As filed with the Securities and Exchange Commission on May 16, 1996
Registration No. 333-01121
======================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 2
to
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.)
------------------
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
<PAGE>
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
==============================================================================
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--$241,379.31
==============================================================================
Preferred Securities of the Company
- ------------------------------------------------------------------------------
Guarantees of Preferred Securities of the Company, the Related Note
Guarantee of the Related Note of Morgan Guaranty by, and certain back-up
obligations under the LLC Agreement and the Expense Agreement of,
J.P. Morgan........... (4)
- ------------------------------------------------------------------------------
Total................. $700,000,000
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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 $700,000,000. (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 Related Note Guarantee, consist of the obligations of J.P. Morgan
with respect to the Preferred Securities that are set forth in the LLC
Agreement and the Expense Agreement. No separate consideration will be
received for the Guarantee, the Related Note Guarantee or such back-
up obligations. See "Effect of the Obligations Under the Guarantee,
the Related Note Guarantee and the Related Notes" in the applicable
Prospectus Supplement. (5) Of which $103,448.28 has been previously paid.
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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>
PROSPECTUS (Subject to Completion)
$700,000,000
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. J.P. Morgan, through its obligations under the Guarantee, the
Related Note Guarantee, the LLC Agreement and the Expense Agreement,
taken together, will provide a full and unconditional guarantee, on a
subordinated basis, of payments due on the Preferred Securities.
------------------
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
<PAGE>
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 $700,000,000. 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.
See "Risk Factors With Respect to All Preferred Securities" on Page
[ ] and "Risk Factors With Respect to ComPS" on Page[ ] for certain
information relevant to an investment in any Preferred Securities or
ComPS, as applicable. An investor in ComPS could lose its entire
investment.
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.
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.
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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,
1995 (included in its Annual Report to Stockholders) and J.P. Morgan's
Reports on Form 8-K dated January 11, 1996, February 6, 1996, February
20, 1996, February 23, 1996, and April 11, 1996, heretofore filed
pursuant to Section 13 of the Exchange Act.
<PAGE>
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.
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.
<PAGE>
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.
<PAGE>
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.
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 continues to seek ways to expand the
limits on such activities, including the reform of the Glass-Steagall
Act, necessary to achieve our strategic 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.
<PAGE>
federal and state banking authorities. In 1996, an application was
filed with the Federal Reserve Bank of New York and the States of New
York and Delaware to merge Morgan Guaranty and J.P. Morgan Delaware.
The Federal Reserve Bank of New York and the States of Delaware and
New York approved the merger of Morgan Guaranty and J.P. Morgan
Delaware with a June 1, 1996 effective date. 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.
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 amended and
restated limited liability company agreement, dated May 15, 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.
<PAGE>
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.
Pursuant to the LLC Agreement, the Managing Members of the Company
have unlimited liability for the debts, obligations and liabilities of
the Company in the same manner as a general partner of a Delaware
limited partnership (which do not include obligations to holders of
Preferred Securities in their capacity as such), to the extent not
fully satisfied and discharged by the Company. That liability on the
part of such members is for the benefit of, and is enforceable by, the
liquidating trustee of the Company in the event of its dissolution and
is for the benefit of third parties to whom the Company owes such
debts, obligations and liabilities. The holders of Preferred
Securities, in their capacity as members of the Company, are not
liable for the debts, obligations or liabilities of the Company
(subject to their obligation to repay any funds wrongfully distributed
to them).
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 of J.P. Morgan
Consolidated Ratio of Earnings to Fixed Charges
Quarter
Ended Year ended December 31,
March -------------------------
31, 1996 1995 1994 1993(a) 1992(b) 1991(c)
-------- ---- ---- ------- ------- -------
Excluding Interest on 1.43 1.35 1.40 1.70(a) 1.53(b) 1.42(c)
Deposits
Including Interest on 1.30 1.24 1.28 1.46(a) 1.31(b) 1.23(c)
Deposits
- ----------------
(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
Quarter
Ended Year ended December 31,
March -------------------------
31, 1996 1995 1994 1993(a) 1992(b) 1991(c)
-------- ---- ---- ------- ------- -------
Excluding Interest on 1.42 1.34 1.39 1.69(a) 1.52(b) 1.40(c)
Deposits
Including Interest on 1.29 1.23 1.27 1.46(a) 1.31(b) 1.22(c)
Deposits
- ----------------
(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.
<PAGE>
(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 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
<PAGE>
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 the 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
(including, without limitation, any public documents filed after the
date hereof and any amendments to any document referred to herein).
General
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 (the "Benchmark Contracts"), 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
palladium) will be referred to as "Bullion ComPS". For the purposes of
this
<PAGE>
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")
(i.e., aluminum, copper, nickel, zinc, heating oil, natural gas,
unleaded gasoline, crude oil, gold, silver and platinum), one of the
JPMCI sub-indices, palladium or such other commodity as may be
specified in the applicable 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".
