<PAGE> 1
Filed pursuant to Rule 424(b)(2)
Registration No. 033-64193
Prospectus Supplement
(To Prospectus Dated January 31, 1996)
174,607 MEDS SM
(Mandatorily Exchangeable Debt Securities SM)
J.P. Morgan & Co. Incorporated
2.85% Exchangeable Notes Due August 18, 1998
(Subject to Exchange into Shares of Common Stock, Par Value $.01
Per Share, of Samsonite Corporation)
The initial principal amount of each of the 2.85% Exchangeable
Notes Due August 18, 1998 (each, a "MEDS"), of J.P. Morgan & Co.
Incorporated ("J.P. Morgan") being offered hereby will be $40.09
(the "Initial Price"). The MEDS will mature on August 18, 1998.
Interest on the MEDS, at the rate of 2.85% of the Initial Price per
annum, is payable quarterly on each November 18, February 18, May
18 and August 18, beginning November 18, 1997. MEDS are not
subject to redemption or any sinking fund prior to maturity.
At maturity (including as a result of acceleration), the principal
amount of each MEDS will be mandatorily exchanged by J.P. Morgan
into a number of shares of Common Stock of Samsonite Corporation
("Samsonite"), par value $.01 per share ("Samsonite Common Stock")
(or, at J.P. Morgan's option, cash with an equal value) at the
Exchange Rate. The Exchange Rate is equal to, subject to certain
adjustments, (a) if the Maturity Price per share of Samsonite
Common Stock is less than or equal to $62.54 (the "Capped
Participation Price"), one share of Samsonite Common Stock per
MEDS, and (b) if the Maturity Price is greater than the Capped
Participation Price, a fractional share of Samsonite Common Stock
per MEDS so that the value of such fractional share at the Maturity
Price equals the Capped Participation Price. The "Maturity Price"
means the average Closing Price (as defined herein) per share of
Samsonite Common Stock on the 5 Trading Days (as defined herein)
beginning August 10, 1998 and ending August 14, 1998. Accordingly,
holders of the MEDS will not necessarily receive an amount equal to
the Initial Price thereof. The MEDS will be an unsecured obligation
of J.P. Morgan ranking pari passu with all of its other unsecured
and unsubordinated indebtedness. See "Description of the MEDS."
The MEDS will be represented by Global Securities registered in the
name of the nominee of The Depository Trust Company, which will act
as the Depository. Interests in the MEDS represented by Global
Securities will be shown on, and transfers thereof will be effected
only through, records maintained by the Depository and its direct
and indirect participants. Except as described herein, MEDS in
definitive form will not be issued. Settlement for the MEDS will be
made in immediately available funds. The MEDS will trade in the
Depository's Same-Day Funds Settlement System and secondary market
trading activity for the MEDS will therefore settle in immediately
available funds. All payments of principal and interest will be
made by J.P. Morgan in immediately available funds or the
equivalent.
For a discussion of certain United States federal income tax
consequences for holders of MEDS, see "Certain United States
Federal Income Tax Considerations."
Samsonite Corporation is not affiliated with J.P. Morgan and has no
obligations with respect to the MEDS. See "Risk Factors--No
Affiliation Between J.P. Morgan and Samsonite Corporation."
"MEDS" and "Mandatorily Exchangeable Debt Securities" are service
marks of J.P. Morgan.
Samsonite Corporation Common Stock is traded on the NASDAQ National
Market ("NASDAQ") under the symbol "SAMC". On August 11, 1997,
the last reported sale price of the Samsonite Common Stock was $40.
The MEDS will not be listed or traded on any securities exchange or
trading market.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSIDER CAREFULLY THE
INFORMATION CONTAINED UNDER "RISK FACTORS".
THESE SECURITIES ARE NOT SAVINGS OR DEPOSIT ACCOUNTS OR OTHER
OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER FEDERAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
J.P. Morgan Securities Inc. (the "Underwriter") proposes to offer
the MEDS from time to time for sale in one or more negotiated
transactions, or otherwise, at market prices prevailing at the time
of sale, at prices related to such prevailing market prices or at
negotiated prices, in each case plus accrued interest, if any, from
August 18, 1997. The Underwriter has agreed t o purchase the MEDS
at 100% of their principal amount ($7,000,000 aggregate proceeds to
J.P. Morgan before deducting expenses payable by J.P. Morgan), plus
accrued interest, if any, from August 18, 1997. J.P. Morgan has
agreed to indemnify the Underwriter against certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
See "Underwriting".
The MEDS are offered subject to receipt and acceptance by J.P.
Morgan Securities Inc. (the "Underwriter"), to prior sales and to
the Underwriter's right to reject any order in whole or in part and
to withdraw, cancel or modify the offer without notice. It is
expected that delivery of the MEDS will be made at the office of
J.P. Morgan & Co. Incorporated, 60 Wall Street, New York, New York,
or through the facilities of The Depository Trust Company, on or
about August 18, 1997.
J.P. Morgan & Co.
The date of this Prospectus Supplement is August 13, 1997
<PAGE> 2
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE
PRICE OF THE MEDS AND SAMSONITE COMMON STOCK. SPECIFICALLY, THE
UNDERWRITER MAY OVERALLOT IN CONNECTION WITH THE OFFERING AND MAY
BID FOR, AND PURCHASE, SHARES OF THE SAMSONITE COMMON STOCK IN THE
OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING".
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS SHALL
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN
WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
Incorporation of Certain Documents by Reference
J.P. Morgan hereby incorporates by reference in this Prospectus
Supplement J.P. Morgan's Annual Report on Form
10-K for the year ended December 31, 1996 (included in its Annual
Report to Stockholders), J.P. Morgan's Quarterly Reports on Form 10-
Q for the quarters ended March 31, 1997 and June 30, 1997, and
J.P. Morgan's Reports on Form 8-K dated January 13, 1997, January
30, 1997, April 10, 1997, July 10, 1997 and July 30, 1997
heretofore filed pursuant to Section 13 of the 1934 Act.
In addition, all reports and definitive proxy or information
statements filed pursuant to Section 13(a), 13(c), 14 or 15(d) of
the 1934 Act subsequent to the date of this Prospectus Supplement
and prior to the termination of the offering of the MEDS shall be
deemed to be incorporated by reference into this Prospectus
Supplement 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 Supplement 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 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 Supplement.
J.P. Morgan will provide without charge to each person, including
any beneficial owner, to whom this Prospectus Supplement 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) 648-2712.
<PAGE> 3
Risk Factors
As described in more detail below, the trading price of the MEDS
may vary considerably prior to maturity (including by acceleration
or otherwise, "Maturity") due to, among other things, fluctuations
in the price of Samsonite Common Stock and other events that are
difficult to predict and beyond J.P. Morgan's control.
