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Purusant to Rule 424(b)(5)
File No. 33-55860
Prospectus Supplement
(To Prospectus Dated June 13, 1997)
TIERS(SM) Corporate Bond-Backed Certificates, Series JPM 1998-2
issued by
TIERS(SM) Corporate Bond-Backed Certificates Trust JPM 1998-2
relating to J. P. Morgan & Co. Incorporated Subordinated Notes,
Due 2012 (the "Term Assets")
Evidencing an undivided interest in $45,000,000 Subordinated Notes due
December 24, 2012 issued by J.P. Morgan & Co. Incorporated
Structured Products Corp.
Depositor
TIERS(SM) Corporate Bond-Backed Certificates Trust JPM 1998-2 (the "Trust") will
be formed pursuant to the Trust Agreement, dated as of April 1, 1998, between
Structured Products Corp., as depositor (the "Company" or the "Depositor"), and
U.S. Bank Trust National Association, as trustee (the "Trustee"), as
supplemented by the Series JPM 1998-2 Supplement, dated as of April 1, 1998
(collectively, the "Trust Agreement"). The assets of the Trust will include
$45,000,000 aggregate principal amount of Subordinated Notes due 2012 (the "Term
Assets") issued by J.P. Morgan & Co. Incorporated (the "Term Assets Issuer").
The liabilities of the Trust will include (i) its obligations to the
Warrantholders under the Call Warrants (as defined herein) and (ii) its
obligations to the Trustee under the Trust Agreement. Terms used but not
otherwise defined herein are defined in the Prospectus dated June 13, 1997
attached hereto (the "Prospectus").
The Trust will issue certificates (the "Trust Investment Enhanced Return
Securities" or "Certificates") with an aggregate principal amount of $45,000,000
and will evidence the right to receive, to the extent received on the Term
Assets, a distribution of principal on December 24, 2012 (the "Maturity Date").
The Term Assets do not pay interest.
The Term Assets will be acquired by the Trustee on behalf of the Trust with the
net proceeds of the sale of the Certificates and the consideration paid to the
Trust for the grant of the Call Warrants (as defined herein). The Call Warrants
are not offered hereby.
The Term Assets may be purchased from the Trust pursuant to a Warrant Exercise
(as defined herein), in whole or in part, by and at the option of holders of the
Call Warrants (the "Warrantholders") on any June 24 or December 24 on or after
December 24, 2000 (the "First Call Date"). In such event, the Certificates will
be redeemed (a "Warrant Exercise Redemption") at a price equal to the accreted
value thereof as of such redemption date (the "Warrant Exercise Purchase Price")
as shown on Appendix B. See "Risk Factors--Maturity and Yield Consideration" and
"Description of the Certificates--Purchase of Term Assets and Redemption of the
Certificates" herein.
(cover continued on next page)
The Certificates have been authorized for listing, upon official notice of
issuance, with the New York Stock Exchange ("NYSE").
It is a condition to the establishment of the Trust and the issuance of the
Certificates that the Certificates be rated identically to the Term Assets by
both Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings
Group ("Standard & Poor's," and with Moody's, the "Rating Agencies").
Moody's and Standard & Poor's have rated the Term Assets "Aa3" and "AA-"
respectively.
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THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT REPRESENT AN
OBLIGATION OF OR INTEREST IN THE COMPANY OR ANY OF ITS AFFILIATES. THE
CERTIFICATES DO NOT REPRESENT A DIRECT OBLIGATION OF THE TERM ASSETS ISSUER OR
ANY OF ITS AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Salomon Brothers Inc ("Salomon" or the "Underwriter") proposes to offer the
Certificates from time to time for sale in negotiated transactions or otherwise
at prices determined at the time of sale. The price at which Certificates will
be sold by the Underwriter may vary with each transaction. The Underwriter has
agreed to purchase the Certificates from the Company at 37.609% of the principal
balance thereof. Proceeds to the Company from any sale of the Certificates will
be equal to the purchase price paid therefor by the Underwriter, net of any
expenses payable by the Company and any compensation payable to the Underwriter.
For further information with respect to the plan of distribution and any
discounts, commissions or profits that may be deemed underwriting discounts or
commissions, see "Method of Distribution" herein.
The Certificates are offered subject to receipt and acceptance by the
Underwriter, to prior sale 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 Certificates will be made in book entry form
through the facilities of The Depository Trust Company ("DTC") on or about April
1, 1998 (the "Closing Date") against payment therefor in same-day funds.
(SM)"Trust Investment Enhanced Return Securities" and "TIERS" are service marks
of Salomon Brothers Inc.
Salomon Smith Barney
The date of this Prospectus Supplement is March 31, 1998.
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(cover page continued)
The Term Assets Issuer is not participating in, and will not receive any
proceeds in connection with, the sale of the Certificates.
There is currently no secondary market for the Certificates, and there can be no
assurance that a secondary market for the Certificates will develop or, if it
does develop, that it will continue. See "Risk Factors" in the Prospectus.
The Certificates are being offered in registered form. The Certificates
initially will be represented by certificates registered in the name of Cede &
Co., as nominee of DTC. The interests of beneficial owners of such Certificates
will be represented by book entries on the records of participating members of
DTC ("Participants"). Definitive certificates will be available for such
Certificates only under the limited circumstances described herein.
See "Description of the Certificates--Definitive Certificates."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT WILL CONSTITUTE A
SEPARATE SERIES OF CERTIFICATES BEING OFFERED BY THE COMPANY PURSUANT TO ITS
PROSPECTUS DATED JUNE 13, 1997, OF WHICH THIS PROSPECTUS SUPPLEMENT IS A PART
AND WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING WHICH IS NOT CONTAINED HEREIN, AND
PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN FULL. IN PARTICULAR, INVESTORS SHOULD CONSIDER CAREFULLY THE
FACTORS SET FORTH UNDER "RISK FACTORS" IN THE PROSPECTUS AND IN THIS PROSPECTUS
SUPPLEMENT.
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TABLE OF CONTENTS
Page
SUMMARY OF TERMS............................................... S-1
RISK FACTORS................................................... S-4
FORMATION OF THE TRUST......................................... S-5
USE OF PROCEEDS................................................ S-5
THE TERM ASSETS ISSUER......................................... S-5
DESCRIPTION OF THE TERM ASSETS................................. S-6
DESCRIPTION OF THE CERTIFICATES................................ S-6
DESCRIPTION OF THE TRUST AGREEMENT............................. S-8
CERTAIN FEDERAL INCOME TAX CONSEQUENCES....................... S-10
ERISA CONSIDERATIONS.......................................... S-13
METHOD OF DISTRIBUTION........................................ S-14
RATINGS....................................................... S-14
LEGAL OPINIONS................................................ S-14
INDEX OF TERMS................................................ S-15
APPENDIX A - Description of the Term Assets................... A1
APPENDIX B - Accreted Value Schedule.......................... B1
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SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus.
Capitalized terms not defined on the pages hereof indicated in the "Index of
Terms" have the meanings assigned to such terms in this Prospectus Supplement or
in the Prospectus.