ComPS are principal-at-risk securities linked directly to the
performance of the Applicable Index. For Bullion ComPS or Excess
Return ComPS, if the index rises from the starting value (which is set
on the day of pricing), the Redemption Value of such ComPS will be
greater than the original issue price. If the Applicable Index
declines from the starting value, the Redemption Value of such ComPS
will be less than the original issue price. In no circumstances will
the Redemption Value of the ComPS be less than zero, but the
Redemption Value could be more or less than the issue price. Because
an investor's principal redemption is linked to the performance of an
Applicable Index calculation, it is important to understand on what
the Applicable Index calculation is based. Subject to the more
specific discussion of each item elsewhere in this Prospectus and in
the relevant Prospectus Supplement, following is a general summary of
Bullion ComPS, Excess Return ComPS and Total Return ComPS:
Bullion ComPS
Bullion ComPS, which are linked to the cash price of bullion (i.e.,
gold, silver, platinum or palladium), pay both dividends and principal
based on the price of the applicable bullion. The Principal Amount of
a Bullion ComPS is the U.S. Dollar Equivalent Value of a certain
number or fraction of ounces of the applicable bullion. Each dividend
is calculated as a percentage rate of the Principal Amount (which will
fluctuate) and is paid monthly. Each full monthly dividend will be
equal to one-twelfth of the annual dividend rate times the U.S. Dollar
Equivalent Value of the spot price of the applicable bullion at such
time in the London bullion market multiplied by the fractional number
of ounces to which each Bullion ComPS is linked. Thus, the amount of
each dividend will vary. Upon redemption, the Redemption Value will be
equal to the U.S. Dollar Equivalent Value of the 10-day average of the
<PAGE>
spot price of the applicable bullion in the London bullion market
multiplied by the number or fraction of ounces of the applicable
bullion to which each Bullion ComPS is linked. Therefore, both the
dividend payments and the Redemption Value will fluctuate based on the
spot price of the applicable bullion determined in the London bullion
markets. Any events which adversely affect the spot price of the
applicable bullion will adversely affect both the dividend payments on
and the Redemption Value of such Bullion ComPS.
Excess Return ComPS
ComPS which are linked to an Excess Return Index pay a fixed dividend
rate on the Face Amount of such ComPS (which will equal the initial
price) and the Redemption Value of such ComPS is linked to the
performance of the applicable Excess Return Index. At maturity, an
investor will receive a principal amount determined by the following
formula: Face Amount x the 10-day average of the Applicable Index/the
Applicable Index set on the day of pricing. Thus, the Redemption Value
is linked directly to the performance of the applicable Excess Return
Index (e.g., if the ending average ending value of the Applicable
Index is twice the beginning value, the Redemption Value will be twice
the initial price).
An Excess Return Index, which is described more fully herein under "The
JPM Indices--Excess Return Methodology", represents the cumulative
return of holding an unlevered position in the designated nearby
commodity futures contracts underlying such Applicable Index. Generally,
since each Excess Return Index is linked directly (i.e., on a one-to-one
basis) to the underlying futures contracts, a 1% change on any day in
the value of the specific underlying designated futures contract will
create a 1% change in the value of the Applicable Index for such day.
Because the designated futures contracts underlying the Excess Return
indices have maturities (generally less than three months) which are
shorter than the maturity of the ComPS, the index calculation
methodology replaces the underlying contract used to determined the
daily change in the value of the Applicable Index with the next
designated contract of the same commodity on a periodic basis. This
process of replacement is called "rolling", and the 5-day period during
which the replacement occurs is called the "Rollover Period". For any
month during which a roll occurs, the daily change in value of an Excess
Return Index for all days prior to the Rollover Period is calculated as
100% of the daily change of the existing ("old") underlying designated
contract. Beginning with the first day after the beginning of the
Rollover Period, the daily change in an Excess Return Index is
calculated based 80% on the percentage change of the old contract and
20% on the percentage change in the replacement ("new") designated
contract. Similar 20% adjustments are made in the weights attributable
to each contract's change such that, by the day after the Rollover
Period ends and for all subsequent days until the next Rollover Period,
100% of the daily index change is attributable to the percentage change
of the newly-designated contract.
Therefore, ComPS linked to an Excess Return Index pay dividends at a
fixed rate and amount and pay a principal amount upon redemption or at
maturity which varies directly with the performance of an Excess Return
Index. The change in an Excess Return Index is linked directly to the
percentage change in the designated contracts underlying such index.
Thus, any events which affect the designated contracts underlying such
Excess Return Index may affect the Redemption Value of such ComPS
<PAGE>
Total Return ComPS
ComPS which are linked to a Total Return Index may pay a dividend
based on the Face Amount (i.e., the initial price) of such ComPS
(which dividend rate, if any, will generally be less than that payable
on other types of ComPS), and the principal receivable upon redemption
or at maturity is directly linked to the performance of a Total Return
Index. At maturity, an investor in Total Return ComPS will receive a
principal amount determined by the following formula: Face Amount x
(the 10-day average of the Applicable Index/the Applicable Index set
on the day of pricing - the Factor). The Factor is a fraction which
reduces the principal amount to account for the planned expenses to be
incurred by the issuer in replicating the Total Return Index and
issuing the ComPS. Thus, the Redemption Value is linked directly to
the performance of the applicable Total Return Index (e.g., if the
ending average ending value of the Applicable Index is twice the
beginning value, the Redemption Value will be twice the initial price
reduced by the Factor). However, the Redemption Value may never be
less than zero.