Comparison to Other Debt Securities
The terms of the MEDS differ from those of ordinary debt securities
in that the amount that a holder of the MEDS will receive upon
mandatory exchange of the principal amount thereof at Maturity is
not fixed, but is based on the price of the Samsonite Common Stock
as specified in the Exchange Rate (as defined under "Description of
the MEDS"). There can be no assurance that such amount receivable
by such holder upon exchange at Maturity will be equal to or
greater
than the Initial Price of the MEDS. For example, if the Maturity
Price of the Samsonite Common Stock is less than the Initial Price,
such amount receivable upon exchange will be less than the Initial
Price paid for the MEDS, in which case an investment in the MEDS
would result in a loss. In addition, the opportunity for equity
appreciation afforded by an investment in the MEDS is less than the
opportunity for equity appreciation afforded by an investment in
the Samsonite Common Stock because the amount receivable by holders
of the MEDS upon exchange at Maturity will in no event exceed the
Capped Participation Price (as defined under "Description of the
MEDS") of $62.54, regardless of the Maturity Price of the Samsonite
Common Stock, which represents an appreciation of 56.00% over the
Initial Price. Because the price of the Samsonite Common Stock is
subject to market fluctuations, the value of the Samsonite Common
Stock (or, at the option of J.P. Morgan, the amount of cash)
receivable by a holder of MEDS upon exchange at Maturity,
determined as described herein, may be more or less than the
Initial Price of the MEDS.
Relationship of MEDS and Samsonite Common Stock
The market price of MEDS at any time will be affected primarily by
changes in the price of Samsonite Common Stock. As indicated in
"Price Range and Dividend History of Samsonite Common Stock"
herein, the price of Samsonite Common Stock has been volatile
during certain recent periods.
It is impossible to predict whether the price of Samsonite Common
Stock will rise or fall. Trading prices of Samsonite Common Stock
will be influenced by Samsonite's operational results and by
complex and interrelated political, economic, financial and other
factors that can affect the capital markets generally, the stock
exchanges or quotation systems on which Samsonite Common Stock is
traded and the market segment of which Samsonite is a part. Trading
prices of Samsonite Common Stock may also be influenced if J.P.
Morgan or other persons hereafter issue securities with terms
similar to those of the MEDS or if J.P. Morgan otherwise transfers
shares of Samsonite Common Stock owned by J.P. Morgan. As of August
13, 1997, a wholly owned subsidiary of J.P. Morgan held or had the
right to acquire approximately 131,000 shares of Samsonite Common
Stock, with sole voting and investment power over all such shares.
See "Samsonite Corporation." However, the Indenture does not
contain any restriction on the disposition of such stock by J.P.
Morgan, and no such shares of Samsonite Common Stock will be
pledged or otherwise held in escrow for use at Maturity of the
MEDS. See "Description of the MEDS--General".
Dilution of Samsonite Common Stock
The amount that holders of the MEDS are entitled to receive upon
the mandatory exchange at Maturity is subject to adjustment for
certain events arising from stock splits and combinations, stock
dividends and certain other actions of Samsonite that modify its
capital structure, such as certain issuances of rights or warrants.
See "Description of
the MEDS--Dilution Adjustments." Such amount to be received by such
holders upon exchange at Maturity may not be adjusted for other
events, such as offerings of Samsonite Common Stock for cash or in
connection with acquisitions, that may adversely affect the price
of Samsonite Common Stock and, because of the relationship of such
amount to be received upon exchange to the price of Samsonite
Common Stock, such other events may adversely affect the trading
price of the MEDS. See "Samsonite Corporation". There can be no
assurance that Samsonite will not make offerings of Samsonite
Common Stock or take such other action in the future or as to the
amount of such offerings, if any. In
<PAGE> 4
addition, until such time, if any, as J.P. Morgan shall deliver
shares of Samsonite Common Stock to holders of the MEDS at Maturity
thereof, holders of the MEDS will not be entitled to any rights
with respect to Samsonite Common Stock (including, without
limitation, the exercise of voting rights and the right to receive
any dividends or other distributions in respect thereof).
No Affiliation Between J.P. Morgan and Samsonite
As of August 13, 1997, a wholly owned subsidiary of J.P. Morgan
held or had the right to acquire approximately 131,000 shares of
Samsonite Common Stock, with sole voting and investment power over
all such shares. However, J.P. Morgan may at any time to the extent
legally permitted purchase, sell or enter into any other
transactions related to Samsonite Common Stock without restriction.
J.P. Morgan is not affiliated with Samsonite and, although J.P.
Morgan has no knowledge that any of the events described in the
preceding subsection not heretofore publicly disclosed by Samsonite
are currently being contemplated by Samsonite or of any event that
would have a material adverse effect on Samsonite or on the price
of Samsonite Common Stock, such events are beyond J.P. Morgan's
ability to control and are difficult to predict.
Samsonite has no obligations with respect to the MEDS, including
any obligation to take the needs of J.P. Morgan or of holders of
the MEDS into consideration for any reason. Samsonite will not
receive any of the proceeds of the offering of the MEDS made hereby
and is not responsible for, and has not participated in, the
determination or calculation of the amount receivable by holders of
the MEDS at Maturity. Samsonite is not involved with the
administration or trading of the MEDS and has no obligations with
respect to the amount receivable by holders of the MEDS at
Maturity.
Possible Illiquidity of the Secondary Market
It is not possible to predict how the MEDS will trade in the
secondary market or whether such market will be liquid or illiquid.
MEDS are novel and innovative securities and there is currently no
secondary market for the MEDS. The Underwriter currently intends,
but is not obligated, to make a market in the MEDS. There can be no
assurance
that a secondary market will develop or, if a secondary market does
develop, that it will provide the holders of the MEDS with
liquidity of investment or that it will continue for the life of
the MEDS.
The MEDS will not be listed or traded on any securities exchange or
trading market. Thus, pricing information for the MEDS may be more
difficult to obtain than if the MEDS were listed or traded on a
securities exchange or trading market.
Uncertain United States Federal Income Tax Characterization of MEDS
No statutory, judicial or administrative authority directly
addresses the characterization of the MEDS or instruments similar
to the MEDS for U.S. federal income tax purposes. As a result,
significant aspects of the U.S. federal income tax consequences of
an investment in the MEDS are not certain. No ruling is being
requested from the Internal Revenue Service with respect to the
MEDS and no assurance can be given that the Internal Revenue
Service will agree with the position taken by J. P. Morgan. In
particular, a holder of MEDS might be required to accrue interest
income at a rate in excess of the coupon on the MEDS. See "Certain
United States Federal Income Tax Considerations."
J.P. Morgan & Co. Incorporated
J.P. Morgan, whose origins date to a merchant banking firm founded
in London in 1838, is the holding company for a group of global
subsidiaries that provide a wide range of financial services to
corporations, governments, financial institutions, institutional
investors, professional firms, privately held companies, nonprofit
organizations, and financially sophisticated individuals. J.P.
Morgan's activities are summarized in the accompanying Prospectus.
As used in this Prospectus Supplement, unless the context otherwise
requires, the term "J.P. Morgan" refers to J.P. Morgan & Co.
Incorporated and its consolidated and unconsolidated subsidiaries.
