, in their
capacity as the Members that hold all of the outstanding Common Securities.
"Member" means any Person that holds an Interest in the Company
and is admitted as a member of the Company pursuant to the provisions of
this Agreement, in its capacity as a member of the Company. For purposes of
the Delaware Act, the Managing Members and the Preferred Members shall
constitute separate classes or groups of Members.
"Notes" means the Notes evidencing the loans from time to time
from the Company to Morgan Guaranty Trust Company of New York, a trust
company, with full banking
<PAGE>
powers organized under the laws of the State of New York ("Morgan
Guaranty"), of the proceeds of the issuances of Interests and, at the
option of the Company, related capital contributions.
"Person" means any individual, corporation, association,
partnership (general or limited), joint venture, trust, estate, limited
liability company, or other legal entity or organization.
"Preferred Certificate" means a certificate evidencing the
Preferred Securities held by a Preferred Member.
"Preferred Member" means a Member that holds one or more
Preferred Securities, in such capacity.
"Preferred Securities" shall mean the Interests which represent
preferred limited liability company interests in the Company and are
described in this Agreement.
"Principal Amount" means, at any time with respect to any Indexed
Preferred Security, the Redemption Value, the applicable Early Redemption
Value or the stated liquidation preference, as applicable, of such Indexed
Preferred Security, as if determined as of such time pursuant to the terms
of such Indexed Preferred Security.
"Redemption Value," with respect to any Indexed Preferred
Securities of any series or any related Common Securities, shall have the
meaning, if any, set forth in the Written Action of the Company
establishing such series and such Common Securities.
"Tax Matters Partner" means the Managing Member designated as
such in Section 11.1 hereof.
"Third Party Creditors" shall have the meaning set forth in
Section 13.1 of this Agreement.
Section 1.2. Headings. The headings and subheadings in this
Agreement are included for convenience and identification only and are in
no way intended to describe, interpret, define or limit the scope, extent
or intent of this Agreement or any provision hereof.
<PAGE>
ARTICLE II
CONTINUATION AND TERM; ADMISSION OF MEMBERS
Section 2.1. Continuation. (a) The Members hereby agree to
continue the Company as a limited liability company under and pursuant to
the provisions of the Delaware Act and agree that the rights, duties and
liabilities of the Members shall be as provided in the Delaware Act, except
as otherwise provided herein.
(b) Upon the execution of this Agreement, J.P. Morgan and JPM
Ventures shall continue to be Members and shall each be designated as a
Common Member and shall together be the holders of all of the Common
Securities.
(c) Either Managing Member, as an authorized person within the
meaning of the Delaware Act, shall execute, deliver and file any and all
Amendments to and restatements of the Certificate.
Section 2.2. Name. The name of the Company heretofore formed and
continued hereby is J.P. Morgan Index Funding Company, LLC. The business of
the Company may be conducted upon compliance with all applicable laws under
any other name designated by the Managing Members.
Section 2.3. Term. The term of the Company commenced on the date
the Certificate was filed in the office of the Secretary of State of the
State of Delaware and shall continue until November 21, 2105, unless
dissolved before such date in accordance with the provisions of this
Agreement.
Section 2.4. Registered Agent and Office. The Company's
registered agent and office in Delaware shall be J.P. Morgan & Co.
Incorporated, 902 Market Street, City of Wilmington, County of New Castle,
Delaware 19801. At any time, the Managing Members may designate another
registered agent and/or registered office.
Section 2.5. Principal Place of Business. The principal place of
business of the Company shall be at 60 Wall Street, New York, New York
10260-0060. The Managing Members may change the location of the Company's
principal place of business; provided that such change has no material
adverse effect upon any Member.
<PAGE>
Section 2.6. Qualification in Other Jurisdictions. The Managing
Members shall cause the Company to be qualified, formed or registered under
assumed or fictitious name statutes or similar laws in any jurisdiction in
which the Company conducts business and in which such qualification,
formation or registration is required by law or deemed advisable by the
Managing Members. Either Managing Member, as an authorized person within
the meaning of the Delaware Act, shall execute, deliver and file any
certificates (and any amendments and/or restatements thereof) necessary for
the Company to qualify to do business in a jurisdiction in which the
Company may wish to conduct business.
Section 2.7. Admission of Members. (a) Subject to Section 2.1(b),
a Person shall be admitted as a Member and shall become bound by the terms
of this Agreement, without execution of this Agreement, if such Person (or
a representative authorized by such Person orally, in writing or by other
action such as payment for an Interest) complies with the conditions for
becoming a Member as set forth in Section 2.7(b) and requests (which
request shall be deemed to have been made upon acquisition of an Interest
directly from the Company or upon an assignment of an Interest from another
Person) that the records of the Company reflect such admission.
The Company shall be promptly notified of any assignment. The
Company will reflect the admission of a Member in the records of the
Company as soon as is reasonably practicable after either of the following
events: (i) in the case of a Person acquiring an Interest directly from the
Company, at the time of payment therefor, and (ii) in the case of an
assignment, upon notification thereof (the Company being entitled to
assume, in the absence of knowledge to the contrary, that proper payment
has been made for such Interest).
(b) Whether acquiring an Interest directly from the Company or by
assignment, a Person shall be admitted as a Member upon the acquisition or
assignment, as the case may be, of such Interest and the reflection of such
Person's admission as a Member on the registration books maintained by or
on behalf of the Company. The consent of any other Member shall not be
required for the admission of a Member.
Section 2.8. Merger, Consolidation, etc., of the Company. The
Company may not consolidate, amalgamate, merge
<PAGE>
with or into, or be replaced by, or convey, transfer or lease its
properties and assets substantially as an entirety to any corporation or
other entity, except with the prior approval of Holders of not less than
66-2/3% of the Principal Amount of the outstanding Preferred Securities or
except as set forth in this Section 2.8. The Company may, without the
consent of Preferred Members, consolidate or merge with or into, or convey,
transfer or lease its assets substantially as an entirety to, a limited
liability company or limited partnership or trust organized as such under
the laws of any state of the United States of America or the District of
Columbia; provided that (i) such successor entity either (a) expressly
assumes all of the obligations of the Company under the Preferred
Securities or (b) substitutes for the Preferred Securities other securities
having substantially the same terms as the Preferred Securities (the
"Successor Securities") so long as the Successor Securities rank, with
respect to participation in the profits or assets of the successor entity,
at least as high as the Preferred Securities rank with respect to
participation in the profits or assets of the Company, (ii) Morgan Guaranty
expressly acknowledges such successor entity as the holder of the Note or
Notes relating to any outstanding Preferred Securities, (iii) such merger,
consolidation, conveyance, transfer or lease does not cause the Preferred
Securities or the Successor Securities, if any, to be delisted (or, in the
case of any Successor Securities, to fail to be listed) by any national
securities exchange or other organization on which any such Preferred
Securities are then listed, (iv) such merger, consolidation, conveyance,
transfer or lease does not cause the Preferred Securities or Successor
Securities, if any, to be downgraded by any "nationally recognized
statistical rating organization", as that term is defined by the Securities
and Exchange Commission for purposes of Rule 436(g)(2) under the Securities
Act of 1933, as amended, (v) such merger, consolidation, conveyance,
transfer or lease does not adversely affect the powers, preferences and
other special rights of Preferred Members or the holders of the Successor
Securities, if any, in any material respect and (vi) prior to such merger,
consolidation, conveyance, transfer or lease J.P. Morgan has received an
opinion of counsel (which counsel is not an employee of J.P. Morgan or the
Company) to the effect that (I) such merger, consolidation, conveyance,
transfer or lease will not require the Company or such successor entity to
register as an "investment company" under the Investment Company Act of
1940, as amended, (II) Preferred Members will not recognize any gain or
loss
<PAGE>
for federal income tax purposes as a result of such merger, consolidation,
conveyance, transfer or lease, (III) such successor entity will not be
treated as an association taxable as a corporation for federal income tax
purposes and (IV) such merger, consolidation, conveyance, transfer or lease
will not adversely affect the limited liability of holders of Preferred
Securities.
ARTICLE III
PURPOSE AND POWERS OF THE COMPANY
Section 3.1. Purpose. The sole purpose of the Company is to issue
Interests and to loan the proceeds from the issuance thereof and, at the
option of the Company, the related capital contributions from Common
Members to Morgan Guaranty. The Company shall have the power and authority
to take any and all actions necessary, appropriate, proper, advisable,
incidental or convenient to or for the furtherance of the purpose of the
Company as set forth herein.
ARTICLE IV
CAPITAL CONTRIBUTIONS, ALLOCATIONS AND SECURITIES
Section 4.1. Form of Contribution. The contribution of a Member
to the Company may, as determined by the Managing Members in their
discretion, be in cash, a promissory note or other legal consideration.
Section 4.2. Contributions by the Common Members. The Common
Members shall make such contributions to the Company, either in connection
with the purchase of Common Securities or otherwise, so as to cause their
Common Securities to be entitled to at least 21% of all interest in the
capital, income, gain, loss, deduction, credit and distributions of the
Company at all times.
Section 4.3. Contributions by the Preferred Members. The
Preferred Members shall make such contributions to the Company as are
required by the applicable terms of Section 7.1 of this Agreement.
Preferred Members, in their capacity as Members of the Company, shall not
be required to make any additional contributions to the Company and shall
have no additional
<PAGE>
liability solely by reason of being Preferred Members in excess of their
share of the Company's assets and undistributed profits (subject to their
obligation to return distributions wrongfully distributed to them as
required by applicable law).
Section 4.4. Allocation of Profits and Losses. The profits and
losses of the Company (other than the allocation of profits to Preferred
Members in amounts equal to the accrued dividends or distributions on their
Preferred Securities) shall, subject to the applicable terms of Section 9.1
of this Agreement and of any series of Preferred Securities, be allocated
entirely to the Common Members.
Section 4.5. Allocation of Distributions. The distributions of
the Company shall, subject to the applicable terms of Sections 7.1, 9.1,
9.2, 9.3 and 15.4 of this Agreement and of any series of Preferred
Securities (including the preferential allocation of distributions, if
any), be allocated entirely to the Common Members.
Section 4.6. Interests as Personal Property. Each Member hereby
agrees that its Interest shall for all purposes be personal property. A
Member has no interest in specific Company property.
ARTICLE V
MEMBERS
Section 5.1. Powers of Members. The Members shall have the power
to exercise any and all rights or powers granted to the Members pursuant to
the express terms of this Agreement.
Section 5.2. Partition. Each Member waives any and all rights
that it may have to maintain an action for partition of the Company's
property.
Section 5.3. Resignation. The Managing Members shall have no
right to resign from the Company. Any other Member may only resign from the
Company prior to the dissolution and winding up of the Company upon the
assignment of its Interest (including any redemption, repurchase, exchange
or other acquisition by the Company of such Interest) in accordance with
the provisions of this Agreement. A resigning Member shall not be entitled
to
<PAGE>
receive any distribution and shall not otherwise be entitled to receive the
fair value of its Interest except as otherwise expressly provided for in
this Agreement.
ARTICLE VI
MANAGEMENT
Section 6.1. Management of the Company. Except as otherwise
provided herein, the business and affairs of the Company shall be managed,
and all actions required under this Agreement shall be determined, solely
and exclusively by the Managing Members, which shall have all rights and
powers on behalf and in the name of the Company to perform all acts
necessary and desirable to the objects and purposes of the Company. Without
limiting the generality of the foregoing, the Managing Members, in their
capacity as Common Members and not by virtue of any delegation of
management power from any Member, shall have the power on behalf of the
Company to:
(a) authorize and engage in transactions and dealings on behalf
of the Company, including transactions and dealings with any Member
(including any Managing Member) or any Affiliate of any Member
(including, without limitation, the making of loans to Morgan
Guaranty);
(b) call meetings of Members or any class or series thereof;
(c) issue Interests, including Common Securities, Preferred
Securities and classes and series thereof, in accordance with this
Agreement;
(d) pay all expenses incurred in forming the Company;
(e) lend money, with or without security, to J. P. Morgan, Morgan
Guaranty or any Affiliate of either;
(f) determine and make distributions (whether denominated as
"dividends" or otherwise), in cash or otherwise, on Interests, in
accordance with the provisions of this Agreement and of the Delaware
Act;
<PAGE>
(g) establish a record date with respect to all actions to be
taken hereunder that require a record date to be established,
including with respect to allocations, dividends and voting rights;
(h) establish or set aside in their discretion any reserves for
contingencies and for any other proper Company purpose;
(i) redeem, repurchase or exchange on behalf of the Company
Interests which may be so redeemed, repurchased or exchanged;
(j) appoint (and dismiss from appointment) attorneys and agents
on behalf of the Company, and employ (and dismiss from employment) any
and all persons providing legal, accounting or financial services to
the Company, or such other employees or agents as the Managing Members
deem necessary or desirable for the management and operation of the
Company, including, without limitation, any Member (including any
Managing Member) in its capacity as employee or agent or any Affiliate
of any Member;
(k) incur and pay all expenses and obligations incident to the
operation and management of the Company, including, without
limitation, the services referred to in the preceding paragraph,
taxes, interest, travel, rent, insurance, supplies, salaries and wages
of the Company's employees and agents;
(l) acquire and enter into any contract of insurance necessary or
desirable for the protection or conservation of the Company and its
assets or otherwise in the interest of the Company as the Managing
Members shall determine;
(m) open accounts and deposit, maintain and withdraw funds in the
name of the Company in banks, savings and loan associations, brokerage
firms or other financial institutions, including any Affiliate of the
Company;
(n) effect a dissolution of the Company and act as liquidating
trustee or the Person winding up the Company's affairs, all in
accordance with the provisions of this Agreement and of the Delaware
Act;
<PAGE>
(o) bring and defend on behalf of the Company actions and
proceedings at law or in equity before any court or governmental,
administrative or other regulatory agency, body or commission or
otherwise;
(p) prepare and cause to be prepared reports, statements and
other relevant information for distribution to Members as may be
required or determined to be appropriate by the Managing Members from
time to time;
(q) prepare and file all necessary returns and statements and pay
all taxes, assessments and other impositions applicable to the Company
or to the assets of the Company; and
(r) execute all other documents or instruments, perform all
duties and powers and do all things for and on behalf of the Company
in all matters necessary, desirable or incidental to the foregoing.