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The Trust.......................................... TIERS Corporate Bond-Backed Certificates Trust JPM 1998-2, a
trust to be established under New York law pursuant to the
Trust Agreement dated as of April 1, 1998 (the "Closing
Date"), between Structured Products Corp., as depositor,
and U.S. Bank Trust National Association, as trustee, as
supplemented by the Series JPM 1998-2 Supplement dated as
of April 1, 1998 (collectively, the "Trust Agreement"). The
Trust Agreement will be qualified as an indenture under the
Trust Indenture Act of 1939, as amended. The Company is an
indirect wholly-owned subsidiary of Salomon Smith Barney
Holdings Inc, a wholly owned subsidiary of Travelers Group
Inc., and is an affiliate of Salomon Brothers Inc. See "The
Company" in the Prospectus.
Securities Offered................................. The Trust will issue trust certificates (called "Trust
Investment Enhanced Return Securities," or "Certificates")
having an aggregate principal amount of $45,000,000. The
Certificates will represent undivided interests in the
Trust and will be issued pursuant to the Trust Agreement.
The Trust will also issue Call Warrants which represent the
right to purchase the Term Assets from the Trust, provided
a Payment Default or Acceleration has not occurred, on any
June 24 or December 24 on or after December 24, 2000 (the
"First Call Date") through and including December 24, 2012
(each, a "Warrant Exercise Date"). If the Call Warrants are
exercised, the Term Assets will be purchased at the
accreted value thereof as of the purchase date, which
accreted values as of each Warrant Exercise Date are set
forth in Appendix B hereto.
Terms of the Certificates......................... Each Certificate evidences the right to receive, to the
extent received on the Term Assets, a distribution of
principal on December 24, 2012 (the "Maturity Date"). The
Term Assets, and therefore the Certificates, do not pay
interest, and therefore no distributions will be made to
holders of the Certificates prior to the Maturity Date.
Warrant Exercise;
Warrant Exercise Redemption....................... Under each Call Warrant, a corresponding amount of the Term
Assets may be purchased on any Warrant Exercise Date on or
after the First Call Date by and at the option of the
Warrantholder at a price equal to the accreted value of the
Term Assets as of such purchase date (the "Warrant Exercise
Purchase Price"). A Warrantholder must provide at least 15
business days notice to the Trustee of its intention to
exercise its Call Warrant. Any such exercise of a Call
Warrant (a "Warrant Exercise") will cause the redemption of
the principal amount of Certificates subject to the Call
Warrant that is being exercised at the Warrant Exercise
Purchase Price.
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Term Assets....................................... The Term Assets consist of $45,000,000 aggregate principal
amount of J.P. Morgan & Co. Incorporated Subordinated Notes
due 2012, having the characteristics described in a
prospectus supplement dated November 17, 1997. The Term
Assets were issued and sold as part of an underwritten
public offering of $45,000,000 aggregate principal amount
of such securities. The only scheduled distribution to be
made on the Term Assets is the principal payment due on
December 24, 2012.
Trustee.......................................... U.S. Bank Trust National Association (formerly First Trust
of New York, National Association), a national banking
association, as trustee under the Trust Agreement, a copy
of which may be inspected at the designated office of the
Trustee, 100 Wall Street, Suite 1600, New York, New York
10005.
Sale of Term Assets on Payment Default
or Acceleration................................... Upon a Payment Default or an Acceleration of the Term
Assets (as such terms are defined herein), the Trustee will
sell the Term Assets and distribute the proceeds of such
sale (after deducting the costs incurred in connection
therewith) to the holders of the Certificates. The Term
Assets are not subject to acceleration except upon the
bankruptcy or reorganization of the Term Assets Issuer.
Record Dates...................................... The day immediately preceding any date a distribution is to
be made to holders of the Certificates.
Denominations;
Specified Currency................................ The Certificates will be denominated and payable in U.S.
dollars and will be available for purchase in minimum
denominations of $1,000 and integral multiples thereof.
Form of Security.................................. The Certificates are being offered in registered form. The
Certificates initially will be registered in the name of
Cede & Co., as nominee of The Depository Trust Company.
Definitive Certificates will be available for such
Certificates only under the limited circumstances described
herein. See "Description of the Certificates-Definitive
Certificates" herein. Distributions on the Certificates
will be settled in immediately available (same-day) funds.
Certain Federal Income
Tax Consequences.................................. See "Certain Federal Income Tax Consequences" herein.
ERISA Considerations.............................. Any employee benefit or other plan subject to the Employee
Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Internal Revenue Code of
1986, as amended (the "Code"), including an individual
retirement account or Keogh plan, may purchase
Certificates. The Underwriter expects that (i) at the
conclusion of the initial offering, there will be at least
100 separate purchasers (whom the Underwriter has no reason
to believe are not independent of the Company or of one
another) and (ii) the other conditions to the
publicly-offered
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S-2
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securities exception will be satisfied, with the result
that the Trust assets should not be treated as "plan
assets" of investing plans for purposes of applying ERISA
and Section 4975 of the Code. See "ERISA Considerations"
herein.
Ratings........................................... It is a condition to the issuance of the Certificates that
they be rated identically to the Term Assets by Standard &
Poor's Ratings Group ("Standard & Poor's") and Moody's
Investors Service, Inc. ("Moody's" and, collectively with
Standard & Poor's, the "Rating Agencies"). Standard &
Poor's has rated the Term Assets "AA-" and Moody's has
rated the Term Assets "Aa3." The Depositor has not
requested a rating of the Certificates from any other
rating agency. The rating given to the Certificates will be
based primarily upon the credit rating of the Term Assets
and the legal structure of the transaction, including the
limitation that payments in respect of the Certificates are
subject to receipt by the Trustee of payments on the Term
Assets. The rating reflects the likelihood that
Certificateholders will receive the payments or property
due or distributable on their Certificates, as applicable.
A security rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or
withdrawal at any time by the assigning rating agency. A
security rating does not address the likelihood of the
exercise of Call Warrants or the corresponding effect on
yield to investors. See "Ratings" and "Risk
Factors--Maturity and Yield Considerations" herein.
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RISK FACTORS
A prospective purchaser of the Certificates should be aware of the
following factors in evaluating the merits and risks of an investment therein.
No Detailed Information on Term Assets Issuer or Term Assets
This Prospectus Supplement does not provide detailed information with
respect to the Term Assets Issuer or the Term Assets, any risk factors relating
thereto, or any rights or obligations, legal, financial or otherwise, arising
thereunder or related thereto. See "The Term Assets Issuer," "Description of the
Term Assets," and "Appendix A-Description of Term Assets" herein.
Term Assets Issuer is Only Payment Source
The distribution of principal on the Certificates is payable solely
from amounts received by the Trustee from payments by the Term Assets Issuer on
the Term Assets. The Term Assets Issuer is subject to laws permitting
bankruptcy, moratorium, reorganization or other actions which, in the event of
financial difficulties of the Term Assets Issuer, could result in delays in
payment, partial payment or non-payment of the Certificates relating to a Term
Asset. In the event of nonpayment on the Term Assets, the risk of such
nonpayment will be borne by the holders of the Certificates (the
"Certificateholders"). See "Description of the Certificates - Sale of Term
Assets on Payment Default or Acceleration."