<PAGE> 5
Use of Proceeds
The net proceeds (after use of proceeds for hedging purposes
described below) to be received by J.P. Morgan from the sale of the
MEDS will be used for general corporate purposes, including
investment in equity and debt securities and interest-bearing
deposits of subsidiaries. Pending such use, J.P. Morgan may
temporarily invest the net proceeds or may use them to reduce short-
term indebtedness.
From time to time after the initial offering and prior to the
Maturity of the MEDS, depending on market conditions (including the
market price of Samsonite Common Stock), subsidiaries of J.P.
Morgan may use the remainder of the proceeds to be received by J.P.
Morgan from the sale of MEDS to engage in dynamic hedging
techniques and may take long or short positions in Samsonite Common
Stock, in listed or over-the-counter options contracts in, or other
derivative or synthetic instruments related to, the Samsonite
Common Stock.
Samsonite Corporation
According to publicly available documents, Samsonite Corporation, a
Colorado corporation ("Samsonite"), manufactures and distributes
luggage and related products under the "Samsonite," "American
Tourister" and "Lark" brand names. Samsonite is subject to the
informational requirements of the Securities Exchange Act of 1934
(the "Exchange Act"). Accordingly, Samsonite files reports, proxy
statements and other information with the Securities and Exchange
Commission (the "Commission"). Copies of Samsonite's registration
statements, reports, proxy statements and other information may be
inspected and copied at certain offices of the Commission.
This Prospectus Supplement relates only to the MEDS offered hereby
and does not relate to the Samsonite Common stock. All disclosures
contained in this Prospectus Supplement regarding Samsonite are
derived from the publicly available documents described in the
preceding paragraph. J.P. Morgan has not participated in the
preparation of such documents and has not made any due diligence
inquiry with respect to the information provided therein. There can
be no assurance that all events occurring prior to the date hereof
(including events that would affect the accuracy or completeness of
the publicly available documents described in the preceding
paragraph) that would affect the trading price of Samsonite Common
Stock have been publicly disclosed. Because the principal amount
of the MEDS payable at maturity is related to the trading price of
Samsonite Common Stock, such events, if any, would also affect the
trading price of the MEDS.
J.P. Morgan or one or more affiliates may presently be engaged or
may from time to time engage in business with Samsonite, including
extending loans to or making equity investments in Samsonite or
providing advisory services (such as merger and acquisition
advisory services) to Samsonite. In the course of such actions,
J.P. Morgan or such affiliates may acquire non- public information
with respect to Samsonite. Additionally, J.P. Morgan or its
affiliates may publish research reports with respect to Samsonite.
However, J.P. Morgan does not make any representation to any
purchaser of MEDS with respect to any matters whatsoever relating
to Samsonite. Any prospective purchaser of MEDS should undertake an
independent investigation of Samsonite to make an informed decision
with respect to a potential investment in Samsonite Common Stock.
<PAGE> 6
Price Range and Dividend History of Samsonite Common Stock
Samsonite is listed and traded on NASDAQ under the symbol "SAMC".
The following table sets forth, for
the periods indicated, the high and low closing prices per share of
the Samsonite Common Stock on NASDAQ
and cash dividends per share of Samsonite Common Stock. The
closing prices per share of the Samsonite Common Stock listed below
are furnished as a matter of information only and have been derived
from publicly disseminated information that J.P. Morgan has no
reason to believe is inaccurate. Neither J.P. Morgan nor the
Underwriter (see "Underwriting" below) makes any representation as
to the accuracy of such information.
High Low Dividends
1995
First Quarter $16.953 $15.156 0%
Second Quarter 19.422 17.125 0%
Third Quarter 19.25 11.50 0%
Fourth Quarter 12.75 9.50 0%
1996
First Quarter $14.50 $9.375 0%
Second Quarter 23.750 14.375 0%
Third Quarter 27.375 17.625 0%
Fourth Quarter 38.875 27.375 0%
1997
First Quarter $50.25 $37.875 0%
Second Quarter 47.75 38.75 0%
As of 11th August 50.875 40.00 0%
J.P. Morgan makes no representation as to the amount of dividends,
if any, that Samsonite will pay in the future. In any event,
holders of MEDS will not be entitled to receive any dividends that
may be payable on Samsonite Common Stock until such time as J.P.
Morgan, if it so elects, delivers Samsonite Common Stock at
Maturity of the MEDS, and then only with respect to dividends
having a record date on or after the date of delivery of such
Samsonite Common Stock. See "Description of the MEDS."
Although historical data with respect to Samsonite Common Stock is
included in these offering materials, investors should understand
that historical performance should not be taken as an indication of
future performance, and no assurance can be given, and none is
intended to be given, that the future performance of Samsonite
Common Stock will reflect past performance.
Description of the MEDS
The following description of the particular terms of the MEDS
supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of Debt Securities
set forth in the Prospectus, to which description reference is
hereby made.
General
The MEDS are a single series of Debt Securities (as defined in the
Prospectus), to be issued under an indenture dated as of August 15,
1982, and all indentures supplemental thereto, including the First
Supplemental Indenture dated as of May 5, 1986, the Second
Supplemental Indenture dated as of February 27, 1996 and the Third
Supplemental Indenture dated as of January 30, 1997 (collectively
referred to as the "Indenture"), between J.P. Morgan and First
<PAGE> 7
Trust of New York, National Association, successor to Chemical Bank
(formerly Manufacturers Hanover Trust Company), as trustee (the
"Trustee").
The MEDS will be unsecured and will rank on a parity with all other
unsecured and unsubordinated indebtedness of J.P. Morgan. The
aggregate number of MEDS to be issued will be 174,607. The MEDS
will mature on August 18, 1998. In the future J.P. Morgan may issue
additional Debt Securities or other securities with terms similar
to those of the MEDS.
Each MEDS, which will be issued with a principal amount of $40.09,
will bear interest at the annual rate of 2.85% of the Initial Price
per annum (or $1.142 per annum) from August 18, 1997, or from the
most recent Interest Payment Date to which interest has been paid
or provided for until the principal amount thereof is exchanged at
Maturity pursuant to the terms of the MEDS. Interest on the MEDS
will be payable quarterly in arrears on each November 18, February
18, May 18 and August 18, commencing November 18, 1997 (each, an
"Interest Payment Date"), to the persons in whose names the MEDS
are registered at the close of business on the last day of the
calendar month immediately preceding such Interest Payment Date,
provided that interest payable at Maturity shall be payable to the
person to whom the principal is payable. Interest on the MEDS will
be computed on the basis of a 360-day year of twelve 30-day months.
If an Interest Payment Date falls on a day that is not a Business
Day (as defined below), the interest payment to be made on such
Interest Payment Date will be made on the next succeeding Business
Day with the same force and effect as if made on such Interest
Payment Date, and no additional interest will accrue as a result of
such delayed payment.