The expression of any power or authority of the Managing Members
in this Agreement shall not in any way limit or exclude any other power or
authority which is not specifically or expressly set forth in this
Agreement.
Section 6.2. Reliance by Third Parties. Persons dealing with the
Company are entitled to rely conclusively upon the power and authority of
the Managing Members herein set forth.
Section 6.3. No Management by any Preferred Members. Except as
otherwise expressly provided herein, no Preferred Member shall take part in
the day-to-day management, operation or control of the business and affairs
of the Company. The Preferred Members, in their capacity as Preferred
Members of the Company, shall not be agents of the Company and shall not
have any right, power or authority to transact any business in the name of
the Company or to act for or on behalf of or to bind the Company.
Section 6.4. Preferred Members Voting Rights. Subject to the
terms and conditions set forth in Section 8.1(b) of this Agreement, the
Preferred Members shall have the right, upon the occurrence of certain
circumstances, to vote to cause the Company to take certain actions.
<PAGE>
Section 6.5. Business Transactions of a Managing Member with the
Company. The Managing Members or their Affiliates may lend money to, borrow
money from, act as surety, guarantor or endorser for, guarantee or assume
one or more obligations of, provide collateral for, and transact other
business with, the Company and, subject to applicable law, shall have the
same rights and obligations with respect to any such matter as persons who
are not Managing Members or Affiliates thereof.
Section 6.6. Outside Businesses. Any Member or Affiliate thereof
may engage in or possess an interest in other business ventures of any
nature or description, independently or with others, similar or dissimilar
to the business of the Company, and the Company and the Members shall have
no rights by virtue of this Agreement in and to such independent ventures
or the income or profits derived therefrom, and the pursuit of any such
venture, even if competitive with the business of the Company, shall not be
deemed wrongful or improper. No Member or Affiliate thereof shall be
obligated to present any particular investment opportunity to the Company
even if such opportunity is of a character that, if presented to the
Company, could be taken by the Company, and any Member or Affiliate thereof
shall have the right to take for its own account (individually or as a
partner or fiduciary) or to recommend to others any such particular
investment opportunity.
Section 6.7. Actions by Managing Members. Notwithstanding any
provision to the contrary, any action that the Managing Members are
authorized to take hereunder or under the Delaware Act may be taken by the
Managing Members, acting together, or by either Managing Member, acting
alone.
ARTICLE VII
COMMON SECURITIES AND PREFERRED SECURITIES
Section 7.1. Common Securities and Preferred Securities. (a) The
Interests in the Company shall initially be divided into two classes,
Common Securities and Preferred Securities.
(b) The Preferred Securities may be issued from time to time in
one or more series with such relative rights, powers, preferences,
limitations and restrictions as may from time to time be established in a
written action or
<PAGE>
actions of the Managing Members providing for the issuance of such series
as hereinafter provided. Authority is hereby expressly granted to the
Managing Members, subject to the provisions of this Agreement, to authorize
the issuance of one or more series of Preferred Securities, and with
respect to each such series to establish by a written action or actions
(each, a "written action") providing for the issuance of such series:
(i) the maximum number of Preferred Securities to constitute such
series, the aggregate initial principal amount, the Face Amount (if
any) and the distinctive designation thereof;
(ii) whether the Preferred Securities of such series shall have
voting rights in addition to those set forth in this Agreement and, if
so, the terms of such voting rights;
(iii) the periodic dividend or other distribution rate (or method
of calculation thereof), if any, on the Preferred Securities of such
series and any related Common Securities, the conditions and dates
upon which such dividends or other distributions shall be payable and
the ability of the Company, if any, to extend the dividend or other
distribution payment period for the Preferred Securities of such
series and any related Common Securities, the dates from which such
dividends or other distributions shall accrue, the preference or
relation which such dividends or other distributions have with respect
to dividends or other distributions payable on any other class or
classes of Interests or on any other series of Preferred Securities
and any related Common Securities, and whether such dividends or other
distributions shall be cumulative or noncumulative;
(iv) whether the Preferred Securities of such series and any
related Common Securities shall be subject to redemption by the
holders thereof or the Company, and, if made subject to redemption,
the times and other terms and conditions of such redemption (including
the amount and kind of consideration to be received upon such
redemption, or the method of calculation thereof);
(v) any rights in addition to those set forth in this Agreement
of the Preferred Members that hold
<PAGE>
Preferred Securities of such series upon the dissolution of the
Company;
(vi) whether or not the Preferred Securities of such series and
any related Common Securities shall be subject to the operation of a
retirement or sinking fund and, if so, the extent to and manner in
which any such retirement or sinking fund shall be applied to the
purchase or redemption of the Preferred Securities of such series and
any related Common Securities for retirement and the terms and
provisions relative to the operation thereof;
(vii) whether or not the Preferred Securities of such series and
any related Common Securities shall be convertible into, or
exchangeable for, Interests of any other class or classes, or of any
other series of Preferred Securities, or securities of any other kind,
including those issued by a Managing Member or any of its Affiliates,
and if so convertible or exchangeable, the price or prices or the rate
or rates of conversion or exchange and the method, if any, of
adjusting the same;
(viii) any limitations and restrictions in addition to those set
forth in this Agreement to be effective while any Preferred Securities
of such series and any related Common Securities are outstanding upon
the payment of periodic dividends or other distributions on, and upon
the purchase, redemption or other acquisition by the Company of, other
Common Securities or any other series of Preferred Securities;
(ix) any conditions or restrictions in addition to those set
forth in this Agreement upon the issue of any additional Interests
(including additional Preferred Securities of such series and any
related Common Securities or Interests of any other series ranking on
a parity with or prior to the Preferred Securities of such series and
any related Common Securities as to periodic dividends or distribution
of assets on dissolution);
(x) the times, prices and other terms and conditions for the
offering of the Preferred Securities and any related Common
Securities;
<PAGE>
(xi) the preferential allocation of profits or losses, if any;
(xii) the Principal Amount (or the method of calculation thereof)
of such Preferred Securities and any related Common Securities to be
paid upon Stated Maturity (if any) thereof; and
(xiii) any other relative rights, powers and duties as shall not
be inconsistent with this Section 7.1.
In connection with the foregoing and without limiting the
generality thereof, the Managing Members are hereby expressly authorized,
without the vote or approval of any other Member, to take any action to
create under the provisions of this Agreement a series of Preferred
Securities that was not previously outstanding and to issue related Common
Securities. Without the vote or approval of any other Member, the Managing
Members may execute, swear to, acknowledge, deliver, file and record
whatever documents may be required in connection with the issuance from
time to time of Preferred Securities and any related Common Securities in
one or more series as shall be necessary, convenient or desirable to
reflect the issue of such series. The Managing Members shall do all things
they deem to be appropriate or necessary to comply with the Delaware Act
and are authorized and directed to do all things they deem to be necessary
or permissible in connection with any future issuance, including compliance
with any statute, rule, regulation or guideline of any federal, state or
other governmental agency or any securities exchange.
Any action or actions taken by the Managing Members pursuant to
the provisions of this paragraph (b) shall be deemed an amendment and
supplement to and part of this Agreement.
(c) All Preferred Securities shall rank pari passu with the
related Common Securities in respect of the right to receive dividends or
other distributions and senior to all Common Securities in respect of the
right to receive payments out of the assets of the Company upon voluntary
or involuntary dissolution and winding up of the Company. All Preferred
Securities redeemed, purchased or otherwise acquired by the Company
(including Preferred Securities surrendered for conversion or exchange)
shall be cancelled and thereupon restored to the status of authorized but
unissued Preferred Securities undesignated as to series.
<PAGE>
(d) No holder of Common Securities or of Preferred Securities
shall be entitled as a matter of right to subscribe for or purchase, or
have any preemptive right with respect to, any part of any new or
additional issue of Preferred Securities of any series whatsoever or any
related Common Securities, or of securities convertible into any Preferred
Securities of any series whatsoever, whether now or hereafter authorized
and whether issued for cash or other consideration or by way of dividend.
(e) Common Securities shall not be evidenced by any certificate
or other written instrument, but shall only be evidenced by this Agreement.
Subject to Section 2.8, Common Securities shall be non-assignable and
non-transferable, and may only be issued to and held by the Managing
Members. Any transfer or purported transfer of any Common Security shall be
null and void. Preferred Securities shall be freely assignable and
transferable.
(f) Any Person purchasing Preferred Securities shall be admitted
to the Company as a Preferred Member upon compliance with Section 2.7.
Section 7.2. Persons Deemed Preferred Members. The Company may
treat the Person in whose name any Preferred Certificate shall be
registered on the books and records of the Company as a Preferred Member
and the sole holder of such Preferred Certificate for purposes of receiving
dividends or other distributions and for all other purposes whatsoever, and
accordingly shall not be bound to recognize any equitable or other claims
to or interest in such Preferred Certificate on the part of any other
Person, whether or not the Company shall have actual or other notice
thereof.
ARTICLE VIII
VOTING AND MEETINGS
Section 8.1. Voting Rights of Holders of Preferred Securities.
(a) Except as shall be otherwise established herein or in the action or
actions of the Managing Members providing for the issue of any series of
Preferred Securities and except as otherwise required by the Delaware Act,
the Preferred Members holding such Preferred Securities shall have, with
respect to such Preferred Securities, no right or power to vote on any
question or
<PAGE>
matter or in any proceeding or to be represented at, or to receive notice
of, any meeting of Members.
(b) If (i) the Company fails to pay dividends or other
distributions in full on the Preferred Securities of any series for 30 days
following the date on which such payment was due in accordance with the
terms of such Preferred Securities; or (ii) an Event of Default (as defined
in any Note) occurs and is continuing with respect to such Note, then the
Members holding a majority in Principal Amount of the outstanding Preferred
Securities of such series, together with Members holding any other
Interests having the right to vote in such event (other than any Common
Member, in its capacity as such), acting as a single class, will be
entitled to cause the Company to enforce the Company's rights under the
applicable Note or Notes against Morgan Guaranty and, in the case of clause
(i) above, declare and pay dividends or other distributions on the
Preferred Securities of such series. For purposes of determining whether
the Company has failed to pay dividends in full within 30 days of the
applicable payment date, dividends or other distributions shall be deemed
to remain in arrears, notwithstanding any payments in respect thereof,
until full cumulative dividends or other distributions have been or
contemporaneously are declared and paid with respect to all dividend or
other distribution periods terminating on or prior to the date of payment
of such full cumulative dividends or other distributions. Not later than 30
days after the right to vote arises, the Managing Members will solicit such
vote. If the Managing Members fail to solicit such vote within such 30-day
period, the Members holding 10% in Principal Amount of the outstanding
Preferred Securities of the series with respect to which dividends or other
distributions have not been paid and such other Interests that are entitled
to vote, acting as a single class, will be entitled to convene such
meeting. Any such voting rights shall cease immediately, subject to the
applicable terms of any Interests the holders of which were entitled to
such voting rights, if, in the case of clause (i) above, the Company shall
have paid in full all accumulated and unpaid dividends or other
distributions on the Preferred Securities of the series with respect to
which dividends or other distributions have not been paid or if, in the
case of clause (ii) above, such default of Morgan Guaranty shall have been
cured.