Bankruptcy Risks
If Salomon Brothers Holding Company Inc ("SBHCI"), the parent of the
Depositor, were to become a debtor in a bankruptcy case and a creditor or
trustee-in-bankruptcy or SBHCI itself were to request a bankruptcy court to
order that the Depositor be substantively consolidated with SBHCI, delays in and
reductions in the amount of distributions on the Certificates could occur. SBHCI
and the Depositor have taken certain steps that are intended to minimize the
risk that the assets of the Depositor would be substantively consolidated with
the assets and liabilities of SBHCI. These steps include the creation of the
Depositor as a separate, limited purpose subsidiary, restrictions on the
operations of the Depositor, and limitations in the certificate of incorporation
of the Depositor on the nature of the Depositor's business and its ability to
commence voluntary insolvency cases or proceedings without the prior unanimous
vote of all its directors. Further, the Depositor does not intend to file, and
SBHCI has agreed that it will not file, a voluntary petition for relief under
the Bankruptcy Code or any similar applicable state laws with respect to the
Depositor. Thus, (i) the voluntary or involuntary application with respect to
the Depositor for relief under Title 11 of the United States Code or similar
applicable state laws and (ii) the substantive consolidation of the Depositor
and SBHCI is unlikely to occur.
The transfer of the Term Assets from Salomon to the Depositor is
intended and has been structured to constitute an absolute sale of the Term
Assets rather than a borrowing by Salomon secured by the Term Assets. If Salomon
were to become a debtor in a bankruptcy case or a case under the Securities
Investor Protection Act of 1970, as amended ("SIPA") and a bankruptcy trustee, a
court which had issued a protective decree under SIPA or a creditor of Salomon
were to take the position that the transfer of the Term Assets from Salomon to
the Depositor should be characterized as the pledge of the Term Assets to secure
a borrowing by Salomon, then delays in distributions on the Certificates or
(should the bankruptcy court or the court in a case under SIPA rule in favor of
any such trustee or creditor) reductions in such distributions could result. If
the transfer of the Term Assets to the Depositor is treated as a sale, however,
the Term Assets would not be part of Salomon's bankruptcy estate and would not
be available to Salomon's creditors.
No Assurance of Liquidity
There is no assurance that any secondary market will develop or be
maintained for the Certificates. While the Underwriter intends to maintain a
secondary market for the Certificates, it is not obligated to do so. There can
be no assurance that a secondary market in the Certificates will develop or, if
it does develop, that it will remain in existence for any period of time. The
absence of a secondary market may adversely affect the liquidity, and therefore
the sale price, of the Certificates.
S-4
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Maturity and Yield Considerations
Warrantholders are likely to exercise the right to purchase the Term
Assets, if at all, at a time when the interest rates on potential reinvestments
are lower than the return that would have been earned over the remaining life of
the Certificates had they not been redeemed due to the exercise of the Call
Warrants. See "Description of the Certificates" herein and "Risk Factors" in the
Prospectus.
Events of Default on the Term Assets
If an event of default with respect to the Term Assets occurs, the risk
of loss on the Term Assets lies entirely with the Certificateholders. If a
Payment Default or Acceleration (as such terms are defined herein) occurs, the
Trustee will sell the Term Assets and distribute the proceeds of such sale
(after deducting the costs incurred in connection therewith) to the
Certificateholders. Payments on the Term Assets may not be accelerated except
upon the bankruptcy or reorganization of the Term Assets Issuer. See
"Description of the Certificates-Sale of Term Assets on Payment Default or
Acceleration" herein.
Accounting Matters
This Prospectus Supplement does not provide information concerning the
treatment for accounting purposes of a purchase of the Certificates or the
issuance of the Call Warrants. The Financial Accounting Standards Board is in
the process of drafting a standard concerning the accounting treatment of
derivative securities, and such standard, when issued, may affect the treatment
for accounting purposes of holding the Certificates or the Call Warrants.
Purchasers of Certificates should consult their accountant with regard to such
matters.
The Underwriter and the Depositor
The Underwriter is an affiliate of the Depositor.
FORMATION OF THE TRUST
TIERS Corporate Bond-Backed Certificates Trust JPM 1998-2 will be
formed under New York law pursuant to the Trust Agreement dated as of April 1,
1998, as supplemented by the Series JPM 1998-2 Supplement dated as of April 1,
1998. The Trust Agreement will be qualified as an indenture under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). Concurrently with
the execution and delivery of the Trust Agreement, the Company will deposit with
the Trustee the proceeds from the sale of the Certificates to the Underwriter,
with instructions to use such funds, together with the proceeds received by the
Trust from the sale of the Call Warrants, for the specific purpose of purchasing
the Term Assets. The Trustee, on behalf of the Trust, will accept such funds,
purchase the Term Assets and deliver the Certificates and the Call Warrants to
or upon the order of the Company. The Trustee will hold the Term Assets for the
benefit of the Certificateholders, subject to the rights of the Warrantholders.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
Certificates and the Call Warrants will be used to purchase the Term Assets,
which, after the purchase thereof, will be sold by the Company to the Trust and
will be the sole Deposited Assets (as defined in the Prospectus) of the Trust.
THE TERM ASSETS ISSUER
This Prospectus Supplement does not provide information with respect to
the Term Assets Issuer. No investigation has been made of the financial
condition or creditworthiness of the Term Assets Issuer or any of its
subsidiaries in connection with the issuance of the Certificates. The Company is
not an affiliate of the Term Assets Issuer.
S-5
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The Term Assets Issuer is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information (including financial
information) with the Commission. Copies of such reports and other information
may be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; Seven World Trade
Center, New York, New York 10048; and Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661, and may be obtained from the Public
Reference Section of the Commission at Washington, D.C. 20549, at prescribed
rates. The Commission maintains a Web site at http://www.sec.gov containing
reports, proxy statements and other information regarding registrants that file
electronically with the Commission. In addition, such reports and other
information can be obtained from the Term Assets Issuer at its address specified
in its most recent publicly available reports and at the offices of the New York
Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
The Trust will have no assets other than the Term Assets from which to
make distributions of amounts due in respect of the Certificates. Consequently,
the ability of Certificateholders to receive distributions in respect of the
Certificates will depend principally on the Trust's receipt of payments on the
Term Assets from the Term Assets Issuer.
Prospective purchasers of the Certificates should consider carefully
the Term Assets Issuer's financial condition and its ability to make payments in
respect of such Term Assets. This Prospectus Supplement relates only to the
Certificates being offered hereby and does not relate to the Term Assets or the
Term Assets Issuer. All information contained in this Prospectus Supplement
regarding the Term Assets Issuer is derived from the Term Assets Prospectus.
Neither the Company nor the Underwriter has participated in the preparation of
such documents, or takes any responsibility for the accuracy or completeness of
the information provided therein.