A Total Return Index, which is described more fully herein under "The
JPM Indices--Total Return Methodology", represents the cumulative
return of holding an unlevered position in the designated nearby
commodity futures contracts underlying such Total Return Index plus a
collateral yield on such fluctuating index value using the most
recently auctioned 3-month rate for U.S. Treasury bills. Generally,
since a Total Return Index is linked directly to the underlying
futures contracts, a 1% change on any day in the specific underlying
designated futures contract will result in a 1% change in the
applicable Total Return Index for such day (plus the small daily
increase in the Applicable Index due to the collateral yield). The
designated futures contracts underlying Total Return Indices must also
be "rolled" as described above under "Excess Return ComPS".
Therefore, ComPS linked to a Total Return Index may bear dividends
(which, if any, will be smaller than those paid on other ComPS) which
are a fixed percentage of the Face Amount (and thus will not vary),
and the principal payable upon redemption or at maturity is linked
directly to the performance of a Total Return Index (less the Factor).
The change in each Total Return Index is linked directly to the
percentage change in the designated contracts underlying such index
plus the collateral yield on the most recently auctioned 3-month U.S.
Treasury bill rate. Thus, any events which affect the designated
contracts underlying any Total Return Index may affect the Redemption
Value of such ComPS.
<PAGE>
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:
Redemption Value = FA X [Applicable Index Settlement Value]
-----------------------------------
[Applicable Index Commencement Value]
where "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 on which open-outcry trading on either the
New York Mercantile Exchange ("NYMEX") or the London Metal
Exchange (the "LME") is scheduled to oc ur or occurs (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 such value will be utilized in the calculation
of the Redemption Value for such days; 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:
Redemption Value = FA x (Applicable Index Settlement Value -
Factor x Applicable Index Commencement Value)
----------------------------------------------
Applicable Index Commencement Value
<PAGE>
where 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
Redemption Value calculations for Price Reference Index ComPS will
also be subject to Market Disruption events similar to those described
above, as specified in the applicable Prospectus Supplements.
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.
<PAGE>
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 Benchmark 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. 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",
(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 and (iii) will
be with respect to the same general commodity type as the contract
being replaced (e.g., assuming the JPMCI Policy Committee recommends a
modification and assuming the requirements of clauses (i) and (ii) are
satisfied, a NYMEX crude oil futures contract may be replaced by an
International Petroleum Exchange crude oil futures contract). Under no
circumstances will the general commodity type underlying the futures
contract be changed (e.g., a crude oil futures contract may not be
replaced by a gold futures contract).
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
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, will continue to be entitled to dividends and
will be redeemed at Stated Maturity for a Redemption Value calculated
using the Applicable Index Settlement Value determined at such time as
no contract satisfying clauses (i) and (ii) of the previous paragraph
was able to be found. 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).
Additionally, if at any time the benchmark contracts then serving as
the basis for calculating the Applicable Index with respect to any
<PAGE>
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, will continue to be
entitled to dividends 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 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 any country which at such time is a member of the
Organization of Economic Cooperation and Development (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.
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,
<PAGE>
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
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 (to be calculated
with respect to each portion of the Face Amount of such ComPS which
must be redeemed on the same date):
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 for each day of the Early Determination Period
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:
<PAGE>
(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 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
<PAGE>
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 U.S. dollar LIBOR-based
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 (or, if such notional amount is
smaller than commercially practicable, the smallest
commercially practicable amount) 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.
<PAGE>
"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
Applicable Index for such 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.
"IESV" means the Applicable Index Early Settlement Value,
which shall be equal to the Applicable Index for such 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 product of (i) the
Applicable Index for such day (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
<PAGE>
Business Day after the completion of the Early Determination Period or
the Determination Period, as applicable.
Market Disruption Events
As determined by Morgan Guaranty, 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.
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
<PAGE>
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 as Calculation Agent will also (i) determine when a Market
Disruption Event on any Early Determination Day or Determination Day
is sufficiently material to not use such day in the applicable
calculation and (ii) be responsible for the choice of an alternative
price source (if any) upon a Market Disruption Event of sufficient
length, as described in the applicable Prospectus Supplement. Also,
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
<PAGE>
such accounting firm to perform such calculations pursuant to the same
methodology to be applied by Morgan Guaranty..
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.
Risk Factors with Respect to All Preferred Securities
Limitations on Rights Under the Guarantee, the Related Note Guarantee
and the Related Note
The Guarantee will be effective 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, through its
obligations under the Guarantee, the Related Note Guarantee, the LLC
Agreement and the Expense Agreement, taken together, will provide a
full and unconditional guarantee, on a subordinated basis, 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, unless waived by Morgan
Guaranty or subject to cure as specified in the applicable Prospectus
Supplement, 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
<PAGE>
rata basis to the same extent as the Principal Amount of the Related
Notes is redeemed by Morgan Guaranty.
A Special Event is either (i) a Tax Event or (ii) an Investment
Company Event. A Special Event may occur at any time.
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
relating to a payment default on or adverse change to the Preferred
Securities, and will not be entitled to vote to appoint, remove or
replace the Managing Members of the Company (J.P. Morgan and J.P.