<PAGE>
(c) If any resolution is proposed to be adopted by the Members
providing for, or the Managing Members propose to take, any action to
effect:
(i) any variation or abrogation of the powers, preferences and
special rights of the Preferred Securities of any series by way of
amendment of this Agreement or otherwise (including, without
limitation, the authorization or issuance of any Interests in the
Company ranking, as to participation in the profits or assets of the
Company, senior to the Preferred Securities), which variation or
abrogation adversely affects the holders of Preferred Securities of
such series,
(ii) the dissolution of the Company, or
(iii) the commencement of any bankruptcy, insolvency,
reorganization or other similar proceeding involving the Company,
then, in the case of any resolution or action described in clause (i)
above, the Members holding outstanding Preferred Securities of the series
the powers, preferences or special rights of which are proposed to be
amended and, in the case of any resolution or action described in clause
(ii) or (iii) above, the Members holding any outstanding Preferred
Securities (and, in the case of any resolution or action described in
clause (i) above which would adversely affect the powers, preferences or
special rights of any Company Dividend Parity Securities or any Company
Liquidation Parity Securities, such Company Dividend Parity Securities or
such Company Liquidation Parity Securities, as the case may be, or, in the
case of any resolution or action described in clause (ii) above, all
Company Liquidation Parity Securities or, in the case of any resolution or
action described in clause (iii) above, all Members holding outstanding
Preferred Securities, any Company Dividend Parity Securities and any
Company Liquidation Parity Securities (other than Members holding any such
securities that are also creditors of J.P. Morgan or any of its
subsidiaries)) will be entitled to vote together as a class on such
resolution or action of the Managing Members (but not any other resolution
or action) and such resolution or action shall not be effective except with
the approval of the Members holding a majority in Principal Amount of such
outstanding securities; provided that no such resolution or action shall,
without the consent of each Preferred Member affected thereby, (1) change
the
<PAGE>
terms of such Preferred Member's Preferred Securities established
pursuant to Section 7.l(b)(iii), (iv), (v), (vi), (vii), (viii), (xi) or
(xii), Section 9.3 or Section 15.5 in a manner adverse to such Preferred
Member, (2) reduce the above-stated percentage of Principal Amount
necessary to approve such resolution or action or (3) amend the provisions
of this Section 8.1(c); provided further, however, that no such approval
shall be required under clauses (i) and (ii) if the dissolution of the
Company is proposed or initiated upon the occurrence of any of the events
specified in Section 15.2(a) through (c) or (e) through (f). The powers,
preferences or special rights of the Preferred Securities of any series
will be deemed not to be varied by the creation or issuance of, and no vote
will be required for the creation or issuance of, any further Interests in
the Company ranking pari passu with or junior to the Preferred Securities
of any series with respect to voting rights or rights to participate in the
profits or assets of the Company.
(d) Notwithstanding any provision to the contrary herein, the
first sentence of Section 14.1 of this Agreement may only be amended with
the consent of each Preferred Member.
(e) Notwithstanding that Members holding Preferred Securities of
any series are entitled to vote or consent under any of the circumstances
described in this Agreement, any of the Preferred Securities of any series
that are owned by J.P. Morgan or any entity owned more than fifty percent
by J.P. Morgan, either directly or indirectly, shall not be entitled to
vote or consent and shall, for the purposes of such vote or consent, be
treated as if they were not outstanding.
Section 8.2. Voting Rights of Holders of Common Securities.
Except as otherwise provided herein or by the Managing Members in
accordance with Section 7.1 in respect of any series of Preferred
Securities and except as otherwise provided by the Delaware Act, all voting
rights of the Company shall be vested exclusively in the Common Members.
The Common Securities shall entitle the Common Members to vote in
proportion to their percentage ownership interest in the Company upon all
matters upon which Common Members have the right to vote. All Common
Members shall have the right to vote separately as a class on any matter on
which the Common Members have the right to vote regardless of the voting
rights of any other Member.
<PAGE>
Section 8.3. Meetings of the Members. (a) Meetings of the Members
of any class or series or of all classes or series of Interests may be
called at any time by the Managing Members or as provided by any applicable
terms of any Preferred Securities. Except to the extent otherwise provided,
the following provisions shall apply to meetings of Members:
(i) Members may vote in person or by proxy at such meeting.
Whenever a vote, consent or approval of Members is permitted or
required under this Agreement, such vote, consent or approval may be
given at a meeting of Members or by written consent.
(ii) Each Member may authorize any Person to act for it by proxy
on all matters in which a Member is entitled to participate, including
waiving notice of any meeting, or voting or participating at a
meeting. Every proxy must be signed by the Member or its
attorney-in-fact. Every proxy shall be revocable at the pleasure of
the Member executing it at any time before it is voted.
(iii) Each meeting of Members shall be conducted by the Managing
Members or by such other Person that the Managing Members may
designate.
(b) Any required approval of Preferred Members holding Preferred
Securities of a series may be given at a separate meeting of such Preferred
Members convened for such purpose or at a meeting of Members of the Company
or pursuant to written consent. The Managing Members will cause a notice of
any meeting at which Preferred Members holding Preferred Securities of a
series are entitled to vote pursuant to Section 8.1(c)(i) or (ii) of this
Agreement, or of any matter upon which action may be taken by written
consent of such Preferred Members, to be mailed to each Preferred Member of
record of the Preferred Securities of such series. Each such notice will
include a statement setting forth (i) the date of such meeting or the date
by which such action is to be taken, (ii) a description of any action
proposed to be taken at such meeting on which such Preferred Members are
entitled to vote or of such matters upon which written consent is sought
and (iii) instructions for the delivery of proxies or consents.
(c) Subject to Section 8.3(b), the Managing Members, in their
sole discretion, shall establish all other
<PAGE>
provisions relating to meetings of Members, including notice of the time,
place or purpose of any meeting at which any matter is to be voted on by
any Members, waiver of any such notice, action by consent without a
meeting, the establishment of a record date, quorum requirements, voting in
person or by proxy or any other matter with respect to the exercise of any
such right to vote.
ARTICLE IX
DIVIDENDS AND OTHER DISTRIBUTIONS
Section 9.1. Dividends or Other Distributions. (a) Preferred
Members shall receive periodic dividends or other distributions, if any, in
accordance with the applicable terms of the Preferred Securities, as and
when declared by the Managing Members, and Common Members shall receive
periodic dividends or other distributions, subject to Section 9.3 of this
Agreement, the applicable terms of any series of Preferred Securities and
to the provisions of the Delaware Act, as and when declared by the Managing
Members in accordance with the Written Action establishing any Series of
Preferred Securities and Related Common Securities, in their discretion,
out of funds legally available therefor.
(b) Dividends or other distributions on the Preferred Securities
shall be declared by the Managing Members to the extent that the Managing
Members reasonably anticipate that as of the time of payment the Company
will have, and such dividends or other distributions must be paid by the
Company to the extent that at the time of proposed payment it has, (i)
funds received from Morgan Guaranty in respect of the related Note which
are legally available for the payment of such dividends or other
distributions and (ii) cash on hand sufficient to permit such payments.
(c) A Preferred Member shall not be entitled to receive any
dividend or other distribution with respect to the Preferred Securities of
any series, irrespective of whether such dividend or other distribution has
been declared by the Managing Members, prior to the date on which such
dividend or other distribution is payable and until such time as the
Company has received the interest payment on the related Note for the
interest payment date corresponding to such dividend or other distribution
payment date and such monies are available for distribution to the
<PAGE>
Preferred Member pursuant to the terms of this Agreement and the Delaware
Act; and notwithstanding any provision of Section 18-606 of the Delaware
Act to the contrary, until such time a Preferred Member shall not have the
status of a creditor of the Company or the remedies available to a creditor
of the Company.
Section 9.2. Limitations on Distributions. Notwithstanding any
provision to the contrary contained in this Agreement, the Company shall
not make a distribution (including a dividend) to any Member on account of
its Interest if such distribution would violate Section 18-607 of the
Delaware Act or other applicable law.
Section 9.3. Certain Restrictions on the Payment of Dividends or
Other Distributions. If dividends or other distributions have not been paid
in full on the Preferred Securities of any series, the Company shall not:
(i) pay, or declare and set aside for payment, any dividends or
other distributions on the Preferred Securities of any other series or
any other Interests in the Company ranking pari passu with the
Preferred Securities of such series with respect to participation in
profits of the Company (any such securities, "Company Dividend Parity
Securities"), unless the amount of any dividends or other
distributions declared on any Company Dividend Parity Securities is
paid on the Company Dividend Parity Securities and the Preferred
Securities of such series on a pro rata basis on the date such
dividends or other distributions are paid on such Company Dividend
Parity Securities, so that the ratio of
(x)(A) the aggregate amount paid as dividends or other
distributions on the Preferred Securities of such series to (B)
the aggregate amount paid as dividends or other distributions on
the Company Dividend Parity Securities
is the same as the ratio of
(y)(A) the aggregate amount of all accumulated arrears of
unpaid dividends or other distributions on the Preferred
Securities of such series to (B) the aggregate amount of all
accumulated arrears of unpaid dividends or other
<PAGE>
distributions on the Company Dividend Parity Securities;
(ii) pay, or declare and set aside for payment, any
dividends or other distributions on any Interests in the Company
ranking junior to the Preferred Securities of such series as to
dividends or other distributions (any such securities, "Company
Dividend Junior Securities"); or
(iii) redeem, purchase or otherwise acquire any Company
Dividend Parity Securities or Company Dividend Junior Securities;
until, in each case, such time as all accumulated arrears of unpaid
dividends or other distributions on the Preferred Securities of such series
shall have been paid or set aside for payment in full for all dividend or
other distribution periods terminating on or prior to, in the case of
clauses (i) and (ii), such payment, and in the case of clause (iii), the
date of such redemption, purchase or other acquisition.
ARTICLE X
BOOKS AND RECORDS
Section 10.1. Books and Records; Accounting. The Managing Members
shall keep or cause to be kept at the address of the Managing Members (or
at such other place as the Managing Members shall advise the other Members
in writing) true and full books and records regarding the status of the
business and financial condition of the Company.
Section 10.2. Financial Statements. The Managing Members shall,
as soon as available after the end of each fiscal year, cause to be
prepared and mailed to each Preferred Member of record the unaudited
financial statements of the Company for such fiscal year prepared in
accordance with generally accepted accounting principles.
Section 10.3. Fiscal Year. The fiscal year of the Company for
federal income tax and accounting purposes shall, except as otherwise
required in accordance with the Code, end on December 31 of each year.
<PAGE>
Section 10.4. Limitation on Access to Records. Notwithstanding
any provision of this Agreement, the Managing Members may, to the maximum
extent permitted by law, keep confidential from the Preferred Members any
information the disclosure of which the Managing Members reasonably believe
is not in the best interest of the Company or could damage the Company or
its business or which the Company or the Managing Members are required by
law or by an agreement with any Person to keep confidential.
ARTICLE XI
TAX MATTERS
Section 11.1. Company Tax Returns. (a) The Managing Members shall
cause to be prepared and timely filed all tax returns required to be filed
for the Company. The Managing Members may, in their discretion, make or
refrain from making any federal, state or local income or other tax
elections for the Company that they deem necessary or advisable, including,
without limitation, any election under Section 754 of the Code or any
successor provision.
(b) J.P. Morgan is hereby designated as the Company's "Tax
Matters Partner" under Code Section 6231(a)(7) and shall have all the
powers and responsibilities of such position as provided in the Code. J.P.
Morgan is specifically directed and authorized to take whatever steps J.P.
Morgan, in its discretion, deems necessary or desirable to perfect such
designation, including filing any forms or documents with the Internal
Revenue Service and taking such other action as may from time to time be
required by the Code or any regulations issued thereunder. Expenses
incurred by the Tax Matters Partner, in its capacity as such, will be borne
by the Company.
Section 11.2. Tax Reports. The Managing Members shall, as
promptly as practicable and in any event within 90 days of the end of each
fiscal year, cause to be prepared and mailed to each Preferred Member of
record federal income tax form K-1 and any other forms which are necessary
or, in the discretion of the Managing Members, advisable.
Section 11.3. Taxation as Partnership. Subject to a final
determination by the Internal Revenue Service to the contrary, the Company
shall take no action inconsistent
<PAGE>
with its intended characterization as a partnership for U.S. Federal income
tax purposes.
ARTICLE XII
EXPENSES
Section 12.1. Expenses. Except as otherwise provided in this
Agreement or any Written Action of the Managing Members, the Company shall
be responsible for all expenses of the Company, and shall pay all such
expenses out of funds of the Company determined by the Managing Members to
be available for such purpose; provided that such expenses or obligations
are those of the Company or are otherwise incurred by the Managing Members
in connection with this Agreement, including, without limitation:
(a) all costs and expenses related to the business of the Company
and all routine administrative expenses of the Company, including the
maintenance of books and records of the Company, the preparation and
dispatch to the Members of checks, financial reports, tax returns and
notices required pursuant to this Agreement and the holding of any
meetings of the Members;
(b) all expenses incurred in connection with any litigation
involving the Company (including the cost of any investigation and
preparation) and the amount of any judgement or settlement paid in
connection therewith (other than expenses incurred by any Managing
Member in connection with any litigation brought by or on behalf of
any Member against such Managing Member);
(c) all expenses for indemnity or contribution payable by the
Company to any Person (including any Managing Member);
(d) all expenses incurred in connection with the collection of
amounts due to the Company from any Person;
(e) all expenses incurred in connection with the preparation of
amendments to this Agreement; and
(f) all expenses incurred in connection with the dissolution,
winding up or termination of the Company.
<PAGE>
ARTICLE XIII
LIABILITY
Section 13.1. Liability of Common Members. Each Common Member, by
acquiring its Interest and being admitted to the Company as a Common
Member, shall be liable to the creditors of the Company (other than to
Members holding other classes or series of Interests, in their capacity as
Members) (hereinafter referred to individually as a "Third Party Creditor",
and collectively as the "Third Party Creditors") to the same extent that a
general partner of a limited partnership formed under the LP Act is liable
under Section 17-403(b) of the LP Act to creditors of the limited
partnership (other than the other partners in their capacity as partners),
as if the Company were a limited partnership formed under the LP Act and
the Common Members were general partners of the limited partnership. In
furtherance and not in limitation of the foregoing, each Common Member (i)
is liable for any and all debts, obligations and other liabilities of the
Company, whether arising under contract or by tort, statute, operation of
law or otherwise, enforceable directly and absolutely against each Common
Member by each Third Party Creditor and (ii) is deemed to and does assume,
as a surety and not merely as a guarantor, each debt, obligation or other
liability of the Company to all Third Party Creditors.