DESCRIPTION OF THE TERM ASSETS
Public Information Concerning the Term Assets Issuer
This Prospectus Supplement does not provide information with respect to
the Term Assets Issuer. No investigation has been made of the financial
condition or creditworthiness of the Term Assets Issuer or any of its
subsidiaries in connection with the issuance of the Certificates. The Depositor
is not an affiliate of the Term Assets Issuer.
The Trust will have no other assets from which to make distributions of
amounts due in respect of the Certificates. Consequently, the ability of
Certificateholders to receive distributions in respect of the Certificates will
depend entirely on the Trust's receipt of payments on the Term Assets from the
Term Assets Issuer.
The disclosure under this caption in this Prospectus Supplement is
intended primarily to identify the Term Assets and does not purport to summarize
the Term Assets or to provide information with respect to the Term Assets
Issuer. Appendix A to this Prospectus Supplement, which contains the pricing
terms of the Term Assets, is derived solely from the description thereof in the
Term Assets Prospectus. Such information does not purport to be complete and is
qualified in its entirety by, and should be read in conjunction with, (i) the
Term Assets Prospectus, and (ii) the Term Assets Registration Statement, of
which the Term Assets Prospectus is a part. This Prospectus Supplement relates
only to the Certificates offered hereby and does not relate to an offering of
the Term Assets. No representation is made by the Trust, the Trustee or the
Depositor as to the accuracy, timeliness or completeness of the information
contained in the Term Assets Prospectus or the Term Assets Registration
Statement.
Salomon Brothers Inc and the Term Assets Issuer
From time to time, Salomon Brothers Inc may be engaged by the Term
Assets Issuer as an underwriter or placement agent, in an advisory capacity or
in other business arrangements. In addition, Salomon Brothers Inc or another
affiliate of the Depositor may make a market in other outstanding securities of
the Term Assets Issuer.
S-6
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DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to the terms of the Trust
Agreement. The following summary as well as other pertinent information included
elsewhere in this Prospectus Supplement and in the Prospectus describes material
terms of the Certificates and the Trust Agreement, but does not purport to be
complete and is subject to, and qualified in its entirety by reference to, all
the provisions of the Certificates and the Trust Agreement. The following
summary supplements the description of the general terms and provisions of the
Certificates of any given series and the related Trust Agreement set forth in
the Prospectus, to which description reference is hereby made.
The Certificates will be denominated and distributions with respect
thereto will be payable in United States Dollars, which will be the "Specified
Currency" as such term is defined in the Prospectus. The Certificates represent
in the aggregate the entire beneficial ownership interest in the Trust. The
property of the Trust will consist of (i) the Term Assets, (ii) all payments on
or collections in respect of the Term Assets accrued on or after the Closing
Date, together with any proceeds thereof, and (iii) all funds from time to time
deposited with the Trustee in accounts related to the Trust. The property of the
Trust will be held for the benefit of the holders of the Certificates by the
Trustee. The only scheduled payment to be made on the Term Assets is the
principal amount thereof, which is to be paid on the Maturity Date.
All distributions to Certificateholders will be made only from the
property of the Trust (including exercise proceeds of the Call Warrants, if any)
as described herein. The Certificates do not represent an interest in or
obligation of the Depositor, the Term Assets Issuer, the trustee for the Term
Assets, the Trustee, Salomon Brothers Inc, or any affiliate if any thereof.
Distributions
Each Certificate evidences the right to receive, to the extent received
on the Term Assets, a distribution of principal on December 24, 2012 (the
"Maturity Date") or if such day is not a Business day, the next succeeding
Business Day. No interest payments are to be made on the Certificates. For
purposes of the foregoing, "Business Day" means any day other than a Saturday, a
Sunday or a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to be closed.
Purchase of Term Assets and Redemption of the Certificates
The Term Assets subject to each Call Warrant may be purchased from the
Trust, provided a Payment Default or Acceleration has not occurred, on any June
24 or December 24 on or after December 24, 2000 through and including December
24, 2012 (each, a "Warrant Exercise Date") at the option of the Warrantholder (a
"Warrant Exercise") at a price equal to the accreted value of the Term Assets as
of such Warrant Exercise Date as set forth in Appendix B hereto (the "Warrant
Exercise Purchase Price") upon at least 15 business days notice by the
Warrantholder to the Trustee of its intention to exercise its Call Warrant. Any
such exercise of a Call Warrant will cause the redemption of the principal
amount of Certificates subject to the Call Warrant that is being exercised at a
price equal to the Warrant Exercise Purchase Price. The Certificates to be
redeemed will be selected by the Trustee or DTC by lot.
Such redemption will be effected from proceeds from the sale of the
Term Assets by the Trustee to the Warrantholder pursuant to the terms of the
Call Warrant. The Trustee will notify the holders of the Certificates and the
Rating Agencies upon its receipt of a Warrantholder's notice of its intent to
exercise a Call Warrant.
On or before the Business Day preceding the date on which a Call
Warrant is to be exercised, the Warrantholder must make available for deposit
with the Trustee in immediately available funds an amount equal to the Warrant
Exercise Purchase Price for the Term Assets subject to the Call Warrant being
exercised. The Trustee will notify the holders of the Certificates and the
Rating Agencies of any such failure with respect to a Call Warrant. If a
Warrantholder fails to make the required deposit, the Term Assets will not be
sold and the Certificates will not be redeemed.
Amendment of the Trust Agreement may require, and amendment of the Call
Warrant generally will require, consent of the Warrantholders. See "Description
of the Trust Agreement--Voting Rights" herein. Warrantholders may sell or assign
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all or a portion of the Call Warrants in accordance with the terms of the Call
Warrants. The Call Warrants are not offered hereby.
Sale of Term Assets on Payment Default or Acceleration
If a Payment Default or an Acceleration occurs, the Trustee will sell
the Term Assets pursuant to the procedures set forth in the Trust Agreement and
distribute the proceeds of such sale (after deducting the costs incurred in
connection therewith) to the holders of the Certificates based upon the
principal amount of Certificates held. Following such distribution, all
Certificates will be cancelled. A "Payment Default" means a default in the
payment of any amount due on the Term Assets from the Term Assets Issuer after
the same becomes due and payable (and the expiration of any applicable grace
period on the Term Assets). An "Acceleration" means the acceleration of the
maturity of the Term Assets following the bankruptcy or reorganization of the
Term Assets Issuer.
Listing on the New York Stock Exchange
The Certificates have been authorized for listing, upon official notice
of issuance, with the NYSE. There can be no assurance that the Certificates,
once listed, will continue to be eligible for trading on the NYSE.
Form of the Certificates
The Certificates will be delivered in registered form. The Certificates
will be issued, maintained and transferred on the book-entry records of DTC and
its Participants in minimum denominations of $1,000 and integral multiples
thereof.