Morgan Ventures Corporation, a Delaware corporation), which voting
rights are vested exclusively in the holders of the Common Securities.
Trading Price May Not Reflect Actual Economic Value
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.
Possible Illiquidity of Preferred Securities
It is possible that no secondary market will develop and continue to
exist with respect to any series of Preferred Securities. If no such
market develops, the liquidity of such Preferred Securities may be
adversely affected. Furthermore, 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.
No Right to Interest on Related Note
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. However, investors in Preferred Securities have no right
to direct interest distributions on the applicable Related Note.
<PAGE>
Imposition of 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 imposed in the future by bank regulatory authorities.
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". Furthermore, additional issuances of
securities linked or referenced to similar futures contracts or
commodities could adversely affect the value of similar outstanding
ComPS.
<PAGE>
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 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
<PAGE>
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 and could result in a
substantial loss to the holders thereof. See "Description of the
ComPS--Calculation of Redemption Value".
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 lead some investors in the
futures market to withdraw from the applicable futures markets, which
could adversely affect the liquidity of such markets and could
adversely affect the value of such Applicable Index and,
correspondingly, 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, 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
<PAGE>
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 which, if such activities result in a price decrease, may
cause the value of ComPS referenced to such commodities or the related
futures contracts to decrease. See "Calculation of Redemption Value".
Suspension or Material Disruption of ComPS, 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 the other factors referred to in the preceding paragraph. In
addition, U.S. futures exchanges have regulations, and the LME and
certain foreign exchanges on which replacement Benchmark Contracts, if
any, may trade (which exchanges must have an information-sharing
arrangement with the Securities and Exchange Commission and be a
regulated exchange located in the United States, Canada, the United
Kingdom, Japan, Singapore or an O.E.C.D. country) may have
regulations, which limit the amount of fluctuation of futures
contracts prices which may occur during a single trading day or the
settlement spread between adjoining contracts. Such price limits are
generally referred to as "daily price fluctuation limits" or, more
commonly, "daily limits", and such limitations on settlement spreads
are generally referred to as "spread 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.
Additionally, because it is anticipated that each series of ComPS will
be listed on a stock exchange, and because ComPS will likely trade as
equity securities in any such secondary market, trading in ComPS may
be subject to interruption or delay due to extreme volatility in the
trading prices of equity securities generally in any such secondary
market, nothwithstanding the specific price movements of the ComPS.
<PAGE>
Market Disruption Events
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 (in each case for the United States), there can
be no assurance that such correlations will prevail in the future. As
a result, investors who invest in ComPS in reliance on these
correlations should individually assess the likelihood of such
correlations continuing.
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.
<PAGE>
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,
during which time a holder of ComPS will not receive the Early
Redemption Value or Redemption Value thereof, as applicable. 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. See "Market Disruption Event" above.
Discontinuance of Publishing of the Relevant JPM 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 under "Description of the ComPS".
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. As described above under "Description of the
ComPS--Early Determination of Applicable Index Settlement Value and
Redemption Value", if the Benchmark Contract for any series of ComPS
becomes less liquid or representative, the JPMCI Policy Committee
could recommend a replacement Benchmark Contract. Such a change from a
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.
<PAGE>
If at any time no replacement contracts 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 as described above under
"Description of the ComPS--Early Determination of Applicable Index
Settlement Value and Redemption Value". 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, Morgan Guaranty reserves the right
to designate a replacement Benchmark Contract or, if no such contract
is designated, to cause, at its option, the Applicable Index
Settlement Value of such ComPS to be determined at such time as
described above under "Description of the ComPS--Early Determination
of Applicable Index Settlement Value and Redemption Value". 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.
Such a change in contracts due to the imposition of any increased cost
or additional tax may result in a lower Redemption Value for such
ComPS than would have been the case if the contract on which such
increased cost or additional tax were imposed had remained the
benchmark.
Any early determination of the Applicable Index Settlement Value may
cause the trading price of ComPS in any secondary market which then
exists to decline.
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 of 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 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 anticipated 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. As discussed above under "Description of the
ComPS", adverse changes in the Applicable Index will directly correlate to
adverse changes in the value of the ComPS. A decline in the credit quality
of Morgan Guaranty and J.P. Morgan could cause the trading price of any
ComPS on any secondary market then existing to decline. Also, an increase
in the prevailing interest rates could cause the trading price of such
ComPS on any secondary market then existing to decline.
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" over time). 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, since properly correlating such ComPS either as a hedge
of other assets or correlating such ComPS to the hedge thereof may become
more difficult.
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
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") 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 thresholds) as the average price of all outright transactions
during the closing range for such contract. In all other contracts, the
settlement prices are usually determined as spread relationships to the
more active contracts.
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.
The London Bullion Market Association is regulated by the Bank of England
in accordance with the provisions of the London Code of Conduct. The London
Code of Conduct is issued by the Bank of England and sets out the standards
that firms are expected to meet when trading in the London wholesale
bullion and money markets. In addition, all market marking members of the
LBMA, in common with all U.K.-based banks, are subject to capital adequacy
and liquidity requirements and regular supervisory meetings to consider the
adequacy of their management, systems and controls. The Bank of England
takes an active role in the LBMA gold market, including holding certain
gold for delivery in its vaults and holding gold in accounts.