Section 13.2. Liability of Preferred Members. (a) Except as
otherwise provided by the Delaware Act, (i) the debts, obligations and
liabilities of the Company, whether arising in contract, tort or otherwise,
shall be solely the debts, obligations and liabilities of the Company and,
to the extent set forth in Section 13.1, the Common Members and (ii) no
Preferred Member shall be obligated personally for any such debt,
obligation or liability of the Company solely by reason of being a
Preferred Member of the Company.
(b) A Preferred Member, in its capacity as such, shall have no
liability in excess of (i) the amount of its capital contributions, (ii)
its share of any assets and undistributed profits of the Company, (iii) any
amounts required to be paid by such Preferred Member in the written action
or actions creating the series of Preferred Securities held by such
Preferred Member and (iv) the amount of any distributions wrongfully
distributed to it.
<PAGE>
ARTICLE XIV
ASSIGNMENT OF INTERESTS
Section 14.1. Assignment of Interests. Notwithstanding anything
to the contrary in this Agreement other than Section 2.8, Common Securities
shall be non-assignable and non-transferable, and may only be issued to a
Managing Member and held by the Managing Member to which such Common
Security was originally issued. Preferred Securities shall be freely
assignable and transferable, subject to the provisions of Section 2.7.
Section 14.2. Right of Assignee to Become a Member. An assignee
shall become a Member upon compliance with the provisions of Section 2.7.
Section 14.3. Events of Cessation of Membership. A Person (other
than a Managing Member, in its capacity as such) shall cease to be a Member
upon the lawful assignment of its Interests (including any redemption,
exchange or other repurchase by the Company or the Managing Members) or as
otherwise provided herein.
ARTICLE XV
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 15.1. No Dissolution. The Company shall not be dissolved
by the admission of Members in accordance with the terms of this Agreement.
Except as provided in Sections 15.2(b) and (c), the death, retirement,
resignation, expulsion, bankruptcy or dissolution of a Member, or the
occurrence of any other event which terminates the continued membership of
a Member in the Company, shall not cause the Company to be dissolved and
its affairs wound up so long as the Company at all times has at least two
Members. Upon the occurrence of any such event, the business of the Company
shall be continued without dissolution.
Section 15.2. Events Causing Dissolution. The Company shall be
dissolved and its affairs shall be wound up upon the occurrence of any of
the following events:
(a) the expiration of the term of the Company, as provided in
Section 2.3 hereof;
<PAGE>
(b) a decree or order by a court having jurisdiction in the
premises shall have been entered adjudging either of the Managing
Members a bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or
composition of either of the Managing Members under any applicable
Federal or State bankruptcy or similar law, and such decree or order
shall have continued undischarged and unstayed for a period of 90
days; or a decree or order of a court having jurisdiction in the
premises for the appointment of a receiver, liquidator, trustee,
assignee, sequestrator or similar official in bankruptcy or insolvency
of either of the Managing Members or of all or substantially all of
its property, or for the winding up or liquidation of its affairs,
shall have been entered, and such decree or order shall have continued
undischarged and unstayed for a period of 90 days or either of the
Managing Members shall institute proceedings to be adjudicated a
voluntary bankrupt, or shall consent to the filing of a bankruptcy
proceeding against it, or shall file a petition or answer or consent
seeking reorganization, arrangement, adjustment or composition under
any applicable Federal or State bankruptcy or similar law, or shall
consent to the filing of any such petition, or shall consent to the
appointment of a receiver, liquidator, trustee, assignee, sequestrator
or similar official in bankruptcy or insolvency of either of the
Managing Members or of all or substantially all of its property, or
shall make an assignment for the benefit of creditors, or shall admit
in writing its inability to pay its debts generally as they become due
and its willingness to be adjudged a bankrupt, or corporate action
shall be taken by either of the Managing Members in furtherance of any
of the aforesaid purposes;
(c) upon the retirement, resignation, expulsion, dissolution,
winding up or liquidation of any Managing Member or the occurrence of
any other event that terminates the continued membership of such
Managing Member under the Delaware Act;
(d) a decision made by the Managing Members (subject to the
voting rights of Preferred Members set forth in Section 8.1) to
dissolve the Company;
(e) the entry of a decree of judicial dissolution under Section
18-802 of the Delaware Act;
<PAGE>
(f) at the election of the Managing Members, in connection with
the redemption of all series of Preferred Securities outstanding (in
accordance with the terms of the written action establishing each such
series of Preferred Securities); or
(g) the written consent of all Members.
Section 15.3. Notice of Dissolution. Upon the dissolution of the
Company, the Managing Members shall promptly notify the Members of such
dissolution.
Section 15.4. Liquidation. Upon dissolution of the Company, the
Managing Members or, in the event that (i) the dissolution is caused by an
event described in Section 15.2(b) or (c) and (ii) there are no Managing
Members, a Person or Persons who may be approved by the Preferred Members
holding not less than a majority in Principal Amount of the Preferred
Securities, as liquidating trustees, shall immediately commence to wind up
the Company's affairs; provided, however, that a reasonable time shall be
allowed for the orderly liquidation of the assets of the Company and the
satisfaction of liabilities to creditors so as to enable the Members to
minimize the normal losses attendant upon a liquidation. The proceeds of
liquidation shall be distributed, as realized, in the manner provided in
Section 18-804 of the Delaware Act, subject to the applicable terms of any
series of Preferred Securities.
Section 15.5. Certain Restrictions on Liquidation Payments. In
the event of any voluntary or involuntary dissolution of the Company,
Members holding Preferred Securities of each series outstanding at such
time will be entitled to receive out of the assets of the Company legally
available for distribution to Members, before any distribution of assets is
made to Common Members or Members holding any other class of Interests in
the Company ranking junior to the Preferred Securities with respect to
participation in assets of the Company, but together with Members holding
Preferred Securities of any other series or any other Interests in the
Company outstanding ranking pari passu with the Preferred Securities with
respect to participation in the assets of the Company (any such securities,
"Company Liquidation Parity Securities"), an amount equal, in the case of
Members holding Preferred Securities of such series, to the Principal
Amount for Preferred Securities of such series as set forth in the
applicable Written Actions taken by the Managing Members and
<PAGE>
all accumulated and unpaid dividends (whether or not declared) to the date
of payment (the "Liquidation Distribution"). If, upon any such liquidation,
Liquidation Distributions can be paid only in part because the Company has
insufficient assets available to pay in full the aggregate Liquidation
Distributions and the aggregate maximum liquidation distributions on all
Company Liquidation Parity Securities, then the amounts payable directly by
the Company on the Preferred Securities of such series and on such Company
Liquidation Parity Securities shall be paid on a pro rata basis, so that
the ratio of
(i)(x) the aggregate amount paid as Liquidation Distributions on
the Preferred Securities of such series to (y) the aggregate amount
paid as liquidation distributions on the Company Liquidation Parity
Securities
is the same as the ratio of
(ii)(x) the aggregate Liquidation Distributions to (y) the
aggregate maximum liquidation distributions on the Company Liquidation
Parity Securities.
Section 15.6. Termination. The Company shall terminate when all
of the assets of the Company have been distributed in the manner provided
for in this Article XV, and the Certificate shall have been cancelled in
the manner required by the Delaware Act.
ARTICLE XVI
MISCELLANEOUS
Section 16.1. Amendments. Except as otherwise provided in this
Agreement or by any applicable terms of any Preferred Securities, this
Agreement may only be amended by a written instrument executed by the
Managing Members including, without limitation, any amendment to (i) cure
any ambiguity, (ii) correct or supplement any provision in this Agreement
that may be inconsistent with any other provision of this Agreement, (iii)
add to the covenants, restrictions or obligations of J.P. Morgan (iv)
conform to changes in, or a change in interpretation or application of,
certain requirements of the 1940 Act by the Commission and (v) conform to
certain requirements of the Code with respect to the characterization of
the Company as a partnership for
<PAGE>
U.S. Federal income tax purposes, including, without limitation, an
alteration of the capitalization of the Company upon any such change, which
amendment does not adversely affect the rights, preferences or privileges
of the holder Preferred Securities.
Section 16.2. Successors; Counterparts. This Agreement (a) shall
be binding as to the executors, administrators, estates, heirs and legal
successors, or nominees or representatives, of the Members and (b) may be
executed in several counterparts with the same effect as if the parties
executing the several counterparts had all executed one counterpart.
Section 16.3. Governing Law; Severability. This Agreement shall
be governed by and construed in accordance with the laws of the State of
Delaware without giving effect to the principles of conflict of laws
thereof. In particular, this Agreement shall be construed to the maximum
extent possible to comply with all of the terms and conditions of the
Delaware Act. If, nevertheless, it shall be determined by a court of
competent jurisdiction that any provisions or wording of this Agreement
shall be invalid or unenforceable under the Delaware Act or other
applicable law, such invalidity or unenforceability shall not invalidate
the entire Agreement. In that case, this Agreement shall be construed so as
to limit any term or provision so as to make it enforceable or valid within
the requirements of applicable law, and, in the event such term or
provisions cannot be so limited, this Agreement shall be construed to omit
such invalid or unenforceable provisions. If it shall be determined by a
court of competent jurisdiction that any provision relating to the
distributions and allocations of the Company or to any fee payable by the
Company is invalid or unenforceable, this Agreement shall be construed or
interpreted so as (a) to make it enforceable or valid and (b) to make the
distributions and allocations as closely equivalent to those set forth in
this Agreement as is permissible under applicable law.
Section 16.4. Filings. Following the execution and delivery of
this Agreement, the Managing Members shall promptly prepare any documents
required to be filed and recorded under the Delaware Act, and the Managing
Members shall promptly cause each such document to be filed and recorded in
accordance with the Delaware Act and, to the extent required by local law,
to be filed and recorded or
<PAGE>
notice thereof to be published in the appropriate place in each
jurisdiction in which the Company may hereafter establish a place of
business. The Managing Members shall also promptly cause to be filed,
recorded and published such statements of fictitious business name and any
other notices, certificates, statements or other instruments required by
any provision of any applicable law of the United States or any state or
other jurisdiction which governs the conduct of its business from time to
time.
Section 16.5. Power of Attorney. Each Preferred Member does
hereby constitute and appoint each Managing Member as its true and lawful
representative and attorney-in-fact, in its name, place and stead to make,
execute, sign, deliver and file (a) any amendment of the Certificate
required because of an amendment to this Agreement or in order to
effectuate any change in the membership of the Company, (b) any amendments
to this Agreement made in accordance with the terms hereof and (c) all such
other instruments, documents and certificates which may from time to time
be required by the laws of the United States of America, the State of
Delaware or any other jurisdiction, or any political subdivision or agency
thereof, to effectuate, implement and continue the valid and subsisting
existence of the Company or to dissolve the Company or for any other
purpose consistent with this Agreement and the transactions contemplated
hereby.
The power of attorney granted hereby is coupled with an interest
and shall (a) survive and not be affected by the subsequent death,
incapacity, disability, dissolution, termination or bankruptcy of the
Preferred Member granting the same or the transfer of all or any portion of
such Preferred Member's Interest and (b) extend to such Preferred Member's
successors, assigns and legal representatives.
Section 16.6. Exculpation. (a) No Covered Person shall be liable
to the Company or any Member for any loss, damage or claim incurred by
reason of any act or omission performed or omitted by such Covered Person
in good faith on behalf of the Company and in a manner reasonably believed
to be within the scope of authority conferred on such Covered Person by
this Agreement.
(b) A Covered Person shall be fully protected in relying in good
faith upon the records of the Company and upon such information, opinions,
reports or statements
<PAGE>
presented to the Company by any Person as to matters the Covered Person
reasonably believes are within such other Person's professional or expert
competence and who has been selected with reasonable care by or on behalf
of the Company, including information, opinions, reports or statements as
to the value and amount of the assets, liabilities, profits, losses, or any
other facts, pertinent to the existence and amount of assets from which
distributions to Members might properly be paid.
Section 16.7. Indemnification. To the fullest extent permitted by
applicable law, an Indemnified Person shall be entitled to indemnification
from the Company for any loss, damage or claim incurred by such Indemnified
Person by reason of any act or omission performed or omitted by such
Indemnified Person in good faith on behalf of the Company and in a manner
reasonably believed to be within the scope of authority conferred on such
Indemnified Person by this Agreement; provided, however, that any indemnity
under this Section 16.7 shall be provided out of and to the extent of the
Company's assets only, and no Member shall have any personal liability on
account thereof.
Section 16.8. Additional Documents. Each Preferred Member, upon
the request of the Managing Members, agrees to perform all further acts and
execute, acknowledge and deliver any documents that may be reasonably
necessary to carry out the provisions of this Agreement.
Section 16.9. Notices. All notices provided for in this Agreement
shall be in writing, duly signed by the party giving such notice, and shall
be delivered, telecopied or mailed by registered or certified mail, as
follows:
(i) If given to the Company, in care of the Managing Members at
the Company's mailing address set forth below:
c/o J.P. Morgan & Co. Incorporated
60 Wall Street
New York, NY 10260-0060
Facsimile No.: (212) 648-2157
Attention: Commodities Desk
(ii) If given to any Member, at the address set forth on the
registration books maintained by or on behalf of the Company.