The Certificates will each initially be represented by one or more
global certificates registered in the name of the nominee of DTC (together with
any successor clearing agency selected by the Company, the "Clearing Agency"),
except as provided below; the Company has been informed by DTC that DTC's
nominee will be Cede & Co. No Certificateholder will be entitled to receive a
certificate representing such Certificateholder's interest, except as set forth
below under "Definitive Certificates." Unless and until Definitive Certificates
(as defined below) are issued under the limited circumstances described herein,
all references to actions by Certificateholders with respect to any such
Certificates shall refer to actions taken by DTC upon instructions from its
Participants. See "Definitive Certificates" below and "Description of the
Certificates--Global Securities" in the Prospectus.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC will take action permitted to be taken by a
Certificateholder under the Trust Agreement only at the direction of one or more
Participants to whose DTC account such Certificates are credited. Additionally,
DTC will take such actions with respect to specified Voting Rights (as defined
herein) only at the direction and on behalf of Participants whose holdings of
such Certificates evidence such specified Voting Rights. DTC may take
conflicting actions with respect to Voting Rights, to the extent that
Participants whose holdings of Certificates evidence such Voting Rights
authorize divergent action.
Definitive Certificates
"Definitive Certificates" will be issued to owners of Certificates or
their nominees, respectively, rather than to DTC or its nominee, only if (i) the
Company advises the Trustee in writing that DTC is no longer willing or able to
discharge properly its responsibilities as Clearing Agency with respect to the
Certificates and the Company is unable to locate a qualified successor or (ii)
the Company, at its option, elects to terminate the book-entry system through
DTC.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee is required to notify all Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the definitive certificates representing the Certificates and receipt of
instructions for re-registration, the Trustee will reissue such Certificates as
Definitive Certificates issued in the respective principal amounts owned by the
individual owners of such Certificates, and thereafter the Trustee will
recognize the holders of such Definitive Certificates as Certificateholders
under the Trust Agreement.
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DESCRIPTION OF THE TRUST AGREEMENT
General
The Certificates will be issued pursuant to the Trust Agreement, a form
of which is filed as an exhibit to the Registration Statement of which this
Prospectus Supplement and the Prospectus form a part. A Current Report on Form
8-K relating to the Certificates containing a copy of the Trust Agreement as
executed will be filed by the Company with the Commission following the issuance
and sale of the Certificates. The assets of the Trust created under the Trust
Agreement will consist of (i) the Term Assets (subject to the Call Warrants) and
(ii) all payments on or collections in respect of the Term Assets due after the
Closing Date, including payments to the Trust under the Call Warrants, if any.
Reference is made to the Prospectus for important information in addition to
that set forth herein regarding the Trust, the terms and conditions of the Trust
Agreement and the Certificates. The following summaries of certain provisions of
the Trust Agreement do not purport to be complete and are subject to the
detailed provisions contained in the form of Trust Agreement, to which reference
is hereby made for a full description of such provisions, including the
definition of certain terms used herein.
Affiliate Exchange Right
Any affiliate of the Depositor, but not the Depositor itself, will have
the right, subject to the limitations contained in the Trust Agreement, on any
date to tender to the Trustee Certificates of a specified principal amount
together with Call Warrants relating to an equal principal amount of
Certificates, and to receive in exchange Term Assets equal to such principal
amount.
The Trustee
U.S. Bank Trust National Association, a national banking association,
will act as trustee for the Certificates and the Trust pursuant to the Trust
Agreement. The Trustee's offices are located at 100 Wall Street, Suite 1600, New
York, New York 10005 and its telephone number is (212) 361-2500.
The Trust Agreement will provide that the Trustee and any director,
officer, employee or agent thereof will be indemnified by the Trust and held
harmless against any loss, liability or expense incurred in connection with any
legal action relating to the Trust Agreement or the Certificates or the
performance of the Trustee's duties under the Trust Agreement, other than any
loss, liability or expense that (i) constitutes a specific liability of the
Trustee under the Trust Agreement or (ii) was incurred by reason of willful
misfeasance, bad faith or negligence in the performance of the Trustee's duties
under the Trust Agreement or as a result of a breach, or by reason of reckless
disregard, of the Trustee's obligations and duties under the Trust Agreement.
Pursuant to the Trust Agreement, as compensation for the performance of
its duties under such agreement, the Trustee shall be entitled to payment of
trustee fees and reimbursement of expenses by the Company pursuant to a separate
agreement with the Company, but shall not have any claim against the Trust with
respect thereto.
Event of Default
There are no events of default with respect to the Certificates. If a
Payment Default or Acceleration occurs, the Trustee will sell the Terms Assets
and distribute the proceeds of such sale (after deducting the costs incurred in
connection therewith) to the Certificateholders. See "Description of the
Certificates--Sale of Term Assets on Payment Default or Acceleration" herein.
Voting Rights
The Certificateholders will have 100% of the total Voting Rights. All
Voting Rights with respect to the Certificates will be allocated in proportion
to the respective principal balances of the then-outstanding Certificates held
by such Certificateholders on any date of determination.
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The required percentage of Voting Rights of those Certificates that are
materially adversely affected by any modification or amendment of the Trust
Agreement necessary to consent to such modification or amendment shall be 66-
2/3%.
Voting of Term Assets
The Trustee, as holder of the Term Assets, has the right to vote and
give consents and waivers in respect of such Term Assets as permitted by the
depositary with respect thereto and except as otherwise limited by the Trust
Agreement. In the event that the Trustee receives a request from the Term Assets
Issuer for its consent to any amendment, modification or waiver of the Term
Assets or any document relating thereto, or receives any other solicitation for
any action with respect to the Term Assets, the Trustee shall mail a notice of
such proposed amendment, modification, waiver or solicitation to each
Certificateholder of record as of such date. The Trustee shall request
instructions from the Certificateholders as to whether or not to consent to or
vote to accept such amendment, modification, waiver or solicitation. The Trustee
shall consent or vote, or refrain from consenting or voting, in the same
proportion (based on the relative principal balances of the Certificates) as the
Certificates of the Trust were actually voted or not voted by the
Certificateholders thereof as of a date determined by the Trustee prior to the
date on which such consent or vote is required; provided, however, that,
notwithstanding anything to the contrary stated herein, the Trustee shall at no
time vote in favor of or consent to any matter (i) which would alter the timing
or amount of any payment on the Term Assets, including, without limitation, any
demand to accelerate the Term Assets or (ii) which would result in the exchange
or substitution of any Term Asset pursuant to a plan for the refunding or
refinancing of such Term Asset, except in each case with the unanimous consent
of the Certificateholders and subject to the requirement that such vote or
consent would not, based on an opinion of counsel, materially increase the risk
that the Trust would fail to qualify as a grantor trust for federal income tax
purposes. The Trustee shall have no liability for any failure to act resulting
from Certificateholders' late return of, or failure to return, directions
requested by the Trustee from the Certificateholders.