At Maturity (including as a result of acceleration or otherwise),
the principal amount of each MEDS will be mandatorily exchanged by
J.P. Morgan into a number of shares of Samsonite Common Stock at
the Exchange Rate (as defined below), and, accordingly, holders of
the MEDS will not necessarily receive an amount equal to the
Initial Price thereof. The "Exchange Rate" is equal to, subject to
adjustment as a result of certain dilution events (see "--Dilution
Adjustments" below), (a) if the Maturity Price (as defined below)
per share of Samsonite Common Stock is less than or equal to $62.54
per share of Samsonite Common Stock (the "Capped Participation
Price"), one share of Samsonite Common Stock per MEDS and (b) if
the Maturity Price is greater than the Capped Participation Price,
a fractional share of Samsonite Common Stock per MEDS so that the
value of such fractional share (determined at the Maturity Price)
is equal to the Capped Participation Price. No fractional shares
of Samsonite Common Stock will be issued at Maturity, as provided
under "--Fractional Shares" below. Notwithstanding the foregoing,
J.P. Morgan may, at its option in lieu of delivering shares of
Samsonite Common Stock, deliver cash in an amount equal to the
value at the Maturity Price of such number of shares of Samsonite
Common Stock. On or prior to the seventh Business Day prior to
August 18, 1998, J.P. Morgan will notify The Depository Trust
Company and the Trustee stating whether the principal amount of
each MEDS will be exchanged for shares of Samsonite Common Stock or
cash. If J.P. Morgan elects to deliver shares of Samsonite Common
Stock, the shares which are delivered to the holders of the MEDS
which are not affiliated with Samsonite shall be free of any
transfer restrictions, and the holders of the MEDS will be
responsible for the payment of any and all brokerage costs upon the
subsequent sale of such shares.
The "Maturity Price" is defined as the average Closing Price per
share of Samsonite Common Stock on the five Trading Days beginning
August 10, 1998 and ending August 14, 1998. The Closing Price is
defined as the NASDAQ final quoted bid price of such security at
the closing time on the NASDAQ on such date. If such bid price is
not available, the Closing Price shall mean the market value of
such security on such date as determined by a nationally recognized
independent investment banking firm retained for such purpose by
J.P. Morgan. A "Trading Day" is defined as a day on which the
security the Closing Price of which is being determined (A) is not
suspended from trading on any national or regional securities
exchange or association or over-the-counter market at the close of
business and (B) has traded at least once on the national or
regional securities exchange or association or over-the-counter
market that is the primary market for the trading of such security.
"Business Day" means any day, other than a Saturday or Sunday, on
which banking institutions in the City of New York are open for
business.
For illustrative purposes only, the following chart shows the
number of shares of Samsonite Common Stock or the amount of cash
that a holder of MEDS would receive for each MEDS at various
Maturity Prices. The table assumes that there will be no
adjustments to the Exchange Rate described under "--Dilution
Adjustments" below. There can be no assurance that the Maturity
Price will be within the range set forth below. Given the Initial
Price of $40.09 per MEDS and the Capped Participation Price of
$62.54, a MEDS holder would receive at Maturity the following
number
<PAGE> 8
of shares of Samsonite Common Stock or amount of cash (if J.P.
Morgan elects to pay the MEDS in cash):
Maturity Price Number of
of Samsonite Shares of Samsonite
Common Stock Common Stock Amount of Cash
$20.000 1.0000 $20.00
$40.000 1.0000 $40.00
$55.000 1.0000 $55.00
$62.540 1.0000 $62.54
$75.000 0.8338 $62.54
$85.000 0.7357 $62.54
$100.000 0.6254 $62.54
Interest on the MEDS will be payable, and delivery of Samsonite
Common Stock (or, at the option of J.P. Morgan, its cash
equivalent) in exchange for the MEDS at Maturity will be made upon
surrender of such MEDS, at the office or agency of J.P. Morgan
maintained for such purposes; provided that payment of interest may
be made at the option
of J.P. Morgan by check mailed to the persons in whose names the
MEDS are registered at the close of business on the last day of
the calendar month immediately preceding the applicable Interest
Payment Date. See "--Book-Entry System." Initially such office
will be at the principal corporate trust office of the Trustee.
The MEDS will be transferable at any time or from time to time at
the aforementioned office. No service charge will be made to the
holder for any such transfer except for any tax or governmental
charge incidental thereto.
The Indenture does not contain any restriction on the ability of
J.P. Morgan to sell, pledge or otherwise convey all or any portion
of the Samsonite Common Stock held by it, and no such shares of
Samsonite Common Stock will be pledged or otherwise held in escrow
for use at Maturity of the MEDS. Consequently, in the event of a
bankruptcy, insolvency or liquidation of J.P. Morgan, the Samsonite
Common Stock, if any, owned by J.P. Morgan will be subject to the
claims of the creditors of J.P. Morgan. In addition, as described
herein, J.P. Morgan will have the option, exercisable in its sole
discretion, to satisfy its obligations pursuant to the mandatory
exchange for the principal amount of each MEDS at Maturity by
delivering to holders of the MEDS either the specified number of
shares of Samsonite Common Stock or cash in an amount equal to the
value of such number of shares at the Maturity Price. In the event
of such a sale, pledge or conveyance, a holder of the MEDS may be
more likely to receive cash in lieu of Samsonite Common Stock. As a
result, there can be no assurance that J.P. Morgan will elect at
Maturity to deliver Samsonite Common Stock or, if it so elects,
that it will use all or any portion of its current holdings of
Samsonite Common Stock to make such delivery. Consequently,
holders of the MEDS will not be entitled to any rights with respect
to Samsonite Common Stock (including, without limitation, the
exercise of voting rights and any right to receive any dividends or
other distributions in respect thereof) until such time, if any, as
J.P. Morgan shall have delivered shares of Samsonite Common Stock
to holders of the MEDS at Maturity thereof.