<PAGE>
Each such notice, request or other communication shall be effective (a) if
given by telecopier, when transmitted to the number specified in such
registration books and the appropriate confirmation is received, (b) if
given by mail, 72 hours after such communication is deposited in the mails
with first class postage prepaid, addressed as aforesaid, or (c) if given
by any other means, when delivered at the address specified in such
registration books.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above stated.
J.P. MORGAN & CO.
INCORPORATED,
by:
/s/ Margaret M. Foran
-----------------------------------
Name: Margaret M. Foran
Title: Attorney-in-Fact
J.P. MORGAN VENTURES
CORPORATION,
by:
/s/ Brian Watson
---------------------------------------
Name: Brian Watson
Title:
<PAGE>
EXHIBIT [ ]
Terms of the Preferred Securities, Series [ ]
DATED AS OF , 199[ ]
WRITTEN ACTION OF THE MANAGING MEMBERS
PURSUANT TO SECTION 7.1 OF THE
LIMITED LIABILITY COMPANY AGREEMENT
OF J.P. MORGAN INDEX FUNDING COMPANY, LLC
The undersigned, constituting all of the Managing Members of J.P
Morgan Index Funding Company, LLC, a Delaware limited liability company
(the "Company"), pursuant to Section 7.1 of the Limited Liability Company
Agreement of the Company (the "Agreement") dated as of February 16, 1996,
by and among the Managing Members and the Persons who become Members of the
Company in accordance with the provisions thereof, do hereby authorize the
issuance of, and establish the relative rights, powers, preferences,
limitations and restrictions of, a series of Preferred Securities as
follows:
1. Definitions. All capitalized terms used but not defined herein
shall have the meanings assigned to them in the Agreement. The following
additional terms have the respective meanings specified below:
"Business Day" means any day other than a day on which banking
institutions in The City of New York are permitted or required by
applicable law to close.
"Expense Agreement" means the Agreement as to Expenses and
Liabilities dated as of , 1996 between J.P. Morgan & Co. Incorporated, a
Delaware corporation ("J.P. Morgan"), and the Company, as amended from time
to time.
"Guarantee" means the Guarantee Agreement dated as of , 1996,
executed and delivered by J.P. Morgan for the benefit of the holders from
time to time of the Preferred Securities of the Company, as amended from
time to time.
"Principal Amount" means [method for calculation] [stated
liquidation preference].
<PAGE>
"Redemption Price" means, with respect to any date fixed for
redemption (whether pursuant to optional redemption by the holders thereof
or otherwise) of any Series [ ] Preferred Security, the Principal Amount of
such Series [ ] Preferred Security, plus accumulated and unpaid dividends
(whether or not declared) to such date.
"Series [ ] Note" means the $ initial principal amount (or up to
initial principal amount if and to the extent the over-allotment option
granted by the Company to the Underwriters of the Series [ ] Preferred
Securities is exercised) Series [ ] Note due [ ] of Morgan Guaranty and any
other Notes issued in exchange for Morgan Guaranty's [ ] Series [ ] Note
due [ ] upon the terms and subject to the conditions set forth in Section
6(e) hereof.
2. Designation. of a series of Preferred Securities (or up to
of a series of Preferred Securities if and to the extent the over-allotment
option granted by the Company to the underwriters of the Series [ ]
Preferred Securities is exercised) with a Face Amount of $[ ] per Preferred
Security are hereby authorized and designated as "Preferred Securities,
Series[ ]" (hereinafter called the "Series [ ] Preferred Securities").
3. Voting. Except as otherwise provided in the Delaware Limited
Liability Company Act, 6 Del. C. Section 18-101, et seq., as amended, the
Agreement (including, without limitation, Section 8.1 thereof) or this
Written Action, Preferred Members holding the Series [ ] Preferred
Securities shall have, with respect to such Series [ ] Preferred
Securities, no right or power to vote on any question or matter or in any
proceeding or to be represented at, or to receive notice of, any meeting of
Members.
4. Periodic Dividends. (a) Periodic Dividends on the Series [ ]
Preferred Securities shall be cumulative. Such Dividends will accumulate
and be cumulative whether or not they have been declared and whether or not
there are profits, surplus or other funds of the Company legally available
for the payment of dividends. Dividends shall accrue from , 199[ ] and
shall be payable [monthly] in arrears on the last day of [each calendar
month] of each year, commencing on , 199[ ].
<PAGE>
(b) The dividend payable on the Series [ ] Preferred Securities
shall be [describe method of determination thereof] [at a rate of %] of
the Face Amount [Principal Amount] of the Series [ ] Preferred Securities. The
amount of dividends payable for any full [monthly] dividend period shall be
computed on the basis of twelve 30-day months and a 360-day year and, for
any period shorter than a full [monthly] dividend period, shall be computed
on the basis of the actual number of days elapsed in such period. The
Company shall only pay dividends to the extent it has funds legally
available to make such payments.
(c) Dividends declared on the Series [ ] Preferred Securities
shall be payable to the record holders thereof as they appear on the
register for the Series [ ] Preferred Securities maintained by or on behalf
of the Company on the relevant record date, which shall be one Business Day
prior to the relevant payment date; provided that in the event that the
Series [ ] Preferred Securities do not remain in book-entry-only form, the
relevant record date shall be [the fifteenth day of the month in which the
relevant payment date occurs]. If any date on which dividends are payable
on the Series [ ] Preferred Securities is not a Business Day, then the
payment of the dividend payable on such date shall be made on the next
succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay) except that, if such Business Day is
in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on such date.
(d) Except as described in the Agreement and in this Written
Action, the Series [ ] Preferred Securities shall have no other right to
participate in the profits of the Company.
5. Ranking; Liquidation. (a) The Series [ ] Preferred Securities
shall, with respect to dividend rights and rights on dissolution, rank (i)
pari passu with all other series of Preferred Securities issued by the
Company and (ii) prior to any other Interests of the Company, including the
Common Securities.
(b) In the event of any voluntary or involuntary dissolution of
the Company, Preferred Members holding Series [ ] Preferred Securities
shall be entitled to receive for each Series [ ] Preferred Security the
<PAGE>
Principal Amount plus accumulated and unpaid dividends (whether
or not declared) to the date of payment.
6. Redemption or Exchange. (a) The Series [ ] Preferred
Securities shall be redeemable at the option of the holders thereof, in
whole or in part [from time to time], on or after , 199[ ], upon [not less
than nor more than ] notice to [DTC] [the Company], at the Redemption
Price.
(b) If there shall have occurred after , 199[ ], a change in any
applicable U.S. law or regulation or in the interpretation thereof
(including but not limited to the enactment or imminent enactment of any
legislation, the publication of any judicial decisions, regulatory rulings,
regulatory procedures, or notices or announcements (including notices or
announcements of intent to adopt such procedures or regulations), or a
change in the official position or in the interpretation of any law or
regulation by any legislative body, court, governmental authority or
regulatory body, irrespective of the manner in which such change is made
known), and the Company and J.P. Morgan shall have been advised by legal
counsel (which counsel shall not be an employee of J.P. Morgan or the
Company) that, as a result of such change, there exists more than an
insubstantial risk that (i) Morgan Guaranty will be precluded from
deducting the interest paid on the Series [ ] Note for federal income tax
purposes, (ii) the Company will be subject to federal income tax with
respect to the interest received on the Series [ ] Note or (iii) [loss of
contingent principal deduction], then the Company may redeem the Series [ ]
Preferred Securities, in whole or in part, at the Redemption Price.
(c) The Series [ ] Preferred Securities shall be redeemed at the
Redemption Price with the proceeds from the repayment by Morgan Guaranty
when due of the Series [ ] Note or upon any redemption by Morgan Guaranty
of such Series [ ] Note pursuant to the terms thereof.
(d) If the Company or any holder of Series [ ] Preferred
Securities gives a notice of redemption in respect of any Series [ ]
Preferred Securities as provided herein, then, by 12:00 noon, New York
time, on the date fixed for redemption, the Company will, so long as the
Series [ ] Preferred Securities are in book-entry-only form, irrevocably
deposit with the securities depository for the Series [ ] Preferred
Securities funds sufficient to pay the
<PAGE>
applicable Redemption Price and will give such depository irrevocable
instructions and authority to pay the Redemption Price to the holders
thereof. If the Series [ ] Preferred Securities are no longer in
book-entry-only form, the Company will irrevocably deposit with the paying
agent for the Series [ ] Preferred Securities funds sufficient to pay the
applicable Redemption Price and will give such paying agent irrevocable
instructions and authority to pay the Redemption Price to the holders
thereof upon surrender of their Series [ ] Preferred Security certificates.
Notwithstanding the foregoing, dividends payable on or prior to the
redemption date for any Series [ ] Preferred Securities called for
redemption shall be payable to the holders of such Series [ ] Preferred
Securities on the relevant record dates for the payments thereof. If notice
of redemption shall have been given and funds deposited as required, then
upon the date of such deposit, all rights of Preferred Members holding
Series [ ] Preferred Securities so called for redemption will cease, except
the right of such Preferred Members to receive the Redemption Price, but
without interest, and such securities will cease to be outstanding. In the
event that any date on which any payment in respect of the redemption of
any Series [ ] Preferred Securities is payable is not a Business Day, then
payment of the Redemption Price payable on such date will be made on the
next succeeding day which is a Business Day (and without any interest or
other payment in respect of any such delay), except that, if such Business
Day falls in the next calendar year, such payment will be made on the
immediately preceding Business Day. In the event that payment of the
Redemption Price in respect of any Series [ ] Preferred Securities called
for redemption is improperly withheld or refused and not paid either by the
Company or by J.P. Morgan pursuant to the Guarantee, dividends on such
Series [ ] Preferred Securities will continue to accrue, at the then
applicable rate, from the Redemption Date originally established by the
Company for such Series [ ] Preferred Securities to the date such
Redemption Price is actually paid, in which case the actual payment will be
the date fixed for redemption for purposes of calculating the Redemption
Price.
(e) Subject to the foregoing and applicable law (including
without limitation, U.S. federal securities laws) J.P. Morgan or its
subsidiaries may at any time and from time to time purchase outstanding
Series [ ] Preferred Securities by tender, in the open market or by private
agreement.
<PAGE>
7. Sinking Fund. The Series [ ] Preferred Securities [shall]
[shall not] be subject to the operation of a retirement or sinking fund.
8. Guarantee of Liabilities. It shall be a condition precedent to
the issuance of the Series [ ] Preferred Securities that J.P. Morgan
execute the Guarantee and the Expense Agreement.
9. Book-Entry-Only Issuance. (a) The Depository Trust Company,
New York, New York ("DTC"), will initially act as securities depository for
the Series [ ] Preferred Securities. The Series [ ] Preferred Securities
will be issued only as fully-registered securities registered in the name
of [Cede & Co. (DTC's partnership nominee)].
(b) Redemption notices shall be sent to Cede & Co. If less then
all of the Series [ ] Preferred Securities are being redeemed, such
securities shall be redeemed in accordance with DTC's then-current
practice.
(c) DTC may discontinue providing its services as securities
depository with respect to the Series [ ] Preferred Securities by giving
reasonable notice to the Company as provided in the agreement between the
Company and DTC. Under such circumstances, if a successor securities
depositary is not obtained, the Company at its expense shall cause
certificates for Series [ ] Preferred Securities to be printed and
delivered as promptly as practicable.
(d) In the event that the Series [ ] Preferred Securities do not
remain in book-entry-only form, the following provisions will apply:
(i) registration of transfers of Series [ ] Preferred Securities
will be effected without charge by or on behalf of the Company, but
upon payment (with the giving of such indemnity as the Company or J.P.
Morgan may require) in respect of any tax or other governmental
charges which may be imposed in connection therewith; and
(ii) the Company will not be required to register or cause to be
registered the transfer of Series [ ] Preferred Securities after such
Preferred Securities have been called for redemption or exchange.
<PAGE>
10. Authorization of Agreements. The Company, and either Managing
Member on behalf of the Company, may enter into and perform the Expense
Agreement and the Underwriting Agreement without any further act, vote or
approval of any Member.
11. Registrar and Transfer Agent. The Company hereby appoints [ ]
as its initial registrar, transfer agent and Paying Agent for the Series
[ ] Preferred Securities.
12. Governing Law. This Written Action shall be governed by and
construed in accordance with the laws of the State of Delaware without
giving effect to the principles of conflict of laws thereof.
IN WITNESS WHEREOF, the undersigned Managing Members of the
Company have hereto set their hands as of the day and year first above
written.
J.P. MORGAN & CO.
INCORPORATED,
By:
-----------------------------
Name:
Title:
J.P. MORGAN VENTURES
CORPORATION,
By:
-----------------------------
Name:
Title:
<PAGE>
EXHIBIT [ ]
Certificate Number
Number of Shares
----------- ----------
1 00,000,000
CUSIP NO.