<PAGE>
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 $15.0 $15.00
Futures #2 $14.7 $14.50 $15.00
Return on Futures #1 0.00%
Return on Futures #2 NA 3.45%
Return on Excess Return 0.00%(a) 3.45%(b) 3.45%
(a) return on Futures #1 for first month holding period, rounded to two
decimal places
(b) return on Futures #2 for second month holding period, rounded to two
decimal places
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%. 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%. 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 certain non- financial "hard" (i.e., industrial
non-edible) commodities (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 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.
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".
As long as any series of ComPS is outstanding, Morgan Guaranty will cause
the Applicable Index relating to such series of ComPS to be published by
one or more public reporting entities as a JPM Individual Index. At the
date of this Prospectus, such information is available on both Reuters and
Bloomberg.
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".
For example, to calculate the value of an Excess Return Index (I(t)) on a
Trading Day not subject to a Market Disruption Event for which I(t-1)
equals 100 and on which the only Benchmark Contract moves in value from
$14.50 to $15.00 (resulting in an Index change of 3.4482759%),
I(t) = 100 + (100 x 0.034482759)
I(t) = 100 + 3.4482759
I(t) = 103.4482759
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 not
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 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. Also, "R(t)" is the return arising
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
Y(t) = [1/(1-Q)]Days/91 - 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).
For example, to calculate the value of a Total Return Index for any Trading
Day not subject to a Market Disruption Event for which I(t-1) equals 100,
on which the only Benchmark Contract moves from $14.50 to $15.00, on which
the Q (the applicable discount rate (5.00%) multiplied by 91/360) equals
1.26388889% and for which "Days" equals 1,
I(t) = 100 + (100 x 0.0344827586) + 100 x [(1/(1-0.0126388889)]1/91 -1)
I(t) = 100 + 3.44827586 + (100 x 0.0001397838)
I(t) = 100 + 3.44827586 + .01397838
I(t) = 103.46225424
Rebalance of JPM Indices
Because the JPM Indices are measures of a continuous investment in
commodity futures contracts, and because most futures contracts have
maturities (generally from one to three months) which are shorter than the
life of any ComPS, 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 : Benchmark Contracts Underlying Excess Return and Total Return
Indices
Commodity Applicable Units per Designated
No Name/Units Delivery Exchange Contract Contract
1 Aluminum $/MT LME Warehouses LME 25 tonnes Third Wednesday
(Metric Tonne) Worldwide every March, June,
(High Grade September,
Primary Aluminum) December <F1>
2 Copper $/MT LME Warehouses LME 25 tonnes Third Wednesday of
(Copper Grade A) Worldwide every March, June,
September,
December
3 Nickel $/MT LME Warehouses LME 6 tonnes Third Wednesday of
(Primary Nickel) Worldwide every March, June,
September,
December
4 Zinc $/MT LME Warehouses LME 25 tonnes Third Wednesday of
(Special High Worldwide Warehous every March, June,
Grade Zinc) es September,
December
5 Heating Oil #2, New York NYMEX 42,000 Every month
(cent)/gal Harbor gallons
6 Natural Gas $/MM Henry Hub, NYMEX 10,000 MM Every month
BTU Louisiana BTU
7 Unleaded New York NYMEX 42,000 Every month
Gasoline, Harbor gallons
(cent)/gal
8 Light "Sweet" Cushing, NYMEX 1,000 bbl Every month
Crude Oil $/BBL Oklahoma
9 Gold $/troy oz COMEX- COMEX 100 troy February, April,
(.995 fineness) approved vaults oz June, August,
December
10 Silver COMEX- COMEX 5,000 March, May, July,
(cent)/troy oz approved vaults troy oz September,
(.999 fineness) December
11 Platinum NYMEX- NYMEX 50 January, April,
$/troy oz approved vaults troy oz July, October
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 for the New Contacts, with similar
adjustments made for each day of the Rollover Period.
[FN]
<F1> The LME trades contracts on every business day for three months and
monthly contracts maturing on the third Wednesday of each of the next 12 or
more months. The most actively traded contracts are the 3-month forward,
the cash, and the contract maturing the third Wednesday of each month.
<PAGE>
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
Roll- 6 80 20
over 7 60 40
Period 8 40 60
9 20 80
10 0 100
11-month end 0 100
The occurrence of a Rollover Period does not, by itself, create a change
in the value of the Applicable Index. The occurrence of a Rollover Period
merely causes the index change calculation, over the course of the
Rollover Period, to be calculated using a new underlying futures contract. For
example, assuming a constant Old Contract value of $15.00 and a constant
New Contract value of $14.00 throughout the Rollover Period (and thus a
daily percentage change for each day of 0%) and a starting Applicable
Index value of 100, the following indicates the change in the futures-related
portion of the value of the Applicable Index (I(t)) during such Rollover
Period:
Trading Day Old Contract New Contract Index
change(t)*
Weight % % Change Weight % % Change
5 100 0 0 0 0
6 80 0 20 0 0
7 60 0 40 0 0
8 40 0 60 0 0
9 20 0 80 0 0
10 0 0 100 0 0
*Index change(t) is zero for each day because the percentage price
change of the underlying futures contracts is zero for each day
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
Roll- 6 80 20
over 7(MDE) 60 40
Period 8 40 60
9 20 80
10 0 100
11-month end 0 100
For an Applicable Index which is an Excess Return Index or a Total 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).