Dilution Adjustments
The Exchange Rate is subject to adjustment if Samsonite shall (i)
pay a stock dividend or make a distribution with respect to
Samsonite Common Stock in shares of such stock, (ii) subdivide or
split its outstanding shares of Samsonite Common Stock, (iii)
combine its outstanding shares of Samsonite Common Stock into a
smaller number of shares, (iv) issue by reclassification of its
shares of Samsonite Common Stock any shares of common stock of
Samsonite, (v) issue rights or warrants to all holders of Samsonite
Common Stock entitling them to subscribe for or purchase shares of
<PAGE> 9
Samsonite Common Stock at a price per share less than the market
price at such time of the Samsonite Common Stock
(other than rights to purchase Samsonite Common Stock pursuant to a
plan for the reinvestment of dividends or interest) or (vi) pay a
dividend or make a distribution to all holders of Samsonite Common
Stock of evidences of its indebtedness or other assets (excluding
any dividends or distributions referred to in clause (i) above and
any cash dividends other than any Extraordinary Cash Dividends) or
issue to all holders of Samsonite Common Stock rights or warrants
to subscribe for or purchase any of its securities (other than
those referred to in clause (v) above). In the case of the events
referred to in clauses (i), (ii), (iii) and (iv) above, the
Exchange Rate in effect immediately prior to such event shall each
be adjusted so that the holder of any MEDS shall thereafter be
entitled to receive, upon mandatory exchange of the principal
amount of such MEDS at Maturity, the number of shares of Samsonite
Common Stock (or cash in lieu thereof) which such holder would have
been entitled to receive immediately following any such event had
such MEDS been exchanged immediately prior to such event or any
record date with respect thereto. In the case of the event referred
to in clause (v) above, the Exchange Rate shall be adjusted by
multiplying the Exchange Rate in effect immediately prior to the
date of issuance of the rights or warrants referred to in clause
(v) above by a fraction, the numerator of which shall be the sum of
the number of shares of Samsonite Common Stock outstanding on the
date of issuance of such rights or warrants immediately prior to
such issuance plus the number of additional shares of Samsonite
Common Stock offered for subscription or purchase pursuant to such
rights or warrants, and the denominator of which shall be the sum
of the number of shares of Samsonite Common Stock outstanding on
the date of issuance of such rights or warrants immediately prior
to such issuance plus the number of additional shares of Samsonite
Common Stock which the aggregate offering price of the total number
of shares of Samsonite Common Stock so offered for subscription or
purchase pursuant to such rights or warrants would purchase at the
market price (determined as the average Closing Price per share of
Samsonite Common Stock on the 3 Trading Days ending on the third
Trading Day immediately prior to the date such rights or warrants
are issued), which shall be determined by multiplying such total
number of shares by the exercise price of each such right or
warrant and dividing the product so obtained by such market price.
To the extent that shares of Samsonite Common Stock are not
delivered
after the expiration of such rights or warrants, the Exchange Rate
shall be readjusted to the Exchange Rate which would then be in
effect had such adjustments for the issuance of such rights or
warrants been made upon the basis of delivery of only the number of
shares of Samsonite Common Stock actually delivered. In the case of
the event referred to in clause (vi) above, the Exchange Rate shall
be adjusted by multiplying the Exchange Rate in effect on the
record date, by a fraction, the numerator of which shall be the
market price per share of the Samsonite Common Stock on the record
date for the determination of stockholders entitled to receive the
dividend or distribution referred to in clause (vi) above (such
market price being the average Closing Price per share of Samsonite
Common Stock on the 3 Trading Days ending on the third Trading Day
immediately prior to such record date) and the denominator of which
shall be such market price per share of Samsonite Common Stock less
the fair market value (as determined by a nationally recognized
independent investment banking firm retained for such purpose by J.
P. Morgan) as of such record date of the portion of the assets or
evidences of indebtedness so distributed or of such subscription
rights or warrants applicable to one share or Samsonite Common
Stock. As used herein, an "Extraordinary Cash Dividend" means, with
respect to any one-year period, all cash dividends on the Samsonite
Common Stock during such period to the extent such dividends exceed
on a per share basis 10% of the average price of the Samsonite
Common Stock over such period (less any such dividends for which a
prior adjustment to the Exchange Rate was previously made). All
adjustments to the Exchange Rate will be calculated to the nearest
1/10,000th of a share of Samsonite Common Stock (or if there is not
a nearest 1/10,000th of a share, to the next lower 1/10,000th of a
share). No adjustment in the Exchange Rate shall be required unless
such adjustment would require an increase or decrease of at least
one percent therein; provided, however, that any adjustments which
by reason of the foregoing are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment.
In the event of (A) any consolidation or merger of Samsonite, or
any surviving entity or subsequent surviving entity of Samsonite
(an "Samsonite Successor"), with or into another entity (other than
a merger or consolidation in which Samsonite is the continuing
corporation and in which the Samsonite Common Stock outstanding
immediately prior to the merger or consolidation is not exchanged
for cash, securities or other property of Samsonite or another
corporation), (B) any sale, transfer, lease or conveyance to
another corporation of the property of Samsonite or any Samsonite
Successor as an entirety or substantially as an entirety, (C) any
statutory exchange of securities of Samsonite or any Samsonite
Successor with another corporation (other than in connection with a
merger or acquisition) or (D) any liquidation, dissolution or
winding up of Samsonite or any Samsonite Successor (any such event,
a "Reorganization Event"), the Exchange Rate used to determine the
amount payable upon exchange at Maturity for each MEDS will be
adjusted to provide that each holder of MEDS will receive at
Maturity cash in an amount equal to (a) if the Transaction Value
(as defined below) is less than or equal to the Capped
Participation Price, the Transaction Value, and (b) if the
Transaction Value is greater than the Capped Participation Price,
the Capped Participation Price. As used herein, "Transaction
Value" means (i) for any cash received in any such Reorganization
<PAGE> 10
Event, the amount of cash received per share of Samsonite Common
Stock, (ii) for any property other than cash or securities received
in any such Reorganization Event, an amount equal to the market
value at Maturity of such property received per share of Samsonite
Common Stock as determined by a nationally recognized independent
investment banking firm retained for such purpose by J.P. Morgan
and (iii) for any securities received in any such Reorganization
Event, an amount equal to the average Closing Price per share of
such securities on the 3 Trading Days ending on the third Trading
Day immediately prior to Maturity multiplied by the number of such
securities received for each share of Samsonite Common Stock.
Notwithstanding the foregoing, in lieu of delivering cash as
provided above, J.P. Morgan may at its option deliver an equivalent
value of securities or other property received in such
Reorganization Event, determined in accordance with clause (ii) or
(iii) above, as applicable. If J.P. Morgan elects to deliver
securities or other property, holders of the MEDS will be
responsible for the payment of any and all brokerage and other
transaction costs upon the sale of such securities or other
property. The kind and amount of securities into which the MEDS
shall be exchangeable after consummation of such transaction shall
be subject to adjustment as described in the immediately preceding
paragraph following the date of consummation of such transaction.
J.P. Morgan is required, within ten Business Days following the
occurrence of an event that requires an adjustment to the Exchange
Rate (or if J.P. Morgan is not aware of such occurrence, as soon as
practicable after becoming so aware), to provide written notice to
the Trustee of the occurrence of such event and a statement in
reasonable detail setting forth the method by which the adjustment
to the Exchange Rate was determined and setting forth the revised
Exchange Rate.
Notwithstanding the foregoing, the principal amount of each MEDS
payable at Maturity will not, under any circumstances, exceed 156%
of the Initial Price of such MEDS.
Fractional Shares
No fractional shares of Samsonite Common Stock will be issued if
J.P. Morgan exchanges the MEDS for shares of Samsonite Common
Stock. In lieu of any fractional share otherwise issuable in
respect of all MEDS of any holder which are exchanged at Maturity,
such holder shall be entitled to receive an amount in cash equal to
the value of such
fractional share at the Maturity Price.
Redemption
The MEDS are not subject to redemption prior to Maturity.