CERTIFICATE EVIDENCING LIMITED LIABILITY COMPANY INTERESTS
PREFERRED SECURITIES, SERIES [ ]
OF
J.P. MORGAN INDEX FUNDING COMPANY, LLC
J.P. Morgan Index Funding Company, LLC, a Delaware limited
liability company (the "Company"), hereby certifies that [Cede & Co.] (the
"Holder") is the registered owner of 00,000,000 preferred limited liability
company interests in the Company of a series designated the [ ]% Preferred
Securities, Series [ ] (the "Securities"). The Securities are fully paid
and nonassessable limited liability company interests in the Company, as to
which the members of the Company who hold the Securities (the "Preferred
Securityholders") in their capacity as members of the Company will have no
liability solely by reason of being Preferred Securityholders in excess of
their share of the Company's assets and undistributed profits (subject to
the obligation of a Preferred Securityholder to repay any funds wrongfully
distributed to it), and are transferable on the books and records of the
Company, in person or by a duly authorized attorney, upon surrender of this
certificate duly endorsed and in proper form for transfer. The powers,
preferences and special rights and restrictions of the Securities are set
forth in, and this Certificate and the Securities represented hereby are
issued and shall in all respects be subject to the terms and provisions of,
the Limited Liability Company Agreement of the Company, dated as of , 1996,
as the same may be amended from time to time (the "LLC Agreement") and the
written action of the Managing Members of the Company authorizing the
issuance of the Securities and determining the powers, preferences and
special rights and restrictions, regarding dividends, voting, redemption,
exchange, return of capital and otherwise, and other matters relating to
the Securities (the "Securities Terms"), copies of which LLC Agreement and
Securities Terms are on file at the principal office of the Company. The
Company will furnish a copy of such
<PAGE>
LLC Agreement and Securities Terms to each Preferred Securityholder without
charge upon written request to the Company at its principal place of
business or registered office, as the case may be. Each Preferred
Securityholder is entitled to the benefits of the Guarantee Agreement of
J.P. Morgan & Co. Incorporated ("J.P. Morgan"), dated , 1996 (the
"Guarantee") to the extent provided therein and is entitled to enforce the
rights of the Company under the related Note (the "Note") issued by Morgan
Guaranty Trust Company of New York ("Morgan Guaranty") to the Company to
the extent provided therein. The Company will furnish a copy of such
Guarantee to each Preferred Securityholder without charge upon written
request to the Company at its principal place of business.
Each Preferred Securityholder, by accepting this Certificate, is
deemed to have agreed that each of the Guarantee and the Senior Note
Guarantee Agreement, dated as of [ ], executed and delivered by J.P. Morgan
for the benefit of the Company (the "Senior Note Guarantee"), is
subordinate and junior in right of payment to all liabilities of J.P.
Morgan and pari passu with the most senior preferred or preference stock of
any series now or hereafter issued by J.P. Morgan and pari passu with any
guarantee now or hereafter entered into by J. P. Morgan in respect of any
preferred or preference stock or interest of any affiliate of J.P. Morgan,
as and to the extent provided in the Guarantee or the Senior Note
Guarantee, as applicable.
IN WITNESS WHEREOF, this certificate has been signed on behalf of
the Company by a duly authorized officer of one of its Managing Members and
on behalf of J.P. Morgan, as Guarantor, by a duly authorized officer
thereof.
J.P. MORGAN INDEX FUNDING
COMPANY, LLC
By J.P. MORGAN & CO.
INCORPORATED,
as Managing Member,
By:
---------------------------------
<PAGE>
By J.P. MORGAN & CO.
INCORPORATED, as
Guarantor
By:
--------------------------------
EXHIBIT [ ]
GUARANTEE AGREEMENT
GUARANTEE AGREEMENT (the "Guarantee"), dated as of
, 1996, executed and delivered by J.P. Morgan & Co.
Incorporated, a Delaware corporation ("J.P. Morgan"),
for the benefit of the Holders (as defined below) from
time to time of the Preferred Securities (as defined
below) of J.P. Morgan Index Funding Company, LLC, a
Delaware limited liability company (the "Company").
WHEREAS, the Company intends to issue its common limited
liability company interests (the "Common Securities") to and receive
related capital contributions from J.P. Morgan and J.P. Morgan Ventures
Corporation ("JPM Ventures"), and to issue and sell from time to time, in
one or more series, preferred limited liability company interests (the
"Preferred Securities") with such rights, preferences, privileges,
limitations and restrictions as are set forth in a written resolution or
resolutions (a "Written Action") by the Managing Members (as defined below)
providing for the issue of such series;
WHEREAS, the Company will purchase Related Notes (as defined
below) from Morgan Guaranty Trust Company of New York, a trust company with
full banking powers organized under the laws of the State of New York
("Morgan Guaranty") with the proceeds from the issuance and sale of each
series of Preferred Securities and, at the option of the Company, related
Common Securities; and
WHEREAS, J.P. Morgan desires hereby to irrevocably and
unconditionally agree to the extent set forth herein to pay to the Holders
the Guarantee Payments (as defined below) and to make certain other
payments on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase by each Holder
of the Preferred Securities, which purchase J.P. Morgan hereby agrees shall
benefit J.P. Morgan and which purchase J.P. Morgan acknowledges will be
made in reliance upon the execution and delivery of this guarantee, J.P.
Morgan executes and delivers this Guarantee for the benefit of the Holders.
<PAGE>
ARTICLE I
As used in this Guarantee, the terms set forth below shall have
the following meanings:
"Guarantee Payments" shall mean, with respect to any series of
Preferred Securities, the following payments, without duplication, to the
extent not paid by the Company: (i) any accumulated and unpaid
distributions which have been theretofore declared on the Preferred
Securities of such series, to the extent Morgan Guaranty has made a
corresponding payment on the relevant Related Note, out of funds legally
available therefor, (ii) the Preferred Redemption Price (including all
accumulated and unpaid distributions), to the extent Morgan Guaranty has
made a corresponding payment on the relevant Related Note, payable out of
funds legally available therefor with respect to any Preferred Securities
of such series called for redemption upon redemption thereof and (iii) upon
the liquidation of the Company, the lesser of (a) the Liquidation
Distribution (as defined below) with respect to such series and (b) the
amount of assets of the Company legally available for distribution to
Holders of Preferred Securities of such series in liquidation.
"Holder" shall mean any member of the Company from time to time
holding any Preferred Securities of any series in such capacity; provided,
however, that in determining whether the Holders of the requisite
percentage of Preferred Securities have given any request, notice, consent
or waiver hereunder, "Holder" shall not include J.P. Morgan or any entity
owned 50% or more by J.P. Morgan, either directly or indirectly.
"Liquidation Distribution" shall mean, with respect to any series
of Preferred Securities, the aggregate Principal Amount of such series of
Preferred Securities and all accumulated and unpaid distributions (whether
or not declared) with respect to such series to but excluding the date of
payment.
"LLC Agreement" shall mean the Company's Limited Liability
Company Agreement dated as of January , 1996, as amended from time to time.
"Managing Members" shall mean J.P. Morgan and JPM Ventures, in
their capacity as the members of the Company
<PAGE>
that hold all of the Company's outstanding Common Securities.
"Preferred Redemption Price" shall mean, with respect to any
series of Preferred Securities, the aggregate Principal Amount of all
Preferred Securities of such series plus accumulated and unpaid
distributions (whether or not declared) with respect to such series to but
excluding the date of redemption.
"Principal Amount" shall mean, at any time with respect to any
Preferred Security of any series, the Redemption Value, the applicable
Early Redemption Value or the stated liquidation preference thereof, as
applicable, as determined in accordance with the Written Action creating
such series of Preferred Securities.
"Related Note" shall mean any obligation or obligations of Morgan
Guaranty in which the proceeds from the issuance of any series of Preferred
Securities and, at the option of the Company, related Common Securities are
invested.
ARTICLE II
SECTION 2.01. J.P. Morgan irrevocably and unconditionally agrees,
to the extent set forth herein, to pay in full to the Holders of each
series of Preferred Securities the Guarantee Payments with respect to such
series of Preferred Securities, as and when due (except to the extent paid
by the Company), regardless of any defense, right of set-off or
counterclaim which the Company may have or assert. This Guarantee is
continuing, irrevocable, unconditional and absolute.
SECTION 2.02. J.P. Morgan hereby waives notice of acceptance of
this Guarantee and of any liability to which it applies or may apply,
presentment, demand for payment, protest, notice of nonpayment, notice of
dishonor, notice of redemption and all other notices and demands.
SECTION 2.03. The obligations, covenants, agreements and duties
of J.P. Morgan under this Guarantee shall in no way be affected or impaired
by reason of the happening from time to time of any of the following:
<PAGE>
(a) the release or waiver, by operation of law or otherwise, of
the performance or observance by the Company of any express or implied
agreement, covenant, term or condition relating to the Preferred
Securities to be performed or observed by the Company;
(b) the extension of time for the payment by the Company of all
or any portion of the distributions, Preferred Redemption Price,
liquidation distributions or any other sums payable under the terms of
the Preferred Securities or the extension of time for the performance
of any other obligation under, arising out of, or in connection with,
the Preferred Securities;
(c) any failure, omission, delay or lack of diligence on the part
of the Holders to enforce, assert or exercise any right, privilege,
power or remedy conferred on the Holders pursuant to the terms of the
Preferred Securities, or any action on the part of the Company
granting indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale
of any collateral, receivership, insolvency, bankruptcy, assignment
for the benefit of creditors, reorganization, arrangement, composition
or readjustment of debt of, or other similar proceedings affecting,
the Company or any of the assets of the Company;
(e) any invalidity of, or defect or deficiency in, any of the
Preferred Securities; or
(f) the settlement or compromise of any obligation guaranteed
hereby or hereby incurred.
There shall be no obligation of the Holders to give notice to, or obtain
consent of, J.P. Morgan with respect to the happening of any of the
foregoing.
SECTION 2.04. This is a guarantee of payment and not of
collection. A Holder may enforce this Guarantee directly against J.P.
Morgan, and J.P. Morgan waives any right or remedy to require that any
action be brought against the Company or any other person or entity before
proceeding against J.P. Morgan. Subject to Section 2.05 hereof, all waivers
herein contained shall be without prejudice to the Holders' right at the
Holders' option to
<PAGE>
proceed against the Company, whether by separate action or by joinder.
SECTION 2.05. J.P. Morgan shall be subrogated to all (if any)
rights of the Holders against the Company in respect of any amounts paid to
the Holders by J.P. Morgan under this Guarantee and the Company shall not
be required to make payment to the Company of any amount of Guarantee
Payments in respect of which payment has theretofore been made by J.P.
Morgan pursuant to Section 2.01 hereof; provided, however, that J.P. Morgan
shall not (except to the extent required by mandatory provisions of law)
exercise any rights which it may acquire by way of subrogation or any
indemnity, reimbursement or other agreement, in all cases as a result of a
payment under this Guarantee, if, at the time of any such payment, any
amounts are due and unpaid under this Guarantee. If any amount shall be
paid to J.P. Morgan in violation of the preceding sentence, J.P. Morgan
agrees to pay over such amount to the Holders for application to the
Guarantee Payments then due hereunder, if any, or to offset payments due to
the Holders by the Company.
SECTION 2.06. J.P. Morgan acknowledges that its obligations
hereunder are independent of the obligations of the Company with respect to
the Preferred Securities and that J.P. Morgan shall be liable as principal
and sole debtor hereunder to make Guarantee Payments pursuant to the terms
of this Guarantee notwithstanding the occurrence of any event referred to
in subsections (a) through (f), inclusive, of Section 2.03 hereof.
ARTICLE III
SECTION 3.01. So long as any Preferred Securities of any series
remain outstanding, J.P. Morgan shall: (i) not cause or permit any Common
Securities to be transferred; (ii) maintain direct or indirect 100%
ownership of all outstanding securities of the Company other than the
Preferred Securities of any series and any other securities permitted to be
issued by the Company that would not cause it to become an "investment
company" under the Investment Company Act of 1940, as amended; (iii) not
voluntarily dissolve, wind up, liquidate or terminate the Company or either
of the Managing Members; (iv) cause J.P. Morgan and JPM Ventures to remain
the Managing Members of the Company and timely perform all of their
respective duties as Managing Members (including the duty to declare and
pay
<PAGE>
dividends on the Preferred Securities); and (v) not take any actions
inconsistent with the treatment of the Company as a partnership for United
States Federal income tax purposes.
SECTION 3.02. The Guarantee will constitute an unsecured
obligation of J.P. Morgan and will rank (i) subordinate and junior in right
of payment to all other liabilities of J.P. Morgan, (ii) pari passu with
the most senior preferred stock outstanding as of the date hereof of J.P.
Morgan and (iii) senior to J.P. Morgan's common stock.
ARTICLE IV
This Guarantee shall terminate and be of no further force and
effect as to any series of Preferred Securities upon full payment of the
Preferred Redemption Price of such series, and shall terminate completely
upon full payment of the amounts payable to Holders upon liquidation of the
Company; provided, however, that this Guarantee shall continue to be
effective or shall be reinstated, as the case may be, if at any time any
Holder must restore payment of any sums paid under the Preferred Securities
of such series or under this Guarantee for any reason whatsoever. J.P.
Morgan agrees to indemnify each Holder and hold it harmless against any
loss it may suffer in such circumstances.
ARTICLE V
SECTION 5.01. All guarantees and agreements contained in this
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of J.P. Morgan and shall inure to the benefit of the
Holders. J.P. Morgan shall not assign its obligations hereunder without the
prior approval of Holders of not less than a majority in Principal Amount
of all Preferred Securities of all series then outstanding voting as a
single class.
SECTION 5.02. Except with respect to any changes or waivers which
do not adversely affect the rights of Holders (in which case no vote will
be required), this Guarantee may only be amended or waived by instrument in
writing signed by J.P. Morgan with the prior approval of the Holders of not
less than a majority in Principal Amount of all Preferred Securities of all
series then outstanding voting as a single class. Such approval shall be
obtained in the manner set forth in Article VIII of the LLC Agreement.