Evidence as to Compliance
Annual independent audits of the Trust will not be required; however,
the Trust Agreement will provide that within four months following the end of an
Accounting Period during which a distribution was made on the Term Assets, a
firm of independent public accountants will furnish a report to the Depositor,
the Rating Agencies and the Trustee to the effect that such firm has examined
certain documents and records relating to the administration of the Term Assets
during the related Accounting Period and performed accounting and auditing
procedures set forth in the Trust Agreement which should enable the recipients
of such reports to determine whether such administration was conducted in
compliance with the terms of the Trust Agreement. Such report will identify any
exceptions found during the examination. "Accounting Period" will mean each
twelve-month period ending on the 30th day of June (commencing with the
twelve-month period ending June 30, 1998). The Company reserves the right to
change the timing of Accounting Periods, but no Accounting Period may exceed 12
months.
Termination of the Trust
The Trust shall terminate upon (i) the payment in full at maturity,
(ii) the distribution of the proceeds received upon a sale of the Term Assets
(after deducting the costs incurred in connection therewith) to the
Certificateholders after a Payment Default or an Acceleration thereof, (iii) the
distribution in kind of the Term Assets upon a tender by an affiliate of the
Depositor of 100% of the then outstanding Call Warrants and Certificates in
exchange for 100% of the Term Assets, or (iv) the sale by the Trust in
accordance with the Call Warrants of all the Term Assets and the distribution in
full of all amounts due to the Certificateholders. Under the terms of the Trust
Agreement and the Call Warrants, the Certificateholders will not be entitled to
terminate the Trust or cause the sale or other disposition of the Term Assets if
and for so long as the Call Warrants remain outstanding, without the unanimous
consent of the Warrantholders.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain United States federal income tax
consequences of the ownership of the Certificates as of the date hereof. This
summary is based on the Internal Revenue Code of 1986 (the "Code") as well as
Treasury regulations and administrative and judicial rulings and practice.
Legislative, judicial and administrative changes
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may occur, possibly with retroactive effect, that could alter or modify the
continued validity of the statements and conclusions set forth herein. This
summary does not purport to address all federal income tax matters that may be
relevant to particular holders. For example, it generally is addressed only to
original purchasers of the Certificates that are "U.S. Persons" (as described
below), deals only with Certificates held as capital assets within the meaning
of Section 1221 of the Code, and does not address tax consequences to holders
that may be relevant to investors subject to special rules, such as non-U.S.
investors, banks, insurance companies, tax-exempt organizations, dealers in
securities or currencies, mutual funds, REITs, natural persons, cash method
taxpayers, S corporations, estates and trusts, investors that hold the
Certificates (or have held the Term Assets) as part of a hedge, straddle or
conversion transaction, or holders whose "functional currency" is not the United
States dollar. Further, it does not address alternative minimum tax consequences
or the indirect effects on the holders of equity interests in a
Certificateholder.
For these purposes, a U.S. Person is (i) a citizen or resident of the
United States, (ii) a corporation or partnership organized in or under the laws
of the United States, any state thereof or the District of Columbia, or (iii) an
estate or trust the income of which is includible in gross income for United
States federal income tax purposes regardless of its source.
Persons considering the purchase of the Certificates should consult
their own tax advisers concerning the application of United States federal
income tax laws, as well as any state, local, foreign or other tax laws, to
their particular situations.
In addition, this discussion does not address the tax consequences to
individual taxpayers, trusts, and estates, and all such taxpayers are urged to
consult their own tax advisers regarding special rules that are applicable to
them.
The Prospectus Supplement relating to the Term Assets does not address
the federal income tax characterization of the Term Assets. Accordingly, for the
purposes of the discussion herein the Company and its special counsel have
assumed, without inquiry, that the Term Assets will be characterized as
indebtedness for federal income tax purposes.
Tax Status of the Trust
Upon the issuance of the Certificates, Orrick, Herrington & Sutcliffe
LLP, special counsel to the Depositor, will deliver its opinion generally to the
effect that, assuming compliance with the Trust Agreement (and certain other
documents) and based on certain representations of the Depositor, for federal
income tax purposes, (i) the Trust should be characterized as a grantor trust
and (ii) if the Trust is determined not to be a grantor trust, it will be
characterized as a partnership and not as an association taxable as a
corporation (or publicly traded partnership treated as an association).
Prospective investors should be aware that no rulings have been sought
from the IRS, and that legal opinions are not binding on the IRS or the courts.
Accordingly, there can be no absolute assurance that the IRS will agree that the
Trust is a grantor trust. If, contrary to special counsel's opinion, the Trust
is determined to be an association taxable as a corporation, among other
consequences, the Trust would be subject to federal income tax (and similar
state income or franchise taxes) on its income and distributions to
Certificateholders would be impaired. In light of special counsel's opinion,
however, (i) the Trust intends for tax reporting purposes to characterize the
Trust as a grantor trust and (ii) except as specifically indicated otherwise
under "Possible Recharacterization of the Trust as a Partnership" below, the
balance of this discussion assumes that the Trust will be classified as a
grantor trust.
Certificateholders will be treated, for federal income tax purposes, as
if they had (i) purchased their pro rata interest of the Trust's underlying
assets and (ii) sold call options (the "Call Warrants") with respect to the Term
Assets in an amount representing their pro rata interest in the Trust.
The Trust has identified the Term Assets and the Call Warrants as part
of an integrated transaction within the meaning of Treasury Regulation ss.
1.1275-6. Among other consequences of such identification is the treatment
generally of each Certificate as a synthetic debt instrument issued on the date
it is acquired by the holder thereof. It is also possible that each Certificate
will be treated as a debt instrument issued on the Closing Date. In that case,
the Certificates would be taxed like conventional debt instruments and the
discussion of original issue discount under "Income of Certificateholders" would
not apply.
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Income of Certificateholders
Each Certificateholder will be subject to the original issue discount
("OID") rules of the Code and Treasury Regulations with respect to such
Certificates. Under those rules, the Certificateholder (whether on the cash or
accrual method of accounting) will be required to include in income the OID on
the Certificates as it accrues on a daily basis, regardless of when cash
payments are received, using a method reflecting a constant yield as described
below.
The amount of OID on the Certificates will be equal to the excess of
all amounts payable on the Certificates over the amount paid to acquire the
Certificates. In determining the amount paid for the Certificates, a portion of
the purchase price for a Certificate may be separately allocated to accrued
interest and to amounts held pending distribution to the Certificateholder (the
recovery of which amounts would not be taxable). Any such allocation would
reduce the amount paid for (and the amount payable on) the Certificates.
In general, the amount of OID includible in income in any taxable year
by a Certificateholder is the sum of the "daily portions" of OID on the
Certificates for all days during the taxable year that the Certificateholder
owns the Certificates. The daily portions of OID on a Certificate are determined
by allocating to each day in any "accrual period" a ratable portion of the OID
allocable to that accrual period. The amount of OID allocable to each accrual
period is determined by multiplying the "adjusted issue price" (as defined
below) of the Certificates at the beginning of the period by a fraction, the
numerator of which is the annual yield to maturity of the Certificates and the
denominator of which is the number of accrual periods in a year. An "accrual
period" would generally be each period ending on an interest payment date on the
Certificates, although Treasury regulations allow a Certificateholder to elect
other accrual periods of no more than a year in length, as long as each
scheduled payment on the Certificates occurs at the end of an accrual period.
The yield to maturity of a Certificate is determined by each holder based on
that holder's deemed purchase price; it is unclear whether the holder of a
Certificate should, in calculating OID, assume that the Term Assets will, or
will not, be called pursuant to the Call Warrant.
The "adjusted issue price" of the Certificates at the beginning of any
accrual period is the purchase price for a Certificate allocable to the
Certificates (i) increased by the amount of OID allocable to all prior accrual
periods and (ii) reduced by the amount of all payments on the Certificates
allocable to the holder in all prior accrual periods.
The Trustee intends for information reporting purposes to account for
OID, if any, reportable by Certificateholders by reference to the price paid for
a Certificate by an initial purchaser at an assumed issue price, although the
amount of OID will differ for other purchasers. Such purchasers should consult
their tax advisers regarding the proper calculation of OID.
Because a Certificateholder will not be receiving current distributions
of interest, OID will be reported as income prior to the receipt of cash
attributable to such income and the amount of OID includible in income will
increase each year.
Purchase and Sale of a Certificate or Term Assets
A Certificateholder's tax basis in a Certificate generally will equal
the cost of the Certificates increased by any amounts includible in income as
OID, and reduced by any payments made on the Certificates. If a Certificate is
sold or redeemed, capital gain or loss will be recognized equal to the
difference between the proceeds of sale and the Certificateholder's adjusted
basis in the Certificates.
Possible Recharacterization of the Trust as a Partnership
As indicated above under "Tax Status of the Trust," it is possible that
the IRS will seek to recharacterize the Trust as a partnership. If the IRS were
to successfully recharacterize the Trust as a partnership, the Trust would not
be subject to federal income tax. Further, under Treasury Regulation 1.761-2,
certain partnerships may "elect out" of subchapter K of the Code (partnership
tax accounting). Although subject to uncertainty, the Trust should be eligible
for this election. Assuming that it is so eligible, each Certificateholder will
be required to report its respective share of the items of income, deductions,
and credits of the organization on their respective returns (making such
elections as to individual items as may be appropriate) in a manner consistent
with the exclusion of the Trust from partnership tax accounting. Such reporting
should be substantially similar to the income tax reporting that would be
required under the grantor trust rules. In mutual
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consideration for each Holder's purchase of a Certificate, each such Holder is
deemed to consent to the Trust's making of a protective election out of
subchapter K of the Code.
If the election to be excluded from the partnership tax accounting
provisions of the Code is not effective, among other consequences, (i) the Trust
would be required to account for its income and deductions at the Trust level
(not necessarily taking into account any particular holder's circumstances,
including any difference between the holder's basis in its Certificates and the
Trust's basis in its assets) and to utilize a taxable year for reporting
purposes and (ii) each Holder would be required to separately take into account
such Holder's distributive share of income and deductions of the Trust. A Holder
would take into account its distributive share of Trust income and deductions
for each taxable year of the Trust in the Holder's taxable year which ends with
or within the Trust's taxable year. A Holder's share of the income of the Trust
computed at the Trust level would not necessarily be the same if computed under
the OID rule described above under "Income of Certificateholders" and, in
particular, may not take account of any difference in the yield on the
Certificate to the Holder based on the Certificateholder's purchase price and
the yield on the Term Assets determined at the Trust level.
State and Other Tax Consequences
In addition to the federal income tax consequences described above,
potential investors should consider the state, local and foreign tax
consequences of the acquisition, ownership and disposition of the Certificates.
State, local and foreign tax law may differ substantially from federal tax law,
and this discussion does not purport to describe any aspect of the tax law of a
state or other jurisdiction (including whether the Trust, if treated as a
partnership for federal income tax purposes, would be treated as a partnership
under any state or local jurisdiction). Therefore, prospective purchasers should
consult their own tax advisers with respect to such matters.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and Section 4975 of the Code impose certain requirements on (a) an
employee benefit plan (as defined in Section 3(3) of ERISA), (b) a plan
described in Section 4975(e)(1) of the Code, including an individual retirement
account ("IRA") or Keogh plan or (c) any entity whose underlying assets include
plan assets by reason of a plan's investment in the entity (each, a "Plan").
ERISA and Section 4975 of the Code prohibit certain transactions
involving the assets of a Plan and persons who have specified relationships to
the Plan, i.e., "parties in interest" within the meaning of ERISA or
"disqualified persons" within the meaning of the Code (collectively, "Parties in
Interest"). Thus, a Plan fiduciary considering an investment in Certificates
should consider whether such an investment might constitute or give rise to a
prohibited transaction under ERISA or Section 4975 of the Code. The Term Assets
Issuer, the Underwriter, the Trustee, the Warrantholders and their respective
affiliates may be Parties in Interest with respect to many Plans.
If an investment in Certificates by a Plan were to result in the assets
of the Trust being deemed to constitute "plan assets" of such Plan, certain
aspects of such investment, including the operations of the Trust and the deemed
extension of credit between the Term Assets Issuer and the holder of a
Certificate (as a result of the Term Assets being deemed to be plan assets), as
well as subsequent transactions involving the Trust or its assets (including the
exercise of the Call Warrants), might constitute or result in prohibited
transactions under Section 406 of ERISA and Section 4975 of the Code unless
exemptive relief were available under an applicable exemption issued by the
United States Department of Labor (the "DOL"). Neither ERISA nor the Code
defines the term "plan assets." Under Section 2510.3-101 of the DOL regulations
(the "Regulation"), a Plan's assets may include the assets of an entity if the
Plan acquires an "equity interest" in such entity unless an exception applies
under the Regulation. Thus, if a Plan acquires a Certificate, for certain
purposes (including the prohibited transaction provisions of Section 406 of
ERISA and Section 4975 of the Code), the Plan would be considered to own an
undivided interest in the underlying assets of the Trust unless such Certificate
is a "publicly-offered security" or another exception applies under the
Regulation.
The Underwriter expects that the Certificates will satisfy the criteria
for treatment as publicly-offered securities under the Regulation. A
publicly-offered security is a security that is (i) freely transferable, (ii)
part of a class of securities that is owned by 100 or more investors independent
of the issuer and of one another at the conclusion of the initial offering, and
(iii) either is (A) part of a class of securities registered under Section 12(b)
or 12(g) of the Exchange Act, or (B) sold to the
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Plan as part of an offering of securities to the public pursuant to an effective
registration statement under the Securities Act and the class of securities of
which such security is a part is registered under the Exchange Act within 120
days (or such later time as may be allowed by the Commission) after the end of
the fiscal year of the issuer during which the offering of such securities to
the public occurred.
The Underwriter will verify that there will be at least 100 separate
purchasers (whom the Underwriter has no reason to believe are not independent of
the Company or of one another) at the conclusion of the initial offering. There
is no assurance that the 100 independent investor requirement of the
"publicly-offered security" exception will, in fact, be satisfied.
Nothing herein shall be construed as a representation that an
investment in the Certificates would meet any or all of the relevant legal
requirements with respect to investments by, or is appropriate for, Plans
generally or any particular Plan. Any Plan or any other entity the assets of
which are deemed to be "plan assets," such as an insurance company investing
assets of its general account, proposing to acquire Certificates should consult
with its counsel.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement, dated March 9, 1998 (the "Underwriting Agreement"), the Company has
agreed to sell and Salomon Brothers Inc (an affiliate of the Company) has agreed
to purchase, all the Certificates.
The Underwriter has agreed, subject to the terms and conditions set
forth in the Underwriting Agreement, to purchase all Certificates offered
hereby, if any such Certificates are purchased, at a price of $16,924,050, which
will constitute the aggregate proceeds to the Company, before deducting expenses
estimated at $80,000.
The Company has been advised by the Underwriter that it proposes to
offer the Certificates from time to time in negotiated transactions or otherwise
at varying prices to be determined at the time of sale. Any profit on the resale
of Certificates by the Underwriter will constitute underwriting compensation
under the Securities Act.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter against certain civil liabilities, including liabilities under the
Securities Act, or will contribute to payments the Underwriter may be required
to make in respect thereof.
Salomon Brothers Inc is an affiliate of the Company, and the
participation by Salomon Brothers Inc in the offering of the Certificates
complies with Conduct Rule 2720 of the National Association of Securities
Dealers, Inc. regarding underwriting securities of an affiliate.
RATINGS
It is a condition to the establishment of the Trust and the issuance of
the Certificates that the Certificates be rated identically to the Term Assets
by both Moody's and Standard & Poor's. Moody's and Standard & Poor's have rated
the Term Assets "Aa3" and "AA-" respectively.
The ratings address the likelihood of the receipt by holders of the
Certificates of payments required under the Trust Agreement, and are based
primarily on the credit quality of the Term Assets.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning Rating Agencies. Each security rating should be evaluated
independently of any other security rating.
The Company has not requested a rating on the Certificates by any
rating agency other than the Rating Agencies. However, there can be no assurance
as to whether any other rating agency will rate the Certificates, or, if it
does, what rating would be assigned by any such other rating agency. A rating on
the Certificates by another rating agency, if assigned at all, may be lower than
the ratings assigned to the Certificates by the Rating Agencies.
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LEGAL OPINIONS
Certain legal matters relating to the Certificates will be passed upon
for the Company and for the Underwriter by Orrick, Herrington & Sutcliffe LLP,
New York, New York.
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INDEX OF TERMS
Page
----
Acceleration............................................................. S-7
Accounting Period ....................................................... S-10
Business Day............................................................. S-7
Call Warrants............................................................ S-11
Certificates............................................................. 1
Clearing Agency.......................................................... S-8
Closing Date............................................................. 1, S-1
Code..................................................................... S-10
Company.................................................................. 1
Definitive Certificates.................................................. S-8
Depositor................................................................ 1
DTC...................................................................... 2
ERISA.................................................................... S-2
Exchange Act............................................................. S-5
First Call Date.......................................................... 1
Maturity Date............................................................ 1
Method of Distribution................................................... 1
Moody's.................................................................. 1
NYSE..................................................................... 1
OID...................................................................... S-11
Participants............................................................. 2
Payment Default.......................................................... S-7
Plan..................................................................... S-13
Prospectus............................................................... 1
Rating Agencies.......................................................... 1
Risk Factors............................................................. 2
Salomon.................................................................. 1
SBHCI.................................................................... S-4
SIPA..................................................................... S-4
Standard & Poor's........................................................ 1, S-3
Term Assets.............................................................. 1
Term Assets Issuer....................................................... 1
Trust.................................................................... 1
Trust Agreement.......................................................... 1
Trust Indenture Act...................................................... S-5
Trust Investment Enhanced Return Securities.............................. 1
Trustee.................................................................. 1
U.S. Persons............................................................. S-10
Underwriter.............................................................. 1
Underwriting Agreement................................................... S-14
Warrant Exercise......................................................... S-1
Warrant Exercise Purchase Price.......................................... S-7
Warrant Exercise Redemption.............................................. 1
Warrantholders........................................................... 1
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APPENDIX A
DESCRIPTION OF THE TERM ASSETS
Issuer: J.P. Morgan & Co., Incorporated
Term Assets: $45,000,000 J.P. Morgan & Co. Incorporated
Subordinated Notes due 2012
Maturity Date: December 24, 2012
Original Principal Amount Issued: $45,000,000
CUSIP No.: 616880BN9
Stated Interest Rate: 0.000% per annum
Interest Payment Dates: None
Principal Amount of Term Assets
Deposited Under Trust Agreement: $45,000,000
The above summary is qualified in its entirety by reference to the Term Assets
Prospectus. Neither the Depositor nor any of its affiliates make any
representation about the completeness, accuracy or timeliness of information in
the Term Assets Prospectus.
Available Information
The Term Assets Issuer is subject to the information
requirements of the Securities Exchange Act of 1934 and in accordance therewith
files reports and other information with the Commission. Such reports, proxy and
information statements and other information filed by the Term Assets Issuer
with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices at 500 West Madison Street,
14th Floor, Chicago, Illinois 60661 and 75 Park Place, New York, New York 10007.
Copies of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a Web site at http://www.sec.gov containing
reports, proxy statements and other information regarding registrants that file
electronically with the Commission. In addition, certain material described
above and other information will also be available for inspection at the offices
of the New York Stock Exchange at 20 Broad Street, New York, New York.
A-1
<PAGE>
APPENDIX B
ACCRETED VALUE SCHEDULE
12/24/00 45.084
06/24/01 46.606
12/24/01 48.179
06/24/02 49.805
12/24/02 51.486
06/24/03 53.223
12/24/03 55.020
06/24/04 56.876
12/24/04 58.796
06/24/05 60.780
12/24/05 62.832
06/24/06 64.952
12/24/06 67.145
06/24/07 69.411
12/24/07 71.753
06/24/08 74.175
12/24/08 76.678
06/24/09 79.266
12/24/09 81.942
06/24/10 84.707
12/24/10 87.566
06/24/11 90.521
12/24/11 93.576
06/24/12 96.735
12/24/12 100.000
B-1
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus Supplement or the Prospectus in connection with the offer made by
this Prospectus Supplement and the Prospectus, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Underwriter. This Prospectus Supplement and the Prospectus do not
constitute an offer or solicitation by anyone in any jurisdiction in which such
offer or solicitation is not authorized or in which the person making such offer
or solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to
make such offer or solicitation. Neither the delivery of this Prospectus
Supplement or the accompanying Prospectus, nor any sale made hereunder and
thereunder, shall, under any circumstances, create any implication that the
information contained herein and in the accompanying Prospectus is correct as of
any time subsequent to the date hereof; however, if any material change occurs
while this Prospectus Supplement or the accompanying Prospectus is required by
law to be delivered, this Prospectus Supplement or the accompanying Prospectus
will be amended or supplemented accordingly.
B-2