Merger and Consolidation
J.P. Morgan may consolidate or merge with or into any other
corporation or association, and J.P. Morgan may sell or transfer
all or substantially all of its property or assets to any
corporation or association, provided that (i) the corporation (if
other than J.P. Morgan) or association formed by or resulting from
any such consolidation or merger or which shall have received such
property or assets shall assume the payment at maturity to holders
of MEDS and interest on the MEDS and the performance and observance
of all the terms, covenants and conditions of the MEDS to be
performed or observed by J.P. Morgan and (ii) J.P. Morgan or such
successor corporation shall not immediately thereafter be in
default under the terms of the MEDS.
Modification and Waiver
Modification and amendment of certain provisions of the MEDS may be
the outstanding MEDS affected thereby to: (i) evidence succession
of another corporation or association to J.P. Morgan and the
assumption by such a party of the obligations of J.P. Morgan under
the MEDS in the event of a merger, consolidation or sale of assets
in accordance
with the terms of the MEDS; (ii) add further covenants,
restrictions or conditions for the protection of holders of the
MEDS; or (iii) cure ambiguities or correct the MEDS in case of
defects or inconsistencies in the provisions thereof or to
supplement with such other provisions, so long as any such cure,
correction or supplement does not adversely affect
<PAGE> 11
the interest of the holders of the MEDS in any material respect. In
no event may J.P. Morgan, without the consent of the holder of each
outstanding MEDS affected thereby, extend the maturity of any MEDS,
or reduce the rate or extend the time of payment of interest
thereon, or reduce the payment due at maturity thereof, or make the
payment due at maturity or interest thereon payable in any coin,
currency or property other than as provided in the MEDS.
Events of Default
An Event of Default (as defined in the Indenture) with respect to
the MEDS will be: (a) default for 30 days in payment of any
interest on the MEDS; (b) default in the payment of the amount due
at maturity; (c) default by J.P. Morgan in the performance of any
other covenant or warranty contained in the MEDS, which continues
for 90 days after receipt of written notice given by either the
Trustee or the holders of at least 25% in principal amount of the
MEDS outstanding; or (d) certain events of bankruptcy or
reorganization of J.P. Morgan. If an Event of Default described in
clause (a), (b) or (c) above shall have occurred and be continuing,
either the Trustee or the holders of at least 25% in principal
amount of the MEDS outstanding may declare the principal of all
outstanding MEDS and the interest accrued thereon, if any, to be
due and payable immediately. If an Event of Default described in
clause (d) above shall have occurred and be continuing, either the
Trustee or the holders of MEDS that, together with holders of all
other Debt Securities under the Indenture, hold at least 25% in
principal amount (in the case of MEDS, as determined at the time
thereof) of all Debt Securities then outstanding (voting as one
class) may declare the principal of all Debt Securities then
outstanding (including the MEDS) and the interest accrued thereon,
if any, to be due and payable immediately. Upon certain conditions,
such declarations may be annulled and past defaults (except for
defaults in the payment of principal of, or interest on, the MEDS)
may be waived by the holders of a majority in principal amount of
the MEDS then outstanding.
The holders of a majority in principal amount of the MEDS shall
have the right to direct the time, method and place of conducting
any proceeding for any remedy with respect to the MEDS available to
the Trustee under the Indenture, subject to certain limitations
specified therein, provided that the holders of MEDS shall have
offered to the Trustee reasonable indemnity against expenses and
liabilities.
Book-Entry System
It is expected that the MEDS will be issued in the form of one or
more global securities (the "Global Securities") deposited with The
Depository Trust Company (the "Depositary") and registered in the
name of a nominee of the Depositary.
The Depositary has advised J.P. Morgan and the Underwriter as
follows: The Depositary is a limited-purpose trust company
organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning
of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to Section 17A of the Exchange Act. The
Depositary was created to hold securities of persons who have
accounts with the Depositary ("participants") and to facilitate the
clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry
changes in accounts of the participants, thereby eliminating the
need for physical movement of certificates. Such participants
include securities brokers and dealers, banks, trust companies and
clearing corporations. Indirect access to the Depositary's book-
entry system is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or
indirectly.
Upon the issuance of a Global Security, the Depositary or its
nominee will credit the respective MEDS represented by such Global
Security to the accounts of participants. The accounts to be
credited shall be designated by the Underwriter. Ownership of
beneficial interests in such Global Securities will be shown on,
and the transfer of those ownership interests will be effected only
through, records maintained by the Depositary or its nominee for
such Global Securities. Ownership of beneficial interests in such
Global Securities by persons that hold through participants will be
shown on, and the transfer of that ownership interest within such
participant will be effected only through, records maintained by
such participant. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and such laws may impair
the ability to transfer beneficial interests in a Global Security.
So long as the Depositary for a Global Security, or its nominee, is
the registered owner of such Global Security, such depositary or
such nominee, as the case may be, will be considered the sole owner
or holder of the MEDS for all
<PAGE> 12
purposes under the Indenture. Except as set forth below, owners of
beneficial interests in such Global Securities will not be entitled
to have the MEDS registered in their names, will not receive or be
entitled to receive physical delivery of the MEDS in definitive
form and will not be considered the owners or holders thereof under
the Indenture.
Payment of principal of and any interest on the MEDS registered in
the name of or held by the Depositary or its nominee will be made
to the Depositary or its nominee, as the case may be, as the
registered owner or the holder of the Global Security. None of J.P.
Morgan, the Trustee, any Paying Agent or any securities registrar
for the MEDS will have any responsibility or liability for any
aspect of the records relating to or payments made on account of
beneficial ownership interests in a Global Security or for
maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
J.P. Morgan expects that the Depositary, upon receipt of any
payment of principal or interest in respect of a permanent Global
Security, will credit immediately participants' accounts with
payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Security as shown
on the records of the Depositary. J.P. Morgan also expects that
payments by participants to owners of beneficial interests in such
Global Security held through such participants will be governed by
standing instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form
or registered in "street name," and will be the responsibility of
such participants.
A Global Security may not be transferred except as a whole by the
Depositary to a nominee or a successor of the depositary. If the
Depositary is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by J.P.
Morgan within ninety days, J.P. Morgan will issue MEDS in
definitive registered form in exchange for the Global Security
representing such MEDS.
Notwithstanding the foregoing, J.P. Morgan may at any time
(including at the time of original issuance of the MEDS) and in its
sole discretion determine not to have any MEDS represented by one
or more Global Securities and, in such event, will issue MEDS in
definitive form in exchange for all of the Global Securities
representing the MEDS. Further, if J.P. Morgan so specifies with
respect to the MEDS, an owner of a beneficial interest in a Global
Security representing MEDS may, on terms acceptable to J.P. Morgan
and the Depositary for such Global Security, receive MEDS in
definitive form. In any such instance, an owner of a beneficial
interest in a Global Security will be entitled to physical delivery
in definitive form of MEDS represented by such Global Security
equal in number to that represented by such beneficial interest and
to have such MEDS registered in its name.
Regarding the Trustee
The Trustee, First Trust of New York, National Association, has its
principal corporate trust office at 100 Wall Street, Suite 2000,
New York, New York, 10005.
Certain United States Federal Income Tax Considerations
The following discussion is based upon the advice of tax counsel to
J.P. Morgan, Cravath, Swaine & Moore ("Tax Counsel"), as to certain
of the material U.S. Federal income tax consequences that may be
relevant to a citizen or resident of the United States, a
corporation, or other entity that is taxable as a corporation
created or organized under the laws of the United States or any
political subdivision thereof and an estate or trust the income of
which is subject to U.S. Federal income taxation regardless of its
source (any of the foregoing, a "U.S. person") who is the
beneficial owner of a MEDS (a "U.S. Holder"). All references to
"holders" (including U.S. Holders) are to beneficial owners of the
MEDS. This summary is based on U.S. Federal income tax laws,
regulations, rulings and decisions in effect as of the date of this
Prospectus Supplement, all of which are subject to change at any
time (possibly with retroactive effect). As the law is technical
and complex, the discussion below necessarily represents only a
general summary.
This summary addresses the U.S. Federal income tax consequences to
holders who are initial holders of the MEDS, who purchase the MEDS
at par and who will hold the MEDS and, if applicable, the Samsonite
Common Stock as capital assets within the meaning of Section 1221
of the Internal Revenue Code of 1986, as amended (the "Code"). This
summary does not address all aspects of U.S. Federal income
taxation that may be relevant to a particular holder in light of
his or its individual investment circumstances or to certain types
of holders subject to special treatment
<PAGE> 13
under the U.S. Federal income tax laws, such as dealers in
securities or foreign currency, financial institutions, insurance
companies, tax-exempt organizations and taxpayers holding the MEDS
as part of a "straddle,"
"hedge", "conversion transaction", "synthetic security", or other
integrated investment. Moreover, the effect of any applicable
state, local or foreign tax laws is not discussed.
No statutory, judicial or administrative authority directly
addresses the characterization of the MEDS or instruments similar
to the MEDS for U.S. Federal income tax purposes. As a result,
significant aspects of the U.S. Federal income tax consequences of
an investment in the MEDS are uncertain. No ruling is being
requested from the Internal Revenue Service (the "IRS") with
respect to the MEDS, no opinion thereon is being given by Tax
Counsel and no assurance can be given that the IRS will agree with
the conclusions expressed herein. ACCORDINGLY, A PROSPECTIVE
INVESTOR (INCLUDING A TAX-EXEMPT INVESTOR) IN THE MEDS SHOULD
CONSULT ITS TAX ADVISOR IN DETERMINING THE TAX CONSEQUENCES OF AN
INVESTMENT IN THE MEDS, INCLUDING THE APPLICATION OF STATE, LOCAL
OR OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR
OTHER TAX LAWS.
Pursuant to the terms of the Indenture, J.P. Morgan and every
holder of a MEDS will be obligated (in the absence of an
administrative determination or judicial ruling to the contrary) to
characterize a MEDS for all tax purposes as a forward purchase
contract to purchase Samsonite Common Stock at Maturity (including
as a result of acceleration or otherwise), under the terms of which
contract (a) at the time of issuance of the MEDS the holder
deposits irrevocably with J.P. Morgan a fixed amount of cash equal
to the purchase price of the MEDS to assure the fulfillment of the
holder's purchase obligation described in clause (c) below, which
deposit will unconditionally and irrevocably be applied at Maturity
to satisfy such obligation, (b) until Maturity J.P. Morgan will be
obligated to pay interest on such deposit at a rate equal to the
stated rate of interest on the MEDS as compensation to the holder
for J.P. Morgan's use of such cash deposit during the term of the
MEDS, and (c) at Maturity such cash deposit unconditionally and
irrevocably will be applied by J.P. Morgan in full satisfaction of
the holder's obligation under the forward purchase contract, and
J.P. Morgan will deliver to the holder the number of shares of
Samsonite Common Stock that the holder is entitled to receive at
that time pursuant to the terms of the MEDS (subject to J.P.
Morgan's right to deliver cash in lieu of the Samsonite Common
Stock). (Prospective investors should note that cash proceeds of
this offering will not be segregated by J.P. Morgan during the term
of the MEDS, but instead will be commingled with J.P. Morgan's
other assets and applied in a manner consistent with the "Use of
Proceeds" discussion above.) Consistent with the above
characterization, (i) amounts paid to J.P. Morgan in respect of the
original issue of a MEDS will be treated as allocable in their
entirety to the amount of the cash deposit attributable to such
MEDS and (ii) amounts denominated as interest that are payable with
respect to the MEDS will be characterized as interest payable on
the amount of such deposit, includible annually in the income of a
U.S. Holder as interest income at the time it is received or
accrues, in accordance with such holder's regular method of tax
accounting.
Under the above characterization of the MEDS, a holder's adjusted
tax basis in a MEDS generally will equal the holder's cost of that
MEDS. Upon the sale or other taxable disposition of a MEDS, a U.S.
Holder generally will recognize gain or loss equal to the
difference between the amount realized on the sale or other taxable
disposition and the U.S. Holder's adjusted tax basis in the MEDS.
Such gain or loss generally will be long-term capital gain or loss
if the U.S. Holder has held the MEDS for more than12 months at the
time of disposition, and in the case of noncorporate holders, any
such long-term capital gain generally will be subject to tax at one
of two preferential rates depending on whether such holder has held
the MEDS for more than 18 months at the time of such disposition.
Under the above characterization of the MEDS, if J.P. Morgan
delivers Samsonite Common Stock at Maturity, a U.S. Holder will
recognize no gain or loss on the purchase of the Samsonite Common
Stock against application of the monies received by J.P. Morgan in
respect of the MEDS. A U.S. Holder will have an adjusted tax basis
in such stock equal to the U.S. Holder's adjusted tax basis in the
MEDS (less the portion of the tax basis of the MEDS allocable to
any fractional share, as described in the next sentence). A U.S.
Holder will recognize gain or loss (which will be short-term
capital gain or loss) with respect to cash received in lieu of
fractional shares, in an amount equal to the difference between the
cash received and the portion of the basis of the MEDS allocable to
any such fractional shares (based on the relative number of
fractional shares and full shares delivered to the holder). If at
Maturity J.P. Morgan pays the MEDS in cash, a U.S. Holder will
recognize capital gain or loss equal to any difference between the
amount of cash received from J.P. Morgan and the U.S. Holder's
adjusted tax basis in the MEDS at that time. Such gain or loss
generally will be long-term capital gain or loss if the U.S. Holder
has held the MEDS for more than 12 months at Maturity, and in the
case of noncorporate holders, any such long-term capital gain
generally will be subject to tax at
<PAGE> 14
one of two preferential rates depending on whether such holder has
held the MEDS for more than 18 months at Maturity.
Due to the absence of authority as to the proper characterization
of the MEDS, Tax Counsel can provide no opinion as to the proper
tax characterization. No assurance can be given that the IRS will
accept, or that a court will uphold, the characterization and tax
treatment described above. In particular, the IRS could seek to
analyze the U.S. Federal income tax consequences of owning a MEDS
under Treasury regulations governing contingent payment debt
instruments (the "Contingent Payment Regulations"). The Contingent
Payment Regulations are complex, but very generally apply the
original issue discount rules of the Code to a contingent payment
debt instrument by requiring that original issue discount be
accrued every year at a "comparable yield" for the issuer of the
instrument, determined at the time of issuance of the obligation.
In addition, the Contingent Payment Regulations require that a
projected payment
schedule, which results in such a "comparable yield", be
determined, and that adjustments to income accruals be made to
account for differences between actual payments and projected
amounts. To the extent that the comparable yield as so determined
exceeds the interest actually paid on a contingent debt instrument,
the owner of that instrument will recognize ordinary interest
income in excess of the cash the owner receives. In addition, any
gain realized on the sale, exchange or redemption of a contingent
payment debt instrument will be treated as ordinary income. Any
loss realized on such sale, exchange or redemption will be treated
as an ordinary loss to the extent the holder's original issue
discount inclusions with respect to the obligation exceed prior
reversals of such inclusions required by the adjustment mechanism
described above. Any loss realized in excess of such amount
generally will be treated as a capital loss.
J.P. Morgan will take the position that the MEDS are not debt
instruments and therefore that the Contingent Payment Regulations
do not apply to the MEDS. The MEDS are payable by the delivery of
Samsonite Common Stock (unless J.P. Morgan exercises its option to
deliver cash at Maturity) and provide economic returns that are
indexed to the performance of Samsonite Common Stock. The MEDS
therefore offer no assurance that holder's investment will be
returned to the holder at Maturity. Accordingly, J.P. Morgan's
position is that the MEDS properly are characterized for U.S.
Federal income tax purposes, not as debt instruments, but as
forward purchase contracts in respect of which holders have
deposited a fixed amount of cash with J.P. Morgan, on which
interest is payable at a fixed rate. If, however, the IRS were
successfully to maintain that the Contingent Payment Regulations
applied to the MEDS, then, among other matters, the holder would be
required to accrue interest income on a current basis at the
"comparable yield", which rate would exceed the coupon rate on the
MEDS, gain realized by a holder on the sale or other taxable
disposition of a MEDS (including as a result of payments made at
Maturity) generally would be characterized as ordinary income,
rather than as short- or long-term capital gain (depending on
whether the MEDS had been held for more than 12 months at the time
of such disposition), and a U.S. Holder would recognize ordinary
income, or ordinary or capital loss (as the case may be, under the
rules summarized above) on the receipt of Samsonite Common Stock,
rather than capital gain or loss upon the ultimate sale of such
stock.
Even if the Contingent Payment Regulations do not apply to the
MEDS, it is possible that the IRS could seek to characterize the
MEDS in a manner that results in U.S. Federal income tax
consequences to initial holders of the MEDS different from those
reflected in the Indenture and described above. Under alternative
characterizations of the MEDS, it is possible, for example, that a
MEDS could be treated as including a forward contract and one or
more options.
Non-United States Persons
In the case of a holder of the MEDS that is not a U.S. person,
payments made with respect to the MEDS should not be subject to
U.S. withholding tax, provided that such holder complies with
applicable certification requirements. Any capital gain realized
upon the sale or other dispositions of the MEDS by a holder that is
not a U.S. person will generally not be subject to U.S. Federal
income tax if (i) such gain is not effectively connected with a
U.S. trade or business of such holder and (ii) in the case of an
individual, such individual is not present in the United States for
183 days or more in the taxable year of the sale or other
disposition or the gain is not attributable to a fixed place of
business maintained by such individual in the United States.
<PAGE> 15
Backup Withholding and Information Reporting
A holder of the MEDS may be subject to information reporting and to
backup withholding at a rate of 31 percent of certain amounts paid
to the holder unless such holder provides proof of an applicable
exemption or a correct taxpayer identification number, and
otherwise complies with applicable requirements of the backup
withholding rules. Any amounts withheld under the backup
withholding rules are not an additional tax and may be refunded or
credited against the U.S. Holder's U.S. Federal income tax
liability, provided the required information is furnished to the
IRS.
Underwriting
J.P. Morgan Securities Inc. (the "Underwriter") has agreed, subject
to the terms and conditions set forth in the Underwriting
Agreement, to purchase all the MEDS from J.P. Morgan.
The Underwriter proposes to offer the MEDS from time to time for
sale in one or more negotiated transactions, or otherwise, at
market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices. In
connection with the sale of any MEDS, the Underwriter may be deemed
to have received an underwriting discount equal to the difference
between the amount received by the Underwriter upon the sale of
such MEDS and the price at which the Underwriter purchased such
MEDS from J.P. Morgan. In connection with the offering, the
Underwriter may engage in transactions that stabilize, maintain or
otherwise affect the price of the MEDS and Samsonite Common Stock.
Specifically, the Underwriter may overallot the offering, creating
a short position. In addition, the Underwriter may bid for, and
purchase, shares of Samsonite Common Stock in the open market to
stabilize the price of the Common Stock. Any of these activities
may stabilize or maintain the market price of the Samsonite Common
Stock above independent market levels. The Underwriter is not
required to engage in these activities, and may end any of these
activities at any time.
J.P. Morgan has agreed in the Underwriting Agreement to indemnify
the Underwriter against certain liabilities, including liabilities
under the Securities Act, or contribute to payments the Underwriter
may be required to make in respect thereof.
J.P. Morgan has been advised by the Underwriter that it may make a
market in the MEDS; however, J.P. Morgan cannot provide any
assurance that a secondary market for the MEDS will develop.
This Prospectus Supplement and the Prospectus may be used by direct
or indirect wholly- owned subsidiaries of J.P. Morgan in connection
with offers and sales related to secondary market transactions in
the MEDS. Such subsidiaries may act as principal or agent in such
transactions. Such sales will be made at prices related to
prevailing market prices at the time of a sale.
The Underwriter is an indirect wholly-owned subsidiary of J.P.
Morgan. The offer and sale of the MEDS by the Underwriter will
comply with the requirements of Section 2720 of the Bylaws of the
National Association of Securities Dealers, Inc. regarding
underwriting of securities of an affiliate.
Legal Opinions
The validity of the MEDS will be passed upon for J.P. Morgan by
Stephen E. Gray, Vice President and Assistant General Counsel of
J.P. Morgan. Cravath, Swaine & Moore has represented the
Underwriter in connection with the issuance of the MEDS. Cravath,
Swaine & Moore has represented and continues to represent J.P.
Morgan from time to time in other matters. Mr. Gray owns or has the
right to acquire a number of shares of common stock of J.P. Morgan
equal to or less than 0.01% of the outstanding common stock of J.P.
Morgan.
Experts
The financial statements incorporated by reference in the Annual
Report on Form 10-K of J.P. Morgan for the year ended December 31,
1996 (included in J.P. Morgan's Annual Report to Stockholders), are
incorporated by reference in this Prospectus Supplement in reliance
on the report of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in auditing and
accounting.