<PAGE>
SECTION 5.03. Any notice, request or other communication required
or permitted to be given hereunder to J.P. Morgan shall be given in writing
by mail or by facsimile transmission (followed by mail), addressed to J.P.
Morgan, as follows:
J.P. Morgan & Co. Incorporated
60 Wall Street
New York, NY 10260-0060
Facsimile No.:
Attention:
Any notice, request or other communication required or permitted
to be given hereunder to the Holders shall be given by J.P. Morgan in the
same manner as notices sent by the Company to the Holders.
SECTION 5.04. This Guarantee is solely for the benefit of the
Holders and is not separately transferable from the Preferred Securities.
SECTION 5.05. THIS GUARANTEE SHALL BE GOVERNED BY AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, this Guarantee is executed as of the day and
year first above written.
J.P. MORGAN & CO.
INCORPORATED,
By
--------------------------------
Name:
Title:
EXHIBIT [ ]
RELATED NOTE GUARANTEE AGREEMENT
RELATED NOTE GUARANTEE AGREEMENT (the "Related
Note Guarantee"), dated as of , 1996, executed and
delivered by J.P. Morgan & Co. Incorporated, a Delaware
corporation ("J.P. Morgan"), for the benefit of the
J.P. Morgan Index Funding Company, LLC, a Delaware
limited liability company (the "Company"), as the
holder from time to time of the Related Notes (as
defined below).
WHEREAS, the Company intends to issue its common limited
liability company interests (the "Common Securities") to and receive
related capital contributions from J.P. Morgan and J.P. Morgan Ventures
Corporation ("JPM Ventures"), and to issue and sell from time to time, in
one or more series, preferred limited liability company interests (the
"Preferred Securities") with such rights, preferences, privileges,
limitations and restrictions as are set forth in a written resolution or
resolutions (each, a "Written Action") by the Managing Members (as defined
below) providing for the issuance of such series;
WHEREAS, the Company will purchase from Morgan Guaranty Trust
Company of New York, a trust company with full banking powers organized
under the laws of the State of New York and a wholly-owned subsidiary of
J.P. Morgan ("Morgan Guaranty"), one or more Related Notes with the
proceeds from the issuance and sale of each series of Preferred Securities
and, at the option of the Company, related Common Securities, the
distribution and principal repayment terms of which Related Note shall
mirror the related series of Preferred Securities; and
WHEREAS, J.P. Morgan desires hereby to irrevocably and
unconditionally agree to the extent set forth herein to pay to the Company
the Related Note Guarantee Payments (as defined below) and to make certain
other payments on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase by the Company
of the Related Notes, which purchase J.P. Morgan hereby agrees shall
benefit J.P. Morgan and which purchase J.P. Morgan acknowledges will be
made in reliance upon the execution and delivery of this Related Note
<PAGE>
Guarantee, J.P. Morgan executes and delivers this Related Note Guarantee
for the benefit of the Company.
ARTICLE I
As used in this Related Note Guarantee, the terms set forth below
shall have the following meanings:
"Related Note Guarantee Payments" shall mean, with respect to any
Related Note, the following payments, without duplication, to the extent
not paid by Morgan Guaranty: (i) any accrued and unpaid interest on such
Related Note and (ii) the Related Note Redemption Price (including all
accrued and unpaid interest) payable with respect to such Related Note to
be redeemed, in whole or in part, upon redemption thereof.
"LLC Agreement" shall mean the Company's Limited Liability
Company Agreement dated as of February , 1996, and effective as of November
21, 1995, as amended from time to time.
"Managing Members" shall mean J.P. Morgan and JPM Ventures, in
their capacity as the members of the Company that hold all of the Company's
outstanding Common Securities.
"Principal Amount" shall mean, at any time with respect to any
Preferred Security of any series, the Redemption Value, the applicable
Early Redemption Value or stated liquidation preference thereof, as
applicable, determined in accordance with the Written Action creating such
series of Preferred Securities.
"Related Note Redemption Price" shall mean, with respect to any
Related Note at any time, an amount equal to the aggregate Principal Amount
of all Preferred Securities of the related series and, if applicable,
related Common Securities to be redeemed at such time, plus accrued and
unpaid interest with respect to such Related Note to but excluding the date
of redemption.
ARTICLE II
SECTION 2.01. J.P. Morgan irrevocably and unconditionally agrees,
to the extent set forth herein, to
<PAGE>
pay in full, to the Company the Related Note Guarantee Payments with
respect to each Related Note, as and when due (except to the extent paid by
the Morgan Guaranty), regardless of any defense, right of set-off or
counterclaim which the Morgan Guaranty may have or assert. This Related
Note Guarantee is continuing, irrevocable, unconditional and absolute.
SECTION 2.02. J.P. Morgan hereby waives notice of acceptance of
this Related Note Guarantee and of any liability to which it applies or may
apply, presentment, demand for payment, protest, notice of nonpayment,
notice of dishonor, notice of redemption and all other notices and demands.
SECTION 2.03. The obligations, covenants, agreements and duties
of J.P. Morgan under this Related Note Guarantee shall in no way be
affected or impaired by reason of the happening from time to time of any of
the following:
(a) the release or waiver, by operation of law or otherwise, of
the performance or observance by Morgan Guaranty of any express or
implied agreement, covenant, term or condition relating to the Related
Notes to be performed or observed by Morgan Guaranty;
(b) the extension of time for the payment by Morgan Guaranty of
all or any portion of the interest payments, the Related Note
Redemption Price or any other sums payable under the terms of the
Related Notes or the extension of time for the performance of any
other obligation under, arising out of, or in connection with, the
Related Notes;
(c) any failure, omission, delay or lack of diligence on the part
of the Company to enforce, assert or exercise any right, privilege,
power or remedy conferred on the Company pursuant to the terms of the
Related Notes, or any action on the part of Morgan Guaranty granting
indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale
of any collateral, receivership, insolvency, bankruptcy, assignment
for the benefit of creditors, reorganization, arrangement, composition
or readjustment of debt of, or other similar proceedings affecting,
Morgan Guaranty or any of the assets of Morgan Guaranty;
<PAGE>
(e) any invalidity of, or defect or deficiency in, any of the
Related Notes; or
(f) the settlement or compromise of any obligation guaranteed
hereby or hereby incurred.
There shall be no obligation of the Company to give notice to, or obtain
consent of, J.P. Morgan with respect to the happening of any of the
foregoing.
SECTION 2.04. This is a guarantee of payment and not of
collection. The Company may enforce this Guarantee directly against J.P.
Morgan, and J.P. Morgan waives any right or remedy to require that any
action be brought against Morgan Guaranty or any other person or entity
before proceeding against J.P. Morgan. Subject to Section 2.05 hereof, all
waivers herein contained shall be without prejudice to the Company's right
at the Company's option to proceed against Morgan Guaranty, whether by
separate action or by joinder.
SECTION 2.05. J.P. Morgan shall be subrogated to all (if any)
rights of the Company against Morgan Guaranty in respect of any amounts
paid to the Company by J.P. Morgan under this Related Note Guarantee and
Morgan Guaranty shall not be required to make payment to the Company of any
amount of Related Note Guarantee Payments in respect of which payment has
theretofore been made by J.P. Morgan pursuant to Section 2.01 hereof;
provided, however, that J.P. Morgan shall not (except to the extent
required by mandatory provisions of law) exercise any rights which it may
acquire by way of subrogation or any indemnity, reimbursement or other
agreement, in all cases as a result of a payment under this Related Note
Guarantee, if, at the time of any such payment, any amounts are due and
unpaid under this Related Note Guarantee. If any amount shall be paid to
J.P. Morgan in violation of the preceding sentence, J.P. Morgan agrees to
pay over such amount to the Company for application to the Related Note
Guarantee Payments then due hereunder, if any, or to amounts due the
Company from Morgan Guarantee under the relevant Related Note.
SECTION 2.06. J.P. Morgan acknowledges that its obligations
hereunder are independent of the obligations of Morgan Guaranty with
respect to the Related Notes and that J.P. Morgan shall be liable as
principal and sole debtor hereunder to make Related Note Guarantee Payments
pursuant to the terms of this Related Note Guarantee notwithstanding
<PAGE>
the occurrence of any event referred to in subsections (a) through (f),
inclusive, of Section 2.03 hereof.
ARTICLE III
The Related Note Guarantee will constitute an unsecured
obligation of J.P. Morgan and will rank (i) subordinate and junior in right
of payment to all other liabilities of J.P. Morgan, (ii) pari passu with
the most senior preferred stock outstanding as of the date hereof of J.P.
Morgan and (iii) senior to J.P. Morgan's common stock.
ARTICLE IV
This Related Note Guarantee shall terminate and be of no further
force and effect as to any Related Note upon full payment of the Related
Note Redemption Price with respect to such Related Note; provided, however,
that this Related Note Guarantee shall continue to be effective or shall be
reinstated, as the case may be, if at any time the Company must restore
payment of any sums paid under such Related Note or under this Related Note
Guarantee for any reason whatsoever. J.P. Morgan agrees to indemnify the
Company and hold it harmless against any loss it may suffer in such
circumstances.
ARTICLE V
SECTION 5.01. All guarantees and agreements contained in this
Related Note Guarantee shall bind the successors, assigns, receivers,
trustees and representatives of J.P. Morgan and shall inure to the benefit
of the Company. J.P. Morgan shall not assign its obligations hereunder
without the prior approval of the Company.
SECTION 5.02. Except with respect to any changes or waivers which
do not adversely affect the rights of the Company, this Related Note
Guarantee may not be amended or waived.
SECTION 5.03. Any notice, request or other communication required
or permitted to be given hereunder to J.P. Morgan shall be given in writing
by mail or by facsimile transmission (followed by mail), addressed to J.P.
Morgan, as follows:
<PAGE>
J.P. Morgan & Co. Incorporated
60 Wall Street
New York, NY 10260-0060
Facsimile No.:
Attention: Commodities Desk
Any notice, request or other communication required or permitted
to be given hereunder to the Company shall be given by J.P. Morgan in the
same manner as notices sent by Morgan Guaranty to the Company.
SECTION 5.04. This Related Note Guarantee is solely for the
benefit of the Company and is not separately transferable from the Related
Notes.
SECTION 5.05. THIS RELATED NOTE GUARANTEE SHALL BE GOVERNED BY
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK.
IN WITNESS WHEREOF, this Related Note Guarantee is executed as of
the day and year first above written.
J.P. MORGAN & CO.
INCORPORATED,
By
------------------------------
Name:
Title:
EXHIBIT [ ]
[FORM OF] NOTE AGREEMENT (this "Note") made as of
, 199[ ], between MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, a trust company with full banking powers
organized under the laws of the State of New York (the
"Bank") and J.P. MORGAN INDEX FUNDING COMPANY, LLC, a
Delaware limited liability Company (the "Company").
WHEREAS, the Company has issued and sold certain of its common
limited liability company interests (the "Common Securities") and certain
of its preferred limited liability company interests (the "Preferred
Securities") [having an aggregate initial principal amount of [ ] and
bearing interest at a rate of [ ] per annum on the [ ] amount], and with
such rights, preferences, privileges, limitations and restrictions as are
set forth in a written resolution or resolutions (each, a "Written Action")
dated [ ] by the Managing Members of the Company providing for the issuance
of such series of Preferred Securities and related Common Securities; and
WHEREAS, the Company desires to loan the proceeds of such
issuance and sale of Preferred and Common Securities (the "Related
Securities") to the Bank on the terms and conditions set forth herein,
which terms and conditions shall substantially mirror the Company's
obligations under the Related Securities.
NOW, THEREFORE, in consideration of the loan of such proceeds,
which the Bank hereby acknowledges to be adequate and sufficient, the Bank
executes and delivers this Note for the benefit of the Company.
1. General. (a) This Note is a duly authorized debt security of
the Bank, designated as its [ ]% Note Due [] (the "Stated Maturity") in an
initial principal amount of $[ ].
(b) THE NOTE IS NOT A DEPOSIT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
<PAGE>
(c) The Note is non-transferable and shall be registered in the
name of J.P. Morgan Index Funding Company, LLC (the "Company"). The Company
may (to the fullest extent permitted by applicable laws) be treated at all
times, by all persons and for all purposes as the absolute owner of the
Note regardless of any notice of ownership, theft or loss or of any writing
thereon.
2. Payments and Paying Agencies. (a) The amount of principal
payable upon any redemption or at the Stated Maturity of this Note shall be
the aggregate outstanding principal amount payable at such time with
respect to all Related Securities the proceeds of the sale of which were
loaned to the Bank in consideration of this Note, determined in accordance
with the Written Action relating thereto, attached hereto as Annex I.
(b) Interest shall accrue on this Note at a rate of [ ]% and
shall be payable at the dates and times set forth in the Written Action
attached hereto as Annex I, subject to the terms and conditions contained
therein.
(c) Morgan Guaranty hereby promises to pay all amounts referred
to in paragraphs (a) and (b) of this Section 2 when and as the
corresponding amounts are due and payable by the Company to the holders of
Related Securities pursuant to the terms thereof. Principal of the Note
will be payable against surrender of the Note, and interest will be payable
at the corporate trust office of the Bank located at 55 Exchange Place, New
York, New York 10280-0023.