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 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, and no
member will be permitted to purchase or hold any ComPS during his or her
term on the Committee. 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, Head of Global
(Chairman) J.P. Morgan Commodities
Victor S. Filatov President, Smith Chief Investment
Barney Global Capital Officer
Management Inc.
Martin B. Greenberg Chairman of the Board Former Chairman of
and President of the Commodities
Sterling Commodities Exchange, Inc
Philip K. Vice President, Economic Consultant
Verleger, Jr. Charles River and former Visiting
Associates Fellow, Institute of
International
Economics
Jeanne Feldhusen Managing Director, Head of Fixed Income
J.P. 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, 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.
<PAGE>
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 maturity and principal of and
interest and any premium on any Related Note (or the method of calculating
any of the foregoing), will be set forth in the Prospectus Supplement
related thereto and will mirror the aggregate financial terms of the
related series of Preferred Securities, including as to timing and amount
of payments. 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.
<PAGE>
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; (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. Pursuant to the LLC Agreement, 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.
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.
The Guarantee will be a guarantee with respect to each series 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 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 (e.g.,
upon a subsequent bankruptcy of Morgan Guaranty or J.P. Morgan).
<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 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.
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 and Holders of ComPS
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 Guarantee. Pursuant to the LLC Agreement, the
holders of Preferred Securities in certain circumstances (including a
payment default under the Related Note by J.P. Morgan) have the right to
direct the Company to exercise certain of its rights as the holder of the
Related Note Guarantee.
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 (e.g., upon a subsequent bankruptcy of J.P. Morgan).
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.
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).
<PAGE>
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.
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.
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.
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.
<PAGE>
Experts
The audited financial statements contained in J.P. Morgan's Annual Report
on Form 10-K for the year ended December 31, 1995 (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.
Benchmark Contracts.....................................................
with respect to any Applicable Index, the futures contracts on the
relevant commodity the change in value of which serve as the basis for
calculating the change in value of such Applicable Index.
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
Amount....................... the Dollar Equivalent Value of 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.
<PAGE>
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.
DTC......................... the Depository Trust Company.
Early Redemption Value...... The average for the 10 days of the
Early Determination Period of the
discounted present value of the
indexed Principal Amount of the
ComPS, as set forth under
"Description of ComPS--Early
Redemption Upon the Occurrence of a
Special Event or at the Election of
the Holders of the ComPS".
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.
IRS......................... Internal Revenue Service.
<PAGE>
Issue Date.................. as set forth in the applicable
Prospectus Supplement.
LLC Agreement............... the landlord and restated limited
liability company agreement among
J.P. Morgan, JPM Ventures and
holders of Preferred Securities
subsequently becoming members
thereof dated May 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.
Redemption Value............ with respect to any series of
ComPS, the average for the
Determination Period of the
Principal Amount thereof, as
described under "Description of
ComPS--Calculation of Redemption
Value".
Related Note................ an unsecured, unsubordinated
debt obligation of Morgan Guaranty,
as described in the applicable
Prospectus Supplement.
Related Note Event of Default (i) default for 30 days in the payment
of interest on the applicable Related
Note; (ii) default in payment of
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.
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.
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.
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
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 on which open-outcry
trading on either the NYMEX or
the LME is scheduled to occur or
occurs.
<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*
3(b) -- Amended and Restated 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*
4(f) -- Form of License Agreement between Morgan Guaranty
and J.P. Morgan Index Funding Company, LLC*
4(g) -- Form of Certificate for Securities for Preferred
Securities (included in Exhibit 3(b))
5 -- Opinion of Margaret M. Foran
12 -- Computation of Consolidated Ratio of Earnings to Fixed
Charges and Consolidated Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends
23(a) -- Consent of Price Waterhouse LLP
23(b) -- Consent of Margaret M. Foran (included in Exhibit 5)
24 -- Powers of Attorney
- ---------------
* Previously filed.
<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.
<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 16th day of May, 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
DOUGLAS A. WARNER III* Chairman of the Board, May 16,1996
(Douglas A. Warner III) President and Director,
(Principal Executive
Officer)
RILEY P. BECHTEL* Director May l6, 1996
(Riley P. Bechtel)
MARTIN FELDSTEIN* Director May 16, 1996
(Martin Feldstein)
HANNA H. GRAY* Director May 16, 1996
(Hanna H. Gray)
JAMES R. HOUGHTON* Director May 16, 1996
(James R. Houghton)
JAMES L. KETELSEN* Director May 16, 1996
(James L. Ketelsen)
WILLIAM S. LEE* Director May 16, 1996
(William S. Lee)
ROBERTO G. MENDOZA* Vice Chairman of the May 16, 1996
(Roberto G. Mendoza) Board and Director
MICHAEL E. PATTERSON* Vice Chairman of the May 16, 1996
(Michael E. Patterson) Board and Director
LEE R. RAYMOND* Director May 16, 1996
(Lee R. Raymond)
RICHARD D. SIMMONS* Director May 16, 1996
(Richard D. Simmons)
KURT F. VIERMETZ* Vice Chairman of the May 16, 1996
(Kurt F. Viermetz) Board and Director
<PAGE>
DENNIS WEATHERSTONE* Retired Chairman of May 16, 1996
(Dennis Weatherstone) Board and Director
DOUGLAS C. YEARLY* Director May 16, 1996
(Douglas C. Yearly)
JOHN A. MAYER* Chief Financial Officer May 16, 1996
(John A. Mayer) (Principal Financial
Officer)
DAVID H. SIDWELL* Managing Director and May 16, 1996
(David H. Sidwell) Controller (Principal
Accounting Officer)
*By:
(Margaret M. Foran,
Attorney-in-Fact)
AMENDED AND RESTATED LIMITED LIABILITY COMPANY
AGREEMENT of J.P. MORGAN INDEX FUNDING COMPANY, LLC
(the "Company"), made as of May 15, 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;
WHEREAS J.P. Morgan and JPM Ventures wish to amend and
restate the limited liability company agreement dated as of February
20, 1996, in the form hereof; 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.
<PAGE>
"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 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.
<PAGE>
"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.
"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
<PAGE>
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 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.
"Related Note Guarantee" shall mean the Related Note
Guarantee of J.P. Morgan for the benefit of the Company with respect
to the Related Notes.
"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.
<PAGE>
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.
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.
<PAGE>
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.
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
<PAGE>
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 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
<PAGE>
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 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.
<PAGE>
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 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 to Preferred Members. The
profits of the Company for any month from each Related Note shall be
allocated to the Preferred Members holding the related series of
Preferred Securities to the extent of interest accrued (or paid) on a
pro rata portion of such Related Note for such month, as reasonably
determined by the Managing Members. The profits so allocable to the
Preferred Members holding a particular series of Preferred Securities
shall be allocated to those Preferred Members who hold the Preferred
Securities on the record date for payment of dividends for that month.
Such allocations may be adjusted by the Managing Members as
appropriate to cause the taxable income allocated to any such series
to conform to the distributions on such series, if required because
the use of this monthly convention is prohibited by applicable laws or
if otherwise necessary or appropriate to cause the allocations to
reflect the economic substance of the Preferred Securities.
Section 4.5. Allocation of Profits and Losses. The profits
and losses of the Company (other than the allocation of profits to
Preferred members as provided in Section 4.4) 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 4.6. 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.
<PAGE>
Section 4.7. 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 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
<PAGE>
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;
(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
<PAGE>
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;
(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
<PAGE>
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.
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
<PAGE>
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 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;
<PAGE>
(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 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
<PAGE>
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;
(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
<PAGE>
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.
(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.
<PAGE>
(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 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 (A) to
enforce the Company's rights under the applicable Note or Notes
against Morgan Guaranty, (B) in the case of clause (i) above, declare
and pay dividends or other distributions on the Preferred Securities
of such series and
<PAGE>
(C) in the case of clause (ii) above, to enforce the Company's rights
under the Related Note Guarantee with respect to 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.
(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
<PAGE>
(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 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
<PAGE>
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.
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
<PAGE>
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 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
<PAGE>
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 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.
<PAGE>
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 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;
<PAGE>
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.
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.
<PAGE>
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 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
<PAGE>
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.
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
<PAGE>
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.
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
<PAGE>
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;
(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
<PAGE>
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;
(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.
<PAGE>
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
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
<PAGE>
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 U.S. Federal income tax purposes (including, without limitation,
an alteration of the capitalization of the Company, the events causing
dissolution or the provisions of Section 13.1 upon any such change)
which amendment does not adversely affect the rights, preferences or
privileges of the holders of Preferred Securities.
<PAGE>
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 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
<PAGE>
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 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,
<PAGE>
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.
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
<PAGE>
(c) if given by any other means, when delivered at the address
specified in such registration books.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above stated.
J.P. MORGAN & CO.
INCORPORATED,
by:
-----------------------------------
Name: Margaret M. Foran
Title: Attorney-in-Fact
J.P. MORGAN VENTURES
CORPORATION,
by:
---------------------------------------
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 [ ]
[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;
(3) reduce or increase the principal amount thereof solely with respect
to the portion of this Note relating to the common securities of the
Company; or (4) 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
<PAGE>
(except as provided in the previous sentence), 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 these
Terms and Conditions as provided in clauses (1), (2), (3) or (4) 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:
J.P. MORGAN INDEX FUNDING
COMPANY, LLC,
by:
--------------------------------
Name:
Title:
[Letterhead of]
[J.P. Morgan & Co. Incorporated]
May [ ], 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: J.P. Morgan Index Funding Company, LLC and J.P. Morgan &
Co. Incorporated Amendment No. 2 to the Registration Statement on Form
S-3 File No. 333-01121
Dear Sir or Madam:
I am a Vice President, Assistant General Counsel and
Assistant Secretary of J.P. Morgan & Co. Incorporated, a Delaware
corporation ("J.P. Morgan"), and J.P. Morgan is a Managing Member of
J.P. Morgan Index Funding Company, LLC, a Delaware limited liability
company (the "Company"). In such capacity, I am acting as counsel to
J.P. Morgan and the Company in connection with Amendment No. 2 to the
Registration Statement on Form S-3 (the "Registration Statement")
being filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Act") with respect to
$700,000,000 aggregate amount of Securities. Capitalized terms used
but not defined herein have the meaning given them in the Registration
Statement.
I have examined such documents and made such other
investigations as I have deemed necessary or advisable for purposes of
this opinion. Based thereon, I am of the opinion that:
1. J.P. Morgan is a corporation duly organized and validly
existing under the laws of the State of Delaware, and the Company is a
limited liability company duly organized and validly existing under
the laws of the State of Delaware.
2. The Preferred Securities, when (i) validly authorized by
one or more written actions of the Managing Members of the Company in
conformity with the Amended and Restated Limited Liability Company
Agreement of the Company (the "LLC Agreement"), (ii) issued, executed
and paid for as contemplated in the Registration Statement and (iii)
the books and records of the Company set forth the names and addresses
of all persons to be admitted as members of the Company, will be
validly issued, fully paid and nonassessable limited liability company
interests in the Company, as to which the holders thereof will have no
liability solely by reason of being holders of Preferred Securities in
excess of their obligations to make payments provided for in the LLC
Agreement and their share of the Company's assets and undistributed
profits (subject to the obligation of a holder of Preferred Securities
to repay any funds wrongfully distributed to it).
3. The Guarantee Agreement, when duly executed and delivered
and when Preferred Securities entitled to the benefits of the
Guarantee Agreement have been duly issued and sold as contemplated by
the Registration Statement and any Prospectus Supplement relating
thereto, will constitute a valid and legally binding agreement of the
Company, subject to (i) bankruptcy, insolvency, reorganization,
fraudulent transfer, moratorium and other similar laws now or
hereafter in effect relating to or affect creditors' rights generally
and the rights of bank holding companies generally and (ii) general
principles of equity (regardless of whether considered in a proceeding
at law or in equity).
<PAGE>
I hereby consent to the filing of this opinion as an exhibit
to the Registration Statement. I also consent to the use of my name
under the caption "Legal Opinions" in the Prospectus contained in the
Registration Statement.
Very truly yours,
/s/ Margaret M. Foran
-----------------------
Margaret M. Foran
Exhibit 12
Computation of Ratio of Earnings to Fixed Charges
J.P. Morgan & Co. Incorporated
Consolidated
- -----------------------------------------------------------------------------
Dollars in Millions Three
months
1996
- -----------------------------------------------------------------------------
Earnings:
Net income $ 439
Add: income taxes 216
Less: equity in undistributed income of all affiliates
accounted for by the equity method 4
Add: fixed charges, excluding interest deposits 1,517
- -----------------------------------------------------------------------------
Earnings available for fixed charges, excluding interest
on deposits 2,168
Add: interest on deposits 650
- -----------------------------------------------------------------------------
Earnings available for fixed charges, including interest
on deposits 2,818
- -----------------------------------------------------------------------------
Fixed charges:
Interest expense, excluding interest on deposits 1,508
Interest factor in net rental expense 9
- -----------------------------------------------------------------------------
Total fixed charges, excluding interest on deposits 1,517
Add: interest on deposits 650
- -----------------------------------------------------------------------------
Total fixed charges, including interest on deposits 2,167
- -----------------------------------------------------------------------------
Ratio of earnings to fixed charges:
Excluding interest on deposits 1.43
Including interest on deposit 1.30
- -----------------------------------------------------------------------------
<PAGE>
Exhibit 12
Computation of Ratio of Earnings to Fixed Charges
and Preferred Stock Dividends
J.P. Morgan & Co. Incorporated
Consolidated
- -----------------------------------------------------------------------------
Dollars in Millions Three
months
1996
- -----------------------------------------------------------------------------
Earnings:
Net income $ 439
Add: income taxes 216
Less: equity in undistributed income of all affiliates
accounted for by the equity method 4
Add: fixed charges, excluding interest on deposits and
preferred stock dividends 1,517
- -----------------------------------------------------------------------------
Earnings available for fixed charges, excluding interest
on deposits 2,168
Add: interest on deposits 650
- -----------------------------------------------------------------------------
Earnings available for fixed charges, including interest
on deposits 2,818
- -----------------------------------------------------------------------------
Fixed charges:
Interest expense, excluding interest on deposits 1,508
Interest factor in net rental expense 9
Preferred stock dividends 10
- -----------------------------------------------------------------------------
Total fixed charges, excluding interest on deposits 1,527
Add: interest on deposits 650
- -----------------------------------------------------------------------------
Total fixed charges, including interest on deposits 2,177
- -----------------------------------------------------------------------------
Ratio of earnings to fixed charges:
Excluding interest on deposits 1.42
Including interest on deposit 1.29
- -----------------------------------------------------------------------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Prospectus constituting part of this Registration Statement on
Form S-3 (No. 333-01121) of our report dated January 10, 1996,
which appears on page 40 of J.P. Morgan & Co. Incorporated's 1995
Annual Report on Form 10-K for the year ended December 31, 1995
(included in J.P. Morgan & Co. Incorporated's Annual Report to
Stockholders). We also consent to the reference to us under the
heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
New York, New York
May 7, 1996