3. Redemption. The Note matures on , 20 (the "Maturity Date"),
and [will/will not] be subject to redemption prior to maturity. [Describe
redemption provisions, extension of Maturity Date (if any)]
4. The indebtedness evidenced by the Note, including the
principal and interest, is pari passu with all unsecured, unsubordinated
creditors of the Bank.
The holder of this Note by its acceptance hereof agrees to and
shall be bound by the provisions of this paragraph 4.
5. Events of Default. The occurrence of any of the following
events shall constitute an event of default (herein referred to as an
"Event of Default") hereunder with respect to the Note:
<PAGE>
(a) default in the payment of any interest on any of the Note as
and when the same shall become due and payable, which continues for a
period of 30 days; or
(b) default in the due and punctual payment of the principal of
any Note as and when the same shall become due and payable; or
(c) default on the part of the Bank in the performance of any
other of the covenants or agreements on its part in the Notes or in
the Fiscal and Paying Agency Agreement, which continues for a period
of 90 days after the date on which written notice, by registered or
certified mail, of such failure requiring the Bank to remedy the same
shall have been received by the Bank from the Company specifying such
failure and requiring the same to be remedied and stating that such is
a "notice of default" hereunder; or
(d) decree or order of a court or agency or supervisory authority
having jurisdiction in the premises for the appointment of a
conservator or receiver or liquidator in any insolvency proceedings,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings of the Bank or of all or substantially all of its
property, or for the winding-up or liquidation of its affairs, shall
have been entered, and such decree or order shall have remained in
force undischarged or unstayed for a period of 60 days; or
(e) the Bank shall have consented to the appointment of a
conservator or receiver or liquidator, in any insolvency, readjustment
of debt, marshalling of assets and liabilities or similar proceedings
of the Bank or of all or substantially all of its property; or
(f) the Bank shall have filed a petition to take advantage of any
applicable insolvency or reorganization statute or voluntarily
generally suspended payment of its obligations.
In case one or more of the Events of Default specified above
shall have occurred and be continuing with respect to the Note, then and in
each and every such case, unless all the principal of the Note is due and
payable immediately, upon the declaration of the Company the same shall
become and shall be immediately due and payable,
<PAGE>
anything in the Note contained to the contrary notwithstanding. In case the
Company shall have proceeded to enforce any right as set forth herein and
such proceedings shall have been discontinued or abandoned for any reason
or shall have been determined adversely to the Company, then and in every
such case the Bank and the Company shall be restored to their respective
several positions and rights hereunder, and all rights, remedies and powers
of the Bank and the Company shall continue as though no such proceeding had
been taken.
The Company shall be entitled to file such proof of claim, claim,
petition or other document as may be necessary or advisable in order to
have the claims of such holder allowed in any insolvency proceedings,
receivership, conservatorship, reorganization, readjustment of debt,
marshalling of assets and liabilities, liquidation, winding-up or other
similar proceedings of the Bank as a whole or affecting its property.
6. Certain Covenants of the Bank. The Bank hereby agrees that,
for so long as this note shall remain outstanding:
(a) The Bank will maintain an office or agency in the Borough of
Manhattan, The City of New York, where the Note may be presented for
payment and notices and demands to or upon the Bank in respect of the
Note may be served; and
(b) The Bank will not merge or consolidate with or sell or convey
all or substantially all of its assets as an entirety to any other
corporation or association, unless (i) either (A) the Bank shall be
the surviving corporation in the case of a merger or (B) the
surviving, resulting or transferee corporation or association (the
"successor corporation") shall expressly assume the due and punctual
payment of the principal of and interest on the Note, according to its
tenor and the due and punctual performance of all of the covenants and
obligations of the Bank under the Note and (ii) the Bank or such
successor corporation, as the case may be, shall not, immediately
after such merger, consolidation, sale or conveyance, be in default in
the performance of any covenants or obligations of the Bank under the
Note.
<PAGE>
Upon any merger, consolidation, sale or conveyance as provided
above, the successor corporation shall succeed to and be substituted for,
and may exercise every right and power of and be subject to all the
obligations of the Bank under the Note with the same effect as if the
successor corporation had been named as the Bank herein and therein and, in
the case of any such sale or conveyance of assets, the Bank shall be
released from its liability as obligor under the Note.
7. Replacement of Note. (a) In case the Note shall become
mutilated, defaced or be apparently destroyed, lost or stolen, the Bank
shall execute and the corporate trust office of the Bank shall authenticate
and deliver a new Note in exchange and substitution for the mutilated or
defaced Note, or in lieu and in substitution for the apparently destroyed,
lost or stolen Note. In every such case the Company shall furnish to the
Bank such security or indemnity as may be required by them to indemnify and
defend and to save each of them and any agent of the Bank harmless and, in
every case of destruction, loss or theft evidence to their satisfaction of
the apparent destruction, loss or theft of such Note and of the ownership
thereof. Upon the issuance of any substitute Note, the Bank may require the
payment of a sum sufficient to cover any tax or other governmental charge
that may be imposed in relation thereto and any other expenses connected
therewith.
8. Modifications and Amendments; Waiver. Modifications and
amendments to these Terms and Conditions may be made, to: (1) evidence
succession of another corporation or association to the Bank and the
assumption by such a party of the obligations of the Bank under the Note in
the event in the event of a merger, consolidation or sale of assets in
accordance with the terms hereof; (2) add further covenants, restrictions
or conditions for the protection of holders of the Note; or (3) cure
ambiguities or correct the Note in case of defects or inconsistencies in
the provisions thereof or supplement the Note with other provisions, so
long as any such cure, correction or supplement does not adversely affect
the interest of the holder of the Note in any material respect. In no event
may the Bank, without the consent of the Company, extend the final maturity
of the Note, or reduce the rate or extend the time of payment of interest
thereon, or reduce the principal amount thereof, or make the principal
thereof or interest thereon payable in any coin or currency other than that
provided in the Note. Any modifications or amendments to
<PAGE>
these Terms and Conditions as provided in clauses (1), (2) or (3) above
will be conclusive and binding on the holder of the Note, whether or not
its has given consent. Notwithstanding anything set forth herein to the
contrary, any of the acts which the Bank is required to do or is prohibited
from doing, as set forth herein, may be omitted or done by the Bank, if
there is obtained the prior written consent thereto of the holder of the
Note.
No provision of this Note shall alter or impair the obligation of
the Bank, which is absolute and unconditional, to pay the principal of and
interest on this Note at the places, at the respective times, at the rate
and in the coin or currency herein prescribed.
9. Non-business Days; Calculation of Interest. (a) In any case
where the date of maturity of the principal of or payment of interest on
the Note shall be, in the Borough of Manhattan, The City of New York, a
Saturday, a Sunday, a legal holiday or a day on which banking institutions
are authorized or obligated by law to close, then payment of principal or
interest on the Note need not be made on such date at such place but may be
made on the next succeeding day which is not in the Borough of Manhattan,
The City of New York, a Saturday, a Sunday, a legal holiday or a day on
which banking institutions are authorized or obligated by law to close,
with the same force and effect as if made on the date of maturity of the
principal of, or any applicable interest Payment Date with respect to, the
Note, and no interest shall accrue for the period after such date.
(b) interest shall be calculated on the basis of 360-day year of
twelve 30-day months.
10. Governing Law. This Note shall be construed in accordance
with and governed by the laws of the State of New York.
11. Descriptive Headings. The descriptive headings appearing in
these Terms and Conditions are for the convenience of reference only and
shall not alter, limit or define the provisions hereof.
<PAGE>
IN WITNESS WHEREOF, this Note Agreement is executed and delivered
as of the date first above written.
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK,
by:
--------------------------------
Name:
Title:
EXHIBIT [ ]
AGREEMENT AS TO EXPENSES AND LIABILITIES
AGREEMENT dated as of , 1996, between J.P. Morgan
& Co. Incorporated, a Delaware corporation ("J.P.
Morgan"), and J.P. Morgan Index Funding Company, LLC, a
Delaware limited liability company (the "Company").
WHEREAS, the Company intends to issue its common limited
liability company interests (the "Common Securities") to and receive
related capital contributions from J.P. Morgan and J.P. Morgan Ventures
Corporation and to issue and sell from time to time, in one or more series,
preferred limited liability company interests (the "Preferred Securities")
with such powers, preferences and special rights and restrictions as are
set forth in a written action or actions of the managing members of the
Company providing for the issue of such series; and
WHEREAS, J.P. Morgan will directly or indirectly own all of the
Common Securities of the Company;
NOW THEREFORE, in consideration of the purchase by each holder of
the Preferred Securities, which purchase J.P. Morgan hereby agrees shall
benefit J.P. Morgan and which purchase J.P. Morgan acknowledges will be
made in reliance upon the execution and delivery of this Agreement, J.P.
Morgan and the Company hereby agree as follows:
ARTICLE I
SECTION 1.01. Guarantee by J.P. Morgan. Subject to the terms and
conditions hereof, J.P. Morgan hereby irrevocably and unconditionally
guarantees (the "Guarantee") to each person or entity to whom the Company
is now or hereafter becomes indebted or liable for the payment of money
(the "Beneficiaries") (other than obligations or liabilities to holders (or
former holders) of any Preferred Securities or any other limited liability
company interests in the Company, in or by virtue of such holders'
capacities as holders (or former holders) of such Preferred Securities or
other limited liability company interests) the full payment, when and as
due, of any and all indebtedness and
<PAGE>
liabilities of the Company to such Beneficiaries (collectively, the
"Obligations"). J.P. Morgan further agrees to provide funds to the Company
in the amount sufficient to fund such Obligations, without duplication of
any amounts paid directly by J.P. Morgan pursuant to the Guarantee, as and
to the extent such Obligations become payable by the Company. This
Agreement is intended to be for the benefit of, and to be enforceable by,
all such Beneficiaries, whether or not such Beneficiaries have received
notice hereof.
SECTION 1.02. Term of Agreement. This Agreement shall terminate
and be of no further force and effect upon the later of (i) the date on
which full payment has been made of all amounts payable to all holders of
all series of the Preferred Securities (whether upon redemption,
liquidation, exchange or otherwise) and (ii) the date on which there are no
Beneficiaries remaining; provided, however, that this Agreement shall
continue to be effective or shall be reinstated, as the case may be, if at
any time any holder of Preferred Securities of any series or any
Beneficiary must restore payment of any sums paid under the Preferred
Securities of such series, under any Obligation, under the Guarantee
Agreement dated the date hereof and executed and delivered by J.P. Morgan
or under this Agreement for any reason whatsoever. This Agreement is
continuing, irrevocable, unconditional and absolute.
SECTION 1.03. Waiver of Notice. J.P. Morgan hereby waives notice
of acceptance of this Agreement and of any Obligation to which it applies
or may apply, and J.P. Morgan hereby waives presentment, demand for
payment, protest, notice of nonpayment, notice of dishonor, notice of
redemption and all other notices and demands.
SECTION 1.04. No Impairment. The obligations, covenants,
agreements and duties of J.P. Morgan under this Agreement shall in no way
be affected or impaired by reason of the happening from time to time of any
of the following:
(a) the extension of time for the payment of the Company of all
or any portion of the Obligations or for the performance of any other
obligation under, arising out of, or in connection with, the
Obligations;
(b) any failure, omission, delay or lack of diligence on the part
of the Beneficiaries to enforce, assert or exercise any right,
privilege, power or
<PAGE>
remedy conferred on the Beneficiaries with respect to the
Obligations or any action on the part of the Company granting
indulgence or extension of any kind; or
(c) the voluntary or involuntary liquidation, dissolution, sale
of any collateral, receivership, insolvency, bankruptcy, assignment
for the benefit of creditors, reorganization, arrangement, composition
or readjustment of debt of, or other similar proceedings affecting,
the Company or any of the assets of the Company.
There shall be no obligation of the Beneficiaries to give notice
to, or obtain the consent of, J.P. Morgan with respect to the happening of
any of the foregoing.
SECTION 1.05. Enforcement. A Beneficiary may enforce this
Agreement directly against J.P. Morgan and J.P. Morgan waives any right or
remedy to require that any action be brought against the Company or any
other person or entity before proceeding against J.P. Morgan.
ARTICLE II
SECTION 2.01. Binding Effect. All guarantees and agreements
contained in this Agreement shall bind the successors, assigns, receivers,
trustees and representatives of J.P. Morgan and shall inure to the benefit
of the Beneficiaries.
SECTION 2.02. Amendment. So long as there remains any Beneficiary
or any Preferred Securities of any series are outstanding, this Agreement
shall not be modified or amended in any manner adverse to such Beneficiary
or to the holders of the Preferred Securities.
SECTION 2.03. Notices. Any notice, request or other communication
required or permitted to be given hereunder shall be given in writing by
delivering the same against receipt therefor by facsimile transmission
(confirmed by mail), telex or by registered or certified mail, addressed as
follows:
<PAGE>
J.P. MORGAN INDEX FUNDING COMPANY, LLC,
c/o: J.P. MORGAN & CO. INCORPORATED
60 Wall Street
New York, NY 10260-0060
Facsimile No: (212) 648-2157
Attention: Commodities Desk
Section 2.04. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, this Agreement is executed as of the day and
year first above written.
J.P. MORGAN & CO.
INCORPORATED,
by
----------------------------
Name:
Title:
J.P. MORGAN INDEX FUNDING
COMPANY, LLC,
By J.P. MORGAN & CO.
INCORPORATED, as managing
member,
by
------------------------------
Name:
Title:
